SENSIENT TECHNOLOGIES CORP

Previous wording

Sensient Technologies Corporation (the Company or Sensient) is a leading global manufacturer and marketer of colors, flavors, and other specialty ingredients. The Company uses advanced technologies at facilities around the world to develop specialty food and beverage systems; personal care, essential oils, pharmaceutical, and nutraceutical systems; specialty colors; and other specialty and fine chemicals. The Company’s three reportable segments are the Flavors & Extracts Group and the Color Group, which are both managed on a product line basis, and the Asia Pacific Group, which is managed on a geographic basis. The Company’s corporate expenses, divestiture & other related costs and income, share-based compensation, restructuring and other charges, including operational improvement plan costs and portfolio optimization plan costs, and other costs are included in the “Corporate & Other” category.

Current wording

Sensient Technologies Corporation (the Company or Sensient) is a leading global manufacturer and marketer of colors, flavors, and other specialty ingredients. The Company uses advanced technologies at facilities around the world to develop specialty food and beverage systems; personal care, essential oils, pharmaceutical, and nutraceutical systems; specialty colors; and other specialty and fine chemicals. The Company’s three reportable segments are the Flavors & Extracts Group and the Color Group, which are both managed on a product line basis, and the Asia Pacific Group, which is managed on a geographic basis. The Company’s corporate expenses, share-based compensation, restructuring and other charges, including the Portfolio Optimization Plan costs, and other costs are included in the “Corporate & Other” category.

Previous wording

The Company’s diluted earnings per share were $2.21 in 2023 and $3.34 in 2022. 2023 results were negatively impacted by $27.8 million ($27.4 million after tax, $0.65 per share) of portfolio optimization plan costs. 2022 results were positively impacted by $2.5 million ($1.9 million after tax, $0.04 per share) of divestiture & other related income. Adjusted diluted earnings per share, which exclude the divestiture & other related income and the portfolio optimization plan costs, were $2.86 in 2023 and $3.29 in 2022 (see discussion below regarding non-GAAP financial measures).

Current wording

The Company’s diluted earnings per share were $2.94 in 2024 and $2.21 in 2023. 2024 results were negatively impacted by $6.6 million ($2.5 million after tax, $0.06 per share) of Portfolio Optimization Plan costs. 2023 results were negatively impacted by $27.8 million ($27.4 million after tax, $0.65 per share) of Portfolio Optimization Plan costs. Adjusted diluted earnings per share, which exclude the Portfolio Optimization Plan costs, were $3.00 in 2024 and $2.86 in 2023 (see discussion below regarding non-GAAP financial measures).

Previous wording

Sensient’s revenue was approximately $1.46 billion and $1.44 billion in 2023 and 2022, respectively.

Current wording

Sensient’s revenue was approximately $1.6 billion and $1.5 billion in 2024 and 2023, respectively.

Previous wording

The Company’s gross margin was 31.6% in 2023 and 34.0% in 2022. The decrease in gross margin was primarily due to higher raw material costs, lower volumes, and portfolio optimization plan costs, which decreased gross margin 20 basis points in 2023, partially offset by higher selling prices in 2023.

Current wording

The Company’s gross margin was 32.6% in 2024 and 31.6% in 2023. The increase in gross margin was primarily due to higher volumes and selling prices, partially offset by higher raw material costs.

Previous wording

Selling and administrative expense as a percent of revenue was 21.0% in 2023 and 20.3% in 2022. Selling and administrative expenses in 2023 were increased by portfolio optimization plan costs totaling $24.7 million and in 2022 were reduced by divestiture & other related income totaling $2.5 million. Selling and administrative expense as a percent of revenue increased by approximately 170 basis points and decreased by approximately 20 basis points in 2023 and 2022, respectively, as a result of these expenses and income. See Divestitures and Portfolio Optimization Plan below for further information.

Current wording

Selling and administrative expense as a percent of revenue was 20.3% in 2024 and 21.0% in 2023. Selling and administrative expenses in 2024 and 2023 were increased by Portfolio Optimization Plan costs totaling $5.3 million and $24.7 million, respectively. Selling and administrative expense as a percent of revenue increased by approximately 40 basis points and 170 basis points in 2024 and 2023, respectively, as a result of these costs. See Portfolio Optimization Plan below for further information.

