Le Lézard
Classified in: Business
Subjects: EARNINGS, Dividend, Conference Call, Webcast

Sensient Technologies Corporation Reports Results for the Quarter Ended June 30, 2019


Sensient Technologies Corporation (NYSE: SXT) reported earnings per share of 81 cents in the second quarter of 2019 compared to 92 cents in the second quarter of 2018. Revenue was $339.2 million in this year's second quarter compared to $363.0 million in the comparable period last year. Operating income was $47.4 million in the second quarter of 2019 and $52.2 million in last year's second quarter. Foreign currency translation decreased revenue and operating income by approximately 2% and earnings per share by approximately 1% in the quarter.

"I am encouraged by the continued growth in natural colors and the solid performance in our finished flavors and extracts business," said Paul Manning, Chairman, President and CEO of Sensient Technologies Corporation. "I am confident that our overall results will improve in the second half of the year."

BUSINESS REVIEW

 

 

Reported

Revenue

Quarter

Year-to-Date

Color

(3.7%)

(3.0%)

Flavors & Fragrances

(9.3%)

(6.0%)

Asia Pacific

(5.0%)

(5.4%)

Total Revenue

(6.6%)

(4.6%)

 

 

Local Currency (1)

Revenue

Quarter

Year-to-Date

Color

(0.9%)

0.8%

Flavors & Fragrances

(7.8%)

(4.1%)

Asia Pacific

(3.0%)

(2.7%)

Total Revenue

(4.5%)

(1.9%)

 

 
(1) Local currency percentage changes are described in more detail in the "Reconciliation of Non-GAAP Amounts" below.

 

 

The reported results include the impact of foreign currency, which is described in more detail under "Reconciliation of Non-GAAP Amounts" below. The non-GAAP amounts eliminate the impact of currency movements, depreciation and amortization, and non-cash stock-based compensation and enhance the overall understanding of the Company's performance when viewed together with the GAAP results. Refer to "Reconciliation of Non-GAAP Amounts" below.

The Color Group reported revenue of $138.9 million in the quarter compared to $144.3 million in last year's second quarter. Segment operating income was $27.9 million in the quarter compared to $31.1 million in last year's comparable period. Foreign currency decreased both revenue and operating income by approximately 3% in the period. The Group's results were favorably impacted by the continued strong revenue growth in natural colors in the Food & Beverage Colors business and growth in the Pharmaceutical business, offset by lower sales in the Cosmetic and Inks businesses. Color Group operating income was lower in the quarter due to lower cosmetic sales, higher raw material costs, tariffs, and the timing of pricing actions.

The Flavors & Fragrances Group reported second quarter revenue of $180.1 million compared to $198.7 million reported in the comparable period last year. Higher revenue in the finished flavors and extracts product lines was offset by lower revenue in certain flavor ingredient product lines. Segment operating income was $20.1 million in the second quarter compared to $24.0 million reported in the second quarter of 2018. The Group's lower profit was primarily a result of the lower segment sales, lower production volumes, and higher raw material costs. These items were partially offset by the Natural Ingredients business, which reported higher profit compared to the comparable period last year. Foreign currency translation decreased revenue by approximately 2% with minimal impact on operating income in the quarter.

The Asia Pacific Group reported revenue of $29.0 million in the quarter compared to $30.5 million reported in the comparable prior year period. Segment operating income was $4.2 million and $4.6 million in the second quarters of 2019 and 2018, respectively. Foreign currency translation decreased segment revenue by approximately 2% and increased operating income by approximately 1% in the quarter.

Corporate & Other reported operating costs of $4.8 million in the current quarter compared to $7.6 million in the second quarter of 2018. The lower costs this year are primarily a result of lower performance-based executive compensation.

2019 OUTLOOK

Based on the first half results, current market conditions and local currency segment growth expectations for the second half, the Company issues the following updates to the 2019 guidance.

2019 EPS Guidance compared to 2018 Reported Results
The Company now anticipates the full year local currency earnings per share to be down 1% to 2% below the bottom end of our previously issued guidance. The Company now anticipates that local currency earnings per share will be down 12% to 13% compared to 2018 reported diluted earnings per share of $3.70. Previously, the Company indicated that local currency earnings per share would be down 8% to 11% compared to 2018 reported diluted earnings per share of $3.70. In addition, the Company continues to expect a negative foreign currency impact of 1% to 2%, or about 5 cents per share.

