Sensient Technologies Corporation Reports Results for the Quarter Ended June 30, 2022

2022-07-22

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July 22, 2022 10:55 UTC Double-Digit Growth in Reported and Adjusted Revenue Sensient Operating at or Above its 2022 Guidance MILWAUKEE--(BUSINESS WIRE)-- Sensient Technologies Corporation (NYSE: SXT) reported consolidated revenue of $371.7 million in this year’s second quarter compared to $335.8 million in last year’s second quarter. Reported operating income in the second quarter of 2022 was $55.2 million compared to $35.8 million in the second quarter of 2021. Reported diluted earnings per share was 92 cents in the second quarter of 2022 compared to 61 cents in the second quarter of 2021. Foreign currency translation decreased revenue by approximately 3% and earnings per share by approximately 5% in the present quarter. The 2021 second quarter reported results included divestiture & other related costs and operational improvement plan costs, which in total decreased 2021 second quarter diluted earnings per share by $0.16. The 2021 second quarter reported results also included the operations of the divested product lines, which decreased diluted earnings per share by $0.01. We did not make any adjustments to our 2022 second quarter reported results for divestiture & other related costs, operational improvement plan costs, or results of the divested product lines. The adjustments to our reported results 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 & Extracts 5.5% -2.2% Color 17.3% 13.3% Asia Pacific 15.5% 11.5% Total Revenue 10.7% 4.6% Adjusted Local Currency (1) Revenue Quarter Year-to-Date Flavors & Extracts 8.8% 7.0% Color 21.9% 16.8% Asia Pacific 23.0% 18.6% Total Revenue 14.9% 11.6% (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 Flavors & Extracts Group reported second quarter revenue of $189.3 million compared to $179.4 million in last year’s second quarter, an increase of 5.5%. Adjusted local currency revenue increased 8.8% in the quarter. The Group had favorable pricing and volume growth in Flavors, Extracts & Flavor Ingredients, and favorable pricing in Natural Ingredients, partially offset by lower volumes in Natural Ingredients. The lower volumes in Natural Ingredients were primarily a result of a limited supply of onion combined with strong 2021 demand. Segment operating income was $30.0 million in the current quarter compared to $24.5 million reported in the comparable period last year, an increase of 22.3%. Adjusted local currency operating income increased 23.9% in the quarter. The higher operating income was primarily due to the favorable pricing and volume growth in Flavors, Extracts & Flavor Ingredients, and favorable pricing in Natural Ingredients, partially offset by higher input costs. Foreign currency translation decreased segment revenue by approximately 3% and segment operating income by approximately 1% in the quarter. Segment operating income as a percent of revenue in the second quarter of 2022 rose to 15.9%. The Color Group reported revenue of $156.3 million in the quarter compared to $133.2 million in last year’s second quarter, an increase of 17.3%. Adjusted local currency revenue increased 21.9% in the quarter. The Group had strong volume growth and higher pricing in both Food & Pharmaceutical Colors and Personal Care. Segment operating income was $31.2 million in the quarter compared to $25.6 million in last year’s comparable period, an increase of 21.7%. Adjusted local currency operating income increased 23.9% compared to the prior year’s second quarter. The higher operating income is primarily a result of the higher volumes and favorable pricing, partially offset by higher input costs. Foreign currency translation decreased segment revenue by 4% and segment operating income by approximately 5% in the quarter. Segment operating income as a percent of revenue in the second quarter of 2022 was 20.0%. The Asia Pacific Group