International Flavors & Fragrances, Inc.

At this time, I would like to welcome everyone to the IFS first quarter earnings conference call. All participants will be in a listen only mode until the formal question and answer portion of the call. To ask a question at that time, please press star one on your telephone keypad. If you would like to remove your name from the queue, please press star two. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael DeVoe, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's first quarter 2024 conference call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we will be making forward-looking statements about the company's performance and outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release that we issued yesterday. With me on the call today is our CEO, Eric Fehrwald, and our Executive Vice President, CFO, and Business Transformation Officer, Glenn Richter. We will begin with prepared remarks and then take any questions you have at the end. With that, I would now like to turn the call over to Eric.

Well, thank you, Mike, and hello, everyone. I'm excited to join you all today to discuss our solid performance in the first quarter and what we are seeing across the business so far this year. Today, we'll focus on our financial results, our outlook for the balance of the year, and our increased confidence and our reiterated guidance, where we now see us trending toward the upper end. Now, before moving forward, I want to acknowledge Glenn. who today is announcing his plan to retire at the end of 2024 after three successful years with the company. During his tenure, Glenn has driven multiple actions to improve our balance sheet and position the company for financial success. We've benefited from his experience and commitment to transformation and his ongoing leadership to position IFF to drive long-term profitable market share growth. He has also been very helpful to me already as I've come on to the IFF team. Now with this announcement, we have started a succession plan to evaluate internal and external candidates to succeed Glenn. The Board and I are grateful for all Glenn has helped IFF accomplish and look forward to his continued leadership as we identify a successor and ensure a smooth transition. Now, turning to slide six, we are off to a good start at IFF. We achieved volume growth for the first time since the first quarter of 2022, as volumes grew mid-single digit in the first quarter of 2024, with strong contributions from SENT, Nourish, and Health and Biosciences. We are also encouraged by the double-digit comparable adjusted EBITDA growth as we not only benefited from volume growth, but also from productivity gains across our businesses. At the same time, we made important progress focusing our portfolio with closing the divestiture of the cosmetics ingredients business and the announced sale of our pharma solutions business. We expect to complete the pharma transaction in the first half of 2025. The proceeds from these divestitures will help further strengthen our capital structure, address our deleveraging goal of three times net debt to credit adjusted EBITDA, and refocus us on high growth areas of our business. With our solid performance in the first quarter and our expectations for the remainder of the year, we are cautiously optimistic about the remainder of 2024 and now expect full year 2024 results, to trend toward the higher end of our previously announced guidance ranges. It's still early in the year and there is a lot more work to be done, but we are focused on building on our momentum to energize our team and return to sustainable, profitable growth. Turning to slide seven. Let me take a step back for a moment and share what I've learned during my first 90 days here at IFF. I've spent time getting to know our teams all over the world and meeting with many of our customers. And I'm grateful for the productive discussions. And what I've found is that IFF has lots of top talent and incredible innovation capabilities, but we're not yet realizing our full potential. With a new leadership perspective on our priorities and a renewed focus on execution by our executive leadership team, we are getting back to basics. And I'm optimistic about what we will do from here. First, we are strengthening our balance sheet and capital structure to create the flexibility we need to achieve our long-term goals. My assessment is we have not consistently delivered on our financial commitments largely due to a need for more strategic and organization operating model clarity to enable us to better execute against our goals. I think we are now getting the clarity we need and have taken some decisive steps in the first quarter to help us start to realize more of our potential. We recently right-sized our quarterly dividend to align with the market in our long-term cash flow generation and have made divestiture moves, including cosmetics and pharma solutions, to focus our portfolio and drive debt reduction. We also recently announced and are implementing our refocused IFF operating model, which is now business-led supported by Lean Functions. This includes the appointment of Ana Paula Mendonca, who has dedicated her career to the advancement of fragrance at IFF as the president of Scent. This enables Simon Harriot to focus his full attention on driving profitable growth in our health and biosciences business unit. We will also put more focus on our flavors and functional ingredients units within our Nourish division. With this operating model change, we have also changed the reporting structure of several of our functions, including R&D, operations, finance, and HR, to go directly into our business unit presidents, so they have the full end-to-end responsibility and accountability for business execution. Their goals will include delivering growth above market with a margin structure that gets us in line with or better than leading peers. Now to make this work, we have also established an operating system, which is a simple set of management processes that collectively define how IFF makes decisions and creates value, provides a framework for standardized processes, responsibilities, and metrics and defines the tools to help managers drive continuous improvement. We believe this will create greater visibility to track performance, so we drive execution to deliver results in the current period in ways that strengthen us for the coming years. We are also introducing an operating philosophy based on four main pillars. Number one, customer focus to drive profitable market share growth. Number two, innovation powerhouse to create sustainable new products and other innovations customers value and do this faster. Number three, operational excellence to lead a relentless focus on safety, quality, continuous improvement, and competitive cost structures. And four, people. people who are engaged across the organization. We expect that our business-empowered model and operating system will enhance collaboration to profitably win with customers, and by doing so, deliver strong financial performance over time. And while it's still early, I am pleased and encouraged by the energy and commitment of our teams all around the world. With that, I'll now pass it over to Glenn to dive deeper into our results for the first quarter. Glenn.

