Sensient Technologies (SXT) 20 Oct 232023 Q3 Earnings call transcript

Good morning, everyone, and welcome to the Sensient Technologies Corporation 2023 Third Quarter Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. And at this time, I would like to turn the floor over to Steve Rolfs. Sir, please go ahead.

Thank you. morning. Good earnings third Sensient's of for call to quarter the XXXX. Welcome and Rolfs, Officer Senior Steve Chief Vice I'm Corporation. President Financial Technologies of Sensient joined Manning, Executive I'm Paul President by Chief and Sensient's Officer. Chairman, today XXXX Earlier today, quarter third we results. our released copy is on presentation our our available sensient.com. the and at A of investor release website

to additional company's comparability in for comparable information isolation items A GAAP. the of reflects reference and removal of we today, company's investors items may accordance considered evaluates measures, performance. performance as provides or in results a also reviews make non-GAAP with everyone including from the which today. be financial encourage as GAAP the forward-looking of this movements also information not removed responses our call and questions, certain the in measures currency other During management evaluate the We review This and the believe include filings. comments press these most we to that call, will Non-GAAP calculated to financial the in measures with financial available statements. would to investors remind non-GAAP your impact our should improve like financial connection company's operations between to I the directly reporting release. financial of reconciliations these with how results made and noted comments We reconciliation substitute is during in periods.

comments results. you our XX-Q our SEC XX-K to description Our set our in a that including wide additional keep We factors, analyze that mind be factors including urge range those filings, in financial results may these expressed could our of you for or actual when potentially SEC our today. differ factors a to implied and due forthcoming impact materially Please may those Sensient's from forth read previous filings. of

from hear Manning. Paul we'll Now

afternoon. Good morning good and Steve. Thanks,

on results, the an our third like market conditions to I'd the update quarter. provide during turning Before to

Group As gradual was the in Flavors continued Color the quarter. a with predicted, the in destocking improvement It customer throughout most pronounced Group.

across and categories with see We destocking these Europe. respect reduce of volumes with and with the inventory volumes to in to most customers. volume consistent a continue outcomes are We declines lower our of the to lower in think our moderate Americas broad-based many improvement CPG efforts at market

Local our single turning Now currency digits was results. quarter. low to in down revenue the

to many declines in areas North local globally Our adjusted order seen about consumer the in in EBITDA customer in business, destocking in currency improvements X%, we sequential due patterns and in categories. impacts volumes particular, In volumes. product was improvements as have well as and of our down some largely continued America of

the we will we Right in quarter improve the continue volumes However, fourth lower next other in business, of believe impacted to year. and first now, volumes. destocking into and the by areas of be sequentially quarter

last I our call, during we As can that to time focus we on said things continue the control. second quarter

customer win and executing of our continue sales. delivery We existing service attrition avoiding on and business to new while on-time

of high improved across commercial our strategy remain a groups activities all level compared to pipelines across and suggest focus sales new Our be a and our ongoing XXXX. in and our speaks wins This sales all our to continue much to XXXX X well robust. businesses picture

to continue inflation manage to cost continue throughout businesses, implement required. pricing also where our We and we

regions. do experience see we energy, to have input begun improvements commodity costs overall in certain certain agricultural and in continue geographic we elevated costs, employee, While to

and group, geographic and areas to look continue optimize within to customer depending product differently region. to our each and our we cost has mix improve for unfolded structure always, each production Destocking As capabilities. in on

to a experience of quarter the anticipate improved Within and continued late was with in the half Group in pronounced in order We more improvements first this XXXX the in fourth sequential in began began improvement much customer quarter. destocking Flavors starting and the picture year. Extracts patterns Group, XXXX. third Flavors in

year the the Group, The even and of became third For quarter this behind began the flavors. Color destocking quarter. are more of a Color pronounced during destocking impacts in Group on second the quarter about

in largely contrast colors, Pacific mainly we are with CPG particularly beginning on order Overall, have in early the see declines Asia in to sales by Americas. impact Asia in from downturns destocking personal this Pacific is beginning and an volumes to as of Group In second and combined negative year. some impact multinationals Destocking in is of but in our to destocking and in We not volume declines decline the and the in Adding the operating the outsized quarter. destock impacted care Group quarter market widespread, the geographies do food and impact year. categories, a product to destocking the is the expect customer resulting had the flavors of profit certain this overall many fourth and part year. improved volume some Color patterns next anticipate us and be behind

