International Flavors & Fragrances Stock

At this time, I would like to welcome everyone to the IFF Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Third Quarter 2026 Earnings Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.

Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release.

Also, please note that all sales and EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis, unless otherwise noted. Given the announced divestiture of Food Ingredients, we discuss the results and guidance on a continuing operations basis, unless otherwise noted. Our P&L financials are presented on a continuing operations basis, while cash flow, net debt to credit adjusted EBITDA leverage and CapEx are presented on a total company basis, which includes both continuing operations and discontinued operations.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik.

Thanks, Mike, and hello, everyone. Thank you for joining us today. IFF delivered strong results in the third quarter, with year-over-year growth across every business segment. We drove increased revenue and improved profitability across all divisions, with particularly strong performances in Taste and Scent. Our progress through the first 9 months of 2026 is evidence that our portfolio transformation is better positioning IFF for strong growth and sustained healthy margins. This solid year-to-date performance gives us the confidence to raise the lower end of our full year guidance ranges, even when factoring in the ongoing macroeconomic uncertainty the world is facing. In short, our team is executing on our strategy, and we have momentum delivering value for our customers and for our shareholders.

I'll start today's call by briefly summarizing our results and providing an update on our strategic progress and continued portfolio transformation efforts. I'll then turn the call over to Mike DeVeau, who will provide more details on the third quarter results, segment performance and our outlook for the remainder of 2026.

Turning to Slide 6. I'm encouraged by IFF's strong performance over the first 9 months of 2026. Sales grew 4% and EBITDA rose 7%, delivering a 50 basis points improvement in adjusted operating EBITDA margin, all on a currency-neutral basis. In the third quarter, we delivered both top and bottom line growth across all segments. Our solid third quarter was led by mid-single-digit sales growth contributions from Taste and Scent, and modest sales growth in Health & Biosciences, driven by contributions from new wins and from existing business.

For the first 9 months of 2026, free cash flow totaled $371 million, and this represents a gain of $245 million versus last year, supported by improved net working capital, an area of focus for us as we came into 2026. We also recently completed our accelerated share repurchase plan, returning $500 million to shareholders, underscoring our confidence in the direction of the business and our strategic plan. At the same time, we continue to invest in our highest growth opportunities, which positions us well for the years ahead.

Given the strength of our volume growth and our strong year-to-date performance, we are raising the low end of both full year guidance ranges. We are controlling what we can control and delivering the financial commitments we set out earlier in the year, a testament to the resilience of our business amid changing macroeconomic conditions, and their impact on input costs, currencies, interest rates and consumer demand.

Our updated outlook incorporates some near-term profitability softness in the fourth quarter, particularly in Health & Biosciences, where we are seeing higher costs and continued market softness. At the same time, the team remains fully focused on strengthening the business through reinvestment. We are also working with customers on pricing and driving productivity to mitigate higher costs, positioning us well going forward and giving us confidence that we can deliver financial results within our guidance range.

In IFF, we are delivering for our customers, advancing our strategy and building a more focused, innovative and stronger company. I want to recognize that this would not be possible without the dedication of our global team. Our results demonstrate the impact of our volume growth initiatives and productivity, while our disciplined approach to capital allocation continues to create value for our shareholders, and we remain focused on building on this progress and executing with discipline through the year-end and beyond.

Now moving to Slide 7. I want to step back from the quarter and update you on our progress against the growth-oriented simplification strategy we introduced in early 2023. Throughout the year, we have focused on keeping the strategy at the center of our decision-making, continuing to strengthen our position as a global industry leader, while sharpening our portfolio focus on high-value, consumer-centric ingredients markets.

As we shared last quarter, we agreed to sell the Food Ingredients business to CVC Capital Partners for about $4.3 billion. The separation is progressing well, and we remain on track to close the transaction by the end of the first half of 2027. As the separation advances, our focus remains with CVC on achieving the planned closing time line. We will continue to balance speed with rigor, ensuring that the transaction readiness and ongoing business priorities move forward together. While a separation of this scale and complexity requires significant focus and effort, we have aligned the team with incentives to reinforce disciplined execution, maintain momentum and move with appropriate speed.

We also completed the sale of Soy Crush, Concentrates and Lecithin, or SCL, and agreed to divest the nonstrategic botanical extracts, vitamins and minerals and food enhancement businesses, which we expect to close by year-end. With Food Ingredients and SCL now reported as discontinued operations, our continuing operations are Taste, Scent, and Health & Biosciences. Our portfolio now reflects our commitment to a sharper, high-quality portfolio with stronger growth and margin potential aligned to the long-term mega trends that shape demand across our industries.

In the wake of this transformation, we are utilizing our capital in the most efficient and effective ways possible to drive our growth potential. We announced a $2.5 billion share repurchase authorization, including a $500 million accelerated share repurchase that we have already completed. At the same time, we are investing in profitable growth opportunities, while doubling down on the innovative creativity and technology solutions expertise our customers expect from IFF. Recent milestones include opening of Vanilla Innovation Center in Madagascar, launching a home care application lab in Brazil and expanding our fermentation-based enzyme capabilities in Argentina. We will also launch a new state-of-the-art scent creative center in Mumbai in December. And together, they show IFF's distinctive blend of science and creativity at work.

With a simpler operating model and strengthening manufacturing network, we will be better positioned to accelerate innovation, improve execution, enhance free cash flow conversion and deliver a stronger long-term growth and margin profile. Our shared naturals and biosciences capabilities power growth opportunities across Taste, Scent and Health & Biosciences, and the progress we are delivering confirms that our strategy is working and positions IFF to create sustainable value. However, there is more work ahead as we look to continue this journey.

Now with that, I'll pass the call to Mike for a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining us today. On Slide 8, we take a closer look at our Q3 consolidated results. IFF generated revenues of just under $2 billion in the third quarter, up roughly 5% on a comparable currency-neutral basis, with growth across all businesses. This strong performance was led by mid-single-digit growth in Scent and Taste and a low single-digit performance in Health & Biosciences. Growth was primarily driven by volume, with contributions from both new wins and growth on existing business.

EBITDA totaled $403 million for the quarter, up 6%, driven by volume contributions, and EBITDA margin was 20.8%, up 20 basis points, both of which are on a comparable currency-neutral basis. These results show the progress we are making in executing our volume and productivity-focused strategy and importantly, the combination of sales growth and margin expansion demonstrates our ability to translate volume gains into improved earnings.

On Slide 9, I'll provide a closer look at the performance of each business segment. In Taste, sales increased 6% to $687 million, with growth across all regions once again. Greater Asia led the way with double-digit growth, followed by Latin America, which was up high single digits, [ EME ] up mid-single digits and North America up low single digits.

Looking at profitability in Taste, the segment delivered EBITDA of $128 million, a 7% increase from the year ago period, driven by volume growth. In Scent, sales grew a strong 6% to $689 million. Third quarter performance was driven by a high single-digit increase in consumer fragrance and mid-single-digit performances in fragrance ingredients and fine fragrance, which was up against a strong double-digit year ago comparable. Scent profitability was also strong, with EBITDA growing 10% to $139 million. Volume growth was the primary driver of the increase in profitability.

Lastly, Health & Biosciences grew 1% to $566 million. Mid-single-digit growth in food biosciences and grain processing more than offset a decline in health, where the market conditions are challenged. As Erik noted, the team continues to work on the health turnaround and remain focused on the factors within our control. This includes sharpening our execution, advancing self-help initiatives and investing selectively to strengthen the business to position the health business for improved performance as market recovers. Health & Biosciences EBITDA increased 2% to $139 million, driven by volume growth as well as some favorability in net price to input cost.

Turning to Slide 10. Cash flow from operations totaled $820 million and year-to-date CapEx was $449 million, representing about 5.4% of sales. Our free cash flow position in the first 9 months of the year was $371 million, up $245 million from last year.

During the first 9 months of 2026, we returned $306 million to shareholders through dividends and an additional $584 million for share repurchases. As Erik noted, we recently completed our $500 million accelerated share repurchase program, where we repurchased approximately 5.8 million shares or approximately 2.3% of our shares outstanding. With the completion of this first accelerated share repurchase program, we are not planning to repurchase additional shares for the fourth quarter of 2026.

At the end of the third quarter, cash and cash equivalents totaled $519 million, including $242 million in discontinued operations and $5 million held for sale. Gross debt totaled approximately $6.3 billion. Trailing 12-month credit adjusted EBITDA remains above $2 billion, while net debt to credit adjusted EBITDA increased modestly to 2.75x as of September 30. As discussed last quarter, the increase reflects short-term debt used to fund our initial $500 million share repurchase program. We expect to repay that debt with proceeds from the Food Ingredients transaction when it closes, and we remain committed to disciplined capital allocation and maintaining a strong balance sheet.

Turning to Slide 11, let me walk you through our outlook. We have delivered strong results year-to-date and executed consistently, giving us confidence to raise the low end of our full year guidance ranges. Despite continued macroeconomic uncertainty, we believe we are well positioned to deliver results within our ranges. For the full year, we now expect sales of approximately $7.5 billion to $7.6 billion and adjusted operating EBITDA of $1.55 billion to $1.6 billion. The increase in the low end of both of our ranges reflects our year-to-date performance and continued volume momentum into the fourth quarter.

In Q4, we expect continued sales growth, driven by volume increases. As Erik has highlighted, our health business within Health & Biosciences remains challenged as end markets are soft. Fortunately, the rest of our business remains solid, so the impact on Q4 sales growth is limited. Q4 profitability margin is expected to moderate sequentially, quarterly due to seasonality where Q4 margin is the lowest of the year, but also due to higher costs and investments specifically in Health & Biosciences.

We are working closely with our customers on targeted pricing actions and driving productivity where we can to improve profitability moving forward. We remain focused on the factors within our control, which include advancing commercial opportunities, converting our innovation pipeline, executing targeted pricing and driving productivity across the organization. These actions support our confidence and continued momentum while strengthening the business for long-term sustainable growth.

We've made strong progress this year, and our results demonstrate that we are delivering on our commitments. We intend to finish 2026 with the same discipline and focus, setting us up well as we head into 2027.

With that, I would now like to turn the call back over to Erik for closing remarks.

Thanks, Mike. Now let me close with this. IFF has delivered strong performance across our businesses, and we are following through on our commitments. We've made meaningful progress on our strategic priorities, and the results show that our efforts to simplify the portfolio and position IFF for stronger growth and higher margins are taking hold. We know the environment remains uncertain, but IFF is built to navigate periods like this. We are staying focused on what we can control, serving our customers through innovation and new product development, driving productivity and strengthening cash flow. We are taking the right steps to deliver on our 2026 commitments while building a stronger, more focused IFF positioned for sustained long-term performance.

Thank you for your time today, and we'll now open the line for questions.

[Operator Instructions] Our first question will go to the line of Josh Spector with UBS.

It's Anojja Shah sitting in for Josh. I wanted to just get some more detail on the step down in health. You called out slower growth, but could you also talk about the costs that might be needed to turn around that business? What steps exactly are you taking, and how does that impact your expectations for 2027?

Thanks for the question, Anojja. This is definitely a market situation. Consumers in the U.S. and Europe have reduced spending on dietary supplements due to the economic pressures that many of us are feeling. And as I've been saying for a while now, our response is to, first of all, strengthen our commercial capabilities. We're making good progress there. Diversify our customer base. We're also making good progress there. And work closely with our customers to help better position the clinically proven benefits of our products. And we're making progress there. But we're also strengthening our innovation pipeline, and we just launched our first new product in quite a few years, GutABAlite, and the customer interest has been very strong, starting out of the gate for that. So a lot of things going right that we can control, but the market is very soft.

And so what I can tell you is that the need for our types of products, I believe, is very strong. So we're going to get through this. It's just taking time, and some of the economic pressures have to be overcome by showing people that need the products that our products will do the job. So we're working on that, making progress.

The next question will go to the line of Nicola Tang with BNP Paribas.

I wanted to ask about the higher costs that you indicated in the outlook. Did the higher cost simply relate to the higher oil or derived raw materials and energy costs? And what's your outlook for input inflation into 2027? This morning, DSM-Firmenich mentioned expectation for 3% raw material inflation for 2027. I was wondering if that resonates with you as well?

Thanks, Nicola. Great question. Yes, the largest increases we're seeing are related to higher oil derivatives, including the impact on energy and logistics. It's pretty broad-based. We're seeing it across all the 3 continuing operations business.

As we look into 2027, it's early to comment to it, but the number you mentioned, call it, that 3%-ish number, feels right. It's consistent with the trends that we're seeing today, so not a big material difference, again, across the continued operations part of our business. Part of this is related to the run rate impact of having higher Brent crude prices, which is impacting petros, logistics and energies, but we're also seeing some inflation in raw material costs overall. The good thing is, as you know the industry really well, we are engaging with our customers now on pricing actions, and we will continue to work with them to recover this impact over time, and that's very consistent to what we've done in the past.

The next question will go to the line of Ghansham Panjabi with Baird.

Just following up on Nicola's last question on cost inflation. Can you just update us on where you are on pricing as it relates to time line to achieve parity? Obviously, this is a very dynamic environment. Your customers are feeling a lot of pressure, and that permeates all the way through the supply chain to the consumer as well. So what is a reasonable time line to achieve that parity in terms of price cost?

Yes. Thanks, Ghansham. It's a great build on the previous question. We're not getting into too much of the specifics. As I said, we're actively engaging with our customers now to fully recover the impact. The good thing is the timing is now. We're in the middle of pricing discussions, which happens during this time of the year, and we'll continue into December. In Q4, we are expecting that price to input costs to be unfavorable due to some of this lag impact. But we expect, as we move through 2027, we will close this gap and improve over time.

In terms of the calendarization aspect of it, I would expect to see an improvement each quarter as we progress through. So the biggest gap in Q1. And then as we progress through the year, we should close that gap and then hopefully flip to a positive number on a go-forward basis. And so in addition to that, though, we are also working through driving some additional productivity across the business and specifically in procurement to also help balance and minimize and offset that impact as well, in conjunction with the pricing actions. So still more work to be done, but the team is fully engaged, and we're acting on it right now.

The next question will go to the line of Kevin McCarthy with Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. Can you walk us through your third quarter results in the Scent business? What's driving the strength in Consumer Fragrances, and are further R&D investments needed to accelerate growth within Fine Fragrance and Fragrance Ingredients?

Sure. Thanks for the question, Matt. First of all, Consumer Fragrance unit had high single-digit growth in the quarter. And both Fine and Ingredients Fragrance had mid-single-digit growth.

Now to start with the Consumer Fragrance business, it's a solid market right now for Consumer Fragrances, but we are getting more than our fair share. We've got a very strong team led by Jan Bechtel, and we've been strengthening our innovation, as we've been talking about for the last 2 years. Charbel Bouez leads that group and is doing a great job with his team to strengthen that innovation and starting to get it out into the marketplace. And we have great perfumers. So with that combination, we've had new wins with both global and regionals and a very solid position with our Consumer Fragrance unit.

In Fine Fragrance, we are coming off of a very high double-digit comparison last year, and we delivered mid-single digit this quarter. And I think it's a very solid progress that we're making there with new wins in both Europe and North America, very attractive wins that I think will show growth going forward. And we're starting to see a bit of a turnaround in the Middle East. So solid performance by Fine Fragrance.

And in Ingredients, we continue to focus on our higher-value specialties and less focus on the commodities, that's working. And our strong pipe innovation pipeline is starting to deliver new products to enable us to continue to move on that strategy. So overall, solid growth in Scent. And I believe that with all the investments that we've made and are making, that will continue.

Our next question will go to the line of Abigail Eberts with Wells Fargo.

I hope I'm not beating a dead horse here, but another one on profitability headwinds in Health & Biosciences for 4Q. Just wondering if you can give us a little bit more color there? What's coming from cost inflation versus what's coming from reinvestments in the business? And then on the cost side, if you could give us a little bit more specific color on what you're seeing in your raw material basket versus freight versus energy costs?

Abigail, great question, and congrats on the new role. I think Erik did a really good job at summarizing this. So let me recap. I apologize if it's a little bit repetitive, but I do think it's important. In Q4, the margin and profitability performance in H&B is really, in my mind, impacted by 3 things. One, we see some volume softness within the Health business. And so remember, Health is one of our stronger margin business. So there's a mix dynamic. So that's point number one.

Point number two, we are seeing unfavorable net price to input costs. And really, that's a logistics and energy piece. Raw material piece are pretty benign. And really so what's flowing through the P&L, what you're seeing now is logistics and energy costs.

And then the third one for me is really just a timing impact. And again, it's timing impact of reinvestment in R&D and commercial within H&B. So when I think through those 3, I believe, as we move forward, we will see improvement, right? Inflation, we will cover in terms of overall price and productivity, and the timing of reinvestment will eventually go away as it's temporary in nature. And so then when you layer on the fact that some of the work that the team is doing within H&B, and they're working very hard to strengthen that Health business, that when the market does recover, we will be in a strong position to capture more than our fair share of upside going forward. So that's kind of how I would contextualize the overall performance.

The next question will go to the line of John Roberts with Mizuho.

IFF just published another review of the GLP-1 opportunity. Is there a way to quantify the commercial opportunity for Taste or how big the category could be? And maybe your thoughts on ultra process labeling as well, if there's been any update there.

Right. Thanks for the question, John. We got a lot of questions -- about 1.5 years ago about the negative impacts of GLP-1s. I can just tell you that, helped by my Eli Lilly Board experience, we leaned into GLP-1s early across IFF, not just in Taste, but also in Food Biosciences and in our Food Ingredients business. The results -- the resulting desire of users, the GLP-1 users, for higher protein products that taste great, has been an opportunity for us. And what I would say is this desire for our protein has also become a broader trend, and we don't think it's a fad. We think it's a real trend.

And then the also, on top of that, is the desire for more fiber, and I would say, lower sugar and lower sodium. And we are able to help our customers develop great tasting food products that meet those needs, not only for GLP-1 users, but for broader people that want great tasting products that are also healthy. Because of that focus, our Taste business has been able to grow consistently ahead of the market as well as our Food Biosciences business also. So we see that as the GLP-1 penetration goes from today, very small, to much higher, we see that opportunity continuing to be there, and we'll continue to go after it and seize the day.

The next question will go to the line of David Begleiter with Deutsche Bank.

Erik, just in Q4, what's driving the potentially slower currency-neutral sales growth in the quarter versus the 5% to 6% you posted in Q2 and Q3? Is this due to maybe some destocking or customer inventory management at the end of the quarter?

Erik, maybe I'll jump in on this one. David, thanks for the question. Let me start by just saying that Q4 sales trends are currently solid. While there's a lot of going on in the world right now, the trend remains favorable, and we expect to finish Q4 around that 3-ish percent number, plus or minus. And so I think the fundamental volume story is still intact and it is strong. This is a solid number that, as we consider relative to the year ago comparison, which gets harder in the fourth quarter.

So again, David, I look on a 2-year basis, when you add them and divide it by 2, simply, it's almost the same number, Q3 -- Q4 versus Q3. And so what that means in our view is that we don't believe there's any material customer inventory management at this time. That all being said, we are totally focused on making sure we're working with our customers on the pricing aspect, but also helping them build their business more closely going forward. And so really, that's something that IFF is really, really focused on as we go into 2027.

The next question will go to the line of Patrick Cunningham with Citi.

Maybe just coming back to Fine Fragrance. How would you characterize the strong growth that you've seen there? Are there any particularly strong regions? And have you seen any sort of stabilization or recovery in Middle East demand?

Yes. Thanks for the question, Patrick. The U.S. and Europe were particularly strong, with some exciting new wins with major fragrance houses. And I would say that the demand or the desire from consumers continue in those regions.

In terms of the Middle East, we have seen stabilization of the business and some indications of growth. But given that very unstable geopolitical situation, we remain cautious about the future, but we are working with our customers there to launch really great new products that I think will be also exciting growth opportunities, but there are challenges, as you know.

The next question will go to the line of Laurence Alexander with Jefferies.

It's Dan Rizzo on for Laurence. So with the Food Ingredient separation, I think you've identified roughly $100 million in stranded costs, with about 2/3 expected to be eliminated within 12 months. I was just saying what actions are already underway? What are the principal execution risks? And could reinvestment elsewhere delay some of the net savings?

Daniel, another great question. Maybe I'll take this one. In terms of the overall stranded costs, the team is actively working to eliminate exactly what you said, 2/3 of the cost within the first 12 months of closing. So nothing has changed there. The key actions underway, in my mind, are third-party contract renegotiations, transferring some of our work to our GBS organization to really leverage scale and efficiency there. Also implementing technology across the business to try to make sure we get some more efficiency there. And then ultimately, looking at the organization and making sure our structure is appropriate for the RemainCo part of IFF. So as we step down in size, we want to make sure that we are fully structured to be successful from that standpoint.

In terms of execution risk, again, the team is fully committed. The one thing that I remind everybody on is that we're rapidly working to close the transaction in Q2 of 2027 or by the end of [ April ] 2027. So we need to get that right. At the same time, the simultaneously addressing the stranded costs. And so really, the focus internally is how do we balance the short-term separation piece, but also making sure we're doing it in an effective way that our stranded cost elimination program is well underway. We have confidence that we can do both. But that is the only area that we are keeping -- and we're watching and making sure we could do both successfully on a go-forward basis.

Another good question you had was on the reinvestment piece to it. As I think about the business, there wasn't much overlap, but there was some entitlement between H&B and the Food Ingredients. This may involve some modest investment, okay? But it's small. It's -- when I think about it, it's CapEx related to some lab separations, maybe some commercial resources. But in the grand scheme of things, it's minimal, and the team is really, really focused. So when we think about the net number, the net number of the stranded cost number is something we're committing to and we're driving very hard to achieve.

The next question will go to the line of Salvator Tiano with KeyBanc.

So just on Fragrance Ingredients, you have continued growth in Q3. Has anything changed fundamentally with regard to, I guess, the supply-demand backdrop that a year, 2 years ago was getting worse? Or is the growth still driven by Middle East disruptions? And if it's the latter, when do you expect things to normalize there?

Thanks for the question, Sal. We continue to focus Fragrance Ingredient sales on the higher-value specialties, including naturals. And the strengthening pipeline that I talked about before, has started to deliver not only for Fine Fragrance and Consumer Fragrance, but also for Fragrance Ingredients. And we see that pipeline continuing to advance and will deliver more in '27 and beyond. So that's our strategy. We're turning it into execution, and that will continue. And that will, I believe, will lead to more consistent, higher levels of growth with better margins.

The next question will go to the line of Matthew DeYoe with Bank of America.

I just wanted to kind of take an inning check on Taste, right? Clearly, Erik, you've stepped in and started to reset the portfolio. We're now 3 quarters into pretty good organic growth traction and some pretty big disparities versus what we're seeing on like CPG trends. And so as you look at your sales channel and you engage your customers, like how much of this do you think is the majors just trying to innovate products in a tough tape? How much do you think is coming from smaller independent brands that are finding white space and maybe just any trends in particular you'd note? And what inning do you think you are in this kind of current innovation cycle?

Thanks for the question, Matt. I think we're still early in the game, but we're doing well. We're off to some very good hits. What I would say is we continue to do well with the global key accounts. We just got really great recognition from a number of key accounts in their annual supplier events -- supplier partner events, that really makes us pleased and we've done really well on making sure that we stay on core lists or get on new core list that we want to be on. So all that's gone well with global key accounts, and their focus on innovation, clean label, high-protein, high-fiber, all that's been very favorable to our Taste business.

At the same time, [ Yuvraj ], the President of Taste and his team, have put a lot of emphasis on strengthening our capabilities with regionals and locals. And we've just had a really amazing event, our Tastepoint model had something called FirsTaste. And we had 135 customers in New Jersey that saw our new innovations and very, very excited about it. What was amazing is it started with dinner the night before and ended at 4 p.m. the next day, and not anybody left. I mean it was just a really great excitement. And so I feel that we're continuing to build on the strength that we've got with global key accounts, but we're also stepping up our game a lot with regionals and locals, and we're starting to see the benefits of that. And I think many innings to come for that.

The next question will go to the line of Kristen Owen with Oppenheimer.

Somewhat I have a follow-up on that last one. Erik, I think this is the third quarter in which you've talked about new wins. I'm wondering if you can just expand on those new wins. And just given the reinvestment in innovation over the last few years, if there's any way to quantify the percentage of growth or maybe profitability coming from those new products, I'm thinking in the form of a vitality index or something like that.

Yes. So the new wins have been very exciting. We've had some great new wins in Fine Fragrance, where there's a great dynamic in that industry. We've been winning with naturals, with modulation, with a lot of the tailwind opportunities where our customers are looking for better innovation. Scent with Consumer Fragrances. The consumer fragrance companies want to grow again, and they see the scent as being a critical enabler of that growth. So our great perfumers in both Fine and in Consumer Fragrance are helping make that happen. Our new innovation is helping make that happen. And our great flavors in Taste and the innovation that Adam Janczuk and the R&D team are delivering to the flavors are also making that happen.

What's really great is I spent a lot of time with customers, especially with global key accounts, but also with a number of regionals and locals. They're all looking for innovation, and they love the passion of IFFers to work with them, to bring great innovation so that we're working together to bring products that customers love and benefit customers. And so I just think there's a lot going on in that area. Can I quantify it? I can tell you that a lot of our growth is coming from the new wins, and the new wins are coming at the base or higher margins, and that will continue. And we're measuring it also, and we're doing a better and better job of measuring the commercial pipeline and the innovation pipelines, and they're growing. And that will -- so that will continue to give us confidence for 2027 and beyond.

The next question will go to the line of Jeff Zekauskas with JPMorgan.

When you look out over the next well over 15 months, do you think that the fragrances market is growing faster than flavors or flavors faster than fragrances? How would you compare the growth in the 2 businesses?

And then for Mike, when you look at accounts payable, they seem to be moving down and limiting your free cash flow. Are payables going to go up in the fourth quarter? Or are they going to stay low?

Thanks for the question, Jeff. I'll take the first piece, and that's the Scent and Taste growth rates, I believe, will continue to be solid. And we've guided to -- in a normalized environment, the 4% to 6% top line range, I see that as doable. I see it is doable for both businesses and across Health & Biosciences as well. So I think that the market will continue to be strong for both Scent and Taste.

Yes. Great. And maybe I'll take the payables piece, Jeff. And maybe to start, this year, we put into our incentive compensation, a definition of free cash flow that we have, which is EBITDA minus change in net working capital minus CapEx over -- or divided by EBITDA. So team is doing a really good job at managing that number. When I look across all the elements of the core working capital pieces, we are seeing strong improvements.

