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Sensient Technologies Corporation Reports Results for the Quarter Ended June 30, 2020

Flavors & Fragrances Group reports Strong Revenue Growth and Profit Growth

Cash Provided by Operating Activities Increased 34% in the Quarter

Sensient Completes the Sale of its Inks product line

Sensient Technologies Corporation (NYSE: SXT) reported diluted earnings per share of 72 cents in the second quarter of 2020 compared to diluted earnings per share of 81 cents in the second quarter of 2019. Revenue was $323.1 million in this year’s second quarter compared to $339.2 million in the comparable period last year. Operating income was $42.1 million in the second quarter of 2020 compared to operating income of $47.4 million in last year’s second quarter. Foreign currency translation decreased revenue, operating income, and earnings per share by approximately 3% in the quarter.

The 2020 second quarter reported results include a gain related to the reclassification of accumulated foreign currency translation as a result of the sale of the Inks business and other divestiture related costs, which primarily consist of non-cash impairment charges. The combination of these items are included within the divestiture & other related costs, which increased second quarter net earnings by $1.0 million ($0.02 per diluted share). The 2020 and 2019 second quarter results also include the operations of the product lines divested and to be divested, which were not significant to net earnings or diluted earnings per share. These adjustments are described in more detail under "Reconciliation of Non-GAAP Amounts" at the end of this release.

BUSINESS REVIEW

 

 

 

Reported

Revenue

Quarter

 

Year-to-date

Flavors & Fragrances

1.9%

 

1.8%

Color

-12.7%

 

-6.4%

Asia Pacific

-3.9%

 

1.4%

Total Revenue

-4.7%

 

-1.9%

 

 

 

Adjusted

Local Currency (1)

Revenue

Quarter

 

Year-to-date

Flavors & Fragrances

5.7%

 

4.6%

Color

-5.1%

 

-1.1%

Asia Pacific

-1.4%

 

3.5%

Total Revenue

0.0%

 

1.6%

 

 

 

(1) Adjusted local currency percentage changes are described in more detail
in the "Reconciliation of Non-GAAP Amounts" at the end of this release.

The reported results include the impact of foreign currency, which is described in more detail under "Reconciliation of Non-GAAP Amounts" at the end of this release. In contrast, the non-GAAP amounts eliminate the impact of currency movements, depreciation and amortization, non-cash share-based compensation, divestiture & other related costs, and the results of the operations divested and to be divested to enhance the overall understanding of the Company’s performance when viewed together with the GAAP results. Refer to "Reconciliation of Non-GAAP Amounts" at the end of this release.

The Flavors & Fragrances Group reported second quarter revenue of $183.6 million compared to $180.1 million reported in the comparable period last year. Adjusted local currency revenue increased 5.7% in the quarter. The higher revenue was primarily the result of continued growth in finished flavors and extracts and natural ingredients during the quarter. Segment operating income was $22.8 million in the second quarter compared to $20.0 million reported in the second quarter of 2019. The Group’s higher profit was primarily a result of higher volumes and the favorable impact of the Group’s cost reduction initiatives, offset by higher raw material costs, mainly in natural ingredients. Foreign currency translation decreased segment revenue by approximately 2% and operating income by approximately 1% in the quarter.

The Color Group reported revenue of $121.3 million in the quarter compared to $138.9 million in last year’s second quarter. Adjusted local currency revenue decreased 5.1% in the quarter. Segment operating income was $22.3 million in the quarter compared to $27.9 million in last year’s comparable period. Continued growth in natural food and beverage colors and higher revenue in the pharmaceutical business was offset by lower volumes in the Personal Care and Inks businesses. Color Group operating income was lower in the quarter as higher profit in the Food & Beverage Colors business was offset by significantly lower profit in the Personal Care and Inks businesses, primarily as a result of the lower demand during COVID-19. Foreign currency translation decreased segment revenue and operating income each by approximately 4% in the quarter.

The Asia Pacific Group reported revenue of $27.9 million in the quarter compared to $29.0 million in the second quarter of 2019. Adjusted local currency revenue decreased 1.4% in the quarter. The lower segment revenue was primarily due to the impact of COVID-19 regulatory restrictions in certain countries. Segment operating income was $4.8 million in the quarter compared to $4.2 million in last year’s second quarter. Adjusted local currency operating income increased 16.4% in the quarter. The higher profit was primarily a result of the favorable impact of the Group’s cost reduction initiatives and favorable product mix. Foreign currency translation decreased segment revenue by approximately 3% and operating income by approximately 1% in the quarter.

