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SXT Sensient Technologies

Participants
Steve Rolfs Senior Vice President and Chief Financial Officer
Paul Manning Chairman, President and Chief Executive Officer
Heidi Vesterinen Exane BNP Paribas
Mark Connelly Stephens Inc.
Mitra Ramgopal Sidoti
Call transcript
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Operator

Good morning, and welcome to the Sensient Technologies Corporation 2020 Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that today’s event is being recorded. I would now like to turn the conference over to Mr. Rolfs. Steve sir. ahead, go Please

Steve Rolfs

to our morning. I'm Officer. and Financial now like President quarter Chief conference Senior welcome results. quarter I'm joined Paul A Steve financial of Sensient Rolfs, Manning, Executive copy this call President Sensient's Officer to would of Vice XXXX Technologies second at our released is we all website of financial and you Good discuss and Chairman, Corporation. to by morning, on our release investor results. available presentation morning Chief the Sensient's This sensient.com. XXXX I second

the forward-looking our During results we statements. most include accordance financial our our evaluate would as today, will and reporting information with financial non-GAAP between to improve reconciliations not comments the financial provide sensient.com connection on believe morning. available financial this financial calculated reference your certain remind in and call periods. encourage at website section this A is measures may in Investor questions, which of in measure Information including considered also to made in release. to or These GAAP. we measures, the from information should in like morning, we isolation with results a company's of review non-GAAP additional of We be the for investors that these directly reconciliation comparability I investors to everyone make press comparable GAAP substitute comments with performance responses non-GAAP the to

action results. today. XX-Q including a financial of XX-K, you our potentially Sensient's economic comments pandemic, of uncertainties particularly governmental in you of description factors activity. for of quarter our a quarter normal second COVID-XX impact return created first that our the may We bear mind and and results Our timing when differ Please these analyze the materially, view read urge the actual could attempts to filings, at remedial additional more XX-Q forthcoming factors our our by in

will Manning. we from Paul hear Now

Paul Manning

Flavors Thank I’m business the you, as of fragrances reported our morning. beverage and single quarter group. revenue quarter. second in during single the with operating and fragrances mid first our continuing pleased group digits growth the color this flavors in is and the morning. trend Good food up results in digits Sensient and quarter, well Steve. its revenue high from earnings as profit very

we on sale progress have business our signed also our the adverse the during EPS is We third in our year. quarter personal and sale The trends, business. a I'm for on pleased natural to We were Pacific. America, COVID-XX yogurt also the in agreement impact pharmaceutical and the on we deliver up made Asia closing anticipate and based prep our We yogurt our on quarter. colors divestitures. and inks sell the fruit businesses, throughout definitive the in COVID-XX offset the by in of had Europe businesses Latin headwinds to expect Despite these these in favorable which fruit market the growth the prep quarter. completed and current outlook growth of care

continue aroma compound We our fragrance business. progress of on and divestiture make chemical to that

close Although we this by have we end year. COVID-XX, believe of we delayed can by been the transaction the

and are open production of our have throughout facilities been All the pandemic.

have we successfully and materials. our high remains delivery time managed raw on Our

I'm at our outstanding, facilities attendance proud and of very the remains our Our dedication staffing and employees. of

of and ahead to monitor prevailing of facilities We each remain practices. production will to sanitation GMP continue closely our

COVID-XX and number a has the The $X.XX COVID-XX, headwinds by As food year-to-date. is on impact incurred impact costs EPS revenue additional have experienced our a COVID-XX Overall, of mixed. of of our of and reduced we approximately result have significant we businesses. beverage in business

personal our for negative significantly is care impact business. the However,

which to me Now for X.X%. flavors flavor sales impact the turn group the business year. strong picture solid first activities. The a retaining flavor to COVID-XX the growth we was was these the as and mid growth group generated revenue currency of natural continues and in group's local the in same factors, quarter. and to positive and rate on negative remainder also product single-digit anticipate an up the The XXXX, revenue wins had quarter. XXXX lines. the another revenue. overall nice based lingering existing business for let restructuring effect experience group had from Adjusted growth The groups. extract of a as year-to-date well Net in growth The The is ingredients our of ingredient group's finished an have product improving part I new earlier decline of lines, throughout overall generated attrition, was the the

