International Flavors & Fragrances Inc Q4 FY2025 Earnings Call

At this time, I would like to welcome everyone to the International Flavors & Fragrances Inc. Fourth Quarter and Full Year 2025 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, if you would like to remove your name from the queue, please press 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.

Good morning, good afternoon, and good evening, everyone. Welcome to International Flavors & Fragrances Inc.'s Fourth Quarter and Full Year 2025 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 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 risk factors contained in our 10-Ks and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures which exclude 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 sales and EBITDA growth numbers that we will be speaking to on the call are on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Jon Erik Fyrwald, and our CFO, Michael Deveau. 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 Jon Erik Fyrwald.

Thanks, Mike, and hello, everyone. Thanks for joining us today. International Flavors & Fragrances Inc.'s fourth quarter and full year 2025 results reflect a continued focus on disciplined execution and improvements across the business to further strengthen our position in the market. I will start today's call by briefly summarizing the progress we continue to make in executing our strategic priorities, followed by a few highlights of how this translated to our 2025 financial results. I will then turn the call over to Michael Deveau, who will provide more details on fourth quarter segment performance and our outlook for 2026. In 2025, our team focused on strengthening our ability to drive profitable growth while also strengthening our balance sheet. We continue to reinvest in a disciplined way across our high-value core businesses, increasing R&D, commercial capability, and manufacturing capacity, investments that will pay off for years to come. And we did this while we delivered the full-year financial commitments we set out for 2025. I am proud of how our global team continues to strengthen our ability to serve our customers with leading innovations and deliver productivity even in a challenging, volatile economic environment. Our strengthened balance sheet reflects our more disciplined capital allocation strategy, with our net debt to credit-adjusted EBITDA down to 2.6. Our increased investments in innovation and commercial capabilities, as well as CapEx and productivity initiatives, are delivering today and making us stronger for the future. We have also taken strategic action to sharpen our portfolio to focus on high-value, innovation-driven businesses. To recap, we completed the divestitures of Pharma Solutions, nitrocellulose, and René Laurent businesses and also announced an agreement to sell our soy crush concentrates and lecithin businesses to Bunge, which we expect to happen by April. Most recently, we officially launched the sale process for our Food Ingredients business. As we communicated in August, we began exploring strategic options for our Food Ingredients business as part of our portfolio optimization, and following several months of extensive preparation by our team, we formally launched a disciplined and competitive sale process and, as of two weeks ago, are officially in the market. I am very pleased with the progress we have made and believe this is the right next step for both the Food Ingredients business and for our Taste, Scent, Health, and Bioscience divisions. We are very encouraged by the depth and quality of interest from strategic and financial sponsors and are confident in our ability to execute this process thoughtfully and in the best interest of our shareholders. We will provide additional updates as appropriate. We are confident that the strength of our people, strategy, and execution positions us to deliver on our priorities for 2026 and beyond. We have the right leadership team in place, an engaged and supportive board, and an incredibly talented team of International Flavors & Fragrances Inc. colleagues. While macroeconomic uncertainty will continue to persist through 2026, I am pleased with how we are entering the year and have strong conviction in our ability to achieve consistent, profitable growth and create long-term value for our shareholders. We achieved solid sales growth in 2025 against this strong 6% year-ago comparable in a tough macroeconomic environment. Over the last two years, we delivered average sales growth of 4%. Our 2025 performance was led by Taste, which grew sales by 4% and grew EBITDA by 10%. In Health and Biosciences, sales improved 3% and the team delivered a 7% increase in EBITDA. Scent sales grew 3% against a strong year-ago comparison of 12% and increased EBITDA by 2%. The double-digit sales growth in Fine Fragrance was partially offset by negative growth in Fragrance Ingredients, where we saw double-digit declines in commodity ingredient sales. In Food Ingredients, the team has done a great job continuing to drive margin improvement. While sales were down partly due to soft demand and partly due to the strategic exit of low-margin business, we achieved 10% EBITDA growth and 150 basis points of EBITDA margin expansion. On a consolidated basis, our overall profitability improved in 2025 as we delivered 7% EBITDA growth with 100 basis points of margin expansion through volume and productivity gains as well as favorable net pricing. Now with that, I will pass the call over to Michael to offer a closer look at this quarter's consolidated results.

