Morgan Stanley: IFF’s third-quarter growth beats expectations, but fourth-quarter profit guidance is soft

Which businesses drove growth in the third quarter?

International Flavors & Fragrances (IFF) posted comparable sales growth of 5% in the third quarter of 2026, above market consensus of 2.5% and Morgan Stanley’s forecast of 4.4%.
Fragrance grew 6%, above market expectations of 2.6%; both fine fragrance and consumer fragrance achieved high-single-digit growth. Taste also grew 6%, above consensus of 3.4%.
Health & Biosciences grew just 1%, below consensus of 4.3%: growth in food enzymes and cultures and grain processing was partly offset by weakness in the health business.

Third-quarter adjusted EBITDA was 403 million dollars, above market consensus of 391 million dollars; the margin was 20.8%, above consensus of 20.4% and 19.2% a year earlier. Volume growth provided the main support.
Expenses and gross margin offset some of the gains: selling, general and administrative expenses rose 11% year over year, while gross margin fell 0.3 percentage points to 42.5%. Higher other financial expenses offset the EBITDA beat, and adjusted earnings per share were 0.83 dollars, in line with consensus.
Third-quarter free cash flow was negative 7 million dollars, versus positive 32 million dollars a year earlier; this included a working-capital outflow of 96 million dollars, compared with an inflow of 38 million dollars a year earlier. Alongside dividend payments, net debt rose to 5.788 billion dollars at quarter-end from 5.166 billion dollars at the end of the second quarter.

The company narrowed its full-year 2026 adjusted EBITDA guidance from 1.53 billion–1.6 billion dollars to 1.55 billion–1.6 billion dollars; it also narrowed its full-year sales guidance from 7.4 billion–7.6 billion dollars to 7.5 billion–7.6 billion dollars.
Based on the midpoint of the new EBITDA guidance, Morgan Stanley estimates that fourth-quarter market consensus is about 3.7% higher. The company expects fourth-quarter profitability to weaken, particularly in Health & Biosciences, citing increased costs and reinvestment; it also noted that the macroeconomic environment is changing.
Morgan Stanley noted that IFF has historically provided conservative guidance, but most recent comments from peers point to a sequentially stable operating environment after excluding comparison-base effects, with some areas even accelerating. The bank believes the fourth-quarter guidance could disappoint some investors, but expects no significant changes to full-year EBITDA and earnings-per-share forecasts.
Morgan Stanley maintained its Overweight rating on IFF, with a price target of 100 dollars.