Sensient Technologies Corporation

02/15/2019 | Press release | Archived content

Sensient Technologies Corporation Reports Results for the Quarter and Year Ended December 31, 2018

MILWAUKEE--(BUSINESS WIRE)-- Sensient Technologies Corporation (NYSE: SXT) reported earnings per share of 78 cents in the fourth quarter of 2018 compared to 31 cents in last year's fourth quarter. Revenue was $324.6 million in this year's fourth quarter compared to $328.9 million in the comparable period last year. Operating income was $45.3 million in the fourth quarter of 2018 and $47.4 million in last year's fourth quarter. Foreign currency translation decreased revenue and operating income by approximately 2% and earnings per share by approximately 6% in the fourth quarter.

For the year ended December 31, 2018, earnings per share were $3.70 compared to $2.03 for the year ended December 31, 2017. Revenue was approximately $1.4 billion in both 2018 and 2017. Operating income was $203.4 million and $167.8 million for the years ended December 31, 2018 and 2017, respectively. Foreign currency translation increased full year 2018 revenue by approximately 1%, but did not have a significant impact on operating income or earnings per share.

The reported results include the impact of the Tax Cuts and Jobs Act ('2017 Tax Legislation') and restructuring and other costs, which are described in more detail under 'Reconciliation of Non-GAAP Amounts' below. The impact of the 2017 Tax Legislation decreased net earnings by $0.4 million, or 1 cent per share, in the current quarter and increased net earnings by $6.6 million, or 16 cents per share for the full year of 2018. In 2017, the impact of the 2017 Tax Legislation decreased net earnings by $18.4 million, or 42 cents per share, in both the fourth quarter and for the full year 2017.

In 2017, restructuring and other costs reduced operating income by $2.9 million ($4.7 million after-tax or 11 cents per share), in the fourth quarter and $48.1 million ($42.5 million after-tax or 96 cents per share), for the full year of 2017. The Company completed its restructuring activities in 2017 and did not incur any restructuring or other costs in 2018.

The adjusted results, discussed below, eliminate the impact of restructuring and other costs, and the 2017 Tax Legislation, and enhance the overall understanding of the Company's performance when viewed together with our GAAP results. Refer to 'Reconciliation of Non-GAAP Amounts' below. Sensient's adjusted earnings per share were 79 cents in this year's fourth quarter, compared to 84 cents in the comparable period last year. Fourth quarter adjusted operating income was $45.3 million, compared to $50.3 million reported in the fourth quarter of 2017. Foreign currency translation decreased adjusted operating income and adjusted earnings per share by approximately 2% in the fourth quarter of 2018.

For the year ended December 31, 2018, adjusted earnings per share were $3.55, an increase of approximately 4%, from last year's result of $3.42. Adjusted operating income was $203.4 million for the full year of 2018 compared to $215.9 million in the comparable period last year. Foreign currency translation increased full year 2018 adjusted operating income and adjusted earnings by approximately 1%.

Cash provided by operating activities was $83.5 million for the full year of 2018 compared to $36.3 million in the prior year. The 2018 cash flows provided by investing activities includes $91.1 million of cash receipts on sold receivables compared to $141.5 million in the comparable period last year that were previously reported as cash provided by operating activities. Total debt decreased $56.5 million in the fourth quarter of 2018.

BUSINESS REVIEW

Reported
Revenue Quarter Year-to-Date
Color 0.7% 5.2%
Flavors & Fragrances (1.7%) 0.0%
Asia Pacific (2.5%) 0.0%
Total Revenue (1.3%) 1.8%

Local Currency(1)

Revenue Quarter Year-to-Date
Color 4.0% 4.8%
Flavors & Fragrances (0.5%) (1.1%)
Asia Pacific 0.2% 0.1%
Total Revenue 0.8% 1.1%

(1) Local currency percentage changes are described in more detail in the

'Reconciliation of Non-GAAPAmounts' below.