Thank you, Erik, and thanks, everyone, for joining. In the fourth quarter, International Flavors & Fragrances Inc. generated revenue of nearly $2,600,000,000 with growth in nearly all divisions. Performance was led by mid-single-digit growth in Health and Biosciences and Scent as well as low-single-digit growth in Taste.

Our sales grew 1% for the quarter against the 6% year-ago comparable and were up approximately 4% on a two-year average basis. EBITDA totaled $437,000,000 for the fourth quarter, a 7% increase, primarily driven by volume growth and our ongoing productivity initiatives. Our EBITDA margin also increased by 90 basis points to 16.9%. On Slide 9, I will provide a closer look at our performance by business segment. In Taste, sales increased 2% to $588,000,000 with growth in all regions, including high-single-digit growth in North America driven by new wins. The segment also recorded a very strong quarter of profitability with EBITDA of $94,000,000, a 17% increase. Profitability gains were driven primarily by favorable net pricing and cost discipline. Food Ingredients sales of $802,000,000 were down 4% as softness in Protein Solutions and Emulsifiers and Sweeteners offset growth in Systems and Inclusions.

It is worth noting that a part of our top-line decline in the fourth quarter and on a full-year basis for Food Ingredients was driven by a proactive exit of low-margin business as well as lost sales due to sanctions in Russia in Emulsifiers. Profitability for Food Ingredients declined 11% in the quarter to $82,000,000 stemming from the volume declines and unfavorable net pricing. Our Health and Biosciences segment achieved sales of $589,000,000, an increase of 5% with growth across nearly all businesses. The standouts in the quarter were Food Biosciences and Animal Nutrition, both growing double digits. Home and Personal Care also continued to be strong, increasing high single digits. As we shared last quarter, Health, while improved sequentially from Q3, was down low single digits. Under new leadership, the team has started to execute their improvement plan. We continue to believe trends will improve over the course of 2026. From a profitability standpoint, Health and Biosciences delivered EBITDA of $155,000,000 in the fourth quarter, an increase of 20% due to volume growth and productivity gains. Lastly, our Scent segment delivered sales of $610,000,000 representing 4% growth. Performance in the fourth quarter was driven by continued strength in Fine Fragrance, which increased 10%, and mid-single-digit growth in Consumer Fragrance. Fragrance Ingredients remained under pressure due to continued market softness and price competition on the commodity portion of our portfolio. EBITDA for this segment increased 1% to $106,000,000 as benefits from volume growth and productivity gains were partially offset by unfavorable net pricing specifically in Fragrance Ingredients.

Turning to Slide 10, cash flow from operations totaled $850,000,000 for the full year, and CapEx totaled $594,000,000, or approximately 5.5% of sales. Our free cash flow position for the full year totaled $256,000,000. Included in this number is approximately $300,000,000 of Reg G-related charges primarily driven by our divestiture activities, which accelerated in the second half of the year due to the potential sale of Food Ingredients. Working capital also represented an outflow of approximately $166,000,000, reflecting higher inventory levels in strategic areas along with changes in accounts receivable and accounts payable. We made meaningful progress improving inventory in the second half of the year, and as we look ahead, disciplined execution across all elements of working capital will be a key priority for us in 2026.

