Sensient Technologies Corp 10-Q for FY2022 Q1
Sensient Technologies Corp (SXT)
10-Q
2022-05-03
For: 2022-03-31
View Original
Added on
April 10, 2026
About this 10-Q
Sensient Technologies Corp filed this 10-Q on May 3, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $355.52M
- down 1.2% from $359.7M a year earlier
- Net income
- $37.07M
- up 17.1% from net income of $31.67M a year earlier
- Diluted EPS
- $0.88
- up 17.3% from $0.75 a year earlier
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended:
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission file number: 001-07626
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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(Address of principal executive offices)
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Registrant’s telephone number, including area code:
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(
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated Filer ☐
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Non-Accelerated Filer ☐
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Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Outstanding at April 27, 2022
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Common Stock, par value $0.10 per share
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SENSIENT TECHNOLOGIES CORPORATION
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Page No.
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PART I. FINANCIAL INFORMATION:
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Item 1.
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Financial Statements:
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Item 2.
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Item 3.
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Item 4.
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PART II. OTHER INFORMATION:
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Item 1.
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21
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Item 1A.
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Item 2.
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Item 6.
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23
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| PART I. |
FINANCIAL INFORMATION
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FINANCIAL STATEMENTS
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SENSIENT TECHNOLOGIES CORPORATION
(In thousands except per share amounts)
(Unaudited)
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Three Months
Ended March 31,
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2022
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2021
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Revenue
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$
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$
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Cost of products sold
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Selling and administrative expenses
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Operating income
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Interest expense
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Earnings before income taxes
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Income taxes
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Net earnings
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$
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$
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Weighted average number of common shares outstanding:
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Basic
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Diluted
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Earnings per common share:
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Basic
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$
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Diluted
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$
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$
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Dividends declared per common share
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$
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$
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See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
(Unaudited)
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Three Months
Ended March 31,
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2022
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2021
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Comprehensive income
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$
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$
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See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
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Assets
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March 31,
2022
(Unaudited)
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December 31,
2021
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Current Assets:
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Cash and cash equivalents
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$
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$
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Trade accounts receivable
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Inventories
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Prepaid expenses and other current assets
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Total current assets
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Other assets
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Deferred tax assets
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Intangible assets, net
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Goodwill
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Property, Plant, and Equipment:
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Land
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Buildings
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Machinery and equipment
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Construction in progress
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Less accumulated depreciation
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(
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(
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Total assets
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$
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$
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Liabilities
and Shareholders’ Equity
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Current Liabilities:
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Trade accounts payable
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$
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$
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Accrued salaries, wages, and withholdings from employees
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Other accrued expenses
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Income taxes
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Short-term borrowings
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Total current liabilities
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Deferred tax liabilities
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Other liabilities
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Accrued employee and retiree benefits
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Long-term debt
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Shareholders’ Equity:
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Common stock
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Additional paid-in capital
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Earnings reinvested in the business
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Treasury stock, at cost
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Accumulated other comprehensive loss
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Total shareholders’ equity
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Total liabilities and shareholders’ equity
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$
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$
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See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
(Unaudited)
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Three Months
Ended March 31,
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2022
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2021
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Cash flows from operating activities:
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Net earnings
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$
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Adjustments to arrive at net cash provided by operating activities:
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Depreciation and amortization
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Share-based compensation expense
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Net (gain) loss on assets
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Loss on divestitures and other charges
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Deferred income taxes
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Changes in operating assets and liabilities:
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Trade accounts receivable
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Inventories
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Prepaid expenses and other assets
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Accounts payable and other accrued expenses
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Accrued salaries, wages, and withholdings from employees
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Income taxes
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Other liabilities
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Net cash (used in) provided by operating activities
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Cash flows from investing activities:
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Acquisition of property, plant, and equipment
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Proceeds from sale of assets
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Proceeds from divesture of businesses
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Other investing activities
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Net cash used in investing activities
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Cash flows from financing activities:
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Proceeds from additional borrowings
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Debt payments
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Purchase of treasury stock
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Dividends paid
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Other financing activities
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Net cash provided by (used in) financing activities
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Effect of exchange rate changes on cash and cash equivalents
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Net increase in cash and cash equivalents
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Cash and cash equivalents at beginning of period
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Cash and cash equivalents at end of period
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$
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$
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See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands, except share and per share amounts)
(Unaudited)
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Common
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Additional
Paid-In
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Earnings
Reinvested
in the
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Treasury Stock
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Accumulated
Other
Comprehensive
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Total
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|||||||||||||||||||||||
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Three Months
Ended March 31, 2021
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Stock
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Capital
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Business
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Shares
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Amount
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Income (Loss)
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Equity
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|||||||||||||||||||||
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Balances at December 31, 2020
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$
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$
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$
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$
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(
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$
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(
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$
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Net earnings
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-
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Other comprehensive loss
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-
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(
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Cash dividends
paid – $
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(
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-
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Share-based compensation
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-
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Non-vested stock issued upon vesting
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(
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Benefit plans
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( |
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Purchase of treasury stock
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( |
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Other
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(
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(
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(
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Balances at March 31, 2021
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$
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$
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$
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$
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(
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$
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(
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$
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Three Months Ended March 31, 2022
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||||||||||||||||||||||||||||
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Balances at December 31, 2021
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$ | $ |
$ |
$ |
( |
) | $ |
( |
) | $ |
||||||||||||||||||
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Net earnings
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- | |||||||||||||||||||||||||||
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Other comprehensive loss
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- | ( |
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Cash dividends
paid – $
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( |
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Share-based compensation
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Non-vested stock issued upon vesting
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Benefit plans
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Other
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( |
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Balances at March 31, 2022
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$ | $ |
$ |
$ |
( |
) | $ |
( |
) | $ |
||||||||||||||||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES
CORPORATION
(Unaudited)
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1.