Corporate & Other reported operating costs of $7.7 million in the current quarter compared to $4.8 million in the second quarter of 2019. The higher costs are primarily due to an increase in non-cash performance-based compensation, partially offset by the divestiture & other related impacts in the current period.

During the second quarter, the Company completed the sale of its Inks product line within the Color Group. The Company also signed a definitive agreement for the sale of its yogurt fruit preparations product line within the Flavors & Fragrances Group, which is expected to close in the third quarter.

2020 OUTLOOK

Based upon current trends, the Company’s current diluted earnings per share guidance for 2020 is $2.10 to $2.35. This guidance now includes 35 to 40 cents per share of divestiture & other related costs and the results of the operations divested and to be divested. The Company’s previously issued diluted earnings per share guidance for 2020 was $1.85 to $2.15, which included 55 to 65 cents per share of divestiture & other related costs and the results of the operations divested and to be divested. The Company’s guidance continues to include approximately 10 cents of foreign currency headwinds based on current exchanges rates.

Based upon current trends, the Company reconfirms its previously issued guidance of $2.60 to $2.80 for adjusted diluted earnings per share(2), which excludes divestiture & other related costs, the results of the operations divested and to be divested, and foreign currency impacts.

The following table summarizes the Company’s 2020 Outlook:

Previous
Guidance

Current
Guidance

Diluted Earnings Per Share (GAAP)

$

1.85

$

2.15

$

2.10

$

2.35

Divestiture & Other Costs and Results of Operations Divested and to be Divested

 

0.65

 

0.55

 

0.40

 

0.35

Foreign Currency Headwinds

 

0.10

 

0.10

 

0.10

 

0.10

Adjusted Diluted Earnings Per Share in Local Currency

$

2.60

$

2.80

$

2.60

$

2.80

The Company is also confirming, based upon current trends, its previously issued guidance, which calls for low to mid-single digit revenue growth in 2020 on a local currency basis, excluding the revenues of the product lines divested and to be divested. The Company also continues to expect 2020 Adjusted EBITDA(2) to grow at a low to mid-single digit rate and Adjusted Operating Income(2) to be flat to down at a low-single digit rate, in each case on a local currency basis. Adjusted Operating Income will be impacted by higher non-cash performance-based compensation.

The full impact of COVID-19 remains unknown and continues to create uncertainty. The Company will continue to monitor the impact of COVID-19 and will update the outlook at each of the quarterly calls this year, as appropriate.

(2) See "Reconciliation of Non-GAAP Amounts" at the end of this release for more information.

CONFERENCE CALL

The Company will host a conference call to discuss its 2020 second quarter financial results at 8:30 a.m. CDT on Friday, July 17, 2020. To participate in the conference call, contact Chorus Call Inc. at (844) 492-3726 or (412) 317-1078, and ask to join the Sensient Technologies Corporation conference call. Alternatively, the call can be accessed by using the webcast link that is available on the Investor Information section of the Company’s web site at www.sensient.com.

A replay of the call will be available one hour after the end of the conference call through July 24, 2020, by calling (877) 344-7529 and referring to conference identification number 10144621. An audio replay and written transcript of the call will also be posted on the Investor Information section of the Company’s web site at www.sensient.com on or after July 21, 2020.

This release contains statements that may constitute "forward-looking statements" within the meaning of Federal securities laws including under "2020 Outlook" above. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following: the impact and uncertainty created by the ongoing COVID-19 pandemic, including, but not limited to, its effects on our employees, facilities, customers and suppliers, the availability and cost of raw materials and other supplies, logistics and transportation, governmental regulations and restrictions and general economic conditions; the pace and nature of new product introductions by the Company and the Company’s customers; the Company’s ability to anticipate and respond to changing consumer preferences and changing technologies; the Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various productivity-improvement and cost-reduction efforts and acquisition and divestiture activities; the success of the Company’s efforts to explore strategic alternatives for certain non-core product lines; the effectiveness of the Company’s past restructuring activities; changes in costs of raw materials, including energy; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; currency exchange rate fluctuations; and other factors included in "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in other documents that the Company files with the SEC. The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations. This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. Except to the extent required by applicable laws, the Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied herein will not be realized.