Year to date, we returned $409,000,000 to our shareholders through dividends, and an additional $38,000,000 through share repurchases, as we started our repurchase program in the fourth quarter. As a reminder, at minimum, we expect to offset annual share dilution of approximately $80,000,000 to $100,000,000 per year. Our cash and cash equivalents finished at $590,000,000 and our gross debt at the end of the year was approximately $6,000,000,000, which is a decrease of nearly $3,000,000,000 compared to 2024. Our trailing twelve-month credit-adjusted EBITDA totaled $2,100,000,000. Our net debt to credit-adjusted EBITDA ended 2025 at 2.6 times, improving from 3.8 times at 2024. Before turning to our outlook for 2026, I would like to briefly reiterate a point Erik made earlier on Food Ingredients. We believe pursuing a sale for the Food Ingredients business remains the right path forward. With our capital structure now strengthened, and improving operational performance, and margin expansion ahead for Food Ingredients, we are under no pressure to sell. The business has a strong operating plan. We are confident we can continue to create value whether a transaction occurs or not. This potential sale is about capturing full value for our shareholders, doing what is right for both Food Ingredients and our broader portfolio. Throughout the process, we remain focused on long-term shareholder value and taking actions that make the most strategic sense. Now on Slide 11, I would like to share our outlook for 2026. We believe we are well positioned for the year ahead and we are cautiously optimistic that we can deliver growth, margin improvement, and cash flow generation this year. As we navigate the volatile geopolitical landscape and uncertain market conditions, the strength of our pipeline and the benefits of our reinvestment efforts give us confidence moving forward. Our outlook reflects the balanced consideration of both current market conditions and the potential for unforeseen opportunities and challenges throughout the year, hence the ranges we are providing. Coming off a solid year we had in 2025, we expect to continue to drive financial performance across the company. For the full year 2026, we expect sales to be in the range of $10,500,000,000 to $10,800,000,000, representing comparable currency-neutral growth of 1% to 4%. We believe Taste, Health and Biosciences, and Scent will continue to drive our top-line growth supported by new wins and our innovation pipeline. We expect that growth will primarily be driven by year-over-year improvements in volume. From a profitability standpoint, we expect to deliver full-year 2026 EBITDA between $2,050,000,000 and $2,150,000,000, representing comparable currency-neutral growth of 3% to 8%. It is important to note that we will also continue to selectively reinvest in the business while maintaining a disciplined focus on near-term profitability. We expect our productivity and efficiency gains will fully fund our ability to reinvest in innovation and commercial capabilities across our highest-value businesses. We believe these investments will continue to enhance performance, strengthen our competitive position, and deliver attractive returns over time. For the full year, we expect FX will have approximately one percentage point positive impact on sales and a negligible impact on EBITDA. From a calendarization perspective, our year-over-year comparisons are strongest in the first half, particularly in Q1, where we have certain favorable one-time items from last year, including the contribution of divested businesses. As a result, we expect sales and EBITDA will be more muted in the first quarter of 2026. More specifically, we expect modest EBITDA growth in the first quarter versus our like-for-like first quarter 2025 base of approximately $55,000,000 adjusting for divestitures. As we move through the year, comparisons will ease, and we expect performance to improve supported by our pipeline and ongoing productivity actions. We expect that this will drive improved leverage across the P&L and year-over-year growth should progressively improve each quarter. Operating cash flow will be a key priority for 2026. We expect overall cash generation will improve year over year excluding Reg G and one-time costs, which will most likely be higher than 2025, as we pursue a potential sale of Food Ingredients. Teams across the businesses are driving working capital improvements across inventory, payables, and receivables, and when combined with profitability growth and lower incentive compensation payouts, we should see a meaningful cash flow improvement versus 2025. CapEx is expected to be around 6% of sales and will be carefully managed, focused on highest-return opportunities, including capacity expansion, network optimization, and innovation to support long-term growth. To further embed disciplined cash management, we have introduced an incentive compensation metric for 2026 tied to operating cash flow conversion, defined as EBITDA minus CapEx minus the change in net working capital. We are also evaluating additional cash flow metrics for our long-term incentive program to strengthen alignment on cash flow generation, particularly for 2027.

Thanks, Michael. As we look ahead to 2026, I see considerable opportunities for us to continue strengthening International Flavors & Fragrances Inc. with even more competitive, innovative, and customer-focused businesses amid a continued challenging macro environment. Innovation is the key driver for us in 2026. Our investments in enzyme capacity, naturals, health, and new molecules powered by our biotechnology and AI capabilities will increase our ability to compete and win with our customers across key business segments. We also remain focused on enhancing our competitiveness in our Health business by strengthening commercial execution through the steps we discussed before. In Fragrance Ingredients, we continue to shift our portfolio toward higher growth and higher value-added specialties by leveraging R&D, naturals, chemistry, and biotech for new molecule and delivery system development. At the same time, we are committed to continuing to drive significant productivity, furthering our digital transformation, and advancing our AI-enabled operational excellence to fund reinvestment and improve margins. We will drive cash flow as a priority over the next eighteen months and are committed to a very large reduction in below-the-line or Reg G costs over that time period.

Lastly, we will continue the sale process for Food Ingredients and will ensure the right outcome for this terrific business and be able to achieve our end goal of having three high-value innovation-driven businesses with Taste, Scent, and Health and Biosciences powered by nature and biotechnology.