Thank you, Eric, and thanks to everyone for joining us today. As Eric mentioned earlier, we're encouraged by the momentum across our business as we start the year, and we are excited to continue to build on these positive early signals throughout 2024 and beyond. In the first quarter, IFF generated roughly $2.9 billion in sales, On a comparable currency-neutral basis, sales increased 5% year-over-year. Our strong quarterly revenue performance was led by mid-single-digit volume growth with sequential improvements across most of our businesses, including Scent, Health and Biosciences, and Nourish. Pricing was modestly positive, inclusive of FX-related pricing in emerging markets, in particular the Argentine peso, where we, like the industry, have indexed pricing to U.S. and or Euro exchange rates that drive pricing changes. Absent of this benefit, pricing would have been negative in the quarter, largely in line with our plan. We delivered strong profitability in the quarter with adjusted operating EBITDA of $578 million. This represents a 20% increase on a comparable year-over-year basis. led by volume growth and the contribution from productivity initiatives. As a result, margins improved by approximately 310 basis points to nearly 20% adjusted operating margin in the quarter. Turning now to slide nine, I'll dive deeper into the business performance across our segments. In Nourish, sales increased by 3% on a comparable currency-neutral basis with strong double-digit growth in flavors with improvements in both volume and price. And we saw very strong growth in our flavors business across nearly all markets. Functional ingredients volume was up low single digits the first time since the fourth quarter of 2021. Overall, comparable currency neutral sales declined year over year due to our planned pricing actions. In terms of profitability, Productivity gains and volume growth drove a 13% increase in comparable adjusted operating EBITDA with solid gross margin improvements in both flavors and functional ingredients. Our health and bioscience segment had another strong quarter with both top and bottom line growth. Solid performance in our H&B portfolio led by double digit sales growth in cultures and food enzymes, animal nutrition, and grain processing, and mid-single-digit growth in home and personal care drove a 6% increase in comparable currency-neutral sales. Improved volume and productivity gains led to a 21% increase in year-over-year comparable adjusted operating EBITDA. SET delivered another excellent quarter, including 16% growth in comparable currency-neutral sales driven by double-digit growth in consumer fragrance and fragrance ingredients, and mid-single digit growth in fine fragrances. The segment also excelled in terms of profitability, primarily led by volume growth and productivity improvements, which delivered an outstanding adjusted operating EBITDA growth of 55% on a comparable basis. Lastly, in pharma solutions, while we saw some improvements from productivity initiatives, these were offset by lower volumes driven, as expected, due to continued destocking trends which began late last year. It's worth noting that part of the destocking trend in the first quarter was market-related, and the other is due to Pharma Solutions' initiative to reduce reliance on distributors and convert more of its core excipient's business into a direct distribution model. We believe the shift to a more direct approach will enhance our customer relationships, reduce supply chain complexity, and provide greater access to technical resources while also improving margins. Also, as mentioned, we agreed to divest the pharma solutions business as part of our portfolio optimization efforts and are confident the business will be positioned to thrive and succeed in partnership with ROCAP. Now on slide 10, I'd like to discuss our cash flow and leverage position. Cash flow from operations totaled 99 million this quarter while CapEx was 118 million, or roughly 4.1% of sales. In the first quarter, normal seasonality impacted our free cash flow results. As a reminder, Q1 is usually the lowest cash flow quarter of the year as we make annual cash bonus payments in March. Our free cash flow position totaled negative 19 million in the quarter versus negative 48 million in the year-ago period. We also paid $207 million in dividends through the end of the first quarter. Our cash and cash equivalents totaled $764 million, including $32 million in assets held for sale. IFF continues to make progress in our deleveraging efforts and reduced our gross debt by almost $1 billion versus a year ago for a net debt to credit adjusted EBITDA ratio of 4.4 times at quarter end. our trailing 12 month credit adjusted EBITDA a total approximately 2.2 billion. Please note that the proceeds from the sale of LMC of 810 million were received in April and consequently not reflected in the quarterly results. With the announced Pharma Solutions transaction, we are confident that we will achieve our net debt to credit adjusted EBITDA target of three times following the transaction close which we expect will be completed in the first half of 2025. On slide 11, I'd like to now turn to our outlook for 2024. Based on our improved financial and operational performance in the first quarter and our expectations for the balance of the year, we remain cautiously optimistic about the year ahead, and as Eric mentioned, now expect results to trend towards the higher end of our previously announced guidance ranges. This reflects our belief that volumes will also be towards the high end of our previously announced 0.3%, with improving trends across the majority of our portfolio. We also saw pricing increases due to FX-related pricing in emerging markets in the first quarter, and therefore raised our previously announced pricing guidance to approximately 1% for the full year 2024. versus previous expectation that pricing would decline approximately 2.5%. With these foreign exchange rate changes, we now expect currency will have an adverse impact of 3% to 4% versus 0% to 1% as previously expected on our sales growth, which is essentially offsetting the FX pricing contribution. On the bottom line, for 2024, we are now trending towards the high end of our previously announced adjusted operating EBITDA guidance range of 1.9 to 2.1 billion. This assumes continued improvements in volumes as well as strong productivity. While it is still early in the year, volume trends are encouraging and consequently we have increased confidence in our ability to achieve our full year guidance. For the second quarter, we expect sales to be approximately 2.75 to 2.85 billion, driven by improved volumes, with an adjusted operating EBITDA of approximately 500 to 525 million. I'll now turn it back to Eric for closing remarks.

