Sensient Technologies Corporation (NYSE: SXT) reported diluted
earnings per share from continuing operations of 79 cents in this
year’s third quarter compared to 61 cents in last year’s third
quarter. Revenue was $349.7 million in this year’s third quarter,
an increase of 1.5% compared to $344.5 million in the comparable
period last year. Operating income was $51.2 million in the third
quarter of 2016 compared to $43.2 million in last year’s third
quarter. Foreign currency translation impacted third quarter
results, reducing reported revenue, operating income and earnings
per share by approximately 1%.
For the nine months ended September 30, 2016 and 2015, diluted
earnings per share from continuing operations were $2.04 and $1.89,
respectively. Revenue increased approximately 2% to $1.05 billion
in the first nine months of 2016, from $1.04 billion in the first
nine months of 2015. Operating income was $142.3 million in the
first nine months of 2016, an increase of approximately 6% from the
$134.7 million reported in the comparable period last year. Foreign
currency translation impacted the year to date results, reducing
revenue, operating income and earnings per share by approximately
2%.
The reported results include restructuring and other costs,
which are described in more detail under “Reconciliation of
Non-GAAP Amounts” below. Restructuring and other costs reduced
earnings per share from continuing operations by 4 cents in this
year’s third quarter and 38 cents year to date. In 2015,
restructuring and other costs reduced earnings per share by 17
cents in the third quarter and 45 cents in the first nine months of
the year.
The adjusted results, discussed below, eliminate the impact of
restructuring and other costs 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 third quarter adjusted earnings per share from
continuing operations increased 8% to 83 cents, compared to 77
cents in the comparable period last year. Adjusted operating income
was $54.1 million and $54.2 million in the third quarters of 2016
and 2015, respectively. Foreign currency translation reduced both
adjusted operating income and adjusted earnings per share by
approximately 1% in the third quarter.
For the nine months ended September 30, 2016 and 2015, adjusted
earnings per share from continuing operations were $2.42 and $2.34,
respectively. Adjusted operating income was $162.2 million in the
first nine months of this year, compared to $163.3 million in the
comparable period last year. Foreign currency translation reduced
adjusted operating income by approximately 2%, and adjusted
earnings per share from continuing operations by approximately 3%
in the nine months ended September 30, 2016.
Cash provided by operating activities was $49.7 million in the
quarter and $150.6 million year to date. Last year cash provided by
operating activities was $16.6 million in the third quarter and
$93.5 million in the first nine months. The improvement is due to
higher cash earnings, lower restructuring payments and the
Company’s focus on working capital.
“Sensient had another strong performance in the third quarter
with solid profit growth at each of our operating segments,” said
Paul Manning, Chairman, President and CEO of Sensient Technologies
Corporation. “The Color Group and the Asia Pacific Group are having
outstanding years, while the Flavors & Fragrances Group
continues to make progress and deliver solid results.”
BUSINESS REVIEW
The Color Group reported revenue of $125.4 million in the
quarter, an increase of 5.9% compared to $118.5 million in last
year’s third quarter. Segment operating income increased 13.4% to
$26.3 million in the third quarter compared to $23.2 million in the
comparable period last year. Foreign currency translation reduced
both revenue and segment operating income by approximately 1% in
the quarter. The Color Group’s performance was driven by strong
results from the Food Color and Cosmetic businesses, with each
business reporting solid revenue and profit growth.
For the first nine months of this year, the Color Group reported
revenue of $383.1 million, an increase of 5.7% over $362.5 million
reported in the comparable period last year. Segment operating
income increased 9.6%, to $82.1 million in the first nine months of
this year compared to $75.0 million in the first nine months of
2015. Foreign currency translation reduced revenue by approximately
3% and segment operating income by approximately 2% in the first
nine months of 2016.
The Flavors & Fragrances Group reported third quarter
revenue of $200.7 million, a decrease of 3.2% from $207.4 million
reported in last year’s third quarter. Segment operating income was
$32.3 million, an increase of approximately 3% compared to $31.4
million in the third quarter of 2015. Foreign currency translation
reduced revenue and segment operating income by approximately 1% in
the quarter. Several of the businesses in the Flavors &
Fragrances Group delivered solid results in the quarter, including
Natural Ingredients, and the Beverage businesses in both North
America and Europe.
The Flavors & Fragrances Group reported revenue of $608.3
million and $618.0 million in the first nine months of 2016 and
2015, respectively. Segment operating income was $95.1 million in
the first nine months of this year compared to $94.4 million in the
comparable period last year. Foreign currency translation reduced
both revenue and segment operating income by approximately 2% year
to date.
The Asia Pacific Group reported revenue of $33.4 million in the
quarter, an 18% increase compared to $28.4 million in the
comparable period last year. Segment operating income increased
15.4% to $6.6 million in this year’s third quarter from $5.7
million in last year’s quarter. Revenue for the first nine months
of 2016 and 2015 was $95.0 million and $86.9 million, respectively.
Segment operating income was $18.7 million in the first nine months
of this year compared to $17.4 million in the comparable period
last year. In the third quarter, foreign currency translation
increased revenue by approximately 3% and segment operating income
by approximately 2%. For the year to date period, foreign currency
translation reduced revenue by approximately 2% and segment
operating income by approximately 3%.
