On Wednesday, Intl Flavors & Fragrances (NYSE:IFF) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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The full earnings call is available at https://edge.media-server.com/mmc/p/5n2s5z7i/

Summary

International Flavors & Fragrances Inc reported solid sales growth in Q1 2026, driven by volume improvements across all segments, with a notable performance in health and biosciences.

The company completed the divestiture of its commodity soy crush concentrates and lecithin business, and the sale process for its food ingredients business is progressing well.

Despite challenges such as the Middle East conflict, the company reaffirmed its full-year 2026 financial guidance, expecting sales between $10.5 billion and $10.8 billion and adjusted EBITDA growth of 3% to 8%.

Operational highlights include regional production expansions and innovation capabilities in Latin America, with a focus on health and biosciences.

Management emphasized the strategic focus on innovation, customer partnerships, and productivity to offset inflationary pressures and drive long-term success.

Full Transcript

OPERATOR

At this time, I would like to welcome everyone to the IFF first quarter 2026 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 1 on your telephone keypad. If you would like to remove your name from the queue, please press star 2. 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 Bender, Head of Investor Relations. You may begin. Thank you.

Michael Bender (Head of Investor Relations)

Good morning, good afternoon and good evening everyone. Welcome to IFF's first quarter 2026 earnings conference call. Yesterday afternoon we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com Please note that this call is being recorded live and will be available for replay. During the call we'll be making forward looking statements about the Company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release on both of which can be found on our website. Today's presentation will include non-GAAP financial measures which exclude these items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency neutral basis unless otherwise noted. With me on the call today is our CEO Eric Feuerwald and our CFO Michael Devoe. 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 Eric.

Eric Feuerwald (Chief Executive Officer)

Thanks Mike and hello everyone. Thank you all for joining us today. IFF's first quarter 2026 results reflect our continued focus on execution while serving customers with leading innovations and driving productivity and cash flow even amid uncertain market conditions around the world. We're making solid progress on our commitments as we continue to strengthen IFF for long term success. I'll start today's call by briefly summarizing the first quarter and then I'll talk about the key strategic progress we have made so far this year. I'll then turn the call over to Mike who will provide more details on the first quarter results segment performance and our outlook for 2026. Turning to Slide 6, our team delivered a solid start to the year. In the first quarter, across all our businesses we delivered solid sales growth driven by volume improvements. Our health and biosciences segment led with mid single digit sales growth while taste, food, ingredients and scent all grew low single digits. This growth combined with our productivity initiatives resulted in a higher margin in the first quarter. We also generated a strong free cash flow improvement compared to last year. This reflects a focus on cash, including working capital. Over the past few years we have made significant progress simplifying our portfolio. This strategic effort is resulting in our being able to focus on and reinvest in our core and highest growth businesses while achieving our deleveraging targets. In March, we completed the divestiture of our commodity soy crush concentrates and lecithin business to Bunge for $110 million. Looking ahead, the sale process for our food ingredients business continues to make very good progress. While we do not have any additional information to share today, we're pleased by the strong interest in this business and we will let you know as soon as there is news to share. In the first quarter, we also announced regional production and added innovation capabilities to better support the continued strong growth of our health and biosciences business in Latin America. This includes the startup of our Arroyito site in Argentina, our first full fermentation based enzyme production in the region, and we opened a household care application laboratory at IFF's Innovation center in Brazil. Together, these will improve our speed, reliability and locally relevant solution for markets including brewing, animal nutrition, biofuels and home care. Now, with respect to the macroeconomic environment, including the ongoing Middle east conflict, it is clear that uncertainty and challenges will continue to persist through 2026. But we remain focused on advancing our commercial and innovation pipelines, driving productivity and working with customers to offset inflation. This, when combined with our solid start to the year, de risks the balance of the year and gives us the confidence to reaffirm our full year 2026 financial guidance ranges despite this uncertain environment, IFF's diversified portfolio, the essential nature of our business, strong value proposition and disciplined execution position us well to navigate ongoing volatility. In sum, we are doing what we said we would do with discipline and clarity. IFF is laser focused on achieving the strategic goals we clearly laid out two years ago. Our leadership team and our highly dedicated iff' ers all around the globe are committed to delivering high value products that anticipate and solve the evolving needs of our customers. While there's more to do. I'm proud of our progress and how our global team keeps strengthening how we serve customers to enable us to deliver on our commitments. And with that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results.

