Sensient Technologies Corporation (NYSE: SXT) reported a loss
per share of 40 cents in the fourth quarter of 2019 compared to
diluted earnings per share of 78 cents in the fourth quarter of
2018. Revenue was $318.6 million in this year’s fourth quarter
compared to $324.6 million in the comparable period last year.
Operating loss was $14.5 million in the fourth quarter of 2019
compared to operating income of $45.3 million in last year’s fourth
quarter. Foreign currency translation did not have a significant
impact on revenue, operating income or earnings per share in the
quarter.
The 2019 reported fourth quarter results include divestiture
& other related costs, primarily non-cash impairment charges,
which decreased net earnings $43.2 million ($1.02 per diluted
share). The 2018 fourth quarter includes an adjustment to the
provisional amount recorded in 2017 for the impact of the Tax Cuts
and Jobs Act (2017 Tax Legislation), which decreased net earnings
$0.4 million ($0.01 per diluted share). These adjustments are
described in more detail under “Reconciliation of Non-GAAP Amounts”
below.
BUSINESS REVIEW
Reported
Revenue
Quarter
Color
(1.6%)
Flavors & Fragrances
(3.7%)
Asia Pacific
(1.6%)
Total Revenue
(1.8%)
Local Currency (1)
Revenue
Quarter
Color
(0.6%)
Flavors & Fragrances
(3.3%)
Asia Pacific
(3.7%)
Total Revenue
(1.4%)
(1) Local currency percentage changes are described in more
detail in the"Reconciliation of Non-GAAP Amounts" below.
The reported results include the impact of foreign currency,
which is described in more detail under “Reconciliation of Non-GAAP
Amounts” below. In contrast, the non-GAAP amounts eliminate the
impact of currency movements, depreciation and amortization,
non-cash share-based compensation, divestiture & other related
costs, and the adjustment to the provisional estimate related to
the 2017 Tax Legislation and enhance the overall understanding of
the Company’s performance when viewed together with the GAAP
results. Refer to “Reconciliation of Non-GAAP Amounts” below.
The Color Group reported revenue of $125.4 million in the
quarter compared to $127.4 million in last year’s fourth quarter.
Segment operating income was $19.7 million in the quarter compared
to $21.9 million in last year’s comparable period. Foreign currency
translation decreased revenue by approximately 1% and operating
income by approximately 2% in the quarter. Continued growth in
natural colors in the Food & Beverage Colors business and
growth in the Pharmaceutical business was offset by lower volumes
in inks and some industrial product lines. Color Group operating
income was lower in the quarter primarily due to the lower segment
sales and unfavorable product mix.
The Flavors & Fragrances Group reported fourth quarter
revenue of $169.1 million compared to $175.5 million reported in
the comparable period last year. Higher revenue in the finished
flavors and extracts product lines was more than offset by lower
revenue in certain flavor ingredient product lines. Segment
operating income was $14.2 million in the fourth quarter compared
to $22.3 million reported in the fourth quarter of 2018. The
Group’s lower profit was primarily a result of the lower segment
sales and production volumes, costs associated with certain
customer bankruptcy charges, and higher raw material costs. Foreign
currency translation did not have a significant effect on revenue
or operating income in the quarter.
The Asia Pacific Group reported revenue of $30.6 million in the
quarter compared to $31.1 million reported in the comparable prior
year period. Segment operating income was $5.6 million in both
periods. Foreign currency translation increased segment revenue by
approximately 2% and increased operating income by approximately 6%
in the quarter.
Corporate & Other reported operating costs of $53.9 million
in the current quarter compared to $4.6 million in the fourth
quarter of 2018. The higher costs are primarily due to divestiture
& other costs of $45.9 million in the current period and the
reduction in non-cash performance-based compensation expense in
last year’s fourth quarter.
2020 OUTLOOK
Sensient expects 2020 diluted earnings per share to be between
$1.85 and $2.15, which includes an estimate of 65 to 75 cents per
share of divestiture & other related costs and the results of
the operations to be divested. The divestiture & other related
costs are primarily non-cash charges related to the anticipated
divestitures. The Company expects adjusted diluted earnings per
share(2), which excludes divestiture & other related costs and
the results of the operations to be divested, to be between $2.60
and $2.80. The Company’s 2020 diluted earnings per share and
adjusted earnings per share will be impacted by a higher tax rate
and higher non-cash performance-based compensation.