To close, I want to reiterate that the International Flavors & Fragrances Inc. businesses are strong and performing well. We are doing exactly what we said we would do, and we have a clear path forward that aligns and motivates our people to continuously improve our service to customers and deliver for International Flavors & Fragrances Inc. The progress we have made in strengthening the foundation of our business, balance sheet, and innovation and commercial pipelines is significant and motivates us to do even more. While I am very proud of what our team has accomplished, there is more we will do as we will be laser-focused in 2026 on driving profitable growth, cash flow improvement, and maximizing value creation over time. We are investing for the future, and we have a great team to execute for today.

Thank you, we will now open the line for questions.

If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove your name from the queue, please press 2. Again, to ask a question, please press 1. We do ask that you please limit yourself to asking only one question. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. And the first question will go to the line of Kristen Owen with Oppenheimer. Kristen, your line is open.

Hi. Good morning. Thank you for the question. So I wanted to ask about your assumptions around price and volume in 2026. We are hearing from a lot of the CPGs this shift migrates toward a greater emphasis on volume. I am just trying to think about how that might upstream to you all. And just as a related question, can you remind us the incremental margin on volume versus price? Thank you.

Yes. Thank you, Kristen, for that question. I will take it. First of all, our expected growth for 2026 is volume driven. As you mentioned, CPG companies shifting emphasis to more volume growth is a good thing for International Flavors & Fragrances Inc. and the industry as a whole. We like seeing that trend. Finally, incremental margins are roughly 30% to 35% on volumes depending on the business segment.

Thank you, Kristen. Our next question will go to the line of Nicola Tang with BNP Paribas. Nicola, your line is open.

Hi, everyone. I am sticking with a question on top line. I was wondering if you could provide some color on your assumptions behind the top and bottom end of your 1% to 4% currency-neutral sales outlook. Do you expect all of your divisions to grow within that range? And also, I noted in Q4 that currency-neutral sales came in better than expected in the three core divisions. I was wondering if we should read this as a signal of improving underlying market trends or whether there were specific drivers to be aware of, such as new wins or timing of orders? Or anything like that?

Thanks. I will take this one. Nicola, thank you for the question. As I think about 2026, I would say we are cautiously optimistic going forward, driven by a strong pipeline, the reinvestment we made over the last eighteen months. Additionally, as Erik just stated, we are hearing customers talk more about volumes for 2026, which is positive. When you think about our 1% to 4% guidance range, it assumes essentially the current market conditions we see today as we exited the fourth quarter. For us to achieve the higher end, or the 4% range, we would need to see volumes at the end market improve more broadly, kind of return to what I would say is more normalized levels in terms of market growth. The opposite is probably true on the lower end of the guidance range. To your point on Q4 2025, it was marginally better than we expected from a top-line perspective with good improvements in Taste, Scent, and H&B. This was primarily driven by new wins, which is a positive signal. But it is only one quarter. Overall, we believe that all three businesses will grow in 2026 within the sales guidance range, and Food Ingredients will also grow, albeit just a little bit. Our diverse business with balanced region, category, and customer exposure gives us confidence that we are resilient and can grow as we head into 2026.

Thank you, Nicola. Our next question will go to the line of Patrick Cunningham with Citigroup. Patrick, your line is open.

Hi. Good morning. Thank you. In Food Ingredients, could you comment on any early interest in the sale? Were there any inbound inquiries prior to the formal process? And then any details on timing and deployment of proceeds would be greatly appreciated as well.

Sure. Thank you for the question, Patrick. We did have early interest from both strategics and private equity firms, and all of those firms continue to show strong interest. Two weeks ago, we officially launched the sale process and have had additional firms express interest. I am very optimistic about the process. The Food Ingredients business is performing well, had double-digit EBITDA growth last year. We continue to see solid earnings growth for this year, so we will only sell the business if it creates value, but I am very optimistic about our ability to make it happen. As for proceeds, we will use them to buy back shares to offset as much dilution as possible and we will pay down debt to stay about where we are on the debt-to-EBITDA ratio, ensuring that we stay below the 3.0 target.

Thank you, Patrick. Our next question will go to the line of John Roberts with Mizuho. John, your line is open.

