International Flavors & Fragrances Inc. Faces Challenges with Higher Inventory Costs and Low Sales Forecast

International Flavors & Fragrances Inc. (IFF) experienced a significant drop in share price after revealing that higher inventory costs have nearly doubled and revising its sales forecast for the year.

Share Price Plummet

Following a 0.2% decline during the regular session, IFF shares plummeted by almost 20% after hours. The closing price for the regular session was $80.34, while the S&P 500 index ended the day with a 0.9% increase. Year-to-date, IFF shares have fallen by 23.4%, in contrast to the S&P 500's gain of 17.7%.

Second Quarter Performance

IFF reported a second-quarter net income of $27 million, or 11 cents per share - a significant drop from $107 million, or 43 cents per share, in the same period last year.

Adjusted earnings, which exclude stock-based compensation expenses and other items, were reported at 34 cents per share compared to 93 cents per share in the previous year. Analysts surveyed by FactSet had predicted earnings of $1.10 per share.

Decrease in Revenue

The company's revenue for the second quarter declined to $2.93 billion from $3.31 billion in the previous year, falling below analysts' estimated revenue of $3.07 billion.

Sales in IFF's largest segment, food products, experienced a 14% decrease to $1.56 billion, while sales in the health and biosciences segment dropped by 21.5% to $522 million. Analysts had anticipated food sales of $1.68 billion and health and biosciences sales of $550.5 million.

Industry Challenges

Frank Clyburn, IFF's Chief Executive, acknowledged that the company is facing challenges due to the broader macroeconomic climate, which has led to continued customer destocking and volume pressures in the second quarter. Clyburn mentioned that these challenges are primarily concentrated in their functional ingredients business within the food segment known as "Nourish," which includes food ingredients, flavors, and designs.

Revised Sales Forecast

As a result of the ongoing customer destocking and volume pressures, IFF has revised its full-year sales forecast. The company now expects sales to range between $11.3 billion and $11.6 billion, down from the previous estimate of approximately $12.3 billion. This revision is based on the expectation that volumes in the second half of 2023 will not recover as previously anticipated. Analysts, on average, had forecast sales of $12.16 billion.

Manufacturing Costs

IFF also anticipates higher manufacturing absorption costs for the year, estimating around $180 million, an increase from its previous estimate of approximately $100 million.

Despite these challenges, IFF remains committed to navigating the current industry landscape and finding ways to overcome the obstacles that lie ahead.