higher production adjusted This quarter, flavor profit to result the profit operating returned currency local the quarterly volumes, and group's growth wins direct cost new The group higher the of profit with was a X%. initiatives. up

and colors up to is focus for line natural digits grow. nice to of quarter, digits that single-digit And mid revenue color the group, quarter. I digits improvement profit Moving up was I food continued improving In flavor I the for revenue summary, and year. the was colors retaining continues business than for group, the a our single-digit care expect colors by operating had for offset product the colors group profit to year. and and growth points Similar year. mid Pharmaceutical single the business for XX% decline in forward. up the growth growth. beverage the profit quarter, on the high flavor continues up double group's anticipate in XX personal a Overall, would was revenue and Within the to Unfortunately, food a mid and basis single the for low growth rate. in more XXX beverage win revenue. to sales group's operating XX overall remainder margin existing our anticipate basis point

America, makeup in personal saw in and in we Europe some Latin demand America for North and quarter. the in our down While substantially improvement Asia was the care business

product Given the would of uncertainty in with for second restrictions, challenges line this the continuing continued year. half COVID-XX and I the anticipate

terms the profit, mid quarter year. profit the group color has the for profit and double-digit food growth In and colors for beverage achieved operating in operating generated single-digit growth of

personal However, quarter in actions. profit. on color care XX% the remains reason color by production products. makeup profit was decline the and care group overall And personal for down lower in in in The groups focused the the main demand more to that takeout was than other due

profit and However, the would expect And up business decline will world declines colors year. opening the not the the actions summary, single care food to care. in expect mid nearly continue of these time do that digits potential. of a personal is significant the profit. realize and revenue full I In their Short actions the beverage year-to-date we double the profit economy, for of for need more in to personal outpace digits remainder

revenue flat the mid expect profit of the For for in half high would we of profit revenue expect line. growth that group the impact of single-digit back Because the product the growth personal care, would to because the be -- for color single-digit of and of year, year. the to and I mid impact

significantly growth I profit offset regions, current Our outstanding but group growth for our the to Asia on impacted and declines as growth sales sales company, profit Pacific revenue quarter, in return this growth to the mid group in in to had areas Asia delivered upon and by The growth some begin solid many was continue restrictions group restrictions the focus growth ease. chain. to to in regions government once deliver single-digit high other revenue channels. expect certain to Based anticipate Overall I have trends, the year. for supply low single-digit COVID-XX we

on the a our result, levels inventory materials. are certain have customers we raw outstanding as our on-time increased world. around delivery key We providing to And

disruptions I disruptions, we to half, do has we the this months made flavor six the avoided continue the While inventory have anticipate the overall continue half. had of in and The with financial a this and we in pleased chain first we've group experience second company. first would for great any our levels I'm to year. reduce progress significant supply

I'm business investment performing revenue and Asia to this place Our return will is food group strategy Pacific, growth. the that in beverage colors have and also confident we In well.

optimistic unknowable. remains I'm continue care our will food businesses, COVID-XX personal business our struggle. of While about to ultimate impact the Furthermore,

you are is launches significantly customer some and below product prior and strong details grow quarter provide results. additional the there for New on business to with has been Steve our now year, rationalization. will positioned Nevertheless, the year. second well SKU