Previous wording

Selling and administrative expenses as a percent of revenue was further impacted by lower performance-based compensation in 2023.

Current wording

Selling and administrative expenses as a percent of revenue was further impacted by higher performance-based compensation costs in 2024.

Previous wording

Operating income was $155.0 million in 2023 and $196.8 million in 2022. Operating margins were 10.6% in 2023 and 13.7% in 2022. Portfolio optimization plan costs decreased operating margins by approximately 200 basis points in 2023 and divestiture & other related income improved operating margins by approximately 20 basis points in 2022.

Current wording

Operating income was $191.6 million in 2024 and $155.0 million in 2023. Operating margins were 12.3% in 2024 and 10.6% in 2023. Portfolio Optimization Plan costs decreased operating margins by approximately 40 basis points and 200 basis points in 2024 and 2023, respectively.

Previous wording

Interest expense was $25.2 million in 2023 and $14.5 million in 2022. The increase in expense was primarily due to an increase in the average interest rate and average debt outstanding.

Current wording

Interest expense was $28.8 million in 2024 and $25.2 million in 2023. The increase in expense was primarily due to an increase in the average interest rate.

Previous wording

The effective income tax rate was 28.1% in 2023 and 22.7% in 2022. The effective tax rates in both 2023 and 2022 were impacted by the release of valuation allowances related to the foreign tax credit carryover and net operating losses, changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, and mix of foreign earnings. The effective tax rate in 2023 was also impacted by the limited tax deductibility of costs related to the portfolio optimization plan. See Note 11, Income Taxes, in the Notes to Consolidated Financial Statements included in this report for additional information.

Current wording

The effective income tax rate was 23.4% in 2024 and 28.1% in 2023. The effective tax rates in both 2024 and 2023 were impacted by the release of valuation allowances related to net operating losses, changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, the mix of foreign earnings, and the limited tax deductibility of costs related to the Portfolio Optimization Plan. The effective tax rate in 2023 was further impacted by the release of a valuation allowance related to the foreign tax credit carryover. See Note 11, Income Taxes, in the Notes to Consolidated Financial Statements included in this report for additional information.

Previous wording

The 2024 effective income tax rate is estimated to be between 24% and 25%.

Current wording

The 2025 effective income tax rate is estimated to be between 24% and 26%.

Previous wording

During the fourth quarter of 2023, the board of directors of the Company approved a portfolio optimization plan (Portfolio Optimization Plan) to undertake an effort to optimize certain production facilities and improve efficiencies within the Company. As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company is evaluating the potential closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the potential closure of its sales office in Granada, Spain, and the potential centralization and elimination of certain selling and administrative positions, with such proposals remaining subject to information and consultation processes in certain countries. In addition, in the Color segment, the Company’s proposals include closing a manufacturing facility in Delta, British Columbia, Canada, closing a sales office in Argentina, and centralizing and eliminating certain production positions as well as potentially eliminating some selling and administrative positions, with such proposals remaining subject to information and consultation processes in certain countries. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.

Current wording

During the fourth quarter of 2023, the Board of Directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.

Previous wording

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude the divestiture & other related income and restructuring and other costs, including the portfolio optimization plan costs and (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars, the divestiture & other related income, and restructuring and other costs, including the portfolio optimization plan costs.

Current wording

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude restructuring and other costs, including the Portfolio Optimization Plan costs, (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars and restructuring and other costs, including the Portfolio Optimization Plan costs, and (3) adjusted EBITDA, which excludes restructuring and other costs, including the Portfolio Optimization Plan costs, and non-cash share based compensation expense.

Previous wording

(1) Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.

Current wording

(1) Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates. Portfolio Optimization Plan costs are discussed under “Portfolio Optimization Plan” above and Note 15, Portfolio Optimization Plan, in the Notes to the Consolidated Financial Statements included in this report. Note: Earnings per share calculations may not foot due to rounding differences.

Previous wording

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before any applicable divestiture & other related income, share-based compensation, acquisition, restructuring and other costs, including the portfolio optimization plan costs, and other costs (which are reported in Corporate & Other), interest expense, and income taxes.

