Executive Summary / Key Takeaways

• International Flavors & Fragrances Inc. (IFF) is executing a profound strategic transformation, divesting non-core, lower-margin assets to concentrate on its high-growth, high-margin Taste, Scent, and Health & Biosciences segments.
• The company has significantly strengthened its financial position, reducing net debt to credit adjusted EBITDA to 2.5x, which provides substantial flexibility for strategic reinvestments and capital returns.
• Innovation, particularly through its cutting-edge Designed Enzymatic Biomaterials (DEB) platform and advanced encapsulation technologies like ENVIROCAP™, is a core differentiator, driving new product development and sustainable solutions across key segments.
• Despite ongoing macroeconomic headwinds and specific challenges in areas such as North American Health and commodity Fragrance Ingredients, IFF has reiterated its full-year 2025 guidance, projecting comparable currency-neutral sales growth at the low end of 1-4% and EBITDA growth near the midpoint of 5-10%.
• The long-term outlook is anchored in sustained R&D and commercial investments, aggressive productivity initiatives, and a disciplined capital allocation strategy, all aimed at achieving profitable growth and enhancing competitive standing.

A New Era for IFF: Strategic Focus and Foundational Strengths

International Flavors & Fragrances Inc. (IFF), a global leader in flavors, fragrances, food ingredients, and health & biosciences, is undergoing a significant strategic reimagination. The company operates within a dynamic and competitive industry, driven by evolving consumer preferences for natural, sustainable, and health-conscious products, alongside a constant demand for innovation. IFF's overarching strategy centers on portfolio optimization, operational excellence, and leveraging its foundational strengths in research and development to drive profitable growth.

Historically, IFF has maintained a prominent position due to its global scale and diversified offerings. However, the acquisition of Nutrition & Biosciences in 2021 introduced complexity and performance challenges. In response, IFF embarked on a strategic transformation in 2024, "getting back to basics" and implementing an end-to-end business-led operating model. This included a pivotal reorganization on January 1, 2025, separating the former Nourish segment into two distinct reportable segments: Taste and Food Ingredients, to enhance focus, accountability, and responsiveness to market dynamics.

In the competitive landscape, IFF contends with global players such as Symrise AG (SYIEF), Givaudan SA (GVDNY), DSM-Firmenich AG (DSMFN), and Kerry Group plc (KRYAY). IFF's strengths lie in its broad product portfolio and specialized expertise, particularly in pharmaceutical applications. However, the company has historically faced challenges in cost efficiency and financial resilience compared to some rivals. For instance, while IFF emphasizes a wide array of customized solutions, Symrise is often perceived to have a more efficient operational model in certain areas, potentially leading to stronger cash flow generation. Similarly, Givaudan is generally seen as having a stronger market position in fine fragrances, with faster innovation cycles. IFF's strategic response involves leveraging its unique technological differentiators and disciplined operational execution to narrow these gaps and enhance its competitive standing.

Strategic Transformation: Sharpening the Portfolio

IFF's strategic journey has been marked by a decisive shift towards a more focused and agile portfolio. Following the complexities introduced by past integrations, the company initiated a series of divestitures aimed at shedding commoditized, lower-margin assets and concentrating on its core, high-growth businesses. This strategic pruning began with the sale of its Cosmetic Ingredients business in April 2024, followed by the Flavors Essences UK (FE UK) business in September 2024, and the Tobacco Flavoring Business in North America in April 2025.

The most significant divestitures occurred in May 2025, with the completion of the sale of the Pharma Solutions business to Roquette on May 1, 2025, and the Nitrocellulose business on May 9, 2025. These actions were instrumental in strengthening IFF's capital structure, reducing its net debt to credit adjusted EBITDA ratio to 2.5x by the second quarter of 2025, marking the first time the company has been below 3.0x since 2018. This de-leveraging provides IFF with enhanced financial flexibility for future strategic initiatives. Further streamlining was announced in August 2025, with an agreement to divest the Soy Crush, Concentrates, and Lecithin (SCL) business to Bunge (BG), a move expected to improve margins within the Food Ingredients segment, as the SCL business historically operated with low single-digit EBITDA margins. IFF is actively working to address any stranded costs resulting from these divestitures, applying lessons learned from past transactions. The company continues to evaluate potential strategic alternatives for its Food Ingredients business, noting strong interest from both private equity and strategics, with an update anticipated in early 2026.

Innovation as the Growth Engine: The Power of Biotechnology

At the heart of IFF's strategy is a profound commitment to technological differentiation and innovation, particularly in biotechnology. The company's core differentiated technology, Designed Enzymatic Biomaterials (DEB), represents a breakthrough in sustainable ingredient solutions. This platform enables the creation of high-value, biodegradable, and cost-competitive polymers from sugar feedstock. The tangible benefits of DEB technology are already evident, with its first large-scale commercial use in a major consumer packaged goods (CPG) company's laundry detergent formulation. This application delivers improved fabric softness and cleaning performance while replacing non-biodegradable ingredients with a readily biodegradable alternative.

