NEW YORK — IFF plans to discontinue certain ingredients within its Functional Ingredients portfolio after volume in that business declined more than 20% in the second quarter ended June 30.
“Digging deeper into Functional Ingredients in what has happened, overall market declines in alternative protein consumption, including demand decline for plant-based products, persistent supply chain challenges given the macro backdrop since the pandemic and more aggressive inventory management by customers have collectively contributed to pressure Functional Ingredients,” said Franklin K. Clyburn, chief executive officer of IFF, in an Aug. 8 earnings call.
IFF in the quarter had net income of $27 million, equal to 11¢ per share on the common stock, which was down 75% from $107 million, or 43¢ per share, in the previous year’s second quarter. Net sales of $2.93 billion were down 11% from $3.31 billion in the previous year’s second quarter.
IFF presented its financial results after the stock market closed Aug. 7. IFF’s stock price on the New York Stock Exchange closed at $80.34 per share on that day, but it fell 19% on Aug. 8 to close at $64.78 per share.
IFF has hired J.P. Morgan to explore potential divestitures, Mr. Clyburn said.
“We are working to significantly reshape the Functional Ingredients portfolio for success,” he said. “This means increasing the competitive edge of our successful core product lines while modifying or discontinuing those that have proven not to be additive to the portfolio.”
Within Functional Ingredients in the quarter, proteins were soft primarily due to destocking of soy protein isolates used in nutritional bars and beverages, Mr. Clyburn said.
“I've had a chance to meet with a couple of the customers, and the positive news is we’re very well positioned within those end markets,” he said.
Other softness came in the meat alternative category, he added.
IFF now expects fiscal-year sales to be in a range of $11.3 billion to $11.6 billion, down from previous guidance of $12.3 billion. Other fiscal-year outlook downgrades came in volume, now with a forecast of down mid- to high-single digit percentages and down from flat on a comparable basis, and adjusted operating EBITDA, now forecast in in a range of $1.85 billion to $2 billion and down from $2.34 billion.
“Now as we look to the balance of the year, the pace of industry recovery that we expected is not materializing according to our original expectation,” Mr. Clyburn said. “Consumer demand remains soft, and temporary customer destocking trends are continuing.”
The Functional Ingredients business is within IFF’s Nourish segment, which saw sales decline 14% to $1.56 billion in the quarter. Scent segment sales rose 2% to $592 million, and Pharma Solutions segment sales rose 3% to $251 million.
Sales, at $522 million, were down 22% in the Health & Biosciences segment. Weakness in Health, due to soft market conditions in North America and China, more than offset growth in Cultures & Food Enzymes, Grain Processing, and Home & Personal Care.Over the first six months of the fiscal year, IFF had net income of $18 million, or 7¢ per share, which was down 95% from $351 million, or $1.38 per share, in the same time of the previous year. Six-month net sales fell 9% to $5.96 billion from $6.53 billion.