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Accounting Policies
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In the opinion of Sensient Technologies Corporation (the
Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial
position of the Company as of March 31, 2022, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three months ended March 31, 2022 and 2021. The
results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Expenses are charged to operations in the period incurred. Certain prior period amounts disclosed have been reclassified to conform to the current period presentation.
Recently
Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other
inter-bank offered rates to alternative rates. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this standard on its consolidated financial
statements and its related disclosures.
Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2021, for additional details of the Company’s financial
condition and a description of the Company’s accounting policies, which have been continued without change.
| 2. |
Divestitures
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On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. This sale also included an earnout based on
future performance, which could result in additional cash consideration for the Company. On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line) for $36.3 million of net cash.
The Company reports all costs associated with the divestitures in Corporate & Other. There were no
costs associated with the divestitures for the three months ended March 31, 2022. The following table summarizes the divestiture & other related costs for the three months ended March 31, 2021:
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(In thousands)
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Yogurt Fruit Preparations
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Fragrances
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Inks
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Corporate &
Other
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Total
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Non-cash charges – Cost of
products sold
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$
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$
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$
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(
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)
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$
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$
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Other costs - Selling and
administrative expenses(1)
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(
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Total
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$
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$
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$
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(
|
)
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$
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$
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| (1) |
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In March 2020, the Company was notified by the buyer of the Company’s fragrances product line that environmental sampling conducted at the Company’s Granada, Spain location had identified the presence of contaminants in
soil and groundwater in certain areas of the property. The Company records liabilities related to environmental remediation obligations when estimated future expenditures are probable and the amount of the liability is reasonably estimable. Based
upon an environmental investigation and a quantitative risk assessment performed by a consultant hired by the Company, the Company recorded $0.3
million related to these obligations in Selling and Administrative Expenses during the three months ended March 31, 2021.
| 3. |
Operational Improvement Plan
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During the third quarter of 2020, the Company
approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of the Operational Improvement Plan, the Company combined its New Jersey cosmetics
manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company centralized certain Flavors & Extracts segment support functions in Europe into one
location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions.
The Company reports all costs and income
associated with the Operational Improvement Plan in Corporate & Other. There were no costs associated with the Operational
Improvement Plan for the three months ended March 31, 2022. The following table summarizes the Operational Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for
the three months ended March 31, 2021:
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(In thousands)
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Flavors &
Extracts
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Color
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Asia
Pacific
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Consolidated
|
||||||||||||
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Employee separation costs
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$
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(
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)
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$
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$
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(
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)
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$
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(
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)
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Other costs(1)
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Total
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$
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(
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)
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$
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$
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(
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)
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$
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| (1) |
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As of March 31, 2022 and December 31 2021, accrued liabilities in Other Accrued Expenses totaled $0.5
million and $0.8 million, respectively, related to the Operational Improvement Plan.
| 4. |
Acquisition
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On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors
business located in New Jersey. The purchase price for this acquisition was $14.9 million in cash with approximately $1.0 million of such amount being held back by the Company for 12 months in order to satisfy post-closing indemnification claims that may arise. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company
acquired net assets of $0.4 million and identified intangible assets, principally customer relationships, of $5.0 million. The remaining $9.5 million
was allocated to goodwill. This business is now part of the Flavors & Extracts segment.
