IFF CFO sees ‘significant’ cost increases next year

Diving Brief:

  • International Flavors & Fragrances (IFF) expects another “significant round of inflation-driven cost increases which we believe will be concentrated in raw materials, soybeans, oils and certain product groups such as than agricultural grains, where we’re seeing pretty big increases in inflation,” Chief Financial Officer Glenn Richter said during the IFF’s earnings call on Tuesday.
  • The big ingredients maker’s inflation outlook, which stems from a “very deep” view the company is currently taking, suggests some moderation in rising costs, he said. “Overall, we expect [inflation] not to the same degree as in 2022, but we expect further inflationary pressures next year,” Richter said.
  • Richter said cost increases related to energy and logistics are expected to be “modest” in 2023.

Overview of the dive:

The New York-based company has focused this year on offsetting the dampening effect of inflation by raising prices. For the full year, IFF is on track to recoup about $1 billion in cost inflation, Richter said on the call.

“Through our strategic pricing actions, we have fully recovered full inflation costs to date and are optimistic about achieving full dollar cost recovery for the full year” , Richter said. “As we continue to navigate this uncertain market, we will continue to closely monitor raw material and logistics costs and, over the coming quarters, we will take appropriate actions to offset additional inflationary pressures and maintain profitability. .”

Calling the current pricing environment “unprecedented,” Richter also said the company has reconsidered its approach to contracts and had more realistic discussions with customers about sharing the “burden” of inflation. The company is rethinking the frequency of its customer contracts to consider more “open agreements” rather than semi-annual or annual contracts.

Many companies are managing inflation anxiety and developing new strategies to deal with the highest inflation in four decades. The U.S. economy – dragged down by weaker manufacturing, slowing housing demand and lower consumer and business spending – shrank 0.9% in the second quarter after falling 1.9% in the first three months of 2022.

Edward N. Arrington