The Color Group reported revenue of $127.1 million in the quarter compared to $126.2 million in last year's fourth quarter, an increase of approximately 1%. Segment operating income was $22.9 million in the quarter compared to $25.5 million in last year's fourth quarter. Foreign currency decreased both revenue and operating income by approximately 3% in the period. The Group's lower profit was primarily driven by higher input costs and product mix. In the fourth quarter, the Company continued to experience customer inventory destocking within the Cosmetic business.

For the full year, the Color Group reported revenue of $553.5 million, an increase of approximately 5% from $526.4 million reported in the comparable period last year. Segment operating income increased approximately 1% to $114.9 million compared to $113.4 million reported in 2017. Foreign currency translation increased operating income by approximately 1% in 2018 and had a minimal impact on revenue during the year.

The Flavors & Fragrances Group reported fourth quarter revenue of $175.5 million compared to $178.5 million reported in the comparable period last year. Segment operating income was $22.3 million in the fourth quarter compared to $24.1 million reported in the fourth quarter of 2017. The Group's post-restructuring sales have stabilized and pricing and cost pressures in the natural ingredients business have subsided. The Group's lower profit was primarily a result of overall soft market demand in the quarter in certain product categories. The Fragrances, BioNutrients, and European Sweet & Beverage businesses delivered solid revenue growth in the quarter. Foreign currency translation decreased revenue and operating income by approximately 1% in the quarter.

For the full year of 2018 and 2017, the Flavors & Fragrances Group reported revenue of $746.9 million in both years. Segment operating income was $96.4 million in 2018 and $114.3 million in 2017. Foreign currency translation increased revenue by approximately 1% in 2018 and had a minimal impact on operating income.

The Asia Pacific Group reported revenue of $31.1 million in the fourth quarter compared to $31.9 million reported in the comparable period last year. Segment operating income was $5.6 million and $6.0 million in the fourth quarters of 2018 and 2017, respectively. Foreign currency translation decreased segment revenue and operating income by approximately 3% and 1%, respectively. For the full year of both 2018 and 2017, revenue was $123.2 million. Segment operating income was $20.9 million and $20.8 million in 2018 and 2017, respectively. Foreign currency translation increased operating income by approximately 1% in 2018 with a minimal impact on revenue.

Corporate & Other reported operating costs of $5.5 million in the current quarter and $8.2 million in the fourth quarter of 2017. For the full year, the Corporate & Other segment, had operating costs of $28.8 million compared to $80.7 million in 2017. The lower costs this year are primarily a result of the absence of restructuring and other costs, and lower performance based executive compensation.

'We remain confident in our long-term strategy and we are working on a number of exciting projects. I am optimistic for 2019 and beyond,' said Paul Manning, Chairman, President and CEO of Sensient Technologies Corporation.

2019 OUTLOOK

Metric 2019 Local Currency Guidance
Consolidated Revenue Low to mid-single digit growth
Color Group Mid-single digit growth
Flavors & Fragrances Group Low to mid-single digit growth
Asia Pacific Group Mid-single digit growth
Consolidated Operating Income Low single digit growth
Color Group Mid-single digit growth
Flavors & Fragrances Group Mid-single digit growth
Asia Pacific Group Mid-single digit growth
Consolidated Adjusted EBITDA(2) Mid-single digit growth

For 2019, the Company expects low to mid-single digit local currency consolidated revenue growth. Expectations for local currency revenue growth within the Flavors & Fragrances segment are consistent with this consolidated expectation. Expectations for local currency revenue growth in the Color and Asia Pacific segments are slightly above the consolidated expectation. Within the Color segment, revenue growth will be driven by new project wins and conversions of existing food and beverage products to natural color solutions.

Local currency operating income growth within the Flavors & Fragrances, Color, and Asia Pacific segments are expected to grow at a mid-single digit rate in 2019. These expectations apply to full year results for 2019. Results by quarter will vary and the expectation is results will strengthen after the first quarter. As an example, both the Flavors & Fragrances and Color segment results are expected to improve over the course of the year as pricing is implemented to offset input cost inflation, and as mix improves. In summary, we expect each of our three operating business segments, excluding corporate expense, to deliver mid-single digit operating income growth.

