Sensient Technologies Corporation Reports Results for the Quarter Ended September 30, 2019

Sensient Technologies Corporation (NYSE: SXT) reported earnings per share of 75 cents in the third quarter of 2019 compared to reported earnings per share of $1.12 in the third quarter of 2018. The reported earnings per share of 75 cents in the current period compares to the adjusted earnings per share of 95 cents for the comparable prior year period. Revenue was $317.7 million in this year’s third quarter compared to $342.7 million in the comparable period last year. Operating income was $38.8 million in the third quarter of 2019 and $50.3 million in last year’s third quarter. Foreign currency translation decreased revenue, operating income and earnings per share by approximately 1% in the quarter.

The 2018 reported third quarter results include an adjustment to the provisional amount recorded in 2017 for the impact of the Tax Cuts and Jobs Act (2017 Tax Legislation), which is described in more detail under “Reconciliation of Non-GAAP Amounts” below. The impact of this adjustment increased earnings per share from 95 cents to $1.12 per share during last year’s third quarter and did not have any impact on the 2019 third quarter results.

BUSINESS REVIEW

The reported results include the impact of foreign currency, which is described in more detail under “Reconciliation of Non-GAAP Amounts” below. The non-GAAP amounts eliminate the impact of currency movements, depreciation and amortization, non-cash stock-based compensation, 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 $127.0 million in the quarter compared to $135.1 million in last year’s third quarter. Segment operating income was $23.4 million in the quarter compared to $26.6 million in last year’s comparable period. Foreign currency decreased both revenue and operating income by approximately 2% in the period. The Group’s results were favorably impacted by the continued growth in natural colors in the Food & Beverage Colors business and growth in the Pharmaceutical business, offset by lower sales in the Cosmetic, Inks, and Industrial businesses. Color Group operating income was lower in the quarter primarily due to the lower segment sales and higher input costs.

The Flavors & Fragrances Group reported third quarter revenue of $167.6 million compared to $184.4 million reported in the comparable period last year. Higher revenue in the finished flavors and extracts product lines was offset by lower revenue in certain flavor ingredient product lines. Segment operating income was $17.6 million in the third quarter compared to $24.8 million reported in the third quarter of 2018. The Group’s lower profit was primarily a result of the lower segment sales and lower production volumes. Foreign currency translation decreased revenue by approximately 2% and operating income by approximately 1% in the quarter.

The Asia Pacific Group reported revenue of $30.1 million in the quarter compared to $31.3 million reported in the comparable prior year period. Segment operating income was $5.4 million and $5.8 million in the third quarters of 2019 and 2018, respectively. Foreign currency translation increased segment revenue by approximately 2% and increased operating income by approximately 5% in the quarter.

Corporate & Other reported operating costs of $7.7 million in the current quarter compared to $6.9 million in the third quarter of 2018. The higher costs are primarily the result of a reduction in performance-based compensation expense in last year’s third quarter.

The Company has decided to explore strategic alternatives for certain product lines that are outside of the key strategic markets of food colors, cosmetics, pharmaceuticals, finished flavors, extracts, and natural ingredients. Exploring alternatives for non-core product lines will allow the Company to focus on the core remaining product lines and improve the overall portfolio and growth prospects.

“While the market has been challenging this year, I am optimistic in the continued growth of our core strategic businesses,” said Paul Manning, Chairman, President and CEO of Sensient Technologies Corporation. “Adjusting our current product portfolio will significantly improve the Company’s long-term outlook.”

2019 OUTLOOK

Based on the results of the first nine months of the year, current market conditions and segment growth expectations for the remaining quarter, the Company now anticipates full year earnings per share will be in the range of $2.90 to $3.00 per share.

In addition, the Company continues to expect full year local currency adjusted EBITDA⁽²⁾ to be below last year’s results. The Company provides this metric as a supplemental measure of the underlying business performance by adjusting EBITDA for non-cash stock-based compensation impacts.

CONFERENCE CALL

The Company will host a conference call to discuss its 2019 third quarter financial results at 8:30 a.m. CDT on Friday, October 18, 2019. 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 October 25, 2019, by calling (877) 344-7529 and referring to conference identification number 10133849. 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 October 22, 2019.

This release contains statements that may constitute “forward-looking statements” within the meaning of Federal securities laws including under “2019 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; 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; estimates related to the Tax Cuts and Jobs Act and its effects on our results; 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

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.

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. 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.

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 the first nine months of 2018.

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