As inflation continues to exert its influence, it’s not just food and beverage manufacturers experiencing a decline in volumes, but also the companies that supply them with essential ingredients. “The ongoing destocking by customers and volume pressures in the second quarter highlight the broader macroeconomic challenges our industry faces,” stated IFF CEO Frank Clyburn. The current iteration of IFF was created through the $26.2 billion merger with DuPont Nutrition and Biosciences in 2021. The merged entity reported leadership positions across various sectors, including taste, texture, scent, nutrition, enzymes, cultures, soy proteins, and probiotics. At that time, its Nourish division catered to over 43,000 clients.
However, despite these perceived advantages, IFF has encountered difficulties since the merger’s completion. Late last year, the company revealed plans to reduce its workforce as part of a restructuring effort aimed at optimizing costs and streamlining operations. In June, a former Kellogg executive was appointed as the president of the Nourish division. In February, IFF announced its intention to sell its Flavor Specialty Ingredients business for $220 million in cash, shortly after disclosing its decision to divest the Savory Solutions Group for $900 million. Additional transactions may be forthcoming, as IFF has engaged J.P. Morgan to assist in exploring further divestitures.
While inflation and other recent hurdles are expected to continue, IFF has the opportunity to improve by making strategic changes within its Nourish division, which accounts for more than half of the company’s revenue. During its earnings call this week, IFF indicated that Nourish would enhance its commercial resources and concentrate on key global accounts. The division plans to increase annual productivity through operational efficiencies, emphasize its strongest product lines, and phase out underperforming products. Additionally, IFF acknowledged a one-time inventory writedown of $44 million due to “unprecedented cost fluctuations” for locust bean kernels, a key ingredient used in producing thickening agents.
In related news, competitor Ingredion reported its earnings this week. Despite raising its earnings per share forecast for the 2023 fiscal year, the provider of texturizers, plant-based proteins, clean and simple ingredients, and specialty sweeteners reported second-quarter sales of $2.07 billion, falling short of the analyst consensus of $2.2 billion. Ingredion also pointed out challenges consumers face in the market. “Volumes continued to be affected by inventory rebalancing across the food supply chain and shifts in consumer spending behavior,” remarked Ingredion CEO Jim Zallie.
In this context, the demand for ingredients such as calcium citrate powder 8 oz may fluctuate, reflecting the ongoing adjustments within the industry. As companies navigate these challenges, adapting to market dynamics will be crucial for sustaining growth and meeting consumer needs.