Specifically to your point, when we look at the payables piece, we made some good progress this year. I would assume that, that number is probably flattish as we go into the fourth quarter, as some of the impact of the stand related to food ingredients, may require us to prepay some invoices to ensure we have a successful [ stand ]. And so I'm holding in my head, roughly flat at the end of the day. But going forward, that is probably our biggest area of improvement we can really drive, is how do we actually extend our payment terms with our customers overall. So fully focused, fully working on that. And I think that's a big part of the IFF story going forward is just improving cash dynamic as we move past the Food Ingredients business divestiture.

Our final question will go to the line of Chris Parkinson with Wolfe Research.

Growth across the enzymes portfolio doesn't necessarily -- at least through some of your peers, doesn't seem necessarily uniform right now. So I'd love to hear your perspectives on kind of the varying substrates of what you're seeing in your portfolio across F&B, nutrition, grain processing, so on and so forth? And just how you think these trends are going to further evolve into '27? Just any considerations would be greatly appreciated.

Thanks for the question, Chris. I see -- or we see Food Biosciences continuing to grow high single digits, very strong. And I would say across our enzymes portfolio, solid growth. The Health is the challenged area. We've discussed that. We've covered it. We're working hard on turning that around in a very tough market, but we're making progress with the commercial capability and the innovation, internal and external. We've got a great team. Leticia Gonçalves and her team are really strong. They're focused, and they're going to make sure that we deliver, as we say we're going to deliver. And I'm very pleased with the progress that we're making, and I think you'll see that in the future.

With that, we will conclude the Q&A session. I would now like to pass the conference back over to you, Erik, for any additional remarks.

Yes. I just want to close by thanking you all for joining. I want to say that I think we've made a lot of progress on getting the company to be what we want to be, which is high innovation, high value, less cyclical, high cash flow businesses. And we will close the Food Ingredients transaction by the second quarter of next year. And with that, we'll be highly focused -- total focus will be on the remaining 3 businesses. And I think that total focus will enable us to deliver very strong results. And I think we've got a great team in place right now. We just had our engagement score results for the year, and they've continued to increase. They were very low a few years ago. They've gone up consistently over the last 3 years and now are very high despite a lot of work that's going on to separate Food Ingredients and the other businesses that we've separated and sold. So I'm very pleased with the progress. I think the best is yet to come, and I just want to thank all of our employees and our customers for being there and enabling us to unleash the potential of IFF that's starting to happen. Thank you.

Thank you, Erik. That concludes today's conference call. Thank you for your participation, and I hope you enjoy the rest of your day.

All right. Great. So next, we are pleased to welcome back Erik Fyrwald, Chief Executive Officer of IFF. Erik, it's great to have you here. So much progress in the last year, so I'm excited to get started.

So IFF has gone through a significant amount of change over the last 2.5 years. As you look at IFF today versus when you became CEO in early 2024, what would you say is the most different about the company today and its ability to grow?

We're a lot different, Lauren. But thank you for having me. It's great to be back here. And we had this discussion 2.5 years ago, and a lot has changed. First of all, when I got to IFF, we had a very weak balance sheet. We were 4.5x levered. We're now 2.5x. We had missed consensus. We had missed guidance even a number of times. We now have a number of -- many, many quarters in a row of achieving guidance and doing what we say we're going to do. But I think the most important change is that at the time, the attempt with the Frutarom acquisition, Nutrition & Biosciences acquisitions was to be a one-stop shop.

And we've been very clear for the last almost 2.5 years that our goal is to be an innovation leader and an innovation leader with 3 great innovation-driven businesses, Scent, Taste and Health & Biosciences. And we've set those businesses up as stand-alone end-to-end businesses that have everything within them to succeed. They have the R&D, the production and the commercial capabilities. Now they coordinate, collaborate across, and I think they do it much more effectively because they know what they need to do to win in their businesses and then can help each other to win with customers. And we also have, I think, now a very strong leadership team in each of the businesses and corporately. And we've got the team and the capabilities to go out and drive profitable growth.

Yes. Okay. Great. And when you say the company is more focused, where do you see that most clearly showing up? Is it in faster decision-making? Is it in better customer engagement, win rates, allocation of resources? So like what is the best way to articulate what more focus really means?

Well, I think if you look at where we were, and it was interesting because in my first weeks, I got a call from -- I got calls and e-mails from a number of CEOs of very big CPG companies asking me to come and say hello. And basically, the message was IFF is a very important supplier, but you've, kind of, lost your way, you're not really delivering the innovation that we need and expect from IFF.

I think if you ask our customers today, you'll hear a very different story that IFF is back. Now, of course, we're not where we want to be. We want to keep getting better. But we've made a lot of progress to where we've significantly enhanced the engagement scores of our people. So we were losing some really good talent. I think not only are we retaining our good talent, we're attracting really good talent. And we've hired some outstanding perfumers, for example, in our Scent business. But across the company, we've really brought in some great talent to augment the great talent that we have.

We've strengthened our commercial capabilities. We've focused on making sure that we do well in the developed markets and with global key accounts, but we've also put more emphasis on regional and local accounts and in emerging markets, and that's starting to pay off. We've also significantly enhanced our R&D spend, but also our R&D process around making sure that it's connected to what customers really value and will pay for and stop stuff that wasn't important. And then in manufacturing, we fell behind in investing in CapEx. We've upped our CapEx spend and are strengthening our ability to supply reliably, high cost -- or excuse me, high reliability, high quality and cost competitive.

However, we're still getting the Food Ingredients business separated. And so, as we do that, there's still efforts that go into that, that separating the ERP systems, separating the contracts with third parties. We've got facilities. We've got products that we have to reregister because they had the same names, all kinds of things like that. So we still have effort to do that. But once that's finished, first half of next year, it's all about how do we drive greatness in Scent, Taste and Health & Biosciences.

Okay. So that's the new IFF, right? So, as we call it, we've written called the new IFF, what do you think is the clearest internal proof point that this new company is now competing differently than it was 2 years ago?

So one of the things is the engagement scores are up a lot. And what are the main changes? The main changes were, if you talk to our people, and I think customers and investors 2.5 years ago, there wasn't clarity on what we were trying to do. Saying you're going to be a one-stop shop is a catchy phrase, but what does it really mean? And what it meant was we're trying to do everything for everybody versus what are we going to be really good at.

And to be really good at Scent, Taste and Biosciences, we can clearly articulate that. What does that mean? It means in Scent business, you have great naturals. We're leaders in naturals. You have great synthetic chemistry molecules and you have great biotech molecules, you have great encapsulation technology, you have pro-fragrance technology. We can describe that and how we bring it to customers. And we have an R&D pipeline. We have a commercial pipeline. We now measure it. We now have a disciplined approach. And we have great talent making all that happen and working together in an end-to-end business unit process and the same across all 3 businesses.

So, I think if you ask our people, which I welcome investors to do, ask our customers and even ask our competitors, how is IFF different than it was 2.5 years ago? I think you'll hear very clearly that we've come a long way. We're not where we want to be, but we've come a long way, and we're headed in the right direction.

Okay. Great. So revenue growth in the second quarter accelerated meaningfully and growth was broad-based. You've talked about reinvestment in innovation, R&D, commercial and CapEx past couple of years. How much of the recent revenue acceleration do you believe is the early benefit of those reinvestments? And how much is actually just, like, the market demand is better or timing?

I think the market demand is similar. It's maybe a little better, but it's choppy, too, with tariffs and oil prices and wars and all kinds of challenges all around the world. The market is choppy, and you see it in the stock market up and downs. So, I think we're performing better than we were relative to the market 2.5 years ago. And I think that's a combination of things. I think we've got strong leadership in place now. We've got clarity on how the businesses work, the operating model of the company.

We've strengthened our commercial capability, and we've made it very clear that we have 4 pillars: engaged people. We want our people really engaged. Second is customer obsession. We love customers. It's all about winning with customers. The third is innovation powerhouse. We've got to bring leading innovation in each of the businesses. And that's why these 3 businesses fit so well because they're all innovation-driven. And then last is operating excellence. We've got to do things well, and we've got to do them cost effectively. And so, I think all that is starting to happen, and you're seeing it in progress.

And I'll give you one example that I think is really important in Consumer Fragrances, we had lost the edge and had lost some significant business, and we're actually performing significantly below the market for a while there in '23, '24. We've got strong leadership now. We've launched -- in 2.5 years, we've launched a really great ENVIROCAP encapsulation technology. We've launched SENSORA pro-fragrances. We had none in the marketplace. We were behind in encapsulation, now we're very competitive. And we've gotten into the pro-fragrance. And we've launched molecules. We had not launched any new molecules for quite a while. We've now launched biotech, synthetic chemistry and more natural molecules.

So it's an exciting time, and you saw the strong growth ahead of the market in the last quarter in Consumer Fragrances and it's just an example of where a lot of focus, right leadership, doing things all across the different areas to get back to where we need to be with a customer obsession, which brings everybody together. When you're obsessed about winning with customers, it kind of -- it brings all the functions together to make things happen.

Yes. Okay. So it sounds like -- I mean, Consumer Fragrance is a strong example of where the reinvestment benefits are now starting to be visible. What do you think are the further leading indicators before it maybe appears in the P&L as we think about manifestation of some of these reinvestments? Is it new wins? Like how can we think about the runway to start to see all this investment show up?

Yes. New wins is obviously an important one. But for us, we put a lot of effort on making sure we've got an innovation machine that's working and measuring that -- monitoring that, measuring it through the pipeline. And then the commercial pipeline. And the commercial pipeline is a combination of what projects do we have in the pipeline with customers and then what's the win rate. And so, we've worked on both increasing the commercial pipeline and the win rate.

And by the way, even though it's not a high R&D as a percentage of sales, even the Food Ingredients business benefited from that focus. We brought in, like we've done across the company, brought a strong leader running that business. We put in place the commercial pipeline approach and the win rate approach. And so, Andy Muller and his team has started growing that business and improving the profitability with operational excellence, which enabled us to sell it at a very good price and enables us to then invest in Scent, Taste and Biosciences, which are also strengthening their commercial pipelines, their innovation pipelines and the win rates.

Yes. Okay. One more kind of near-term question. So last quarter, you had mentioned that 3Q -- on earnings, I mean to say, you mentioned that third quarter started well, but your expectation is for growth to be in the low single-digit range in the back half of the year. Is that still the case with 1 more month under your belt? And any categories that you would call out that are performing better or worse relative to expectations?

Yes. So it's still the case that the third quarter has started off fine and that we're increasingly confident in our full year guidance. But it is a crazy world, and you just want to make sure that you're doing the things and that you're agile enough and that you're commitments are commitments that you can deliver upon in any reasonable scenario in a very challenging dynamic in the world. And so, that's where we are.

Great. So let's talk about customer mix a little bit. So some of your competitors seem to have a greater portion of their business with local and regionals. I know you mentioned it earlier, it's been an area of investment, and it's still early days. I think IFF still has over half the sales from large customers. In the past, you had Tastepoint with the Taste business to cater to smaller customers. So tell me a little bit about what -- the degree to which this is becoming a bigger push for IFF overall, the degree to which you need like a different business model to work with those smaller customers and just elaborate on that a little?

So, first of all, our split is about 1/3, 1/3, 1/3, 1/3 very large customers, 1/3 medium-sized and 1/3 smaller. And we've historically been, I think, more successful with the larger customers, and we want to keep doing that. We want to be successful with the large CPGs because then you're bringing the leading innovation and you're working with great co-creators at your customers, which is very important, and we want them to win. But at the same time, we are putting more emphasis on regional and smaller customers and in emerging markets where they're popping up.

A great example is Fairlife that was doing well and then Coke bought them and now they're doing fantastic. So we want to be with the Fairlifes of the world before they're bought by Coke and be part of the formulation and then be part of the success as they get bigger and bigger. So we are putting more emphasis on small and medium-sized customers and emerging markets. but we're not doing that by taking away from our focus on the big accounts, the key accounts.

Okay. Great. And can you talk about the maybe type of growth you're seeing across customer types? So like local and regionals have been gaining share from larger players, certainly see that in North America. And we look at Nielsen data, we sort of look at our big coverage and big branded companies like in all other bucket and the all other keeps growing. Is that also what you're seeing outside the U.S. sort of on a more global basis?

Yes. We're seeing that all around the world. But the result of that is that the larger customers are now focused more on innovation and how do they bring exciting innovation to capture the consumer. And whether it's scent in a shampoo, how are you going to win? You're going to win by having the superior shampoo and scent is a critical part of superiority. And for a protein beverage, it's the taste. Somebody will try an exciting social media product because it sounds cool, but they'll only redo it. They'll only buy it again because it tastes great, and we make sure it tastes great.

So what we want to work more with the big accounts to drive innovation, but we also want to work with the smaller accounts because the ones that grow up, we want to be with them either because they become big companies or because they get bought by the big CPGs. And part of what we're doing here is adding more resources to do this, but also what we're doing is using AI tools to help us better respond to briefs faster for big customers, but also to enable us to respond to briefs that previously we would say no to because they were too small. But if you can automate some of the brief response, do it faster, better and then automate the sampling, you can serve more customers.

Okay. Great. Let's get a little deeper into the 3 business units to start with Taste. So Taste has delivered broad-based growth driven by new wins, strong commercial execution and innovation platforms like modulation has been a longtime hallmark of the company. What has changed in the Taste organization since you joined that's making the growth more repeatable and sustainable?

I think really important. When I got here, we did not have a Taste business. I'll tell you an example. So I was in a meeting. It's actually January of '24. Before I officially joined, I went to an ACI meeting in Florida. And we had a review with a major CPG company around Scent. We get to the end of the meeting and I'm walking out and their head of procurement comes to me and says, your company is losing share to our big global company in taste, and I don't even know who to talk to. You don't have a taste leader. You have a Nourish business, and I don't even know really what that is.

And so that kind of triggered in my mind. Maybe Nourish isn't a business, maybe Taste is a business and Food Ingredients is a business. So we went back and we worked with the leadership and we said, of course, Taste is a business and Nourish is a business. So we separated them. We believe that and then creating the end-to-end business unit model was fundamental to the improvement of IFF because then Yuvraj Arora takes the Taste business and unleashes the potential to make it great. You already had great people in it and great capabilities, but it was just getting muddled with this Nourish concept, this one-stop shop concept.

And then the Food Ingredients business got better, too, because they focused on what it takes to win in more commoditized, bigger volume markets where running the assets full out is a key to winning versus R&D for naturals and synthetics and biotech molecules, very different business in responding to briefs with Taste. So I think that change, strong leadership, figuring out where the world was going. And part of it was one of the questions we kept getting was, and I am on the Board of Lilly, so -- and I'm right in the middle of this, isn't GLP-1 is going to really hurt your Taste business?

Well, Yuvraj and his team leaned into it and said, no, we're going to make it an opportunity because GLP-1 patients and even broader, people are going to want more protein. And to make high-protein products taste good, is a challenge that IFF is extremely well suited to achieving. So you take products that are beverages that have high protein content, you've got to have modulators, you've got to have flavorings, you've got to have stabilizers. You got to make them taste good or taste great, and that's what we do. We also are able to reduce sugar content, salt content, fat content in products, which consumers want, but keep the exact same great taste. And so that's enabled us to grow this business in a market where caloric intake for many consumers is going down.

Yes. Okay. You've already seen a tailwind to growth from reformulation or actually, have you seen a tailwind from reformulation to cleaner labels? Or do you see that as more of a catalyst for faster growth for the industry over the next few years? Is that still to come?

I think it's been there for a while now, a desire for cleaner labels. I don't think it's accelerated a lot, but it's there. And when customers -- consumers want cleaner labels, customers develop products with cleaner labels and reformulate, that's good for us. So we're able to help make that happen and hope it continues, the trend continues and even strengthens. But we see it, but it's not an overwhelming dynamic right now globally.

Okay. Let's move on to Scent. Just looking quickly, we've kind of touched on Consumer Fragrance. So let's talk about Fine. So as growth for the category continues to normalize, but certainly, I would argue stronger than it was 10 years ago as consumer habits have now embraced Fine Fragrance. How much of your future growth should we expect to be driven by commercialization of new launches? And sort of similar to what we were talking about earlier with Fine Fragrance, but like how should we think about growth over the medium term for Fine Fragrance?

I don't think it's going to stay in the double -- it's not going to stay in the double digits, but I do think it's going to be in the mid- to high single digits. I think it's an amazing business that is driven by better understanding of consumers around the world, partially through social media of the benefits, the joy that Fine Fragrance can bring. And it used to be more of an evening women's perfume market. And now it's through the day, different emotions that you want.

You want energy in the morning, you want relaxation in the afternoon, you want romance in the evening. It's men are increasingly using Fine Fragrances. Younger people are using more Fine Fragrances and layering them. There are markets like Brazil where they shower many times a day and each time put something on them to make them smell better. And I think there's still a long runway to go for healthy growth in Fine Fragrances.

Okay. Great. And then Fragrance Ingredients, it's been about a year since you started talking about building up the captive molecule pipeline. When should we start to see that be a more material driver of growth?

Innovation takes time. But I've got to say that Charbel Bouez, who we brought in to lead R&D and his team under the direction of Ana Mendonca the President of Scent, have done a great job, great job of rejuvenating our pipeline, getting some things commercial already, but also having a nice pipeline that you'll see a few more molecules come out toward the end of this year and into '27. And it takes a while for them to ramp up for perfumers to use them. But I think the latter half of '27 and '28, we'll see benefits from that more and more.

Okay. Great. Okay. So last but not least, let's talk about Health & Bioscience. So on the second quarter call, it sounded like efforts to stabilize North America health might be taking maybe a little bit longer than expected. So is that a fair assessment? And why?

Yes. It's a fair assessment. I think that we have significantly strengthened our team. We've strengthened our commercial capabilities, and we're strengthening our pipeline. But the North American probiotic market is -- has slowed down for now. I think there's still a need, and I think health is a great business to be in. But I think the customers are sorting out how to position clinically proven products like ours versus products that aren't clinically proven that might not even be alive, but say probiotics on them. And so consumers don't necessarily know. So it's an ongoing effort to try and make sure that we're with our customers, educating consumers on what works and what's proven and what -- versus things that might be cheaper, but don't necessarily work.

And then making sure that we're able to grow with digital channels and social media and influencers that are credible around the health benefits. So my point is, I think we're strengthening. The market is weaker than I expected it, but I still believe long term that this is a great place to be. And the innovation pipeline is very good, but innovation in health takes quite a while to get out there and ramp up. So I'm still very positive about the business. I'm pleased with the progress, but more to come.

Okay. And health outside of North America, though, has been growing well. So what are some of the reasons for that relative strength? And are there kind of things you can take from overseas back to North America?

Well, I'll give you an example. So Australia -- I was in Australia a few months ago. And in Australia, we're doing very, very well. And they've got a very good regulatory process and actually positioning with consumers, the customers' positioning with consumers around what's clinically beneficially proven. And so there's this consumer buying -- consumer awareness and buying of products that really work versus products that are cheaper that don't work. And so learning from that in other markets that are more positive growth like Korea and a few others and talking to our customers about what we see there and what they see there and how we position that better in the United States. will take some time, but I'm still optimistic about the future.

Okay. And then over the past 18 months, you've been investing in capacity to support future growth in H&B. Can you talk about where you are in this investment journey and how this will help IFF fulfill longer -- sorry, larger new contracts that maybe haven't been possible in the past?

Yes. So the market is growing. Novonesis is growing the market. We're growing the market. Others are growing the market, and it's a great opportunity, but we underinvested in capacity. We -- as you noted, we have been increasing that in the last 1 to 2 years. It takes some time to get these fermenters in. We also drive capacity through strain improvements and other means. So we're debottlenecking. We're adding fermenter capacity. Some of that comes online early next year. Some of it comes online late next year and into '28. So we are working hard to remove capacity as a constraint to growth to that business, and we'll get there by the end of next year.

Okay. So let's talk a little bit about -- what do I want to talk about next. Okay. So when you talk about having a stronger pipeline, say, commercial and innovation, what is it that really makes it different? Is it larger, like more focused on higher ROI opportunities? Is it converting faster into sales in the past? Like what makes it a stronger pipeline?

What makes it a stronger pipeline is first, focusing on a pipeline. So if you just say, okay, we're going to measure sales. Sales is backward looking in the mirror. If you measure the pipeline, you're looking forward at what's coming and how you're building that. And if you measure the pipeline times the win rate, that tells you how you're doing and converting the pipeline to actual dollars to revenue. And so getting that discipline of the sales force putting things into the pipeline, which, by the way, helps get the right resources to support to win the pipeline projects.

And then on the win rate. And so the win rate -- if the win rate goes from 30% to 35%, that's huge. And then you also by doing that, you look at the 65% that you lost and you can talk about why did we lose. And you also can put into AI agents the data and can give you some advice about why you might have won and why you might have lost. So that discipline is really helpful in strengthening our ability to do better and better. And what I would say is it's giving us increased confidence for the future.

Okay. You mentioned AI. And I wanted to ask about AI in CPG innovation broadly. Do you think it's a threat to the F&F companies as your customers can bring more molecule discovery, scent discovery in-house with the help of AI?

I think the players like IFF that have the history that have the ability to discover molecules, for example, as one area, are enhanced by AI. And if we do that really well, we'll be further advantaged because of our scale and ability to do that. And so I think that the AI enhancement of molecule discovery is good for IFF.

Okay. Great. I want to talk a little bit about reinvestment and margin expansion. So how do you think about the balance between reinvesting for growth and delivering margin expansion over the next few years? And what role does productivity play?

Productivity is very important and investing for capacity expansion to make sure that we can meet the growth opportunities is important. We're doing that. I don't see any reason why that return isn't very high. What's great about these 3 businesses that are left is all the sales create shareholder value. It's not like we have to stop selling things because we're destroying value. It's a matter of where do you put the emphasis so you grow faster at higher margins. And innovation is a key part of that. So investing in innovation enables us to create even higher value formulations for our customers. And so we've got to keep doing that.

We've got to keep investing in the capacity to make sure we have enough product, and that's all high return. So what I love about the 3 businesses that we have is the investments are all going to pay back well. So what we have to do is make sure we decide where we are going to focus that investment. And we're doing that much better than we did before because the businesses are putting together their 5-year -- their strategic plans, their 5-year plans and able to come forth with proposals that we can then talk about across the company and decide where to go.

I think the other thing that's going to happen now is with Food Ingredients going out and we take the funds that we'll get the $3.8 billion roughly and pay down debt to stay within the 2 to 2.5x levered, and buy back shares to minimize dilution. We've already announced $2.5 billion of share buybacks. After that, we still have really good cash flow. And that cash flow will enable us to invest in the businesses organically and where it makes sense to do bolt-on acquisitions that further strengthen those 3 businesses.

Okay. What are, I guess, the white space areas where bolt-on M&A would make sense?

The only white space area that I see today that's clearly would make sense is active cosmetics. I think that we sold Lucas Meyer, that was before I got here and I think that was a very good business, a very good fit with beauty. But Fine Fragrance is doing extremely well. I think adding that at some point would be a good thing to do. We're not in a hurry to do it. The business is still doing fine. It's not a gap that hurts the other businesses, but it's a potential opportunity to enhance.

Okay. And then on investing in CapEx, I know we talked about H&B. Beyond that, are there areas where you're still capacity constrained? And is that a limitation to revenue growth or revenue acceleration?

No. We're not capacity constrained in Scent or Taste. We are investing in automation and we will look to continue to invest in emerging markets opportunities because it's just -- it's nice to have local facilities that you can quickly respond to customer needs. And the automation allows us to not only automate sampling, but automate production to where it's lower cost to enhance margins with existing business, but also to enable us to go after smaller briefs, as I talked about before.

Okay. Great. So let's close with the discussion about the medium-term growth algorithm and how we should be measuring if this like focused growth strategy is working. You've talked about mid-single-digit sales growth being the right target in a more normalized category growth environment. But already over the past 2 years, you've been at the low end of that target, right, 4% on the pro forma business. So what would it take for IFF to get to the middle and upper end of that range?

Well, I think what's really important now is to get the Food Ingredients sale closed and take all of our energy. If you can imagine the executive team and even the Board discussions 2 years ago, it was like the focus was on, okay, how do we fix the balance sheet? How do we get -- what do we want to be? How do we get all this stuff cleaned up and how do we fix our systems, all this complexity. And now the discussion is all about how do we make Scent, Taste and Health & Biosciences great. That's a completely different situation to be in.

And so I think we will -- we already know what areas that we want to drive hard. Now we just got to go and make it happen. It's about execution of the plans we've got in place and then bolt-ons where they make sense. But also, as we execute, we'll learn more and just get better and better. But we're not distracted by things that don't enable us to do better in those 3 businesses. And what I would say is we're pleased with the progress we've made, but we're not at all satisfied. We're going to have 3 great businesses that have huge potential, and we're starting to unlock that potential, but lots more to come.

Okay. If revenue growth doesn't accelerate as expected, what do you think will be the most likely reason? Is it like market demand? I don't think it's capacity. Is it execution? But what are the things that make it break the wrong way?

I think it would be market demand. It would be some kind of hyperinflation or something that changes the consumer demand, although we are well positioned in quite a bit of our businesses and things that consumers have to have so that they would buy in any case. But there is some discretion that could reduce that. But I feel that we've come a long way in doing what we can control better. We've got to keep getting better and better, but we're doing better. And so if the market changes like that, we'll do what we can -- we'll do what we control as well as we can. And over time, I think these 3 businesses have been very resilient to market changes, much less cyclical than the Food Ingredients and other businesses that we've divested and the kind of businesses that you want to be in for the long term.

Okay. Great. Thank you so much for being here today. I'm really glad to have you back at the conference. We're going to go into breakout, but please join me in thanking Erik for joining us this year.

It's my pleasure. Thank you.

At this time, I would like to welcome everyone to the IFF Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Second Quarter 2026 Earnings Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.

Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all sales and EBITDA growth numbers that we will be speaking to on the call are on a comparable currency-neutral basis, unless otherwise noted. Given the announced divestiture of Food Ingredients, we will discuss results and guidance on a continuing operations basis, unless otherwise noted. Our P&L financials are presented on a continuing operations basis, while cash flow, net debt to credit-adjusted EBITDA leverage and CapEx are presented on a total company basis, which includes both continuing operations and discontinued operations.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik.

Thanks, Mike, and hello, everyone. Thank you for joining us today. IFF's strong second quarter results reflect our relentless focus on our customers while driving productivity and cash flow improvements. IFF delivered volume growth across the board, disciplined margin execution and robust free cash flow generation, strengthening our financial position and focusing our commercial and innovation pipelines to be even more competitive. We are transforming IFF with the divestiture of Food Ingredients and a solid first half of 2026 gives us confidence in our ability to achieve our targets for the full year even as market conditions remain uncertain due to the events in the Middle East.

