NYSE:IFF International Flavors & Fragrances Q1 2023 Earnings Report $76.27 -0.37 (-0.48%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$76.23 -0.04 (-0.05%) As of 04/25/2025 06:19 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast International Flavors & Fragrances EPS ResultsActual EPS$0.87Consensus EPS $0.89Beat/MissMissed by -$0.02One Year Ago EPS$1.69International Flavors & Fragrances Revenue ResultsActual Revenue$3.03 billionExpected Revenue$2.98 billionBeat/MissBeat by +$51.79 millionYoY Revenue Growth-6.20%International Flavors & Fragrances Announcement DetailsQuarterQ1 2023Date5/8/2023TimeAfter Market ClosesConference Call DateTuesday, May 9, 2023Conference Call Time9:00AM ETUpcoming EarningsInternational Flavors & Fragrances' Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by International Flavors & Fragrances Q1 2023 Earnings Call TranscriptProvided by QuartrMay 9, 2023 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00Good morning. At this time, I would like to welcome everyone to the IFF First Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode until the formal question and answer portion of the call. Participants will be announced by their name and company. I would now like to introduce Michael DeVoe, Head of Investor Relations. Operator00:00:48Mr. DeVoe, you may begin. Speaker 100:00:50Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFS' Q1 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. Speaker 100:01:05Please note that this call is being recorded live and will be available for replay. Please take a moment to review our forward looking statements. During the call, we're 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 ks and press release. Speaker 100:01:35Today's presentation will include non GAAP financial measures, which Those items that we believe affect comparability. A reconciliation of these non GAAP financial measures to their respective GAAP measures is set forth in our press release. With me on the call today is our CEO, Frank Clyburn and our Executive Vice President, Chief Financial and Business Transformation Officer, Glenn Richter. 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 Frank. Speaker 200:02:07Thanks, Mike, and hello, everyone. We delivered Q1 2023 results in line or ahead of our expectations amidst Our team successfully navigated soft end market demand and customer inventory destocking Thank you, and thank you for your participation. However, year on year comparisons in a number of areas show the backdrop in which we are operating remains challenging, as I acknowledged on our last call. As you will see from our quarterly financials, we have made solid progress On our objectives of reducing costs to improve efficiency, recovering inflation and materially reducing our inventories, while improving our service levels to our customers. The key challenge remains volume growth and our management team remains keenly focused on accelerating Profitable sales growth moving forward. Speaker 200:03:15Before I get into our Q1 performance, I do want to share an update on our search for our NERISH President. Over the past several months, we have engaged with various leaders about the opportunity to run our largest division. At this time, our search continues as we are looking to attract a well regarded leader with a strong track record of success that can drive performance in this division. I am pleased with the slate of candidates that we have and look forward to welcoming a new leader in due course. We will provide further updates going forward as we progress the process. Speaker 200:03:54Starting on Slide 6, I'd like to begin with a high level look at our performance in the quarter before handing it over to Glenn to discuss our financials and full year outlook in more detail. In quarter 1, IFF generated $3,000,000,000 in sales, which reflects 1% Comparable currency neutral growth led by increases in scent and pharma solutions. As we expected, volumes in the Q1, similar to what we experienced in the Q4 of 2022, remained under pressure, down high single digits due mainly to consumer demand slowdowns and significant customer destocking actions. It should be noted that we are also comparing to our strongest year ago comparison, where our volume grew mid single digits in the Q1 of 2022. Adjusted operating EBITDA finished at $503,000,000 in the Q1 of 2023 and largely was impacted by the lower volumes as well as our proactive effort to rebalance inventories to drive cash flow generation. Speaker 200:05:07As we shared earlier this year, we are executing our inventory reduction program, Making strong progress in the Q1. As expected, while it was cash flow positive, It did lead to a significant headwind in terms of profitability as our fixed costs were absorbed over reduced manufacturing volumes, which represented approximately a 15 percentage point year over year impact. At the same time, initiatives that continue to deliver strong cost and operational efficiencies. From a leverage perspective, Our net debt to credit adjusted EBITDA for the quarter was 4.6x. As we disclosed earlier in the quarter, we have proactively renegotiated our debt covenants to ensure IFS continued resilience as we navigate today's complex Global macroeconomic environment. Speaker 200:06:16These amended agreements will provide us with maximum flexibility as we grow our business and continue to optimize our portfolio to achieve our target leverage profile. To this end, we continue to deliver on our portfolio optimization commitments. Our Savory Solutions divestiture is now on track to close at the end of May. In February, we also announced the sale of our flavor specialty ingredients business To UK based private firm, Exponent, for $220,000,000 in cash proceeds, which will be used for debt repayment. We expect that this transaction will close by the end of Q3 of 2023, subject to customary closing conditions. Speaker 200:07:09Moving forward, portfolio divestitures remain a central part of our strategy, And we are evaluating several opportunities to further strengthen our capital structure as we drive towards our targeted leverage profile. Turning to Slide 7, I'd like to provide a bit more detail on our sales performance in the quarter. As I mentioned, we delivered more than $3,000,000,000 in sales in the first quarter, which represents and steady performance in Pharma Solutions. In a moment, Glenn will take you through the underlying factors driving the performance across our business But first, it's important I provide high level context on what we're seeing in the environment. Scent once again delivered a strong performance, Both Fine Fragrance and Consumer Fragrance grew double digits. Speaker 200:08:14Our Pharma Solutions segment also delivered solid growth, driven once again by a strong performance in core form. Nerush was flat this quarter as our ingredients Business continued to be pressured by macroeconomic factors and destocking, which offset growth in flavors and food design. While certain businesses within our Health and Biosciences segment were also challenged this quarter, Cultures and Food Enzymes In Home and Personal Care were 2 strong performers in H and B that we expect will continue to gain share throughout the year. Taking a step back and reflecting on our performance, there are essentially a handful of categories that have disproportionately impacted our volume performance. Specifically, within our Neris segment, Our Ingredients division, which represents approximately 25 percent of total company sales and includes protein solutions, Emulsifiers and sweeteners, core texturants, cellulosics and food protection drove about 60% of our total volume decline in the quarter. Speaker 200:09:28As we outlined at our December Investor Day, We are working to improve our performance and have largely addressed our capacity issues and have improved our service levels in these businesses. We are now working on modifying our pricing strategies, enhancing our commercial coverage and simplifying our internal processes, All to grow our project pipeline and deliver more robust growth going forward. And while this will take time and attention, we are doing so with a sense of urgency to ensure that when current market challenges Looking at our profitability for this quarter on Slide 8, 1st quarter adjusted operating EBITDA totaled $503,000,000 down 19% on a year over year comparable currency neutral basis as expected. As I shared on our last call, Lower volumes related to consumer demand softness and significant customer inventory destocking, plus unfavorable manufacturing absorption related to our inventory reduction program, meaningfully impacted our profitability $60,000,000 of gross productivity gains in the Q1. However, the strong benefit was offset by higher manufacturing related costs, such as lower yields, slower obsolete inventory and higher manufacturing inflation. Speaker 200:11:12If we look at our profitability performance, Absence of the unfavorable manufacturing absorption, comparable currency neutral adjusted operating EBITDA would have declined approximately 4%. Looking ahead, we remain intensely focused on controlling our controllables, including identifying additional opportunities to further optimize our operations and strengthen our balance sheet. While we certainly have work to do to fully execute on our refreshed strategic plan, we have taken significant action to ensure our business maintains the flexibility and resilience needed to deliver in any macroeconomic environment. While we do believe 2023 will continue to be impacted by many of these factors and dependent on an Moving volume environment in the back half of the year, we continue to believe we can deliver our long term adjusted operating EBITDA growth target of 8% to 10% on a comparable currency neutral basis over the 2024 to 2026 time period. I'll now turn it over to Glenn to provide more context around our divisional performance, cash flow and financial outlook going forward. Speaker 300:12:31Thank you, Frank, and thanks to everyone for joining us today. Turning now to Slide 9, let me review our Q1 performance across each of our 4 business segments. In Nourish, sales were flat on a comparable currency neutral basis with growth in food design and flavors, offset by continued volume declines in ingredients. As Frank shared, Nourish Ingredients, which includes protein solutions, Emulsifiers and sweeteners, core texturants and cellulosics and food protection had the most pronounced volume declines in the quarter, representing approximately 60% of our total company volume decline. Despite our pricing actions and productivity initiatives in the quarter, Within our Nurse segment, the lower volumes and the unfavorable manufacturing absorption due to our inventory reduction program that I mentioned earlier more than offset those efforts contributing to a 27% year over year decrease in currency neutral adjusted operating EBITDA at $208,000,000 Those same pressures impacted Health and Biosciences this quarter with a 3% Year over year decrease in comparable currency neutral sales and a 19% year over year decrease in comparable currency neutral adjusted operating EBITDA Despite price increases and strong productivity gains, while we saw solid growth in cultures and food enzymes And Home and Personal Care, lower volumes and unfavorable manufacturing absorption also pressured our performance. Speaker 300:14:07As Frank mentioned earlier, our scent division continues to perform quite well, delivering an 8% increase in comparable currency neutral sales and a 1% increase in comparable currency neutral adjusted operating EBITDA, driven by double digit growth in Fine Fragrance and Consumer Fragrance. SENSE growth this quarter was driven by higher volumes, pricing and productivity gains as the division has remained resilient. Lastly, I'm pleased to share that Pharma Solutions delivered a 4% increase in comparable currency neutral sales, led by continued growth in core pharma. That said, like Nourish and Health and Biosciences, the segment was also impacted by lower volumes and unfavorable manufacturing absorption, leading to a 6% decrease in comparable currency neutral adjusted operating EBITDA. Overall for the quarter, Sales and EBITDA were slightly ahead of our expectations with pricing on track, modestly better volumes and favorable productivity. Speaker 300:15:12Now on Slide 10, I'll discuss our cash flow and leverage position for the quarter. Cash flow from operations $127,000,000 this quarter, which is an improvement versus the negative $4,000,000 we reported in a year ago period. One bright spot in the quarter was approximately a $200,000,000 decrease in inventory versus our year end 2022. As I discussed on our Q4 call, we have initiated a number of actions across our business and supply chain teams, including system process