In addition, the Company expects 2020 Adjusted EBITDA(2) to grow
at a low to mid-single digit rate and Adjusted Operating Income(2)
to be flat to down at a low-single digit rate, in each case on a
local currency basis. Adjusted Operating Income will be impacted by
higher non-cash performance-based compensation. The Company expects
low to mid-single digit revenue growth in 2020 on a local currency
basis, excluding the revenues of the product lines to be
divested.
(2)
See “Reconciliation of Non-GAAP Amounts”
below for more information. In addition to the adjustments
described for 2019 results under “Reconciliation of Non-GAAP
Amounts” below, our 2020 outlook on an adjusted basis provided
above excludes the results of operations for the product lines we
are planning to divest. Because it is uncertain when these
divestitures will be consummated, it is difficult to predict their
impact to our full year results. We also believe that providing our
outlook in this manner will be useful to investors as they assess
the comparability of the performance in our remaining core
businesses. For reference, the product lines identified to be
divested represented approximately $140 million in 2019 annual
revenue and approximately $2 million of 2019 annual operating
income.
CONFERENCE CALL
The Company will host a conference call to discuss its 2019
fourth quarter financial results at 8:30 a.m. CST on Friday,
February 14, 2020. To participate in the conference call, contact
Chorus Call Inc. at (844) 492-3726 or (412) 317-1078 and ask to
join the Sensient Technologies Corporation conference call.
Alternatively, the call can be accessed by using the webcast link
that is available on the Investor Information section of the
Company’s web site at www.sensient.com.
A replay of the call will be available one hour after the end of
the conference call through February 21, 2020, by calling (877)
344-7529 and referring to conference identification number
10136561. An audio replay and written transcript of the call will
be posted on the Investor Information section of the Company’s web
site at www.sensient.com on or after February 18, 2020.
This release contains statements that may constitute
“forward-looking statements” within the meaning of Federal
securities laws including under “2020 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; the success of the Company’s efforts to
explore strategic alternatives for certain non-core businesses;
changes in costs or availability of raw materials, including
energy; industry and economic factors related to the Company’s
domestic and international business; the effects of tariffs, trade
barriers, and disputes; 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; 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/A
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,
2019
2018
% Change
2019
2018
% Change
Revenue
$
318,585
$
324,563
(1.8%)
$
1,322,934
$
1,386,815
(4.6%)
Cost of products sold
233,105
218,548
6.7%
908,061
920,686
(1.4%)
Selling and administrative expenses
99,946
60,763
64.5%
293,763
262,751
11.8%
Operating (loss) income
(14,466
)
45,252
(132.0%)
121,110
203,378
(40.5%)
Interest expense
4,569
5,336
20,107
21,853
Earnings (loss) before income taxes
(19,035
)
39,916
101,003
181,525
Income taxes (benefit)
(2,073
)
7,066
18,956
24,165
Net (loss) earnings
$
(16,962
)
$
32,850
(151.6%)
$
82,047
$
157,360
(47.9%)
Earnings (loss) per share of common stock: Basic
$
(0.40
)
$
0.78
$
1.94
$
3.71
Diluted
$
(0.40
)
$
0.78
$
1.94
$
3.70
Average common shares outstanding: Basic
42,272
42,224
42,263
42,404
Diluted
42,272
42,287
42,294
42,499
Reconciliation of Non-GAAP Amounts The Company's
results for the three and twelve months ended December 31, 2019 and
2018, include adjusted operating income, adjusted net earnings, and
adjusted diluted EPS, which exclude divestiture & other related
costs as well as the impact of the 2017 Tax Legislation.