I'll start today's call by briefly summarizing the first half results and providing an update on our portfolio transformation efforts following our announced agreement to divest Food Ingredients. I'll then turn the call over to Mike, who will provide more details on the second quarter results, segment performance and our outlook for 2026.

Turning to Slide 6. In the first half of 2026, our team delivered strong results across IFF on a total and continuing operation basis. Overall, on a continuing operations basis, our business achieved 4% sales growth and an 8% gain in EBITDA, driven by volume growth and productivity improvements. Our free cash flow for the first half of the year totaled $378 million, representing a gain of $284 million year-over-year with strong net working capital improvement, a focus of ours coming into the year.

In the second quarter, we announced a significant milestone with the divestiture of the Food Ingredients business to CVC in a transaction that values the business at about $4.3 billion or about 10x EV/EBITDA. This transaction is a defining step in our portfolio transformation and simplification. Post close, IFF will have a sharper focus around our higher growth, higher-margin Taste, Scent and Health & Biosciences businesses. With the Food Ingredients divestiture, there are stranded costs that represent about $100 million of corporate and functional expenses previously allocated to the Food Ingredients business that are expected to remain with IFF following the close of the transaction. With the move to discontinued operations, these costs are now spread amongst the remaining businesses of Taste, Scent and Health & Biosciences and are currently temporarily pressuring the business unit margins.

We are moving with urgency and currently have a remediation plan in place with actions already underway to eliminate these costs over time. We expect to eliminate about 2/3 of these costs within the first 12 months following the transaction close and the remaining within the second full year post transaction close. The combination of the portfolio simplification from the divestiture and the planned reduction of stranded costs is expected to support strong EBITDA margin expansion over the next few years. We are confident in our ability to execute this plan and over time, eliminate these costs while enhancing the profitability and earnings power of the remaining IFF portfolio.

Also, on July 20, we announced a definitive agreement to divest our portfolio of nonstrategic to us botanical extracts, vitamins and minerals and food enhancement products, which are primarily included in our Health & Biosciences and Taste segments. This business represents about $170 million in annual sales with a mid-single-digit EBITDA margin, and we expect to receive about $75 million in proceeds from the transaction or about 10x multiple. Much of this business was related to IFF's previous Frutarom acquisition and the transaction further simplifies and upscales our remaining portfolio. We expect this transaction to close in the fourth quarter of 2026.

We also announced our expected use of proceeds from the Food Ingredients divestiture through which we will strengthen our balance sheet and return capital to shareholders. Today, we announced our plan to reduce debt by greater than $1 billion and allocate about $2.5 billion to a share repurchase program with about $500 million of that expected to be executed in the second half of 2026 in advance of the transaction close. This reflects our confidence in IFF's long-term value creation opportunities and the compelling return profile of repurchases at current valuation levels.

Given the Food Ingredients divestiture and the renewed focus on the remaining 3 businesses, we are introducing full year 2026 guidance on a continuing operations basis. This will provide greater visibility into the stronger growth and margin profile of IFF's portfolio without Food Ingredients. Mike will provide additional details later in the call.

While there is more to do, I am very proud of how our global team continues to serve our customers, deliver on our commitments and execute our strategy. IFF's strengthened balance sheet reflects disciplined capital allocation, and we are encouraged by the momentum we are building as volume growth, productivity and enterprise-wide transformation initiatives drive tangible profitability improvements. The first half of the year has demonstrated IFF's unwavering commitment to achieving the strategic goals we have set out. We will continue to execute, but I would like to recognize the dedication of our leadership team and IFFers all around the globe for delivering high-value solutions that address evolving customer and market needs with our leading innovations.

Moving to Slide 7. We are excited about IFF's transformation following our agreement to sell the Food Ingredients business to CVC Capital Partners. The transaction is progressing well with both sides actively engaged and moving with speed, and we remain on path to close by the end of the second quarter of 2027. The divestiture strengthens our position as an industry leader and global player in strong consumer-centric ingredient end markets. With a streamlined portfolio, IFF's businesses best align with the opportunities of long-term megatrends in health, well-being, food and sustainability. We will continue to be a partner in the Food Ingredients business by retaining 10% ownership, permitting our shareholders to participate in continued value creation under CVC's guidance, and it enables very effective and efficient collaborations. With a simplified customer base and manufacturing network, IFF will be better positioned to accelerate innovation, drive investment in R&D, improve execution, enhance free cash flow conversion and deliver a stronger long-term growth and margin profile.

Taste, Scent and Health & Biosciences are primed for strong revenue and EBITDA growth opportunities powered by shared naturals and biotech capabilities. By focusing on these high-margin core segments of our business, we are building upon the growth-oriented simplification strategy we have been progressing towards since the beginning of 2024.

Now turning to Slide 8. In addition to positioning IFF to drive sustained, profitable long-term growth, I'd like to also outline the expected use of proceeds from the Food Ingredients transaction. We will continue to strengthen our balance sheet by using greater than $1 billion of proceeds to reduce debt, and we expect net debt to EBITDA to finish 2027 between 2.0x and 2.5x. This would mark a significant improvement from the 4.5x net debt to credit adjusted EBITDA leverage level at the beginning of 2024. We are also prioritizing targeted share repurchases as part of our use of proceeds. The Board has authorized a $2.5 billion share repurchase program, inclusive of about $400 million remaining under the prior authorization. We expect to execute approximately $500 million of repurchases in the second half of 2026 ahead of the Food Ingredients transaction close, reflecting our confidence in IFF's long-term value creation opportunities and the compelling return profile of repurchases at current valuation levels.

This may result in a modest temporary increase in net debt to credit adjusted EBITDA, which we expect to manage within our broader deleveraging plan. The remaining authorization is expected to be executed following the transaction close with the program targeted for completion by the end of 2027. For the remaining proceeds, we also plan to reinvest in our growth businesses by prioritizing high-return opportunities across the core portfolio.

With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining us today.

On Slide 9, we take a closer look at our second quarter consolidated results. On a continuing operations basis, IFF generated revenue of just under $2 billion in the second quarter, up roughly 6% with growth across all businesses. This strong performance was led by high single-digit growth in Scent and mid-single-digit increases in Taste and Health & Biosciences. Growth was volume-driven, including strong new win performance and increased sales within our existing business. Adjusted operating EBITDA was $408 million, up 6% versus the prior year, driven by strong volume growth and continued productivity gains.

We are pleased with the quality of profitability in the quarter. There were 2 items that impacted our year-over-year performance that were worth noting. U.S. tariff refunds netted against customer pass-throughs, which was a benefit, and higher incentive compensation accruals tied to our strong first half performance, which was a headwind. Excluding these items, underlying EBITDA growth would have been even stronger. Nevertheless, this was a solid quarter as it reflects continued progress on volume, productivity and execution. Given the change in reporting, we wanted to provide a onetime reference point for what the second quarter results would have looked like on a combined basis, including both continuing operations and discontinued operations. On that basis, total company sales would have been approximately $2.8 billion and EBITDA would have been $548 million.

On Slide 10, I will provide a closer look at the performance for each business segment. In Taste, sales grew 4% to $688 million with growth achieved in all regions, led by double-digit performance in Asia. Growth was driven by strong new win performance as well as volume growth on existing business. In terms of profitability, the segment delivered EBITDA of $124 million, a 6% increase, driven by volume growth and favorable net pricing. Our Health & Biosciences segment grew 5%, achieving sales of $601 million. The segment delivered growth in all businesses with notable increases in Grain Processing, Food Biosciences and Animal Nutrition. EBITDA increased 6% to $150 million, primarily due to volume leverage.

Lastly, our Scent segment delivered sales of $665 million, representing a strong 8% growth. Performance was driven by double-digit growth in Fragrance Ingredients and high single-digit increase in Consumer Fragrance. Fine Fragrance grew low single digits, inclusive of the impact of the Middle East conflict. Scent profitability was also solid with EBITDA growing 5% to $134 million. Volume growth and productivity gains were primary drivers for the increase in profitability.

Turning to Slide 11. Cash flow from operations totaled $679 million and year-to-date CapEx was $301 million, representing about 5% of sales. Our free cash flow position in the first half of 2026 finished at $378 million, which was up $284 million year-over-year. The team made strong progress improving net working capital, driven by effective inventory management and more disciplined accounts receivable and accounts payable controls. Going forward, we remain focused on sustaining this momentum and continue to drive strong free cash flow generation.

I do want to indicate that due to the Food Ingredients divestiture, we expect some net working capital headwinds in the second half of the year related to the separation and stand of that business. This includes a required unwind of factoring-related agreements, which is expected to create an accounts receivables headwind as well as potential inventory builds and supplier prepayments ahead of the stand date to ensure business continuity during the transition. The ultimate impact will depend on stand timing, which is expected to occur in early Q1 of 2027. These headwinds are entirely transaction related, and we expect our remaining businesses to continue to drive strong free cash flow generation.

During the first half of 2026, we returned $204 million to shareholders through dividends and an additional $71 million through share repurchases under our dilution plus program. As Erik mentioned earlier, we are now providing greater clarity on our capital allocation priorities following the Food Ingredients divestiture. We intend to use more than $1 billion of net proceeds to reduce debt and support our target leverage range of 2 to 2.5x net debt to credit adjusted EBITDA. The Board also authorized an enhanced $2.5 billion share repurchase program, which replaces our dilution plus program. We expect to execute $500 million of repurchases in the second half of 2026 before the transaction closes and the remaining $2 billion following transaction close, with the completion targeted by the end of 2027.

While the initial repurchases may result in a modest and temporary increase in our net debt to credit adjusted EBITDA, we expect to manage this within our broader deleveraging plan. At the end of the second quarter, our cash and cash equivalents finished at $569 million. Our gross debt has decreased approximately $5.7 billion, which represents greater than $3 billion decrease year-over-year. Similar to last quarter, our trailing 12-month credit adjusted EBITDA totaled just over $2 billion, and our net debt to credit adjusted EBITDA ended the first half 2026 at 2.5x.

On Slide 12, I would like to share our consolidated outlook for the full year 2026. As a result of the announced Food Ingredients divestiture, we are now providing our guidance on a continuing operations basis. We remain confident in IFF's ability to deliver the second half of the year. Our continuing operations portfolio is durable, diverse and grounded in essential products and solutions, giving us a strong foundation in an uncertain and volatile environment. While we're not immune to macroeconomic pressures, including ongoing volatility in the Middle East, we believe we can successfully navigate the environment to deliver solid near-term results and continue to strengthen IFF for the future. Our focus remains on controlling what we can control, which is advancing our commercial and innovation efforts to drive growth and enhancing productivity and cash flow generation.

For full year 2026, our sales are expected to be in the range of $7.4 billion to $7.6 billion, indicating a 2% to 4% growth range versus the 1% to 4% growth we originally communicated. From a profitability perspective, we now expect full year 2026 EBITDA to be between $1.53 billion and approximately $1.6 billion, representing growth of 4% to 8% versus the 3% to 8% originally provided. For both sales and profitability, the increase reflects our reshaped portfolio now focused on Taste, Scent and Health & Biosciences and the solid performance we delivered in the first half of the year. And while we started the third quarter well, we are conscious that the world remains volatile, which is reflected in our full year guidance range.

On a continuing operations basis, we expect that foreign exchange will have roughly a 1 percentage point positive impact to sales growth and approximately 2% positive impact to EBITDA growth, both on a full year basis. For purposes of year-over-year growth projections, the comparable base period for full year 2025 adjusted for all portfolio changes is approximately $7.2 billion in sales and approximately $1.44 billion in EBITDA.

I would also like to build on what Erik spoke about from a stranded cost perspective. While gross margin and EBITDA margin are improving following the Food Ingredients divestiture, our continuing operations business unit margins are temporarily impacted by approximately $100 million of costs that remain following the transaction. These stranded costs are temporary dissynergies that previously supported the Food Ingredients business but will remain with IFF post transaction close. These costs include certain employee costs, systems, shared services and third-party costs. Importantly, we are not treating these as permanent. We already begun executing against a clear remediation plan using a disciplined bottoms-up approach to identify and move transitional costs over time.

In practical terms, this includes actions such as redesigning processes, rationalizing activities, simplifying systems and applications, reviewing third-party contracts and aligning the Remainco cost structure to the needs of the business going forward. While this is a multiple step effort that will take time to fully execute, we are putting the right structure around it. This gives us confidence that we can reduce these costs in a disciplined way while continuing to support the business going forward.

Taken together, we believe the Food Ingredients divestiture and our stranded cost reduction plan create a clear path to margin enhancement and a higher quality earnings profile over time. With a more focused portfolio and disciplined execution, we are positioning IFF to deliver meaningful long-term value for our shareholders.

With that, I'd like to now turn the call back to Erik for closing remarks.

Thanks, Mike. Now to close, I want to emphasize IFF's strong performance in both top line and bottom line financials even as the macroeconomic environment remains uncertain. We are delivering on our commitments and doing what we said we would do. IFF's first half results reflect the execution of our strategic initiatives, particularly in streamlining the company to focus entirely on higher growth and higher-margin businesses. I am confident in our ability to execute what we can control. We are focused on serving customers through leading innovation, boosting productivity and increasing cash flow generation. I look forward to delivering our 2026 goals while strengthening our ability to deliver consistent, strong financial performance in the medium and long term with a new sharper IFF.

Thank you, and we'll now open the line for your questions.

[Operator Instructions] The first question comes from the line of Abigail Eberts with Wells Fargo.

Looking at the Food Ingredients divestiture, it looks like you should have enough cash to do all the improvements you highlighted for your balance sheet. Is this the last deal we should expect to see for a while? Or are there other areas of the portfolio that you're looking to trim?

Thanks for the question, Abigail. This is Erik. I'll respond. First of all, I'm very proud of how our IFF team has been doing great work over the last 2.5 years to strengthen our balance sheet and get us on track to be a focused company with 3 great high-innovation businesses, Scent, Taste and Health & Biosciences. So we are exactly where we want to be with our portfolio with no significant divestitures left to do. Now it's all about scaling organically and through bolt-ons, these 3 terrific businesses.

The next question comes from the line of Kristen Owen with Oppenheimer.

Just wanted to follow up on the guidance. It looks like you brought the low end of the underlying sales growth range up. Can you just help us understand how much of that was a pass-through on the first half performance? Or is there any improvement assumed in that second half?

Great. Thanks, Kristen. I appreciate the question. Just maybe some context. Just for the first half of the year, sales were up 4% and EBITDA was up 8% for the continuing ops business. This is a good strong start. Our guidance for the full year, the range is 2% to 4% for sales and 4% to 8% for EBITDA. So the implied is 0% to 4% for the second half on sales and 4% to 8% on EBITDA. The increase in the low end of the range to your question was really the -- essentially the flow-through of the strong first half performance. And as we think about the second half growth from a top line standpoint, we do expect it to moderate from the 6% we reported in Q2, but we do believe we can deliver low single-digit growth in the second half of the year.

As a reference point, I said it in my prepared remarks, but we started the quarter well, and it's kind of in line with this trajectory. But I do understand that the range is wide. But similar to how we've communicated previously, there is market uncertainty. But -- so it's not an indication of what we are seeing. The growth for the core business remains solid, but we're just being prudent to ensure we're managing the business appropriately going forward.

The next question is from the line of Ghansham Panjabi with Baird.

Just as a follow-up to the last question. Obviously, volumes were quite solid during 2Q and actually the first half of the year across all 3 of your core operating segments. But as you sort of engage with customers and they have to basically navigate another inflationary pulse for the consumer, just given the increase in inflationary costs, et cetera, have you sensed any sort of change as it relates to their view on how underlying volumes will progress as they cycle through the rest of the year and the back half?

Thanks for the question, Ghansham. I would say, first of all, consumer demand has been resilient so far this year, as we all know. And that's despite uncertainties, inflationary pressures, just a lot of complexity. So far, we do not see signs of that changing yet, and we're not really hearing from customers any significant changes. But we know there are risks, and we are focused on working with our customers to bring leading innovation so that we can grow the business as best we can in any situation. And so while things have been resilient so far, we recognize that, that could change, and we're doing what we can to do the best we can with what we control.

The next question is from the line of David Begleiter with Deutsche Bank.

Erik, in Fragrance Ingredients, how much of the double-digit growth was driven by an easy comparison versus underlying market improvement? And what's your expectation for further recovery in this business in terms of volumes post end to the Middle East conflict?

Thanks for the question, David. I'll let Mike take this one.

Yes, that's perfect. Thanks, Erik. The Scent team delivered a great Q2. Sales were up 8%. A key driver of this, to your point, David, was the Fragrance Ingredients business, which grew north of 20%. Part of this, to your point, was that we were comparing to a down 10% or more in the year ago period. So part of it is that year-over-year delta. But part of it is really the team strategically leveraged the synthetics portfolio to capture more sales due to the macroeconomic environment, including some of the supply chain disruptions and higher Brent crude prices. So they really use this as an opportunity to capture some sales. As things will settle down, we do expect it will normalize, and it's included in our forecast for the second half of the year, meaning growth in Fragrance Ingredients will shift back towards the higher value-added ingredients versus the traditional synthetics that were really a strong point in Q2.

In terms of Fine Fragrance, the team also did a very good job at managing the challenges in the Middle East. If you remember, coming into the quarter, we expected growth to be down in Fine Fragrance mid-single digits. It actually finished up slightly positive, which was a good outcome. So the team really managed that uncertainty and volatility in the market. And while the Middle Eastern crisis continues, we are factoring in a softer Q3, really thinking about part of it is the 20% comparable. So year-over-year in Q3 last year, Fine Fragrance grew 20%. So it's a big comp, but still trending in the right direction and then really start to see some recovery as we get to Q4 overall.

The next question is from the line of Lauren Lieberman with Barclays.

I was hoping you guys could talk a little bit more about the plans to offset stranded overheads. We had originally thought that all of it would be addressed in the first year. So kind of curious what's changed there. And then now that Food Ingredients has been moved into discontinued ops, and we can see what the underlying business looks like, how should we think about where EBITDA margins could go over time?

Thanks for the question, Lauren. As we put together our plan on how to deal with the $100 million stranded costs with minimum disruption to driving profitable growth in Scent, Taste and Health & Biosciences, we believe the best approach is to commit to 2/3 in year 1 and the remainder by year 2, and we will move as fast as we can without harming Remainco's growth. So as we look at this, driving growth of the 3 Remainco BUs and dealing with the stranded costs in the right way are great opportunities for EBITDA margin expansion through that period.

The next question comes from the line of Nicola Tang with BNP Paribas.

I wanted to ask about cash flow. Michael, earlier, you mentioned that there could be some working capital headwinds related to the Food Ingredients divestment in the second half. Just wondering if you could put more numbers around it. What are your expectations for free cash flow conversion for 2026 and also on a go-forward basis ex the Food Ingredients business?

Thanks, Nicola, for the question. First, maybe I'm going to be a little bit less specific just because there's a lot of moving parts still with the separations and moving to discontinued ops for the Food Ingredients. But to your point, for the full year 2026, we continue to expect free cash flow to be higher than we reported in 2025. And that's inclusive of the headwind or working capital headwind that I alluded to on the call, specifically around the Food Ingredients stand. Just to size that, that could be a couple of hundred million dollars. And so that is a little bit of a change. But still year-over-year, we will get improvement in free cash flow. That's what we're targeting because the team is doing a really good job driving operational performance, but also from a net working capital perspective, really trying to drive that now as we go forward.

Longer term, our Remainco businesses, Scent, Taste and H&B are cash-generative businesses. That's the beauty of the Remainco portfolio. And so in terms of simple definition, which is the way I would define it EBITDA minus CapEx divided by sales. Those 3 businesses should achieve mid- to high teens in terms of cash flow, that definition as a percentage of sales. And so that's nice. The Food Ingredients business is a little bit lower than that. And so there is a bit of a mix shift. And so as you think about the remaining business, you'll see the improvement in overall cash flow as we get to '27 and '28 on a go-forward basis. And then as Erik referenced, the same is true for both growth and margin as well.

The next question comes from the line of Laurence Alexander with Jefferies.

Erik, so on the topic of investor concerns around Chinese competition increasing over time. When we look at your R&D at about 9% of sales, my impression is that's about where it was before the divestiture. That's just like sort of making it clearer. When you think about the capital allocation, is the decision not to increase R&D or not to allocate any of the proceeds to R&D an indication that you're comfortable with your competitive moat? Or is it that you think that there just aren't the areas where the extra funding would make a difference to what happens over the next 4 or 5 years?

Thanks for the question, Laurence. Let me give you a couple of points here. First of all, I have a lot of experience in China, and we'll always view China as a critically important market and will never underestimate Chinese competitors. So our strategy is to ensure we bring leading innovation to customers and compete rigorously in China. So we have significantly increased our R&D capabilities and our spend over the last 2.5 years.

Prior to this, the Remainco businesses were spending about 7% of sales on R&D. Today, we're spending about 9%. And we will continue to increase the R&D spend as we grow sales, and we'll also obviously look at the opportunities to create more value, and we'll consider increasing the percent of sales that we spend on R&D if we believe that will create additional value. So we're absolutely committed to competing strongly against any competitor around the world, including the Chinese.

The next question comes from the line of Patrick Cunningham with Citigroup.

I was hoping you could provide your current outlook for input cost inflation in the second half and whether or not you're encountering any pricing lag or customer resistance as you work to offset some of these inflationary pressures?

Thanks for the question, Patrick. For the second half of the year, we expect input costs, which I would define as raw material, energy and logistics to increase modestly. Specifically, just to dimensionalize, the most impacted will be, as you can imagine, energy and logistics costs. And then when I look at it from a business unit perspective, Taste -- sorry, Scent is the most impacted.

Collectively, across all 3 divisions, we are working with our customers on surcharges and implementing as appropriately. As you know, though, in some instances, specifically in Scent, there is a bit of a lag. But over time, we will work with our customers to offset that. The team is doing a really good job at managing this and the uncertainty in terms of the overall environment. They are reacting with speed, and they understand the importance of making sure we get the recovery. So like I said, as we go forward, this is something that we will play -- it will start to roll into our P&L as we move through the second half of the year and into early '27.

And we keep pushing our productivity projects.

Correct.

The next question is from the line of John Robert with Mizuho.

First, congrats on all the progress here. For the ultra-processed foods and GLP-1 issue, it's still kind of hard to size both the opportunities and the risk here. And I understand it's been reduced with the sale of Food Ingredients. But is there a way to think about the percent of your sales for Taste and the food-related bioproduct businesses, what percent is exposed here to that opportunity and risk and -- or maybe an industry statistic, if you don't want to talk about your own sales?

Thanks for the question, John. A very important area, the GLP-1 and ultra-processed foods. And what I would say is that the flavors and food-related Biosciences have been growing very strongly in total and in significant part because instead of looking at these as negatives, as we've looked at them as opportunities and have been very proactively both on GLP-1s and the overall move to higher protein consumer products. And we've been very engaged with customers to enable them to have very high protein products that have great taste and are healthier. We also have been leaning into the clean label opportunity and have seen that as enhancing our growth. So if you look at our total Food Biosciences and Flavors business, the growth has been ahead of the market and because of our leaning into these as opportunities instead of just risks.

The next question is from the line of Josh Spector with UBS.

I have two kind of related questions here is that, one, just the outperformance in the quarter, 6%-ish organic versus a couple of percent consensus. Just wondering if there's a few things you'd attribute that to? And if any of that would relate to any customer prebuying here just given some expected cost inflation in second half? And then related with this is just the organic growth was stronger, but it didn't really flow through to the EBITDA. There wasn't much volume leverage. Why didn't we see more of that in 2Q?

Josh, thanks for that question. In terms of the outperformance in Q2, it was a really strong performance across the board. And actually, we didn't give it airtime, but the Food Ingredients business actually grew 3% as well. So collectively all around, it was a good quarter from a top line perspective. When I look at the remaining businesses, Scent, Taste and H&B, again, continuum and ops across all the subcategories and regionally for Taste, we actually delivered growth across the board. So it was a broad-based quarter in terms of overall success from that standpoint.

In terms of leverage or flow-through from sales to EBITDA, you're right, we delivered 6% sales growth and 6% EBITDA growth. As I mentioned on the call, though, remember, it would have been a couple of points higher. But in the quarter, we increased our incentive compensation accrual based on the strong first half performance. And so that was a couple of percentage points. So we would have actually had some pretty good leverage in terms of the overall P&L. And so the team is really doing a good job at really driving the top line dynamic of the business and then also capturing productivity, as Erik mentioned before, to get that combined volume growth and productivity growth to really drive the EBITDA performance on a go-forward basis.

The next question is from the line of Lisa De Neve with Morgan Stanley.

You now delivered about 3 strong quarters of growth in H&B with probiotics back into the positive territory. I mean, what is the outlook for the probiotics business? And what initiatives have you executed on or do you plan to execute on over the next couple of quarters? And similar to that, I mean, where do you see the growth coming from? Is it supplement driven? Or do you see more inclusions into functional beverages and so forth?

Thanks for the question, Lisa. We see continued growth in our health business outside the U.S., but continued market challenges in the U.S. But we are very encouraged for getting back to growth over time, both for the market and for IFF Health in the United States. And we're encouraged by what we see as the increased need for the health benefits probiotics provide and interest by strong companies like, for example, Procter & Gamble's announced intention to acquire Thorne as a great example. So what we're doing is we've got a great team on the field now. We are strengthening our R&D pipeline. We're strengthening our commercial capabilities, engaging directly with customers, I would say, with more passion and more drive. And so over time, we will see the benefits of that.

The next question is from the line of Kevin McCarthy with VRP.

In looking at the financial data you provided on Slide #7, it strikes me that the free cash flow profile improves meaningfully through the separation of Food Ingredients. So in that context, I was wondering if you could elaborate on what impact the separation will have on your CapEx. I think you covered working capital already, but kind of curious about the capital budget and what you can tell us there quantitatively and conceptually as you look to pivot toward reinvestment and innovation and so forth.

Thanks, Kevin. I'll take this one. Erik did a great job explaining Remainco in terms of the shift. Really, just to reiterate, over time, we do expect sales growth rates to improve, EBITDA growth rates to improve. Gross margin is now in that 43-ish range. EBITDA is in the low 20s. So it's really a nice step forward in terms of kind of where we are. As we address some of the stranded costs, we will see the EBITDA margin continue to improve. So that is a big part of the investment thesis that I think about IFF.