Current wording

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before any applicable share-based compensation, acquisition, restructuring and other costs, including the Portfolio Optimization Plan costs, and other costs (which are reported in Corporate & Other), interest expense, and income taxes.

Previous wording

Flavors & Extracts segment operating income was $87.8 million in 2023 and $105.4 million in 2022, a decrease of approximately 17%. Foreign exchange rates increased segment operating income by approximately 1%. The lower segment operating income was a result of lower operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The lower operating income in Natural Ingredients was primarily due to higher raw material costs, lower volumes, and an unfavorable product mix, partially offset by higher selling prices and lower manufacturing and other costs. The lower operating income in Flavors, Extracts & Flavor Ingredients was primarily due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. Segment operating income as a percent of revenue was 11.8% and 14.3% for 2023 and 2022, respectively.

Current wording

Flavors & Extracts segment operating income was $97.1 million in 2024 and $87.8 million in 2023, an increase of approximately 11%. Foreign exchange rates had an immaterial impact on segment operating income. The higher segment operating income was a result of higher operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower operating income in Natural Ingredients. The higher operating income in Flavors, Extracts & Flavor Ingredients was primarily due to lower raw material costs, higher selling prices, higher volumes, and a favorable product mix. The lower operating income in Natural Ingredients was primarily due to higher raw material costs, partially offset by higher volumes and selling prices. Segment operating income as a percent of revenue was 12.2% and 11.8% for 2024 and 2023, respectively.

Previous wording

Segment revenue for the Color segment was $608.0 million in 2023 and $604.0 million in 2022, an increase of approximately 1%. Foreign exchange rates increased segment revenue by approximately 2%. The higher segment revenue was a result of higher revenue in Food & Pharmaceutical Colors, partially offset by lower revenue in Personal Care. The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices, the acquisition of Endemix Doğal Maddeler A.Ş., and the favorable impact of foreign exchange rates, partially offset by lower volumes. The lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices and the favorable impact of foreign exchange rates.

Current wording

Segment revenue for the Color segment was $647.9 million in 2024 and $608.0 million in 2023, an increase of approximately 7%. The higher segment revenue was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care due to higher volumes and selling prices, partially offset bythe unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 1%.

Previous wording

Segment operating income for the Color segment was $105.4 million in 2023 and $114.6 million in 2022, a decrease of approximately 8%. The lower segment operating income was a result of lower operating income in Personal Care, partially offset by higher operating income in Food & Pharmaceutical Colors. The lower operating income in Personal Care was primarily due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher selling prices and the favorable impact of foreign exchange rates, which increased segment operating income by approximately 2%, partially offset by higher raw material and manufacturing and other costs, lower volumes, and an unfavorable product mix. Segment operating income as a percent of revenue was 17.3% and 19.0% for 2023 and 2022, respectively.

Current wording

Segment operating income for the Color segment was $119.5 million in 2024 and $105.4 million in 2023, an increase of approximately 13%. The higher segment operating income was a result of higher operating income in Personal Care and Food & Pharmaceutical Colors. The higher operating income in Personal Care was primarily due to higher volumes and selling prices and a favorable product mix. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher volumes and selling prices and a favorable product mix, partially offset by higher raw material and manufacturing and other costs. These increases were partially offset by the unfavorable impact of foreign exchange rates, which decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.4% and 17.3% for 2024 and 2023, respectively.

Previous wording

Segment revenue for the Asia Pacific segment was $146.1 million and $143.6 million for 2023 and 2022, respectively, an increase of approximately 2%. Segment revenue was higher than the prior year primarily due to higher selling prices, partially offset by lower volumes and the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 2%.

Current wording

Segment revenue for the Asia Pacific segment was $162.5 million and $146.1 million for 2024 and 2023, respectively, an increase of approximately 11%. Segment revenue was higher than the prior year primarily due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 2%.

Previous wording

Segment operating income for the Asia Pacific segment was $30.8 million in 2023 and $29.5 million in 2022, an increase of approximately 4%. Foreign exchange rates decreased segment operating income by approximately 2%. The increase in segment operating income was a result of higher selling prices, partially offset by higher raw material costs and lower volumes. Segment operating income as a percent of revenue was 21.1% in 2023 and 20.5% in 2022.