Thank you, Glenn. Now, as I shared at the top of the call, my first 90 days on Team IFF have been energizing, as I see so much potential. We have great talent and capabilities across our global teams, and our solid top and bottom line results from the first quarter show that we are building positive momentum. And it's an honor to lead IFF during this transformative time, and I am encouraged by our positive start to the year and our outlook. Yet, we still have a lot of work to do. As the market continues to be very competitive, we are committed to bringing products and innovation that differentiate us from our peers and give customers what they need to win, and in turn, helps them and us drive sustainable, profitable growth. And with a solid start to the year, I'm excited to see what we can accomplish going forward. And with that, I'd like to now open it up for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two. As a reminder, we ask that you limit yourself to one question. If you are using a speakerphone, please pick up your handset before asking your question. Our first question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is now open.

Thank you and good morning. This is Matthew Hetler on for Kevin. It's nice to see a strong start to the year. Eric, could you give us some additional context and detail regarding how you've seen the individual businesses react to your new operating philosophy through the first 90 days?

Yeah, thanks for the question, Matthew. As you probably know, I've been on a listening tour or a discussion tour since right after the January 11th announcement of the change and my joining IFF. And it's been really great to hear from our employees all around the world and our customers all around the world. And what I've discerned from that is that we've had multiple companies coming together with different operating models, different philosophies, And there was a significant uncertainty about the organization structure and how we were going to do things. And what we've done is the executive leadership team has come together very nicely. I'm very proud of the team. And we've been able to together clarify the structure and operational model that we have going forward and the four pillars that we're focused on to drive our performance. We've had town halls all around the world, both live and by video. We've touched all our employees. We've spent a special time with our leadership. And I think we've gotten really clear on how we're moving the company forward. And what I love about it is I feel the engagement of our people around the world. I feel their energy growing. I think there's great acceptance and enthusiasm for the empowered business unit model. For the focus on customers, the job of all of us is to support our teams, to win with customers and help us profitably grow our market share. And then also drive our innovation. At the core, we're an innovation company, and we need to make sure that we have leading innovation that we're bringing to our customers, and it's innovation that customers value. And then finally, that we also have healthy productivity, productivity that helps us strengthen the company, and invest more in growth and innovation. And doing that with smart productivity, things like reducing consultants, reducing layers, driving functional shared service centers where it makes sense, using technology, information technology. So my feeling is that there's great capabilities, great people in this company, And the executive leadership team is coming together to try and do all we can to unleash that full potential of our people all around the world. Thank you.

Thank you. Our next question comes from the line of Nicola Tang with PMB Paribas. Nicola, your line is now open.

Hi, everyone. Thanks for taking the questions. Firstly, Eric, you talked there about sort of the change operating model. Can you talk a little bit about portfolio and following the announcement to divest pharma solutions, do you intend to pursue any further divestments or is that it for now? And then if I could squeeze in another one for Glenn on cash flow, are you still confident in your free cash flow target of $500 million a year or $700 million on an adjusted basis? And is there potentially upside given the upward provision or the high end that you see in terms of the EBITDA guidance? And could you explain what drove the increase in trade receivables in the quarter? Thanks a lot.