We volume-driven of are also performance facing difficult comparisons to XXXX. our excellent

all have last couple of to X groups. As our calls continue we during and on inventory focus our our customers, discussed position similar we to across

remainder on Extracts Ingredients for across we decreasing the to be While within Group, our inventory inventory our strategically business focused we are and Flavors the of our businesses. investing in Natural continue

improving this seeing throughout to we improving continue a As flow on an result, cash and and in of will trend remainder focus we cash XXXX. the year in flow, are

to local a actions, and lower pricing from the turning was The benefited win Revenue from declines quarter. than destocking groups. certain customer Now categories. in and revenue group's sales by rate volume in food in offset were and in strong flavors extracts which and third demand beverage the down less currency X%

with the prior improved sequential in continue culminating profit we the period, quarter, an in currency local to group's continue the We fourth see improvement in and and anticipate revenue to improvement comparison sequential year's XXXX. operating the to

continued especially in result operating volume that has as comparison Our have this outstanding year, the to a in suffered XXXX. profit declines volume throughout of the

down Our support long our growth overall & will in and the pricing execution XX% revenue Group. by third X% profit currency years group's quarter. to down by in the strong single-digit currency destocking the foundation Local was term Color revenue product on operating due approximately partially Flavors in was that new in over focus for headwind high was portfolio, The in quarter. was Extracts the over which and impacted Revenue wins. declines local the customer offset the market are and demand, a sales the Group service

lower the in demand. and both volume profit. product impact to was line line pharmaceutical and group's Revenue the operating compared substantial market personal the down This to increase product an outsized decline destocking food quarter's prior year volume due has on care primarily of had

While improvements certain continue quarter. throughout at the we will in fourth both have to see across lines, product geographies destocking to customers the due begun headwinds

with due each the mid-single-digit local profit to group income I growth. expectations and Overall, headwinds focus was Group focused lower mid- demand on groups also Towards customer high expect up the future local growth. and and positions group groups. for currency Asia which continue currency in profound growth to pricing, volumes, on has sales revenue and color new service currency against revenue from to continue approximately deliver digit currency up currency market than And primarily the regions. destocking demand, and offerings expect the existing execution, we headwinds double-digit and lower and to we sales growth new in the to growth certain on in Asia Group growth mid- high decline benefited third is high of single-digit Pacific Extracts service in destocking Pacific in the headwinds, within growth minimizing currency partially product The growth. not the for to by attrition to local its X%. is local Asia I revenue broadening single-digit Color within wins to group Despite to successfully both due sales the continue changed. and some these and quarter. Local of region, local single X% Flavors Revenue the Group Group Pacific to what wins, revenue less business. operating long-term is the experienced deliver impact customer operating by of destocking flavors offset Year-to-date,

XXXX, revenue up now currency double be down be to low EPS our currency local expect to For low local our single I digits digits. and

adjusted previous to continue EBITDA to mid-single guidance digits. currency for EPS be to be our for Our revenue called up digits adjusted down single mid-single digits. be local to XXXX expect high and I down

As during our chain hopefully XXXX. I as a year become we inflationary move to a transition XXXX burdens more in call, supply last from normal environment and has mentioned

see our in part within continued sales of quarter improvements begun and have We fourth see geographies. XXXX. should in product the of lines to We the and certain of first pockets improvement

to years. areas we focus positions. including over business customers, growth rightsizing experienced the we Despite our last can the existing on new our fueled on headwinds, business. have our activities and control, inventory This winning new with remain development retaining has focus the continue exceptional We focused we the several

remains third positioned for we provide Our growth. and quarter future you sound strategy are results. on Steve well details the additional with will now