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
% Change
2019
2018
% Change
Operating (loss) income (GAAP)
$
(14,466
)
$
45,252
(132.0%)
$
121,110
$
203,378
(40.5%)
Divestiture & other related costs – Cost of products sold
10,567
-
10,567
-
Divestiture & other related costs – Selling and administrative
expenses
35,313
-
35,313
-
Adjusted operating income
$
31,414
$
45,252
(30.6%)
$
166,990
$
203,378
(17.9%)
Net (loss) earnings (GAAP)
$
(16,962
)
$
32,850
(151.6%)
$
82,047
$
157,360
(47.9%)
Divestiture & other related costs, before tax
45,880
-
45,880
-
Tax impact of divestiture & other related costs
(2,671
)
-
(2,671
)
-
Impact of the 2017 Tax Legislation
-
427
-
(6,634
)
Adjusted net earnings
$
26,247
$
33,277
(21.1%)
$
125,256
$
150,726
(16.9%)
Diluted EPS (GAAP)
$
(0.40
)
$
0.78
(151.3%)
$
1.94
$
3.70
(47.6%)
Divestiture & other related costs, net of tax
1.02
-
1.02
-
Impact of the 2017 Tax Legislation
-
0.01
-
(0.16
)
Adjusted diluted EPS
$
0.62
$
0.79
(21.5%)
$
2.96
$
3.55
(16.6%)
Note: Earnings per share calculations may not foot due to rounding
differences. The following table summarizes the percentage change
in the 2019 results compared to the 2018 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
(3.7%)
(0.4%)
(3.3%)
(6.2%)
(1.4%)
(4.8%)
Color
(1.6%)
(1.0%)
(0.6%)
(3.4%)
(2.7%)
(0.7%)
Asia Pacific
(1.6%)
2.1%
(3.7%)
(4.0%)
(0.4%)
(3.6%)
Total Revenue
(1.8%)
(0.4%)
(1.4%)
(4.6%)
(1.8%)
(2.8%)
Operating Income
Flavors & Fragrances
(36.4%)
0.0%
(36.4%)
(22.3%)
(0.5%)
(21.8%)
Color
(10.3%)
(1.5%)
(8.8%)
(10.7%)
(2.9%)
(7.8%)
Asia Pacific
(0.8%)
5.5%
(6.3%)
(7.1%)
2.9%
(10.0%)
Corporate & Other
1077.8%
(0.1%)
1077.9%
173.4%
(0.1%)
173.5%
Total Operating Income
(132.0%)
0.0%
(132.0%)
(40.5%)
(1.6%)
(38.9%)
Diluted EPS
(151.3%)
0.0%
(151.3%)
(47.6%)
(1.4%)
(46.2%)
Adjusted EBITDA
(23.3%)
(0.1%)
(23.2%)
(13.9%)
(1.3%)
(12.6%)
Sensient Technologies Corporation (In thousands, except
percentages and per share amounts) (Unaudited)
Reconciliation of Non-GAAP Amounts - Continued The following
table summarizes the reconciliation between Operating Income (GAAP)
and Adjusted EBITDA for the three and twelve months ended December
31, 2019 and 2018.
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
% Change
2019
2018
% Change
Operating (loss) income (GAAP)
$
(14,466
)
$
45,252
(132.0%)
$
121,110
$
203,378
(40.5%)
Depreciation and amortization
13,309
14,187
55,015
53,244
Share-based compensation expense (income)
77
(1,038
)
(739
)
503
Divestiture & other related costs, before tax
45,880
-
45,880
-
Adjusted EBITDA
$
44,800
$
58,401
(23.3%)
$
221,266
$
257,125
(13.9%)
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
2019
2018
% Change
2019
2018
% Change
Flavors & Fragrances
$
169,092
$
175,531
(3.7%)
$
700,356
$
746,932
(6.2%)
Color
125,363
127,423
(1.6%)
535,159
554,004
(3.4%)
Asia Pacific
30,602
31,101
(1.6%)
118,248
123,164
(4.0%)
Intersegment elimination
(6,472
)
(9,492
)
(30,829
)
(37,285
)
Consolidated
$
318,585
$
324,563
(1.8%)
$
1,322,934
$
1,386,815
(4.6%)
Operating Income
Flavors & Fragrances
$
14,186
$
22,291
(36.4%)
$
74,961
$
96,433
(22.3%)
Color
19,678
21,936
(10.3%)
101,190
113,306
(10.7%)
Asia Pacific
5,557
5,600
(0.8%)
19,382
20,856
(7.1%)
Corporate & Other
(53,887
)
(4,575
)
1077.8%
(74,423
)
(27,217
)
173.4%
Consolidated
$
(14,466
)
$
45,252
(132.0%)
$
121,110
$
203,378
(40.5%)
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 (now known as Sensient Natural Extraction Inc.).
