IFF (Baa3, BBB-, BBB Neg) gives weak guidance & cuts dividends

FY24 guidance is for sales at $10.8-$11.1b (c$11.4b), and adj. operating EBITDA in $1.9-$2.1b (c$2.1b). FCF in FY23 was $936m, credit-adj EBITDA to net debt was 4.5* to end the FY, down from 4.6* in Q3. Net loss at headline level was due to $2.6b non-cash goodwill impairment charge in the 4Q - linked to expectations for volume declines & cost inflation in the Nourish unit.

It also added in earnings call that its expects $345m in interest expense, cash taxes of $450m, NWC slightly neg & $100m of other items - $200m of that is in one-off items (Reg-G) & including it will net (from the $2b mid-point in EBITDA guidance) ~$500m FCF in FY24 - consensus was looking for $841m in FCF.

Dividend has been halved to $40c/share/qtr (i.e... annually $1.6/share) - consensus was not expecting any cuts/changes likely driving share px action this mng. Company reasoning was to "enable faster deleveraging of the balance sheet and provide improved financial flexibility". It has been paying ~800m in dividends/yr - i.e. todays cut is a $400m/yr cash boost.

Management in Q&A re-iterating 3* net leverage target by year-end '24 but "not going to do something stupid that destroys significant value to get there".

IFF has been on Baa3/BBB- Neg from the 2 majors for a couple of years now & €26's at Z+97 prices little risk of a downgrade. Focus for rating houses likely to stay on deleveraging progress through this year (towards 3* target) - dividend cuts a tailwind for that effort but guidance cuts (including a large miss on FCF expectations) headwinds. We don't view the €26's as cheap here. Equities are -8%, 26's unch.

Equity takes; {NSN S97LECDWX2PS <GO>}