Current wording

Segment operating income for the Asia Pacific segment was $34.5 million in 2024 and $30.8 million in 2023, an increase of approximately 12%. The increase in segment operating income was a result of higher volumes and selling prices, partially offset by higher raw material and manufacturing and other costs and the unfavorable impact of foreign exchange rates, which decreased segment operating income by approximately 2%. Segment operating income as a percent of revenue was 21.2% in 2024 and 21.1% in 2023.

Previous wording

The Corporate & Other operating loss was $68.9 million in 2023 and $52.8 million in 2022. The higher operating loss was primarily a result of portfolio optimization plan costs totaling $27.8 million negatively impacting 2023 and divestiture & other related income totaling $2.5 million favorably impacting 2022, partially offset by lower performance-based compensation in 2023. See the Divestituresand Portfolio Optimization Plan sections above for further information.

Current wording

The Corporate & Other operating loss was $59.5 million in 2024 and $68.9 million in 2023. The lower operating loss was primarily a result of lower Portfolio Optimization Plan costs, partially offset by higher performance-based compensation costs in 2024. See the Portfolio Optimization Plan section above for further information.

Previous wording

The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of December 31, 2023. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments, as well as potential acquisitions and stock repurchases. The Company’s contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations, and debt. The Company has various series of notes outstanding that mature from 2024 through 2029, with approximately $82 million coming due in 2024. The Company believes that it has the ability to refinance or repay all of its obligations through a combination of cash flow from operations, issuance of additional notes, and substantial borrowing capacity of approximately $318 million under the Company’s revolving credit facility, which matures in 2026.

Current wording

The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of December 31, 2024. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments, as well as potential acquisitions and stock repurchases. The Company’s contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations, and debt. The Company has various series of notes outstanding that mature from 2025 through 2029, with approximately $56 million coming due in 2025. The Company believes that it has the ability to refinance or repay all of its obligations through a combination of cash flow from operations, issuance of additional notes, and substantial borrowing capacity of approximately $257 million under the Company’s revolving credit facility, which matures in 2026.

Previous wording

Net cash provided by operating activities was $169.7 million and $12.1 million in 2023 and 2022, respectively. Operating cash flow provided the primary source of funds for operating needs, capital expenditures, and shareholder dividends. The increase in net cash provided by operating activities in 2023 was primarily due to a decrease in the cash used for inventory investments during 2023 compared to 2022 and an increase in cash provided by accounts receivable.

Current wording

Net cash provided by operating activities was $157.2 million and $169.7 million in 2024 and 2023, respectively. Operating cash flow provided the primary source of funds for operating needs, capital expenditures, and shareholder dividends. The decrease in net cash provided by operating activities in 2024 was primarily due to a decrease in the cash provided by accounts receivable, partially offset by a decrease in cash used for performance-based compensation payments (which are determined based on prior year performance) made during 2024 compared to 2023.

Previous wording

Net cash used in investing activities was $87.6 million and $98.4 million in 2023 and 2022, respectively. Capital expenditures were $87.9 million in 2023 and $79.3 million in 2022. In 2022, the Company received $2.5 million of proceeds from the divestiture of the yogurt fruit preparations product line. The Company paid $1.7 million and $21.7 million in 2023 and 2022, respectively, for the acquisition of Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. and $1.0 million in 2022 related to a purchase price holdback associated with the acquisition of Flavor Solutions, Inc.

Current wording

Net cash used in investing activities was $59.2 million and $87.6 million in 2024 and 2023, respectively. Capital expenditures were $59.2 million in 2024 and $87.9 million in 2023. The Company paid $1.7 million in 2023 related to a purchase price holdback associated with the acquisition of Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş.

Previous wording

Net cash used in financing activities was $82.0 million in 2023, and net cash provided by financing activities was $86.2 million in 2022. The Company had a net decrease in debt of $3.5 million in 2023 compared to a net increase in debt of $157.2 million in 2022. For the purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company has paid uninterrupted quarterly cash dividends since commencing public trading of its stock in 1962. Dividends paid per share were $1.64 in 2023 and 2022. Total dividends paid were $69.2 million and $68.9 million in 2023 and 2022, respectively.