Michael Devoe (Chief Financial Officer)

Mike thank you Eric and thanks everyone for joining today. IFF delivered revenue of greater than 2.7 billion in the first quarter with volume growth across all businesses. This solid performance led to 3% sales growth for the quarter driven by mid single digit growth from Health and biosciences and low single digit increases from Taste, food ingredients and Scents. Adjusted operating EBITDA totaled 568 million for the quarter, an 8% increase driven primarily by volume growth and productivity gains. Our adjusted EBITDA margin also increased by 110 basis points on a currency neutral basis to 20.7% which is our highest EBITDA margin since the second quarter of 2022. We continue to focus on what we can control and and the strategic progress we've made across all of our segments is clearly visible in these results. On slide 8, I will provide a closer look at our performance by business segment in taste, sales increased 2% to 656 million, growing in all regions with a notable mid single digit performance. In Greater Asia, the segment also recorded very strong quarter of profitability improvements with adjusted operating EBITDA of 153 million and 18% increase from the year ago period. Profitability gains were primarily driven by volume growth, favorable net pricing and productivity gains. Food ingredient sales were up 3% to 839 million as growth in nearly all businesses was led by strong double digit growth, increases in inclusion and mid single digit growth in systems. Volume growth in the quarter was approximately 5%, the highest it has been in several years. Food ingredients had a strong quarter profitability wise as well, delivering an adjusted operating EBITDA of 114 million, a 12% increase year over year led by volume growth and productivity gains. Our health and Biosciences segment achieved sales of 595 million, an increase of 5% from the prior year which was all volume driven with growth across nearly all businesses, especially in animal nutrition and food biosciences. From a profitability standpoint, Healthy Biosciences delivered adjusted operating EBITDA of 153 million in the first quarter, an increase of 7% from the prior year driven primarily by volume growth. Lastly, our Scents segment delivered sales of 651 million representing a 1% growth from the prior year. First quarter performance was led by growth in fine fragrance which had a strong double digit year ago. Comparable and Consumer Fragrances Fragrance Ingredients was down in the quarter as expected due to continued market softness and price competition in the commodity portion of our portfolio. Adjusted operating EBITDA for this segment decreased 2% to $148 million as benefits from volume growth and productivity gains were more than offset by unfavorable price to input costs specifically in the commodity portion of our fragrance ingredients business. Turning to slide 9 cash flow from operations totaled 257 million which is an increase of 130 million year over year and capex was $165 million year to date or roughly 6% of sales. Our free cash flow position in the first quarter was $92 million, increasing $144 million year over year. As mentioned last quarter, we remain disciplined in our execution across all elements of working capital as it is a key priority in 2026 and as we remain focused on driving a meaningful improvement in cash flow this year. During Q1 we also returned 102 million to shareholders through dividends and an additional 35 million through our dilution Costs Share for Purchase program. Our cash and cash equivalents finished at 562 million at the end of the first quarter. As of March 31, our gross debt totaled 5.85 billion, a significant decrease of more than 3 billion compared to the prior year period. Our trailing twelve month credit adjusted EBITDA totaled approximately 2.1 billion. Our net debt to credit adjusted EBITDA ended Q1 at 2.5 times slightly below last quarter. Disciplined capital allocation remains a core focus for us as we maintain our balance sheet strength through operational execution. Turning to Slide 10, I would like to walk you through our full year outlook for 2026. We are off to a solid start with first quarter results that outperformed our expectations going into the year. This strong performance de risks the balance of the year and gives us confidence to reaffirm our full year 2026 financial guidance ranges. We are operating in an unpredictable environment, particularly as it relates to the ongoing conflict in the Middle East. While we cannot control the macro backdrop, the factors that we can control, including the strength of our commercial pipeline, the depth of our customer partnerships and our continued productivity gains, gives us confidence in our ability to execute through this period. For full year 2026, we are reiterating our sales expectation of 10.5 billion to 10.8 billion representing 1 to 4% growth. We expect to deliver top line growth in all our divisions supported by new wins and robust innovation pipeline from a profitability perspective. We continue to expect full year adjusted operating EBITDA of 2.05 billion to 2.15 billion represent 3% to 8% growth with solid margin expansion. We continue to expect foreign exchange to have a roughly 1 percentage point positive impact on full year sales growth with a minimal impact on adjusted operating EBITDA growth. Our full year guidance now reflects only two months of the soy crush concentrate and lecithin business as the divestiture closed about a month ahead of schedule on March 2nd versus the April 1st date embedded in our original guidance. As a result of the ongoing Middle east conflict, inflationary pressures are expected to build over the course of 2026. We are proactively working with our customers to offset these pressures through pricing actions, starting with surcharges related to logistics and energy costs and then building to account for raw material inflation in terms of phasings. We expect these inflationary trends to adversely impact profitability in the second quarter 2026, where costs will begin to increase and our pricing actions are not fully implemented. Post Q2 we expect this pressure to gradually ease through the back half of the year as pricing actions take full effect. In addition, our most significant exposure to the Middle east conflict, both from a sales and margin perspective, fits within our scents business and our fine fragrance business. In particular, we anticipate that fine fragrance volume in the Middle east will be impacted in the second quarter, part due to slower market demand but also temporary supply chain challenges our customers are facing such as getting packaging into the region. When combining these impacts, we expect absolute EBITDA dollars in the second quarter to be lower than the 568 million reported in the first quarter, partially driven by lower volume, unfavorable price to input cost and weaker mix related to fine fragrance softness. Stepping back, Our full year outlook we are reaffirming today reflects a different shape than what we expected 90 days ago with a stronger Q1 and a more measured balance of year given the Middle east conflict. But our full year goal is unchanged. Behind that consistency is the strategic progress we continue to make at issuance. We are applying stronger discipline to direct capital allocation towards higher value initiatives, strengthening our innovation and R and D pipeline, investing commercially where we have great opportunities and driving structural productivity that will compound profitability leverage moving forward. We are pleased with what we're building in terms of a more focused, more competitive iff and that gives us confidence in the value we're creating as we move forward. With that, I would now like to turn the call back to Eric for closing remarks.

