Sensient Technologies Corporation

Reports Results for the Quarter and Year Ended December 31, 2016

 

MILWAUKEE—February 9, 2017 — Sensient Technologies Corporation (NYSE: SXT) reported earnings per share from continuing operations of 70 cents in the fourth quarter of 2016 compared to 43 cents in last year’s fourth quarter.  Revenue was $330.2 million in this year’s fourth quarter compared to $339.2 million in the comparable period last year.  Operating income was $43.3 million in the fourth quarter of 2016 and $31.6 million in last year’s fourth quarter.  Foreign currency translation reduced revenue by approximately 2%, operating income by approximately 3%, and earnings per share by approximately 5% in the fourth quarter.

For the year ended December 31, 2016, reported earnings per share from continuing operations were $2.74 compared to $2.32 per share last year.  Revenue was approximately $1.4 billion in both 2016 and 2015.  Operating income from continuing operations was $185.6 million and $166.3 million in the years ended December 31, 2016 and 2015, respectively.  Foreign currency translation reduced revenue and operating income by approximately 2% and earnings per share by approximately 3% in 2016.

 

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 operating income by $6.2 million, or nine cents per share, in this year’s fourth quarter and $15.1 million, or 28 cents per share, in the fourth quarter of 2015.  For the years ended December 31, 2016 and 2015, restructuring and other costs reduced operating income by $26.1 million, or 47 cents per share, in 2016 and $43.6 million, or 73 cents per share, in 2015.

 

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 adjusted earnings per share increased approximately 13% to 80 cents in this year’s fourth quarter, compared to 71 cents in the fourth quarter of 2015.  Adjusted operating income increased approximately 6% in the fourth quarter, to $49.5 million from $46.7 million in last year’s fourth quarter.  Foreign currency translation reduced both adjusted operating income and adjusted earnings per share by approximately 3%.

For the year ended December 31, 2016, adjusted earnings per share from continuing operations was $3.21, an increase of approximately 5% from last year’s result of $3.05.  Adjusted operating income was $211.7 million and $210.0 million for the years ended December 31, 2016 and 2015, respectively.  Foreign currency translation reduced adjusted operating income by approximately 2% and adjusted earnings per share by approximately 3% in 2016.

Cash provided by operating activities was $222.5 million in 2016 and $128.0 million in 2015.  The 2016 cash flow result included a $40 million benefit from an accounts receivable securitization transaction that will reduce the Company’s borrowing costs.  The stronger cash flows were driven by higher earnings, better management of working capital and the benefit from the accounts receivable securitization transaction.  The Company repurchased more than 300,000 shares of its common stock in the fourth quarter and approximately 700,000 shares during 2016.  Including dividend payments, the Company returned approximately $100 million to shareholders in 2016.

 

“I am very pleased with the Company’s performance in 2016,” said Paul Manning, Chairman, President and CEO of Sensient Technologies Corporation.  “The Color Group had an outstanding year delivering solid profit and revenue growth, led by strong performances from the Cosmetics and Food Colors businesses.  The Flavors and Fragrances Group performed very well and improved its operating margin by at least 100 basis points in each of the last three quarters, and Asia Pacific also delivered solid profit and revenue growth for the year.  It was a very successful year for Sensient and our shareholders, and I am optimistic about the future.”

 

BUSINESS REVIEW

The Color Group reported revenue of $119.0 million in the quarter and $117.5 million in last year’s fourth quarter, an increase of 1.3%.  Operating income increased 4.6% to $22.6 million in the quarter.  Foreign currency translation reduced revenue and operating income by approximately 3% and 4%, respectively, in the quarter.  The Group’s strong fourth quarter results were driven by the Cosmetics business, which delivered double-digit revenue and profit growth in the quarter.

For the full year, Color Group revenue increased approximately 5% to $502.1 million, from $480 million in 2015.  Operating income was $104.8 million in 2016, an increase of 8.5% compared to $96.6 million in 2015.  Foreign currency translation impacted both revenue and operating income, reducing both by approximately 3% for the year.  The Color Group’s operating margin was 20.9% for the year, an increase of 80 basis points from last year’s margin of 20.1%.  The Cosmetics and Food Colors businesses both performed very well in 2016 driven by strong demand for cosmetics and natural colors, respectively, and the Inks business improved solidly over last year’s result.