enhancements to rapidly reduce our inventories over the course of the year. While this is adversely impacting the P and L through negative manufacturing absorption, it is a short term impact that will be recovered over time. Speaker 300:16:00Looking ahead, while the majority of our efforts to reduce inventories for 2023 are behind us, We do have near term headwind in Q2, albeit to a lesser degree than Q1 as we continue to correct our over inventory position and maximize cash flow. I also want to note that accounts payable in the quarter was adversely impacted as a result of season payment patterns and by our inventory reduction program whereby we slowed the purchase of raw materials, which had a direct impact on our AP. We expect this will improve over the course of the year as we achieve our target inventory level. CapEx spending for the quarter was 175,000,000 or approximately 5.8 percent of sales. This was elevated due to project timing and we expect to moderate through the balance of the year. Speaker 300:16:53We continue to believe that we will be around $500,000,000 in CapEx for full year 2023. Our cash flow for the Q1 was negative $48,000,000 This is consistent with the seasonality of cash flows for our business. Included in our free cash flow is about $100,000,000 of costs, primarily related to integration and transaction related costs. In terms of leverage, we finished the quarter with cash and cash equivalents of $594,000,000 which includes $4,000,000 in assets currently held for sale, while net debt totaled $10,700,000,000 Our trailing 12 month credit adjusted EBITDA totaled approximately $2,300,000,000 and our net debt to credit adjusted EBITDA 4.6 times for the quarter as we mentioned earlier. While our leverage position is slightly higher than in the past few quarters, We were proactive in renegotiating our debt covenants in the Q1 to ensure that we have appropriate capital flexibility as we execute on our strategic priorities in what may continue to be a challenging market. Speaker 300:18:02Importantly, we continue to actively evaluate the portfolio with consideration for further divestitures that provide additional financial flexibility and debt pay down without impacting our long term aspirations. Turning to Slide 11 for our consolidated outlook for the fiscal year 2023. As we look ahead to the balance of the year, we continue to believe our volume performance will improve, yet acknowledge that market conditions remain uncertain. In our discussion with customers, the majority have signaled that their destocking efforts are ending as they believe the consumer will remain resilient in the second half. Nevertheless, we have yet to see a broad based volume improvement across our business, but we remain steadfast in our focus to What we can control to protect profitability, maximize cash flow and drive portfolio optimization. Speaker 300:18:59For the full year, we now expect sales to be approximately $12,300,000,000 versus $12,500,000,000 previously. This change is largely related to energy and raw material pass through price adjustments. In addition, we had a modest Increasing unfavorable impact from foreign exchange. As we noted on our February earnings call, about 30% of our original 6% pricing guidance was related to energy inflation, much of which is passed through via surcharges with energy prices having moderated significantly. We are maintaining our expectation of flat Comparable currency neutral adjusted operating EBITDA growth and continue to believe adjusted operating EBITDA will be approximately 2,340,000,000 Foreign exchange headwinds are expected to continue to pressure sales and comparable currency neutral adjusted operating EBITDA growth, which we now expect will adversely impact us 1% and 3%, respectively. Speaker 300:20:03This Incremental pressure is due to a handful of hyperinflationary currencies that have and we expect will continue to significantly devalue over the course of 2023. On a comparable currency neutral basis, All the above noted items translates into approximately 5% versus approximately 6% previously. The sole driver once again is the energy and raw material pass through price adjustments as we continue to believe volumes will be flat for the full year. In terms of calendarization, we believe volume will sequentially improve each quarter with a growth rebound expected in the second half of the year. As the market challenges are expected to subside and our year ago comparisons are more favorable. Speaker 300:20:53To provide additional context, 1st quarter volume performance was modestly better than we anticipated with the 2nd quarter modestly lower. The net result is that on a first half basis, we are broadly in line with our expectation, which we believe will be offset by a favorable second half. On a 2 year average basis, we expect first half volumes to be approximately negative 2%, reflective of destocking and second half volumes to be up Plus 2%. For the 2nd quarter specifically, we expect sales to be approximately $3,000,000,000 to 3,100,000,000 With volume performance down mid single digits and adjusted operating EBITDA of approximately $540,000,000 to $590,000,000 We remain intensely focused on improving our inventory levels and driving cost savings through productivity and restructuring initiatives to ensure We generated strong cash flow for the full year. As a result, we continue to target 2023 adjusted free cash flow of more than 1,000,000,000 Including costs related to integration, restructuring and deal related items. Speaker 300:22:03Turning to Slide 12, We recognize that we continue to face a challenging environment, including reduced visibility on consumer and customer demand outlook and the path of inflation. However, we remain intently focused on what we can control with the goal of continuing to strengthen IFS That will enable ISF to not only manage these complexities, but also to drive long term profitable growth. Our highest long term priority is accelerating top line growth. To achieve this goal, we are making key strategic investments in key areas of our business and continue to be more surgical in our pricing actions to ensure we recover inflationary pressures while supporting volume growth. We have also made great progress in enhancing our customer service and supply chain agility to reduce BioLex and increase efficiency. Speaker 300:23:05In the Q1, we maintained strong service levels while also reducing our inventories, improving Approximately $200,000,000 from December 2022. In conjunction with this, we will be rolling out a redesigned sales, inventory and operations planning process. Enhancing productivity also remains essential as part of our transformation. As mentioned earlier, During the quarter, we successfully achieved approximately $60,000,000 of productivity benefits and began seeing initial results from our restructuring program. I expect this benefit will rapidly increase over the balance of the year and be a strong contributor to our EBITDA performance this year. Speaker 300:23:49Lastly, we remain laser focused on improving our cash flows and delivering our long term deleveraging target. We expect to continue to make improvements in net working capital through the balance of 2023 and into next year. We are in parallel executing against our portfolio optimization efforts, continuing to invest non core business. In Q2 and Q3, we expect to complete the sale of our Savory Solutions and Flavored Specialty Ingredients Businesses with proceeds used to pay down debt. Going forward, this is a central part of our strategy and we continue to evaluate Additional portfolio authorization opportunities to strengthen our capital structure. Speaker 300:24:32With that, I would like to turn the call back over to Frank. Speaker 200:24:36Thank you, Glenn. Moving to Slide 13, I would like to summarize our current position, in line first quarter results and reiterate where we are headed for the remainder of 2023. Over the years, IFF has remained resilient Amid a variety of market conditions, while successfully transforming the business to meet evolving customer needs. The same is true today as we focus on controlling what we can control and executing on the operational priorities Outlining our strategic refresh in order to achieve our financial vision and drive sustainable profitable growth that benefits all of our stakeholders. We continue to believe our volume will improve yet acknowledge that market conditions remain uncertain. Speaker 200:25:28As Glenn mentioned earlier, a majority of our customers have signaled that they expect destocking efforts will end and believe the consumer will remain resilient in the second half. We will continue to take action to stay nimble, Strengthen our financial and operational foundation and maintain our resilience as we continue to be diligently focused on delivering Our operational and financial objectives. Moving forward, we remain committed to bringing strong products and innovation to our customers as we meet or exceed their service expectations. Financially, we are focused on and we will continue to execute on our growth focused strategy by enhancing productivity, driving operational efficiencies and prioritizing our highest return businesses, all while maintaining capital discipline. We have started the year in line with our objectives and are confident in our ability to continue to execute going forward. Speaker 200:26:42Once again, I want to thank our teams for their tireless work to innovate and bring to market the essential products and solutions that shape so many of our daily experiences. And I have no doubt that we are well on track to build a more efficient, Agile and customer centric organization poised to deliver sustainable, profitable growth in any market environment. With that, I would like to now open the call for questions. Operator00:27:19We will now begin the question and answer session. I would also like to remind participants to limit your question to 1 question per person. Our first question comes from the line of Heidi Vesterinen with BNP Paribas. Your line is now open. Speaker 400:28:08Good morning. So I wondered if you could please talk more about the cadence of volume and margin performance To the quarters to get to your guidance, please. And specifically on volumes, so you reported Q1 volumes down high single digits, which I think is You had guided for originally, but then in your speech you said that it was better than expected. And then you're now saying I think Q2 is looking Somewhat worse than expected, and I think your guidance used to be down low single digits. So can you clarify what the guidance for Q2, please? Speaker 400:28:40Perhaps If you can also comment by segment and then same for margins through the year, please. Thank you. Speaker 200:28:48Yes. Hi, Heidi. It's Frank. A couple of things. So in Q1, we had guided to your point high single digits Volume declined and we actually performed a little bit better than what we had assumed in that original guidance. Speaker 200:29:04Sales was up 1% as you know on a currency neutral basis. So a little bit of head in Q1. Q2 is Slightly down from what we had assumed originally. However, when we take a step back, Heidi, think about the first half of the year Mid single digit volume decline, which is pretty much right on what we had expected at the beginning of the year. So really what you're seeing is the phasing and shift, but the first Half of the year mid single digit decline in volume. Speaker 200:29:37And we'll talk a little bit more about some of the different areas here in just a bit. The second half of the year, what we are anticipating and assuming is against a much easier comp as we get to the back half of the year. We are making the assumption that we will have mid Single digit growth in the second half of the year, which then when you look at the full year has our volume being flat year over year. So let me unpack a little bit about some of the key assumptions as we get into the back half of the year and even into the second quarter. 1st, destocking, we are assuming that that ends pretty much in Q2. Speaker 200:30:27So if you think about destocking, Heidi, we saw this really come to fruition in Q4 where volumes were down High single digits of Q4 of 'twenty two. We continue to see destocking in Q1 and some destocking is continuing In Q2, but we think destocking is at the end as we head into the second half of the year. This is really important for our Protein Solutions business and Health business that were significantly impacted by destocking. 