IFF's commitment to scaling DEB technology is underscored by its joint venture with Kemira (KMRYY), AlphaBio, which is constructing a €130 million plant in Finland. This facility, expected to commence operations by the end of 2027, will see capital expenditures split equally between the two companies over two years. The plant will service markets such as water treatment and cardboard/paper packaging for Kemira, while IFF will leverage the technology for other industrial applications currently under development. This initiative significantly enhances IFF's competitive moat in sustainable solutions, drives future growth in new markets, and solidifies biotechnology as a key differentiator against rivals.

Beyond DEB, IFF is advancing other innovative technologies. The company launched ENVIROCAP™, a new sustainable scent delivery system for fabric care, which is fully ECHA-compliant, biodegradable, and vegan-suitable. This proprietary biopolymer ensures long-lasting fragrance, bolstering IFF's competitive edge in the Scent segment. In Health & Biosciences, IFF introduced CHOOZIT® LIFT, a novel culture designed to transform semi-hard cheese production by eliminating the curd washing step, offering significant sustainability and business benefits.

These technological advancements are supported by increased R&D investments across Health & Biosciences (probiotics, enzymes), Taste, and Scent. IFF has opened new creative centers in Dubai (Scent), a Citrus Innovation Center in Florida, and expanded its LMR Naturals site in Grasse, France, through a €10 million investment that increased its footprint by 75% and included a new pilot hall for natural ingredients. A new scent creative center in Mumbai, India, is also planned for operation by the first half of 2026. These investments and strategic collaborations, such as with BASF (BASFY) for next-generation enzyme and polymer innovation, are strengthening IFF's R&D and commercial pipelines, with management anticipating a more significant impact on growth in 2026 and full strength by 2027.

Segmental Performance and Operational Discipline

IFF's recent financial performance reflects the early successes of its strategic initiatives, though challenges persist in certain areas. For the nine months ended September 30, 2025, IFF reported net sales of $8.30 billion, a 5% decrease on a reported basis, but a 2% increase on a comparable currency-neutral basis. Adjusted Operating EBITDA for the same period was $1.65 billion, a 5% reported decrease, but a 7% increase on a comparable currency-neutral basis.

Taste Segment: This segment continues to be a strong performer. For the nine months ended September 30, 2025, Taste sales increased 2% on a reported basis to $1.89 billion, and 5% on a comparable currency-neutral basis. Adjusted Operating EBITDA for the period grew 3% on a reported basis to $384 million, and 8% on a comparable currency-neutral basis. This growth is largely attributed to favorable net pricing, volume increases, and a strong commercial pipeline, with the segment achieving seven consecutive quarters of performing at or above market.

Food Ingredients Segment: This segment is undergoing a significant turnaround. For the nine months ended September 30, 2025, sales decreased 3% on a reported basis to $2.48 billion, and 2% on a comparable currency-neutral basis. However, Adjusted Operating EBITDA for the period increased 11% on a reported basis to $341 million, and 17% on a comparable currency-neutral basis. The Adjusted Operating EBITDA margin for Q3 2025 reached 12.80%, a 230 basis point improvement year-over-year, and has improved over 400 basis points in the past two years. This progress is driven by productivity gains, favorable net pricing, and a strategic shift away from lower-margin products like pectin. While Food Ingredients is more capital-intensive than other IFF businesses, the operational improvement plan is on track to achieve a mid-teen EBITDA margin profile.

Health & Biosciences Segment: This segment delivered reported sales of $1.69 billion for the nine months ended September 30, 2025, a 2% increase, and a 3% increase on a comparable currency-neutral basis. Adjusted Operating EBITDA remained flat on a reported basis at $439 million, but increased 3% on a comparable currency-neutral basis. Growth in Food Biosciences, Home & Personal Care, and Animal Nutrition was strong, but was offset by softness in the North American Health business. IFF is addressing this by investing in innovation and commercial capabilities, with improvements anticipated in the second half of 2026 and a full recovery by 2027.

Scent Segment: Scent sales for the nine months ended September 30, 2025, remained flat on a reported basis at $1.87 billion, but increased 3% on a comparable currency-neutral basis. Adjusted Operating EBITDA decreased 7% on a reported basis to $409 million, but increased 2% on a comparable currency-neutral basis. Fine Fragrance demonstrated robust performance, with 20% growth in Q3 2025, while Consumer Fragrance saw low single-digit growth. The Fragrance Ingredients business, however, experienced declines in commodities due to low-cost competition, though growth in specialties partially offset this. IFF is strategically shifting its Fragrance Ingredients portfolio towards higher-value specialties, leveraging R&D and biotechnology.