reported revenue of $37.3 million in the quarter compared to $32.3 million in last year’s second quarter, an increase of 15.5%. Adjusted local currency revenue increased 23.0% in the quarter. The higher revenue was a result of strong volume growth and higher pricing. Segment operating income was $7.7 million in the quarter compared to $5.8 million in last year’s second quarter, an increase of 33.3%. Adjusted local currency operating income increased 43.3% in the quarter. The higher operating income was primarily a result of the favorable volume growth and higher pricing. Foreign currency translation decreased segment revenue and operating income by approximately 8% and 10%, respectively, in the quarter. Segment operating income as a percent of revenue in the second quarter of 2022 rose to 20.7%. Corporate & Other reported operating costs of $13.7 million in the current quarter compared to $20.2 million in last year’s second quarter, a decrease of 32.3%. Adjusted local currency operating expenses for Corporate & Other increased 14.0% in the quarter primarily due to higher performance-based compensation. 2022 OUTLOOK Sensient is reconfirming its expectation for 2022 full year GAAP diluted earnings per share to grow at a high-teen growth rate compared to the Company’s 2021 reported GAAP diluted earnings per share of $2.81. Our full year 2022 guidance does not include any material divestiture & other related costs, operational improvement plan costs, or results of divested businesses. The Company now expects 2022 revenue to grow at a high single digit rate in local currency compared to the Company’s 2021 adjusted revenue(2). The Company’s previous 2022 revenue guidance was for a mid-to-high single digit growth rate in local currency. The Company is reconfirming its expectation for 2022 adjusted EBITDA(2) and diluted earnings per share to grow at a high single- to double-digit rate in local currency compared to the Company’s 2021 adjusted EBITDA(2) and the Company’s 2021 adjusted diluted earnings per share(2) of $3.13. The Company now expects full year 2022 earnings per share reported on a U.S. dollar basis to be impacted by approximately twenty-three cents of foreign currency headwinds based on current exchange rates. The Company’s previous guidance anticipated twelve cents of foreign currency headwinds. The Company’s guidance is based on current conditions and trends in the economy and the markets in which the Company operates and is subject to various risks and uncertainties as described below. The Company will continue to monitor the impacts of the ongoing COVID-19 pandemic and the conflict between Russia and Ukraine on our business. (2) See “Reconciliation of Non-GAAP Amounts” at the end of this release for more information. USE OF NON-GAAP FINANCIAL MEASURES The Company’s non-GAAP financial measures eliminate the impact of certain items, which, depending on the measure, include; currency movements, depreciation and amortization, non-cash share-based compensation, divestiture & other related costs, operational improvement plan costs and income, and the results of the divested operations. These measures are provided 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. CONFERENCE CALL The Company will host a conference call to discuss its 2022 second quarter financial results at 8:30 a.m. CDT on Friday, July 22, 2022. 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 . A replay of the call will be available one hour after the end of the conference call through July 29, 2022, by calling (877) 344-7529 and referring to conference identification number 5230009. 