Expectations for consolidated operating income and EPS in 2019 are tempered by several headwinds the Company faces relative to 2018 adjusted EPS. These headwinds are non-cash share based compensation and income taxes. The Company's compensation program features strong ties to performance, particularly in the executive team's stock based compensation, which is 100% performance based. As a result of this pay philosophy, the Company recorded an unusually low level of non-cash stock based compensation expense in 2018 to reflect lower than expected payouts on equity grants to the executive team. Also in 2018, the Company's adjusted tax rate was reduced by a number of proactive planning opportunities which may not recur in 2019.

Estimated Items Impacting Comparability Between
2018 Adjusted Diluted EPS and 2019 Guidance Amount
Opportunistic tax planning opportunities in 2018 that may not recur in 2019 $ 0.24
Lower than normal non-cash stock based compensation recorded in 2018 compared to 2019 estimate 0.14
Total $ 0.38

As a result of the headwinds above, the Company expects local currency 2019 earnings per share to be down 8% to 11% in comparison to 2018 reported earnings per share of $3.70 and down 4% to 7% in comparison to 2018 adjusted EPS of $3.55. In addition, we expect earnings per share reported on a U.S. dollar basis to be impacted by currency headwinds of approximately five cents, or 1% to 2%, based on current exchange rates. Since consolidated local currency Adjusted EBITDA(2) will not be impacted by these headwinds, the Company expects this metric to grow at a rate in excess of consolidated operating income and earnings per share. The Company expects consolidated Adjusted EBITDA to grow at a mid-single digit rate in 2019 on a local currency basis.

(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 2018 fourth quarter and full year financial results at 9:00 a.m. CST on Friday, February 15, 2019. To participate in the conference call, please contact InterCall Teleconferencing at (888) 818-9025 and refer to conference identification number 8442319. A webcast of the conference call will be available on the Investor Information section of the Company's web site at www.sensient.com.