ABOUT SENSIENT TECHNOLOGIES

Sensient Technologies Corporation is a leading global manufacturer and marketer of colors, flavors, and other specialty ingredients. Sensient uses advanced technologies and robust global supply chain capabilities to develop specialized solutions for food and beverages, as well as products that serve the pharmaceutical, nutraceutical, cosmetic, and personal care industries. Sensient’s customers range in size from small entrepreneurial businesses to major international manufacturers representing some of the world’s best-known brands. Sensient is headquartered in Milwaukee, Wisconsin.

www.sensient.com

Sensient Technologies Corporation

(In thousands, except percentages and per share amounts)

(Unaudited)

 

Consolidated Statements of Earnings

Three Months Ended June 30,

Six Months Ended June 30,

 

2020

2019

% Change

2020

2019

% Change

 

Revenue

$

323,090

 

$

339,186

 

(4.7

%)

$

673,767

 

$

686,699

 

(1.9

%)

 

Cost of products sold

 

220,876

 

 

227,418

 

(2.9

%)

 

459,660

 

 

459,706

 

(0.0

%)

Selling and administrative expenses

 

60,089

 

 

64,400

 

(6.7

%)

 

137,421

 

 

130,205

 

5.5

%

 

Operating income

 

42,125

 

 

47,368

 

(11.1

%)

 

76,686

 

 

96,788

 

(20.8

%)

Interest expense

 

3,608

 

 

5,200

 

 

7,915

 

 

10,602

 

 

Earnings before income taxes

 

38,517

 

 

42,168

 

 

68,771

 

 

86,186

 

Income taxes

 

7,897

 

 

7,837

 

 

17,378

 

 

19,048

 

 

Net earnings

$

30,620

 

$

34,331

 

(10.8

%)

$

51,393

 

$

67,138

 

(23.5

%)

 

Earnings per share of common stock:

Basic

$

0.72

 

$

0.81

 

$

1.22

 

$

1.59

 

 

Diluted

$

0.72

 

$

0.81

 

$

1.21

 

$

1.59

 

 

Average common shares outstanding:

Basic

 

42,305

 

 

42,270

 

 

42,294

 

 

42,255

 

 

Diluted

 

42,322

 

 

42,300

 

 

42,315

 

 

42,287

 

 

 

 

Results by Segment

Three Months Ended June 30,

Six Months Ended June 30,

 

Revenue

2020

2019

% Change

2020

2019

% Change

 

Flavors & Fragrances

$

183,611

 

$

180,134

 

1.9

%

$

370,109

 

$

363,687

 

1.8

%

Color

 

121,296

 

 

138,912

 

(12.7

%)

 

264,791

 

 

282,791

 

(6.4

%)

Asia Pacific

 

27,873

 

 

29,002

 

(3.9

%)

 

58,322

 

 

57,521

 

1.4

%

Intersegment elimination

 

(9,690

)

 

(8,862

)

 

(19,455

)

 

(17,300

)

 

Consolidated

$

323,090

 

$

339,186

 

(4.7

%)

$

673,767

 

$

686,699

 

(1.9

%)

 

 

Operating Income

 

Flavors & Fragrances

$

22,752

 

$

20,050

 

13.5

%

$

43,623

 

$

43,175

 

1.0

%

Color

 

22,263

 

 

27,877

 

(20.1

%)

 

51,927

 

 

58,076

 

(10.6

%)

Asia Pacific

 

4,849

 

 

4,201

 

15.4

%

 

9,908

 

 

8,419

 

17.7

%

Corporate & Other

 

(7,739

)

 

(4,760

)

 

(28,772

)

 

(12,882

)

 

Consolidated

$

42,125

 

$

47,368

 

(11.1

%)

$

76,686

 

$

96,788

 

(20.8

%)

Sensient Technologies Corporation

(In thousands)

(Unaudited)

 

Consolidated Condensed Balance Sheets

June 30,

December 31,

2020

2019

 

Cash and cash equivalents

$

20,876

$

21,153

Trade accounts receivable (net)

 

229,635

 

213,201

Inventories

 

388,647

 

422,517

Prepaid expenses and other current assets

 

40,525

 

40,049

Assets held for sale

 

58,633

 

91,293

Total Current Assets

 

738,316

 

788,213

 

Goodwill & intangible assets (net)

 

415,111

 