Steve Rolfs

operations divested, morning, impact and divestiture differences explaining Paul. be to our GAAP divested. XXXX The the be adjusted you, our I'll my the results. In and results comments between costs related the Thank of and results for XXXX this adjusted remove or the

believe to earnings approximately of quarter businesses that as the the as as sale divestiture The a also We in do in of of a operations million inks are Included the the and and non-cash. that not year's per is the net investors removal and This results foreign of reflects company's These business, $X.XX second gains were related which costs, include result divestiture primarily other the reported gain items, performance. or $X quarter the the other results realized of to included share. management which clearer related well increased reclassification costs, XXXX related how the losses divestiture a performance. related company's are any connected accumulated costs. translation reviews picture provides to divesting we this second currency by

an of results addition, to from include of year's second Last year's amount to In $XX.X related divested. revenue divested. include operating of of the of amount million results immaterial reported results quarter quarter second income revenue operating income and operations operations be the an and $XX.X the million to be this immaterial

compared of was last debt diluted months. quarter. the last beginning costs We’ve second year's adjusted quarter XXXX. $XX.X XXXX $XXX.X the second compared quarter earnings million be the per in of million and of second of and in results reduced in of XX $XXX.X in second second quarter compared $XX of divested, $X.XX the adjusted XXXX. related since approximately over operating in the Adjusted divestiture the $X.XX was year's the million income $XX by this $XXX consolidated operations share revenue quarter second million million quarter XXXX, million Consolidated approximately to in to to to the year Excluding was

financial available have and meet liquidity and operating We credit adequate needs cash through lines. our to flow

Cash of six was $XXX.X to XXXX. Our XX%. the six of were six XXXX, first million of months $XX.X now just debt operations compared XXXX, Capital in is from the first the for in of months months an increase under first to EBITDA $XX.X million X.X. million flow expenditures

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

cash to flow $XX.X the free approximately during increased Our XXXX XX% of months million. six first

the that of level expect income remainder expect flow non-cash strong the XXXX, because We our Consistent consolidated lower we adjusted continued cash with on flat our last to our may of what maybe performance-based the during equity earnings of we deducted year. call, XXXX be in based for growth communicated in operating results. and

we was We $X.XX which the This compared guidance $X.XX, also a result trends, impacts. divestiture divested of be or also on currency expected are to our related divestiture the which On opportunities. in $X.XX per of estimate lower and GAAP based on of trends, for exchange currency $X.XX rate now to costs, our the of year per rate, tax is and impact as excludes a to adjusted XXXX the costs planning be businesses of original based basis, our to Based a approximately to This other of higher rates. $X.XX increasing headwinds of guidance related results divested. maintaining to and share divested, an $X.XX foreign guidance current range current the includes to XXXX current $X.XX. a company on earnings number operations the includes share of

low our growth. of maintaining mid time our to a single-digit this adjusted are this you Thank EPS guidance. see for Please also press We morning. table EBITDA release of simple summary your guidance for

for the questions. open call now will We

Operator

question Thank from with Instructions] today Heidi will you. our go Vesterinen Please ahead. come Exane. first And [Operator

Heidi Vesterinen

Hi. Good morning.

pantry your in you big what if on on lot a said loading, question, of for well Because you comments your about to thought a So, elaborate in flavors, pressure net COVID have about may Paul, was flavors. that. exposure guess, finish I you talking to Could I of how see my related heard two is that a some That's area? Did as you that you peers service. have that opening from first food think negative peers benefited then And talked are your your correctly? I and questions. Thanks. as I this meant

Paul Manning

Heidi, or morning, good good afternoon Okay. actually. Well,

So the COVID yes, being a net negative would I say. for flavors,

revenue certainly -- there's the So let's take portion.

soups, there up, that cream, things were certain process number of beverage. While segments of confectionary, nature, foods, were there a for also ice that that segments down, example, were were