Okay, I'll start and then hand it over to Glenn. And thanks for the question, Nicola, or questions. So on the portfolio, first of all, the pharma solutions business will be with us for another year. And we see a lot of opportunity to further strengthen the performance of Pharma Solutions over the next year, and then beyond that with Roquette. But then we have the other four business units that we're going to really focus on driving forward. Of course, with Nourish, both the flavors and the functional ingredients, we have the scent business, and we have the health and biosciences business. All our focus now is on supporting those businesses to perform well, to drive profitable market share growth, to drive healthy productivity, to make sure that we're bringing leading innovation and deliver the best performance we can in the second quarter, full year 2024, but do it in ways that strengthen us for 2025 and beyond. We're also going through a strategy review process for each of the businesses and we'll take a look at what it takes to win in each of those businesses in the coming years and what we have to do investment-wise and making sure that each of the businesses has the right portfolio to win going forward. So you'll hear more about that in the coming quarters and years, but right now our focus is all on making sure we've got the right strategy, the right capabilities in each business, the right collaboration culture across businesses, and are winning with customers by bringing leading innovation. Glenn.

Thanks, Eric. Thanks for the question, Nicola. We're actually trending more favorable in terms of our pullier outlook for free cash flow and adjusted as well. As you mentioned, a combination of earnings momentum, actually working capital is actually performing better than planned, and we expect actually some improvement, and then just some timing on taxes. We're probably going to be closer to $600 versus the $510 I would note that that also includes higher Reg G costs related to pharma. So we gave you a $200 million number in Feb that did not include pharma for obvious reasons. The heavy lifting, as Eric mentioned, is the balance of this year separating systems, legal entities, et cetera. That's roughly about $100 million. So on an adjusted basis, $900 million. On a free cash flow reported basis, directionally $600 million. Thanks for the question.

Thank you. Our next question comes from the line of Josh Spector with UBS. Josh, your line is now open.

Yeah, hi. Good morning. I wanted to ask on your expectations of volume cadence. I mean, clearly very strong first quarter, so congrats on that. But I think some of the comps on a year-over-year basis actually get a bit easier. So is there something you call out that you would say is a headwind we should consider, or would you characterize your view as just conservatism? Thanks.

Thanks, Josh. And let me start, and then Glenn can give you more details. But as I see it, still fairly new coming into the company, clearly CPG company volumes are still soft in the U.S. and the E.U., And so we can't expect a whole lot of market tailwind growth. I do think we've seen the end of most of the destocking outside of pharma solutions. And Glenn alluded to the pharma solutions destocking, both market destocking and our change in channel strategy. But bottom line is we can't expect a lot of growth from the marketplace, although there are some emerging markets that we're going after that are seeing very attractive volume growth. But overall, our focus has to be growth through bringing leading innovation and winning business with customers. And I've heard a lot already about commercial projects that we're winning, but we're also going to increase the focus and understanding the projects that we didn't win. Why didn't we win them? What does it take for us to be even more successful with our customers and win even more projects and bring that leading innovation so that customers are growing their market share profitably, and we're growing with them.

Glenn? Thanks, Eric. Again, Josh, I think, as Eric mentioned, until we see a strengthening in the consumer environment, which has yet to appear, and until we have a few more months underneath our belt, it's sort of hard for us to be sort of incredibly optimistic on the second half. As a reference point, the first half volumes are circa 4% to 5%. And the second half, basically 1% to 2%. As a reminder, the first half of last year, because of the aggressive destocking, was down 9%. And the second half, down 5%. So a little bit of the lapping as well as we sort of think about providing guidance. But I think the end market, as Eric said, we need to see greater strength there before we're sort of more confident in higher volume growth in the second half.

Thank you. Our next question comes from the line of Mike Sisson with Wells Fargo. Mike, your line is now open.

Hey, good morning, and really nice start to the year. When I think about the first quarter EBITDA run rate and EBITDA margins, really good improvement at 20%, you know, guidance would sort of imply that those levels, you know, fall sequentially. So, you know, anything you know, sort of one-time positives during the first quarter that wouldn't reoccur? And just curious, if demand and volume levels remain here, why wouldn't EBITDA margins stay sort of in this 20% range for the rest of the year? And congrats on retirement, Glenn.

Thank you, Mike. I might actually come visit you in Cleveland when I retire, by the way. So good question. So 20% for Q1, sort of the implied balance of years around 18.5%. That 150 basis points of change, half of that's related to volume and mix, inclusive of LMC. So LMC, you take out about $12 million per quarter and about $25 million of revenue, so it's a relatively high margin. So everything normalized, that gets you from the 20 down to basically 19 and a quarter. The residual 75 basis points really is a little bit more net price to cost realization in Q1 than versus the forecast and then just some timing of expenses. But to answer your direct question, if volumes were to maintain, then we should be somewhere in the 19%, probably 19% plus range for the balance of the year.

Thank you. Our next question comes from the line of Patrick Cunningham with Citi. Patrick, your line is now open.

Hi, good morning. This is Eric Zhang on for Patrick. What are your expectations for price costs for the full year? The price guide seems to be a small net positive if you net out FX. Are there any areas where you're getting structural pricing, or is this just less give back than you expected? Thank you.