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 on or after July 26, 2022. This release contains statements that may constitute “forward-looking statements” within the meaning of Federal securities laws including under “2022 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, energy, and other supplies, the availability and cost of labor, logistics, and transportation; the uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and transportation, and on general economic conditions; governmental regulations and restrictions, and general economic conditions, including inflation; 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, acquisition and divestiture activities, and operational improvement plan; 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, 2021, as updated and supplemented by the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, 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. 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, 2022 2021 % Change 2022 2021 % Change Revenue $ 371,706 $ 335,827 10.7% $ 727,227 $ 695,529 4.6% Cost of products sold 240,703 224,233 7.3% 471,378 468,322 0.7% Selling and administrative expenses 75,759 75,841 (0.1%) 147,816 144,557 2.3% Operating income 55,244 35,753 54.5% 108,033 82,650 30.7% Interest expense 3,083 3,322 6,076 6,755 Earnings before income taxes 52,161 32,431 101,957 75,895 Income taxes 13,514 6,495 26,239 18,291 Net earnings $ 38,647 $ 25,936 49.0% $ 75,718 $ 57,604 31.4% Earnings per share of common stock: Basic $ 0.92 $ 0.62 $ 1.81 $ 1.37 Diluted $ 0.92 $ 0.61 $ 1.80 $ 1.36 Average common shares outstanding: Basic 41,893 42,135 41,879 42,199 Diluted 42,208 42,267 42,178 42,328 Results by Segment Three Months Ended June 30, Six Months Ended June 30, Revenue 2022 2021 % Change 2022 2021 % Change Flavors & Extracts $ 189,337 $ 179,401 5.5% $ 372,064 $ 380,312 (2.2%) Color 156,268 133,207 17.3% 304,706 268,927 13.3% Asia Pacific 37,328 32,317 15.5% 73,793 66,157 11.5% Intersegment elimination (11,227 ) (9,098 ) (23,336 ) (19,867 ) Consolidated $ 371,706 $ 335,827 10.7% $ 727,227 $ 695,529 4.6% Operating Income Flavors & Extracts $ 30,013 $ 24,536 22.3% $ 57,592 $ 51,554 11.7% Color 31,178 25,615 21.7% 61,835 52,209 18.4% Asia Pacific 7,721 5,793 33.3% 15,925 12,545 26.9% Corporate & Other (13,668 ) (20,191 ) (27,319 ) (33,658 ) Consolidated $ 55,244 $ 35,753 54.5% $ 108,033 $ 82,650 30.7% Sensient Technologies Corporation (In thousands) (Unaudited) Consolidated Condensed Balance Sheets June 30, December 31, 2022 2021 Cash and cash equivalents $ 25,271 $ 25,740 Trade accounts receivable 295,948 261,121 Inventories 452,161 411,635 Prepaid expenses and other current assets 48,146 42,657 Total Current Assets 821,526 741,153 Goodwill & intangible assets (net) 417,538 435,009 Property, plant, and equipment (net) 443,675 446,478 Other assets 120,483 122,853 Total Assets $ 1,803,222 $ 1,745,493 Trade accounts payable $ 140,776 $ 125,519 Short-term borrowings 26,624 8,539 Other current liabilities 96,516 98,247 Total Current Liabilities 263,916 232,305 Long-term debt 498,715 503,006 Accrued employee and retiree benefits 28,193 28,579 Other liabilities 53,431 43,178 Shareholders' Equity 958,967 938,425 Total Liabilities and Shareholders' Equity $ 1,803,222 $ 1,745,493 Sensient Technologies Corporation (In thousands, except per share amounts) (Unaudited) Consolidated Statements of Cash Flows Six Months Ended June 30, 2022 2021 Cash flows from operating activities: Net earnings $ 75,718 $ 57,604 Adjustments to arrive at net cash provided by operating activities: Depreciation and amortization 26,180 25,817 Share-based compensation expense 8,691 4,188 Net (gain) loss on assets (38 ) 206 Loss on divestitures and other charges - 13,511 Deferred income taxes 12,244 1,702 Changes in operating assets and liabilities: Trade accounts receivable (41,592 ) (26,902 ) Inventories (51,768 ) 19,357 Prepaid expenses and other assets (25,919 ) (15,573 ) Trade accounts payable and other accrued expenses 20,501 9,632 Accrued salaries, wages, and withholdings (4,188 ) (3,944 ) Income taxes 2,765 1,953 Other liabilities 199 1,710 Net cash provided by operating activities 22,793 89,261 Cash flows from investing activities: Acquisition of property, plant, and equipment (32,468 ) (25,550 ) Proceeds from sale of assets 92 169 Proceeds from