| 5. |
Trade Accounts Receivable
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Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an
aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency
status. This information is also adjusted for any known current economic conditions, including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic has not had and is not anticipated to have a material impact on trade
accounts receivable. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and
evaluate the rapidly changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not
different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
The following table summarizes the changes in
the allowance for doubtful accounts during the three month periods ended March 31, 2022 and 2021:
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(In
thousands)
Three Months Ended March 31, 2022
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at December 31, 2021
|
$
|
|
||
|
Provision for expected credit losses
|
|
|||
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Accounts written off
|
(
|
)
|
||
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Translation and other activity
|
|
|||
|
Balance at March 31, 2022
|
$
|
|
||
|
(In
thousands)
Three Months Ended March 31, 2021
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at December 31, 2020
|
$
|
|
||
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Provision for expected credit losses
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|||
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Accounts written off
|
(
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)
|
||
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Translation and other activity
|
(
|
)
|
||
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Balance at March 31, 2021
|
$
|
|
||
| 6. |
Inventories
|
At March 31, 2022, and December 31, 2021, inventories included finished and in-process products totaling $279.4
million and $280.2 million, respectively, and raw materials and supplies of $143.4 million and $131.4 million, respectively.
| 7. |
Fair Value
|
Accounting
Standards Codification 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value
measurements. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of March 31, 2022 and
December 31, 2021. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.3 million and $0.1 million as of March 31, 2022 and December 31, 2021,
respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2
inputs). The carrying value of the long-term debt at March 31, 2022 and December 31, 2021, was $530.5 million and $503.5 million, respectively. The fair value of the long-term debt at March 31, 2022 and December 31, 2021, was $537.2 million and $520.0 million, respectively.
| 8. |
Segment Information
|
The Company evaluates performance based on
operating income before divestiture & other related costs, share-based compensation, restructuring and other charges including operational improvement plan costs, interest expense, and income taxes (segment operating income). Total revenue and
segment operating income by business segment and geographic region include both sales to customers, as reported in the Company’s Consolidated Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate market
prices and are eliminated in consolidation.
The Company determines its operating segments
based on information utilized by its chief operating decision maker to allocate resources and assess performance. The Company’s three
reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor,
extracts and essential oils products that impart a desired taste, texture, aroma, and/or other characteristics to a broad range of consumer and other products. The Color segment produces natural and synthetic color systems for use in foods,
beverages, pharmaceuticals, and nutraceuticals; colors and other ingredients for cosmetics, such as active ingredients, solubilizers, and surface treated pigments; pharmaceutical and nutraceutical excipients, such as colors, flavors, coatings, and
nutraceutical ingredients; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color and flavor products for the Asia Pacific countries. The Company’s corporate
expenses, divestiture & other related costs, share-based compensation, operational improvement plan expenses, and other costs are included in the “Corporate & Other” category.
Divestiture & other related costs and
restructuring and other costs, including the Operational Improvement Plan costs, for the three months ended March 31, 2021, are further described in Note 2, Divestitures, and Note 3, Operational Improvement Plan, and are included in the operating income (loss) results in Corporate & Other below. There were no
Operating results by segment for the periods
presented are as follows:
|
(In thousands)
|
Flavors & Extracts
|
Color
|
Asia
Pacific
|
Corporate
& Other
|
Consolidated
|
|||||||||||||||
|
Three months ended March 31, 2022:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Three months ended March 31, 2021:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
Product Lines
|
(In thousands)
|
Flavors & Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months
ended March 31, 2022:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months
ended March 31, 2021:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Fragrances
|
|
-
|
-
|
|
||||||||||||
|
Yogurt Fruit
Preparations
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Geographic Markets
|
(In thousands)
|
Flavors & Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months ended March 31, 2022:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended March 31, 2021:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| 9. |
Retirement Plans
|
The Company’s components of annual benefit cost for the defined benefit plans for the
periods presented are as follows:
|
Three Months Ended
March 31,
|
||||||||
|
(In thousands)
|
2022
|
2021
|
||||||
|
Service cost
|
$
|
|
$
|
|
||||
|
Interest cost
|
||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
||||
|
Recognized actuarial loss
|
||||||||
|
Total defined benefit expense
|
$
|
|
$
|
|
||||
The Company’s non-service cost portion of defined
benefit expense is recorded in Interest Expense on the Company’s Consolidated Statements of Earnings. The Company’s service cost portion of defined benefit expense is recorded in Selling and Administrative Expenses on the Company’s Consolidated Statements of Earnings.
| 10. |
Derivative Instruments and Hedging
Activity
|
The
Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk in order to reduce the effect of fluctuating foreign currencies on short-term foreign currency denominated intercompany
transactions, non-functional currency raw material purchases, non-functional currency sales, and other known foreign currency exposures. These forward exchange contracts generally have maturities of less than 18 months. The Company’s primary hedging activities and their accounting treatment are summarized below.
Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $35.9 million and $48.7 million of forward
exchange contracts designated as cash flow hedges outstanding as of March 31, 2022 and December 31, 2021, respectively. For the three months ended March 31, 2022 and 2021, the amounts reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying
transactions’ impact on earnings in the same period were not material. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the financial
statements.
Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of March 31, 2022 and December 31, 2021, the total value of the
Company’s net investment hedges was $281.6 million and $289.5 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate
are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended March 31, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $7.9 million and $9.6 million, respectively, which has been recorded as foreign currency
translation in OCI.
| 11. |
Income Taxes
|
The effective income tax rates for the three months ended March 31, 2022
and 2021, were 25.6 % and 27.1 %,
respectively. The effective tax rates for the three months ended March 31, 2022 and 2021 were both impacted by changes in estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings.
| 12. |
Accumulated Other Comprehensive Income
|
The following table summarizes the changes in OCI during the three month periods ended
March 31, 2022 and 2021:
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at December 31, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss) before
reclassifications
|
|
|
(
|
)
|
|
|||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at March 31, 2022
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at December 31, 2020
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss) before
reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at March 31, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
| (1) |
|
| 13. |
Commitments and Contingencies
|
Agar
v. Sensient Natural Ingredients LLC
On March
29, 2019, Calvin Agar (Agar), a former employee, filed a Class Action Complaint in Stanislaus County Superior Court against Sensient Natural Ingredients LLC (SNI). On May 22, 2019, Agar filed a First Amended Class Action Complaint against SNI (the
Complaint). Agar alleges that SNI improperly reported overtime pay on employees’ wage statements, in violation of the California Labor Code. The Complaint alleges two causes of action, both of which concern the wage statements.
The
Complaint does not allege that SNI failed to pay any overtime due to Agar or any of the putative class or group members. The Complaint merely challenges the manner in which SNI has reported overtime pay on its wage statements.
SNI
maintains that it has accurately paid Agar and the putative class members for all overtime worked, and that they have not experienced any harm. SNI further maintains that the format of its wage statements does not violate the requirements of state
law or any specific guidance from California decisional law, the California Division of Labor Standards Enforcement, or the California Labor Commissioner’s Office. Finally, SNI contended that certain of the state law claims are subject to mandatory
individual arbitration.
SNI filed its Answer and Affirmative Defenses
to the Complaint on July 10, 2019. The parties participated in an early mediation in the case in December 2019, which was not successful. On March 17, 2020, the Court granted Agar leave to file a Second Amended Complaint, which removed the claim
that SNI had asserted was subject to mandatory individual arbitration. SNI filed a Demurrer to the Second Amended Complaint, seeking dismissal of the remaining claim, on May 1, 2020. The Court overruled the Demurrer on September 1, 2020. SNI
requested discretionary appellate review of this decision. The Court of Appeal of the State of California, Fifth Appellate District granted SNI’s application on February 19, 2021 and ordered briefing by the Parties. Oral argument was held on
April 5, 2022. On April 18, 2022, the Court of Appeal ruled that a peremptory writ of mandate should be issued directing the trial court to set aside its prior order overruling SNI’s Demurrer to the complaint and to enter an order sustaining SNI’s
Demurrer without leave to amend, which has the effect of dismissing Agar’s complaint against SNI. The Court of Appeal’s decision becomes final thirty days
after issuance. Agar has ten days from the date that the Court of Appeal’s decision becomes final to file a petition for review with the
California Supreme Court.
Kelley
v. Sensient Natural Ingredients LLC; Bryan v. Sensient Natural Ingredients LLC
On March
4, 2020, Monique Kelley filed a Class Action Complaint against SNI in Merced County Superior Court in California. Ms. Kelley worked at SNI for less than a week in 2017 through a temporary staffing company. Ms. Kelley has brought suit for purported
violations of the California Labor Code and the California Business and Professions Code on her own behalf, and on behalf of all current and former California-based hourly-paid or non-exempt employees of SNI. Ms. Kelley specifically asserts claims
for unpaid overtime wages, unpaid minimum wages, unpaid meal and rest break premiums, failure to timely pay final wages upon termination, non-compliant wage statements, and unreimbursed business expenses. SNI filed a Demurrer on May 21, 2020, seeking
dismissal of the Complaint in its entirety on the grounds that it contains only boilerplate allegations that fail to state facts sufficient to constitute a cause of action, and it is otherwise uncertain, ambiguous, and unintelligible. SNI further
sought dismissal of one cause of action based upon the statute of limitations. SNI simultaneously filed a Motion to Strike certain allegations in the Complaint as improperly pled. The Court sustained the Demurrer with leave to amend on August 25,
2020. The Court also granted the Motion to Strike. Ms. Kelley has amended her original pleading, asserting the same causes of action, to which SNI has filed a responsive pleading. The parties have begun discovery.