2019 EPS Guidance compared to 2018 Adjusted Results
The Company now anticipates the full year local currency earnings per share to be down 1% to 2% below the bottom end of our previously issued guidance. The Company now anticipates that local currency earnings per share will be down 8% to 9% compared to 2018 adjusted diluted earnings per share of $3.55. Previously, the Company indicated that local currency earnings per share would be down 4% to 7% compared to 2018 adjusted diluted earnings per share of $3.55. In addition, the Company continues to expect a negative foreign currency impact of 1% to 2%, or about 5 cents per share.

2019 Adjusted EBITDA Guidance
The Company's local currency guidance for Adjusted EBITDA(2) is adjusted to be slightly below 2018 Adjusted EBITDA versus the previously issued guidance of mid-single digit growth for the full year. The Company provides this metric as a supplemental measure of the underlying business performance by adjusting EBITDA for non-cash stock-based compensation impacts.

(2) Adjusted EBITDA represents operating income before depreciation and amortization and non-cash stock-based compensation expense. See the "Reconciliation of Non?GAAP Amounts" below for more information.

CONFERENCE CALL

The Company will host a conference call to discuss its 2019 second quarter financial results at 9:00 a.m. CDT on Friday, July 19, 2019. To participate in the conference call, contact Chorus Call Inc. at (888) 317-6016 or (412) 317-6016 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 beginning one hour after the end of the conference call through July 26, 2019, by calling (877) 344-7529 and referring to conference identification number 10133304. An audio replay and written transcript of the call will be posted on the Investor Information section of the Company's web site at www.sensient.com after the call concludes.

This release contains statements that may constitute "forward-looking statements" within the meaning of Federal securities laws including under "2019 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 pace and nature of new product introductions by the Company and the Company's customers; the Company's ability to successfully implement its strategy to create sustainable, long-term shareholder value; the Company's ability to successfully implement its growth strategies; the outcome of the Company's various productivity-improvement and cost-reduction efforts; changes in costs or availability of raw materials, including energy; industry and economic factors related to the Company's domestic and international business; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors, including increased intensity of competition; the loss of any customers in certain product lines in which our sales are made to a relatively small number of customers; product liability claims or product recalls; the costs of compliance, or failure to comply, with laws and regulations applicable to our industries and markets; changing consumer preferences and changing technologies; currency exchange rate fluctuations; estimates related to the Tax Cuts and Jobs Act and its effects on our results; and failure to complete and integrate future acquisitions or dispositions. 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. Additional information regarding these risks can be found in our most recent Annual Report on Form 10-K/A and subsequent reports that we file with the SEC.

ABOUT SENSIENT TECHNOLOGIES

Sensient Technologies Corporation is a leading global manufacturer and marketer of colors, flavors and fragrances. Sensient employs advanced technologies at facilities around the world to develop specialty food and beverage systems, cosmetic and pharmaceutical systems, inkjet and specialty inks and colors, and other specialty and fine chemicals. The Company's customers include major international manufacturers representing most 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,

 

2019

2018

% Change

2019

2018

% Change

 
Revenue

$

339,186

$

363,041

(6.6%)

$

686,699

$

719,518

(4.6%)

 
Cost of products sold

 

227,418

 

241,571

(5.9%)

 

459,706

 

474,977

(3.2%)

Selling and administrative expenses

 

64,400

 

69,289

(7.1%)

 

130,205

 

136,679

(4.7%)

 
Operating income

 

47,368

 

52,181

(9.2%)

 

96,788

 

107,862

(10.3%)

Interest expense

 

5,200

 

5,555

 

10,602

 

11,110

 
Earnings before income taxes

 

42,168

 

46,626

 

86,186

 

96,752

Income taxes

 

7,837

 

7,503

 

19,048

 

19,435

 
Net earnings

$

34,331

$

39,123

(12.2%)

$

67,138

$

77,317

(13.2%)

 
Earnings per share of common stock:
Basic

$

0.81

$

0.93

$

1.59

$

1.82

 
Diluted

$

0.81

$

0.92

$

1.59

$

1.81

 
Average common shares outstanding:
Basic

 

42,270

 

42,281

 

42,255

 

42,578

 
Diluted

 

42,300

 

42,371

 

42,287

 

42,701

 
Reconciliation of Non-GAAP Amounts

 

 
The following table summarizes the percentage change in the 2019 results compared to the 2018 results for the corresponding periods.