 

The Flavors & Fragrances Group reported revenue of $186.9 million and $201.0 million in the fourth quarters of 2016 and 2015, respectively.  Operating income increased approximately 3% to $28.4 million, from $27.5 million in last year’s fourth quarter.  The Flavors & Fragrances Group’s operating margin increased 150 basis points to 15.2% in the quarter, which is the third consecutive quarter that the Group has improved its operating margin by at least 100 basis points.  Many of the Group’s business units reported solid operating income growth in the quarter, with the Natural Ingredients, North America Savory, Europe Beverage and BioNutrients businesses delivering double-digit profit growth.  Foreign currency translation reduced both revenue and operating income by approximately 2% in the quarter.

 

The Flavors & Fragrances Group reported revenue of $795.3 million for the year ended December 31, 2016, a decrease of approximately 3% from $819.0 million reported in 2015.  Operating income increased to $123.5 million in 2016, from $121.9 million in 2015.  The Flavors & Fragrances Group operating margin continues to steadily improve, increasing to 15.5% in 2016 from 14.9% in 2015.  Foreign currency translation reduced both revenue and operating income in the year to date period by approximately 2%.

The Asia Pacific Group reported revenue of $32.5 million and $29.7 million in the fourth quarters of 2016 and 2015, respectively, an increase of approximately 9%.  Operating income was $6.5 million in the quarter, an increase of approximately 4% from last year’s fourth quarter result of $6.2 million.  Foreign currency translation increased both revenue and operating income by approximately 1% in the quarter.  For the full year, the Asia Pacific Group revenue increased approximately 9%, to $127.5 million in 2016, from $116.7 million last year.  Operating income increased approximately 6% to $25.2 million in 2016, from $23.7 million in 2015.  Foreign currency translation reduced revenue by approximately 1% and operating income by approximately 2% for the year.

 

The Corporate & Other segment, which includes the restructuring and other costs, reported operating costs of $14.3 million in this year’s fourth quarter and $23.8 million in the fourth quarter of 2015.  For the full year, the Corporate & Other segment had operating costs of $67.9 million compared to $75.8 million in 2015.  The reduction in Corporate & Other costs in 2016 is primarily attributable to lower restructuring and other costs, partially offset by higher performance based compensation.

 

2017 OUTLOOK

Sensient expects 2017 earnings per share from continuing operations to be between $2.76 and $2.86, which includes an estimated 59 cents of restructuring and other costs.  The restructuring and other costs are primarily non-cash charges related to divestitures.  The Company expects foreign currency translation will reduce earnings per share by approximately ten cents.  The Company expects adjusted earnings per share, which excludes restructuring and other costs, to be between $3.45 and $3.55 in local currency.  The ten cent impact from foreign currency translation reduces the Company’s adjusted earnings per share guidance to a range of $3.35 to $3.45.  Refer to “Reconciliation of Non-GAAP Amounts” below for a description of restructuring and other costs excluded from the adjusted results.

CONFERENCE CALL

The Company will host a conference call to discuss its 2016 fourth quarter and full year financial results at 10:00 a.m. CST on Friday, February 10, 2017.  To participate in the conference call, please contact InterCall Teleconferencing at (888) 818-9025 and refer to conference identification number 64342184.  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. CST on February 10, 2017, through midnight on February 17, by calling (404) 537-3406 and referring to conference identification number 64342184.  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 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 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.

 

 

Reconciliation of Non-GAAP Amounts

The Company's results from continuing operations for the three and twelve months ended December 31, 2016, include pre-tax restructuring and other costs of $6.2 million ($4.2 million after-tax or $0.09 per share) and $26.1 million ($21.1 million after-tax or $0.47 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 which was sold in 2017 and associated outside professional fees. The Company's results from continuing operations for the three and twelve months ended December 31, 2015, include pre-tax restructuring and other costs of $15.1 million ($12.8 million after-tax or $0.28 per share) and $43.6 million ($33.6 million after-tax or $0.73 per share), respectively. The other costs in 2015 are acquisition related costs.

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.

 

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.

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.

 

 

 

 

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