IFF CFO sees ‘meaningful’ cost increases next year

Dive Brief:

  • International Flavors & Fragrances (IFF) expects another “meaningful round of cost increases from inflation that’s going to be concentrated, in our view, in raw materials, soy, oils, and certain commodity groups such as agricultural grains where we’re seeing pretty significant inflation,” CFO Glenn Richter said during IFF’s earnings call Tuesday.
  • The big ingredient maker’s inflation outlook, which stems from a “very deep” look ahead that the company is currently undertaking, suggests some moderation in rising costs, he said. “Overall we are expecting [inflation] not to the same degree as 2022, but we are expecting additional inflationary pressures next year,” Richter said.
  • Richter said cost increases related to energy and logistics are likely to be “modest” in 2023.

Dive Insight:

The New York-based company has been focused this year on making up for inflation’s dampening impact by raising prices. For the full year IFF is on track to recover approximately $1 billion in cost inflation, Richter said on the call. 

“As a result of our strategic pricing actions we have fully recovered total inflation costs to date and we are optimistic that we will achieve full dollar cost recovery for the full fiscal year,” Richter said. “As we continue navigating this uncertain market, we will continue to closely monitor raw material and logistics costs and in the quarters ahead take appropriate action to offset additional inflationary pressures and maintain profitability.”

Calling the current environment relative to pricing “unprecedented,” Richter also said that the company has been reconsidering its approach to contracts and having more realistic discussions with customers on 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 navigating inflation anxiety and charting new strategies to deal with the highest inflation in four decades. The U.S. economy — slowed by weakening manufacturing, cooling demand for housing and flagging spending by consumers and businesses — shrank 0.9% during the second quarter after slumping 1.9% during the first three months of 2022.