 

 

Three Months Ended June 30,

Six Months Ended June 30,
Revenue

Total

Foreign Exchange Rates

Local Currency

Total

Foreign Exchange Rates

Local Currency

Flavors & Fragrances

(9.3%)

(1.5%)

(7.8%)

(6.0%)

(1.9%)

(4.1%)

Color

(3.7%)

(2.8%)

(0.9%)

(3.0%)

(3.8%)

0.8%

Asia Pacific

(5.0%)

(2.0%)

(3.0%)

(5.4%)

(2.7%)

(2.7%)

Total Revenue

(6.6%)

(2.1%)

(4.5%)

(4.6%)

(2.7%)

(1.9%)

 

 

 

 

 

 
Operating Income

 

 

 

 

 

Flavors & Fragrances

(16.5%)

(0.1%)

(16.4%)

(12.5%)

(0.6%)

(11.9%)

Color

(10.5%)

(2.8%)

(7.7%)

(10.4%)

(3.8%)

(6.6%)

Asia Pacific

(9.3%)

0.5%

(9.8%)

(11.4%)

0.0%

(11.4%)

Corporate & Other

(37.3%)

(0.1%)

(37.2%)

(18.3%)

(0.1%)

(18.2%)

Total Operating Income

(9.2%)

(1.6%)

(7.6%)

(10.3%)

(2.5%)

(7.8%)

Diluted EPS

(12.0%)

(1.1%)

(10.9%)

(12.2%)

(2.3%)

(9.9%)

Adjusted EBITDA

(9.9%)

(1.5%)

(8.4%)

(9.1%)

(2.3%)

(6.8%)

 

 

 

 

 

 

The following table summarizes the reconciliation between Operating Income (GAAP) and Adjusted EBITDA for the three and six months ended June 30, 2019 and 2018.

 

Three Months Ended June 30,

Six Months Ended June 30,

 

2019

2018

% Change

2019

2018

% Change

Operating income (GAAP)

$

47,368

 

$

52,181

(9.2

%)

$

96,788

 

$

107,862

(10.3

%)

Depreciation and amortization

 

14,069

 

 

13,444

 

27,741

 

 

26,022

Share-based compensation (income) expense

 

(1,842

)

 

529

 

(1,155

)

 

1,783

Adjusted EBITDA

$

59,595

 

$

66,154

(9.9

%)

$

123,374

 

$

135,667

(9.1

%)

 
 
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.

Sensient Technologies Corporation

(In thousands, except percentages and per share amounts)
(Unaudited)
 
Results by Segment

Three Months Ended June 30,

Six Months Ended June 30,

 

Revenue

2019

2018

% Change

2019

2018

% Change

 
Flavors & Fragrances

$

180,134

 

$

198,658

 

(9.3%)

$

363,687

 

$

387,004

 

(6.0%)

Color

 

138,912

 

 

144,291

 

(3.7%)

 

282,791

 

 

291,451

 

(3.0%)

Asia Pacific

 

29,002

 

 

30,521

 

(5.0%)

 

57,521

 

 

60,788

 

(5.4%)

Intersegment elimination

 

(8,862

)

 

(10,429

)

 

(17,300

)

 

(19,725

)

 
Consolidated

$

339,186

 

$

363,041

 

(6.6%)

$

686,699

 

$

719,518

 

(4.6%)

 
 
 
Operating Income
 
Flavors & Fragrances

$

20,050

 

$

24,001

 

(16.5%)

$

43,175

 

$

49,328

 

(12.5%)

Color

 

27,877

 

 

31,133

 

(10.5%)

 

58,076

 

 

64,805

 

(10.4%)

Asia Pacific

 

4,201

 

 

4,634

 

(9.3%)

 

8,419

 

 

9,506

 

(11.4%)

Corporate & Other

 

(4,760

)

 

(7,587

)

 

(12,882

)

 

(15,777

)

 
Consolidated

$

47,368

 

$

52,181

 

(9.2%)

$

96,788

 

$

107,862

 

(10.3%)

 
 
The Company's reportable segments consist of the Flavors & Fragrances, Color, and Asia Pacific segments. During the third quarter of 2018, the Company completed the acquisition of Mazza Innovation Limited. This business was included in Corporate & Other in 2018. Beginning in the first quarter of 2019, the results of operations of this business are now reported in the Color segment. The results for 2018 have been restated to reflect this change.
 
