Executive Summary

Q3 2023 revenue was $134.4M (-0.6% reported, -1.5% constant currency) with the third consecutive quarter of margin improvement; adjusted gross margin rose to 31.6% and Adjusted EBITDA was $21.0M .
Flavors & Ingredients posted another record quarter ($31.2M, +4.2% YoY reported), while Branded CPG declined on volumes as the company reduced Wholesome bulk sugar sales to avoid incremental tariffs .
FY2023 guidance was mixed: revenue lowered to $540–$550M (from $550–$565M), Adjusted EBITDA raised to $77–$79M (from $76–$78M), and capex cut to ~$8M (from ~$9M) .
Catalysts: ongoing strategic alternatives review, visible margin progress, and record F&I performance; net loss widened on higher interest expense amid rate environment .

What Went Well and What Went Wrong

What Went Well

Adjusted gross margin expanded to 31.6% (vs 30.8% LY) and has improved ~270 bps YTD versus Q4 2022, reflecting pricing, lower freight, reduced supply chain reinvention costs, and improved mix from reduced bulk sugar sales. “Third consecutive quarter of margin improvement” .
Flavors & Ingredients delivered another record quarter with $31.2M revenue (+4.2% reported, +3.6% constant currency), supported by strong pricing and high operating margins; management emphasized market penetration efforts .
Branded CPG operating income rose to $7.2M (from $5.5M LY), aided by lower import duties and supply chain reinvention cost declines; management highlighted supply chain optimization and organizational streamlining .

What Went Wrong

Consolidated net loss widened to $(5.4)M from $(2.5)M on higher interest expense (net interest expense $11.1M vs $8.2M LY), reflecting the rate environment .
Branded CPG volumes fell 7.6% YoY (constant currency) with segment revenue down 2.9% on constant currency as price growth (+4.7%) couldn’t offset volume declines; volume decline excluding bulk sugar was still 4.6% .
Corporate expense increased to $9.0M (vs $6.0M LY) due to higher bonus and strategic review/professional fees, pressuring operating leverage .

Financial Results

Consolidated Results vs Prior Periods

Metric	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Revenue ($USD Millions)	$135.3	$132.4	$132.9	$134.4
GAAP Gross Margin %	25.9%	24.4%	25.1%	27.9%
Adjusted Gross Margin %	30.8%	29.9%	30.4%	31.6%
Operating Income ($USD Millions)	$6.8	$3.0	$3.0	$6.7
Adjusted EBITDA ($USD Millions)	$21.5	$16.6	$18.2	$21.0
Diluted EPS ($USD)	$(0.06)	$(0.47)	$(0.13)	$(0.13)

Segment Performance

Segment Metric ($USD Millions)	Q1 2023	Q2 2023	Q3 2023
Branded CPG Revenue	$102.0	$102.3	$103.3
Branded CPG Operating Income (Loss)	$(0.8)	$1.5	$7.2
Flavors & Ingredients Revenue	$30.4	$30.6	$31.2
Flavors & Ingredients Operating Income	$9.5	$9.0	$8.4
Corporate Expenses	$5.7	$7.4	$9.0

KPIs and Balance Sheet

KPI	Q1 2023	Q2 2023	Q3 2023
Cash & Equivalents ($M)	$26.6	$24.1	$24.2
Long-term Debt ($M)	$427.6	$427.0	$424.5
Revolver Drawn ($M)	$72	$72	$70
Net Interest Expense ($M, quarterly)	$10.7	$11.1	$11.1
Operating Cash Flow YTD ($M)	$4.1	$4.9	$10.6
Free Cash Flow YTD ($M)	$2.5	$2.2	$6.5
Capex YTD ($M)	$1.6	$2.7	$4.1

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Product Revenues	FY 2023	$550M–$565M	$540M–$550M	Lowered
Adjusted EBITDA	FY 2023	$76M–$78M	$77M–$79M	Raised
Capital Expenditures	FY 2023	~$9M	~$8M	Lowered

Earnings Call Themes & Trends

Note: The Q3 2023 earnings call transcript could not be retrieved due to a document inconsistency error; themes below draw on Q1/Q2 press releases and Q3 press release text.

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Supply chain reinvention	Ongoing program; increased costs impacted margins in Q1; on track to rightsize costs in Q2	Cost declines aided margins and Branded CPG operating income	Improving
Tariffs/Mix management	Strategic reduction in Wholesome bulk sugar to avoid incremental tariffs (volume headwind)	Continued reduced bulk sugar sales improved mix and gross margin	Positive mix
Pricing vs volume	Pricing gains offset by volume declines (Branded CPG) Q1/Q2	Pricing +4.7% vs volume -7.6% (constant currency) in Branded CPG	Mixed (price up, volume down)
Strategic alternatives	Special Committee evaluating proposals in Q2	“Active in evaluation of potential strategic alternatives”	Ongoing
Interest rates/finance	Interest rate swap on $183.3M term loan to 4.265% (expect ~$1M H2 2023 interest savings)	Net interest expense higher YoY; net loss widened	Headwind mitigated by swap
Margin trajectory	Adjusted GM 29.9% (Q1), 30.4% (Q2)	31.6% (Q3), third consecutive improvement	Improving

Management Commentary

“We are pleased to deliver a year-over-year increase in adjusted gross profit margin… improvement of 270 basis points over the prior three consecutive quarters this year… key to driving improved cash flow to support our growth initiatives and reduce leverage. We remain active in our evaluation of potential strategic alternatives” — Irwin D. Simon, Executive Chairman .
“Our Flavors & Ingredients business continued to drive growth… another quarterly sales record… demonstrates our ongoing efforts to identify and penetrate new markets” — Jeff Robinson, Co-CEO .
“Within our Branded CPG business, our focus remains squarely on improving our cash generation through enhancing our margin profile… due in part to our strategy to optimize our supply chain and ongoing efforts to streamline our organization.” — Rajnish Ohri, Co-CEO .

Q&A Highlights

The Q3 2023 earnings call transcript was listed but could not be read due to a retrieval inconsistency; therefore, Q&A highlights are unavailable from primary sources for this period .

Estimates Context

S&P Global Wall Street consensus estimates for FREE were unavailable via our data connector (missing CIQ mapping), so we cannot quantify beats/misses versus consensus for Q3 2023. Values would normally be retrieved from S&P Global; consensus data was unavailable in this case [SpgiEstimatesError]. Values retrieved from S&P Global.

Key Takeaways for Investors

Margin momentum is clear: adjusted gross margin rose to 31.6%, with drivers including pricing, lower freight, reduced supply chain reinvention costs, and improved mix from reduced bulk sugar sales to avoid tariffs .
Flavors & Ingredients remains a high-quality growth and cash engine, posting record revenue and strong profitability; continued market penetration supports durability .
Branded CPG is stabilizing operationally (operating income up YoY) but volumes remain a headwind; pricing gains are not yet offsetting unit declines, especially post bulk sugar actions .
FY23 guidance shift signals confidence in profitability (EBITDA raised) despite top-line pressure (revenue lowered), with capex prudently reduced; net interest expense remains a watch item .
Balance sheet leverage is significant but trending modestly better; interest rate swap helps, and margin/cash flow improvements are critical for de-leveraging .
Strategic alternatives review is a potential stock narrative catalyst; management emphasizes “maximizing value” .
Near-term trading lens: expect focus on EBITDA resilience and margin trajectory vs revenue softness; medium-term thesis hinges on execution in supply chain reinvention, mix optimization, and sustaining F&I growth .

Whole Earth Brands, Inc. (FREE)·Q3 2023 Earnings Summary