418,844

Property, plant, and equipment (net)

 

423,294

 

437,179

Other assets

 

96,544

 

95,915

 

Total Assets

$

1,673,265

$

1,740,151

 

Trade accounts payable

$

97,296

$

94,653

Short-term borrowings

 

18,304

 

20,612

Other current liabilities

 

78,094

 

66,925

Liabilities held for sale

 

19,543

 

19,185

Total Current Liabilities

 

213,237

 

201,375

 

Long-term debt

 

537,680

 

598,499

Accrued employee and retiree benefits

 

26,023

 

25,822

Other liabilities

 

35,609

 

32,866

Shareholders' Equity

 

860,716

 

881,589

 

Total Liabilities and Shareholders' Equity

$

1,673,265

$

1,740,151

 

Sensient Technologies Corporation

(In thousands, except per share amounts)

(Unaudited)

 

Consolidated Statements of Cash Flows

Six Months Ended June 30,

2020

2019

Cash flows from operating activities:

Net earnings

$

51,393

 

$

67,138

 

Adjustments to arrive at net cash provided by operating activities:

Depreciation and amortization

 

24,522

 

 

27,741

 

Share-based compensation expense (income)

 

2,662

 

 

(1,155

)

Net loss (gain) on assets

 

50

 

 

(75

)

Loss on divestitures

 

6,634

 

 

-

 

Deferred income taxes

 

1,075

 

 

(909

)

Changes in operating assets and liabilities:

Trade accounts receivable

 

(20,494

)

 

(17,131

)

Inventories

 

24,816

 

 

29,201

 

Prepaid expenses and other assets

 

(3,975

)

 

(3,395

)

Accounts payable and other accrued expenses

 

9,961

 

 

(21,401

)

Accrued salaries, wages and withholdings from employees

 

6,483

 

 

(2,598

)

Income taxes

 

3,899

 

 

(2,631

)

Other liabilities

 

588

 

 

1,428

 

 

Net cash provided by operating activities

 

107,614

 

 

76,213

 

 

Cash flows from investing activities:

Acquisition of property, plant, and equipment

 

(21,417

)

 

(16,606

)

Proceeds from sale of assets

 

6

 

 

91

 

Proceeds from divesture of businesses

 

11,255

 

 

-

 

Other investing activity

 

4,395

 

 

(454

)

 

Net cash used in investing activities

 

(5,761

)

 

(16,969

)

 

Cash flows from financing activities:

Proceeds from additional borrowings

 

38,670

 

 

25,003

 

Debt payments

 

(98,849

)

 

(55,182

)

Dividends paid

 

(33,018

)

 

(30,453

)

Other financing activity

 

(414

)

 

(1,028

)

 

Net cash used in financing activities

 

(93,611

)

 

(61,660

)

 

Effect of exchange rate changes on cash and cash equivalents

 

(8,519

)

 

397

 

 

Net decrease in cash and cash equivalents

 

(277

)

 

(2,019

)

Cash and cash equivalents at beginning of period

 

21,153

 

 

31,901

 

Cash and cash equivalents at end of period

$

20,876

 

$

29,882

 

 

 

Supplemental Information

Six Months Ended June 30,

2020

2019

 

Dividends paid per share

$

0.78

 

$

0.72

 

Sensient Technologies Corporation

(In thousands, except percentages and per share amounts)

(Unaudited)

 

Reconciliation of Non-GAAP Amounts

 

The Company's results for the three months ended June 30, 2020 and 2019 include adjusted revenue, adjusted operating income, adjusted net earnings, and adjusted diluted EPS, which exclude divestiture & other related costs and the results of operations divested or to be divested.

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

% Change

2020

2019

% Change

Revenue (GAAP)

$

323,090

 

$

339,186

 

 

(4.7

%)

$

673,767

 

$

686,699

 

 

(1.9

%)

Revenue of the product lines divested or to be divested

 

(28,217

)

 

(36,356

)

 

(64,802

)

 

(75,377

)

Adjusted revenue

$

294,873

 

$

302,830

 

 

(2.6

%)

$

608,965

 

$

611,322

 

 

(0.4

%)

 

Operating income (GAAP)

$

42,125

 

$

47,368

 

 

(11.1

%)

$

76,686

 

$

96,788

 

 

(20.8

%)

Divestiture & other related costs – Cost of products sold

 

1,749

 

 

-

 

 

1,939