Eric Feuerwald (Chief Executive Officer)

Thanks Mike now to close, I want to reiterate that the core businesses at IFF are strong and performing well. Our Q1 2026 results reflect the continued progress we are making in delivering on our commitments even in uncertain and evolving macroeconomic environment. We've stayed focused on what we can control and doing what we told you two years ago we would do, getting to a focused portfolio of three strong businesses that are performing well with significantly more potential to create value for many years to come. I continue to spend a lot of time traveling the world to visit our teams and customers and am ever more energized and confident about our future based on what I see and hear, including how our commercial and innovation pipelines continue to grow and advance. And I'm pleased that our focus allows us to reaffirm our full year 2026 guidance. We are investing for the future in innovation, commercial and supply chain capabilities and in customer partnerships that matter most. I am confident that we have the right strategy, the right team and the right innovation to continue to create long term value. Thank you and we'll now open the line for your questions.

OPERATOR

Thank you. We will now begin the Q and A session. If you would like to ask a question, please press Star followed by one on your telephone keypad. If you would like to remove your question, press Star followed by two again. To ask a question, press Star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. As a reminder, we kindly ask that you limit your questions to one question per person. Our first question comes from the line of Ghansham Panjabi with Baird Ghansham. Your line is now open.

Ghansham Panjabi (Equity Analyst)

Yeah, thank you operator. Good morning everybody. I guess you know on the outperformance that you delivered during the first quarter, can you just give us more color on the specifics that drove the upside? And also sort of looking back at the quarter, do you think you benefited from any sort of out of pattern ordering due to customer pre buying etc. Thank you.