$XXX.X income $XX.X was in Censis $XXX.X comparable Paul. last third last $XX.X to Operating year's in million year. compared million in million you, million Thank compared quarter the the revenue period to was quarter.

third in this $X.XX third was in earnings was $X.X year's in approximately third and increased currency third the consolidated XX.X% tax in The quarter. this million quarter last rate X% to this Diluted year's third operating XX.X% quarter Foreign by X% quarter. to revenue last quarter. were compared compared compared in by $X.X in year's expense per income to $X.XX share in third Interest company's last year's year's quarter. quarter million approximately year's

by EPS third Foreign currency translation in increased $X.XX the approximately quarter.

Paul focused on inventory position. As our are we mentioned,

inventory continue quarter a to Group, throughout million businesses. focused our within reducing strategically of Extracts we & XXXX. the and throughout our a position we on natural into number of $XX.X our are our continue disciplined the were third of the inventory expenditures other in Capital year ingredients This this remainder will investing While in in Flavors in XXXX. focus business manner be

to to year. expenditures continue our be capital We $XX million the around expect for

capital Our M&A sheet down used our to support long-standing and debt. credit EBITDA excess X.X%. be adjusted cash balance is net and pay to debt expenditures, to Overall, well remains our sensible our any will dividend, positioned

expect currency XXXX be to low now we down mentioned, compared EPS Paul low our to $X.XX. our as to our guidance, EPS XXXX local to XXXX adjusted compared revenue up and revenue currency single double XXXX XXXX digits our digits be of our Regarding local

to continue local down expect digits We XXXX. adjusted currency mid-single to be EBITDA our in

guidance single high digits. to down mid-single local our local XXXX to be Our for revenue EPS called and currency our be digits up XXXX previous currency

our tax XXXX, measure by have will for is therefore, be EBITDA adjusted higher for impacted we expense. local currency As our a on fluctuate, in basis, growth and an participating we be rate year. believe discussed, to to Thank modestly current important currency the continues the our full quarter-to-quarter continue interest performance. On we today. Based favorable call in you to exchange of expect rates, EPS our

call questions. open for now the will We

this and first And begin time, the Baird. Ladies Panjabi session. Ghansham today from from gentlemen, at we question Instructions] question-and-answer our comes [Operator will

us I just insight off, you you personal us could bit pharmaceuticals of you market X food, have end operating various And across specifically, that terms maybe verticals for volume color care. price versus across could. more guess, first if and segments, then maybe the in the give just a disaggregate

Okay.

roughly group, digits, in realm. but within if mid-single you each at X% that X% pricing in flavors, same So is look overall, colors, the of maybe all QX, in kind

on So X%. is price the overall, overall down were revenue X%

implies an that volume. in So X% reduction

market factors much the Those that of how overall destocking, the depending categories. lines. is actual volume, on how that depending so in is decline on of will product considerably vary are And much that geography,

in the to like declining food continue if So -- down volume standpoint. a had be in QX. for categories most the market Even certain from categories look example, certain volumes you portfolio, across pet well, of U.S. categories

So those would be some volume. behind of the the factors

digit mid-single down around group, if you volume each at as price, price we're about look question to about across your much versus As the as in flavors, in you X%. but about look

but more So there the X%. than a we're mid-single in reduction down declines. market little principally you we bit factors, price, destocking got Color, again, those X% about see in volume, maybe

that spend So you And a substantial just reduction color. one. second volume me much more explaining in let a see

not in to are general Flavors of than in shelf tends kind noted of journey, late destocking There number destocking, in the to is reasons earnest not began flavors have after we did a of As quarter another comments, of XXXX where Colors. Colors than flavors products. value that. we prepared which that, this be higher least shorter for really as begin many the began. really a life for tends the color

destocking in the And to so be critical first. the would most the on start life cases, ultimately most that's of flavors elected constraint They why more shelf had consumers, factor.