2nd, the assumption is that consumer trends do remain resilient. There's some uncertainty in that, but if we look at what we I've heard from our customers and as we're working with them in bringing innovative solutions. Speaker 200:31:18In Home and Personal Care, we saw good growth in the Q1. We anticipate that That will continue. Dish, detergent, a lot of innovative projects that we're working on and we see good progress And acceleration as we go into the second half of the year. We think food and beverage will still remain resilient. Obviously, our flavors business is really important there, grew in Q1 and we anticipate So we're focused on improving our ingredients business. Speaker 200:31:57We've discussed that really a focus on putting some additional resources behind ingredients. Our customer service has improved significantly. We have the capacity to serve customers. So that's something that we are Also assuming as we go forward in our ingredients business. And then we're seeing resilience in consumer and fine fragrance and we anticipate That to continue and then also pharma continues to be resilient as well. Speaker 200:32:25So when we take a step back from a volume perspective, Heidi, Think of first half down mid single digit volume, second half up mid single digit volume and then ultimately volume flat for the full year. The third thing that we are seeing that we believe will accelerate in the back half of the year and improve sequentially is geographical Volume growth in the back half. For instance, China this quarter, Heidi, was up 2% in sales. Asia Pacific or I should say Greater Asia was up 1%. As we talk to our teams in Asia and in China, while The opening is still slow. Speaker 200:33:10In parts of China, we are seeing improved signals from customers and that gives us Confidence as we get into the back half of the year that you will see geographical improvement. And then we've also noted that North America has been challenged For us over the last couple of quarters, we anticipate sequentially that will improve as we get to the back half of the year. So that's the assumptions from a volume perspective. A lot of like we said, there's some uncertainty, but we're believing that those three Assumptions and drivers are what gives us the assumption at this point in time to hold our volume flat for the year. In addition to that, as you look at the back half of the year, there's a couple other things I will highlight. Speaker 200:33:56On the call, we spoke about The fact that absorption in the Q1 was a headwind for us, it will be a headwind in Q2 to a lesser degree. Obviously, as you get to the back half of the year, that will go positive and help us. And then in addition to that, if you recall, we Highlighted that we have our cost reduction program. Full year, we highlighted a cost reduction program of $100,000,000 We highlighted a run rate of $70,000,000 to $75,000,000 for the year. And if you look at the back half, That is where you'll see the majority of that benefit in the second half of this year as we execute on our cost And people reduction program. Speaker 200:34:43So when we take all those things into account, Heidi, that is why we feel as though holding our EBITDA Guidance, to the $2,340,000,000 that Glenn highlighted was the appropriate assumption at this time. Operator00:35:00Thank you. Our next question comes from the line of Mark Ostercan with Stifel. Your line is now open. Speaker 500:35:10Yes, thanks and good morning everyone. I wanted to ask about Guidance and then some of the troubled areas within the business. So in your opinion, are you being more conservative We're optimistic than you were previously. It seems like underlying assumptions maybe from a consumer dynamic has Change to be more positive within the underlying guidance. I'm curious if you could comment on that. Speaker 500:35:36And then for the more challenged Portions of the portfolio, things like the legacy NMB and ingredients in terms of what you highlighted, What proactive steps are you taking to offset what seems like perhaps more permanent and structural volumetric share loss, Meaning like improving service levels doesn't seem like it could be enough to change the trajectory of the business, but perhaps I'm wrong. So Sort of curious how you're thinking about what you can do to improve those pieces of the business, which have been dragging performance and losing share? Thanks. Speaker 200:36:14Yes, Mark, it's Frank. A couple of things. One is with regards to The businesses that were challenged and some of these, as we have highlighted, clearly were due to what we see more de Talking and end market demand and not necessarily share loss, but I will also acknowledge there has been share loss in other in parts of our business. So For instance, in HealthMark, you highlighted we have discussed that the probiotic market in North America several times. In that business, in particular, we have been really focused on our resources into that marketplace. Speaker 200:36:57That is really the down in volume has been driven much more by destocking and end market softness. With that said, we have a strong focus on our with our health team. There's a lot of reviews with our commercial team, and we are starting to see sequential improvement in that Business, Mark, as we go forward. In our ingredients business, as I just highlighted, there's a couple of things that we have put in place. 1, our customer service levels were not where they needed to be. Speaker 200:37:27We highlighted that during our Investor Day. They have improved significantly, Mark. So that is a big, I would say, plus for us, and we're getting good positive feedback from customers. So customer service levels In the on time performance range of 90% to 95% is really important and we're there. 2nd, we now have the capacity that we need to 3rd, we are putting targeted resources in specific markets that are going to be focused on commercial Customers around ingredients, so additional resources, Mark, to your point are also a part of what we are doing. Speaker 200:38:13And then 4, what has been encouraging, we had gotten away from really good pipeline development with our customers in that space. And I can tell you this is going to take some time, but we are seeing good projects now come to fruition and we are seeing pipeline progress In nourish and ingredients specifically. So those are the areas of focus. The team is spending a lot of time really looking at how we can accelerate Operator00:38:47Our next question comes from the line of Gunther Zechmann with Bernstein. You may your line is now Speaker 600:38:55open. Hi. Thank you. Hi, Frank. Hi, Glen. Speaker 600:39:00Can you please provide your insights into the cash flow progression, the cadence throughout the year? And the EUR 1,000,000,000 free cash flow, adjusted free cash flow target, and also within that, could you just Discuss and outline what you've embedded in terms of working capital improvement, please. Speaker 300:39:21Good afternoon, Gunther. Thanks for the question. I think the summarized version is we're actually tracking quite well against our objectives. And I want to sort of unpack. As you know, the 2 big contributors relative to our adjusted free cash flow Combination of achieving our earnings guidance and then secondarily all the work on working capital. Speaker 300:39:41We had a very good quarter relative to our around working capital. As a reminder, our full year objectives for working capital consisted of a $200,000,000 Point on point year end to year end reduction in inventory and then $100,000,000 increase between payables and receivables For a net $100,000,000 reduction in net working capital. The biggest driver of that obviously is inventory at that $200,000,000 That $200,000,000 reduction It's actually a $350,000,000 volume reduction with $160,000,000 of basically price escalation, I. E. Raw material cost Increase is coming through. Speaker 300:40:22In the Q1 focusing on inventory, we actually were over $200,000,000 down inclusive of around $80,000,000 of price escalation. So the volume component in the Q1 was $280,000,000 against our full year objective of 350. So we're trending quite well. We will probably actually get to the full sort of our initial level of inventory reduction by the end of the second quarter at this point in time. Payables and receivables, they're a little lumpy seasonally. Speaker 300:40:51We're feeling very good about achieving those objectives at the end of the year. So overall, We feel very good, particularly relative to the working capital improvements. Thank you. Operator00:41:03Thank you. Our next question comes from the line of John Roberts with Credit Suisse. Your line is now open. Speaker 700:41:13Thank you. How do you explain what appears to be underlying consumer strength in fragrance versus the underlying consumer weakness in food ingredients or maybe the question should be how did the channels get so overstocked in food ingredients And not so overstocked in Fragrance Consumer Products and are there significant divergences in the current point of sale volumes between packaged food and fragrance products? Speaker 200:41:43Yes. Hi, John. This is Frank, what we have seen in consumer fragrances, in particular, we saw a very strong Q1. In fact, we also saw a very strong Q1 in fine fragrances as well. So we feel really good about I think consumer fragrances, it was a lot of, I would say, pent up demand. Speaker 200:42:06I think you are seeing clearly some positive Trends on what we have been working with our customers in particular bringing new innovation to consumer fragrances. We've worked with a lot of the large Consumer packaged good companies over the last several years and I think this is where we really have brought strong innovation in our consumer business. So we feel really good about that. There clearly was an inventory build Significantly in ingredients as we've highlighted, you could see it as you go through the first Part of 'twenty two and then you look all the way back to 'twenty one, I think that what took place in those businesses, in particular, Uncertainty around supply chains and companies wanting to make sure that they have the supply necessary As you went through a lot of volatility in the supply chains, which is what caused the build and obviously now is what we're seeing is some of the destocking from those Operator00:43:16Our next question comes from the line of Joshua Spector with UBS. Your line is now open. Speaker 700:43:26Good morning. This is Lucas Feldman on for Josh. So just wanted to focus on the production cost under absorption. Could you please tell us sort of what was the actual size of the impact there in 1Q? It looked like maybe $150,000,000 or so in the EBITDA bridge. Speaker 700:43:40And then Looking at 2Q in the second half, how much residual impact are you assuming in each period as the year progresses? And finally, if we get a scenario where volumes kind of disappoint to the downside, would that get larger? Thanks. Speaker 300:43:58Yes. Hey, thanks for the question. This is Glenn. Within the Q1, the negative absorption impact Was $100,000,000 which translates actually into 3.30 basis points of impact on EBITDA margin. That represented a year over year volume decline of about 20%. Speaker 300:44:18So think about our annual fixed cost base for our manufacturing base About $2,000,000,000 Every one point on an annualized basis is basically worth about $20,000,000 So we hence why we're able to reduce our inventory so Significantly, we took production down significantly. So I'll say a one time event of $100,000,000 We are expecting, as I mentioned, to continue to make Progress on reducing inventories and expecting to have mid single digit down volume in the second quarter. That translates into another $50,000,000 of negative absorption. We are anticipating actually positive absorption in the second half of the year. As Frank mentioned, we're expecting mid single digit growth in the second half of So production volume is being up year over year. Speaker 300:45:03Again, the context of the risk associated or opportunity Associated with declines or increases in manufacturing, a one point on a full year basis is equal to $20,000,000 of negative absorption. So if you think Two points in the second half that would be equivalency of that $20,000,000 We have discussed in the past that we will have to continue To consider that if we continue to see volume softer than our expectations, what will be the balance Of continuing to manage cash flow and keep our inventories in the right place for production efficiency purposes versus basically the earnings profile. So they're clearly in a softer environment than anticipated. There is some risk of further negative absorption in the second half of the year. Thanks for the Operator00:45:53question. Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Your line is now open. Speaker 800:46:03Hi, everyone. Good morning. Just judging by some of the comments from your major customers out of this earnings season, it clearly looks like the global consumer is a little bit weaker. Just curious given inflation has peaked and just your more recent conversations with your customers, do you get a sense as to whether Some of the promotional activity that your customers typically resort to during periods of weakness, are they starting to contemplate that? Just trying to get a sense as to The risk profile as we cycle through the rest of the year because you will be past the shocking, but we still have a weaker consumer. Speaker 800:46:37Thanks. Speaker 200:46:41Yes. Hi, this is Frank. I think as we talk to our customers, at least the big consumer good companies, I would say they're probably cautiously optimistic on the resiliency of the consumer. They are stepping up in certain categories, Promotional activities and efforts, we have clearly seen a lot of, I would say, good Focus from them on innovation and looking for new projects as they continue to focus on building out their Future offerings to consumers. I also think that what is taking place is if you look at From our lens and it goes back to what I was highlighting, we do anticipate that Sequential improvement will continue from a volume perspective. Speaker 200:47:34So just to reiterate a couple of points, In particular, in the areas that are really key for us, the sequential lift Going from first half down mid single digits to positive mid single digits in the second half, We do continue to see working with our customers very clear opportunities for that sequential step up, Especially against a softer back comparison quarters in the back half. So we believe that our consumer Companies that we're working closely with are the ones that are highlighting differentiation and innovation has been Key and that's something that we will continue to focus and work on as a company. Operator00:48:28Thank you. Our next question comes from the line of Andrew Keshias with Barclays. Your line is now open. Speaker 900:48:38Yes. Hi, good morning. Glenn, I was hoping we could get a little more context for your deleveraging plans over the next Well, this year and next. So you came into this year a little over 4 times on the net basis. That figure has gone up, I think, as expected. Speaker 900:48:56You do have those divestitures announced, which will help you get leverage back down, it looks like, to about where you came into the year. But I think it still looks like we're going to end the year around flat in 2023 from a leverage standpoint. So, I guess that leaves you with a lot of wood to chop Next year to get down to that 3.0x target. So I guess the question is, do you expect to get there organically or at this Point, do you actually need those additional portfolio actions to drive the accelerated deleveraging and actually get you there next year? And then Related to that, it's not lost on me that your dividend is really absorbing all your cash flow at this point. Speaker 900:49:37So To the extent that conditions do deteriorate from here or you can't optimize the portfolio further, are you open to considering Speaker 300:49:55This is Glenn. Thanks for the question. Agree relative to wood chopping, that's why I have a hatchet with you today. But relative to your assumption for this year, You're correct. We were a little over 4 times at the beginning of the year. Speaker 300:50:08We will be receiving net proceeds after tax distributions transaction over $750,000,000 combination of this quarter and next quarter related to the sales savings solutions and SSI, which will all go to debt pay down. Relative to getting to the 3 times or less by the end of next year, we are fully committed to that. That will be achieved through a combination of 3 elements. 1, we continue to have opportunity to improve our working capital position. We Next year part of this overlapping some significant items such as $100,000,000 of negative absorption and then getting the top going with our productivity program. Speaker 300:50:57So that's the second thing, either denominator improving. But that all being said, We are proceeding on multiple fronts. We are fully confident that we have an attractive set of assets That actually aren't ideal fits for our portfolio. We are past the 2 year anniversary of the reverse Considerations as of February this year of note, and we are proceeding quite well on that path. So I'd say confidence remains high And commitment remains high to get to less than 3 times. Speaker 300:51:37And regarding cutting the dividend, that is not on the table at all. Operator00:51:46Thank you. Our next question comes from the line of Christopher Parkinson with Mizuho. You may proceed. Speaker 1000:51:55Thank you. You adjusted your revenue guidance a little bit and you're setting some energy and raw movements. Just Can you remind us of just how much of your portfolio passes through? And just as a corollary of that, can you also just give us a real quick update on price cost movements Yes, for the balance of 23 and just what portion of your portfolio you believe will reign resilient in terms of pricing? Thank you. Speaker 300:52:19Yes. Hey, Chris, it's Glenn again. Relative to energy, as a reminder, in our original guidance at the beginning of the year, we had 6% gross pricing in the P and L, 30% of that or a little less than 2 points was associated with energy, About 75% of our energy prices are either directly via index or indirectly via aligned surcharge attached Energy pass through to customers and they are generally reviewed on a quarterly basis. We expect that as we mentioned, we're taking a point out of that just Because there's been a very significant decline in energy prices globally, we believe that that will be relatively net neutral this year In part, not only because the pass through, but secondary timing, the majority of our energy prices actually sit in inventory because they're part of production costs. So with the 140 days of inventory, they sort of match by the end of the year. Speaker 300:53:16There should be some overlap as we roll into next But for this year, we're assuming that the energy net is sort of neutral from a P and L standpoint. In general, We are seeing positive deflationary trends, not only in energy, but in logistics as well as in certain raw materials. So that is favorable relative to the portfolio. As we've mentioned in the past, we believe that that is a potential upside. It will be either late this year because how Generally, the rolls obviously run through inventories, but could be meaningful next year. Speaker 300:53:52And relative to our portfolio, We would say that roughly 60 to 2 thirds of our portfolio has some degree of resiliency, It's more uniqueness relative to characteristic, but I would caution we're in the early days of deflation. So I think it's a little early to declare sort of significant margin capture relative to improvements in raw material and other Operator00:54:25Our next Question comes from the line of Lauren Lieberman with Barclays. You may proceed. Speaker 1100:54:33Great. Thanks. Good morning. In the prepared remarks, you guys commented on pricing, particularly in Nourish as a revisiting of pricing strategy. So I was just kind of curious, if we could talk a little bit more about that kind of where you think there are areas to adjust, what you kind of meant by that? Speaker 1100:54:51And then A corollary would be just a discussion on Nourish margins over time and have been in that like 12% range over the past 2 quarters. And I was just curious How you're thinking about Nourish profitability perhaps looking further out? And also again, notice adjustment in pricing strategy. Thanks. Yes. Speaker 200:55:13Hey, Lauren, it's Frank. On the pricing strategy, we are working with customers to balance price volume opportunities. So clearly, this is not Across the board, but very surgical, Lauren, in our practices, in particular in certain geographies. And I would highlight In great areas of China and certain markets where there is more price sensitivity, we are looking at price Volume, but not across the board. It's a very surgical approach to pricing. Speaker 200:55:47Margins will improve, Lauren, over This year and over time, remember that absorption impacted the Nerys division in Q1. There will be some impact as we've highlighted in Q2 and then things will improve in the back half Operator00:56:15Our next question comes from the line of Matthew Deo with Bank of America. Your line is now open. Speaker 700:56:24Good morning, everyone. Speaker 1200:56:27Frank, can you talk a little bit about the enzymes business? I know it's a Big consumer of energy and footprint is pretty European based. So The gas price in Europe, with that coming off a lot, is that an area where energy will be given back in price? Do you think you can hold on to it there? And I guess, Given all the volatility on the cost center, I mean, where are margins now for enzymes versus maybe where they were in 2021? Speaker 1200:56:56And where do you think they may be by the end of the year? Speaker 200:57:01Yes. So I'll have to take a look back in 2021, but let me give you the Ensign And take a step back. 1, we think this is a really important business for us and we're seeing great innovation in our Ensign business. As I highlighted, we saw really good growth in Home and Personal Care. We've continued to see really good growth from our food And we're seeing encouraging now trends as destocking improves in our probiotic business. Speaker 200:57:34Grain Processing Animal Nutrition is still somewhat challenged, but we are working very diligently on those businesses. From a margin perspective, I'll take a look. Remember that as we look at 2021, Our overall margins were obviously, I think, better in 'twenty one. We did see a, obviously, decline based off What has happened from inflation, so clearly that has impacted us in 2022. Manufacturing absorption also impacted us And then the margin progression and improvement in the Health and Biosciences business as we go forward. Operator00:58:25Thank you. Our next question comes from the line of Silke Koch with JPMorgan. Your line is now open. Speaker 400:58:36Hi, good morning. There's like $52,000,000 in severance charges you recorded this quarter. Is that roughly like 500 people that are supposed to leave? And can you tell how many have left so far and how many are to leave? And I have a follow-up on volumes, if your volumes were down mid single digits for the quarter, does that mean that we're down High single digits in Nutrition and in Health and Bio. Speaker 400:59:02Thank you. Speaker 300:59:05Hey, Silke, this is Glenn. We are expecting charges of roughly $75,000,000 full year for the cost reduction program. That will be an annualized impact of about $100,000,000 We expect kind of around $72,000,000 to hit the P and L this year. For obvious reasons, I'm not going to describe sort of the pace at which exits in the organization are happening from the standpoint. So that covers that. Speaker 300:59:31Can you remind me the second question again? Speaker 400:59:35I was wondering whether your volume headwinds was just like in the high single I was wondering if the volumes were at high single digits in both Nourish and in the Healthcare and Bio segment. Speaker 300:59:51Yes. As we had mentioned, the sauces part of our business from a volume standpoint was in Nourish, But more specifically, that really was in the ingredients portfolio, which is roughly $3,000,000,000 of Nourish on an annualized basis. So that's where it was concentrated. Flavors and food designs, generally, we're fine. Operator01:00:16Thank you. There are no further questions. I would like to turn the call back over to Frank Clyburn for closing remarks. Speaker 201:00:27Thank you, everyone, and appreciate the time today for our Q1 earnings call, and we look forward To future updates and continuing our transformation and our overall path Operator01:00:53That concludes today's call. Thank you for your participation. You may now disconnect yourRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallInternational Flavors & Fragrances Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) International Flavors & Fragrances Earnings HeadlinesOppenheimer Has Lowered Expectations for International Flavors & Fragrances (NYSE:IFF) Stock PriceApril 25 at 2:55 AM | americanbankingnews.comInternational Flavors and Fragrances holds groundbreaking ceremony for expansion projectApril 24 at 1:46 AM | msn.com2025 could be "worse than the dot-com bust", says man who predicted 2008 banking crisisWhat's coming next to the U.S. market could be worse than anything we've ever seen before – worse than the dot-com bust, worse than the COVID crash, and even worse than the Great Depression. What's coming, he says, could soon crash the market by 50% or more – and keep it down for 10, 20, or even 30 years. April 26, 2025 | Stansberry Research (Ad)IFF price target lowered to $89 from $104 at OppenheimerApril 23 at 10:30 AM | markets.businessinsider.comWhat