Michael Devoe (Chief Financial Officer)

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

OPERATOR

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

Lisa Deneve (Equity Analyst)

Hi, thank you for My question, you talked a little bit on the call on the food ingredients exit, which is very helpful. I just wanted to understand, can you share where you are in the process right now and maybe when you intend or hope to update the market on any potential event? Thank you.

Eric Feuerwald (Chief Executive Officer)

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

OPERATOR

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

Nicola Tang (Equity Analyst)

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

Michael Devoe (Chief Financial Officer)

Hi Nicola, thank you for the question. You're right, we are seeing inflation across various inputs just to dimensionalize. Brent crude is a good indicator as it's up significantly versus the average of 2025 and that impacts a couple elements of our cost baskets. At first it starts with energy and logistics inflation. We're starting to already see double digit increases coming through and then over time it will make its way to some of the raw material costs which we haven't seen a big change yet. But we expect it to come later this year. But please remember we do have inventory on our balance sheet so we have some protection in the short term as it relates to raw materials. And so really our focus now energy and logistics, given it's more real time. So we're working with our customer to implement pricing surcharges. This is underway and will build throughout the quarter. And then as you know, our pricing in our industry is a strong part of our algorithm in the sense that it's the part of the way we do business. And so consistent with historical inflationary cycles, we collaborate with our customers to fully offset any inflation. And usually it's a 12 to 18 month period. I do not expect anything materially different this time around as we continue to engage and work with the customers there.

OPERATOR

Thank you. Our next question comes from the line of Fulvio Cazole with Berenberg Fulvio Your line is now open.

Fulvio Cazole (Equity Analyst)

Yes, sir. Good morning gents. Thanks for taking my question. Back in February you anticipated a slow start to to 26 and for organic sales growth to sequentially accelerate through the year, supported by the strong innovation pipeline, the improvement in commercial execution. Now I understood the comments that you made regarding the send business in the second quarter, but for the rest of the segments, is that still your expectation?

Eric Feuerwald (Chief Executive Officer)

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

OPERATOR

Thank you. Our next question comes from the line of Kristin Owen with Oppenheimer. Kristin, your line is now open.

Kristin Owen (Equity Analyst)

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

Michael Devoe (Chief Financial Officer)

Thanks Kristen. We're very pleased. As Eric said on the call earlier, with the start of the year right volume profitability came in a bit better than we expected. As we look towards the balance of the year in our forecast, we are cautiously optimistic in terms of the operating environment going forward. In terms of top line performance, we are assuming that there's really no fundamental change in the lower consumer demand environment. So for us to achieve the higher end of that end, market demand would have to pick up and improve and contrary to be at the lower end from that perspective, fortunately we do have a very strong innovation pipeline and a commercial pipeline that we're working with our customers and that is a big part of the reason why we have confidence in the in the sales guidance range. In terms of EBITDA performance, we remain focused on driving profitability and our guidance range reflect the now inflationary environment that happened post our original guidance in February. And so the team is fully focused and committed to working with customers now to offset initially through the pricing actions related to surcharges for logistics and energy. But that does take some time. So as we progress over the course of the year we will see an improvement there. But any material difference between the three and the 8% range really is going to come from the pricing aspect to offset the inflation. The good thing is that at the same time we're working on incremental productivity initiatives. So in the event that we have flexibility, we're working to drive profitability over the course of the year. And so all in while the environment has changed, we are consistent. We but what we're trying to achieve and consistent in our outlook for the full year.

OPERATOR

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

Michael Sison (Equity Analyst)

Hey guys, nice start to the year. You know, just curious, you in the industry, you know, had to raise prices. It's pretty obvious why. You know, at what point does this inflation flow through to the consumer and start to start to impact demand? You know, when I, when I run by duty free, you look at the fragrance, prices are pretty, they're pretty high. So just curious, both in the businesses, at what price does, at what point does demand start to start to get impacted by the higher prices?