 
Consolidated Condensed Balance Sheets

June 30,

December 31,

2019

2018

 
Cash and cash equivalents

$

29,882

 

$

31,901

 

Trade accounts receivable (net)

 

273,109

 

 

255,350

 

Inventories

 

462,108

 

 

490,757

 

Other current assets

 

46,988

 

 

44,857

 

Total Current Assets

 

812,087

 

 

822,865

 

 
Goodwill & intangible assets (net)

 

432,879

 

 

435,042

 

Property, plant, and equipment (net)

 

481,163

 

 

491,056

 

Other assets

 

99,366

 

 

75,977

 

 
Total Assets

$

1,825,495

 

$

1,824,940

 

 
Trade accounts payable

$

108,095

 

$

131,812

 

Short-term debt

 

20,337

 

 

20,046

 

Other current liabilities

 

66,237

 

 

62,842

 

Total Current Liabilities

 

194,669

 

 

214,700

 

 
Long-term debt

 

656,737

 

 

689,553

 

Accrued employee and retiree benefits

 

24,313

 

 

23,210

 

Other liabilities

 

52,294

 

 

37,530

 

Shareholders' Equity

 

897,482

 

 

859,947

 

 
Total Liabilities and Shareholders' Equity

$

1,825,495

 

$

1,824,940

 

 
Sensient Technologies Corporation
(In thousands, except per share amounts)
(Unaudited)
 
Consolidated Statements of Cash Flows
Six Months Ended June 30,

2019

2018

Cash flows from operating activities:
Net earnings

$

67,138

 

$

77,317

 

Adjustments to arrive at net cash provided by operating activities:
 
Depreciation and amortization

 

27,741

 

 

26,022

 

Stock-based compensation

 

(1,155

)

 

1,783

 

Net (gain) loss on assets

 

(75

)

 

259

 

Deferred income taxes

 

(909

)

 

9,933

 

Changes in operating assets and liabilities:
Trade accounts receivable

 

(17,131

)

 

(117,520

)

Inventories

 

29,201

 

 

(2,306

)

Prepaid expenses and other assets

 

(3,395

)

 

(12,178

)

Accounts payable and other accrued expenses

 

(21,401

)

 

(7,759

)

Accrued salaries, wages and withholdings from employees

 

(2,598

)

 

(591

)

Income taxes

 

(2,631

)

 

(6,043

)

Other liabilities

 

1,428

 

 

2,889

 

 
Net cash provided by (used in) operating activities

 

76,213

 

 

(28,194

)

 
Cash flows from investing activities:
Acquisition of property, plant and equipment

 

(16,606

)

 

(24,000

)

Cash receipts on sold receivables

 

-

 

 

91,142

 

Proceeds from sale of assets

 

91

 

 

283

 

Acquisition of new businesses

 

-

 

 

(11,313

)

Other investing activity

 

(454

)

 

751

 

 
Net cash (used in) provided by investing activities

 

(16,969

)

 

56,863

 

 
Cash flows from financing activities:
Proceeds from additional borrowings

 

25,003

 

 

107,857

 

Debt payments

 

(55,182

)

 

(33,009

)

Purchase of treasury stock

 

-

 

 

(72,704

)

Dividends paid

 

(30,453

)

 

(28,244

)

Other financing activity

 

(1,028

)

 

(2,779

)

 
Net cash used in financing activities

 

(61,660

)

 

(28,879

)

 
Effect of exchange rate changes on cash and cash equivalents

 

397

 

 

1,754

 

 
Net (decrease) increase in cash and cash equivalents

 

(2,019

)

 

1,544

 

Cash and cash equivalents at beginning of period

 

31,901

 

 

29,344

 

Cash and cash equivalents at end of period

$

29,882

 

$

30,888

 

 
The Company adopted Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, in the first quarter of 2018 using monthly cash receipts as its unit of account. This ASU requires that certain cash receipts received on securitized accounts receivable, which were previously reported as cash flows from operating activities, are reported as cash flows from investing activities. In the second quarter of 2018, the Company updated its unit of account to daily cash receipts for the cash received related to the beneficial interest in the previously transferred receivables. As a result, the Company has included $91 million in net cash provided by investing activities for the first six months of 2018.
 
 
Supplemental Information
Six Months Ended June 30,

2019

2018

 
Dividends paid per share

$

0.72

 

$

0.66

 

 


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