Thank you. Price was down in the Scent segment. Higher-price fragrance outperformed, Fine Fragrance outperformed Consumer Fragrance. You are shifting the Scent Ingredients towards higher-priced products. I would have thought mix alone would have improved price. What is going on with price there?

No. Thanks, John. You are correct that the Fine Fragrance business is our highest-margin business, so that was a positive contribution to mix overall. Pricing in the quarter was actually flat year over year, and so the margin pressure came on the input cost side where, as you know, there is a bit of a lag in terms of overall price. This was primarily related to some of the index pricing agreements that we have, and similar to previous years, as we move forward, we expect to fully recover this over time. In terms of the overall Fragrance Ingredients business, that shift from more commodity to more captive or proprietary ingredients has been initiated, but it will take some time. We expect to make continuous progress as we go through 2026, but it is a process that will take most of 2026.

Thank you, John. Our next question will go to the line of Kevin McCarthy with Vertical Research Partners. Kevin, your line is open.

Good morning. I thought your Health and Biosciences business finished on a somewhat stronger note. Can you elaborate on what drove the margin uplift there of 160 basis points year over year as the Health business starting to stabilize and come back at all? And could you comment on the margin outlook for 2026 in that segment regarding the benefits you might see from volume growth and productivity?

Sure. Thanks for the question, Kevin. First of all, our Health and Biosciences did deliver strong fourth-quarter performance due to both strong volume growth and productivity that enhanced the margins. The team is very focused on strengthening our commercial and innovation capabilities and pipelines while delivering those pipelines. I am very proud of the progress that they are making; more to do, but making progress. The Health business still experienced some decline, although less decline than in the third quarter. We see that business flattening out in the first half of this year and then starting to grow in the second half of this year. Outside of the Health business, growth was very robust. We expect to see positive results in the Health division by the second half.

Thank you, Kevin. Our next question goes to the line of Josh Spector with UBS. Josh, your line is open.

Yeah. Hi. Good morning. I wanted to ask on free cash flow. I think previously, you thought for 2025 you would do a little bit less than $500,000,000. That came in a couple of hundred million short. You talked about some investments in inventory. Can you talk about why you did that? Is that structural? Then how do you think free cash flow evolves into 2026?

Thanks, Josh. Great question. Yes, we expected the free cash flow to be modestly lower than $500,000,000 for the full year. The difference is related to three things. First, we saw a little bit of an increase in what I would describe as one-time Reg G-related costs. As we start to move forward with the Food Ingredients potential sale, we have seen some step-up in costs associated with that potential transaction. Second, working capital came in a bit higher than expected, partly due to inventory. While the team had a good effort in improving inventory, we are being strategic in some areas to ensure we keep adequate inventory as we grow in 2026. Lastly, we had some payables that were really just timing issues. Overall, cash flow improvement in 2026 is a key priority for us. We expect profitability growth, working capital improvements, and lower interest expenses to contribute to this improvement. While I will refrain from giving a specific target for cash flow right now, I can confidently say we are doing everything in our power to drive cash flow performance in 2026.

Let me just add quickly that I am not as proud about the management of inventories. In the first half of the year, we let inventories get higher than we had targeted. Michael had us put a lot of emphasis in the fourth quarter on driving down inventories, which is never a good thing to do quickly at the end of the year. We did it, and we have implemented a more disciplined process to ensure that we manage inventories well throughout 2026 and into the future.

Thank you, Erik, and thank you, Josh, for your question. The next question will go to the line of David L. Begleiter with Deutsche Bank. David, your line is open.

Erik, just on the R&D effort, where do you stand on this journey to reinvigorate the R&D pipeline and your innovation efforts? Are there any metrics that you are tracking that you can share with us on this progress?

Thanks for the question, David. It gets right to the heart of the key strategy of the company, which is to drive innovation. As you remember, we invested about $100,000,000 in 2025 into our innovation capabilities in high-growth, high-margin categories across the company. We have made progress across Scent, Health and Bioscience, and Taste innovation pipelines. You will start to see the benefits of that in 2026 and more into 2027. Our customers are pleased with this progress. I just came back from ACI, the American Cleaning Institute, where I engaged with many of our large CPG company customers, and it was great to hear about the progress our teams are making. We received awards from two of the largest CPG companies for our innovation together with them, which bodes well for the future. We are making good progress and expect to see more results starting in the second half of this year and much more into 2027.