why Colors your is more as expect impact But perhaps it price much we has profound in last magnitude, So right that's in bigger to destocking now. volume to then saw much because up Flavors. a And long finish as don't we question. just it

was up So mid-single Asia and price they're again, digits, mid-single there, Pacific digits. about

across can in So really been a has choppy, volume slightly. again, point. customers. of Americas been in mean see program Asia. There our systematic Europe, not whereas you just kind destocking, very, feature very of And a reduction inventory to it's was destocking was I down there, and been but pockets the in that's

different, of by the customers, of driven bit pockets was principally little which was a multinationals. Asia timing

question So of personal was terms the of X% then your color, bit the and about and of little food X down part a business down or food the more care in care, is around that. part than X%, maybe personal

than see did we the of side on on color of the bit of care of things a we So little the things. destocking the impact personal side food more

volume lot pharma a some U.S. in destocking. side, there's in the fact, the actually less particularly And there's outside cases, On growth,

-- there. bit little a different a a it's dynamic So very of very

is inventory products. some to that shelf nearly There's see beliefs that concerned food-related are constraints which Our life sold less providers. around in They're not principally the excipients, you'd pharmaceutical the that of API values. about

their market. the of behavior that's in so And driving some perhaps

the And is of Terrific. seem will destocking optimistic terms and in a new in assumption finalize for that of of basis in of you variances case on, terms you in volumes XXXX, mean, bridge I but year-over-year as base sort on highlight a on wins little lot obviously, bit your in grade. our then could for a Okay. more any going terms product be of What other clearly, XXXX? And we terms estimates hopefully XXXX?

Yes.

I back XXXX be will think track. on

is from As a can market patchy be of the patchy it a you in saw as year, transition this 'XX can things X volatile the year, in next. be been as little quarter terms things when bit in -- has

in headwind So -- a else, quite forever. but in XXXX. be I will picture think the nothing good. on Destocking overall can't destocking massive XXXX go If been has

track data be be way would So you profound one, a you're I right think in much number we in 'XX which now. that seeing than more tells would point that back on

I at rate think the other thing, our win remains historically high levels.

win flavors Our our that they I impressed X the build was and groups, and win rates colors, to We in very, very had last success. year. rates of continue rates win on record each with in

care degree have on lot positions, of But size optically out heck that market the of working the a lot annals whole win in the a unfortunately, confidence control when in do. things we disguised by pretty, every can ongoing of well. of is pretty can that's not you So it's being rate, just have, about. goofy I that of that a of It rates And we're in inventory this reduction big towards which trends based company, win spend time we as and customers opposed customers first your don't top the focus XXXX. about to that the robust continue to that care customers putting will be that internal line, pipelines this rather really a things is driving your the your on things big,

that that And I get little We'll price very more very, about XXXX. approach. disciplined bit So a in we're continue. type probably will think of

to geography, costs still have of may is the not has entirely that many there's flatten labor continue up. elevated. I While still at we'll think the there. other commodities also, That volume we've in think but reduced, are market There quite vary a lot but moderated, do input as of picture, well is should the looking that it expectation But by out research are inflation been there's I out. market organizations,

we volumes there last that That for I'm -- volumes market, positive now. around be the for look begun that kind years, lot, much been of X is in we're those should is dollars translate not a at nice at of elevate couple promotion And the see. marketing of As support has few and out great. programs on flat here thing lot from providers calls But -- for to these the I've that the quarters, least of conference have their going consumer on a activity, brands. growth third-party asking spending a been market Americas now in which have as is should CPGs neutral coming just Europe in the would be the these volume -- telling expectations more in earnest years categories small into as a to last very negative

would or those tells -- the that of external in forever. key a So but X me we're go can't good aspects business, factors a that like we've got inputs they of back of inherent lot these kind said, away and track of X say, sort be our underlying on of I lot fade of sort on of 'XX we're because,

Our next Joan from Pariba. from comes question BNP Lim

I had X questions.

top your on why guidance? was was vein, a I downgrade downgrade that despite similar haven't there EPS the your changed like just driving what So on no And on your guidance, EBITDA is when EBITDA line? on you downgrade the wondering,

Joan... Yes.