Eric Feuerwald (Chief Executive Officer)

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

OPERATOR

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

Edlain Rodriguez

Thank you. Good morning, everyone. This is Edlain Rodriguez for John, a quick one on scent. I mean, the ingredients business continues to be the weak link, it seems like, like, how should we think about that business now, especially with raw materials going up, the hydrocarbon cost and how are we thinking long term? Like, how should we think about your position being that long? Scent ingredient production.

Eric Feuerwald (Chief Executive Officer)

Thanks, Edlin. So just to reiterate, our fragrance ingredients business outside sales is about $500 million a year and it's roughly half specialty and half commercial commodity. Now the specialty side is very attractive and we're going to continue to emphasize that part of the business and we're going to further strengthen it with a strong R and D pipeline that we have. We're driving for both internal formulation use, but also external use and we'll do more here in specialties. We'll do more in naturals, synthetics and biotech molecules. Now on the commodity side, that's the part that's very, very challenged and challenged by Indian producers, Chinese producers, and it's an area that we need to continue to have competitive costs for internal formulation use. But we're deemphasizing sales externally and you'll see that happen over the coming year or so.

OPERATOR

Thank you. Our next question comes from the line of Kevin McCarthy with vertical research Partners. Kevin, your line is now open. Hi, this is Matt hetoron for Kevin McCarthy. With your balance sheet in better shape and incremental cash flow from the divestiture of food ingredients on the cum, how are you thinking about capital allocation between stock buybacks, R and D investment both on M and A opportunities and new ventures like Alpha Bio?

Matt hetoron

Thanks Matt, for the question. So maybe just to start, we remain very disciplined in terms of our allocation. Our capital allocation strategy, our net debt to ebitda leverage is 2.5 times and we've recently implemented a share buyback program to offset dilution. I think that came in September or October of last year, 2025. In the event that we do have an influx of cash and it comes from a potential divestiture, you know, we will look to maintain our net debt to EBITDA leverage plus or minus two and a half times and then think about use of proceeds really around repurchase opportunities to minimize any potential dilution related to a transaction. All that being said, at the same time we will also look to fund organic growth investments that have high return profiles and and look and pursue potential bolt on acquisitions and ventures that create strong shareholder value. But I think Eric said discipline a couple times in his couple answers for me. We will be disciplined on how we allocate capital to ensure we're generating strong shareholder return.

Michael Devoe (Chief Financial Officer)

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

OPERATOR

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

Emily Fusco

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

Eric Feuerwald (Chief Executive Officer)

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

OPERATOR

Hi, good morning everyone.

Anoja Shah

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

Michael Devoe (Chief Financial Officer)

Thanks for the question, Anoush. You know, as you know, we don't give specifically quarter guidance and we're really focused on delivering the full year objectives and full year results. But to help with modeling, I tried to give some qualitative in my prepared remarks. Maybe I'll go a little bit deeper here. In Q2 we expect EBITDA to be lower than our Q1 performance. That's what I said in my prepared remarks. And when I think about it, there's probably three drivers. One, we expect growth to be more moderate in Q2 versus it was in Q1. We also expect to have a bit of an unfavorability in terms of price to input cost. As we talked about, we're seeing energy and logistic charges rising and we haven't really fully implemented our surcharges in place yet. And that will happen over the course of the quarter. And so that will create a bit of a margin pressure in terms of where we are this quarter for Q2. And then ultimately the third part for me is really that fine fragrance being under pressure because of the Middle East. There's a small mix dynamic there. So when you shape those together, that was why I tried to dimensionalize Q2. EBITDA will be lower than Q1. But then as we move through the second half of the year, all three of those various elements should improve and then we'll, you know, we'll progress to the year and finish on what we think to be on a full year guidance range.