divestiture of businesses - 36,255 Other investing activities 1,571 (254 ) Net cash (used in) provided by investing activities (30,805 ) 10,620 Cash flows from financing activities: Proceeds from additional borrowings 69,424 25,997 Debt payments (31,547 ) (62,578 ) Purchase of treasury stock - (22,507 ) Dividends paid (34,446 ) (33,027 ) Other financing activities (2,056 ) (582 ) Net cash provided by (used in) financing activities 1,375 (92,697 ) Effect of exchange rate changes on cash and cash equivalents 6,168 1,352 Net (decrease) increase in cash and cash equivalents (469 ) 8,536 Cash and cash equivalents at beginning of period 25,740 24,770 Cash and cash equivalents at end of period $ 25,271 $ 33,306 Supplemental Information Six Months Ended June 30, 2022 2021 Dividends paid per share $ 0.82 $ 0.78 Sensient Technologies Corporation (In thousands, except percentages and per share amounts) (Unaudited) Reconciliation of Non-GAAP Amounts The Company's results for the three and six months ended June 30, 2022 and 2021 include adjusted revenue, adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude divestiture & other related costs, operational improvement plan costs and income, and the results of the divested operations. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Revenue (GAAP) $ 371,706 $ 335,827 10.7% $ 727,227 $ 695,529 4.6% Revenue of the divested product lines - (2,207 ) - (27,777 ) Adjusted revenue $ 371,706 $ 333,620 11.4% $ 727,227 $ 667,752 8.9% Operating income (GAAP) $ 55,244 $ 35,753 54.5% $ 108,033 $ 82,650 30.7% Divestiture & other related costs – Cost of products sold - 3 - 28 Divestiture & other related costs – Selling and administrative expenses - 11,685 - 13,232 Operating loss (income) of the divested product lines - 459 - (2,468 ) Operational improvement plan - Selling and administrative expenses - (3,494 ) - (2,493 ) Adjusted operating income $ 55,244 $ 44,406 24.4% $ 108,033 $ 90,949 18.8% Net earnings (GAAP) $ 38,647 $ 25,936 49.0% $ 75,718 $ 57,604 31.4% Divestiture & other related costs, before tax - 11,688 - 13,260 Tax impact of divestiture & other related costs - (1,689 ) - (896 ) Net loss (earnings) of the divested product lines, before tax - 459 - (2,468 ) Tax impact of the divested product lines - (115 ) - 608 Operational improvement plan income, before tax - (3,494 ) - (2,493 ) Tax impact of operational improvement plan - 455 - 159 Adjusted net earnings $ 38,647 $ 33,240 16.3% $ 75,718 $ 65,774 15.1% Diluted earnings per share (GAAP) $ 0.92 $ 0.61 50.8% $ 1.80 $ 1.36 32.4% Divestiture & other related costs, net of tax - 0.24 - 0.29 Results of operations of the divested product lines, net of tax - 0.01 - (0.04 ) Operational improvement plan income, net of tax - (0.07 ) - (0.06 ) Adjusted diluted earnings per share $ 0.92 $ 0.79 16.5% $ 1.80 $ 1.55 16.1% Note: Earnings per share calculations may not foot due to rounding differences. Sensient Technologies Corporation (In thousands) (Unaudited) Reconciliation of Non-GAAP Amounts - Continued Results by Segment Three Months Ended June 30, Revenue 2022 Adjustments (1) Adjusted 2022 2021 Adjustments (1) Adjusted 2021 Flavors & Extracts $ 189,337 $ - $ 189,337 $ 179,401 $ (1,415 ) $ 177,986 Color 156,268 - 156,268 133,207 (792 ) 132,415 Asia Pacific 37,328 - 37,328 32,317 - 32,317 Intersegment elimination (11,227 ) - (11,227 ) (9,098 ) - (9,098 ) Consolidated $ 371,706 $ - $ 371,706 $ 335,827 $ (2,207 ) $ 333,620 Operating Income Flavors & Extracts $ 30,013 $ - $ 30,013 $ 24,536 $ (45 ) $ 24,491 Color 31,178 - 31,178 25,615 504 26,119 Asia Pacific 7,721 - 7,721 5,793 - 5,793 Corporate & Other (13,668 ) - (13,668 ) (20,191 ) 8,194 (11,997 ) Consolidated $ 55,244 $ - $ 55,244 $ 35,753 $ 8,653 $ 44,406 Results by Segment Six Months Ended June 30, Revenue 2022 Adjustments (1) Adjusted 2022 2021 Adjustments (1) Adjusted 2021 Flavors & Extracts $ 372,064 $ - $ 372,064 $ 380,312 $ (26,304 ) $ 354,008 Color 304,706 - 304,706 268,927 (1,328 ) 267,599 