This business was included in Corporate & Other in 2018.
Beginning in the first quarter of 2019, the results of operations
of this business are now reported in the Color segment. The results
for 2018 have been restated to reflect this change.
Consolidated Condensed Balance Sheets
December 31,
December 31,
2019
2018
Cash and cash equivalents
$
21,153
$
31,901
Trade accounts receivable (net)
213,201
255,350
Inventories
422,517
490,757
Other current assets
131,342
44,857
Total Current Assets
788,213
822,865
Goodwill & intangible assets (net)
418,844
435,042
Property, plant, and equipment (net)
437,179
491,056
Other assets
95,915
75,977
Total Assets
$
1,740,151
$
1,824,940
Trade accounts payable
$
94,653
$
131,812
Short-term debt
20,612
20,046
Other current liabilities
86,110
62,842
Total Current Liabilities
201,375
214,700
Long-term debt
598,499
689,553
Accrued employee and retiree benefits
25,822
23,210
Other liabilities
32,866
37,530
Shareholders' Equity
881,589
859,947
Total Liabilities and Shareholders' Equity
$
1,740,151
$
1,824,940
Sensient Technologies Corporation (In thousands, except
per share amounts) (Unaudited) Consolidated
Statements of Cash Flows Twelve Months Ended December
31,
2019
2018
Cash flows from operating activities: Net earnings
$
82,047
$
157,360
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization
55,015
53,244
Share-based compensation (income) expense
(739
)
503
Net (gain) loss on assets
(1,122
)
63
Loss on divestitures
44,375
-
Deferred income taxes
(19,340
)
9,844
Changes in operating assets and liabilities: Trade accounts
receivable
10,930
(96,638
)
Inventories
25,238
(34,114
)
Prepaid expenses and other assets
3,257
(12,544
)
Accounts payable and other accrued expenses
(18,251
)
7,457
Accrued salaries, wages and withholdings from employees
(3,039
)
599
Income taxes
(1,836
)
(7,335
)
Other liabilities
647
5,081
Net cash provided by operating activities
177,182
83,520
Cash flows from investing activities: Acquisition of
property, plant and equipment
(39,100
)
(50,740
)
Cash receipts on sold receivables
-
91,142
Proceeds from sale of assets
2,242
2,615
Acquisition of new businesses
-
(31,100
)
Other investing activity
(553
)
2,916
Net cash (used in) provided by investing activities
(37,411
)
14,833
Cash flows from financing activities: Proceeds from
additional borrowings
47,083
322,529
Debt payments
(134,449
)
(284,332
)
Purchase of treasury stock
-
(76,734
)
Dividends paid
(62,190
)
(57,410
)
Other financing activity
(1,027
)
(2,777
)
Net cash used in financing activities
(150,583
)
(98,724
)
Effect of exchange rate changes on cash and cash equivalents
64
2,928
Net (decrease) increase in cash and cash equivalents
(10,748
)
2,557
Cash and cash equivalents at beginning of period
31,901
29,344
Cash and cash equivalents at end of period
$
21,153
$
31,901
The Company adopted Accounting Standards Update (ASU) 2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts
and Cash Payments, in the first quarter of 2018 using monthly cash
receipts as its unit of account. 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. In the second
quarter of 2018, the Company updated its unit of account to daily
cash receipts for the cash received related to the beneficial
interest in the previously transferred receivables. As a result,
the Company has included $91 million in net cash provided by
investing activities for fiscal 2018.
Supplemental Information Twelve Months Ended December
31,
2019
2018
Dividends paid per share
$
1.47
$
1.35
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version on businesswire.com: https://www.businesswire.com/news/home/20200214005089/en/
Amy Agallar (414) 347-3706
Sensient Technologies (NYSE:SXT)
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