The from we From our a headwind. many have out regions line In standpoint, in terms did the From flavors. in timeframes. evolved not not saw Asia outlet standpoint, has traditional that was that that's type retail like, different at of QSR, Pacific We necessarily that channel in impacted headwind. standpoint. as that product and played colors in big we countries indeed exclusively particular of a of that well. stores COVID a the -- -- as a yes, has And sales and saw that sort of geographical in food

now we're thick right in Latin of So, things in America. the

course continue the headwinds geographic improving that and and situation in what would QX. together, those end had standpoint, it I into So negative. an say would an of those the we had situation. take still certainly, a QX, improving But and tell was revenue from all you of that's had U.S things a you those net we we Europe, towards we

pieces also profit, travel, to but chain there logistical air were course, favorable. those down that shipments, all favorable. of group, But it were of I that tell headwind. There it cleaning with and incremental supply we costs but were flows PPE the pieces and factors other associated these contribution. the not you, was there's from was overall the rush also costs have that as a everything Now, or certainly a was and negative, for freights plenty where that lot there But would obviously of net flavor certainly was less all then

Heidi Vesterinen

a there's talked out some separately, then, are this, that smaller peers view have and And you. challenged. there Thank customers about

a and the said so-called customers. have you work B that lot You historically with C

that, general winning. seen customers view a being have any multinationals smaller larger So you challenged? are There's

So, what's your there? view

Paul Manning

SKU's are locales, not My There particularly view have strongly multinationals fairly that shrunk that certain for -- like are is, it's other reduced channels, mixed, In are right. multinationals with some aligned QSR performing sure. well.

the to market On quite essential hand, that brands they're serving. local some are smaller the are there other that

on overall, a types. in do and reduction And tell what whether that the of overall B to customers, number than A again, would terms our reduction level of in than more here you out tell tell at and terms big as the develop that's activity of smaller in company, going what of cases, We probably I in I activity, that that you this of that overall there lot a employees more activity of is have so A we at see both at in opinion, I I the activity Cs my can or the launches -- of my see types we we that more we B business, for level. whole see product As. an look number for we is these in C we and opinion, But B would activity from coming you develop that see more development product a some do returning. the to now, are the C we of pandemic, would on and and sure

Heidi Vesterinen

Thank you.

Paul Manning

thing. Sure Okay.

Operator

The go next ahead. Connelly Mark question Please will Stephens. come from with

Mark Connelly

your Have development. is could a of you. a are that priorities? gluten-free of We've now Thank the terms customers baking is that in of that we to if just shift bread. follow-up their you little product in bit, what see to dead conclusion I sort kind on everybody come wonder putting started where

curious of whether across just activity medicine your a food or side, the towards whether that -- food pace seeing you're more shift the greater board? I'm as it's So customers as

Paul Manning

great a more about coming we -- shorter it a it's life nutraceutical -- food into of that's bit quite I tell the of I lives. would have itself which have are you're a product most or Because that in for. lot lend or and about loading food to the when way, question. Yes, activity, a that profile that functional say pantry heard that let there's looking that processed customers longer nutraceutical talk tends of does all lot attributes sort not that a this is shelf you shelf to me natural to tends COVID, much

example, business can well. functional which counter for there, ingredients applications. our selling We're go a nutraceutical Pharmaceutical So more pharmaceutical quite of did the over probably and lot into applications likely

So we see a lot of activity there.

a personal products out somewhat other bear the big are this cosmeceuticals. headwind that But oftentimes there's care the On category the either some to certainly as other hair skin there's about we cosmetic functional to talk is would trying that makeup, to market, to akin the some or there side, which nutraceutical benefit described type people of enhance. These be attribute there. or

that So there more is activity. of

any notion you're completely COVID-XX. about that or certainly tend saw a pandemic, In with development customers to the what say stopped we the has see and would before that much fact, But, accelerated containing some activity. products activity I is, at some in the well certain of at other, almost some customers, beyond so before -- this that some even in slowed we of slowdown think that cases right gluten-free yes, that would

and fresher, couldn't on So, on for I our aspect continued emphasis lot quickly personal the even functional you how healthier, at some go some of resume products one, activity products natural fact, you interesting market or but to how can yes, food of our of that and legacy customers. nutraceutical be tell even historical into I the more a and see yet, cases That pharma, the tell more, say care. it'll coming products responds, would there'll that XXXX how XXXX, very the customer's priority into be towards much in

