Glenn Richter
Chief Financial and Business Transformation Officer at International Flavors & Fragrances
Thank you, Erik, and thank you all for joining us today. As Erik noted, IFF had a strong second quarter. Revenue of just below $2.9 billion increased 7% on a comparable currency-neutral basis with Scent, H&B and Nourish, each growing revenue in the quarter. Volumes grew by high single digits as our performance continued to improve sequentially across nearly every business. Our volume growth and strong gains from productivity initiatives together contributed to a 22% increase in comparable adjusted operating EBITDA in the quarter. Our adjusted operating EBITDA margin improved by 310 basis points to 20.4% on a comparable basis, building off a strong first quarter and the first time we were over 20% since the third quarter of 2022. Turning to slide nine. I'll dive a bit deeper into each of our segments. Nourish comparable currency neutral sales increased 4%, and we delivered an adjusted operating EBITDA increase of 36% on a comparable basis. This was led by a second consecutive quarter of double-digit growth in Flavors, with improvements in both volume and pricing. Functional Ingredients sales declined modestly in the quarter as high single-digit volume growth was offset by lower pricing, consistent with plan.
Both Flavors and Functional Ingredients demonstrated strong year-over-year gross margin expansion. The strong profitability in Nourish was driven by volume growth and productivity improvements as well as the comparison to the onetime Locus Beam Kernel inventory write-down in the year ago period. Health & Biosciences achieved strong growth in all businesses with a noteworthy uptick in Health, led by a strong performance in probiotics. H&B comparable currency-neutral sales increased 9% and we delivered comparable adjusted operating EBITDA of $165 million, a 14% increase from a year ago. In Scent, double-digit growth in consumer Fragrance and Fragrance Ingredients led to a strong quarter for both revenue and profit growth. Fine Fragrance also remained strong, growing mid-single digits, led by new wins and volume gains. Net sales in the quarter were $603 million, up 16% on a comparable currency-neutral basis, and we delivered adjusted operating EBITDA of $137 million, up 38% on a comparable basis.
Lastly, Pharma Solutions returned to volume growth with revenue of $250 million. Profitability in this segment declined in line with our plan as we manage through unfavorable mix and onetime items. Turning to slide 10. Cash flow from operations totaled $336 million this quarter, while capex year-to-date was $200 million or roughly 3.5% of sales. For the year, we expect that capex will be approximately $575 million as we ramp up in the second half of the year. Our free cash flow position in Q2 totaled $136 million, an increase sequentially of approximately $150 million from last quarter and a significant increase from $85 million reported in the year ago period. We paid $309 million in dividends through the end of the second quarter, and our cash and cash equivalents totaled $674 million. IFF also continued to make progress toward achieving our deleveraging goals and reduced our gross debt by over $900 million from last quarter, yielding a net debt to credit adjusted EBITDA ratio of four times at quarter end, compared with 4.4 times at the end of the first quarter. This was driven by improved operational performance, including solid working capital management as well as the closure of our Cosmetic Ingredients divestiture, which occurred early in the second quarter.
It's important to note that we remain committed to achieving our net debt to credit adjusted EBITDA target of three times or less following the completion of the divestiture of Pharma Solutions, which we continue to expect to be completed in the first half of 2025. On slide 11, I'd like to turn to our consolidated outlook for '24, where we are raising both our sales and adjusted operating EBITDA guidance ranges, given our stronger-than-expected financial and operational performance in the first half of the year. We are now expecting net sales to be in the range of $11.1 billion to $11.3 billion, reflecting our expectation that volume growth will continue across the majority of our portfolio in the back half of the year albeit at lower growth rates than the first half. Given the recent economic indicators and mixed results by CPG companies of late, we remain cautious relative to the outlook for demand in the balance of the year.
Operating under this assumption for the full year, we now expect to achieve a 3% to 5% volume growth, up from our previously announced range of 0% to 3%. On the bottom line, we also raised our adjusted operating EBITDA guidance range to $2.1 billion to $2.17 billion, up from our previously stated range of $1.9 billion to $2.1 billion. This increase reflects our strong profitability performance in the first half of the year with a consistent view of the second half from our previously communicated guidance. It should be noted that we are also factoring in a greater level of annual incentive compensation given the relative strength of our performance versus budget and incremental second half spending relates to business reinvestment, specifically as part of our strategy Refresh, the team has identified investments that will accelerate the execution of our strategy, focus in business development, R&D and innovation that will yield results in 2025 and '26. Based on current market exchange rates, we expect that FX will be closer to a 4% adverse impact to sales growth within our 3% to 4% range given. For the third quarter, we expect sales to be approximately $2.75 billion to $2.85 billion, with an adjusted operating EBITDA of approximately to $520 million to $540 million. Now I'll turn it back to Erik for closing remarks. Well, thank you, Glenn. As I shared at the top of the call, I am pleased with the team's solid performance throughout the first half of the year, especially as it represents a significant improvement over our prior year lows. We are moving on the right track because our teams around the world continue to relentlessly focus on efficiently meeting the needs of our customers, resulting in driving profitable growth. And I'm energized by the progress we've made so far this year, yet I recognize that we have a lot more to do to achieve the full potential of this great company. Already, we are making progress to better meet our goals and by taking advantage of the market's tailwinds and increasing our investments in our high-growth businesses, we believe we will be positioned to deliver attractive shareholder returns over time. I want to especially thank the entire IFF team for delivering these results, including rallying behind our strategic refresh to advance our customer focus and innovation-led strategy. We want every IFF-er to share the same passion and desire to help our customers differentiate and win in the marketplace. We are making much progress towards this goal. As I look ahead to the remainder of the year, we will remain steadfast in bringing new products and innovations to the market. while simultaneously executing a turnaround strategy across our Functional Ingredients business, including with strong productivity initiatives. And I'm confident the actions we're taking and the near-term operational priorities we are executing will create a stronger IFF. And with that, I would now like to open the call for questions.