Yeah, Eric, you're right. I mean, the full year, we're expecting a small net positive, as I mentioned. a little more biased towards Q1 than the balance of the year. Our pricing actions, which were largely givebacks this year, were highly focused in the functional ingredient space. We are tracking well against the expectations that we set for the year. We do believe that the improved performance in the business is in part related to these pricing actions on top of the other actions. and we don't see sort of any additional kind of pricing for the balance year at this point in time. And then in general, if we look at sort of the inflationary environment for the balance of the year, it's pretty stable. I'd say commodities are flattish to maybe a tad up. Generally, energy is trending down, particularly in Europe, and logistics is trending slightly up, particularly ocean freight, given what's happening in the Red Sea. But, you know, generally stability, and as we mentioned earlier, a little more positive net price in the first quarter than the balance of the year. Thank you, Eric.

Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. David, your line is now open.

Thank you. Eric, does the improvement in functional ingredients mark a turn in this business? And looking forward, can the entirety of this business return to prior levels of sales and earnings Or is there some portion of business that will not due to low-cost Asian competition? Thank you.

Thanks for the question, David, and glad to be back with you again after some years. Absolutely. It marks the beginning of improvement in the functional ingredients business, and I'm very pleased to see that after a long, tough spell. And what I'll say is that we are putting more focus on the functional ingredients business And I'm very pleased to see the start of what the team are working really hard to make a sustained turnaround. And in addition to better execution, which is happening, we are doing a strategy refresh and looking at all the product families and our systems approach across the functional ingredients business. And we are focused very much right now on delivering a strong improvement in 2024, but also what it takes to make sure that that improvement continues into 2025 starting with the second quarter 24 then the third quarter but the full year this year but doing making sure that we're doing the right things to strengthen for 25 and beyond and you'll hear more about that in the coming quarters but it is the start of a turnaround very pleased with the progress that the team is making the actions they're taking both with customers and on productivity and we'll see how good we can do in 24 and then we'll focus on 25, but making progress.

I would just add to that, David, as we've mentioned in the past, we've stated we didn't think we were going to get to sort of full recovery until 25. We're pleased by the start of this year. A lot of the service elements are 100% back to where they should be. Pricing actions have been effective. More innovation in the pipeline. The last piece of the equation is on the cost side, and we're going through a very extensive review of our manufacturing and procurement operations That probably will be implemented late this year into early next year as the final piece to get to the margin structure in terms of where we need to be. Thanks for the question.

Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Adam, your line is now open.

Yes, thank you. Good morning, everyone. I'd love to get your perspective on volume trends by region in the first quarter and there's anything you would call out as notable areas of outside strength or weakness versus the portfolio as a whole up in single digits? And I think we could probably exclude pharma from that discussion. And again, given that first quarter performance, is there anything where the regional performance would differ materially kind of over the balance of the year? Thank you.

Hey, good morning, Adam. Good question. Regionally, we have seen a greater strength in a combination of Asia and Latin. So more of the emerging markets from a volume standpoint and sort of across the board, generally a little softer in North America and in EMEA. That's probably not dissimilar than what others are seeing in the marketplace. If we look by business, you know, set at a phenomenal start to the year, 9% plus volumes, nourishing H and B in the 4% range. As we think about the balance of the year, you know, we're not planning on cent continuing at these very, very high levels. So some softening from these and then a little bit softer for H&B and Nourish and then Pharma actually improving because they were down about 9% in Q1 and actually getting to flattish as we move into Q2 in the balance of the year. But generally where we're seeing the regional balance, more emerging market, we're expecting that to continue at least through the second quarter.

Thank you. Our next question comes from the line of John Roberts with Mizuho. John, your line is now open.

Thank you, and best wishes, Glenn. Thanks for all your help. Eric, IFF has had more opportunities than most companies to promote from within for the CEO and CFO positions. Do you think there's anything that needs to change in the organization to develop a deeper bench so these C-suite transitions are smoother? Or is there just a culture on the board to look outside for C-suite positions?

Well, thanks for the question, John, and I think it's a really important one. To me, the most important thing we do as leaders is make sure that we have the right talent in the company, that we develop the right talent, and we give them the opportunities through promotion to continue to advance their careers. And so I always prefer internal promotions, but sometimes external talent needs to come in to fill gaps or when we don't have the right talent inside. But I can tell you that like at Syngenta, I very much want to have my successor come from inside when I do retire at some point. And also, I'll just point out that the one significant executive leadership change that we've made so far was Ana Paula Mendoza being promoted to run the SENT division as president of SENT. And if you look at her background and if you talk to the people across the company and customers, there was great enthusiasm for her promotion. And I like that. So I will continue to work with the executive leadership team and with the board to make sure that we're developing the right talent inside the company to make sure that we promote from within wherever we can.