Mark Connelly

helpful. It's

more two things. Just

priority no priority, Pacific but market, a least big Phase at any not no China longer saying priorities? your I'm a basically know there a Asia China is administration cause you is longer causing the now? X to over whether more shift or does competition that with you First, of near-term is I curious

Paul Manning

And by this, single local governments, there multiple, country a be would own coming a Well, programs. approach taken everybody with well has governments. their in I country, is being may up every within even say as different aware, fact,

plays and on And so, timelines. places this [indiscernible] in different and different out in just different

our so been, an essential And to approach has are that we business.

local new If customers develop to If open. operate. can that going to continue if those to particular and products, to But local products, we that, absolutely delivery are do on-time have we we and model folks a it ingredients, fulfill this want to locally model want tend do call to they labs We very our our to to are that have their our continue business space are customers needs. our in of is I that, your most happy of -- of you continue markets. too. we And for the think to in can existing customers outstanding your produce want

So of any to the to products aware China for we U.S China we jurisdiction. or not for China. any many, other in from I'm that produce export example, if

And in we're a been of so don't logistical we I think to supply helpful jump those support, this, hurdles many that lot cases product through that's manufacturing, model to when necessarily chain will to because actually customers. locally support and through sourcing us local continue quite have

Mark Connelly

about should was be thinking I'm second we what elsewhere. there and a half? the better anything question. expected quite for we than capital just And one than seeing Okay. better bit last Working Is

Steve Rolfs

the been we on that for that to -- year focusing So and half. we've on that's been an continue -- a initiative last focused

done we I actually over consistent as as trying raw exercise our months, in really inventories, our well some on control businesses inventory. payables. we're stock certain receivables with on And say to comments, very last will quarter, Paul's of tight over earned So to the XX materials. up the we've our well and

did we made So some well but in receivables. investments we inventory, on

year, mix also come just days cash think flow. cash And have contribute this a seeing receivables earnings helping and day. a to of about the better Our I out you're business of that's down

Paul Manning

customers, to company. days work out, also But months. We've so certainly on reducing taken our the lot I levels internal many more X of but more a we've to months, that on trailing even more inventory on this, got do we improving a serving of and cash specifically initiatives And lot many, not throughout chain supply lot -- lot to the a less have underway. but do There's the they XX with generating a that efficiencies. would have do have say trailing probably to only with

would next reductions, have I So inventory we the well the of year. rest into into year and anticipate

for that so something to And could anticipate be everybody. that,

Mark Connelly

see in environment. this you. to nice Very Thank

Operator

next comes Please go [Operator Instructions] question Mitra from with The Ramgopal Sidoti. ahead.

Mitra Ramgopal

Thanks good for questions. Hello morning. Yes. taking and the

impact EPS mentioned to wanted be think maybe just that on COVID you the half. I [technical I a Paul has think difficulty] First for had I about $X.XX

double number benefit Just check because it. from net headwinds the I that's been from wanted little you've a seeing, also a just if know or to you've

Steve Rolfs

Sure.

So, Mitra, that is a net number.

So to. at in looked We we impact, Paul also one-time some we've fortunately costs. savings the had offsetting the travel. at the which looked spoke of And really, we area then sales

that when all $X.XX was net you that So year-to-date. together,

may little of $X.XX. I positive greater impact in in a there but negative bit a a QX of little QX, of think year-to-date bit net impact been have and

Mitra Ramgopal

as that. sales. couple divestiture I you're was nice of obviously just great. Okay. the And on front, it progress That's on making questions to No, -- relates a thanks. the curious

that's probably I has the growth strategy, gone be of as the changed you in. going to given to you debt the to if process it your First, this anything maybe you've more longer at primarily was through be for and areas would look use like term wondering proceeds, this remaining and active COVID, relates as reducing if businesses as and

Paul Manning

debt. towards go So, the those reducing proceeds will from yes, divestitures

taken XX you've over the X last months, over debt bunch whole the last a seen, of As out we've months.