That's my question.

a So the on really it comes matter I of think guidance, down degrees. to

that's not case. had mid-single digits, EBITDA believe we So the changing that said We down be you're guidance. we and We're correct. still our would

we the some It's been was little in more -- little a has cases, just So things it's -- really longer a taking and it unfolding largely expected. severe. are way bit

interest of moving more is And And the what why because the But to a range, are we're of revenue, other that's within the it's reason things just going then, impact expected. of metrics largely think matter degrees of the within the very EBITDA main to is, EPS than with unfolding well. down downgrade really I expense. EPS that in we So course, and as incremental similar course, range.

Okay. That's just X. helpful. Red on question And a then

just how the safety had that will So #X. was I wondering they impact saw I California in been this sent.

X would alternatives lot product. used applications, synthetic there's I big that die. in that's Well, example, Red for It's tell a a not many but is to bakery you this. one real

open colors, So natural up That done drive lot a two, in XX group revenue. of We've you our thing. the I -- been that's first And is going it's the years. Food things number there. first, a would for tell that opportunities good for is to not it's Colors quite well which

So country feel obviously, X could that really a Red of I on behavior years. many many, time the that actually, suppose those having applications a U.S., have an will of about that X I with it California's can and impact, outside And change Red types even good has entire other perhaps because some we for believe that portfolio about challenged chain would supply rather the that, in of the aspect, actions replace had one. but naturals tell

not that's thing. think So big a factor, good that a I I as think being of

don't under certain I the I than see of operate that's necessarily bad. in a operate. that replaced short, the a out We be assumption good in can that always So the lot way lot market. we coming more products of bad. see But

folks lot a version. And our that's dies, a portfolio And replace want about these been in so has which natural of do driven synthetic our you been how work.

transition. for are this more ready and willing than we So

maybe Can one last I in Okay. That's on GL. question squeeze helpful.

So -- it impact what conversations with Are how Centene? customers? seeing your in of think terms changes any you do will you

Not really.

out. this It's lead would of an use maybe the industry by example. -- fact, at consuming fewer that of hard couple kind don't in will this of the anticipate the I food drug used it's point, have population. a in the small of impact this outside to portion such how at for calories think and this clearly If countries. of point that other folks United does play really gauge to I States, States on United a widespread

The ever soon do in that that does customers that how calories, products in the we see The this applications rolled thing. mean the could of would question And buy? in of be overall difference Too would sure, theme thing most real this is at to reduction expensive quite types tell. around a out, composition a point. when It's get economics quickly improve. so

this So people to not enough trend the this points, not a point. as enough on macro data measure at drug really

tell but over probably product our the assume one. materializes game really different beyond we our segments, think years, adapt couldn't think that, And next be I XX-plus could of much business. I continue that that of this as very, early could to I subsidize So to that threat things very lines a parts the you like types that that types different we certain X, of on in business. to could But

next Boldhaven. Our Instructions] comes [Operator from David question from Green

Yes.

back around Sorry. of color. question level? before of guess the on you end that in going in to signs volume of sort seeing looks up of volumes bounce early It of happening any questions post more if sort in Or measured see of order detail broader give I destock? do patterns a quick A a great quickly sort the getting on And slightly back sort rebound us couple customer historic and improving around be just F&E to that. Do more could a be quite like. shape recovery what a comments it's you're think of some you would just you

Okay.

I about needs he you part because order Yes, think first little it a the to So -- more patterns, that. pragmatic give depends want customer something than I don't

pragmatic So in here's this. are improving of flavors. patterns order version the Customer

of here the Going can of about so there's the more much flavor back a are much comments life only business possibly at to customers think and I you my do. our in But side most shelf good to in in I flavors, Yes, picture think year the pretty in an a there. general, pockets But more little to level. see culminate will there's which I XXXX. or start normalized improving

bit of a pretty if I that plays little think surprised growth XXXX. pricing, well. one we in the There'll had And not out of early so would part be volume but I be beginning

a largely impact QX. again, Now big but little another which month effort probably of destocking will a has than Flavors, it as of of long, there, kind of it bit the trailed think swing customers. customers' that feel kind again, faster a it food was colors, XX-plus I terms a been our number flavors. in we'll But activity flavors, bigger destocking in was