Asia Pacific 73,793 - 73,793 66,157 (295 ) 65,862 Intersegment elimination (23,336 ) - (23,336 ) (19,867 ) 150 (19,717 ) Consolidated $ 727,227 $ - $ 727,227 $ 695,529 $ (27,777 ) $ 667,752 Operating Income Flavors & Extracts $ 57,592 $ - $ 57,592 $ 51,554 $ (2,925 ) $ 48,629 Color 61,835 - 61,835 52,209 544 52,753 Asia Pacific 15,925 - 15,925 12,545 (87 ) 12,458 Corporate & Other (27,319 ) - (27,319 ) (33,658 ) 10,767 (22,891 ) Consolidated $ 108,033 $ - $ 108,033 $ 82,650 $ 8,299 $ 90,949 (1) For Revenue, adjustments consist of revenues of the divested product lines. For Operating Income, adjustments consist of the results of the divested product lines, divestiture & other related costs, and 2021 operational improvement plan costs and income. Sensient Technologies Corporation (In thousands, except percentages) (Unaudited) Reconciliation of Non-GAAP Amounts - Continued The following tables summarize the percentage change in the 2022 results compared to the 2021 results for the corresponding periods. Three Months Ended June 30, Revenue Total Foreign Exchange Rates Adjustments (2) Adjusted Local Currency Flavors & Extracts 5.5% (2.5%) (0.8%) 8.8% Color 17.3% (3.9%) (0.7%) 21.9% Asia Pacific 15.5% (7.5%) 0.0% 23.0% Total Revenue 10.7% (3.4%) (0.8%) 14.9% Operating Income Flavors & Extracts 22.3% (1.3%) (0.3%) 23.9% Color 21.7% (4.6%) 2.4% 23.9% Asia Pacific 33.3% (10.0%) 0.0% 43.3% Corporate & Other (32.3%) 0.0% (46.3%) 14.0% Total Operating Income 54.5% (5.8%) 31.2% 29.1% Diluted Earnings Per Share 50.8% (4.9%) 34.2% 21.5% Adjusted EBITDA 22.6% (4.1%) N/A 26.7% Six Months Ended June 30, Revenue Total Foreign Exchange Rates Adjustments (2) Adjusted Local Currency Flavors & Extracts (2.2%) (2.1%) (7.1%) 7.0% Color 13.3% (2.9%) (0.6%) 16.8% Asia Pacific 11.5% (6.6%) (0.5%) 18.6% Total Revenue 4.6% (2.8%) (4.2%) 11.6% Operating Income Flavors & Extracts 11.7% (1.2%) (6.4%) 19.3% Color 18.4% (3.6%) 1.3% 20.7% Asia Pacific 26.9% (8.9%) (0.9%) 36.7% Corporate & Other (18.8%) 0.0% (38.2%) 19.4% Total Operating Income 30.7% (4.3%) 12.5% 22.5% Diluted Earnings Per Share 32.4% (4.4%) 17.4% 19.4% Adjusted EBITDA 18.2% (3.2%) N/A 21.4% (2) For Revenue, adjustments consist of revenues of the divested product lines. For Operating Income, Diluted Earnings per Share, and Adjusted EBITDA, adjustments consist of the results of the divested product lines, divestiture & other related costs, and 2021 operational improvement plan costs and income. The following table summarizes the reconciliation between Operating Income (GAAP) and Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Operating income (GAAP) $ 55,244 $ 35,753 54.5% $ 108,033 $ 82,650 30.7% Depreciation and amortization 13,124 13,018 26,180 25,817 Depreciation and amortization, divested product lines - (48 ) - (97 ) Share-based compensation expense 4,528 2,075 8,691 4,188 Divestiture & other related costs, before tax - 11,688 - 13,260 Results of operations of the divested product lines, before tax - 459 - (2,468 ) Operational improvement plan costs (income), before tax - (3,494 ) - (2,493 ) Adjusted EBITDA $ 72,896 $ 59,451 22.6% $ 142,904 $ 120,857 18.2% The following table summarizes the reconciliation between Net cash provided by operating activities (GAAP) and Free Cash Flow for the three and six months ended June 30, 2022 and 2021. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Net cash provided by operating activities (GAAP) $ 23,685 $ 60,297 (60.7 %) $ 22,793 $ 89,261 (74.5 %) Capital expenditures (19,732 ) (11,306 ) (32,468 ) (25,550 ) Free Cash Flow $ 3,953 $ 48,991 (91.9 %) $ (9,675 ) $ 63,711 (115.2 %) We have included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable period-over-period performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest of the information included in this release and our SEC filings. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and we believe the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies. Category: Earnings