Thank you. Our next question comes from the line of Gansham Punjabi with Baird. Gansham, your line is now open.

Thank you, operator. Good morning, everybody. I guess, you know, Eric, first off, as you sort of meet with customers and go on your listening tour, etc., how would you sort of objectively assess the modes of the residual businesses that are going to be part of IFF going forward? And then just related to that in terms of scent, what did drive the first quarter in terms of eye performance, especially consumer fragrances? Was that sort of share gains? And if it was, what was that driven by?

Thanks, Lawrence. It's also good to be back with you. We've had some history that dates back quite a ways. The way I would say it is that In the businesses that are remaining, we've got a lot of great innovation capability and a lot of really terrific people that understand customers, have great consumer insight capability. So we have the people and the capabilities, including the innovation capabilities, to be very successful. And what I would say is, even talking to our people but also our customers, We haven't realized our full potential, and that's what it's about. It's the leadership team working to unleash the full potential by making things decision-making clear, by having businesses be end-to-end, be able to drive clarity in their strategy and then clarity in their execution, but at the same time having a collaborative culture so that we can collaborate across businesses wherever it makes sense to enhance our ability to bring solutions to customers or to drive healthy productivity. And so I believe that we're doing well with that, but we've got a lot more potential to unleash. And I think if you talk to people across the company, I think you'll find a lot of enthusiasm about what IFF is doing and what more we can do going forward. Specifically on Scent, I think Scent has been a unit that has stayed focused largely on customer that has brought a lot of innovation to customers. I've spent a lot of time with the perfumers in this company. We've got world-class perfumers, and I just am so proud to be part of this company with such great perfumers that our customers value. I've spent time with CEOs of leading CPG companies that have named our perfumers by name because they're so important to their success. And so making sure that we're bringing not only our perfumers but the whole team around the perfumers to help co-create great new fragrances and fine fragrances or great new consumer products, whether they're shampoos or detergents, laundry detergents or dishwash detergents or floor cleaners or body wash, whatever it is, the scent, I've learned, is such a critical part of the success of the consumer product And our great perfumers and the teams around them bringing great scent technology and great formulations to help the customers develop leading consumer products has really been what's driven the growth. So I expect under Anna's leadership and with the super team that she's got, I expect that continued strong performance to continue.

Thank you. Our next question comes from the line of Salvatore Chiano with Bank of America. Salvatore, your line is now open.

Yes, thank you very much. If I remember correctly, you had talked about 150 million productivity gains for the year. So can you talk a little bit, can you quantify what was the benefit in Q1? What do you expect for the rest of the year? And given, obviously, the strong gains in the first quarter, is this number upsized for the rest of the year?

Good question, Salvatore. We are trending at around $200 million full year in terms of productivity, and hence some of our commentary about guiding towards the higher range of our EBITDA guide. And that's about $50 million per quarter, so it's fairly ratable in terms of kind of the achievement. You know, I would note, as we said in previous calls, we have made tremendous progress with our operations and procurement leadership teams. in really driving a very disciplined approach, taking costs out, everything from skew rationalization to literally looking at plan by plan in terms of best practices. And behind that, and by the way, there's plenty of additional opportunities. As I mentioned, we're taking a zero-paced approach to our ingredients platform, which will provide additional opportunities. And behind that, we've really been looking at opportunities within RSA that have been focused on leveraging our global shared services, really focusing on an indirect spend, so getting every dollar out we need, and then continuing to advance technology as a way to basically automate, eliminate work. So that piece of it's actually picking up speed as well. So we feel very good about 200, and I would suggest as we look out into the future, we're going to continue to deliver very strong productivity numbers. Thanks for the question.

Thank you. Our next question comes from the line of Lisa DeNove with Morgan Stanley. Lisa, your line is now open.

Good morning. Thank you for taking my question. Congratulations on the strong first quarter. My first question, so with the announcement of the farmer division, which is expected to complete in the first half of next year, can you just share where you see potential scope for optimizing your balance sheet position and maybe where you see some depth that could be reduced or be up for redemption or that may not require any refinancing? And then I'm going to sneak in a second question. So during the presentation, you mentioned that your finance and HR departments, amongst others, are now directly feeding into your divisions. Can you shed some light on their compensation structure of the variable pay they may or may not receive and what key KPIs they have to deliver on this? Thank you.

