Operator: Our next question comes from the line of Mark Astrachan with Stifel.
Mark Astrachan : So I guess I’m curious about how you think about your volume performance relative to peers as it appears that they’re still outgrowing you all. I suppose somewhat related maybe to the last question, but bigger picture, it looks like pricing was a much smaller contributor sequentially. Does that factor into how you think about volumes? And then just lastly, tied together, when do you think your sales can go back to the long-term algorithm?
Frank Clyburn: Mark, it’s Frank. Let me take that one. And a couple of things that I really wanted to highlight on this question. So first, we spent a lot of time, obviously, with our teams throughout the quarter and at the end of the quarter, looking at our competitive dynamics and how we are positioned. And to highlight, maybe if you could give me a minute just to walk through some of our key business lines. So Flavors, for instance, Mark, we actually grew the business this quarter. And feel very good about our performance, in particular, in North America and Greater Asia and a very well positioned against our competitive set. Health & Biosciences, you actually saw growth versus prior year, Mark, which was very encouraging.
And in fact, you saw growth in Cultures & Food Enzymes, Animal Nutrition. Home & Personal Care was a good growth quarter for us. Grain Processing, good growth from a sales perspective as well. And then if I look at our Scent business, our Scent business actually grew above market, Mark. Consumer Fragrance above market. So clearly growing market share there. And then also our Fine Fragrance business had good performance. So I feel really good about this Scent performance versus prior year. And then also as we’ve already highlighted across just about all of our business lines, good sequential improvement. So when I look at our overall business, I feel really good about the sequential improvement. The one area that we do have disproportionate volume declines versus our competitors as we’ve highlighted is Functional Ingredients.
If you were to exclude Functional Ingredients, Mark, our volume would be down low single digits. So we feel as though we’re well within our peer set there. And like I said, we feel very good about the majority of our business and how we’re performing. And then the other one that we have highlighted, Mark, was with regards to Pharma. But Pharma, as we’ve mentioned, had a very strong competitive quarter last year. So that’s more of a competitive issue for us in this quarter compared to last quarter of last year. But all in all, Mark, we feel as though the overall business is sequentially improving and is in a really good position as we head into 2024.
Operator: Our next question comes from the line of David Begleiter with Deutsche Bank.
David Begleiter: Frank, on Pharma Solutions, can you comment on the sequential margin decline? Was it more mix or more costs? And what does this mean for you, do you think for margins in Q4 and next year for Pharma?
Frank Clyburn: Yes, David. So Pharma, as we mentioned, the comparison versus prior year, as we highlighted, was a 28% growth. Last year with a lot of shipment catch-up as we implemented in some SAP shipments that went into Q3 of ‘22. And then EBITDA growth last year was 76%. So that was the comparator versus last year. And obviously, you can see that we’re down 9% on the top line this year because of that comparator. If you look sequentially, Mark, you do see some choppiness, as Glenn highlighted earlier. There are some distributors that are starting to rightsize inventory in this business. That is something that we see more of a destocking as we ended kind of Q3. And as we go into Q4, we anticipate that the inventory destocking will continue.
With that said, we think it’s temporary in nature. I have no concerns about the overall outlook for the Pharma business, very sticky business. Our core Pharma position is – what should I say, our core Pharma business is well positioned with our customers. So destocking by our distributors, rightsizing inventory, temporary in nature, and we feel good about the growth potential performance as we go into ‘24 and beyond.
Operator: Our next question comes from the line of Adam Samuelson with Goldman Sachs.
Adam Samuelson : So Glenn, in your prepared remarks and hoping you could just maybe elaborate a little bit around some of the high-level puts and takes as they stand today for 2024 EBITDA versus 2023. Obviously, there’s the absence of the inventory absorption charges, the inventory write-off in the second quarter. You’ve got headwinds on incentive comp, and if you can quantify that? It doesn’t sound like there’s a lot — at this point, should we be thinking about a lot of price cost tailwinds? You’re going to have the divestiture kind of impact. But can you help us think about productivity kind of savings that we should be kind of thinking about going into 2024 on a year-over-year basis? And then from there, is the major swing really just volumes and the operating leverage associated with that? Or is there anything else that you would highlight?
Glenn Richter: Thank you, Adam. So let me kind of break that down into 2 components. One, just normalizing, I’ll say, the onetime items from this year into next year and then talk a little bit about 2024. In terms of normalizing this year, first thing you do is you have to take out $75 million of EBITDA related to divestitures. So that’s roughly 6 months of Savory Solutions and then FSI, or Fragrance Specialty Ingredients business. And then basically a full year directionally for LMC, that’s about $75 million in earnings. In addition, you have to add back the impact of absorption which goes away. That absorption is related to the inventory reduction. So as we’ve mentioned, we’ve taken out nearly $600 million of volume-related inventory this year.
That’s about $165 million benefit. On top of that, the LBK write-off in the second quarter was $44 million. And then lastly, in terms of sort of add normal items, I would add about $25 million of additional benefit associated with the annualization of our headcount reduction program this year. Offsetting that, as you mentioned, is roughly $70 million-ish of basically truing up our incentive plans back to 100% given this is a challenging year, they’ll pay out at a lower percentage. So those are the normalized items I would take the sort of baseline the 2023 results. Candidly, relative to ‘24, we are – we’ll be prepared to have a very fulsome discussion at the February call. We’re in mid-planning process right now. We’re working with all the businesses in terms of their plans from volume, net price, procurement on deflation, productivity programs, et cetera.
So it’s a little early to talk about those components at this point, but we promise you, we’ll have a very detailed discussion in February.
Operator: Our next question comes from the line of Patrick Cunningham with Citi.
Patrick Cunningham : Just a follow-up on positive absorption or just absorption coming off next year. What percentage of the portfolio is build-to-order versus build-to-stock? And are there any specific businesses where that split is skewed towards one or the other?
Glenn Richter: Yes. And I wouldn’t say that those that are built-to-order don’t have absorption impact because they do. But to answer your question, we’re roughly 55% build-to-stock, 45% build-to-order in terms of the overall portfolio. So the build-to-stock is more the legacy DuPont or N&B portfolio versus a legacy FNF for the build-to-order. So as a result, that Nourish is split, probably slightly more build-to-stock and build-to-order, but a combination of the Ingredients business, the food systems and then the — obviously, the Flavors business, the H&B and Pharma businesses are largely build-to-stock and the Scent business is largely build-to-order.