A replay will be available beginning at 2:00 p.m. CST on February 15, 2019, through 11:00 p.m. CST on February 22, 2019, by calling (404) 537-3406 and referring to conference identification number 8442319. An audio replay and written transcript of the call will be posted on 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 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 December 31 Twelve Months Ended December 31
2018 2017 % Change 2018 2017 % Change
Revenue $ 324,563 $ 328,874 -1.3 % $ 1,386,815 $ 1,362,265 1.8 %
Cost of products sold 218,548 216,289 1.0 % 920,686 886,775 3.8 %
Selling and administrative expenses 60,763 65,206 -6.8 % 262,751 307,684 -14.6 %
Operating income 45,252 47,379 -4.5 % 203,378 167,806 21.2 %
Interest expense 5,336 4,909 21,853 19,383
Earnings before income taxes 39,916 42,470 181,525 148,423
Income taxes 7,066 29,049 24,165 58,823
Net earnings $ 32,850 $ 13,421 144.8 % $ 157,360 $ 89,600 75.6 %
Earnings per share of common stock:
Basic $ 0.78 $ 0.31 $ 3.71 $ 2.05
Diluted $ 0.78 $ 0.31 $ 3.70 $ 2.03
Average common shares outstanding:
Basic 42,224 43,285 42,404 43,780
Diluted 42,287 43,509 42,499 44,031
Reconciliation of Non-GAAP Amounts
The Company's results for the three and twelve months ended December 31, 2018, include tax expense of $0.4 million ($0.01 per share) and a tax benefit of $6.6 million ($0.16 per share), respectively, compared to the $18.4 million ($0.42 per share) provisional amount recorded in 2017 for the impact of the Tax Cuts and Jobs Act (2017 Tax Legislation). The Company did not incur any restructuring or other costs for the three and twelve months ended December 31, 2018. The Company's results for the three and twelve months ended December 31, 2017, include pre-tax restructuring and other costs of $2.9 million ($4.7 million after-tax or $0.11 per share) and $48.1 million ($42.5 million after-tax or $0.96 per share), respectively. The restructuring costs related to eliminating underperforming operations, consolidating manufacturing facilities and improving efficiencies within the Company. The other costs in 2017 relate to the completed sale of a facility and certain related business lines within the Flavors & Fragrances segment in Strasbourg, France.
Three Months Ended December 31 Twelve Months Ended December 31
2018 2017 % Change 2018 2017 % Change
Operating income (GAAP) $ 45,252 $ 47,379 -4.5 % $ 203,378 $ 167,806 21.2 %
Restructuring - Cost of products sold - (526 ) - 2,889
Restructuring - Selling and administrative - 3,415 - 33,627
Other - Selling and administrative - - - 11,555
Adjusted operating income $ 45,252 $ 50,268 -10.0 % $ 203,378 $ 215,877 -5.8 %
Net earnings (GAAP) $ 32,850 $ 13,421 144.8 % $ 157,360 $ 89,600 75.6 %
Restructuring and other, before tax - 2,889 - 48,071
Tax impact of restructuring and other - 1,822 - (5,602 )
Impact of the 2017 Tax Legislation 427 18,446 (6,634 ) 18,446
Adjusted net earnings $ 33,277 $ 36,578 -9.0 % $ 150,726 $ 150,515 0.1 %
Diluted EPS (GAAP) $ 0.78 $ 0.31 151.6 % $ 3.70 $ 2.03 82.3 %
Restructuring and other, net of tax - 0.11 - 0.96
2017 Tax Legislation 0.01 0.42 (0.16 ) 0.42
Adjusted diluted EPS $ 0.79 $ 0.84 -6.0 % $ 3.55 $ 3.42 3.8 %
Note: Earnings per share calculations may not foot due to rounding differences.
Sensient Technologies Corporation
(In thousands, except per share amounts)
(Unaudited)
Reconciliation of Non-GAAP Amounts - Continued
The following table summarizes the percentage change in the 2018 results compared to the 2017 results for the corresponding periods.
Three Months Ended December 31 Twelve Months Ended December 31

Revenue

Total

Foreign

Exchange

Rates

Local

Currency

Total

Foreign

Exchange

Rates

Local

Currency

Flavors & Fragrances (1.7 %) (1.2 %) (0.5 %) 0.0 % 1.1 % (1.1 %)
Color 0.7 % (3.3 %) 4.0 % 5.2 % 0.4 % 4.8 %
Asia Pacific (2.5 %) (2.7 %) 0.2 % 0.0 % (0.1 %) 0.1 %
Total Revenue (1.3 %) (2.1 %) 0.8 % 1.8 % 0.7 % 1.1 %
The following table summarizes the reconciliation between Operating Income (GAAP) and Adjusted EBITDA for the twelve months ended December 31, 2018.

Twelve

Months

Ended

December 31

2018
Operating income (GAAP) $ 203,378
Depreciation and amortization 53,244
Share-based compensation 503
Adjusted EBITDA $ 257,125
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.
Results by Segment Three Months Ended December 31 Twelve Months Ended December 31

Revenue

2018 2017 % Change 2018 2017 % Change
Flavors & Fragrances $ 175,531 $ 178,520 -1.7 % $ 746,932 $ 746,943 0.0 %
Color 127,067 126,180 0.7 % 553,479 526,363 5.2 %
Asia Pacific 31,101 31,904 -2.5 % 123,164 123,193 0.0 %
Corporate & Other 356 - 525 -
Intersegment elimination (9,492 ) (7,730 ) (37,285 ) (34,234 )
Consolidated $ 324,563 $ 328,874 -1.3 % $ 1,386,815 $ 1,362,265 1.8 %