But in some of those key ratios you referenced, percentage of sales in terms of R&D that was on Erik's slide, you're in that 8% to 9% range, really important that we critically continue to reinvest in this business to making sure we set ourselves apart because it becomes that circle where we make those investments, we get the better growth rate and ultimately allows us to not only expand margin, but continue to reinvest. So innovation matters. So that's an important pillar for Remainco strategy going forward. On an SG&A perspective, it's probably somewhere between 17% and 18% of sales. And then as we address that stranded cost, that number should start to come down on a go-forward basis.

And then lastly, which is your specific question on the CapEx piece, we will probably be in the range of 5% to 6%. Now remember, H&B runs at a higher rate when you compare to their best-in-class peer. And so that will be 1/3 of our business. And then I would compare the F&F or Scent and Taste towards the best-in-class peer there who runs a little bit lower. So when I think about the blended average, that 5% to 6% makes a lot of sense and intuitive of what we're targeting. But I will caveat that over the next 1 or 2 years, we think we'll be at the upper end of that 5% to 6% range, so more towards that 6% because we have some critical initiatives that we know that are good high-return initiatives that we're making on a go-forward basis.

So, all in, we're really pleased with the transformation progress that we have. You see it from the financial statements of the change. But we also acknowledge that we still have a lot more work to do. But that through the reinvestment and through some of these step changes, we'll continue to drive the IFF transformational journey.

The next question is from the line of Matthew DeYoe with Bank of America.

Can you just give us an indication on maybe where price and volumes were for 2Q? And then how we should think about layering in price over the course of the year? And I guess, along that lines, just like some of the price/cost ebb and flow as it relates to the cadence, 2Q, 3Q, 3Q, 4Q.

Maybe I'll take this one, Matt. Thanks for the question. In the second quarter, growth was really all volume. That's across all the 3 divisions. So pricing was very little at the end of the day, if any. As we think about the second half of the year, that's also true. Volumes will be the primary driver of growth, again, across all the divisions. Pricing will be a modest benefit, but I would consider it a rounding decimal at this point in time, very honestly. As we progress going forward into 2027, that's where we'll see some of the pricing catch up. Hence, the lag that I referenced in the earlier on.

So embedded in the guidance is a little bit of a press on price to input cost or raw material cost. And so we're managing that. As Erik referenced before, we're driving the productivity agenda to making sure that we can still deliver good EBITDA margin and EBITDA year-over-year growth, and it's a focal point for us on a go-forward basis. But as I think about the second half of the year, the most important aspect for me is really driving that volume, making sure we get that volume, good leverage and productivity that will help from an EBITDA perspective.

The next question is from the line of Jeff Zekauskas with JPMorgan.

Jeff, are you there? Operator, we can move on to the next question.

The next question comes from the line of Chris Parkinson with Wolfe Research.

On the Scent business, you've had a long-standing initiative to kind of get the balance there right, invest in R&D, grow your market share back. Can you just kind of break down how we should be thinking about the differences and kind of the drivers of the recovery in the Consumer Fragrance business? Obviously, it seems like there's some a little bit of noise due to the Middle East conflict on Fine Fragrances. But I'd love to just talk about how you see those things in the second half of the year and then top that off just with how you believe your R&D initiatives are going and how you think that business should further evolve into 2027?

Great. Thanks for the question. Let me start and then Mike can talk more about the financials. But first of all, I'm really, really pleased with the team that we have in Scent now. Ana Mendonça is a great business leader. She loves the Scent business. She's well recognized around the world. And she has a great team, Fine Fragrance, Consumer Fragrance, Fragrance Ingredients as well as the R&D teams. Really great leadership, really great teamwork and an absolute commitment to being leaders in this area. And this is an example, the R&D pipeline, I've got to say 2.5 years ago was not what it should have been. We were falling behind. Today, I think we've got a very strong R&D capability. We've got a great R&D team. We've got great perfumers that are developing absolutely leading -edge new Fine Fragrances and Consumer Fragrances. And we've got a great pipeline of molecules as well as delivery systems. So I couldn't be more pleased at the progress that we're making.

Now we're not satisfied. We've done a lot of work, but a lot more to do, but we're making really good progress, strengthening our strengths and addressing our gaps and really I am very optimistic about the future of Scent. But Mike, do you want to add anything on that?

I think it's well said. Chris, the way I would dimensionalize just in terms of growth rates without getting too specific, Fine Fragrance, I suggest there will be a little bit softer in Q3, but a stronger Q4. So I'm thinking on a second half basis in the mid-single-digit range. And so again, continuing that trend on strong comparables. So that's a nice trajectory they have there.

On the Consumer Fragrance side, you're in that low single-digit range. We had a really good Q2 at a high single-digit number, but that will -- we expect that, that will normalize a little bit on a go-forward basis to kind of a low single-digit number. And then the one area which I just want to make sure I'm 100% clear on the Fragrance Ingredients number, it was very strong in Q2. We do believe that as we go forward, that will normalize on a go-forward basis. So that one will be slightly under pressure in terms of year-over-year performance just to calibrate.

But I think the team has really done, as Erik said, a good job on the compounds, which is fine and consumer to rebuild the R&D capability go-to-market approach with customers, and trying to drive market share gains there. And on the Fragrance Ingredients side, it is that shift that we talked about to higher-value natural products. So that's underway. That will take a little bit more time, not in the second half of this year. But as we go into next year and the year after, we believe we'll have a really strong competitive position.

At this time, there are no questions registered. So I'll pass the call back over to Erik for any closing remarks.

So thank you for joining the call today. We are very pleased with the progress that we've made over the last 2.5 years, but there's a lot more work to do. We've got to get Food Ingredients deal closed, Food Ingredients moved over to CVC and really ensure that we're driving Scent, Taste and Health & Biosciences to great futures. And I just want to finish by saying that I really, really appreciate what the colleagues -- our colleagues of IFF all around the world are doing to strengthen the company, deliver today but make us even better for the future.

And then finally, just to close, I just am really proud of the leadership team that we have, including the 4 presidents of our businesses. Ana Mendonça I mentioned for Scent, Yuvraj Arora, doing a great job leading the Taste business. Leticia Gonçalves, leading our Health & Biosciences business, a terrific progress there. And then Andy Muller, who's turned around the Food Ingredients with his team business, gotten a great deal with CVC, a win-win deal with CVC, a great future for them and glad to have 10% ownership tail there as they grow that business. So just very pleased with the progress that we're making, but the best is yet to come.

Thank you all. At this time, this will now conclude today's conference call. We appreciate your participation. We hope you all have an amazing rest of your day. And at this time, you may now disconnect your lines.

At this time, I would like to welcome everyone to the IFF First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's First Quarter 2026 Earnings Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude these items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis, unless otherwise noted.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end.

With that, I would now like to turn the call over to Erik.

Thanks, Mike, and hello, everyone. Thank you all for joining us today. IFF's first quarter 2026 results reflect our continued focus on execution while serving customers with leading innovations and driving productivity and cash flow. Even amid uncertain market conditions around the world, we're making solid progress on our commitments as we continue to strengthen IFF for long-term success.

I'll start today's call by briefly summarizing the first quarter, and then I'll talk about the key strategic progress we have made so far this year. I'll then turn the call over to Mike, who will provide more details on the first quarter results, segment performance and our outlook for 2026.

Turning to Slide 6. Our team delivered a solid start to the year in the first quarter. Across all our businesses, we delivered solid sales growth driven by volume improvements. Our Health & Biosciences segment led with mid-single-digit sales growth, while Taste, Food Ingredients and Scent all grew low single digits. This growth, combined with our productivity initiatives, resulted in a higher margin.

In the first quarter, we also generated a strong free cash flow improvement compared to last year. This reflects a focus on cash, including working capital. Over the past few years, we have made significant progress simplifying our portfolio. This strategic effort is resulting in our being able to focus and reinvest in our core and highest growth businesses while achieving our deleveraging targets. In March, we completed the divestiture of our commodity soy crush, concentrates and lecithin business to Bunge for $110 million.

Looking ahead, the sale process for our Food Ingredients business continues to make very good progress. While we do not have any additional information to share today, we're pleased by the strong interest in this business, and we will let you know as soon as there is news to share.

In the first quarter, we also announced regional production and added innovation capabilities to better support the continued strong growth of our Health & Biosciences business in Latin America. This includes the startup of our Arroyito site in Argentina, our first full fermentation-based enzyme production in the region, and we opened a household care application laboratory at IFF's Innovation Center in Brazil. Together, these will improve our speed, reliability and locally relevant solution for markets, including brewing, animal nutrition, biofuels and home care. Now with respect to the macroeconomic environment, including the ongoing Middle East conflict, it is clear that uncertainty and challenges will continue to persist through 2026, but we remain focused on advancing our commercial and innovation pipelines, driving productivity and working with customers to offset inflation.

This, when combined with our solid start to the year, derisks the balance of the year and gives us the confidence to reaffirm our full year 2026 financial guidance ranges despite this uncertain environment. IFF's diversified portfolio, the essential nature of our business, strong value proposition and disciplined execution position us well to navigate ongoing volatility.

In sum, we are doing what we said we would do with discipline and clarity. IFF is laser-focused on achieving the strategic goals we clearly laid out 2 years ago. Our leadership team and our highly dedicated IFFers all around the globe are committed to delivering high-value products that anticipate and solve the evolving needs of our customers. While there's more to do, I'm proud of our progress and how our global team keeps strengthening how we serve customers to enable us to deliver on our commitments.

And with that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining today. IFF delivered revenue of greater than $2.7 billion in the first quarter with volume growth across all businesses. This solid performance led to 3% sales growth for the quarter, driven by mid-single-digit growth from Health & Biosciences and low single-digit increases from Taste, Food Ingredients and Scent.

Adjusted operating EBITDA totaled $568 million for the quarter, an 8% increase driven primarily by volume growth and productivity gains. Our adjusted EBITDA margin also increased by 110 basis points on a currency-neutral basis to 20.7%, which is our highest EBITDA margin since the second quarter of 2022. We continue to focus on what we can control and the strategic progress we've made across all of our segments is clearly visible in these results.

On Slide 8, I will provide a closer look at our performance by business segment. In Taste, sales increased 2% to $656 million, growing in all regions with a notable mid-single-digit performance in Greater Asia. This segment also recorded very strong quarter of profitability improvements with adjusted operating EBITDA of $153 million, an 18% increase from the year ago period.

Profitability gains were primarily driven by volume growth, favorable net pricing and productivity gains. Food Ingredients sales were up 3% to $839 million as growth in nearly all businesses was led by strong double-digit increases in inclusion and mid-single-digit growth in systems. Volume growth in the quarter was approximately 5%, the highest it has been in several years. Food Ingredients had a strong quarter profitability-wise as well, delivering an adjusted operating EBITDA of $114 million, a 12% increase year-over-year, led by volume growth and productivity gains.

Our Health & Biosciences segment achieved sales of $595 million, an increase of 5% from the prior year, which was all volume-driven with growth across nearly all businesses, especially in Animal Nutrition and Food Biosciences. From a profitability standpoint, Health & Biosciences delivered adjusted operating EBITDA of $153 million in the first quarter, an increase of 7% from the prior year, driven primarily by volume growth.

Lastly, our Scent segment delivered sales of $651 million, representing a 1% growth from the prior year. First quarter performance was led by growth in Fine Fragrance, which had a strong double-digit year ago comparable and consumer fragrances. Fragrance Ingredients was down in the quarter as expected due to continued market softness and price competition in the commodity portion of our portfolio. Adjusted operating EBITDA for the segment decreased 2% to $148 million as benefits from volume growth and productivity gains were more than offset by unfavorable price-to-input costs, specifically in the commodity portion of our Fragrance Ingredients business.

Turning to Slide 9. Cash flow from operations totaled $257 million, which is an increase of $130 million year-over-year and CapEx was $165 million year-to-date or roughly 6% of sales. Our free cash flow position in the first quarter was $92 million, increasing $144 million year-over-year. As mentioned last quarter, we remain disciplined in our execution across all elements of working capital as is a key priority in 2026 and as we remain focused on driving a meaningful improvement in cash flow this year.

During Q1, we also returned $102 million to shareholders through dividends and an additional $35 million through our dilution plus share repurchase program. Our cash and cash equivalents finished at $562 million at the end of the first quarter. As of March 31, our gross debt totaled $5.85 billion, a significant decrease of more than $3 billion compared to the prior year period. Our trailing 12-month credit adjusted EBITDA totaled approximately $2.1 billion. Our net debt to credit adjusted EBITDA ended Q1 at 2.5x, slightly below last quarter. Disciplined capital allocation remains a core focus for us as we maintain our balance sheet strength through operational execution.

Turning to Slide 10. I would like to walk you through our full year outlook for 2026. We are off to a solid start with first quarter results that outperformed our expectations going into the year. This strong performance derisks the balance of the year and gives us confidence to reaffirm our full year 2026 financial guidance ranges. We are operating in an unpredictable environment, particularly as it relates to the ongoing conflict in the Middle East. While we cannot control the macro backdrop, the factors that we can control, including the strength of our commercial pipeline, the depth of our customer partnerships and our continued productivity gains gives us confidence in our ability to execute through this period.

For full year 2026, we are reiterating our sales expectation of $10.5 billion to $10.8 billion, representing 1% to 4% growth. We expect to deliver top line growth in all our divisions, supported by new wins and robust innovation pipeline. From a profitability perspective, we continue to expect full year adjusted operating EBITDA of $2.05 billion to $2.15 billion, represents 3% to 8% growth with solid margin expansion. We continue to expect foreign exchange to have a roughly 1 percentage point positive impact on full year sales growth with a minimal impact on adjusted operating EBITDA growth.

Our full year guidance now reflects only 2 months of the soy crush, concentrate and lecithin business as a divestiture closed about a month ahead of schedule on March 2 versus the April 1 date embedded in our original guidance. As a result of the ongoing Middle East conflict, inflationary pressures are expected to build over the course of 2026. We are proactively working with our customers to offset these pressures through pricing actions, starting with surcharges related to logistics and energy costs and then building to account for raw material inflation.

In terms of phasing, we expect these inflationary trends to adversely impact profitability in the second quarter of 2026, where costs will begin to increase and our pricing actions are not fully implemented. Post Q2, we expect this pressure to gradually ease through the back half of the year as pricing actions take full effect. In addition, our most significant exposure to the Middle East conflict, both from a sales and margin perspective, sits within our Scent business and our Fine Fragrance business in particular.

We anticipate the Fine Fragrance volume in the Middle East will be impacted in the second quarter, due to slower market demand but also temporary supply chain challenges our customers are facing such as getting packaging into the region. When combining these impacts, we expect absolute EBITDA dollars in the second quarter to be lower than the $568 million we reported in the first quarter, principally driven by lower volume, unfavorable price to input costs and weaker mix related to Fine Fragrance softness.

Stepping back, our full year outlook we are reaffirming today reflects a different shape to what we expected 90 days ago with a stronger Q1 and a more measured balance of the year given the Middle East conflict, but our full year goal is unchanged. Behind that consistency is the strategic progress we continue to make at IFF.

We are applying stronger discipline to direct capital allocation towards higher-value initiatives, strengthening our innovation and R&D pipeline, investing commercially where we have great opportunities and driving structural productivity that will compound profitability leverage moving forward. We are pleased with what we're building in terms of a more focused, more competitive IFF, and that gives us confidence in the value we're creating as we move forward.

With that, I would now like to turn the call back to Erik for closing remarks.

Thanks, Mike. Now to close, I want to reiterate that the core businesses at IFF are strong and performing well. Our Q1 2026 results reflect the continued progress we are making in delivering on our commitments. Even in an uncertain and evolving macroeconomic environment, we've stayed focused on what we can control and doing what we told you 2 years ago, we would do, getting to a focused portfolio of 3 strong businesses that are performing well with significantly more potential to create value for many years to come.

I continue to spend a lot of time traveling the world to visit our teams and customers, and I'm ever more energized and confident about our future based on what I see and hear, including how our commercial and innovation pipelines continue to grow in advance. And I'm pleased that our focus allows us to reaffirm our full year 2026 guidance. We are investing for the future. in innovation, commercial and supply chain capabilities and in customer partnerships that matter most.

I'm confident that we have the right strategy, the right team and the right innovation to continue to create long-term value. Thank you, and we'll now open the line for your questions.

[Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Baird.

I guess on the outperformance that you delivered during the first quarter, can you just give us more color on the specifics that drove the upside? And also sort of looking back at the quarter, do you think you benefited from any sort of out-of-pattern ordering due to customer prebuying, et cetera?

Ghansham, thanks for the question. So the strong top line and operating leverage during the first quarter was driven by, first of all, volume-led growth across all our segments, which was great to see and continued solid productivity. We continue to strengthen our productivity muscle. And although we don't know all the reasons for specific orders from all of our customers, we have not seen any indication of significant prebuy.

Our next question comes from the line of Lisa De Neve with Morgan Stanley.

You talked a little bit on the call on the Food Ingredients exits, which is very helpful. I mean just wanted to understand, I mean, can you share some -- where you are in the process right now? And maybe when you intend or hope to update the market on any potential events?

Thanks, Lisa. We are running a very disciplined process, and it's going very well with several potential buyers going through second round of due diligence, and the feedback has been very positive so far. The business, as you know, is performing well. It had double-digit EBITDA growth in 2025 and again in the first quarter of this year. So that gives us a lot of confidence that we will get through this process in a very positive way. And as I said before, we expect to have an update by our second quarter earnings call.

Our next question comes from the line of Nicola Tang with BNP Paribas.

I wanted to ask what assumptions on both pricing and input inflation you're baking into your top line and EBITDA outlook. I'd love to understand kind of magnitude and how much of the inflation do you expect to offset this year?

Nicola, thank you for the question. You're right, we are seeing inflation across various inputs. Just to dimensionalize, Brent crude is a good indicator as it's up significantly versus the average of 2025, and that impacts a couple of elements of our cost baskets. At first, it starts with energy and logistics inflation, where we're starting to already see double-digit increases coming through. And then over time, it will make its way to some of the raw material costs, which we haven't seen a big change yet, but we expect it to come later this year. But please remember, we do have inventory on our balance sheet. So we have some protection in the short term as it relates to raw materials.

And so really, our focus now, energy and logistics, given it's more real time. So we're working with our customers to implement pricing surcharges. This is underway and will build throughout the quarter. And then as you know, our pricing in our industry is a strong part of our algorithm in the sense that it's the part of the way we do business. And so consistent with historical inflationary cycles, we collaborate with our customers to fully offset any inflation. And usually, it's a 12- to 18-month period. I do not expect anything materially different this time around as we continue to engage and work with the customers there.

Our next question comes from the line of Fulvio Cazzol with Berenberg.

Back in February, you anticipated a slow start to '26 and for organic sales growth to sequentially accelerate through the year, supported by the strong innovation pipeline, the improvement in commercial execution. Now I understood the comments that you made regarding the Scent business in the second quarter. But for the rest of the segments, is that still your expectation?

Thanks, Fulvio. So the first quarter came in better than expectations with really good execution across all of our businesses. However, we did not anticipate the Middle East challenges. But as you can see, we have developed the ability to deal well with unexpected global challenges over the recent years. Now having said that, our second quarter is challenged due to factors that Mike explained, but we do expect the commercial pipelines to continue to deliver in the second half, and that's why we are confident in our full year guidance.

Our next question comes from the line of Kristen Owen with Oppenheimer.

Just hoping you can discuss some of the scenarios around the remainder of the year. You've given some good color on Q2. But given the strength of the Q1 results, what needs to happen to get you to the high end and the low end of the guide?

Thanks, Kristen. We're very pleased, as Erik said on the call earlier with the start of the year, right? Volume profitability came in a bit better than we expected. As we look towards the balance of the year in our forecast, we are cautiously optimistic in terms of the operating environment going forward. In terms of top line performance, we are assuming that there's really no fundamental change in the lower consumer demand environment. So for us to achieve the higher end of that, end market demand would have to pick up and improve and contrary to be at the lower end from that perspective. Fortunately, we do have a very strong innovation pipeline and a commercial pipeline that we're working with our customers, and that is a big part of the reason why we have confidence in the sales guidance range.

In terms of EBITDA performance, we remain focused on driving profitability, and our guidance range reflect the now inflationary environment that happened post our original guidance in February. And so the team is fully focused and committed to working with customers now to offset initially through the pricing actions related to surcharges for logistics and energy, but that does take some time. So as we progress over the course of the year, we will see an improvement there. But any material difference between the 3% and the 8% range really is going to come from the pricing aspect to offset the inflation.

The good thing is that at the same time, we're working on incremental productivity initiatives. So in the event that we have flexibility, we're working to drive profitability over the course of the year. And so all in, while the environment has changed, we are consistent with what we're trying to achieve and consistent in our outlook for the full year.

Our next question comes from the line of Michael Sison with Wells Fargo.

Nice start to the year. Just curious, you and the industry have to raise prices. It's pretty obvious why. At what point does this inflation flow through to the consumer and start to impact demand? When I run by duty-free, you look at the fragrance prices, they're pretty high. So just curious both in the businesses at what price does -- at what point does demand start to get impacted by the higher prices?

Thanks, Mike. I expect demand to continue to be solid given everything that we're seeing. In Fine Fragrance, we expect to see continued solid growth for the full year, although less than the double-digit growth we have been seeing. And as we discussed, there is a temporary slowdown in Fine Fragrance in the imports to the Middle East due to the factors of what's going on there. In Consumer Fragrance, we've seen the pipeline grow and we've seen lots of interest in our innovation that we're bringing to the marketplace. And other than the commodity ingredients, which is about half of our Fragrance Ingredient sales, everything else is on a solid base for the full year.

Our next question comes from the line of John Roberts with Mizuho Securities.

This is Edlain Rodriguez for John. A quick one on Scent. I mean, the Ingredients business continues to be the weak link, it seems like. Like how should we think about that business now initially with raw materials going up in the hydrocarbon cost? And how we think in long term, like, how should we think about your position being that long in scent ingredient production?

Thanks, Edlain. So just to reiterate, our Fragrance Ingredients business outside sales is about $500 million a year, and it's roughly half specialty and half commodity. Now the specialty side is very attractive, and we're going to continue to emphasize that part of the business. And we're going to further strengthen it with a strong R&D pipeline that we have -- where we're driving for both internal formulation use, but also external use. And we'll do more here in specialties. We'll do more in naturals, synthetics, and biotech molecules.

Now on the commodity side, that's the part that's very, very challenged and challenged by Indian producers, Chinese producers. And it's an area that we need to continue to have competitive cost for our internal formulation use, but we're deemphasizing sales externally. And you'll see that happen over the coming year or so.

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. With your balance sheet in better shape and incremental cash flow from the divestiture of Food Ingredients on the come, how are you thinking about capital allocation between stock buybacks, R&D investment, bolt-on M&A opportunities and new ventures like Alpha Bio?

Thanks, Matt, for the question. Also maybe just to start, we remain very disciplined in the terms of our allocation -- our capital allocation strategy. Our net debt-to-EBITDA leverage is 2.5x, and we've recently implemented a share buyback program to offset dilution. I think that came in September or October of last year, 2025. In the event that we do have an influx of cash and it comes from a potential divestiture, we will look to maintain our net debt-to-EBITDA leverage, plus or minus 2.5x and then thinking about use of proceeds really around repurchase opportunities to minimize any potential dilution related to a transaction.

All that being said, at the same time, we also look to fund organic growth investments that have higher return profiles and look and pursue potential bolt-on acquisitions and ventures that create strong shareholder value. But I think Erik said discipline a couple of times in his couple of answers. For me, we will be disciplined on how we allocate capital to ensure we're generating strong shareholder returns.

Our next question comes from the line of David Begleiter with Deutsche Bank.

This is Emily Fusco on for David Begleiter. Do you still expect North American health trends to improve starting in the back half of the year with a full recovery in 2027?

Thanks, Emily. The short answer is yes. As we said earlier, we expect the first half health to be flattish and then return to growth in the second half, with acceleration into '27 as our commercial and innovation pipelines deliver with customers. And we continue to see that. We're very pleased with the team we've got in place now and all the efforts that they're making and what we're hearing back from customers as well.

Our next question comes from the line of Josh Spector with UBS.

It's Anojja Shah sitting in for Josh. Thank you for the guidance on Q2, but can you give us a little more detail there, maybe some of the moving parts to get to what you're guiding to for Q2?

Sure. Thanks for the question, Anoj. As you know, we don't give specifically quarter guidance, and we're really focused on delivering the full year objectives and full year results. But to help with modeling, I tried to give some qualitative in my prepared remarks, maybe I'll go a little bit deeper here. In Q2, we expect EBITDA to be lower than our Q1 performance. That's what I said in my prepared remarks. And when I think about it, there's probably 3 drivers.

One, we expect growth to be more moderate in Q2 versus it was in Q1. We also expect to have a bit of an unfavorability in terms of price to input cost as we talked about, we're seeing energy and logistics charges rising, and we haven't really fully implemented our surcharges in place yet, and that will happen over the course of the quarter. And so that will create a bit of a margin pressure in terms of where we are this quarter from Q2.

And then ultimately, the third part for me is really that Fine Fragrance being under pressure because of the Middle East, there's a small mix dynamic there. So when you shape those together, that was why I tried to dimensionalize Q2 EBITDA will be lower than Q1. But then as we move through the second half of the year, all 3 of those various elements should improve, and then we'll progress to the year and finish on where we think to be on a full year guidance range.

Our next question comes from the line of Laurence Alexander with Jefferies.

Erik, if memory serves, when you first came in, kind of your -- one of your goals for the segments was to recoup the share positions that they used to have with a flat to higher gross margin for each of the subunits. Can you give an update on that strategy, what you've seen so far? How long do you think it would take to get there? What it could mean over the next 3, 5 years?

Yes. Yes. Sure. Thanks for the question, Laurence. I feel like we're making very good progress across the company. I think we've done a great job of getting the right to the right portfolio. As you know, the sale of Food Ingredients process is the next important step in that. And then when you look at the 3 future businesses, Health & Biosciences, we continue to make really good progress there in the enzyme areas. The one area that we're focusing and further improving is grain processing in that area, both in enzymes and yeast. But it's a great opportunity. We're doing well, but we can do even better.

Health is the area that we've talked about. We needed a turnaround. I think we're well on our way there with strong leadership, increasingly strong commercial pipeline and a strong innovation pipeline. So as I've discussed, we see that starting to turn in the back half of this year and into '27 accelerating.

In Scent, I think we've got a very strong position in Fine Fragrance. We've got some temporary issues we're working through that we discussed. Consumer fragrance, we've got a very strong team there with a very good pipeline. And then we've got an R&D machine that's really picked up in the last year that takes 18 to 24 months to deliver, but that -- we're seeing the progress in that pipeline that will deliver in 2027 that we're very excited about.