Sure. Hey, Lisa, good morning. This is Glenn. We're in the early innings of deciding sort of our liability management strategy. As you know, we will bring in circa net proceeds of $2.4 billion from pharma. Coincidentally, we have maturities cumulatively for 25 and 26 that are $2.4 billion, but we're actually taking a more holistic look, and we're actually going to be balancing the tradeoff between interest cost savings notional debt repayment, so how do we think about basically bringing in some of the cheaper debt, as well as refinancing risk. So we'll think about bringing some towers down as part of that. So there'll be more to come as we get closer to finalizing the close of the deal, but we are sort of thinking about not just the immediate maturities, but how to optimize the structure going forward. So with that, Eric, I'm happy to take the next question.

You want to take the next question? Yes. So on the functions feeding into the business units, reporting into the business units, It's clearly being done so that the business units can drive their performance. And there will be no changes to the 2024 plan because everybody's set and clear about it and we're not making changes. But effective in 2025, those functions that we're reporting corporately that we'll be reporting into the business units will be incentivized on the business unit performance as a large part of their incentive. They'll also, of course, continue to have a corporate element to encourage overall corporate performance and collaboration across business units. And the more senior level the people are, the more their corporate component. But clearly, what we want to drive is business unit alignment and everybody on that business team driving that business unit's performance, but also collaborating to enhance their business unit's performance and the total company performance. I would also say that there'll continue to be corporate functional leadership that ensure that we're doing functional best practices across the business units and that each of the functional people have great career opportunities across the company. So it will be a combination, but clearly each business unit is going to be highly incented to drive the performance of that business with collaboration that enhances their business performance and the business performance of the other businesses.

Thank you. Our next question comes from the line of Mark Astrichan with Stifel. Mark, your line is now open.

Yeah, thanks, and good morning, everybody. Two clarifications and a question. So it sounds like there was a lot of benefit in cent volumes in the quarter. I guess that partly explains the big EBITDA number and growth rate on your basis. So is it fair to say that that specifically the sent EBITDA growth will normalize as we head through the year. And I guess, you know, broader picture, same thing on the total business. And if you could maybe tell us how much you think the 1Q volume growth had to do with channel refill from the reversal to destocking and how much of it is really what your customers are ordering from you, that would be helpful. Thank you.

Yeah, so your second question, Mark, hard to, definitively understand kind of what's going on downstream in terms of the supply chain. However, I think in general, there was a little bit of volume that went from Q4 into Q1, but directionally probably less than half a point. We were reducing prices, as you know, in certain segments. So customers decided to push some orders into Q1. but I think it's fairly de minimis. In general, the feeling is that there's not any restocking in the marketplace. There's an absence of destocking, but there's no view, I think, generally in terms of the customers are restocking at this point in time. In terms of your question on sent volumes, sent had a very strong first quarter. Note that it was stronger in consumer versus fine, so that as it makes that sort of mixed neutral versus the enterprise from the standpoint. And as mentioned, we're not anticipating that those high single-digit volume gains will continue through the balance of year. So that is a piece that's basically reflected in our balance of year guide being lower from a volume standpoint.

Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Lauren, your line is not open.

Great, thanks. I had two questions. First was just on the Nourish performance in the quarter and volumes being up. Food industry volumes are still quite weak, so I was just kind of curious if you could square for us your performance outside of inventory rebuilding versus kind of what we're seeing in end market demand. And then the second thing was, Eric, very helpful to hear kind of the update on org structure and the direction you're moving in. I was curious, though, to ask a little bit of a backwards question. The org structure that was in the process of being set up, and Glenn, you were obviously a part of that, I understand the notion that it's being deemed not the right path forward, but there were surely merits to that plan. There were elements there that were going to bring something positive or there was an intention. So I'm just curious what, if anything, you think you kind of give up or forego in not pursuing that model and if there are ways to kind of bring that into the structure, Eric, that you're going to be setting up. If that didn't make sense, I can try to clarify. Thanks.

No, no. I'll start and then Glenn can add to it. First of all, in the organization structure, the idea was to have market-based organization structures. So, for example, health and biosciences would have been split up into four different units. As we've come together as an executive leadership team and talked about it, The belief is that you gain the most by making sure that your innovation, that your R&D engine stays within the business and the manufacturing and the commercial so that you have that end-to-end and you're going to customers with expertise that they can connect all the way back to R&D and what we call IC&D, the innovation, creation, and design capabilities that we bring. That really needs to stay within a business and be their end-to-end. Now we have different businesses that hit the same markets. So health, excuse me, home and personal care, both our biosciences business and our scent business have a lot in common with customers. So we'll continue to have a global key account leader for large accounts that will represent the company, but then we'll have experts from the business units coming into that account and working with that account, which is what the accounts want. They want both that Overall IFF relationship, which, by the way, will include the presidents of the businesses, will include me and others, but that coordinated. But they want to see the experts that really know the innovation details that can bring that innovation to them. And that's what these end-to-end business units will enable us to bring.