I think will one the color that. little shorter a be than bit

And so just I early could part that volume as see of returning the the 'XX based Group, in reduction destocking. to Color in simply well, on

other piece, that's though, here. Now destocking goes That the after to the going big the is piece to the other really win outcome new winning factor away, drive any going the is rate. volume be beyond

have So aligned as we as and revenue lags to right, fixed these operating is profit gets you then first precisely and profit we recover, when revenue of costs are operating and have revenue. know, timing things volume recovers because the that, fixed not inventory,

you'll volume revenue company and so improving improving. improve the therefore, then And in and see EPS first, you'll operating profit the and see

we're neutral slightly it. anticipate I can't can would from the market thing. folks I unprecedented and and an clear start like will the science. I'm It's is is year. QX negative picture real a anew like and that feels very that's is a I that Nevertheless, January in kind X, deck we're or how destocking Europe, predict when perfect our is return volumes get from what a hoping seeing. good of kind right hope, the It's XXXX now of more but thing, a of kind sense think much not positive, If kind of a a to that's we let's that on So customers be. transition but I seeing that

haven't this is to food the in We but lifetime pretty I a in done my I know, food don't can't that, speak industry, kind in this the of thing. industry. before unprecedented thing

thing, may a your But too, your bit are been when makes some customers, so these has urgent ours Because factor levels of I little in hit more problematic been aggressive too customers little in cases. and to is some of months. times they That destocking other getting lead pockets. that. signs of more perfectly, bunch little like orders, that a service get not maybe which bit on start a And see in got stuff." are, a from forecasting need bit "Hey, we a you good, out shorter the We've

crystal what ball ball also you month thing So a crystal But we've seen little in the my parts the that's is it clouds a I'm here. orders, what bigger X It because the to not seeing I bit. I a know of months last in clouds necessarily just for have think company. X

So I kind of how that's see it unfolding. largely

So but in much going to happy here I we're the I is net-net think not that science, an a with. exact think improved have all XXXX we'll be real

I you're still that point at about that you was one headwind consistent destock saying seem to broadly remember Is with... sort of the XX%. saw

Pacific kind low mid-single mid- to high Yes. It's Asia digit, in of about like that a like singles. in color right now, but and flavors QX more moderated to maybe

the the overall category company, hard that. and of probably to product destocking So we're it's net-net like the laser-cut is high of but the distinction yes, the between sort declining. in single, Oftentimes, is

customer. where lining than rather and cutting the which that a loan means, that at by and up a about hammer SKUs of think precise They that no SKUs go a not all it's lot laser. deal yours and with So in

So it's a rough right. estimate you're about

and ladies at gentlemen, And time, additional this Mr. showing Green, you have in questions? do

a companies in tenders been you've through terms and of across terms just guess, be seeing new final universe way for mood that's Maybe as something pitches that's sort are if music of one talking spend in we look little a ad bit sort system staples there most new year. I of in The of compensating lower increasing a think terms in the okay. next work? this volumes. -- of one go I of, we seems to Is about year beverage, food into and a Yes. if there, to going of had that I new

definitely a been ad sure. pickup Yes, spend for there's in

growth optimistic there's at fact, interest market that that we that, In a testimonials continuing here volume we're will in see through CPG That also as certainly happening, more be is seeing customer in broader but because customers. QX.

promotion And to so been steps key one of that And that. I doing they've their need. responding for think is

which part nice So -- again, yes, what now, absolutely we're big another of business. a for real the positive seeing is a

showing at once questions, to any and time for again, over management no I'd And additional remarks. turn the closing this like floor to back

participating. call That everyone, much, today. Okay. Thank you. conclude our Thank you for very will for

for that, conclude conference today's and We you with presentation. call we'll and And ladies gentlemen, thank joining.

You disconnect now your may lines.