The Corporate & Other segment, which includes the
restructuring and other costs, reported operating costs of $14.0
million in the quarter and $53.6 million year to date. In 2015, the
Corporate & Other segment reported operating costs of $17.0
million in the third quarter and $52.0 million in first nine months
of the year.
2016 OUTLOOK
Sensient expects earnings per share from continuing operations
to be between $2.77 and $2.80, which includes an estimated 43 cents
of restructuring and other costs. The Company expects adjusted
earnings per share, which excludes restructuring and other costs,
to be between $3.20 and $3.23. Refer to “Reconciliation of Non-GAAP
Amounts” below for a description of restructuring and other costs
excluded from the adjusted results and information about the
amounts of these costs incurred through the third quarter. The
Company’s previous guidance for earnings per share from continuing
operations was $2.66 to $2.71, which included 54 cents of
restructuring and other costs. The Company’s previous guidance for
adjusted earnings per share from continuing operations was $3.20 to
$3.25.
CONFERENCE CALL
The Company will host a conference call to discuss its 2016
third quarter financial results at 10:00 a.m. CDT on Friday,
October 21, 2016. To participate in the conference call, please
contact InterCall Teleconferencing at (706) 758-1089 and refer to
conference identification number 90275041. 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 1:00 p.m. CDT on October
21, 2016, through midnight on October 28, by calling (404) 537-3406
and referring to conference identification number 90275041. A
transcript of the call will also 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. 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 restructuring,
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; 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
law, 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
and other risks can be found in our Annual Report on Form 10-K for
the year ended December 31, 2015, and subsequent reports filed with
the Securities and Exchange Commission.
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) Consolidated
Statements of Earnings Three Months Ended September
30, Nine Months Ended September 30, 2016
2015 % Change 2016
2015 % Change Revenue $ 349,662 $
344,533 1.5 % $ 1,052,966 $ 1,036,768 1.6 % Cost of products
sold 227,099 231,761 -2.0 % 690,126 688,408 0.2 % Selling and
administrative expenses 71,412 69,552 2.7 %
220,505 213,627 3.2 % Operating income
51,151 43,220 18.4 % 142,335 134,733 5.6 % Interest expense
4,584 4,295 14,021 12,316
Earnings before income taxes 46,567 38,925 128,314 122,417 Income
taxes 10,948 11,287 36,751
34,502 Earnings from continuing operations 35,619
27,638 91,563 87,915 (Loss) gain from discontinued operations, net
of tax - (47 ) 3,343 (348 ) Net
earnings $ 35,619 $ 27,591 29.1 % $ 94,906 $ 87,567
8.4 % Earnings per share of common stock: Basic: Continuing
operations $ 0.80 $ 0.61 $ 2.05 $ 1.90 Discontinued operations
- - 0.07 (0.01 ) Earnings per
share of common stock $ 0.80 $ 0.61 $ 2.13 $ 1.89
Diluted: Continuing operations $ 0.79 $ 0.61 $ 2.04 $ 1.89
Discontinued operations - - 0.07
(0.01 ) Earnings per share of common stock $ 0.79 $ 0.60 $
2.11 $ 1.88 Average common shares outstanding: Basic
44,532 45,392 44,604 46,239
Diluted 44,816 45,675 44,873
46,543
Reconciliation of Non-GAAP Amounts
The Company's results from continuing operations for the
three and nine months ended September 30, 2016, include pre-tax
restructuring and other costs of $3.0 million ($1.6 million
after-tax or $0.04 per share) and $19.9 million ($16.9 million
after-tax or $0.38 per share), respectively. The restructuring
costs relate to eliminating underperforming operations,
consolidating manufacturing facilities and improving efficiencies
within the Company. The other costs in 2016 are for a long-lived
asset impairment charge on a production facility for which
management is currently evaluating strategic alternatives and
associated outside professional fees, and the other costs in 2015
are acquisition related costs. The Company's results from
continuing operations for the three and nine months ended September
30, 2015, include pre-tax restructuring and other costs of $11.0
million ($7.6 million after-tax or $0.17 per share) and $28.6
million ($20.8 million after-tax or $0.45 per share), respectively.
Three Months Ended September 30, Nine
Months Ended September 30, 2016 2015
% Change 2016 2015 %
Change Operating income from continuing operations
(GAAP) $ 51,151 $ 43,220 18.4 %
$ 142,335 $ 134,733 5.6 % Restructuring
- Cost of products sold - 2,814 810 3,095 Restructuring - Selling
and administrative 2,781 8,138 8,588 24,594 Other - Selling and
administrative 191 18 10,483
873
Adjusted operating income $
54,123 $ 54,190 -0.1 %
$
162,216 $ 163,295 -0.7 %
Net earnings from continuing operations (GAAP) $
35,619 $ 27,638 28.9 %
$ 91,563
$ 87,915 4.1 % Restructuring and other, before tax
2,972 10,970 19,881 28,562 Tax impact of restructuring and other
(1,399 ) (3,396 ) (2,999 ) (7,759 )
Adjusted net earnings $ 37,192 $
35,212 5.6 %
$ 108,445 $
108,718 -0.3 %
Diluted EPS from continuing
operations (GAAP) $ 0.79 $ 0.61
29.5 %
$ 2.04 $ 1.89 7.9 %
Restructuring and other, net of tax 0.04 0.17
0.38 0.45
Adjusted diluted
EPS $ 0.83 $ 0.77 7.8
%
$ 2.42 $ 2.34 3.4 % 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. Note: Earnings per share
calculations may not foot due to rounding differences.