So the real issue in Scent is the commodity ingredients that we talked about, and we're dealing with that. And I think by 2027, we'll see that go away as a headwind and unleash the full potential of the rest of the Scent business.

In Taste, I'm very proud of the team there. We've got now a number of quarters of strong performance ahead of the market, and we've got a good pipeline there. We've got a great team, and we see that strong performance continuing.

And then finally, in Food Ingredients, you know about the sales process. But I think that's been enhanced by the great performance Andry Muller and his team have delivered. As you'll recall, in '23, we had 9% EBITDA margin; '24, they built it to 12% EBITDA margin; '25, 13%; and then this year, I think will exceed 14% EBITDA margin, and that continues to grow and see more opportunity there.

As we said before, the portfolio was optimized within that organization and focusing on the higher growth opportunity areas. We've seen a return to top line growth there that we expect for the full year. So just overall, I think solid performance, including in productivity. Are we satisfied? No. We're pleased with the progress, but we know we've got so much potential that we're creating a bigger ambition across each business, and we expect to realize that in the coming 5 years.

Our next question comes from the line of Patrick Cunningham with Citigroup.

This is Alex on for Patrick. Just curious with all the different puts and takes now, what your expectations are for free cash flow in '26?

Alex, thanks for the question. Cash flow improvement for us is a key priority in 2026. For the year, I continue to expect to see a meaningful improvement really driven by a couple of things: One, improvements in profitability; two, improvement in working capital; three, lower interest expense; and four, a lower incentive compensation payout year-over-year versus prior year. So that's a favorability.

Fortunately, we're off to a very good start for the year, but we still have more work to do as we go for the next 3 quarters to making sure we drive to our target. As I explained on our Q4 call, we've also added a compensation metric for the entire organization, really based on free cash flow conversion to EBITDA. And so now not only are we trying to drive it strategically, we are also counting on it to making sure we're driving really good behavior within the businesses and the overall company.

In terms of our specific target, I will refrain from providing a specific target until we have clarity on Food Ingredients. I think -- but the only thing I will say is that I do expect it to be better in '26 than it was in 2025. So we will see a year-over-year improvement overall.

Our next question comes from the line of Silke Kueck with JPMorgan.

Can you talk about in which segments you think you gained share this quarter, whether it's in Taste or Health & Nutrition? And can you quantify in some way like the product launches that are coming in the back half and in which areas they will come?

Sure. Great question. First of all, I think it's unhelpful to just look at one quarter. I think we've got to look at trends over time. And I'm very pleased with the progress that we're making in Health & Biosciences enzymes, very pleased with the progress we're making in Health & Biosciences cultures, the Food Biosciences. The area of challenge that we've talked about is the health area. I'm pleased with the progress we're making to turn that around. And as I said, we'll start to see some progress there in numbers in the second half accelerating into the next year.

In the Scent side, I think we've done very well versus the market in Fine Fragrance. We talked about some temporary challenges there. On the Consumer Fragrance side, as I've talked about before, I think we fell a little bit behind. We've now got a really strong team in place, a very strong commercial pipeline and we're starting to see that turn. And you'll see that, I believe, in the second half and again into 2027. And we've got a really good innovation pipeline in our Scent business that we did not have before. And I'm very pleased with that. And you'll see that starting to manifest in the marketplace later this year, but really with impact in '27 and beyond in '28 and beyond.

And then in Taste, a very solid performance. We're performing ahead of the market, and I expect that to continue. We've got a very good commercial and innovation pipeline there. We've got a great team there. And so I expect that to continue.

And then in Food Ingredients, the transformation, the turnaround continues, performance -- performing well against competitors in the different parts of that business. And that's why we expect the sale process to continue to go well. So overall, very pleased. We've got a couple of areas in there, the commodity scent ingredients, the health areas that we continue to have to get back to performing ahead of the market in health and deal with our commodity scent ingredients business, but we're making progress in all those areas. So pleased but not satisfied, more to do.

Our next question comes from the line of Christopher Parkinson with Wolfe Research.

It is Harris on for Chris. On the Taste margins, they came in a fair bit better than we were expecting on, say, not a huge amount of organic growth. So can we just zoom in on what's happening there? Is it productivity? Is it maybe pricing is a little ahead there, modulation mix? Just how should we be thinking about that?

Sure. Great question. Thanks, Harris, for that. Really, when I think about the taste business, they have been doing very well in terms of overall growth performance. And so quarter after quarter, whether you compare versus competition or just historical trends, they're continuing to deliver across the board and really predicated on really good volume growth, and the team has been driving that.

At the same time, they've been driving pricing, which has been favorable in terms of net raw material costs. And so that is also a secondary piece that's really helping, not only volume leverage, you're having a favorability in terms of net price to input costs. And third is really around productivity. And so the team has done a really good job of being very disciplined in trying to drive productivity throughout the business. That's helped support margin performance.

Now as I think about Q1 performance on a go-forward basis, timings of inventories and some of that stuff, I think it will abate in terms of that leverage that you saw, 18% currency-neutral EBITDA growth is very, very high. So I wouldn't expect that on a go-forward basis, and it will normalize. But they've done a very good job just the hand they were dealt from a Q1 standpoint to deliver.

Our next question comes from the line of Kate Grafstein with Barclays.

As you start to have pricing discussions with your customers, are you noticing any pushback? And then also, at what level of pricing would you need to offset the expected inflation over the next 12 months? And then I have a follow-up thereafter.

Maybe I'll start, Erik, and feel free. I had the fortune to actually run pricing in our Taste division for a couple of years in my career at IFF. So I will say nothing is fundamentally different. Conversation on pricing is always a give or take relationship. What's really, really important though is you go and engage based on facts. And so what you see from a market standpoint today, nobody can refute logistics, energy increases overall. So we're really having the tactical conversations specifically on that.

We also want to collaborate with our customers. And so we can offer solutions to help them reduce cost by reformulating, doing different types of things, we are absolutely more than willing to do so. And so those are the types of conversations we're having now. So nothing is better or worse than where it's been. It's always been -- it's kind of consistent to the historical norms.

In terms of the level of pricing, I think the way I would kind of categorize it, and I'll refrain from giving too many specifics. I think there's probably a modest benefit or increase in terms of overall price this year as we work through really on the logistics and energy piece to it. But as we go forward, we're really focused on the raw material piece. And as we go in the back half of this year and really into '27, we've got to get our heads around that and start working with our customers there. So that's the way we're treating it. It's modest, Katie, this -- the next couple of quarters in terms of overall price, but I think it will build over time as we progressively move forward.

And let me just add that having trust with our customers is really, really important to us. So we're being very clear that we're not trying to take advantage of this and increase our margins. We're trying to just pass through the cost increases we're seeing from these higher costs and being very clear about the cost. Where we're trying to drive our margin improvement is through great innovation that customers love and help them profitably grow and through productivity. Katie, do you have a follow-up?

Yes. I just wanted to ask on the productivity piece. I guess, is there -- it's been very strong. It was strong last year, strong this quarter. Is it possible to accelerate the productivity as another lever if pricing doesn't come through as strong as you expect?

Yes. I think the answer is yes. I think you can always look at the organization, you can always look for incremental opportunities. We have a long-term productivity plan that the teams are working on as they think about their margin evolution. But in terms of the short term, if there is a short-term pressure, we should have levers that we can pull and try to drive in terms of incremental productivity to help minimize any potential gaps. But first and foremost, really focused on making sure we get the surcharges in place. And then as we progress over the course of the year, we will consider whatever we need to do in terms of productivity to cover.

Thank you. At this time, I would now like to turn the conference call back over to Erik for any closing remarks.

Well, thanks, everybody, for joining. I just want to summarize by saying that 2 years ago, we laid out our planned direction. We're executing well, doing what we said we would do. We've said we would drive our commercial pipelines, our innovation pipelines, that's happening and that we would deliver on productivity, that's happening. I am very proud of Team IFF all around the world making this happen. And let me just close by saying that we love our customers, and we love bringing them leading innovation that helps them drive profitable growth and enables us to also profitably grow. Thank you.

Thank you. That will conclude the IFF First Quarter 2026 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.

Good afternoon, everyone. We're excited to welcome International Flavors & Fragrances back to CAGNY, especially Chief Financial Officer, Michael DeVeau, who is representing his team that includes CEO, Erik Fyrwald, who's celebrating his daughter's wedding and several business unit heads who are here with us today. We're very lucky to have them. Please join me in thanking IFF for sponsoring dinner tonight, which looks absolutely spectacular.

For decades, IFF's products and systems have added critical value to many of the presenters here this week and many consumer companies all around the world. In 1 year on the job, Michael and his team have taken equally critical steps to rejuvenate the shareholder value machine. They've repaired the balance sheet and executed a disciplined capital allocation strategy, including portfolio optimization through divestitures. More importantly, they're driving productivity by implementing a new operating model and key process transformation proven principles that are already working for IFF. Michael, welcome. Thank you, and take it away.

Great. Thank you, John, and thank you, CAGNY, for having us again. I appreciate the warm introduction. Before we begin, I do want to extend the invitation to dinner tonight. It's -- I think it's been 3 years or 4 years since we actually hosted a dinner here. It's an awesome time for us because you hear us speak about certain things, but we actually bring it to life later on. So if you can make it, it would be fantastic to have everybody join.

Maybe just very, very quickly covering the cautionary statement, and I'll go quick, the non-GAAP reconciliation -- a reconciliation of our non-GAAP measures to our GAAP measures can be found on our website. So if you have any interest or questions, please look there. Really excited to tell the IFF journey story of where we are today versus where we were a couple of years ago. I did bring some friends with me today. So maybe just quick formal introductions. Yuvraj Arora leads our Taste division. Leticia Gonçalves leads our Health & Biosciences division and Ana Paula Mendonça leads our Scent division and Michael Bender on the end who leads Investor Relations for us.

And so I'm going to go pretty quickly, and then I'm going to turn it over to them because they're the main part of it of the story. But I do want to start for people that are newer to the IFF story or want to get a refresher to it, really want to leave a couple of key points. One, we are a strong and highly diversified business. And so when you think about our industry, it is attractive. There's high barriers to entry, steady growth, good margins overall. The value proposition of our story is really strong. We represent 1% to 4% to 5% of the cost of a product, but we're 50% of the reason why consumers purchase a product. They like the taste or smell, right? That's the reason why they're buying. We're in the business of what I consider as essentials, right? So in an environment where there's a lot of volatility, diversification matters.

And so if you look at the bottom of the chart, you could see four divisions, Food Ingredients, Taste, Health & Biosciences. We're going to focus on the three today, but it's pretty balanced across the board. By market, you could see it's about 50% developed markets, 50% emerging markets, different growth dynamics that the team is going to touch on, but an important factor when we think about the overall diversification. And then all of you here have been here all week. So there's a lot of multinational CPG companies. A lot of them are big customers today. That's about 1/3 of our business, but we have 2/3 of our business that are midsized, local, regional, smaller players and private label. Really good when you think about the growth dynamic, right? And so from a diversification aspect, very, very strong.

Strategic progress. We've been on a little bit of a journey. We went through an acquisition phase, a little bit of a divestiture phase. And what I really like -- let's anchor back the last 2 years, 2 or 3 years. And we've had a lot of great strategic progress overall. There's a lot on the slide, so I'm not going to cover it, but there's three to me that stand out. And I think actually John did a very good job at summarizing it. First, it's really about what we did to strengthen the business. And I'm going to go through this in a minute, but it's how do we think about the reinvestment aspects, and OpEx and CapEx to get us to be a long-term profitable growth, sustainable platform. We've also changed a little bit of the operating model. So these individuals actually have full accountability, everything from sales to EBITDA to cash flow. So they have end-to-end accountability, which is super important when we think about the execution dynamic.

We've also had a lot of work on portfolio optimization. We've divested about 11 companies -- 11 businesses in the last couple of years and with the use of those proceeds, improved our capital structure to what I'd say is where it is today and hopefully is trending lower over time. But more exciting, as I joined a year ago in this role, specifically, the renewed focus on returns, cash flow generation, super important for me because it feels like it's bringing me back to days where this is about disciplined choice, right? The more choice we make, the better return philosophy that we have, the better the business will become longer term over time.

Let me quickly unpack, and I realize there's a lot on each one of these slides. So I broke it up in operational expenses, capital expenditures over the last couple of years. So going back from 2024 to 2026, you'll see we're spending about $150 million in operational expenses of reinvestment in the business. That's big for us. We haven't done that in many, many years. And that's really around innovation, R&D and commercial capabilities. Again, you're going to hear that in more. This is all supported by a culture of productivity. And so a lot of this is being driven by a lot of self-efficiencies that we're driving within COGS and SG&A to making sure we're funding this, not only to support the reinvestment aspect, but keep to the bottom line element to it.

At the same time, over the same period, we've increased our CapEx spend. And so you could see '24 is 4%, '25 is 5.5%, '26 it should be around 6%. This is really around capacity expansion. Leticia is going to explain some of that when she goes through her side from the health and bioscience of it, but also network optimization and digital transformation to bring IFF to the next stage as we think about profitable growth. We did all that over that same period of time and through 2026, midpoint of our guidance range while delivering 4% top line, 10% EBITDA growth. That's an algorithmic view of our business. We should be in these ranges as we think about our go-forward basis when we think about these three core businesses. And so Taste, Scent, H&B not only driving bottom line performance, but also driving the top line piece to it.

Food Ingredients was another big piece of the margin story. And so since 2023, they've actually expanded margins about 500 basis points to just shy of 14% when we finished 2025 overall. It's about volume growth, volume leverage. So growth is super important in our business. As we grow our business through those reinvestments, the incremental margins are between 30% and 35% EBITDA margin. So there's nice leverage in there. At the same time, supporting that is really around the strong productivity effort that we're trying to drive consistently.

Over that same period of time, we've also looked at the portfolio and we've optimized it up in terms of higher value, higher return, higher growth, higher-margin businesses. And so just as a point of reference, divested about 11 businesses really to sharpen the strategic focus, simplify the portfolio overall. But if you look back at the businesses we've divested, the average gross margin of those businesses are about 29% versus our year-end 2025 average about 36%. And so we're really, again, thinking about upscaling our portfolio to higher gross margin businesses over time.

Using the proceeds, which is about $6 billion of proceeds related to these 11 divestitures allowed us to address our capital structure. And so when you think about the capital structure, today, we're in a much stronger, much flexible balance sheet than where we were just 2 years ago. And so you can see here, we were at 4.5x in 2023. And then through the divestitures and the improvement in operational performance, we drove about 190 basis points improvement in our net debt to credit adjusted EBITDA to about 2.6x. And again, hopefully trending lower over time.

At the same time, we've authorized the share buyback program first time in 6 years, 7 years that we actually had authorization to do a share buyback of a $500 million authorization. It is a dilution plus model. So at minimum, we're looking to offset dilution. But at the intrinsic value of the business is -- or the share price is not meeting the intrinsic value, we will purchase more because we think there's upside and good return there.

Go-forward strategy, and then I'll turn it over to the businesses. If anything, I'll leave you with winning with a focus. It's about winning in the right markets with the right customers. It's about being done through innovation. So the more we talk about innovation, the more we bring innovation to customers, the more we'll win in the business. Targeting high-return opportunities, bigger, bolder bets with better return profiles will drive, obviously, top line growth, but also a margin premium as we continue to go. And then we're going to continue to maximize the portfolio towards that high-value businesses.

And so if the businesses are good and they're strong margins, we're going to make sure we invest behind them to get this proportional growth. And if there's areas that they're fixed -- that they're underperforming, we're going to try to fix it. And if we can't fix it, we will exit it. And so this is going to be all supported by what we say is people, process and digital transformation overall. And so maybe I'll pause there, and I'll introduce Yuvi to take us through the Taste side.

Thank you, Mike. Good afternoon, everybody. It's a pleasure to be here with all of you today. My name is Yuvraj. I have the privilege of leading our Taste division at IFF. My background is actually in CPG, and I've spent the bulk of my career with the Kellogg Company with roles in marketing and general management around the world. When I joined IFF a little less than 3 years back, I actually joined as the President of our Nourish division, which was the combination of our Taste and Food Ingredients businesses. In 2024, I led the separation into two separate externally reported segments as is today, Taste and Food Ingredients. And since then, I've taken over the leadership of the Taste business, a business that I've increasingly fallen in love with.

And I say this for three reasons. First is flavors are embedded in consumers' daily lives through all the products in food and beverages that they consume throughout the day around the world. Secondly, flavors are critical, the primary driver of consumer preference and liking disproportionate to the physical presence they actually have in the product, which is a great value proposition for us. And thirdly, we have a long-term structural tailwind as our customers innovate and renovate to meet evolving consumer needs, which is great for our business.

So we take a look at a snapshot of our business. First of all, we operate in a segment that is a great combination of scale and growth. So flavors market is estimated at $16 billion to $17 billion, growing 3% to 4%, which is again a great market to play in. Taste at IFF delivered $2.5 billion in net sales last year in 2025 with a 19% EBITDA margin. I must say here that we actually delivered market-leading growth of 4% top line organic and 10% EBITDA sales growth.

We have a global presence with our R&D, application and manufacturing sites around the world, catering to a large number of customers across diverse categories. Mike already alluded to it. We have an amazingly diversified business across any vector, food and beverage categories, geographies when you take developed or developing markets or customer size, large -- from large multinationals to small and emerging brands to actually small players in emerging markets. It's a balance that we are proud of, and we strive hard to maintain and strengthen as we go forward.

So where does IFF Taste stand out? First of all, we have leading positions, #1 or strong #2 positions in critical markets like India, Indonesia and the U.S. Second, we believe we have a leadership position in modulation, which is a critical technology platform, and I'll talk a little bit more about it in a minute. We have been using AI for a while now. We are strengthening our efforts there, not only in flavor development where it has a great application, but in things like concept development, where we can help reduce our customers' innovation development time lines and sometimes by eliminating market research for them. We have a distinct go-to-market model called Tastepoint, especially in North America to meet the needs of smaller tier and emerging customers and brands. So these are some things that we feel are competitive advantage for us.

Market and consumer trends. Actually, I'm not going to spend too much time on this because over the past 3 days, every company has spoken about exactly the same trends. In fact, all those companies happen to be our customers, and we thank them for their business and partnership. I'll just take a couple of examples here, particularly in the health and wellness area. One is GLP-1. I know there's been a lot of talk about it. We believe that GLP-1 is and will be the most powerful force impacting food and beverage consumption, not only in the U.S. but around the world. We have invested a lot in this area in terms of consumer and sensorial studies and work. And we have teams across our business units, Health & Biosciences, Food Ingredients and Taste, co-creating concepts and co-creating products with our customers to meet the needs of these consumers.

A second example, there is a revolution happening in the beverage category. This one, particularly skewed to North America, but you can see signs of it elsewhere as well. We've all seen alcoholic beverages are on a decline and beverage consumption is shifting towards different occasions and need states. On an average, an American has 57 beverage moments in a week. It's a giant market. And these occasions are shifting to more functional benefits like hydration, energy, protein and increasingly gut health. So we are pivoting in that direction as well. I'm going to take this opportunity to invite you all to the food and beverage booth later at dinner today, where you can interact with the team and go deeper into these two specific areas.

Now how we address these needs and evolving consumer needs, whether it's from a consumer standpoint or from a regulatory standpoint is through our innovation programs. We have two kinds of innovation platforms, the 6 that you see on the right-hand side, 3 Re-Master programs around critical flavor tonalities, so citrus, vanilla and meat. Citrus, as you can imagine, a very, very important flavor tonality in beverages. Vanilla is a foundational flavor profile, particularly relevant in dairy. And then meat, very important for soups, bouillons and noodles in Asia and Africa, which is a large segment over there. So we have specific programs aimed to develop solutions and further taste profiles in these areas.

And then we have our Re-Imagine programs, Re-Imagine delivery, which helps us meet the needs of our customers in different applications and processes. Re-Imagine Origins, which houses our program around clean label as well as critical commodity replacers and extenders like cocoa. But the flagship program that we have is under Re-Imagine Wellness, and that's around modulation.

So what is modulation? Modulation is basically we have a set of tools, technologies and solutions that help maintain and sometimes even strengthen the taste profile even as you reduce things like sodium salt or fat in a food or beverage or as you add things like protein, fiber and whole grain. The good news for our business is that the good stuff tastes bad and the bad stuff tastes good. So this is a great tailwind for our business. And modulation as a technology is now a sizable part of our business and has grown double digits for the last 5 years and in 2025. So this is an area where we continue to invest in future technologies to help our customers, which brings me to my last chart around how will we continue driving value creation for taste at IFF.

I'm a big believer in disproportionate focus behind areas that offer high growth potential or areas where we might be underdeveloped or underleveraged. So across the vectors that you see on the chart, we have made those choices to pivot us forward. In terms of geography, we have identified 6 geography clusters, which is U.S. and a combination of high-growth markets, which will drive more than 2/3 of our growth going forward, over-indexed growth from these markets.

I'll just take an example of Africa. While everybody talks about China and India, and they are very, very important, Africa is the next frontier. A 1/4 of the world's population is going to reside in Africa by 2050. It's the single largest, youngest population base. The average age of an African is 19 in that continent. The per capita consumption is on the rise, urbanization, middle class. So there's an explosion happening in processed foods and food and beverage categories over there. We are underdeveloped in this continent, and we are making investments and efforts to increase -- to get to our fair share and beyond there.

In terms of categories, again, we've got a widespread spectrum of categories, but we believe there are a few specific ones that will drive disproportionate growth. Lifestyle or functional beverages is perhaps the most important of them. Dairy, in particular, yogurt and dairy drinks with protein are going to be a very, very important area. And then meat tonalities in soups, bouillons and noodles for the emerging market population growth.

In terms of focus on innovation, I already talked about modulation. That is our primary focus area in terms of innovation. And then lastly, in terms of customer base, we've again identified three geographic channel clusters that will drive disproportionate growth. The first is distribution in Asia with a focus on getting to Tier 2 -- penetrating Tier 2 and Tier 3 towns in markets like India, Indonesia and China. These are the towns that are actually driving the growth for these markets. I often joke that Shanghai is no longer an emerging market. Shanghai acts like a developed market. So it's a Tier 2 and Tier 3 towns that are the most important there. Second, food service in North America, increasing on out-of-the-home consumption. You heard multiple companies talk about that. And third, private label, particularly in Europe and increasingly in North America.

We believe that the choices that we have made along with the capabilities that we've already demonstrated and we are investing behind will help us continue driving market-leading growth and help us meet our financial goals of midterm -- mid-single-digit top line growth and high single-digit EBITDA growth. So in summary, we operate in a great, healthy, attractive, sizable, scalable segment. We have demonstrated market-leading growth and our commercial pipeline is strong. And we are investing in the right strategic areas that can help continue driving growth and creating value for IFF Taste. Thank you. And I'm going to hand over to Leticia, the President of our Health & Biosciences division.

Thank you, Yuvi. So it's a pleasure to be here with you today. As I was already introduced, I lead our Health & Biosciences business for IFF. Joined the company almost a year ago. I'll be celebrating my first year in a couple of weeks. Really, really excited about the opportunities that we have in front of us to really deliver an amazing business and drive science into innovation in the market.

Our business is really a crucial engine behind how IFF deliver value through bio innovations every day. We harness science to shape life and well-being through bioinnovation across five unique and distinct segments: Food Biosciences, Human Health, Animal Nutrition & Health, Grain Processing and Home & Personal Care. What I love about this business, all those five segments have growth opportunities, and they are very diversified. Not only that, our products touch billions of consumers' experiences every day. 1 out of 3 probiotic supplements contains IFF probiotics. 1 out of 3 yogurts globally contain IFF cultures. 50% of cold laundry wash products contain IFF enzymes, just to name a few. Our Biosciences for impact is translating to a robust and profitable business platform that is here not only to drive scale, but also scope.

Let's talk a little bit about it. We serve a $20 billion market that is growing 2.5% per year. Even though 2.5% seems small, in fact, it's growing. It's growing even bigger in increasing the target addressable market that I'm going to talk in a few minutes. We operate at scale and scope. We just finished a very strong 2025 with $2.3 billion in sales and 26% EBITDA margin. We have over 7,000 customers, 4,000 employees and 38 sites that cross over R&D applications and manufacturing. And we have a very balanced exposure with a good mix of product portfolio, end market segments and global footprint. Most of our business is in Europe and North America. But good news, we are growing twice as fast in the emerging markets, especially Asia and LatAm.

What makes us special? What really differentiates IFF Health & Bioscience? What makes us win in those categories? A couple of things. First is our world-class biosciences capability from discovery to a scale innovation engine. We are not just inventing new things, we are innovating at scale with partners in the market. We are category leaders being #1 or #2 in probiotics, cultures and enzymes. And we compete with a full system approach from our broad portfolio, our deep partnerships, our technical expertise and our leading talent that really bridge science to co-innovating with customers and partners to differentiate solutions in the market. I've been with many customers in my first year, and it's amazing what I hear from our own customers saying, "We love your people. We love your science, and we love co-innovating with you." That's pretty powerful. These are all relevant advantages when consumers are changing fast.

I'm going to go quickly here because you already heard this through the last few days, and Yuvi already touched some of this, too. But there are three specific trends that are helping shape our growth strategy for Health & Biosciences. One, health and well-being amplified. Consumers are prioritizing healthy living from eating less sugar, eating more proteins, taking more probiotics for gut health and that all being now amplified through GLP-1 users as well. Biorevolution across the value chain from Regen Ag on the farm to bringing bio-ingredients and biomaterials through many consumer products. And the third one is all of that is great. But given the economic uncertainties, consumers and customers are looking to affordability, supply chain resilience and performance altogether. So there is no one that is more important than the other. All three matter, and we need to bring all of them without compromise.

How do we convert those trends into focused innovation with impact? That gets into our innovation platforms. Our innovation platforms drive measurable consumer value and customer differentiation. We invest $220 million per year in R&D. That's roughly 9% of our annual turnover. And 35% of our revenue comes from new product launches in the last 5 years. That's pretty powerful. A couple of examples. We have a great innovation platform around enzymes for cold and quick wash with superior fabric cleaning and care. Oh my gosh, if we can get all of that, that's amazing. Safer and better detergents, right? They can be quick wash, cold wash and superior clean and care in our fabrics.

The other one is how we're extending feed enzymes from chicken and pigs into cows. And imagine how many cows are in the world to feed. So that's a great opportunity. Better solutions for metabolic, immunity and digestive health in bringing a comprehensive approach to really address all those health needs and higher yield in our biofuel production. With the huge trend for more biofuels, we are helping the biofuel producers to really increase yield in their production.