it's to precisely, X.XX, now EBITDA Our could number below quote Mitra, debt I you I like X.X, if just actually is very the watch to carefully.

one. program well. cash focus that's on for here now, But the uses always to So going how have and the diversification for to sure. that's business, our to play we some words, have cosmetics care a personal hair directly good in care hair for market how and technologies for example, our with the other we're of certainly that been we're more that we as just applications I time. utilize to into we what that of us that very look for coloring going business, can With our at into In some continue strategy care, respect but in other segment as the other of more think skin opportunities oral there's Hey, underway well. care

So our anything cases very is Asia have -- I and these product customers in other good if in think that COVID-XX very There's in lot accelerating, a suitable penetration areas. space segments that is throughout those to Americas, Europe. line a many of for

we market. strong market. growing very about technology and a is very good It's a feel it that still based So good

And successful there. so quite I be think we can

do. Beyond what year think this to I keep to strong successful And sure. to and where we’re very show roping we’re the flavors. And world focus riding that the of though, be into want that's we're set for going we we -- now XXXX, just on that starting the about going and got rest in can a with for strategy. colors We've good and feel I

Mitra Ramgopal

for seeing to it the that. and great. raw you material maybe and And a that's that's some on just to a view on front COVID, update relates a favorable pricing on little competitive what implement you? terms in an maybe the On No, able how you're Okay. being environment as of I’m follow-up of wondering --

Paul Manning

Well, take let first me that first. part

something a is materials. materials that this raw we of So, say than, mundane our got situation year. whole had this strategic up perhaps raw think well number of sensitivity raw materials, that more ahead more loaded in And earlier thoughtfully I we on this

So can we you're these battle. a your managing not delivering kind with if them, very employees half strong materials of there. the the only but chain that, supply you long, and around aren't things that's But all producing along had and effort raw have day

from -- seen the a yes, think but production I chain, unbelievable not these some the have team putting supply effort. support impressive so, real it's board, quality the been across there. been from And we've very And lab only and results just folks the and the our

moving a of, a like the forward that our much lockdown on supply because delivering chances cases. well and we're So we said, another not lockdown, policy as there's you on-time continue as pretty it, we chain. for it's all to whether I watch consider We're going worst I to good or to just assume it's the in and just doing. -- all our us be when And tends about to customers delivering kind

fact, better pandemic. the was before our is it in June, that In delivery

they mission So very our people understand are very engaged their and to they're and motivated complete it.

product respect world in with different different lot folks to a with lines. competition, hey, in we different the of deal Now parts of and

fact we're cost the customers. we'd so not know to And and happy they're when doing advantage of that well, because like to service take

had I piece. And to so, that's about all that say guess I

Mitra Ramgopal

selling back in I curious was second should admin great. about just And it's first then in be ongoing -- pretty could of, the know how just Okay. finally, leverage there quarter. side, and first just I we given model. maybe in I the that's And I No, where was what Steve, the the was terms divestitures? some think to curious, similar we half saw quarter the half or the on

Steve Rolfs

Yes.

So I closely We're to accruals. quarter, in some attributable that saw SG&A watching primarily from in to incentive think was going actually the SG&A you getting any and benefits increase the be good again leverage. flavors, We've travel spent years we in see this to particularly continue production rationalizing of a operating With we our volume growth, see right reduced should of type that number now. footprint. very

without new investments. to of having significant We make supporting have SG&A growth capable

revenue with leverage. growth, operating we generate be good So should to able

Mitra Ramgopal

the taking again questions. Thanks for Okay.

Paul Manning

Okay. Thanks, Mitra.

Operator

to further the At this time, back company would to conference I closing the no for turn any there remarks. questions. now like are

Paul Manning

and call. your a Goodbye Okay. morning. for That conclude our you. everyone day. Thank Thank you have this will time good

Operator

conference The now you. concluded. has Thank

You may now your disconnect lines.