You Need To Know Ahead of International Flavors & Fragrances' Earnings ReleaseApril 23 at 10:30 AM | msn.comInternational Flavors & Fragrances Inc. (NYSE:IFF) Given Average Rating of "Moderate Buy" by AnalystsApril 23 at 2:21 AM | americanbankingnews.comSee More International Flavors & Fragrances Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like International Flavors & Fragrances? Sign up for Earnings360's daily newsletter to receive timely earnings updates on International Flavors & Fragrances and other key companies, straight to your email. Email Address About International Flavors & FragrancesInternational Flavors & Fragrances (NYSE:IFF), Inc. engages in the manufacture and supply of flavors and fragrances used in the food, beverage, personal care, and household products industries. It operates through the following segments: Nourish, Health & Biosciences, Scent and Pharma Solutions. The Nourish segment consists of legacy Taste segment combined with N&B's Food & Beverage division and the food protection business of N&B's Health & Biosciences division. The Health & Biosciences business consists of a biotechnology-driven portfolio of enzymes, food cultures, probiotics and specialty ingredients for food, home and personal care, and health and wellness applications. The Scent business creates fragrance compounds, fragrance ingredients and cosmetic ingredients that are integral elements in the world’s finest perfumes and best-known household and personal care products. The Pharma Solutions business produces a vast portfolio including cellulosics and seaweed-based pharma excipients, used to improve the functionality and delivery of active pharmaceutical ingredients, including controlled or modified drug release formulations, and enabling. The company was founded in 1833 and is headquartered in New York, NY.View International Flavors & Fragrances ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 13 speakers on the call. Operator00:00:00Good morning. At this time, I would like to welcome everyone to the IFF First Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode until the formal question and answer portion of the call. Participants will be announced by their name and company. I would now like to introduce Michael DeVoe, Head of Investor Relations. Operator00:00:48Mr. DeVoe, you may begin. Speaker 100:00:50Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFS' Q1 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. Speaker 100:01:05Please note that this call is being recorded live and will be available for replay. Please take a moment to review our forward looking statements. During the call, we're 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 ks and press release. Speaker 100:01:35Today's presentation will include non GAAP financial measures, which Those items that we believe affect comparability. A reconciliation of these non GAAP financial measures to their respective GAAP measures is set forth in our press release. With me on the call today is our CEO, Frank Clyburn and our Executive Vice President, Chief Financial and Business Transformation Officer, Glenn Richter. 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 Frank. Speaker 200:02:07Thanks, Mike, and hello, everyone. We delivered Q1 2023 results in line or ahead of our expectations amidst Our team successfully navigated soft end market demand and customer inventory destocking Thank you, and thank you for your participation. However, year on year comparisons in a number of areas show the backdrop in which we are operating remains challenging, as I acknowledged on our last call. As you will see from our quarterly financials, we have made solid progress On our objectives of reducing costs to improve efficiency, recovering inflation and materially reducing our inventories, while improving our service levels to our customers. The key challenge remains volume growth and our management team remains keenly focused on accelerating Profitable sales growth moving forward. Speaker 200:03:15Before I get into our Q1 performance, I do want to share an update on our search for our NERISH President. Over the past several months, we have engaged with various leaders about the opportunity to run our largest division. At this time, our search continues as we are looking to attract a well regarded leader with a strong track record of success that can drive performance in this division. I am pleased with the slate of candidates that we have and look forward to welcoming a new leader in due course. We will provide further updates going forward as we progress the process. Speaker 200:03:54Starting on Slide 6, I'd like to begin with a high level look at our performance in the quarter before handing it over to Glenn to discuss our financials and full year outlook in more detail. In quarter 1, IFF generated $3,000,000,000 in sales, which reflects 1% Comparable currency neutral growth led by increases in scent and pharma solutions. As we expected, volumes in the Q1, similar to what we experienced in the Q4 of 2022, remained under pressure, down high single digits due mainly to consumer demand slowdowns and significant customer destocking actions. It should be noted that we are also comparing to our strongest year ago comparison, where our volume grew mid single digits in the Q1 of 2022. Adjusted operating EBITDA finished at $503,000,000 in the Q1 of 2023 and largely was impacted by the lower volumes as well as our proactive effort to rebalance inventories to drive cash flow generation. Speaker 200:05:07As we shared earlier this year, we are executing our inventory reduction program, Making strong progress in the Q1. As expected, while it was cash flow positive, It did lead to a significant headwind in terms of profitability as our fixed costs were absorbed over reduced manufacturing volumes, which represented approximately a 15 percentage point year over year impact. At the same time, initiatives that continue to deliver strong cost and operational efficiencies. From a leverage perspective, Our net debt to credit adjusted EBITDA for the quarter was 4.6x. As we disclosed earlier in the quarter, we have proactively renegotiated our debt covenants to ensure IFS continued resilience as we navigate today's complex Global macroeconomic environment. Speaker 200:06:16These amended agreements will provide us with maximum flexibility as we grow our business and continue to optimize our portfolio to achieve our target leverage profile. To this end, we continue to deliver on our portfolio optimization commitments. Our Savory Solutions divestiture is now on track to close at the end of May. In February, we also announced the sale of our flavor specialty ingredients business To UK based private firm, Exponent, for $220,000,000 in cash proceeds, which will be used for debt repayment. We expect that this transaction will close by the end of Q3 of 2023, subject to customary closing conditions. Speaker 200:07:09Moving forward, portfolio divestitures remain a central part of our strategy, And we are evaluating several opportunities to further strengthen our capital structure as we drive towards our targeted leverage profile. Turning to Slide 7, I'd like to provide a bit more detail on our sales performance in the quarter. As I mentioned, we delivered more than $3,000,000,000 in sales in the first quarter, which represents and steady performance in Pharma Solutions. In a moment, Glenn will take you through the underlying factors driving the performance across our business But first, it's important I provide high level context on what we're seeing in the environment. Scent once again delivered a strong performance, Both Fine Fragrance and Consumer Fragrance grew double digits. Speaker 200:08:14Our Pharma Solutions segment also delivered solid growth, driven once again by a strong performance in core form. Nerush was flat this quarter as our ingredients Business continued to be pressured by macroeconomic factors and destocking, which offset growth in flavors and food design. While certain businesses within our Health and Biosciences segment were also challenged this quarter, Cultures and Food Enzymes In Home and Personal Care were 2 strong performers in H and B that we expect will continue to gain share throughout the year. Taking a step back and reflecting on our performance, there are essentially a handful of categories that have disproportionately impacted our volume performance. Specifically, within our Neris segment, Our Ingredients division, which represents approximately 25 percent of total company sales and includes protein solutions, Emulsifiers and sweeteners, core texturants, cellulosics and food protection drove about 60% of our total volume decline in the quarter. Speaker 200:09:28As we outlined at our December Investor Day, We are working to improve our performance and have largely addressed our capacity issues and have improved our service levels in these businesses. We are now working on modifying our pricing strategies, enhancing our commercial coverage and simplifying our internal processes, All to grow our project pipeline and deliver more robust growth going forward. And while this will take time and attention, we are doing so with a sense of urgency to ensure that when current market challenges Looking at our profitability for this quarter on Slide 8, 1st quarter adjusted operating EBITDA totaled $503,000,000 down 19% on a year over year comparable currency neutral basis as expected. As I shared on our last call, Lower volumes related to consumer demand softness and significant customer inventory destocking, plus unfavorable manufacturing absorption related to our inventory reduction program, meaningfully impacted our profitability $60,000,000 of gross productivity gains in the Q1. However, the strong benefit was offset by higher manufacturing related costs, such as lower yields, slower obsolete inventory and higher manufacturing inflation. Speaker 200:11:12If we look at our profitability performance, Absence of the unfavorable manufacturing absorption, comparable currency neutral adjusted operating EBITDA would have declined approximately 4%. Looking ahead, we remain intensely focused on controlling our controllables, including identifying additional opportunities to further optimize our operations and strengthen our balance sheet. While we certainly have work to do to fully execute on our refreshed strategic plan, we have taken significant action to ensure our business maintains the flexibility and resilience needed to deliver in any macroeconomic environment. While we do believe 2023 will continue to be impacted by many of these factors and dependent on an Moving volume environment in the back half of the year, we continue to believe we can deliver our long term adjusted operating EBITDA growth target of 8% to 10% on a comparable currency neutral basis over the 2024 to 2026 time period. I'll now turn it over to Glenn to provide more context around our divisional performance, cash flow and financial outlook going forward. Speaker 300:12:31Thank you, Frank, and thanks to everyone for joining us today. Turning now to Slide 9, let me review our Q1 performance across each of our 4 business segments. In Nourish, sales were flat on a comparable currency neutral basis with growth in food design and flavors, offset by continued volume declines in ingredients. As Frank shared, Nourish Ingredients, which includes protein solutions, Emulsifiers and sweeteners, core texturants and cellulosics and food protection had the most pronounced volume declines in the quarter, representing approximately 60% of our total company volume decline. Despite our pricing actions and productivity initiatives in the quarter, Within our Nurse segment, the lower volumes and the unfavorable manufacturing absorption due to our inventory reduction program that I mentioned earlier more than offset those efforts contributing to a 27% year over year decrease in currency neutral adjusted operating EBITDA at $208,000,000 Those same pressures impacted Health and Biosciences this quarter with a 3% Year over year decrease in comparable currency neutral sales and a 19% year over year decrease in comparable currency neutral adjusted operating EBITDA Despite price increases and strong productivity gains, while we saw solid growth in cultures and food enzymes And Home and Personal Care, lower volumes and unfavorable manufacturing absorption also pressured our performance. Speaker 300:14:07As Frank mentioned earlier, our scent division continues to perform quite well, delivering an 8% increase in comparable currency neutral sales and a 1% increase in comparable currency neutral adjusted operating EBITDA, driven by double digit growth in Fine Fragrance and Consumer Fragrance. SENSE growth this quarter was driven by higher volumes, pricing and productivity gains as the division has remained resilient. Lastly, I'm pleased