Operating Income

Flavors & Fragrances $ 22,291 $ 24,065 -7.4 % $ 96,433 $ 114,343 -15.7 %
Color 22,850 25,468 -10.3 % 114,924 113,381 1.4 %
Asia Pacific 5,600 6,022 -7.0 % 20,856 20,772 0.4 %
Corporate & Other (5,489 ) (8,176 ) (28,835 ) (80,690 )
Consolidated $ 45,252 $ 47,379 -4.5 % $ 203,378 $ 167,806 21.2 %
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 provides broad technologies for both the Color and Flavor & Fragrances segments and is included in Corporate & Other. The 2017 restructuring and other costs are reported in Corporate & Other.

Sensient Technologies Corporation

(In thousands, except per share amounts)
(Unaudited)
Consolidated Condensed Balance Sheets
December 31 2018 2017
Cash and cash equivalents $ 31,901 $ 29,344
Trade accounts receivable, net 255,350 195,439
Inventories 490,757 463,517
Other current assets 44,857 43,206
Assets held for sale - 1,969
Total Current Assets 822,865 733,475
Goodwill & intangible assets, net 435,042 416,206
Property, plant, and equipment, net 491,056 498,523
Other assets 75,977 76,136
Total Assets $ 1,824,940 $ 1,724,340
Trade accounts payable $ 131,812 $ 109,780
Short-term debt 20,046 20,130
Other current liabilities 62,842 86,413
Total Current Liabilities 214,700 216,323
Long-term debt 689,553 604,159
Accrued employee and retiree benefits 23,210 19,294
Other liabilities 37,530 32,263
Shareholders' equity 859,947 852,301
Total Liabilities and Shareholders' Equity $ 1,824,940 $ 1,724,340
During the three months ended June 30, 2018, the Company amended its account receivable securitization program and the Company no longer accounts for the sale of trade receivables in accordance with Accounting Standard Codification (ASC) Topic 860, Transfers and Servicing. As a result of this amendment, the Company's trade account receivables increased by $60 million and the Company's long-term debt increased by $60 million.
Consolidated Statements of Cash Flows
Twelve Months Ended December 31 2018 2017
Cash flows from operating activities:
Net earnings $ 157,360 $ 89,600
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization 53,244 48,518
Stock-based compensation 503 5,855
Net loss on assets 63 2,552
Loss on divestiture of businesses - 33,160
Deferred income taxes 9,844 17,414
Changes in operating assets and liabilities (137,494 ) (160,792 )
Net cash provided by operating activities 83,520 36,307
Cash flows from investing activities:
Acquisition of property, plant and equipment (50,740 ) (56,344 )
Cash receipts on sold receivables 91,142 141,465
Proceeds from sale of assets 2,615 10,485
Proceeds from divestiture of businesses - 12,457
Acquisition of new businesses (31,100 ) -
Other investing activity 2,916 2,319
Net cash provided by investing activities 14,833 110,382
Cash flows from financing activities:
Proceeds from additional borrowings 322,529 231,174
Debt payments (284,332 ) (239,950 )
Purchase of treasury stock (76,734 ) (87,217 )
Dividends paid (57,410 ) (54,038 )
Other financing activity (2,777 ) (3,383 )
Net cash used in financing activities (98,724 ) (153,414 )
Effect of exchange rate changes on cash and cash equivalents 2,928 10,204
Net increase in cash and cash equivalents 2,557 3,479
Cash and cash equivalents at beginning of period 29,344 25,865
Cash and cash equivalents at end of period $ 31,901 $ 29,344
The Company adopted Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payment, in the first quarter of 2018. 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. As a result, the Company has included $91 million and $141 million in net cash provided by investing activities for the twelve months ended December 31, 2018 and 2017, respectively.
Supplemental Information
Twelve Months Ended December 31 2018 2017
Dividends paid per share $ 1.35 $ 1.23

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Amy Agallar
(414) 347-3706

Source: Sensient Technologies Corporation