OPERATOR

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

Eric Feuerwald (Chief Executive Officer)

Good morning, Eric. If memory serves, when you first came in, kind of one of your goals for the segments was to recoup the share positions that they used to have with a flat to higher gross margin for each of the subunits. Can you give an update on that strategy, what you've seen so far, how long you think it would take to get there, what it could mean over the next three, five years? Yes. Yeah, sure. Thanks for the question, Lawrence. I feel like we're making very good Progress across the company. I think we've done a great job of getting to the right portfolio. As you know, the sale of the food ingredients process is the next important step in that. And then when you look at the three future businesses, health and biosciences, we continue to make really good progress there in the enzyme areas. The one area that we're focusing and further improving is grain processing in that area, both in enzymes and yeast. But it's a great opportunity. We're doing well, but we can do even better. Health is the area that we've talked about. We needed a turnaround. I think we're well on our way there with strong leadership, increasingly strong commercial pipeline and a strong innovation pipeline. So as I've discussed, we see that starting to turn in the back half of this year and into 27, accelerating. In scent, I think we've got a very strong position in fine fragrance. Got some temporary issues. We're working through that. We discussed consumer fragrance. We've got a very strong team there with a very good pipeline. And then we've got an R and D machine that's really picked up in the last year that takes 18 to 24 months to deliver. But we're seeing the progress in that pipeline that will deliver in 2027 that we're very excited about. So the real issue in scent is the commodity ingredients that we talked about and we're dealing with that. And, and I think by 2027 we'll see that go away as a headwind and unleash the full potential of the rest of the scent business in tace. I'm very proud of the team there. We've got now a number of quarters of strong performance ahead of the market and we've got a good pipeline there. We've got a great team and we see that, that strong performance continuing. And then finally in food ingredients, you know about the sales process, but I think that's been enhanced by the great performance Andy Muller and his team have delivered. As you'll recall, in 23 we had 9% EBITDA margin. 24, they built it to 12% EBITDA margin. 25, 13% and then this year I think we'll exceed 14% EBITDA margin and that continues to grow and see more opportunity there. As we said before, as the portfolio was optimized within that organization, focusing on the higher growth opportunity areas, we've seen a return to top line growth there that we expect for the full year. So just overall, I think solid performance, including in productivity. Are we satisfied? No. We're pleased with the progress, but we know we've got so much potential that we're creating a bigger ambition across each business. And we expect to realize that in the coming five years.

OPERATOR

Thank you. Our next question comes from the line of Patrick Cunningham with Citigroup. Patrick, your line is now open. Hi, good morning. This is Alex on for Patrick.

Alex

Just curious with all the different puts and takes now, what your expectations are for free cash flow in 26.

Michael Devoe (Chief Financial Officer)

Hi, Alex. Thanks for the question. Cash flow improvement for us is a key priority in 2026 for the year. I continue to to expect to see a meaningful improvement, really driven by a couple things. One, improvements in profitability, two, improvement in working capital, three, lower interest expense and four, a lower incentive compensation payout year over year versus prior year. So that's a favorability. Fortunately, we're off to a very good start for the year, but we still have more work to do as we go for the next three quarters to making sure we drive to our target. As I explained on our Q4 call, we've also added a compensation metric for the entire organization really based on free cash flow conversion to ebitda. And so now not only are we trying to drive it strategically, we are also comping on it to making sure we're driving really good behavior within within the businesses and the overall company in terms of our specific target. I will refrain on providing a specific target until we have clarity on food ingredients, I think. But the only thing I will say is that I do expect it to be better in 26 than it was in 2024. So we will see a year over year improvement overall.

OPERATOR

Thank you. Our next question comes from the line of Zylka Keck with JP Morgan. Zylka. Your line is now open.

Zylka Keck (Equity Analyst)

Hi, good morning. Can you talk about in which segments you think you gained share this quarter, Whether it's some taste or how it's nutrition. And can you quantify in some way like the product launches that are coming in the back half and which areas they will come?

Eric Feuerwald (Chief Executive Officer)