Operational discipline is a key focus, with the IFF Productivity Program, initiated in 2024, aiming for substantial completion by December 31, 2026, with an estimated cost of $100 million to $120 million. This program, alongside the establishment of a new Global Business Services center in Hyderabad, India, is designed to streamline corporate functions and enhance efficiency.

Financial Health and Capital Allocation

IFF's financial health has significantly improved, largely due to its aggressive deleveraging efforts. As of September 30, 2025, cash and cash equivalents stood at $621 million. Cash flows provided by operating activities for the nine months ended September 30, 2025, were $532 million. Cash flows from investing activities surged to $2.43 billion, primarily driven by the substantial proceeds from divestitures. The company recognized a significant gain on extinguishment of debt of $488 million in the first nine months of 2025, resulting from the repurchase of approximately $2.50 billion of notes for about $2 billion in cash.

The company's gross debt decreased to approximately $6.05 billion as of September 30, 2025, from $8.98 billion at December 31, 2024. Critically, IFF is in compliance with all debt covenants, with its net debt to credit adjusted EBITDA ratio at 2.53 to 1, well below the required 4.00x. This strengthened balance sheet underpins a disciplined capital allocation strategy that prioritizes maintaining investment-grade ratings, investing in the business, continuing dividend payments, and share repurchases. Capital spending for 2025 is projected to be approximately 5.5% of sales, an increase from 4% in 2024, reflecting strategic reinvestments in core businesses. IFF's Board authorized a new $500 million share repurchase program in August 2025, which commenced in Q4 2025, designed to offset annual dilution from equity compensation (approximately $75 million to $100 million per year) with flexibility for additional repurchases.

Outlook and Risks: Building for the Future

IFF has reiterated its full-year 2025 guidance, reflecting confidence in its strategic execution despite a dynamic macroeconomic environment. The company expects sales to be in the range of $10.6 billion to $10.9 billion, with comparable currency-neutral sales growth projected at the low end of 1-4% range. Adjusted Operating EBITDA is anticipated to be between $2.0 billion and $2.15 billion, translating to comparable currency-neutral EBITDA growth near the midpoint of 5-10%. For Q4 2025, IFF anticipates typical seasonality with a step down in absolute sales and margin, facing strong prior-year comparables.

Looking ahead to 2026, management is cautiously optimistic for growth acceleration as market conditions normalize and the benefits of ongoing "self-help" initiatives materialize. The absence of Pharma Solutions' contribution will impact year-over-year comparisons. CEO Erik Fyrwald expects improvements in the Health & Biosciences' North American Health business in the second half of 2026, with a full recovery by 2027. Overall, IFF anticipates strengthening its performance in 2026, with investments in CapEx and R&D across its businesses reaching full strength by 2027. Long-term, IFF aims for EBITDA margins in the low 20s, with Health & Biosciences expected to be the highest, and Taste and Scent remaining solid.

However, the outlook is not without risks. Ongoing macroeconomic headwinds, geopolitical challenges, and market uncertainty continue to influence consumer demand. While IFF's portfolio is largely resilient, potential recessionary pressures are not fully embedded in current guidance. The Health & Biosciences segment, particularly its North American Health business, is expected to remain challenged in Q4 2025. The Fragrance Ingredients business faces continued pressure from low-cost competition in commodity areas. Additionally, some markets, notably North America, exhibit higher inventory levels, which could lead to a deceleration. IFF is also managing ongoing antitrust investigations by multiple regulatory authorities globally, having recently settled U.S. class action lawsuits for $26 million. The company's gross tariff exposure for 2025, primarily China-related, exceeds $100 million, though mitigation efforts are underway.

Conclusion

IFF's journey through 2025 marks a pivotal chapter in its strategic evolution. The company's decisive actions to optimize its portfolio through significant divestitures, coupled with a rigorous focus on operational discipline, have fundamentally reshaped its financial profile and strategic direction. By shedding lower-margin, commoditized assets and substantially de-leveraging its balance sheet, IFF has gained the financial flexibility necessary to reinvest in its core, high-growth segments of Taste, Scent, and Health & Biosciences.

The core investment thesis for IFF is rooted in its commitment to innovation, particularly leveraging its advanced biotechnology platforms like Designed Enzymatic Biomaterials (DEB). These technological differentiators are not merely R&D projects but are actively translating into commercial applications that drive sustainable solutions and enhance competitive advantage. While macroeconomic uncertainties and specific segmental challenges persist, IFF's reiterated 2025 guidance and its long-term vision for improved margins and accelerated growth, fueled by strategic investments in R&D and commercial capabilities, underscore a compelling narrative of transformation. The company's ability to execute on its technological roadmap and operational efficiencies will be critical in achieving its goal of becoming a best-in-class competitor and unlocking sustained shareholder value in the years to come.