S&P Global Ratings raised International Flavors & Fragrances Inc.'s long-term credit rating to 'BBB' from 'BBB-' on Wednesday and boosted the short-term rating to 'A-2' from 'A-3', assigning a stable outlook. The agency pointed to the company's sustained adjusted debt-to-EBITDA ratio at or below roughly 3x since IFF sold its Pharma Solutions segment last year.
IFF has announced the planned divestiture of its Food Ingredients business and anticipates net proceeds of about $3.8 billion. The company intends to use a portion of those proceeds to repay debt, consistent with its stated leverage target of 2.5x. Management also plans to deploy proceeds toward share repurchases and reinvestment in the remaining business.
S&P Global Ratings expects that, on a pro forma basis, IFF will generate more than $650 million of annual free operating cash flow. The agency projects that this cash flow will be sufficient to fund annual dividends totaling more than $400 million while keeping adjusted leverage near or below 3x through the next two years.
On sales growth, S&P projects roughly 1% organic growth for fiscal 2026 after adjusting for last years divestitures. That pace is below IFF's long-term organic growth target range of 3% to 4%. The Food Ingredients sale is expected to close in the second quarter of fiscal 2027. S&P anticipates sales will move closer to the company's 3% to 4% long-term target thereafter as IFF sustains recent volume gains across most of its portfolio and implements targeted price increases intended to offset ongoing input cost inflation.
Regarding profitability, S&P expects IFF's EBITDA margins to hold at about 20% over the next 12 to 18 months. The rating agency notes that margins could expand by at least 150 basis points by 2028 once IFF reduces stranded overhead costs tied to divestitures and fully laps the Food Ingredients sale, provided the company can continue to counter input cost inflation through pricing. S&P added that the remaining three segments have a higher-margin profile that will align IFF more closely with its nearest industry peers.
S&P also outlined scenarios that could affect the rating. The agency could lower IFF's rating if the company sustained adjusted debt-to-EBITDA nearer to 4x as a result of large, debt-financed acquisitions or if management changed its financial policy to target a higher leverage ratio than its stated 2.5x. Conversely, an upgrade is seen as unlikely over the next two years; however, S&P said a future upgrade could be possible over time if IFF sustains leverage comfortably below 3x once it laps its recent divestitures.
Context and implications
The ratings action reflects S&P's assessment of IFF's current leverage metrics and the companys planned use of proceeds from a material divestiture to shore up its balance sheet. The outlook and projections rely on the closing timing for the Food Ingredients divestiture and the company's ability to deliver targeted pricing and volume gains while managing overhead related to divested operations.