to share that Pharma Solutions delivered a 4% increase in comparable currency neutral sales, led by continued growth in core pharma. That said, like Nourish and Health and Biosciences, the segment was also impacted by lower volumes and unfavorable manufacturing absorption, leading to a 6% decrease in comparable currency neutral adjusted operating EBITDA. Overall for the quarter, Sales and EBITDA were slightly ahead of our expectations with pricing on track, modestly better volumes and favorable productivity. Speaker 300:15:12Now on Slide 10, I'll discuss our cash flow and leverage position for the quarter. Cash flow from operations $127,000,000 this quarter, which is an improvement versus the negative $4,000,000 we reported in a year ago period. One bright spot in the quarter was approximately a $200,000,000 decrease in inventory versus our year end 2022. As I discussed on our Q4 call, we have initiated a number of actions across our business and supply chain teams, including system process enhancements to rapidly reduce our inventories over the course of the year. While this is adversely impacting the P and L through negative manufacturing absorption, it is a short term impact that will be recovered over time. Speaker 300:16:00Looking ahead, while the majority of our efforts to reduce inventories for 2023 are behind us, We do have near term headwind in Q2, albeit to a lesser degree than Q1 as we continue to correct our over inventory position and maximize cash flow. I also want to note that accounts payable in the quarter was adversely impacted as a result of season payment patterns and by our inventory reduction program whereby we slowed the purchase of raw materials, which had a direct impact on our AP. We expect this will improve over the course of the year as we achieve our target inventory level. CapEx spending for the quarter was 175,000,000 or approximately 5.8 percent of sales. This was elevated due to project timing and we expect to moderate through the balance of the year. Speaker 300:16:53We continue to believe that we will be around $500,000,000 in CapEx for full year 2023. Our cash flow for the Q1 was negative $48,000,000 This is consistent with the seasonality of cash flows for our business. Included in our free cash flow is about $100,000,000 of costs, primarily related to integration and transaction related costs. In terms of leverage, we finished the quarter with cash and cash equivalents of $594,000,000 which includes $4,000,000 in assets currently held for sale, while net debt totaled $10,700,000,000 Our trailing 12 month credit adjusted EBITDA totaled approximately $2,300,000,000 and our net debt to credit adjusted EBITDA 4.6 times for the quarter as we mentioned earlier. While our leverage position is slightly higher than in the past few quarters, We were proactive in renegotiating our debt covenants in the Q1 to ensure that we have appropriate capital flexibility as we execute on our strategic priorities in what may continue to be a challenging market. Speaker 300:18:02Importantly, we continue to actively evaluate the portfolio with consideration for further divestitures that provide additional financial flexibility and debt pay down without impacting our long term aspirations. Turning to Slide 11 for our consolidated outlook for the fiscal year 2023. As we look ahead to the balance of the year, we continue to believe our volume performance will improve, yet acknowledge that market conditions remain uncertain. In our discussion with customers, the majority have signaled that their destocking efforts are ending as they believe the consumer will remain resilient in the second half. Nevertheless, we have yet to see a broad based volume improvement across our business, but we remain steadfast in our focus to What we can control to protect profitability, maximize cash flow and drive portfolio optimization. Speaker 300:18:59For the full year, we now expect sales to be approximately $12,300,000,000 versus $12,500,000,000 previously. This change is largely related to energy and raw material pass through price adjustments. In addition, we had a modest Increasing unfavorable impact from foreign exchange. As we noted on our February earnings call, about 30% of our original 6% pricing guidance was related to energy inflation, much of which is passed through via surcharges with energy prices having moderated significantly. We are maintaining our expectation of flat Comparable currency neutral adjusted operating EBITDA growth and continue to believe adjusted operating EBITDA will be approximately 2,340,000,000 Foreign exchange headwinds are expected to continue to pressure sales and comparable currency neutral adjusted operating EBITDA growth, which we now expect will adversely impact us 1% and 3%, respectively. Speaker 300:20:03This Incremental pressure is due to a handful of hyperinflationary currencies that have and we expect will continue to significantly devalue over the course of 2023. On a comparable currency neutral basis, All the above noted items translates into approximately 5% versus approximately 6% previously. The sole driver once again is the energy and raw material pass through price adjustments as we continue to believe volumes will be flat for the full year. In terms of calendarization, we believe volume will sequentially improve each quarter with a growth rebound expected in the second half of the year. As the market challenges are expected to subside and our year ago comparisons are more favorable. Speaker 300:20:53To provide additional context, 1st quarter volume performance was modestly better than we anticipated with the 2nd quarter modestly lower. The net result is that on a first half basis, we are broadly in line with our expectation, which we believe will be offset by a favorable second half. On a 2 year average basis, we expect first half volumes to be approximately negative 2%, reflective of destocking and second half volumes to be up Plus 2%. For the 2nd quarter specifically, we expect sales to be approximately $3,000,000,000 to 3,100,000,000 With volume performance down mid single digits and adjusted operating EBITDA of approximately $540,000,000 to $590,000,000 We remain intensely focused on improving our inventory levels and driving cost savings through productivity and restructuring initiatives to ensure We generated strong cash flow for the full year. As a result, we continue to target 2023 adjusted free cash flow of more than 1,000,000,000 Including costs related to integration, restructuring and deal related items. Speaker 300:22:03Turning to Slide 12, We recognize that we continue to face a challenging environment, including reduced visibility on consumer and customer demand outlook and the path of inflation. However, we remain intently focused on what we can control with the goal of continuing to strengthen IFS That will enable ISF to not only manage these complexities, but also to drive long term profitable growth. Our highest long term priority is accelerating top line growth. To achieve this goal, we are making key strategic investments in key areas of our business and continue to be more surgical in our pricing actions to ensure we recover inflationary pressures while supporting volume growth. We have also made great progress in enhancing our customer service and supply chain agility to reduce BioLex and increase efficiency. Speaker 300:23:05In the Q1, we maintained strong service levels while also reducing our inventories, improving Approximately $200,000,000 from December 2022. In conjunction with this, we will be rolling out a redesigned sales, inventory and operations planning process. Enhancing productivity also remains essential as part of our transformation. As mentioned earlier, During the quarter, we successfully achieved approximately $60,000,000 of productivity benefits and began seeing initial results from our restructuring program. I expect this benefit will rapidly increase over the balance of the year and be a strong contributor to our EBITDA performance this year. Speaker 300:23:49Lastly, we remain laser focused on improving our cash flows and delivering our long term deleveraging target. We expect to continue to make improvements in net working capital through the balance of 2023 and into next year. We are in parallel executing against our portfolio optimization efforts, continuing to invest non core business. In Q2 and Q3, we expect to complete the sale of our Savory Solutions and Flavored Specialty Ingredients Businesses with proceeds used to pay down debt. Going forward, this is a central part of our strategy and we continue to evaluate Additional portfolio authorization opportunities to strengthen our capital structure. Speaker 300:24:32With that, I would like to turn the call back over to Frank. Speaker 200:24:36Thank you, Glenn. Moving to Slide 13, I would like to summarize our current position, in line first quarter results and reiterate where we are headed for the remainder of 2023. Over the years, IFF has remained resilient Amid a variety of market conditions, while successfully transforming the business to meet evolving customer needs. The same is true today as we focus on controlling what we can control and executing on the operational priorities Outlining our strategic refresh in order to achieve our financial vision and drive sustainable profitable growth that benefits all of our stakeholders. We continue to believe our volume will improve yet acknowledge that market conditions remain uncertain. Speaker 200:25:28As Glenn mentioned earlier, a majority of our customers have signaled that they expect destocking efforts will end and believe the consumer will remain resilient in the second half. We will continue to take action to stay nimble, Strengthen our financial and operational foundation and maintain our resilience as we continue to be diligently focused on delivering Our operational and financial objectives. Moving forward, we remain committed to bringing strong products and innovation to our customers as we meet or exceed their service expectations. Financially, we are focused on and we will continue to execute on our growth focused strategy by enhancing productivity, driving operational efficiencies and prioritizing our highest return businesses, all while maintaining capital discipline. We have started the year in line with our objectives and are confident in our ability to continue to execute going forward. Speaker 200:26:42Once again, I want to thank our teams for their tireless work to innovate and bring to market the essential products and solutions that shape so many of our daily experiences. And I have no doubt that we are well on track to build a more efficient, Agile and customer centric organization poised to deliver sustainable, profitable growth in any market environment. With that, I would like to now open the call for questions. Operator00:27:19We will now begin the question and answer session. I would also like to remind participants to limit your question to 1 question per person. Our first question comes from the line of Heidi Vesterinen with BNP Paribas. Your line is now open. Speaker 400:28:08Good morning. So I wondered if you could please talk more about the cadence of volume and margin performance To the quarters to get to your guidance, please. And specifically on volumes, so you reported Q1 volumes down high single digits, which I think is You had guided for originally, but then in your speech you said that it was better than expected. And then you're now saying I think Q2 is looking Somewhat worse than expected, and I think your guidance used to be down low single digits. So can you clarify what the guidance for Q2, please? Speaker 400:28:40Perhaps If you can also comment by segment and then same for margins through the year, please. Thank you. Speaker 200:28:48Yes. Hi, Heidi. It's Frank. A couple of things. So in Q1, we had guided to your point high single digits Volume declined and we actually performed a little bit better than what we had assumed in that original guidance. Speaker 200:29:04Sales was up 1% as you know on a currency neutral basis. So a little bit of head in Q1. Q2 is Slightly down from what we had assumed originally. However, when we take a step back, Heidi, think about the first half of the year Mid single digit volume decline, which is pretty much right on what we had expected at the beginning of the year. So really what you're seeing is the phasing and shift, but the first Half of the year mid single digit decline in volume. Speaker 200:29:37And we'll talk a little bit more about some of the different areas here in just a bit. The second half of the year, what we are anticipating and assuming is against a much easier comp as we get to the back half of the year. We are making the assumption that we will have mid Single digit growth in the second half of the year, which then when you look at the full year has our volume being flat year over year. So let me unpack a little bit about some of the key assumptions as we get into the back half of the year and even into the second quarter. 