SENSIENT TECHNOLOGIES CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Sensient reported strong local currency revenue growth of approximately 9% in the third quarter, volume-driven with price contributing low single digits. Consolidated local currency adjusted EBITDA was up 13% for the third quarter of 2024, with an adjusted EBITDA margin of 17.6%, up 60 basis points from the prior year's third quarter.
• Expect revenue and EBITDA growth to continue strong in the fourth quarter due to volume improvement from new sales wins, sales execution, end of customer de-stocking, and stabilized end customer demand in North America and Europe.
• Highlighted new technologies: SensaMelts for bakery and savory customers to overcome manufacturing challenges and extend shelf life; Trueboost to reduce sugar/salt, amplify flavors, and enhance mouth feel with natural and clean label benefits.

Segment Performance

• Color Group: Delivered 13% local currency revenue growth and 31% local currency operating profit growth in the third quarter. Year-to-date local currency revenue is up 5% and local currency operating profit is up approximately 11%. Third quarter EBITDA margin was 22.2%, an increase of 250 basis points versus the prior year's third quarter.
• Flavors & Extracts Group: Had 7% local currency revenue growth and 13% local currency operating profit growth in the third quarter. Year-to-date local currency revenue is up 8% and local currency operating profit is up approximately 9%. Third quarter EBITDA margin was 16.4%, up 30 basis points versus the prior year's third quarter.
• Asia Pacific Group: Reported 13% local currency revenue growth and 15% local currency operating profit growth in the third quarter. Year-to-date local currency revenue is up 9% and local currency operating profit is up approximately 8%. Third quarter EBITDA margin was 23.8%, in line with prior year.

Guidance

• 2024: Expect consolidated high single-digit local currency revenue and adjusted EBITDA growth; mid-single-digit local currency adjusted EPS growth due to higher taxes and interest expense.
• 2025: Expect local currency revenue to grow at a mid-single-digit rate; interest expense to decrease due to debt repayment and lower expected interest rate environment; tax rate relatively flat at approximately 25%.
• Q4 2024: Expect local currency revenue to grow at a high single-digit rate, local currency adjusted EBITDA to grow at a high-teen growth rate, interest expense to be approximately $7 million, adjusted tax rate to be approximately 25%, and local currency adjusted EPS to grow at a low 20% growth rate.

Risks

• Market fluctuations impacting revenue and margins.
• Interest rate changes affecting interest expense.
• Tax rate variations.
• Potential headwinds from market conditions in key regions like North America and Europe.

Question and Answer

• Q: About volume growth breakdown between end market normalization and sustainable growth A: Paul Manning discussed destocking impact, new wins driving volume, and expectations for 2025, noting that while some growth was from end market normalization, most volume growth stems from new wins.
• Q: About high-level variances for 2025 A: Paul mentioned new wins, market expectations, SKU rationalization, and tax/interest impacts on EPS, expecting mid-single-digit revenue growth in 2025 with interest expense reduction and flat tax rate.
• Q: About new wins driving growth A: Paul discussed sales execution, product line success (natural colors, flavors), and customer selection, highlighting strong performance in natural colors and flavor technologies.
• Q: About personal care slowdown risk A: Paul noted personal care has segments doing well, e-commerce changes, and sustainable performance, with a focus on certain segments within personal care.
• Q: About long-term targets by division and EBIT margin levers A: Paul discussed mid-single-digit average revenue growth across divisions, with Flavors as the margin uplift opportunity, and leverage from volume and cost management.