Current wording

Net cash used in financing activities was $81.5 million and $82.0 million in 2024 and 2023, respectively. The Company had a net decrease in debt of $7.8 million and $3.5 million in 2024 and 2023, respectively. For the purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company has paid uninterrupted quarterly cash dividends since commencing public trading of its stock in 1962. Dividends paid per share were $1.64 in 2024 and 2023. Total dividends paid were $69.4 million and $69.2 million in 2024 and 2023, respectively.

Previous wording

The Company estimates its income tax expense in each of the taxing jurisdictions in which it operates. The Company is subject to a tax audit in each of these jurisdictions, which could result in changes to the estimated tax expense. The amount of these changes would vary by jurisdiction and would be recorded when probable and estimable. These changes could impact the Company’s financial statements. Management has recorded valuation allowances to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2023, the Company recorded gross deferred tax assets of $117.4 million with an associated valuation allowance of $34.1 million. Examples of deferred tax assets include deductions, net operating losses, and tax credits that the Company believes will reduce its future tax payments. In assessing the future realization of these assets, management has considered future taxable income and ongoing tax planning strategies. An adjustment to the recorded valuation allowance as a result of changes in facts or circumstances could result in a significant change in the Company’s tax expense. The Company does not provide for deferred taxes on unremitted earnings of foreign subsidiaries, which are considered to be invested indefinitely.

Current wording

The Company estimates its income tax expense in each of the taxing jurisdictions in which it operates. The Company is subject to a tax audit in each of these jurisdictions, which could result in changes to the estimated tax expense. The amount of these changes would vary by jurisdiction and would be recorded when probable and estimable. These changes could impact the Company’s financial statements. Management has recorded valuation allowances to reduce the Company’s deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2024, the Company recorded gross deferred tax assets of $112.3 million with an associated valuation allowance of $29.7 million. Examples of deferred tax assets include deductions, net operating losses, and tax credits that the Company believes will reduce its future tax payments. In assessing the future realization of these assets, management has considered future taxable income and ongoing tax planning strategies. An adjustment to the recorded valuation allowance as a result of changes in facts or circumstances could result in a significant change in the Company’s tax expense. The Company does not provide for deferred taxes on unremitted earnings of foreign subsidiaries, which are considered to be invested indefinitely.

Previous wording

The Company estimates any required write-downs for inventory obsolescence by examining inventories on a quarterly basis to determine if there are any damaged items or slow-moving products in which the carrying values could exceed net realizable value. Inventory write-downs are recorded as the difference between the cost of inventory and its estimated market value. The Company recorded non-cash charges of $3.1 million in 2023 in Cost of Products Sold related to the portfolio optimization plan. The charges reduced the carrying value of certain inventories, as they were determined to be excess. While significant judgment is involved in determining the net realizable value of inventory, the Company believes that inventory is appropriately stated at the lower of cost or net realizable value.

Current wording

The Company’s inventories contain a variety of inventory types with varying characteristics that would impact potential inventory obsolescence. The Company estimates any required write-downs for inventory obsolescence by examining inventories on a quarterly basis to determine if there are any damaged items or slow-moving products in which the carrying values could exceed net realizable value. Inventory write-downs are recorded as the difference between the cost of inventory and its estimated market value. The Company recorded non-cash charges of $0.7 million and $3.1 million in 2024 and 2023, respectively, in Cost of Products Sold related to the Portfolio Optimization Plan. The non-cash charges in 2024 were primarily related to trial production runs that did not meet quality specifications and thus were disposed of, and the non-cash charges in 2023 reduced the carrying value of certain inventories, as they were determined to be excess. While significant judgment is involved in determining the net realizable value of certain inventories with shorter expirations, the Company believes that inventory is appropriately stated at the lower of cost or net realizable value.

Previous wording

Refer to the “Recently Issued Accounting Pronouncements” section within Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in this report for additional details.

Current wording

Refer to the “Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Pronouncements” section within Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in this report for additional details.