So if I can add, the original premise, which actually predates me, Lauren, was that combining flavors and ingredients would represent a significant, quote, revenue synergy opportunity through cross-sell. And the axis was put on synergies as opposed to how do you optimize the individual businesses. That is being shifted the other way, where the reality is these businesses will run much, much better with a single focus either on flavors or ingredients. As Eric said, there are other mechanisms to help cross-sell, particularly with the global key accounts as a way to to develop long-term plans, et cetera. But we've seen it just firsthand in terms of the more that we get our ingredients team sort of focused on only ingredients, it does deliver results. So I think that's the big shift from three-plus years ago when the deal was put together. And early to your first question, very early innings, by the way, although cautiously optimistic, our trends in terms of our flavors business were four-plus percent volumes and the ingredients business were three-and-a-half percent volumes. From what we can measure in terms of our competitive set on both sides of the house, we feel that we're at parity or gaining share based on the quarterly results. I would caution particularly on the ingredients business. It is early. There's a lot of remediation in that business, but it's encouraging that we're starting off relative to our peers in a good place.

And what I would just add to that is I think flavors, it was really a good pipeline that the commercial team was able to land on. And in ingredients, it was a combination of a strengthening pipeline, but also pricing actions that led to regain of some share that was lost due to big overpricing increases. And now we've recovered some of that with some price givebacks.

Okay, great. Thank you. Our next question comes from the line of Lawrence Alexander with Jefferies. Lawrence, your line is now open.

Good morning. Just want to follow up on the comment about sort of the inventory dynamics downstream. If you look a little bit farther out, what are you hearing from customers about either them shifting their innovation strategies and therefore having more demand pull for your product or longer term they're needing to reset inventory levels in terms of working capital days or other metrics? And then would that be a net tailwind or headwind for you from current level?

So in the last, since I've joined, I think I've met with more than 20 customers, maybe 30 customers. And very consistently, what we're hearing back is that they're pivoting from being able to grow with price increases to now needing innovation and innovation being more important than ever. And that's a good part of why it's so important for us to have end-to-end business units that can bring that innovation quickly and aggressively because that's what our customers want so that they can continue to profitably grow their business. They have to have more innovation. That's what they're looking for, that's what they need, and that's what we're going to deliver. So that's how they're going to grow and that's how we're going to grow.

Thank you. Our next question comes from the line of Jeff Tsakowskis with JP Morgan. Jeff, your line is now open.

Thanks very much. Given your revenue forecast for the second quarter, which at the midpoint is down about 5%, are your April volumes down 5% or on a sequential basis, that is? or can you talk about what's happened sequentially? And then second, when you look at your first quarter performance versus your fourth quarter performance, your revenues were up about $200 million, and your cost of goods sold was up, I don't know, maybe $30 million. Can you discuss what the dynamic is behind that, which allowed your growth to really expand?

Jeff, that second part of your question was Q4 to Q1. What was the reference point?

Yes, exactly right. Because there's not much change in cost of goods sold and revenues are up a couple hundred million.

Yeah, well, there are a number of timing elements in the fourth quarter and sort of the mix of the business in the fourth quarter vis-a-vis Q1. Generally, the productivity and net price dynamics were very similar, so I'd say the fundamentals were, but you really have some mixed dynamics and then some one-time items related to that as we think about Q4 to Q1. You referenced, I think, the decline. The decline sequentially is about $100 million from Q1 to Q2. About a quarter of that basically is associated with the absence of LMC in the mix. The other part is just sort of the outlook in the business, a little bit of seasonality in terms of the business as well. Versus prior year, to remind you, this time last year we had Savory Solutions, we had FSI, we also had LMC in the mix. So there's a pretty substantial sort of reduction in revenue on a year-over-year comparison. Volumetrically, your question about what we're seeing in the second quarter, we're obviously well into the middle of the quarter at this point. We're anticipating a 5% to 6%. you know, all-in volume growth versus the 4% for Q1. April was an extremely good month, but last year it was an extremely lousy month, so there's a bit of an overlap from the standpoint. But May and at least the June book at this point is trending towards that basically sort of 5%, you know, plus in terms of the performance for the quarter. Thanks, Jeff.

Thank you. There are no questions registered at this time, so I will pass the call back over to Eric for concluding remarks.

Thank you all for joining today. Let me just close with two comments. First of all, Glenn did announce his pending retirement, but I just want to make sure he's not leaving yet. There's lots more work to do, and we're enjoying him as part of the ELT, Executive Leadership Team, to get us unleashing our full potential. Second point is it's really great being part of Team IFF. We've got terrific people, great innovation capabilities, and we're going to do all we can to unleash our full potential and try to delight our customers, our employees, and our shareholders. Thank you very much.

That concludes today's call. Thank you for your participation. You may now disconnect your line.