Those are some examples, but something that really gets me excited every day since I joined IFF, that's the most exciting platform that we have in innovation, DEB. Design Enzymatic Biomaterials is a first to the world high-performing biodegradable material coming from simple sugars from nature. That allow us to expand the TAM to another $60 billion bio-based market opportunity. Every 5% market share translates into a $3 billion revenue opportunity for DEB. Good news, we are already commercial with a couple of products in home and personal care, but that's just the beginning. We are now expanding to many new applications into multiple adjacent markets that are today in specialty polymers. And we are not doing this alone. As we are bringing the science and the applications, we are already doing this with partners like Kemira and BASF to make sure that we can scale faster to the market. I hope all of you will be able to join our dinner tonight because you'll be able to see some of our innovation, including DEB into one of our stations there.

Bringing it all together, we are creating long-term value. We are also creating short-term value. And in order to maximize growth and profitability in the next few years, here are four areas of priorities. First, earn the partner of choice with our customers. Win with the big winners in the market, not only the existing one, but new ones that we are going after. We are also revitalizing our North America Health business by expanding our go-to-market capabilities into new e-commerce customers as well as new innovation. We are working to innovate faster and better by shaping bigger bets with existing strategic partners and also using AI to accelerate our ability to innovate from discovery to commercialization. Digital biology is one of the areas that we are innovating AI as an example.

We are expanding capacity for both enzymes and cultures to not only capture the market demand today, but to start accelerating to the future. And we are also driving an end-to-end supply chain optimization to balance cost and quality and optimize margin in our supply chain. And all of that only possible because we do have an amazing team. Our one high-performing growth-minded team is what's driving the biggest difference in our business. I'm really passionate about our people.

In summary, we are committed to grow faster than the market and improve our margins, targeting single -- low single -- mid-single-digit growth in our sales and high single-digit growth in our EBITDA in the next few years. And I truly believe with our science, our people and deep partnership with our customers, we'll be able to achieve that. Thank you. Now with that, Ana?

Thank you, Leticia. Go to the next slide. Hi, everyone. I'm Ana Mendonca, as Mike introduced me before, and I have the privilege of leading the Scent division for the past 2 years. But I've been part of IFF for 30 years now. Yes, you heard right, 30 years. It's a great journey. And we are -- I really -- I'm very passionate to this business as I am today, as I was 30 years ago. As we are delivering in our purpose every day in the Scent business with our leading scientists and our leading perfumers to help make the life of consumers better every day in creating joyful moments.

Scent is a core part of IFF's identity. It's a strong driver of growth and profitability and is a resilient business, and we've been delivering 22 consecutive quarters of growth even through the major transformations that Mike mentioned earlier. As you can see on the image, scent is present in consumers' life 24 hours a day, 365 days per year and is a powerful driver of emotion and premiumization.

I was at ACI, the American Cleaning Summit 2 weeks ago in Orlando as well, meeting with our main customers and the energizing piece of the conversation is that our customers are prioritizing innovation and product superiority to drive volume growth. And Mike mentioned this before, is a small message, but a powerful one that fragrance is a small share of the formulation cost of the end product and it has a disproportional share on choice, brand equity and value creation.

Now going to the business overview. The Scent business achieved $2.5 billion in sales in 2025 with a 21% EBITDA margin. We have a robust, broad and expanding and growing business. And if we look at the breakdown by business, we have a healthy and resilient portfolio. 1 out of 4 consumer products contains an IFF fragrance. Nearly 1 out of 3 perfumes sold in the world was created by IFF. And we have the largest fragrance portfolio in ingredients across synthetics and naturals.

When you look at the breakdown by geography, despite our strong U.S. roots and heritage, you can see more than 80% of our revenue is generated outside North America, and we have a strong position in emerging markets in Latin America, in Greater Asia. And as you can see, our largest revenue is coming from Europe, Middle East and Africa. And if you look at the breakdown by customer, at the end of the day, this business -- fragrance is a business driven by customer intimacy. And we have this incredible culture at IFF of customer obsession and customer centricity. And our global footprint with the creative centers, the application centers and the R&D centers really allows us to serve customers at scale as well as delivering locally relevant fragrances, which is really key for growth.

So where do we stand out? As I said, we have consistently grown ahead of the market. And we are market leaders in prestige Fine Fragrance based on our legacy, but I will tell later, we have identified new growing geographies that have helped us deliver tremendous growth in Fine Fragrance. I don't know if you know, but IFF invented the fragrance encapsulation nearly 2 decades ago based on our brilliant science working with our perfumers identifying an unmet consumer need. And that has really been very instrumental to our leadership position in Fabric Care. And in the last few years, scent boosters is a new format that is driving a lot of value in the fabrics category, and we have a very strong position there.

IFF is the undisputable leader in naturals. We acquired LMR, stands for Laboratoire Monique Remy in Grasse back in the 2000s and is a full ecosystem of solutions in naturals. We have scientists, we have perfumers. We have agronomists, we have creators, all focusing on developing a really strong pipeline of natural ingredients. We hold positions, as I mentioned earlier, in Latin America, leading positions in Latin America and in India. And I agree with you, there are geographies that are also maybe outpacing India, but for the scent business, it's a huge growth market.

We count on penetration of new categories for the Indian consumers, and that's going to grow, and we can capture value on that. And those are two of the most attractive growth markets between Fine Fragrance and our Consumer Fragrances as well. And we have, over the past 2 years, unlocked a strong and exciting commercial and innovation pipeline. And the focus now is conversion into sales. And our teams are really, really focused on those outcomes.

AI for Scent is not really changing dramatically the model, is basically becoming an enabler for helping efficiencies. I give you an example. Our perfumers spend time on reformulation, for example, for regulatory reasons, tox, we call tox modification, cost modifications, and we have a really good foundational piece there that can help our perfumers save time on those, let's say, mechanical activities and focus on growing the business and unlocking value. And of course, it's going to help us on our productivity goals, bringing efficiencies and augmenting creativity as we're always looking for unexpected combinations of ingredients to bring new solutions and AI can help us there as well. It's a journey, and we're at the beginning of that journey.

And I have to say, as Leticia said as well, that behind these achievements, I have an exceptional talented, passionate team of perfumers. We have some of the leading master perfumers of this industry with, I think, this being one of our competitive advantages. Perfumers make a difference in the scent business. They really bring the science and creativity together to unlock growth.

So we talked about market trends. I think for me here, it's a mix of trends that are challenging the scent industry and trends that are really creating amazing new opportunities. And the industry is changing rapidly and our customers' needs are changing rapidly as well. We all talked about the shift to clean label, sustainable solutions, and that creates tremendous regulatory pressures in the scent business from a fragrance ingredients catalog perspective. So we're working, of course, fiercely on that.

On the other hand, new generations, Gen Z and the new generations coming, they are driving the needs for personalization on fragrance and new rituals. If any of you have kids between 12 and 16, I think you know what I'm talking about. They're going crazy on fragrances. They are layering fragrances. They are creating new rituals. They are buying online. They are really changing dramatically the consumer behavior, especially on the fine fragrance and beauty categories. And then there is a growing role for scent in health and well-being, and that's an opportunity that we are leveraging. I'll talk a bit in a second.

So the IFF ambition on Scent is to lead the transformation of the scent industry given all the rapid trends we see happening. I want to spend more time here. Our full R&D transformation started 18 months ago. We virtually aligned the R&D priorities with our customer needs. We super, super simplified how we work upstream and downstream in science. And we increased our agility by leveraging the in-house capabilities that we have, while we have selectively formed external partnerships via open innovation. That's a great new mindset in the transformation.

We invested in three innovation platforms you see here. The first one is Science of Perfumery. Simply said, we have accelerated the building of a differentiated molecule portfolio between synthetic molecules and naturals molecules. The key here for IFF on that transformation is biotechnology. And that is where we are investing both on transforming existing ingredients or creating new molecules using and leveraging biotechnology.

The second platform is art of performance, and that's when we take those ingredients and apply to the formulation of our customers and deliver performance. I have one very practical example that if you join us tonight, you're going to be able to experience so don't miss it, is a new solution that we brought to the market called ENVIROCAP. Basically, it's a sustainable ECHA-compliant encapsulation technology. And what differentiated us here is that we used biopolymers working in great collaboration with Leticia and her scientists on H&B to be able to deliver an encapsulation system that is regulatory compliant and is delivering perceivable superior freshness, which is a major requirement for our customers. And that continues to help us reinforcing our Fabric Care leadership position.

And the third platform is what we call Science of Wellness. In fact, IFF pioneered in science of wellness many, many years investing in this space. There is a lot of new consumer needs, and we are designing there a portfolio of scent technologies to support emotional, physical and mental well-being. And again, if you join us tonight, if you're sleep deprived for whatever reasons, we have a scent for that. Come and see us. It will be an interesting moment. So those capabilities are actually the enablers that we need for our perfumers to win more than our fair share. And I'm excited about what we have achieved since we started the R&D transformation and very focused investment on those platforms, having ENVIROCAP being the case, let's say, the proof point that we are back winning with technology in Fabric Care.

So as I close, for me, it really comes down to clear priorities to drive growth and margin improvement in the Scent business. I'll start with Fine Fragrance. As I said, we have delivered outstanding performance in Fine Fragrance, double-digit growth every quarter last year, amazing performance from the team. And I wanted to say how important the bets are for the Scent business. 5 years ago, we identified Middle East as a potential growth opportunity for Fine Fragrance. And then we invested in our customer relationships, understanding the consumer from the younger generation to the mainstream, and we're able to deliver incredible, fantastic strong growth coming from the Middle East based on the Arabic perfumery phenomenon. And now they also export to countries as Brazil and to the U.S., and that has been one of the growth engines for Fine Fragrance. So we don't stop there. We are constantly identifying those opportunities. So new geographies, new markets, will be the future growth of Fine Fragrance.

In Consumer Fragrances, our growth has been driven by fragrance-led innovation, and probably you heard that from some of our main customers as well. That's where the focus is on the co-creation model, engagement model that we have with the FMCGs. And as I said earlier, ENVIROCAP is the proof point. But we also have opportunities to increase our market share in higher-margin personal care categories. We've gained -- we newly gained access to more opportunities in personal care with globals and regionals, and we have built a strong pipeline. Again, conversion to sales, it's where we're focusing on.

And in Fragrance Ingredients, I'll be honest with you, we're facing headwinds. The industry is facing headwinds in commodity ingredients. Our strategy has been to move to shift towards high-value specialties with proprietary molecules and continue to invest in naturals. So if you don't remember anything that I said today, but if you remember three things, one is for this business, it is about richer mix via fine fragrance wins, personal care wins, naturals and high-value specialties. It's about faster innovation. And I'm really, as I said, very, very excited about the transformation we have started in R&D, and that is going to be enabled by a simplified, streamlined R&D model.

And self-funded productivity, I didn't talk so much about productivity, but that's where we need to focus to be able to fuel our growth and deliver the efficiencies. We have a strong track record in the Scent business, as I said, 22 consecutive quarters of growth. I'm proud of that. And I'm confident on the outlook that we are sharing with you to achieve the target of mid-single-digit sales growth and high single-digit EBITDA growth over time. I'm very confident we made the right choices over the past 2 years. We have the right teams. We have a strong creative and commercial organization very much linked to our R&D organization, and we started rebuilding the momentum again. So thank you for listening to Scent. Mike, what do we do? Back to you or we wrap up?

Yes, I think we can wrap.

Yes, I think it's about all the time we have. We're going to take it to the breakout room. Please attend the dinner tonight. It looks spectacular. And please join me in thanking IFF once again for their great presentation and sponsoring a dinner.

At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Fourth Quarter and Full Year 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude these items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all sales and EBITDA growth numbers that we'll be speaking to on the call are all on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik.

Thanks, Mike, and hello, everyone. Thanks for joining us today. IFF's fourth quarter and full year 2025 results reflect a continued focus on disciplined execution and improvements across the business to further strengthen our position in the market. I'll start today's call by briefly summarizing the progress we continue to make in executing our strategic priorities, followed by a few highlights of how this translated to our 2025 financial results. I'll then turn the call over to Mike DeVeau, who will provide more details on the fourth quarter, segment performance and our outlook for 2026. Turning to Slide 6. In 2025, our team focused on strengthening our ability to drive profitable growth while also strengthening our balance sheet.

We continue to reinvest in a disciplined way across our high-value core businesses, increasing R&D, commercial capability and manufacturing capacity, investments that will pay off for years to come. And we did this while we delivered the full year financial commitments we set out at the beginning of 2025. And while there is a lot more to do, I am proud of how our global team continues to strengthen our ability to serve our customers with leading innovations and deliver productivity even in a challenging volatile economic environment.

Our strengthened balance sheet reflects our more disciplined capital allocation strategy with our net debt to credit adjusted EBITDA down to 2.6x. Our increased investments in innovation and commercial capabilities and CapEx and productivity initiatives are delivering today and making us stronger for the future. We have also taken strategic action to sharpen our portfolio so we can focus on high-value innovation-driven businesses. To recap, we completed the divestitures of Pharma Solutions, Nitrocellulose and Rene Laurent businesses, and also announced an agreement to sell our Soy Crush, concentrates and Lecithin businesses to Bunge, which we expect to happen by April. And most recently, we officially launched the sale process for our Food Ingredients business.

As we communicated in August, we began exploring strategic options for our Food Ingredients business as part of our portfolio optimization. And following several months of extensive preparation by our team, we formally launched a disciplined and competitive sale process and as of 2 weeks ago, are officially in the market. And I'm very pleased with the progress we've made and believe this is the right next step for both the Food Ingredients business and for our Taste, Scent and Health & Bioscience divisions.

We are very encouraged by the depth and quality of interest from strategic and financial sponsors and are confident in our ability to execute this process thoughtfully and in the best interest of our shareholders. We will provide additional updates as appropriate. We are confident that the strength of our people, strategy and execution positions us to deliver on our priorities for 2026 and beyond. We have the right leadership team in place, an engaged and supportive Board and an incredibly talented team of IFF colleagues. Now while macroeconomic uncertainty will continue to persist through 2026, I am pleased how we are entering the year and have strong conviction in our ability to achieve consistent profitable growth and create long-term value for our shareholders. Turning to Slide 7.

We achieved solid sales growth in 2025 against a strong 6% year ago comparable in a tough macroeconomic environment. Over the last 2 years, we delivered average sales growth of 4%. Our 2025 performance was led by Taste, which grew sales by 4% and grew EBITDA by 10%. In Health & Biosciences, sales improved 3% and the team delivered a 7% increase in EBITDA. Scent sales grew 3% against a strong year ago comparison of 12% and increased EBITDA by 2%.

The double-digit sales growth in Fine Fragrance was partially offset by negative growth in Fragrance Ingredients, where we saw double-digit declines in the commodity ingredient sales. In Food Ingredients, the team has done a great job continuing to drive margin improvement. And while sales were down, partly due to soft demand and partly due to the strategic exit of low-margin business, we achieved 10% EBITDA growth and 150 basis points of EBITDA margin expansion. And on a consolidated basis, our overall profitability improved in 2025 as we delivered 7% EBITDA growth with 100 basis points of margin expansion through volume and productivity gains as well as favorable net pricing. Now with that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining. In the fourth quarter, IFF generated revenue of nearly $2.6 billion with growth in nearly all divisions. Performance was led by mid-single-digit growth in Health & Biosciences and Scent as well as low single-digit growth in taste. Our sales grew 1% for the quarter against a 6% year ago comparable and were up approximately 4% on a 2-year average basis. EBITDA totaled $437 million for the fourth quarter, a 7% increase, primarily driven by volume growth and our ongoing productivity initiatives.

Our EBITDA margin also increased by 90 basis points to 16.9%. On Slide 9, I'll provide a closer look at our performance by business segment. In Taste, sales increased 2% to $588 million, with growth in all regions, including high single-digit growth in North America, driven by new wins. The segment also recorded a very strong quarter of profitability with EBITDA of $94 million, a 17% increase. Profitability gains were driven primarily by favorable net pricing and cost discipline. Food Ingredients sales of $802 million were down 4% as softness in Protein Solutions and Emulsifiers and sweeteners offset growth in systems and inclusions.

It is worth noting that a part of our top line decline in the fourth quarter and on a full year basis for Food Ingredients was driven by a proactive exit of low-margin business as well as sales -- lost sales due to sanctions in Russia and emulsifiers. Profitability for Food Ingredients declined 11% in the quarter to $82 million, stemming from the volume declines and unfavorable net pricing.

Our Health & Bioscience segment achieved sales of $589 million, an increase of 5% with growth across nearly all businesses. The standouts in the quarter were Food Biosciences and Animal Nutrition, both growing double digits. Home & Personal Care also continued to be strong, increasing high single digits. As we shared last quarter, Health, while improved sequentially from Q3, was down low single digits. Under new leadership, the team has started to execute their improvement plan, and we continue to believe trends will improve over the course of 2026. From a profitability standpoint, Health & Biosciences delivered EBITDA of $155 million in the fourth quarter, an increase of 20% due to volume growth and productivity gains.

Lastly, our Scent segment delivered sales of $610 million, representing 4% growth. Performance in the fourth quarter was driven by continued strength in Fine Fragrance, which increased 10% and mid-single-digit growth in Consumer Fragrance. Fragrance Ingredients remained under pressure due to continued market softness and price competition on the commodity portion of our portfolio.

EBITDA for this segment increased 1% to $106 million as benefits from volume growth and productivity gains were partially offset by unfavorable net pricing, specifically in Fragrance Ingredients.

Turning to Slide 10. Cash flow from operations totaled $850 million for the full year and CapEx totaled $594 million or approximately 5.5% of sales. Our free cash flow position for the full year totaled $256 million. Included in this number is approximately $300 million of Reg G-related charges, primarily driven by our divestiture activities, which accelerated in the second half of the year due to the potential sale of food ingredients. Working capital also represented an outflow of approximately $166 million, reflecting higher inventory levels in strategic areas, along with changes in accounts receivable and accounts payable. We made meaningful progress improving inventory in the second half of the year.

And as we look ahead, disciplined execution across all elements of working capital will be a key priority for us in 2026. Year-to-date, we returned $409 million to our shareholders through dividends and an additional $38 million through share repurchases as we started our repurchase program in the fourth quarter. As a reminder, at minimum, we expect to offset annual share dilution of approximately $80 million to $100 million per year.

Our cash and cash equivalents finished at $590 million, and our gross debt at the end of the year was approximately $6 billion, which is a decrease of nearly $3 billion compared to 2024. Our trailing 12-month to credit adjusted EBITDA totaled $2.1 billion. Our net debt to credit adjusted EBITDA ended 2025 at 2.6x, improving from 3.8x at the end of 2024. Before turning to our outlook for 2026, I'd like to briefly reiterate a point Erik made earlier on Food Ingredients. We believe pursuing a sale for the Food Ingredients business remains the right path forward. With our capital structure now strengthened and improving operational performance and margin expansion ahead for Food Ingredients, we are under no pressure to sell. The business has a strong operating plan, and we are confident we can continue to create value, whether a transaction occurs or not.

This potential sale is about capturing full value for our shareholders and doing what is right for both Food Ingredients and our broader portfolio. Throughout the process, we remain focused on long-term shareholder value and taking actions that make the most strategic sense. Now on Slide 11, I'd like to share our outlook for 2026. We believe we are well positioned for the year ahead, and we are cautiously optimistic that we can deliver growth, margin improvement and cash flow generation this year.

As we navigate the volatile geopolitical landscape and uncertain market conditions, the strength of our pipeline and the benefits of our reinvestment efforts give us confidence moving forward. We believe our outlook reflects a balanced consideration of both current market conditions and the potential for unforeseen opportunities and challenges throughout the year, hence the ranges we are providing. Coming off a solid year we had in 2025, we expect to continue to drive financial performance across the company. For the full year 2026, we expect sales to be in the range of $10.5 billion to $10.8 billion, representing comparable currency-neutral growth of 1% to 4%. We believe Taste, Health & Biosciences and Scent will continue to drive our top line growth, supported by new wins and our innovation pipeline. We expect that growth will primarily be driven by year-over-year improvements in volume.

From a profitability standpoint, we expect to deliver full year 2026 EBITDA between $2.05 billion and $2.15 billion, representing comparable currency-neutral growth of 3% to 8%. It is important to note that we will also continue to selectively reinvest in the business while maintaining a disciplined focus on near-term profitability.

We expect our productivity and efficiency gains will fully fund our ability to reinvest in innovation and commercial capabilities across our highest value businesses. We believe these investments will continue to enhance performance, strengthen our competitive position and deliver attractive returns over time. For the full year, we expect FX will have approximately 1 percentage point positive impact to sales and a negligible impact on EBITDA. From a calendarization perspective, our year-over-year comparisons are strongest in the first half, particularly in Q1, where we have certain favorable onetime items from last year, including the contribution of divested businesses. As a result, we expect sales and EBITDA will be more muted in the first quarter of 2026.

More specifically, we expect modest EBITDA growth in the first quarter versus our like-for-like first quarter 2025 base of approximately $505 million, adjusting for divestitures. As we move through the year, comparisons will ease, and we expect performance to improve, supported by our pipeline and ongoing productivity actions. We expect that this will drive improved leverage across the P&L and year-over-year growth should progressively improve each quarter.

As I said earlier, operating cash flow will be a key priority for 2026. We expect overall cash generation will improve year-over-year, excluding Reg G and onetime costs, which will most likely be higher than 2025 as we pursue a potential sale of food ingredients. Teams across the businesses are driving working capital improvements across inventory, payables and receivables. And when combined with profitability growth and lower incentive compensation payouts, we should see a meaningful cash flow improvement versus 2025. CapEx is expected to be around 6% of sales, and will be carefully managed, focused on highest return opportunities, including capacity expansion, network optimization and innovation to support long-term growth.

To further embed disciplined cash management, we've introduced an incentive compensation metric for 2026 tied to operating cash flow conversion, defined as EBITDA minus CapEx minus the change in net working capital. We are also evaluating additional cash flow metrics for our long-term incentive program to strengthen alignment on cash flow generation, particularly for 2027. With that, I would now like to turn the call back over to Erik.

Thanks, Mike. As we look ahead to 2026, I see considerable opportunities for us to continue strengthening IFF with even more competitive, innovative and customer-focused businesses amid a continued challenging macro environment. Innovation is the key driver for us in 2026. Our investments in enzyme capacity, naturals, health and new molecules powered by our biotechnology and AI capabilities will increase our ability to compete and win with our customers across key business segments. We also remain focused on enhancing our competitiveness in our health business by strengthening commercial execution through the steps we discussed before. In Fragrance Ingredients, we continue to shift our portfolio toward higher growth and higher value-added specialties by leveraging R&D, naturals, chemistry and biotech for new molecule and delivery system development.

At the same time, we are committed to continuing to drive significant productivity, furthering our digital transformation and advancing our AI-enabled operational excellence to fund reinvestment and improve margins. And we will drive cash flow as a priority over the next 18 months and are committed to a very large reduction in below the line or Reg-G costs over that time period.

Lastly, we'll continue the sale process for Food Ingredients and will ensure the right outcome for this terrific business and be able to achieve our end goal of having 3 high-value and growth innovation-driven businesses with taste, Scent and Health & Biosciences powered by nature and biotechnology. To close, I want to reiterate that the IFF businesses are strong and performing well. We are doing exactly what we said we would do, and we have a clear path forward that aligns and motivates our people to continuously improve our service to customers and deliver for IFF. The progress we've made in strengthening the foundation of our business, balance sheet and innovation and commercial pipelines is significant and motivates us to do even more.

And while I'm very proud of what our team has accomplished, there is more we will do as we will be laser-focused in 2026 on driving profitable growth, cash flow improvement and maximizing value creation over time. We are investing for the future, and we have a great team to execute for today. Thank you, and we'll now open the line for questions.

[Operator Instructions] And the first question will go to the line of Kristen Owen with Oppenheimer.

So I wanted to ask about your assumptions around price and volume in 2026. And we're hearing from a lot of the CPGs, this shift toward a greater emphasis on volumes. I'm just trying to think about how that migrates upstream to you all? And just as a related question, can you remind us the incremental margin on volume versus price?

Yes. Thank you, Kristen, for that question. I'll take it. First of all, our expected growth for 2026 is volume driven. And as you mentioned, CPG companies shifting emphasis to more volume growth, that is a good thing for IFF and the industry as a whole. So we like seeing that trend, as you mentioned. And then finally, incremental margins are roughly 30% to 35% on volumes, depending on the business segment.

Our next question will go to the line of Nicola Tang with BNP Paribas.

Sticking with a question on top line. I was wondering if you could provide some color on your assumptions behind the top and bottom end of your 1% to 4% currency neutral sales outlook? Do you expect all of your divisions to grow within that range? And also, I noted in Q4 that sale -- currency-neutral sales came in better than expected in the 3 core divisions. I was wondering if we should read this as a signal of improving underlying market trends or whether there were specific drivers to be aware of, I don't know, new wins or timing of orders or anything like that?

I'll take this one. Nicola, thank you for the question. As I think about 2026, I think we'd say we're cautiously optimistic going forward, really driven by a strong pipeline and the reinvestment we made over the last 18 months. In addition, as Eric just said, we are hearing customers talk more about volumes for 2026, which is a good thing for us as well.

And so when you think about our 1% to 4% guidance range, it assumes essentially the current market conditions that we see today and as we exited the fourth quarter. For us to achieve the higher end or the 4% range, I think we would need to see volumes at the end market improve more broadly and kind of return to what I'd say is more normalized levels in terms of market growth. And the opposite is probably true on the lower end of the guidance range or the 1%. To your point on Q4 2025, it was marginally better than we expected from a top line perspective with good improvements in taste, scent and H&B. This was primarily driven by new wins, which is a positive signal, but it's only 1 quarter.

So as we think about, again, 2026 overall, we do believe that the 3 businesses will grow in 2026 within the kind of sales guidance range, but we also do expect Food Ingredients will also grow maybe just a little bit to a lesser extent overall. Fortunately, we have a very diverse business for balanced region, category and customer exposure. And that gives us our confidence that we are resilient and that we believe we can grow as we go into 2026.

Our next question will go to the line of Patrick Cunningham with Citigroup.

In Food Ingredients, could you comment on any early interest in the sale? Were there any inbounds prior to the formal process? And then any details on timing and deployment of proceeds would be greatly appreciated as well.

Sure. Thank you for the question, Patrick. As I said on our last call, we did have early interest from both strategics and private equity firms, and all of those firms continue to show strong interest. And then 2 weeks ago, we officially launched the sale process and have had additional firms express interest. So I'm very optimistic about the process.

