Givaudan Earnings: Performance Improvement Program Is Propping Up Margins Despite Lower Volumes

Wide-moat Givaudan GIVN reported mixed first-half 2023 results, with lower-than-expected sales growth but a stronger-than-expected EBITDA margin. Like-for-like sales growth was 2.4% (versus 3.4% in the company-compiled consensus) and the EBITDA margin was 21.6% (compared with 20.7% in the consensus). The strong Swiss franc continued to weigh on the top line, leading to reported half-year growth of negative 3.2%. We don’t expect to change our CHF 2,900 fair value estimate at this time as the lower sales, yet stronger margin delivery, largely offset each other in our forecast. We believe shares are fairly valued.

The first-half gross margin improved by 100 basis points to 41% compared with the same period of last year. This was primarily the result of the performance improvement program announced earlier this year. Givaudan is optimizing its manufacturing footprint and simplifying the organization following a number of acquisitions in recent years. The company also managed to pass through the absolute cost inflation to customers.

According to management, volumes were around 4% lower for the group. This was primarily driven by North America and is the result of customer destocking and weaker consumer demand. The taste and wellbeing segment has been the most affected (like-for-like sales growth of negative 1% globally and negative 12% in North America). This is in part explained by Givaudan’s large presence in plant-based protein solutions, a segment that has experienced a rapid decline in the U.S. as of late.

On the other hand, the fine fragrances subsegment continued to perform impressively well (16.2% like-for-like growth in the first half) despite the difficult economic environment and strong comparators over the past two years.