Sensient
Technologies Corporation (In thousands, except per share
amounts) Results by Segment Three
Months Ended September 30, Nine Months Ended
September 30,
Revenue
2016 2015 % Change 2016
2015 % Change Flavors &
Fragrances $ 200,663 $ 207,373 -3.2 % $ 608,329 $ 617,983 -1.6 %
Color 125,445 118,468 5.9 % 383,075 362,516 5.7 % Asia Pacific
33,444 28,373 17.9 % 94,974 86,925 9.3 % Intersegment elimination
(9,890 ) (9,681 ) (33,412 ) (30,656 )
Consolidated $ 349,662 $ 344,533 1.5 % $
1,052,966 $ 1,036,768 1.6 %
Operating
Income
Flavors & Fragrances $ 32,280 $ 31,369 2.9 % $ 95,097 $
94,354 0.8 % Color 26,295 23,181 13.4 % 82,143 74,972 9.6 % Asia
Pacific 6,584 5,703 15.4 % 18,701 17,448 7.2 % Corporate &
Other (14,008 ) (17,033 ) (53,606 )
(52,041 ) Consolidated $ 51,151 $ 43,220 18.4
% $ 142,335 $ 134,733 5.6 % The Company’s reportable
segments consist of the Flavors & Fragrances, Color, and Asia
Pacific segments. Beginning in the first quarter of 2016, the
results of operations for the Company’s color business in China,
South Korea and Japan, previously reported in the Asia Pacific
segment, are now reported in the Color segment. The results for
2015 have been restated to reflect these changes. The 2016 and 2015
restructuring and other costs related to continuing operations are
reported in the Corporate & Other segment.
Consolidated
Condensed Balance Sheets September 30 2016
2015 Cash and cash equivalents $ 23,505 $
24,180 Trade accounts receivable, net 244,157 246,166 Inventories
406,957 442,352 Other current assets 86,588 45,186
Total Current Assets 761,207 757,884 Goodwill &
intangible assets (net) 406,244 418,019 Property, plant, and
equipment (net) 478,429 475,940 Other assets 89,739
96,266 Total Assets $ 1,735,619 $ 1,748,109 Trade
accounts payable $ 99,468 $ 110,077 Short term debt 21,417 24,945
Other current liabilities 103,562 95,879 Total
Current Liabilities 224,447 230,901 Long-term debt 596,840
604,259 Accrued employee and retiree benefits 20,919 24,684 Other
liabilities 15,017 16,135 Shareholders' Equity 878,396
872,130 Total Liabilities and Shareholders' Equity $
1,735,619 $ 1,748,109 Beginning in the first quarter of 2016, the
Company adopted Accounting Standards Update (ASU) No. 2015-07,
Balance Sheet Classification of Deferred Taxes, and ASU No.
2015-03, Simplifying the Presentation of Debt Issuance Costs. The
Company restated its 2015 Consolidated Condensed Balance Sheet to
reflect these new accounting standards.
Sensient Technologies
Corporation (In thousands, except per share amounts)
Consolidated Statements of Cash Flows
Three Months Ended September 30, 2016 2015
Cash flows from operating activities: Net earnings $ 35,619
$ 27,591 Adjustments to arrive at net cash provided by operating
activities: Depreciation and amortization 11,875 12,116 Stock-based
compensation 1,940 (697 ) (Gain) loss on assets (214 ) 2,557
Deferred income taxes 2,223 1,434 Changes in operating assets and
liabilities (1,694 ) (26,404 ) Net cash
provided by operating activities 49,749 16,597
Cash flows from investing activities: Acquisition of
property, plant and equipment (23,710 ) (18,538 ) Proceeds from
sale of assets 2,687 199 Other investing activity (34 )
(67 ) Net cash used in investing activities
(21,057 ) (18,406 ) Cash flows from financing
activities: Proceeds from additional borrowings 55,886 68,617 Debt
payments (62,630 ) (11,753 ) Purchase of treasury stock (6,673 )
(37,896 ) Dividends paid (12,091 ) (12,301 ) Proceeds from options
exercised and other 119 - Net
cash (used in) provided by financing activities (25,389 )
6,667 Effect of exchange rate changes on cash
and cash equivalents 9 (2,463 ) Net
increase in cash and cash equivalents 3,312 2,395 Cash and cash
equivalents at beginning of period 20,193
21,785 Cash and cash equivalents at end of period $ 23,505
$ 24,180
Supplemental Information
Three Months Ended September 30, 2016
2015 Dividends paid per share $ 0.27 $
0.27
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