But as Mike said, the Food Ingredients business is performing well, had double-digit EBITDA growth last year, continue to see solid earnings growth for this year. So we will only sell the business if it creates value, but I'm very optimistic we can make that happen. Now as for proceeds, we will use them to buy back shares to offset as much dilution as possible, and we will pay down debt to stay about where we are on debt-to-EBITDA ratio, ensuring that we stay below the 3.0 target.

Our next question will go to the line of John Roberts with Mizuho.

Price was down in the Scent segment. Higher price fragrance outperformed -- Fine Fragrance outperformed Consumer Fragrance. You're shifting the Scent ingredients towards higher-priced products. So I would have thought mix alone would have improved price. What's going on with price there?

Thanks, John. You're correct that the Fine Fragrance business is our highest margin business. So that was a positive contribution to mix overall. Pricing actually in the quarter was flat year-over-year. And so really, the margin pressure came on the input cost side, where you -- as you know, there is a bit of a lag in terms of overall price. This was primarily related to some of the index pricing agreements that we have.

And so similar to previous years, as we move forward, we expect to fully recover this over time. One of your points on just the Fragrance Ingredients business overall, that shift from more commodity to more captive or proprietary ingredients, we started that migration, but it will take some time. And so as we go through 2026, we will make continuous progress. But I do want to just level set to make sure that's something that will be a theme as we go through 2026 and as we get through the second half. that's where we'll start to see some stuff come online overall, but it's a process that will take somewhat of all of 2026 to make that migration overall.

Our next question will go to the line of Kevin McCarthy with Vertical Research Partners.

I thought your Health & Biosciences business finished on a somewhat stronger note. Can you elaborate on what drove the margin uplift there of 160 basis points year-over-year? Is the health business starting to stabilize and come back at all? And maybe you could comment on the margin outlook for 2026 in that segment, what kind of benefits you might anticipate from volume growth and productivity?

Sure. Thanks for the question, Kevin. First of all, our Health & Biosciences did deliver strong fourth quarter performance, and that was due to both strong volume growth and productivity that enhanced the margins. What I would say is the team is very focused on strengthening our commercial and innovation capabilities and pipelines and delivering those pipelines. And I'm very proud of the progress that they're making. More to do, but making progress.

As Mike mentioned in the beginning comments, the health business still had some decline, less decline than in the third quarter -- in the fourth quarter. We see that business flattening out in the first half of this year and then starting to grow in the second half of this year. So outside of the health business, very robust growth. The health business is starting to turn, and we expect it to see positive results from that by the second half.

Our next question comes from the line of Josh Spector with UBS.

I wanted to ask on free cash flow. I think previously, you thought for 2025, you'd do a little bit less than $500 million. That came in a couple of hundred million short. You talked about some investments in inventory. So can you talk about why you did that? Is that structural? And then how do you think free cash flow evolves into 2026?

Thanks, Josh. Great question. Yes, we expect the free cash flow to be modestly lower than $500 million for the full year. Essentially, the difference of where we ended versus our commentary in the second and third quarter really related to 3 things. One, we did see a little bit of an increase in what I'd say is onetime Reg-G related costs. as we start to move forward with the food ingredients potential sale, we've actually seen some step-up in costs associated with that potential transaction.

Number two, exactly what you said, working capital came in a bit higher than we expected. Part of this is driven by inventory. Now while the team made a really good effort and progress in terms of where we were in the first half of the year to the second half improving inventory, we are being strategic on some elements where we're taking advantage of supply and potential pricing to making sure we keep adequate inventory that as we grow our business into 2026, we're in the best possible position. And so that was a little bit of a build. But in addition to that, we also had some payables that are really just timing issues. I think as we go through 2026, we'll see that come back now overall with respect to AP. As I explained in our prepared remarks, cash flow improvement for us in 2026 is a key priority. And while we do expect the Reg-G costs will remain high, we are being very disciplined in terms of cash management now.

To the point I made earlier in my prepared remarks, we even added the compensation metric in there to drive this. And so for 2026, I do expect to see meaningful improvement driven by profitability growth, working capital, lower interest expense and a lower payout relative to what we had in 2025 with respect to incentive comp overall.

And so that meaningful progress will occur. I'm going to refrain on giving a specific target at this point only because I want to get a little bit more clarity on the food ingredients potential sale. I think once we have the visibility there, we will come back and we'll give more formal guidance on a cash flow number. But I will tell you that what I can confidently say is that we are doing everything we can in our power to making sure we drive cash flow performance in 2026.

Yes. Let me just add quickly that while the overall performance of the company was very solid in 2025, I'm not as proud about the management of inventories. In the first half of the year, we let inventories get higher than we had targeted. Mike had us put a lot of emphasis in the fourth quarter on driving down inventories. Which is never a good thing to do quickly at the end of the year, but we did it. And we've put in -- Mike has driven, with the business unit president, a much better disciplined process to ensure that we manage inventories well throughout '26 and for the future.

The next question will go to the line of David Begleiter with Deutsche Bank.

Erik just on the R&D effort, where do you stand on this journey to reinvigorate the R&D pipeline and your innovation efforts? Are there any metrics that you're tracking that you can share with us on this progress?

Thanks for the question, David, and it gets right to the heart of the key strategy of the company is to drive innovation. So as you remember, we invested about $100 million in 2025 into our innovation capabilities in high-growth, high-margin categories across the company. And we've made a lot of progress across Scent, Health & Bioscience and Taste innovation pipelines. And as I also mentioned earlier, we'll start to see the benefits of that in the second half of '26 and more into '27.

And I think we're really pleased with the progress that we're making. I think our customers are very pleased with it. I just came back from ACI, the American Cleaning Institute, where we engaged with many of our large CPG company customers, and it was really great to have those engagements and hear about the progress that our teams are making.

And it was also a very big honor to get awards from 2 of the largest CPG companies for our innovation together with them, which I think bodes well for the future. So making good progress, David, and you'll see it more fruition in terms of real results starting in the second half of this year and then much more into '27.

Our next question goes from the line of Ghansham Panjabi with Baird.

Just going back to the Taste segment for the fourth quarter and the performance in North America specifically, I think you called out high single-digit growth. Can you just give us a bit more color as to what drove that? And then was that the component that drove margins to the degree that it did, just from favorable mix specific to North America?

Thanks, Ghansham. Taste team is doing a really good job overall in terms of their overall performance. When you look at it from a regional perspective, all regions in Q4 grew contributions from both volume and price.

When we look at the drivers of growth, really what stood out is North America, and that's really driven by new wins. And so the team has been really, really focused on making sure they grow their pipeline and increase their win rate and what you're starting to see it materialize was some of the success that they had on some of those launches overall. In addition, Latin America was strong. And then we -- when I balance it out, I think about EMEA and Greater Asia, they grew, but to a little bit of a lesser extent.

And so when I think about the margin performance, the largest contributor was really productivity. And so when you actually look across COGS and SG&A, the team did an excellent job of really trying to drive that cost management and making sure we're driving productivity within the system of their business.

So that was a big success to the overall performance and profitability. In addition, they also did have some positive contribution from favorable net price to input cost. And so when you shape this up between volume growth, plus good productivity and some favorability with respect to price to input cost, that shaped up to a really nice quarter from a profitability perspective overall.

Our next question will go to the line of Lisa De Neve with Morgan Stanley.

I had a little bit of a question on what is IFF's view on the GLP-1 theme where we've seen a little bit of a resurgence of the theme post the oral dosage approvals? I mean, can you share about what you believe the GLP-1 uptake will mean for IFF solutions demand? And then more broadly following on from that, across all your divisions, I mean, what would you consider to be like the key market trends that will drive your growth over the coming years?

Thank you for the question, Lisa. And being on the Board of Eli Lilly, I've got a front row seat to the GLP-1 dynamic. And I'm very proud of how our IFF team has responded to this, both challenge and opportunity. And what I would say is we're creating it into an opportunity, and we've had an alliance across our business units putting together how our products can help our customers develop great products for GLP-1 consumers.

And we have put together an innovation seminar that was very well received and have many projects with customers around products for GLP-1 users. And as you can see in our taste and our Food Biosciences performance, they're both growing very nicely, and some of that is due to the GLP-1 dynamic. And I'll give you an example. We have a large business today in yogurts. We've developed some new yogurt technology, both in biosciences and in flavors. And by taking advantage of that, we've been able to grow nicely in the yogurt category, helping our customers grow nicely and address the desire for GLP-1 patients to have really great tasting foods that are good for them.

But it's also gone beyond that in the protein dynamic and the ability for us to flavor products with high protein and help with the biosciences to enable those products has also been a positive. And then when you talk about ultra-processed foods or reformulation, generally reformulation when customers reformulate, that's also a good thing for us.

So yes, there will be some challenges with reduced caloric intake for a section of the population, but we're leaning into it with innovation to make sure that it's not an overall negative for us that it's a neutral or a positive.

Our next question goes to the line of Fulvio Cazzol with Berenberg.

My question is on the cost inflation outlook for 2026. I was just wondering if you can give us a bit of a summary of what you expect, both on the input costs, any tariff-related cost inflation, wage inflation and how you expect to mitigate that?

Thanks, Fulvio. For 2026, we do expect some modest input cost inflation for our divisions. This really includes raw material costs, which includes the impact of tariffs, plus logistics, energy and packaging costs more broadly at a higher -- at a very higher level macro statement, we're seeing inflation across kind of all those key elements. The team today is collaborating with customers to mitigate this.

And in the end, we will recover it through reformulation, productivity and pricing over time as we go forward. And so when we think about our guidance for 2026, taking a step back, our 1% to 4% is really all driven by volume. We do expect pricing to be slightly down, which is primarily related to the commodity portion of our Fragrance Ingredients, which I mentioned earlier on a different question and some residual carryover pricing impact in food ingredients specifically. But the team is really focused on making sure, as I think about our business going forward, we're working with customers that where there are inflationary pressures, we do offset that from a direct cost perspective.

More generally, there is a general increase in terms of overall working costs, so merit increases, inflation that we've done a very good job at looking to productivity to make sure that we're fully offsetting that as part of our plan. So that's embedded in our gross productivity plan to make that a net number more favorable as we progress through the year.

Our next question will go to the line of Laurence Alexander with Jefferies.

Just want to circle back to the outlook, the lower end of the outlook range. What are you assuming for destocking risk this year compared to the last couple of years? And then I guess related to that, it looks as if kind of the range isn't yet seeing much benefit from kind of the shift in mix and innovation capabilities and sales force reinvigoration. When do you think you should see the bottom end of the range start materially improving?

So thanks for the question, Laurence. Of course, the 1% to 4% does include Food Ingredients. And while we expect Food Ingredients to return to positive growth on top line this year, it will be modest. And as Mike mentioned, it's still a tough macroeconomic environment, especially in the first half with difficult comparisons.

But we expect the second half to be better as our innovation further kicks in and builds to '27 and hopefully better market dynamics. What I would say is we can't predict geopolitics and market dynamics at the end of the year. So any potential destocking at a reasonable level to the -- towards the end of the year is built into our guidance, and we expect to achieve somewhere in the range of 1% to 4%. Of course, we're driving for as best as we can, but that's the range that we're confident we can deliver.

Our next question will go to the line of Salvator Tiano with Bank of America.

You mentioned a lot of things about essentially, product inflation being offset by productivity, et cetera, and generally mitigate a lot of the headwinds that you may face on the cost side. I'm just wondering though, when we look at 2025 on your incremental margins, you had 2% organic growth and 7%, I guess, like-for-like EBITDA growth. This year, the guidance is calling for quite high organic growth, and the range is not -- the midpoint of EBITDA growth is much lower, so say, 5% to 6%. So based on all this, what is actually driving lower incremental margins this year versus 2025?

Sal, great question. Eric, I'll take this one. Yes. This is again, real specific on just the incremental margins. As we think about the guidance range, take a step back. I always think that the quality of this business is that as you grow your business, you do have nice leverage within the P&L. And so when I think about falling from sales to EBITDA it's usually around 2x, right? So if I grow 4, I can get 8 in terms of leverage within my P&L. Obviously, the higher we grow, right, we start moving towards the 3, 4, 5 range over time, then that's when we'll see the best leverage within the P&L overall. When you're at the lower end of that, then it becomes a game of how do we actually continue to drive productivity to making sure we're supplementing some of the lack of what I'd say is volume, fixed cost absorption overall.

And so as we think about the range for next year, the 1% to 4% of the cost, obviously, if we're at the lower end of that range, then really we need to think about stepping up the productivity even more so to making sure we get that leverage to fit within the portfolio, and we do have opportunities to do that. And then as we get to the higher end of the range, then I think then we have a little bit more flexibility.

What's built into the guidance range very candidly are 2 things. One, it's a bit of reinvestment that we're funding through productivity overall, which normally some of that productivity could help support and drive bottom line, but we are being conscious and we're being smart about how we want to continue to reinvest in the business as we make the migration towards '26 and then into 2027. So that is a little bit of what I'd say is the offset when you think about the flow-through from the incremental margin piece. It's really the volume growth is critical.

Productivity is driving supporting depending on if you're at the lower end of the range or at the upper end of the range. And then the third point is really around how do we take a step back and just making sure the reinvestment is balanced to how our performance is and our productivity is overall. So those are the 3 levers that we're managing for 2025.

And then the one thing I would just add to that is that the reason -- one of the reasons for our heavy focus on innovation is that as that innovation pipeline come through, we do expect margin benefits from that. So that's really an important part of it as well.

Our next question comes from the line of Lauren Lieberman with Barclays.

Great. I wanted to talk a little bit about reformulation opportunities in particular and just how that -- what you're seeing in the marketplace in terms of customer demand, specifically around reformulation to more ingredient profile, health and wellness concerns, et cetera. And then also how equipped your portfolio is today to meet those demands, should they be there? And then how much of that is also fitting into your innovation and R&D plans?

Thanks for the question, Lauren. First of all, we're seeing continued reformulation happening but it hasn't picked up as much as some people have talked about the importance of ultra-processed foods and some of the dynamics that you're hearing about. But as it does and if it does, I think that's all positive upside to what we've been talking about because every time customers reformulate, whether it's for lower sugar, lower salt, lower fat, less -- cleaner label, whatever it is, that's opportunity for IFF. So we welcome that and hope to see it increase from here. But as of now, it's out there. It's happening. We're working with customers to create healthier products, great tasting products, more sustainable products. I think you'll see some really sustainable products coming out with some of the CPG companies that we've been working with outside of food, but also in food.

So I think there's still this dynamic everywhere of wanting more innovation to bring consumers what they want, whether it's great-tasting food or laundry products that clean the clothes really well with room temperature water and less water and less plastic and many of the dynamics that you hear about out there that consumers desire and CPG companies are trying to drive innovation to meet those desires to grow the -- profitably grow their business, we're there to help.

Our next question will go to the line of Mike Sison with Wells Fargo.

I guess with the sale of Food Ingredients pending, how do you sort of pivot the company to more of a growth mode? Historically, IFF has slightly overperformed to FNF peers, but if you think about the portfolio going forward, the Health & Biosciences and Scent and Taste, how do you get that growth rate to match the peer group or maybe even outperform the peer group?

Thanks for the question, Mike. I'm very excited about the future of IFF. I think as we finalize our portfolio optimization and focus all of our efforts on scent, taste and Health & Biosciences, very R&D heavy, very innovation heavy, really attractive businesses that have a major impact on consumer goods whether it's food or others, home and personal care, et cetera, and represent a small part of the cost, but a big part of the superiority. And so as we focus all of our energy on that and have finished the work on portfolio optimization, I think we'll go from strong to stronger. And absolutely convinced that we've got the right team in place, that they are strengthening our capabilities. You can see it in our performance. We're doing what we say we're doing. We see the commercial pipelines increasing. We see the innovation pipelines increasing. We see the quality of the projects with our customers improving. And that's why we're very confident in the future. And also, the other element here that's really exciting is we've got a very healthy Health & Biosciences business with really strong capabilities in biotechnology that is important for all the segments that we play in Health and Biosciences, it's also starting to impact beneficially technology in our Scent business and our Taste business. I'll just give you a couple of quick examples. In 2025, we launched ENVIROCAPS, which is a biodegradable encapsulation technology for our Scent business. It's commercial now.

Several very big customers have been using it and say that it's working extremely well, and they're very pleased with it, and that's growing. We have other scent technologies that are using biotechnology that are now in the pipeline and are coming. We have a number of taste products that we've developed with our biotechnology capabilities and more in the pipeline.

I'll give you one example of one that's commercialized now. It's called Super Carrot, where you take the residue of carrot production and you fermented it with our enzymes and you create an Umami flavor that is healthy and replaces Umami flavorings with something that food companies and consumers really like. And so we'll see more of that. So I just -- I fundamentally believe as we get to be a focused, high-value R&D innovation-driven company with a stable portfolio that we're investing in, you will see us accelerate our growth.

Our next question will go to the line of Jeff Zekauskas with JPMorgan.

Your Food Ingredients EBITDA and operating income dropped off pretty sharply in the fourth quarter. And I think you said that the price trends are negative. So given the slow volume growth environment, is the case that operating income and EBITDA for that business next year is higher or lower? And can you speak generally to the tax basis of that asset?

So I'll start and then Mike can add to the tax basis. The fourth quarter was not a great quarter for our food ingredients business. They did not deliver what they expected to deliver. There's a number of reasons for that. All I can say is the first quarter looks like it's off to a solid start. Andy and his team, Andy Muller and his team are highly confident that they can get back to top line growth. although it will be low single digit, it will be top line growth and continued significant earnings growth. They've got the projects to do that. There's a lot of excitement with some launches that they've made recently and some exciting areas. So what I would say there is that the fourth quarter was not what we expected, was not what they expected. But the full year was still very solid with -- although it was negative revenue growth with double-digit EBITDA growth, and we expect to get back to positive revenue growth and continued strong EBITDA growth in 2026.

Our last question will go to the line of Chris -- go ahead.

Sorry, Megan. Just -- I think, Jeff, you had a question on the tax base that if we had a potential deal for Food Ingredients. And -- we still -- obviously, we're still working through that process. So we've got to kind of see where we're landing and where we're heading from that perspective. Fortunately, we're in a good position with respect to tax attributes that could be leveraged to minimize some of the tax leakage that we have now. And so the team is fully focused on making sure the net cash number maximizes its value for shareholders. And so that's what the team is focused on overall. But more to come as we progress from here.

Our last question will go to the line of Chris Parkinson with Wolfe Research.

Just circling back as a corollary, a couple of questions on the H&B segment. You clearly had a solid result across volumes in the Biosciences segment as well as a better margin. When we take a step back and look at some of the health and probiotics, I think you were alluding to it before. Last year, we were talking a lot about obviously, market share kind of investments in the business that were necessary overall for the intermediate to long term.

Is it safe to say that you're still investing in that business? And then you already mentioned the half-on-half trends, which I appreciate. But can you just talk about how should we should think about spend in that business in the context of the productivity gains you're gaining? And then also if you actually still believe you're going to gain share kind of the second half '26, '27, '28. So any updates there in terms of the moving parts would be particularly helpful.

Sure. Thanks for the question, Chris. First of all, overall Health & Biosciences business is doing very well. Leticia Goncalves has been in the job almost a year now, and she and the team are -- they've got a great team with a great strategy and are executing it well. Health is the only area that has not delivered strong growth in 2025. Interestingly, outside of North America, the growth was solid. It was inside North America where the challenges were. There's a number of reasons for it.

But what I can tell you is Leticia has brought in new leadership. The team is strong. We believe in the business. We've got great capability. We've got a very attractive pipeline coming that I believe with the capability that we now have will start to deliver growth again in the second half of this year, and then you'll see nice growth in '27.

But I firmly believe in this business. I just think it's a really important thing for the world, and we've got the capability to succeed. We took our eye off the ball for a while in North America. We've got our eye back on the ball, and you will see the results come like everywhere where we've seen we've had challenges. We get the right leadership in place, the right teamwork, the right support, and we get it on the right track, and that's going to happen in health as well.

Thank you, Chris. That will conclude our question-and-answer session. I will now turn it back over to you, Erik, for closing remarks.

Well, thank you all for joining today's call. We are working hard to unleash the great potential of this company. As we've talked a lot about, we've done a lot of portfolio optimization following the Frutarom and the DuPont Nutrition & Biosciences deal. We're getting closer to exactly where we want to be. I think we'll make really good progress on that in '26.

And then we'll still deliver strong results in '26, I believe firmly, but we'll be very, very well set up for '27 and beyond as we move through this finalization of the portfolio optimization and really drive the innovation aggressively across Scent, Taste and Health & Biosciences. We've got a terrific team, we've got a clear direction and we're going to make it happen. Thank you.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

At this time, I would like to welcome everyone to the IFF Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to introduce Michael Bender, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's Third Quarter 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.

Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures are set forth in the press release. Also, please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis, unless otherwise noted.

With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with the prepared remarks and then take questions at the end.

With that, I would now like to turn the call over to Erik.

Thank you, Mike, and hello, everyone. Thanks for joining us today. IFF's third quarter results demonstrate continued execution. Our performance this quarter shows that we continue to make progress towards our goals, operate with efficiency and discipline and further strengthen our financial position. In a more challenging environment, we are doing what we said we would do as we expect to deliver financial results in line with our full year guidance that we outlined in February. We will do this as we continue reinvesting in our business and advancing our growth strategy while driving productivity.

I'll start today's call by briefly summarizing the third quarter, and then I'll talk about some of the key strategic progress we have made so far this year. And then I'll turn it over to Mike DeVeau, who will provide for a detailed look at our results and segment performance in the third quarter, in addition to our outlook for the remainder of 2025. We will then open the call to answer your questions.

Turning to Slide 6. We are seeing encouraging results as we build a stronger IFF. Through the actions we've taken to strengthen our customer focus and enhance productivity, IFF is improving its position to compete effectively and deliver value for all our stakeholders. We're operating in a dynamic environment with ongoing macro headwinds, geopolitical challenges and market uncertainty, influencing our customers and end consumers, plus we had a strong 9% comparable from last year. We anticipated this and have been clear that the second half would likely be more challenging than the first, and even so, sales remained steady, holding flat for the quarter.

Our Scent and Taste businesses both continued to deliver solid growth in the third quarter, which helped offset softness in Food Ingredients and short-term pressures in Health and Biosciences. As I spoke about last quarter, most of the H&B pressure was related to expected slowdowns in the Health business isolated to North America. To address this, we are investing to increase innovation and expand our commercial capabilities to ensure IFF is set up to address the needs of customers now and in the future.

We continue to remain focused on what we can control in the current environment. IFF delivered strong adjusted operating EBITDA growth of 7% this quarter with a margin that improved by 130 basis points. Our focus on profitability continues to bear fruit as our results demonstrated strong profitability even in this lower growth environment. I am particularly encouraged as we are also doing this while our teams are reinvesting into our core businesses to position the company for long-term success.

On Slide 7, I'd like to share some of the exciting strategic progress we've made in the first 9 months of 2025. Earlier this year, we opened a Scent Creative Center in Dubai, a Citrus Innovation Center in Florida and expanded our LMR Naturals site in Grasse, France. All are significant initiatives that will further advance our innovation offerings and strengthen our go-to-market capabilities. Our customers are at the heart of everything we do, and these strategic investments are increasing our commercial pipeline that will start to bear fruit in mid- to late 2026 and into 2027.

We also deepened our commitment to innovation through external collaborations. We recently announced an exciting strategic collaboration with BASF to drive next-generation enzyme and polymer innovation, including our Design Enzymatic Biomaterials, or DEB, technology. This partnership enables us to develop more market-driven solutions that create sustainable value for both industry and the environment.

Also, earlier this year, we announced a joint venture with Kemira to provide high-performance sustainable alternatives to fossil fuel-based ingredients, also utilizing our DEB technology. Applying this technology not only provides superior purity and consistency compared to traditional biopolymers but also enhances performance across various applications.

We are already seeing commercial applications of this technology as we also announced that a major multinational CPG company has launched a new laundry detergent formulation enhanced by DEB technology, which delivers improved fabric softness and cleaning performance while replacing nonbiodegradable ingredients with a readily biodegradable alternative.

In addition, during the year, we reduced our leverage significantly, reaching approximately 2.5x net debt to EBITDA. After strengthening our balance sheet, we announced on our second quarter call a $500 million share repurchase authorization, making an initial move toward a more balanced and disciplined approach to capital allocation. Over the past few years, we have made significant progress streamlining our portfolio, which has allowed us to reinvest in our core business, achieve our deleveraging targets and strengthen our financial flexibility.

During 2025, we made significant progress on this as we completed the divestitures of Pharma Solutions & Nitrocellulose and announced the divestiture of our Soy Crush, Concentrates & Lecithin business to Bunge, which is aligned with our margin enhancement strategy. We continue to evaluate potential strategic alternatives for our Food Ingredients business as we look to drive our portfolio optimization strategy. While we do not have any additional information to share today, we are making very good progress, generating significant interest, and we'll keep you updated as we make further progress.

On a year-to-date basis, we've delivered sales growth of 2% and achieved adjusted operating EBITDA growth of 7%. This is primarily due to the immense efforts of IFFers all around the globe, continuously striving to innovate, deliver results for their customers and communities and elevate everyday products used by millions of consumers worldwide.

With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike?

Thank you, Erik, and thanks, everyone, for joining us today. In the third quarter, IFF delivered revenue of nearly $2.7 billion, led by mid-single-digit growth in Scent and low single-digit growth in Taste. Our sales were flat against a strong 9% comparable and were up approximately 4.5% on a 2-year average basis.

We continue to focus on driving EBITDA growth through disciplined execution and margin improvement initiatives. In the third quarter, we delivered adjusted operating EBITDA of $519 million, a strong 7% increase. Our adjusted EBITDA margin also increased 130 basis points to 19.3%. Also worth noting is that our operational improvement plan continues to yield results in our Food Ingredients business.

In the third quarter, Food Ingredients delivered a strong adjusted operating EBITDA margin improvement of 230 basis points compared to last year. The team has done an excellent job on improving the margin profile over the past 2 years, where they increased adjusted operating EBITDA margin by over 400 basis points and are on track to achieve their mid-teen EBITDA margin profile.

On Slide 9, I will share additional details about this quarter's performance in each of our business segments. In Taste, sales increased 2% to $635 million with strong growth in Latin America and Europe, Africa and the Middle East. On a 2-year average basis, growth remained strong at approximately 8.5%. The segment also delivered profitability gains of roughly 2%, driven by favorable net pricing and cost discipline.

Our Food Ingredients segment achieved sales of $830 million, down 3% versus the year ago period with strong growth in inclusions that were more than offset by softness primarily in Protein Solutions. As I mentioned, Food Ingredients had an excellent quarter in terms of profitability, where the team delivered adjusted operating EBITDA of $106 million, a 24% increase year-over-year.