1st, destocking, we are assuming that that ends pretty much in Q2. Speaker 200:30:27So if you think about destocking, Heidi, we saw this really come to fruition in Q4 where volumes were down High single digits of Q4 of 'twenty two. We continue to see destocking in Q1 and some destocking is continuing In Q2, but we think destocking is at the end as we head into the second half of the year. This is really important for our Protein Solutions business and Health business that were significantly impacted by destocking. 2nd, the assumption is that consumer trends do remain resilient. There's some uncertainty in that, but if we look at what we I've heard from our customers and as we're working with them in bringing innovative solutions. Speaker 200:31:18In Home and Personal Care, we saw good growth in the Q1. We anticipate that That will continue. Dish, detergent, a lot of innovative projects that we're working on and we see good progress And acceleration as we go into the second half of the year. We think food and beverage will still remain resilient. Obviously, our flavors business is really important there, grew in Q1 and we anticipate So we're focused on improving our ingredients business. Speaker 200:31:57We've discussed that really a focus on putting some additional resources behind ingredients. Our customer service has improved significantly. We have the capacity to serve customers. So that's something that we are Also assuming as we go forward in our ingredients business. And then we're seeing resilience in consumer and fine fragrance and we anticipate That to continue and then also pharma continues to be resilient as well. Speaker 200:32:25So when we take a step back from a volume perspective, Heidi, Think of first half down mid single digit volume, second half up mid single digit volume and then ultimately volume flat for the full year. The third thing that we are seeing that we believe will accelerate in the back half of the year and improve sequentially is geographical Volume growth in the back half. For instance, China this quarter, Heidi, was up 2% in sales. Asia Pacific or I should say Greater Asia was up 1%. As we talk to our teams in Asia and in China, while The opening is still slow. Speaker 200:33:10In parts of China, we are seeing improved signals from customers and that gives us Confidence as we get into the back half of the year that you will see geographical improvement. And then we've also noted that North America has been challenged For us over the last couple of quarters, we anticipate sequentially that will improve as we get to the back half of the year. So that's the assumptions from a volume perspective. A lot of like we said, there's some uncertainty, but we're believing that those three Assumptions and drivers are what gives us the assumption at this point in time to hold our volume flat for the year. In addition to that, as you look at the back half of the year, there's a couple other things I will highlight. Speaker 200:33:56On the call, we spoke about The fact that absorption in the Q1 was a headwind for us, it will be a headwind in Q2 to a lesser degree. Obviously, as you get to the back half of the year, that will go positive and help us. And then in addition to that, if you recall, we Highlighted that we have our cost reduction program. Full year, we highlighted a cost reduction program of $100,000,000 We highlighted a run rate of $70,000,000 to $75,000,000 for the year. And if you look at the back half, That is where you'll see the majority of that benefit in the second half of this year as we execute on our cost And people reduction program. Speaker 200:34:43So when we take all those things into account, Heidi, that is why we feel as though holding our EBITDA Guidance, to the $2,340,000,000 that Glenn highlighted was the appropriate assumption at this time. Operator00:35:00Thank you. Our next question comes from the line of Mark Ostercan with Stifel. Your line is now open. Speaker 500:35:10Yes, thanks and good morning everyone. I wanted to ask about Guidance and then some of the troubled areas within the business. So in your opinion, are you being more conservative We're optimistic than you were previously. It seems like underlying assumptions maybe from a consumer dynamic has Change to be more positive within the underlying guidance. I'm curious if you could comment on that. Speaker 500:35:36And then for the more challenged Portions of the portfolio, things like the legacy NMB and ingredients in terms of what you highlighted, What proactive steps are you taking to offset what seems like perhaps more permanent and structural volumetric share loss, Meaning like improving service levels doesn't seem like it could be enough to change the trajectory of the business, but perhaps I'm wrong. So Sort of curious how you're thinking about what you can do to improve those pieces of the business, which have been dragging performance and losing share? Thanks. Speaker 200:36:14Yes, Mark, it's Frank. A couple of things. One is with regards to The businesses that were challenged and some of these, as we have highlighted, clearly were due to what we see more de Talking and end market demand and not necessarily share loss, but I will also acknowledge there has been share loss in other in parts of our business. So For instance, in HealthMark, you highlighted we have discussed that the probiotic market in North America several times. In that business, in particular, we have been really focused on our resources into that marketplace. Speaker 200:36:57That is really the down in volume has been driven much more by destocking and end market softness. With that said, we have a strong focus on our with our health team. There's a lot of reviews with our commercial team, and we are starting to see sequential improvement in that Business, Mark, as we go forward. In our ingredients business, as I just highlighted, there's a couple of things that we have put in place. 1, our customer service levels were not where they needed to be. Speaker 200:37:27We highlighted that during our Investor Day. They have improved significantly, Mark. So that is a big, I would say, plus for us, and we're getting good positive feedback from customers. So customer service levels In the on time performance range of 90% to 95% is really important and we're there. 2nd, we now have the capacity that we need to 3rd, we are putting targeted resources in specific markets that are going to be focused on commercial Customers around ingredients, so additional resources, Mark, to your point are also a part of what we are doing. Speaker 200:38:13And then 4, what has been encouraging, we had gotten away from really good pipeline development with our customers in that space. And I can tell you this is going to take some time, but we are seeing good projects now come to fruition and we are seeing pipeline progress In nourish and ingredients specifically. So those are the areas of focus. The team is spending a lot of time really looking at how we can accelerate Operator00:38:47Our next question comes from the line of Gunther Zechmann with Bernstein. You may your line is now Speaker 600:38:55open. Hi. Thank you. Hi, Frank. Hi, Glen. Speaker 600:39:00Can you please provide your insights into the cash flow progression, the cadence throughout the year? And the EUR 1,000,000,000 free cash flow, adjusted free cash flow target, and also within that, could you just Discuss and outline what you've embedded in terms of working capital improvement, please. Speaker 300:39:21Good afternoon, Gunther. Thanks for the question. I think the summarized version is we're actually tracking quite well against our objectives. And I want to sort of unpack. As you know, the 2 big contributors relative to our adjusted free cash flow Combination of achieving our earnings guidance and then secondarily all the work on working capital. Speaker 300:39:41We had a very good quarter relative to our around working capital. As a reminder, our full year objectives for working capital consisted of a $200,000,000 Point on point year end to year end reduction in inventory and then $100,000,000 increase between payables and receivables For a net $100,000,000 reduction in net working capital. The biggest driver of that obviously is inventory at that $200,000,000 That $200,000,000 reduction It's actually a $350,000,000 volume reduction with $160,000,000 of basically price escalation, I. E. Raw material cost Increase is coming through. Speaker 300:40:22In the Q1 focusing on inventory, we actually were over $200,000,000 down inclusive of around $80,000,000 of price escalation. So the volume component in the Q1 was $280,000,000 against our full year objective of 350. So we're trending quite well. We will probably actually get to the full sort of our initial level of inventory reduction by the end of the second quarter at this point in time. Payables and receivables, they're a little lumpy seasonally. Speaker 300:40:51We're feeling very good about achieving those objectives at the end of the year. So overall, We feel very good, particularly relative to the working capital improvements. Thank you. Operator00:41:03Thank you. Our next question comes from the line of John Roberts with Credit Suisse. Your line is now open. Speaker 700:41:13Thank you. How do you explain what appears to be underlying consumer strength in fragrance versus the underlying consumer weakness in food ingredients or maybe the question should be how did the channels get so overstocked in food ingredients And not so overstocked in Fragrance Consumer Products and are there significant divergences in the current point of sale volumes between packaged food and fragrance products? Speaker 200:41:43Yes. Hi, John. This is Frank, what we have seen in consumer fragrances, in particular, we saw a very strong Q1. In fact, we also saw a very strong Q1 in fine fragrances as well. So we feel really good about I think consumer fragrances, it was a lot of, I would say, pent up demand. Speaker 200:42:06I think you are seeing clearly some positive Trends on what we have been working with our customers in particular bringing new innovation to consumer fragrances. We've worked with a lot of the large Consumer packaged good companies over the last several years and I think this is where we really have brought strong innovation in our consumer business. So we feel really good about that. There clearly was an inventory build Significantly in ingredients as we've highlighted, you could see it as you go through the first Part of 'twenty two and then you look all the way back to 'twenty one, I think that what took place in those businesses, in particular, Uncertainty around supply chains and companies wanting to make sure that they have the supply necessary As you went through a lot of volatility in the supply chains, which is what caused the build and obviously now is what we're seeing is some of the destocking from those Operator00:43:16Our next question comes from the line of Joshua Spector with UBS. Your line is now open. Speaker 700:43:26Good morning. This is Lucas Feldman on for Josh. So just wanted to focus on the production cost under absorption. Could you please tell us sort of what was the actual size of the impact there in 1Q? It looked like maybe $150,000,000 or so in the EBITDA bridge. Speaker 700:43:40And then Looking at 2Q in the second half, how much residual impact are you assuming in each period as the year progresses? And finally, if we get a scenario where volumes kind of disappoint to the downside, would that get larger? Thanks. Speaker 300:43:58Yes. Hey, thanks for the question. This is Glenn. Within the Q1, the negative absorption impact Was $100,000,000 which translates actually into 3.30 basis points of impact on EBITDA margin. That represented a year over year volume decline of about 20%. Speaker 300:44:18So think about our annual fixed cost base for our manufacturing base About $2,000,000,000 Every one point on an annualized basis is basically worth about $20,000,000 So we hence why we're able to reduce our inventory so Significantly, we took production down significantly. So I'll say a one time event of $100,000,000 We are expecting, as I mentioned, to continue to make Progress on reducing inventories and expecting to have mid single digit down volume in the second quarter. That translates into another $50,000,000 of negative absorption. We are anticipating actually positive absorption in the second half of the year. As Frank mentioned, we're expecting mid single digit growth in the second half of So production volume is being up year over year. Speaker 300:45:03Again, the context of the risk associated or opportunity Associated with declines or increases in manufacturing, a one point on a full year basis is equal to $20,000,000 of negative absorption. So if you think Two points in the second half that would be equivalency of that $20,000,000 We have discussed in the past that we will have to continue To consider that if we continue to see volume softer than our expectations, what will be the balance Of continuing to manage cash flow and keep our inventories in the right place for production efficiency purposes versus basically the earnings profile. So they're clearly in a softer environment than anticipated. There is some risk of further negative absorption in the second half of the year. Thanks for the Operator00:45:53question. Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Your line is now open. Speaker 800:46:03Hi, everyone. Good morning. Just judging by some of the comments from your major customers out of this earnings season, it clearly looks like the global consumer is a little bit weaker. Just curious given inflation has peaked and just your more recent conversations with your customers, do you get a sense as to whether Some of the promotional activity that your customers typically resort to during periods of weakness, are they starting to contemplate that? Just trying to get a sense as to The risk profile as we cycle through the rest of the year because you will be past the shocking, but we still have a weaker consumer. Speaker 800:46:37Thanks. Speaker 200:46:41Yes. Hi, this is Frank. I think as we talk to our customers, at least the big consumer good companies, I would say they're probably cautiously optimistic on the resiliency of the consumer. They are stepping up in certain categories, Promotional activities and efforts, we have clearly seen a lot of, I would say, good Focus from them on innovation and looking for new projects as they continue to focus on building out their Future offerings to consumers. I also think that what is taking place is if you look at From our lens and it goes back to what I was highlighting, we do anticipate that Sequential improvement will continue from a volume perspective. Speaker 200:47:34So just to reiterate a couple of points, In particular, in the areas that are really key for us, the sequential lift Going from first half down mid single digits to positive mid single digits in the second half, We do continue to see working with our customers very clear opportunities for that sequential step up, Especially against a softer back comparison quarters in the back half. So we believe that our consumer Companies that we're working closely with are the ones that are highlighting differentiation and innovation has been Key and that's something that we will continue to focus and work on as a company. Operator00:48:28Thank you. Our next question comes from the line of Andrew Keshias with Barclays. Your line is now open. Speaker 900:48:38Yes. Hi, good morning. Glenn, I was hoping we could get a little more context for your deleveraging plans over the next Well, this year and next. So you came into this year a little over 4 times on the net basis. That figure has gone up, I think, as expected. Speaker 900:48:56You do have those divestitures announced, which will help you get leverage back down, it looks like, to about where you came into the year. But I think it still looks like we're going to end the year around flat in 2023 from a leverage standpoint. So, I guess that leaves you with a lot of wood to chop Next year to get down to that 3.0x target. So I guess the question is, do you expect to get there organically or at this Point, do you actually need those additional portfolio actions to drive the accelerated deleveraging and actually get you there next year? And then Related to that, it's not lost on me that your dividend is really absorbing all your cash flow at this point. Speaker 900:49:37So To the extent that conditions do deteriorate from here or you can't optimize the portfolio further, are you open to considering Speaker 300:49:55This is Glenn. Thanks for the question. Agree relative to wood chopping, that's why I have a hatchet with you today. But relative to your assumption for this year, You're correct. We were a little over 4 times at the beginning of the year. Speaker 300:50:08We will be receiving net proceeds after tax distributions transaction over $750,000,000 combination of this quarter and next quarter related to the sales savings solutions and SSI, which will all go to debt pay down. Relative to getting to the 3 times or less by the end of next year, we are fully committed to that. That will be achieved through a combination of 3 elements. 1, we continue to have opportunity to improve our working capital position. We Next year part of this overlapping some significant items such as $100,000,000 of negative absorption and then getting the top going with our productivity program. Speaker 300:50:57So that's the second thing, either denominator improving. But that all being said, We are proceeding on multiple fronts. We are fully confident that we have an attractive set of assets That actually aren't ideal fits for our portfolio. We are past the 2 year anniversary of the reverse Considerations as of February this year of note, and we are proceeding quite well on that path. So I'd say confidence remains high And commitment remains high to get to less than 3 times. Speaker 300:51:37And regarding cutting the dividend, that is not on the table at all. Operator00:51:46Thank you. Our next question comes from the line of Christopher Parkinson with Mizuho. You may proceed. Speaker 1000:51:55Thank you. You adjusted your revenue guidance a little bit and you're setting some energy and raw movements. Just Can you remind us of just how much of your portfolio passes through? And just as a corollary of that, can you also just give us a real quick update on price cost movements Yes, for the balance of 23 and just what portion of your portfolio you believe will reign resilient in terms of pricing? Thank you. Speaker 300:52:19Yes. Hey, Chris, it's Glenn again. Relative to energy, as a reminder, in our original guidance at the beginning of the year, we had 6% gross pricing in the P and L, 30% of that or a little less than 2 points was associated with energy, About 75% of our energy prices are either directly via index or indirectly via aligned surcharge attached Energy pass through to customers and they are generally reviewed on a quarterly basis. We expect that as we mentioned, we're taking a point out of that just Because there's been a very significant decline in energy prices globally, we believe that that will be relatively net neutral this year In part, not only because the pass through, but secondary timing, the majority of our energy prices actually sit in inventory because they're part of production costs. So with the 140 days of inventory, they sort of match by the end of the year. Speaker 300:53:16There should be some overlap as we roll into next But for this year, we're assuming that the energy net is sort of neutral from a P and L standpoint. In general, We are seeing positive deflationary trends, not only in energy, but in logistics as well as in certain raw materials. So that is favorable relative to the portfolio. As we've mentioned in the past, we believe that that is a potential upside. It will be either late this year because how Generally, the rolls obviously run through inventories, but could be meaningful next year. Speaker 300:53:52And relative to our portfolio, We would say that roughly 60 to 2 thirds of our portfolio has some degree of resiliency, It's more uniqueness relative to characteristic, but I would caution we're in the early days of deflation. So I think it's a little early to declare sort of significant margin capture relative to improvements in raw material and other Operator00:54:25Our next Question comes from the line of Lauren Lieberman with Barclays. You may proceed. Speaker 1100:54:33Great. Thanks. Good morning. In the prepared remarks, you guys commented on pricing, particularly in Nourish as a revisiting of pricing strategy. So I was just kind of curious, if we could talk a little bit more about that kind of where you think there are areas to adjust, what you kind of meant by that? Speaker 1100:54:51And then A corollary would be just a discussion on Nourish margins over time and have been in that like 12% range over the past 2 quarters. And I was just curious How you're thinking about Nourish profitability perhaps looking further out? And also again, notice adjustment in pricing strategy. Thanks. Yes. Speaker 200:55:13Hey, Lauren, it's Frank. On the pricing strategy, we are working with customers to balance price volume opportunities. So clearly, this is not Across the board, but very surgical, Lauren, in our practices, in particular in certain geographies. And I would highlight In great areas of China and certain markets where there is more price sensitivity, we are looking at price Volume, but not across the board. It's a very surgical approach to pricing. Speaker 200:55:47Margins will improve, Lauren, over This year and over time, remember that absorption impacted the Nerys division in Q1. There will be some impact as we've highlighted in Q2 and then things will improve in the back half Operator00:56:15Our next question comes from the line of Matthew Deo with Bank of America. Your line is now open. Speaker 700:56:24Good morning, everyone. Speaker 1200:56:27Frank, can you talk a little bit about the enzymes business? I know it's a Big consumer of energy and footprint is pretty European based. So The gas price in Europe, with that coming off a lot, is that an area where energy will be given back in price? Do you think you can hold on to it there? And I guess, Given all the volatility on the cost center, I mean, where are margins now for enzymes versus maybe where they were in 2021? Speaker 1200:56:56And where do you think they may be by the end of the year? Speaker 200:57:01Yes. So I'll have to take a look back in 2021, but let me give you the Ensign And take a step back. 1, we think this is a really important business for us and we're seeing great innovation in our Ensign business. As I highlighted, we saw really good growth in Home and Personal Care. We've continued to see really good growth from our food And we're seeing encouraging now trends as destocking improves in our probiotic business. Speaker 200:57:34Grain Processing Animal Nutrition is still somewhat challenged, but we are working very diligently on those businesses. From a margin perspective, I'll take a look. Remember that as we look at 2021, Our overall margins were obviously, I think, better in 'twenty one. We did see a, obviously, decline based off What has happened from inflation, so clearly that has impacted us in 2022. Manufacturing absorption also impacted us And then the margin progression and improvement in the Health and Biosciences business as we go forward. Operator00:58:25Thank you. Our next question comes from the line of Silke Koch with JPMorgan. Your line is now open. Speaker 400:58:36Hi, good morning. There's like $52,000,000 in severance charges you recorded this quarter. Is that roughly like 500 people that are supposed to leave? And can you tell how many have left so far and how many are to leave? And I have a follow-up on volumes, if your volumes were down mid single digits for the quarter, does that mean that we're down High single digits in Nutrition and in Health and Bio. Speaker 400:59:02Thank you. Speaker 300:59:05Hey, Silke, this is Glenn. We are expecting charges of roughly $75,000,000 full year for the cost reduction program. That will be an annualized impact of about $100,000,000 We expect kind of around $72,000,000 to hit the P and L this year. For obvious reasons, I'm not going to describe sort of the pace at which exits in the organization are happening from the standpoint. So that covers that. Speaker 300:59:31Can you remind me the second question again? Speaker 400:59:35I was wondering whether your volume headwinds was just like in the high single I was wondering if the volumes were at high single digits in both Nourish and in the Healthcare and Bio segment. Speaker 300:59:51Yes. As we had mentioned, the sauces part of our business from a volume standpoint was in Nourish, But more specifically, that really was in the ingredients portfolio, which is roughly $3,000,000,000 of Nourish on an annualized basis. So that's where it was concentrated. Flavors and food designs, generally, we're fine. Operator01:00:16Thank you. There are no further questions. I would like to turn the call back over to Frank Clyburn for closing remarks. Speaker 201:00:27Thank you, everyone, and appreciate the time today for our Q1 earnings call, and we look forward To future updates and continuing our transformation and our overall path Operator01:00:53That concludes today's call. 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