Thank you, David. Our next question goes to the line of Ghansham Panjabi with Baird. Ghansham, your line is open.

Just going back to the Taste segment for the fourth quarter and the performance in North America specifically, I think you called out high-single-digit growth. Can you just give us a bit more color as to what drove that? Then was that the component that drove margins to the degree that it did, just from favorable mix specific to North America?

Thanks, Ghansham. This team is doing an excellent job overall. All regions in Q4 grew, contributing from volume and price. North America grew, driven by new wins, and the team has been focused on growing their pipeline and increasing their win rate. Additionally, Latin America was strong, while EMEA and Greater Asia saw modest growth. The largest contributor to margin performance was productivity. The team did an excellent job of driving cost management, resulting in strong profitability. They also had some positive contributions from favorable net price to input cost, leading to a very successful quarter from a profitability perspective overall.

Thank you, Ghansham. Our next question will go to the line of Lisa De Neve with Morgan Stanley. Lisa, your line is open.

Hi. Thank you for taking my question. I had a question on what is International Flavors & Fragrances Inc.'s view on the GLP-1 theme, where we have seen a little bit of a resurgence of the theme post the oral dosage approvals. Can you share about what you believe the GLP-1 uptake will mean for International Flavors & Fragrances Inc. solutions demand? And then more broadly, what would you consider to be the key market trends that will drive your growth over the coming years?

Thank you for the question, Lisa. Being on the board of Eli Lilly gives me a front-row seat to the GLP-1 dynamic. I am proud of how our International Flavors & Fragrances Inc. team has responded to this both challenge and opportunity. We are creating it into an opportunity. We have had an alliance across our business units on how our products can help our customers develop great products for GLP-1 consumers. We have also put together an innovation seminar, which was well received and have many projects with customers around products for GLP-1 users. In our Taste and Food Biosciences performance, we are growing due to the GLP-1 dynamic. We developed new yogurt technology both in biosciences and flavors, which helped us grow nicely in the yogurt category, benefiting GLP-1 patients. We are also focusing on flavoring products with high protein and assisting biosciences for those products. Reformulation is also a good opportunity for us. There will be challenges with reduced caloric intake for a portion of the population, but we are leaning into innovation to ensure that it is a neutral or positive outcome for us.

Thank you, Lisa.

Our next question will go to the line of Fulvio Cazzol with Berenberg. Fulvio, your line is open.

My question is on the cost inflation outlook for 2026. Can you give us a summary of what you expect on input costs including tariff-related cost inflation, wage inflation, and how you expect to mitigate that?

Thanks, Fulvio. For 2026, we do expect some modest input cost inflation across our divisions. This includes raw material and costs, which includes the effects of tariffs, logistics, energy, and packaging costs. We are seeing inflation across all these key elements. The team is collaborating with customers to mitigate this. We will recover it through reformulation, productivity, and pricing over time. When we think about our guidance for 2026, our 1% to 4% is really driven by volume. We expect pricing to be slightly down, which is primarily related to the commodity portion of our Fragrance Ingredients and some residual carryover pricing impact in Food Ingredients specifically. The team is focused on working with customers to offset inflationary pressures from a direct cost perspective. We also expect increases in overall working costs such as merit increases and inflation, but we are leveraging productivity to offset these within our plan.

Thank you, Fulvio. Our next question will go to the line of Laurence Alexander with Jefferies. Laurence, your line is open.

I want to circle back to the lower end of the outlook range. What are you assuming for destocking risk this year compared to the last couple of years? It looks like the range is not yet benefiting from the shift in mix and innovation capabilities. Do you think the bottom end of the range will start materially improving?

Thanks for the question, Laurence. The 1% to 4% guidance does include Food Ingredients. While we expect Food Ingredients to return to positive growth this year, it will be modest. The macroeconomic environment remains tough, especially in the first half, with difficult comparisons. We expect the second half to be better as our innovation further kicks in and builds into 2027. We cannot predict geopolitics and market dynamics at the end of the year, so we have built potential destocking risks into our guidance. We expect to achieve somewhere in the range of 1% to 4%. We are driving for the best possible outcomes.

Thank you, Laurence. Our next question will go to the line of Salvator Tiano with Bank of America. Salvator, your line is open.