Great question. First of all, I think it's unhelpful to just look at one quarter. I think we've got to look at trends over time. And I'm very pleased with the progress that we're making in health and biosciences enzymes. Very pleased with the progress we're making in health and biosciences cultures, the food biosciences. The area of challenge that we've talked about is the health area. I'm pleased with the progress we're Making to turn that around. And as I said, we'll start to see some progress there in numbers in the second half, accelerating into next year. In the sense side, I think we've done very well versus the market in fine fragrance. We talked about some temporary challenges there. On the consumer fragrance side, as I've talked about before, I think we fell a little bit behind. We've now got really strong team in place, a very strong commercial pipeline, and we're starting to see that turn. And you'll see that, I believe, in the second half and again into 2027. And we've got a really good innovation pipeline in our scent business that we did not have before. I'm very pleased with that. And you'll see that starting to manifest in the marketplace later this year, but really with impact in 27 and beyond and 28 and beyond, and then in haste, a very solid performance. We're performing ahead of the market and I expect that to continue. We've got a very good commercial and innovation pipeline there. We've got a great team there. And so I expect that to continue. And then in food ingredients, the transformation, the turnaround continues. Performance performing well against competitors in the different parts of that business. And that's why we expect the sale process to continue to go well. So overall, very pleased. We've got a couple of areas in there, the commodity scent ingredients, the health areas that we continue to have to get back to performing ahead of the market in health and deal with our commodity scent ingredients business. But we're making progress in all those areas. So pleased but not satisfied.

OPERATOR

More to do. Thank you. Our next question comes from the line of Christopher Parkinson with Wolf Research. Christopher, your line is open. This is Harris Ombre Crist. Thanks for taking my question. On the taste margins, they came in a fair bit better than we were expecting on, say, not a huge amount of organic growth. So can we just zoom in on what's happening there? Is it productivity? Is it Maybe pricing's a little ahead there, Modulation mix?

Christopher Parkinson

Just how should we be thinking about that? Thanks. Sure. Great question. Thanks, Harris, for that, really. When I think about the taste business, they have been doing very well in

Michael Devoe (Chief Financial Officer)

terms of overall growth performance. And so quarter after quarter, whether you compare versus competition or just historical trends, they're continuing to deliver across the board, really predicated on really good volume growth. And the team has been driving that. At the same time, they've been driving pricing, which has been favorable in terms of net raw material cost. And so that is also a secondary piece that's really helping. Not only volume leverage, you're having the favorability in terms of net price to input costs. And third is really around productivity. And so the team has done a really good job at being very disciplined in trying to drive productivity throughout the business. That's helped support margin performance. Now as I think about Q1 performance on a go forward basis, timings of inventories and some of that stuff, I think it will abate in terms of that leverage that you saw. 18% currency neutral EBITDA growth is very, very high. So I wouldn't expect that on a go forward basis and it will normalize. But they've done a very good job just the hand they were dealt from a Q1 standpoint to deliver.

OPERATOR

Thank you. Our next question comes from the line of Kate Grafstein with Barclays. Kate, your line is now open.

Kate Grafstein

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

Michael Devoe (Chief Financial Officer)

Maybe I'll start Eric and feel free. I had the fortune to actually run pricing in our 10 or taste division for a couple years of my career at IFF. So I will say nothing is fundamentally different. Conversation on pricing is always a give or take relationship. What's really, really important though is you go and engage based on facts. And so what you see from a market standpoint today, nobody can refute logistics energy increases overall. So we're really having the tactical conversations specifically on that. We also want to collaborate with our customers and so we can offer solutions to help them reduce costs by reformulating doing different types of things. We are absolutely more than willing to do so. And so those are the types of conversations we're having now. So nothing is better or worse than where it's been. It's always been. It's kind of consistent to the historical norms in terms of the level of pricing. I think the way I would kind of categorize it, and I'll refrain from giving too many specifics, I think there's probably a modest benefit or increase in terms of overall price to this year as we work through really on the logistics and energy piece to it. But as we go forward, we're really focused on the raw material piece. And as we go in the back half of this year and really into 27, we got to get our heads around that and start working with our customers there. So that's the way we're treating it. It's modest Katie, this the next couple quarters in terms of overall price, but I think it will build over time as we progressively move forward.

Eric Feuerwald (Chief Executive Officer)

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

OPERATOR

Katie, do you have a follow up?

Kate Grafstein

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

Michael Devoe (Chief Financial Officer)

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

OPERATOR

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

Eric Feuerwald (Chief Executive Officer)

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

OPERATOR

Thank you. That will conclude the IFF first quarter 2026 earnings conference call.

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