Sensient Technologies Reports Strong Q2 Results, Progress in Flavors
25 Jul 2014 --- Sensient Technologies Corporation reported second quarter adjusted earnings per share of 81 cents, an increase of 9.5% over last year’s adjusted earnings per share of 74 cents. Consolidated revenue was $374.7 million and $378.8 million in the second quarters of 2014 and 2013, respectively.
Adjusted operating income increased by 10.6%, to $61.2 million, compared to $55.3 million of adjusted operating income reported in the second quarter of 2013. Sensient’s adjusted operating margin increased 170 basis points to 16.3% in the second quarter. The adjusted results eliminate the impact of the 2014 and 2013 restructuring and other costs, which are discussed in more detail below. As reported, diluted earnings per share were 59 cents and 65 cents in the second quarters of 2014 and 2013, respectively. Reported operating income was $48.2 million in this year’s second quarter compared to $48.7 million in last year’s second quarter. Operating income was reduced by restructuring and other costs of $13.0 million and $6.6 million, in the second quarters of 2014 and 2013, respectively. As reported, operating margins were 12.9% in the second quarters of both 2014 and 2013. Foreign currency translation did not have a significant effect on either revenue or operating income in the quarter.
For the six months ended June 30, 2014, adjusted earnings per share were $1.52 compared to $1.36 in the first half of last year, an increase of 11.8%. Consolidated revenue was $742.8 million and $744.4 million for the first six months of 2014 and 2013, respectively. Adjusted operating income was $115.5 million in the first six months of 2014, an increase of 10.6% over the adjusted operating income of $104.4 million in the first six months of last year. As reported, earnings per share were $0.55 and $1.08 in the first six months of 2014 and 2013, respectively. Operating income, as reported, was $49.8 million in the first half of this year compared to $85.0 million in the first half of last year. Restructuring and other costs were $65.7 million in the first six months of 2014, compared to $19.4 million in the first six months of 2013.
Sensient initiated a restructuring plan in the first quarter of this year to eliminate underperforming operations, consolidate manufacturing facilities, and improve efficiencies within the Company. In 2013, the Company incurred restructuring costs to relocate the headquarters of the Flavors & Fragrances Group and consolidate manufacturing facilities. As noted above, the Company incurred pre-tax restructuring and other costs of $13.0 million in the second quarter of 2014, including $9.2 million of non-cash charges for the write-down of fixed assets. For the six months ended June 30, 2014, restructuring and other costs were $65.7 million, including $48.9 million of non-cash charges. In 2013, restructuring costs were $6.6 million in the second quarter and $19.4 million for the first six months.
Cash provided by operating activities increased 11.6% to $49.6 million in the quarter, compared to $44.5 million in last year’s second quarter. The increase was driven by higher earnings, excluding the non-cash charges. The Company repurchased 1.8 million shares of its common stock in the second quarter, completing the program to repurchase up to two million shares announced earlier this year. Including dividend payments, the Company returned approximately $120 million to shareholders in the second quarter and more than $130 million year-to-date.
“I am very pleased with the strong results reported by the Company and each of the operating groups in the second quarter,” said Paul Manning, President and CEO of Sensient Technologies Corporation. “Each of the Groups reported local currency operating profit growth of over five percent and significant margin improvement. We continue to see progress in the Flavors & Fragrances Group and we are optimistic about future opportunities across all of our businesses.”
The Board of Directors recently approved the adoption of amendments to the Company’s Articles of Incorporation, By-Laws and Corporate Governance Guidelines to provide for a majority voting standard in uncontested elections of directors and replace the Company’s current plurality voting standard and director resignation policy. In accordance with Wisconsin law, the adoption of a proposed amendment to Sensient’s Articles of Incorporation will be submitted to a vote of Sensient’s shareholders at the Company’s 2015 annual meeting of shareholders. If approved by a majority of the Company’s shareholders, the majority voting standard will apply to Company elections of directors thereafter. The adoption of a majority voting standard is the latest step in Sensient’s ongoing efforts to enhance its corporate governance practices over the last few years. Other significant enhancements have included the appointment of Dr. Elaine R. Wedral as independent Lead Director, several changes to the Company’s director and officer compensation practices designed to further enhance the linkage between pay and Company performance, the declassification of the Company’s Board of Directors and the elimination of Sensient’s poison pill. The Board of Directors and its Nominating and Corporate Governance Committee have also made significant progress in their ongoing evaluation of potential candidates for Sensient’s Board of Directors.
BUSINESS REVIEW
The Color Group reported revenue of $133.2 million in the quarter, an increase of 3.9% from the $128.2 million reported in the comparable period last year. Operating income increased 8.5% to $30.9 million from $28.4 million in last year’s second quarter. The Color Group’s operating margin increased 100 basis points to 23.2% in the quarter, driven by strong performances in the digital inks and food and beverage color businesses. Foreign currency translation increased revenue by less than one percent and operating income by 1.5% in the quarter.
For the six months ended June 30, 2014, Color Group revenue was $266.9 million, an increase of 3.6% from the $257.7 million reported in the first six months of last year. Operating income increased 9.3% to $60.3 million compared to $55.1 million for the comparable period last year. Foreign currency translation did not have a significant impact on either revenue or operating income in the first half of 2014.
The Flavors & Fragrances Group reported second quarter revenue of $216.2 million compared to the $226.6 million reported in last year’s second quarter. Operating income increased 4.9% to $33.6 million compared to $32.0 million in the second quarter of 2013. The Flavors & Fragrances Group’s operating margin increased to 15.5% in the quarter, an improvement of 140 basis points from the margin in last year’s second quarter. Several businesses reported double-digit operating profit growth in the quarter including Natural Ingredients, North America Beverage, North America Savory, Europe Beverage and Europe Sweet. Foreign currency translation did not have a significant impact on either revenue or operating income in the quarter.
The Flavors & Fragrances Group reported revenue of $429.6 million and $442.5 million in the first six months of 2014 and 2013, respectively. Operating income was $63.5 million for the first six months of 2014, an increase of 5.1% compared to the $60.4 million reported in the comparable period last year. Foreign currency translation did not have a significant impact on either revenue or operating income in the first half of 2014.
The Corporate & Other segment, which includes the Company’s operations in Asia Pacific, and the flavor businesses in Central and South America, reported revenue of $39.0 million in the second quarter compared to $37.7 million in the comparable period last year. For the six months ended June 30, 2014, revenue was $74.3 million, an increase of 2.5% over the $72.5 million reported in the first half of last year. In local currency terms, revenue in this segment grew by approximately 7% for both the quarter and year-to-date periods.
2014 OUTLOOK
Sensient has increased its 2014 diluted earnings per share guidance to be within the range of $2.95 and $3.02, excluding restructuring and other costs. The Company’s previous guidance had been a range between $2.92 and $3.00 per share.