You mentioned about product inflation being offset by productivity. When we look at 2025, you had 2% organic growth and 7% like-for-like EBITDA growth. This year, the guidance calls for quite high organic growth, but the midpoint of EBITDA growth is much lower. What is driving the lower incremental margins this year versus 2025?

Great question. Regarding incremental margins, as we think about the guidance range, the quality of our business provides leverage within the P&L as sales grow. If we grow 4%, we can see up to an 8% increase in terms of EBITDA. At the lower end of the range, we need to drive productivity to offset the fixed costs. What is built into the guidance is a bit of reinvestment we are funding through productivity, but we are being conscious about rebalance between performance and investment. The volume growth is crucial for our success, and we also expect that our innovation pipeline will lead to margin benefits as we progress. Thank you, Salvator.

Our next question will go to the line of Lauren Rae Lieberman with Barclays. Lauren, your line is open.

I wanted to talk about reformulation opportunities and customer demand for healthier ingredient profiles, etc. How well-equipped is your portfolio today to meet these demands and how much this fits into your innovation and R&D plan?

We are seeing continued reformulation happening, but it has not picked up as much as some have talked about. Every time customers reformulate for lower sugar, lower salt, lower fat, cleaner label, it is an opportunity for International Flavors & Fragrances Inc. We welcome that and hope to see it increase. We are working with customers to create healthier and more sustainable products. Expect to see sustainable products coming out from the CPG companies that we work with. Improving innovation is key in meeting consumer desires. Thank you, Lauren.

Our next question will go to the line of Michael Sison with Wells Fargo. Mike, your line is open.

With the sale of Food Ingredients pending, how do you pivot the company to more of a growth mode? Historically, International Flavors & Fragrances Inc. has slightly underperformed peers. How do you get growth rates to match or outperform the peer group?

Thanks for the question, Mike. As we finalize our portfolio optimization and focus on Scent, Taste, and Health and Biosciences—very R&D heavy, very innovation heavy—we expect to enhance our growth potential. It will be a shift towards high-value businesses that significantly impact consumer goods. Our energy will be focused after the portfolio optimization, leading us to be stronger. I am confident we have the right team in place who are strengthening our capabilities. We can see this in our performance, innovation pipeline, and customer project quality improving, which gives us confidence in the future.

Thank you, Mike. Our last question will go to the line of Jeffrey John Zekauskas with JPMorgan. Jeff, your line is open.

Your Food Ingredients EBITDA and operating income dropped off in the fourth quarter. Given a slow volume growth environment, is it the case that operating income and EBITDA for that business next year is higher or lower? What can you say about the tax basis of that asset?

The fourth quarter for Food Ingredients was not strong, and it did not meet expectations. The first quarter looks solid, and the team is confident about regaining top-line growth, albeit low single-digit growth. Recent launches are exciting, and we expect strong EBITDA growth in 2026.

We assume the question on the tax basis of Food Ingredients pertains to the potential deal. We are assessing this and expect to make it a net cash number that maximizes value for shareholders.

Thank you. Our last question will go to the line of Christopher S. Parkinson with Wolfe Research. Chris, your line is open.

Just circling back as a corollary to a couple of questions on the H&B segment. You had solid results across volumes in the Biosciences segment. Last year, we discussed market share and necessary investments for the intermediate to long term. Are you still investing in this business? Can you speak to how much we should think about spending in that business regarding productivity gains? Do you still believe you will gain share in the second half of 2026, 2027, and 2028?

First of all, our Health and Biosciences business is doing very well. Leticia Goncalves has been in the role for almost a year now, comprising a strong team. Despite the challenges in North America, growth is solid outside that region. Our investment is focused on strengthening our pipeline; we have capabilities expected in 2027. I believe in this business and its importance, and we will stay committed to it.

Thank you, Chris.

Thank you all for joining today's call. We are working hard to unleash the great potential of this company. As discussed, we have done portfolio optimization after the Frutarom and DuPont Nutrition and Biosciences deal. We are getting closer to where we want to be. I believe we will have strong results in 2026 and be very well set up for 2027 and beyond as we move through the finalization of the portfolio optimization and aggressively drive innovation across Scent, Taste, and Health and Biosciences. We have a terrific team, clear direction, and we are going to make it happen.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.