Our Health & Biosciences segment achieved $577 million in sales, which was flat versus the prior year. On a 2-year average basis, growth remained solid at approximately 6%. Growth in Food Biosciences, Home & Personal Care and Animal Nutrition was offset primarily by expected softness in Health, specifically in North America.

In this market, we've improved our leadership team, placing a strong emphasis on commercial and marketing capabilities. Their objective is to leverage our strong R&D pipeline and win with a broader set of customers to capture strong growth potential in that market. And while the fourth quarter will remain a challenge, we expect trends to improve in 2026. In the third quarter, H&B adjusted operating EBITDA grew 3%, driven primarily by productivity.

Scent delivered a strong quarter of sales growth with net sales of $652 million, up 5% year-over-year. On a 2-year average basis, growth remained strong at approximately 7%. Third quarter performance was driven by 20% increase in Fine Fragrance and a low single-digit performance in Consumer Fragrance. As expected, Fragrance Ingredients was under pressure and declined low single digits as growth in Specialties were more than offset by declines in Commodities.

As a reminder, we are strategically shifting our Fragrance Ingredients portfolio towards higher growth and higher value-added specialties. We will do this by leveraging R&D and biotech for new molecule development. Our goal is to accelerate the pace of our captive releases to ensure we can differentiate ourselves and grow disproportionately in this margin-accretive business. Within Scent, volume growth drove the segment's $135 million in adjusted operating EBITDA, a 6% increase year-over-year.

Turning to Slide 10. Our cash flow from operations totaled $532 million year-to-date, and CapEx was $406 million or roughly 5% of sales. Our free cash flow position in the third quarter totaled $126 million. This year, we have paid $306 million in dividends through the end of the third quarter, and our cash and cash equivalents was $621 million. As of quarter end, our gross debt was approximately $6 billion, a roughly $200 million decrease from last year and more than $3 billion decrease year-over-year.

Our trailing 12-month credit-adjusted EBITDA totaled roughly $2.15 billion, in line with last quarter, while our net debt to credit-adjusted EBITDA remained constant at 2.5x. We will continue to be disciplined in our capital allocation priorities. Reaching our deleveraging goals was a strong achievement, and we are now focused on preserving this foundation through operational performance, specifically driving improvements in profitability and net working capital.

Lastly, on Slide 11, I will walk you through our outlook for the balance of the year. We have talked today and in prior quarters about the environment in which we are currently operating. Our touch points across our global business and with our customers have allowed us to forecast this year well as our teams are delivering results in line with the guidance ranges we communicated in February.

Based on our year-to-date actuals and expected fourth quarter performance, we are reiterating our full year 2025 guidance. As a reminder, we are expecting sales to be in the range of $10.6 billion to $10.9 billion and adjusted operating EBITDA to be between $2 billion and $2.15 billion. On a comparable currency-neutral basis, we expect to finish the year at the low end of our 1% to 4% sales growth guidance range as shared last quarter and near the midpoint of our 5% to 10% EBITDA growth range.

We believe that this is the right call to maintain our full year guidance even with a wider range implied for the fourth quarter. It is consistent with the message we have shared all year, which is staying focused on what we said we would deliver even in a challenging environment. For the fourth quarter, we expect our typical seasonality resulting in a step down in absolute sales and margin. And as a reminder, we again face another strong comparable versus the prior year with 12% growth in Taste, 7% growth in Scent and 6% growth in H&B.

With that, I would now like to turn the call back to Erik for closing remarks.

Thanks, Mike. Taking a look at the year so far, our global team has delivered in a difficult environment with revenue and profitability increasing year-over-year. I'm proud of what our team has accomplished, yet we continue to strive for more. We are continuing to serve our customers with excellence while investing in an exciting innovation pipeline and positioning IFF to deliver stronger profitable growth on a sustained basis.

We are focusing on what we can control. Our strategy is clear. Our team is executing, and we have confidence in our ability to deliver increasing value for our shareholders and all stakeholders. I know we are building a stronger IFF that will be well positioned for 2026 and beyond.

Thank you, and I'll now open the call for your questions.

[Operator Instructions] The first question is from the line of Fulvio Kazal with Berenberg.

It's in relation to the Health and Biosciences business. I was wondering if you can provide a bit more color on what's exactly going on in the North America region for the Health business unit. I know that the decline in Q3 was well anticipated, and you highlighted this at the Q2 results presentation. But I was also wondering if you still expect to see an improvement starting in 2026 or if there is more uncertainty today on the outlook for this business compared to, say, 3 months ago?

Thanks for the question, Fulvio. This is Erik. In Health and Biosciences, the Health business in North America has been slow for us. And what we've been doing to turn that around is we've put in place new leadership with strong commercial and marketing capability. And you'll recall last year, we step changed our investment in innovation pipeline in Health. That's going well. We're connecting with our existing customers to help them grow faster, and we're finding new customers to serve in North America. So bottom line is, I absolutely expect to see improvements, particularly in the second half of '26 going into '27 and then a full recovery, fully back on track in 2027.

The next question is from the line of Nicola Tang with BNP Paribas.

I wanted to ask about the top line guidance. The bottom end, so the 1% currency-neutral growth implies a negative low single digit for Q4 versus the flat year-on-year that you did in Q3 despite slightly easier comps. What are the main headwinds to top line in Q4? And how much of your cautious outlook relates to the weak end market macro-geopolitical trends that you referred to versus IFF-specific exposures? And to what extent do we need to see end market recovery to see a top line acceleration in 2026?

Great. Nicola, thanks for the question. Yes, you are correct. While comparable is 6% in the fourth quarter, which is down from 9% in the third quarter, we are being a little bit more prudent on our top line projection this quarter. The largest part of this, the driver of this, is really the macro environment. And so when you look at the end market demand, specifically on volumes, you'll see in the food and beverage category in HPC, it has been soft. And so we did as we kind of continued this trend through the balance of the year just to make sure that we're fully forecasting it correctly.

In our core portfolio, Erik touched on it, and I think I touched on it in our prepared remarks as well. We continue to work on Fragrance Ingredients and Health North America. And so the team is making good progress there. We still got a little bit more work that we have to do to really get back to recover, as Erik suggested. I do want to note, though, as a point of reference, in these areas when we put the two businesses together, it's about 5% of our total company sales. So it's small in nature, but a lot of emphasis and attention on that going forward.

So as we move into 2026, we are cautiously optimistic that we will get to a point where we'll see growth acceleration as the market does normalize and some of the self-help work that we're doing over the last 18 months start to yield results.

The next question is from the line of David Begleiter with Deutsche.

This is Emily Fusco on for Dave Begleiter. On Food Ingredients, are we still on track for an update on this business with the Q4 earnings call in February? And also just a follow-up, have you begun to engage with private equity and strategics on this business?

Thanks, Emily. Absolutely, you'll get an update, and I'll give you a quick update now. We are seeing strong interest by both private equity and strategics. And fortunately, the business transformation that Andy Muller is leading with his team is on a strong track, which obviously is very helpful to this process. This is a very good business. It keeps getting better and has a bright future, and we'll update where we are in February.

The next question is from the line of Lisa De Neve from Morgan Stanley.

I have one question. Could you please reiterate your free cash flow outlook for this year and the confidence of how we should expect the different free cash flow components to move into the fourth quarter and if you expect to see an improvement? That's my first question.

And I have a small follow-up on previous question. You talked about investments in H&B. Could you please remind us of where specifically you're making the investments notably if you're opening any new plans in certain regions.

Sure. So maybe I'll start on the cash flow question. Thanks, Lisa. In terms of the free cash flow expectation for 2025, we do expect to be modestly below our target that we gave early in the year, which was about $500 million. There are some puts and takes in there that are worth noting. On the positive side, we are expecting CapEx to be a bit lower as we've implemented a little bit more structured policy just given our cash flow generation. So that's a good guide, a positive aspect.

There's two offsetting factors to that, one being inventories are higher in some areas of our business. Part of this is around building some strategic stock in some key areas to take advantage of current cost and availability of materials. And the second piece of it is really around some of the Reg G or onetime costs are elevated really because of the portfolio work that we're doing overall. And so when we put those two together, I think it gets you kind of be a little bit modestly below that $500 million.

But I do want to note that in terms of overall net working capital, you will see an improvement in the fourth quarter and it is a big focus for us as we go into 2026. And so there is an opportunity for us to improve our free cash flow generation, which is in our control, and the team is committed to making strong improvements as we go forward. So maybe that's the cash flow. Erik, I'll pass it over for you,

Sure. On Health & Biosciences investment, as we said last year, we've significantly increased our spend in R&D and commercial capabilities both for our Health business, next-generation probiotics and other products as well as our enzyme business and our DEB technology. We've announced and we're making great progress that we're building a DEB plant together with Kemira, with our joint venture called Alpha Bio. And it's on track, and we expect to start that up in 2027 and look forward to that. But significant investment into Health and Biosciences, and we see that starting to pay off, as we said, significantly in the second half of 2026 and very strong into '27.

The next question is from the line of Kristen Owen with Oppenheimer.

So I wanted to ask about the new wins that you cited in both Taste and Scent. We continue to hear about how challenging the volume backdrop has been. So I'm hoping you can elaborate on what contributed to those wins in this backdrop.

Thanks for the question, Kristen. Obviously, there's economic challenges across the businesses, especially in North America we see right now. But in all our four BUs, including Taste and Scent, we've got a heavy focus on strengthening our commercial pipeline, really strong focus on customers and increasing our win rate as well as our innovation pipeline. And we're seeing really good progress across segments, across businesses and across geographies.

And just to give you a couple of examples of wins in Scent and Taste. The first one is our new environment -- excuse me, our new ENVIROCAP scent encapsulation technology was recently commercialized in laundry with a major CPG company. The performance is great. They're very excited about it and the sustainability benefits are tremendous. So we'll see that technology add to our growth going forward.

And then a second example I really, really like is we've been successful winning Miu Miu by L'Oréal Fine Fragrance from our master perfumer Dominique Ropion. And that's going to be a nice business for us going forward, a great product, and I think we'll do well in any economic scenario that we see. So good progress on our commercial pipeline, our innovation pipeline and things that we can control by bringing great technology innovation to customers, and that's how we're going to grow these -- continue to grow these businesses.

The next question is from the line of Salvator Tiano with Bank of America.

You spoke a little bit about 2026, hopefully growth accelerating a bit. But can you also mention any other major or discrete items that you see affecting your income statement or your cash flow next year versus 2025?

Yes. Thanks, Sal. Great question. We are, to be fair, in the middle of the planning process for 2026. So we can't go into much details. We'll provide the full guidance update as part of our year-end or Q4 call in February for 2026. That said, in terms of moving parts, there's probably just one that I just want to remind everybody. I think it's pretty self-explanatory. But if you remember, we closed the pharma transaction on May 1.

And so when you think about 2026, I think through the first 5 months of the year, 4 months of the year, it was about $369 million in sales and $76 million of EBITDA. So that will go away as we cycle down in the first half of the year. So I flagged that. In terms of the rest of it, it is pretty normal course in terms of operations. So there's not really any big discretionary items that we flag at this point in time.

The next question is from the line of Ghansham Panjabi with Baird.

Erik, can you just give us an update on the internal initiatives you have going on as it relates to both cost optimization and growth? You called out capacity being tight in certain areas in the past. I know you answered the question on Health and Biosciences, but what about across the rest of the portfolio?

And just on the cost savings side, as it relates to productivity, et cetera, can you give us a sense as to the savings that is likely to flow into 2026 in context of just the operating environment not being very helpful?

Yes. Thanks for the question. I'll have Mike go through the details here.

Yes. Appreciate it, Ghansham. Over the last 18 months, we've done a lot of work to improve our competitiveness as an organization. And so specifically, Erik has highlighted specifically around the H&B Health business that we put a lot of money in terms of R&D and commercial capabilities starting really in the second half of '24 and over the course of 2025. And that's really to bolster some of the innovation pipeline to strengthen again the commercial capabilities.

In addition, we've also increased and will continue to increase our CapEx in the areas to improve capacity, specifically in H&B, where we think we have a good growth potential and really good incremental margins associated with that. And so that's something we've done and we'll continue to do as we go forward from here in that business to really generate the value there.

As we go into 2026, we believe we're positioned well and we are cautiously optimistic that it will lead to improved growth trajectories going forward. At the same time, we're also working on just generating better incremental productivity that comes with improving margins going forward as a focus. And so I don't want to go into too much of the details here. Again, we'll come back in February when we give our overall guidance.

But I think the team has made a tremendous amount of progress both in reinvesting, really tried to get the growth aspect of it and targeting incremental productivity opportunities to continue to expand margin and reinvest in the business as needed through a self-funding mechanism. So we feel good about the progress being made.

The next question is from the line of Patrick Cunningham with Citigroup.

This is [ Alex ] on for Patrick. I guess, we're hearing more about the economy taking a K shape, where lower income households are spending less. I guess I'm wondering if this is something you're seeing across your business segments and maybe what that implies for volumes in 2026.

Thanks, Patrick (sic) [ Alex ]. Yes, we are seeing some of this and we talked to the weakness overall in volumes in North America. But the good news is we've got a diverse customer base both in size of customers, geography base and categories. And we're adapting our focus around the world.

And just to give you some examples. On the lower end and private label area, we're seeing growth and we've put more emphasis on that. On the high end, the Fine Fragrance business continues to do well. So we've put a lot of emphasis on making sure that we're a partner of choice in fine fragrances, and we talked about the Miu Miu with L'Oréal. Very important for us. We're seeing geographies even in fine fragrance like the Middle East growing very rapidly. We're putting more emphasis there. We opened a creative center there.

And we continue to obviously stay focused on ensuring that we do well with global key accounts, but also increasing our emphasis on regional and smaller customers in geographies that are fast growing. So yes, there's a K-shaped economy more today than there was before, but we're adapting our model to make sure that we grow at or ahead of the market going forward.

The next question is from the line of Josh Spector with UBS.

I wanted to try again a little bit on '26 and just thinking about really the range of scenarios and your ability to respond and specifically that if we stay in this kind of, call it, 1% growth environment maybe from a consumer perspective, do you have actions and levers that you think would deliver earnings growth higher than that, be it self-help or other things in flight that we should be considering?

Yes. Great question, Josh. I'll take this one, if that's okay. Growth is an important part of the algorithm. And so the more growth we get, the incremental margins associated with that growth in terms of fixed cost leverage, it's nice. So the more you can grow, the better you are. So that's ultimately what we're striving to, which is why some of those reinvestments were so important to make sure we accelerate the growth.

At the same time, you do need to prepare that if the event that the market is still in that 1% to 2% range, how do you work on your cost structure to ensure you generate profitability improvement. We are fully focused on that. The team has done a very good job over the last couple of years to drive productivity. But it's something that is paramount now as we go forward to continue to do that. And so areas like streamlining corporate functions, leveraging automation, redesigning processes, that will allow us to be more effective and more efficient.

And so I do believe we still have some opportunities there. There is contingency planning associated with that. So as we think about the context going forward, we will include that areas to accelerate to make sure we maximize profitability as we go forward even in a lower growth environment.

The next question is from the line of John Roberts with Mizuho.

Have we been seeing any acceleration in the reformulation of food products? And is that maybe part of the reason for the continued strength in the Flavors business?

We haven't seen a big shift yet. What I would call it is a continued move towards cleaner labels and reformulations for that, which we like. And if that accelerates, that's good for us. But what we've been doing is following what our customers and consumers want, which are cleaner labels. And we've got a very strong capability both in Scent and in Taste and Naturals and that's played well for us. And that's why you're seeing growth because of our focus on the innovation, but also on our commercial capabilities to help customers delight consumers.

Yes. Maybe just to add on that. When you look at it, John, the pipeline has actually improved and continue to improve. And so what that's a good barometer is that the customers are looking for more innovation, which is very good for our business overall. So I think that's the buoyancy that you've seen over the last couple of quarters within Scent and Taste overall, which has provided a bit of tailwind there.

Yes. As the customers see lower volume growth in the market, they're pushing for more innovation to be able to profitably grow themselves. And we're there to help.

The next question is from the line of Kevin McCarthy with Vertical Research Partners.

This is Matt Hettwer on for Kevin McCarthy. Would you comment on two items: a, the potential pace of execution against the $500 million share repurchase authorization that you announced last quarter; and then, b, the expected cash proceeds from the pending divestiture of the deal with Bunge?

Sure. Thanks, Matt, for the question. In terms of the share buyback program, we actually started or commenced on October 1. And so that was per our trading plan. And so that now have been implemented. As a reminder, the program is geared towards dilution plus model, which means at a minimum, our plan to target offsetting dilution which, for us, on a yearly basis, is about $80 million. Then we have some flexibility based on intrinsic value, free cash flow generation that we can increase or decrease the purchases within the trading grid.

So we do have some of that flexibility. But as you think about modeling for the fourth quarter, just given that we started on October 1, I would assume at this point, we're offsetting dilution, which is the $80 million divided by 4, essentially, which is call it about $20 million. We will give more update as we get to the guidance call in February, but that's kind of part number one.

I think part number two, your question was the expected proceeds of the pending deal with Bunge. In terms of gross proceeds, I think it's about $110 million in gross proceeds. And I would estimate around $90 million in terms of net cash proceeds after tax and some of the deal fees associated with it.

The next question is from the line of Lauren Lieberman with Barclays.

I had two questions, actually. First was on Taste. In the slides, you mentioned you had favorable net pricing. I'm just curious if that's comparable to what peers are doing. I was surprised to see that there was positive pricing in this environment. So that was the first question.

And the second one is if you could just offer any observations on growth of multinationals versus local and regionals and also the pipeline, sorry, just the pipeline activity from those two subsets.

Sure. So maybe, Erik, I'll start on the taste piece of it. The team has really done a good job. And so when I think about the net pricing comment, Lauren, where there's areas of inflation, and one area there is some tariff inflation that we get, the team has done a really good job of offsetting that as part of their pricing areas. At the same time, it's a net pricing number.

So in terms of the inflationary environment that we've seen throughout 2025, which was about low single-digit inflation, the team did a really good job of productivity to drive some of those costs down. And so when you combine productivity with the raw material cost exposure and the pricing strategy, that's how you got your net pricing benefits there. And so I think I can't speak to the competition, but I can speak that the team has done a very good job at executing on that piece of it. In terms of the global versus local and regional, Erik?

Yes, we're seeing the regional and local is growing faster, and we've put more emphasis on growing with them and accelerating our pipelines with them. But the global key account are still critically important to us, and they're increasing their focus on innovation so our pipelines with them are very strong and robust. So we're not decreasing emphasis on global key accounts, but we're increasing our focus on the regional and local.

The next question is from the line of Laurence Alexander with Jefferies.

Can you give us some color on what your customers are telling you about inventory levels and their patience on reformulation? So what I mean is, yes, are they seeing the evidence that reformulations are driving significant organic growth acceleration? And if not, how long will they keep reformulating before they switch to other ways to protect earnings and cash flow in a slow growth environment?

Sure. So maybe I'll start. Erik, feel free to add on. The inventory question is a good question, Laurence. I think when you get into a slower growth environment, specifically with some of the global accounts, you always have to make sure the inventory management aspect doesn't have the impact on the business. I think based on the feedback that we've heard from the team, there are some markets. Very candidly, like North America is a little bit higher inventory level. So I think embedded in our forecast is a little bit of a deceleration in that market specifically because of inventory levels.

Broadly speaking, if you take a step back, inventories feel like they are in a good spot globally. But like I said, there are some markets like in North America that there could be some inventory management that could potentially happen there. So I think that's part number one.

Part number two, in terms of the patience -- I think your question around patience of reformulation, it's an opportunity. And so when you look at the customer set, over the last several years, pricing has a big part of their algorithm. And so really, and I think Erik just alluded to it, to really differentiate yourself in a market where pricing becomes more challenging in the overall market, innovation becomes a key part of the driver going forward.

And so I don't think you're going to see them throw up their hands and say, innovation is not important. And I think they're going to continue to make sure that is a central part of their algorithm going forward. And for us, that's a good thing because we like the portfolio, we like the R&D that we have. And we're focused on that. And so I think those are the two I would give, Erik. I'll ask you if there's anything.

The only thing I would add then is on the inventory side. There's a lot of uncertainty with our customers, and they're trying to operate with lower inventory levels. So we absolutely can and will do a better job of managing our inventory levels, but we're also trying to make sure that we're not missing order opportunities. But we're really trying to stay close to our customers and understand what their needs are so that we're able to operate with lower inventories, but not miss any delivery reliability goals.

The next question is from the line of Silke Kueck with JPMorgan.

When you look at 2026, what do you think are the bigger product launches? So the collaboration with BASF sounds that there are like product opportunities on the detergent side. And is that something that will affect Consumer Fragrances in Scent? Or is that something that we'll see in the enzyme category under H&B.? That's my first question.

Secondly, the beverage can companies have spoken about growth in like protein-enriched beverages, like protein being added to essentially like everything. Is that an opportunity for IFF? And again, is that something -- when it's beverages, do you see that as like a Taste opportunity? Or because it's protein, will that shop in H&B?

And my third question is you talked about regionals and locals growing faster than multinationals. Does that mean private label is also growing faster? And how do you approach going after the private label business?

Well, thanks for those questions, Silke. I'll try to take them one at a time, and Mike, please pitch in any time. So let's talk, first of all, about the BASF collaboration. I think it's really important. BASF has a very strong position in chemistry with many home and personal care companies. And we've got a very strong capability in enzymes and have very good positions with a number of customers but haven't reached the broader market as well as we would like to.

And so the combination of us plus BASF's really strong commercial capability, our enzymes and their chemistry is, we believe, a very strong opportunity to serve customers better for both of us. So we'll see that play out and it should start to see enzyme growth towards the end of '26 but more in '27, I would say. And with that, we'll improve our relationships and connections with customers' percent.

On the protein movement, I would say it's very strong and it obviously helps our protein business were the leaders in plant-based proteins, which are very much in vogue and desired, less so in the alternate meats. That is rebased and growing but of a smaller base.

But certainly in beverages, bars and other areas, and we see growth opportunities for our protein business, but also for our broader food ingredients business to make sure that the protein drinks and other products have the great mouth feel, the right taste, don't settle out -- the protein doesn't settle out and, very importantly, the taste, the flavors, which gives us an opportunity to go in with protein and other Food Ingredients capabilities and bring more total solutions to customers that -- or at least open the door for not only our Food Ingredients people but for our Taste capabilities.

So this protein dynamic, I think, was strong and is further accelerating with the GLP-1s, and we see that continuing and we see us well positioned. And we're already seeing good growth from it.

The last one was on the regional and local. Yeses, private label is increasingly important. That's back to the K economy. And we're putting more emphasis on working with the private label retailers but also the co-manufacturers who make the products and making sure that our capabilities are helping them achieve what they want to help.

The next question is from the line of [ Evertz ] with Wells Fargo.

I know this was touched on already, but I wanted to push a little bit further on Fine Fragrance. You obviously reported 20% growth this quarter and double-digit growth last quarter. It's been growing very strongly. And I know you mentioned wins, but I'm wondering if there's something else in underlying trends driving this growth?

And then looking forward, is this a level of growth that we should expect going forward? I know you mentioned upside from your scent centers in Dubai and Florida bearing fruit in mid- to late 2026. But how should we think about this next quarter or this coming quarter and then the first half 2026?

The Fine Fragrance business has shown tremendous growth rates. I don't expect to have that stronger growth going forward, but I do expect continued solid growth from Fine Fragrances. And I think that's because of our capabilities. We've got great perfumers. We've got great molecules. We've got significantly enhanced investment in innovation that's going to be coming more into 2026 and '27. And we've invested in places like Dubai creative center and creative centers in other parts of the world, Shanghai and others.

And so we are absolutely committed to this market and we absolutely want to serve our customers to help them have great products. But I think another dynamic here is the whole social media dynamic, where you're seeing influencers really starting to -- or have been and, I think, will continue to expand the marketplace, expand to new generations, to not only females but more to males, a younger generation and more diverse groups. And I think that's fueling the growth and we see that continuing.

The last question is from the line of Christopher Parkinson with Wolfe Research.

This is Harris Fein on for Chris. I mean, there's been some solid year-on-year margin comps in Food Ingredients. Just wondering if you could maybe talk about the line of sight to bridge that margin to the mid-teens next year. And we're also all looking forward to the strategic update early next year. But in the interim, maybe if you could talk about any opportunities you have to prune, maybe more along the lines of what you did with the Soy Crush business in the interim, that will also be helpful.

Harris, thanks for the question. Look, I think the Food Ingredients team has done a fantastic job really emphasizing margin improvement. And so just kind of bringing it back, if you remember, at the lows it was about 9% EBITDA. So the trajectory now, it was 9%, 12%, moving towards 14%. If you adjust our portfolio, it gets towards that 15%. And so the line of sight is actually pretty strong in terms of overall recovery, and the team has done an excellent job.

As they go forward, what's really important because not only do we divest business, we were also very strategic in, I'd say, ongoing pruning of our overall portfolio. So we're very selective. So some of the lower-margin businesses, we kind of walked away, which is embedded in some of our top line performance this year in 2025. I think so as you go in -- but as you go into 2026, the more growth you can get into that business and return to growth, that's where you get nice leverage with the P&L. So that's kind of priority number one, it's how to get the business back towards that growth number, so one.

Two, we started basically 2 years ago on a big productivity push. And so looking at plant optimization, raw material optimization. The team has done a good job, and that's a big driver of what you're seeing in the performance in 2025, but that also continue into 2026. And so between those two levers, I think you still have a line of sight to continue to improve that business both from a top line perspective but also from a margin perspective. I think again you'll get back to that mid-teen, and the team is focused and fully focused on that as they drive going forward.

And I'll just add one other thing is we are investing where we see high profit margin growth opportunities. For example, the TAURA Fruit inclusions business segment is we're expanding the capacity significantly there. The current capacity is sold out, high margins, high growth. So Andy and his team are really driving also growth in the higher-margin areas.

Thank you. There are currently no questions registered at this time. So I'd like to pass the call back over to Erik for any further remarks.

Well, thank you all for joining today's call. Let me close by saying that I'm very proud of the progress the IFF team has made over the last 18 months. We are a much stronger company with the right future. We have a solid balance sheet, a clear strategy, a strong and strengthening innovation pipeline, a strong focus on serving customers and consumers, and we're executing better and better and doing what we say we are going to do. So I look forward to the road ahead, and thank you very much.

Thank you all. At this time, this will now conclude today's conference call. We appreciate your participation. We hope you all have an amazing rest of your day, and you may now disconnect your lines.