On June
15, 2020, the same law firm representing Ms. Kelley also filed notice with the State of California of the intent to pursue a claim on a representative basis pursuant to the California Private Attorneys General Act of 2004 (PAGA). This notice was
served on behalf of Julie Bryan, who worked at SNI through a temporary staffing agency in early 2020. The notice states the intent to pursue relief on behalf of Ms. Bryan as well as other alleged aggrieved employees, identified as all current and
former hourly or non-exempt employees of SNI, whether hired directly or through staffing agencies or labor contractors. The notice alleges that SNI failed to properly pay Ms. Bryan and the other alleged aggrieved employees for all hours worked,
failed to properly provide or compensate minimum and overtime wages and for meal and rest breaks, failed to issue compliant wage statements, and failed to reimburse for all necessary business-related expenses, in violation of the California Labor
Code and California Industrial Welfare Commission Orders. On August 19, 2020, Ms. Bryan filed a Complaint in Merced County Superior Court asserting the claims set forth in her PAGA notice. SNI filed its Answer and Affirmative Defenses, and the
parties entered the discovery phase of the case. On May 20, 2021, however, Ms. Bryan filed a Request for Dismissal of her action, without prejudice.
On April
26, 2021, prior to the filing of the above-referenced Notice of Dismissal, the same law firm filed an additional notice with the State of California of the intent to pursue a claim on a representative basis pursuant to PAGA. This notice was served on
behalf of Patrick Walters, an employee of SNI. The notice states the intent to pursue relief on behalf of Mr. Walters as well as other alleged aggrieved employees, identified as all current and former hourly or non-exempt employees of SNI, whether
hired directly or through staffing agencies. The notice alleges that SNI failed to properly pay Mr. Walters and the other alleged aggrieved employees for all hours worked, failed to properly provide or compensate minimum and overtime wages and for
meal and rest breaks, failed to issue compliant wage statements, and failed to reimburse for all necessary business-related expenses, in violation of the California Labor Code and California Industrial Welfare Commission Orders. On July 30, 2021, Mr.
Walters filed a Complaint in Merced County Superior Court asserting the claims set forth in his PAGA notice. SNI filed its Answer and Affirmative Defenses in response. Ms. Kelley and Mr. Walters have agreed to attempt a joint mediation with Ms. Sofia
Rodriguez (see case description below), which is scheduled for August 2022. SNI intends to vigorously defend its interests in both the Kelley and Walters matters, absent a reasonable resolution.
Sofia
Rodriguez v. Sensient Natural Ingredients LLC and One Source Staffing Solutions, Inc.
On June
10, 2021, Sofia Rodriguez filed notice with the State of California of the intent to pursue a claim on a representative basis pursuant to PAGA. The notice was served on behalf of Ms. Rodriguez, who worked at SNI through One Source Staffing Solutions,
Inc. for five months in 2020. The notice states the intent to pursue relief on behalf of Ms. Rodriguez as well as other alleged aggrieved
employees, identified as all non-exempt employees who worked for Defendants in the State of California, and who were paid on an hourly basis. The notice alleges that SNI failed to allow Ms. Rodriguez and the other alleged aggrieved employees to take
statutorily required meal and rest periods. The notice further alleges that Defendants suffered and permitted Ms. Rodriguez and other alleged aggrieved employees to work off the clock, failed to pay for all hours worked, failed to properly provide or
compensate for minimum and overtime wages, failed to issue compliant wage statements, and failed to pay wages owed upon termination of employment, in violation of the California Labor Code. Ms. Rodriguez also asserts that she was taken off the
schedule and not returned to work after complaining about the alleged wage and hour violations set forth in the PAGA notice. On August 17, 2021, Ms. Rodriguez filed a Complaint in Stanislaus County Superior Court asserting the claims set forth in her
PAGA notice. SNI filed its Answer and Affirmative Defenses in response. Ms. Rodriguez has agreed to attempt a joint mediation with Ms. Monique Kelley and Mr. Patrick Walters (see case descriptions above), which is scheduled for August 2022. SNI
intends to vigorously defend its interests in the Rodriguez matter, absent a reasonable resolution.
Other
Claims
The
Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While
it is not possible to predict the outcome of these matters, based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial
position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.
See Note
2, Divestitures, for information about estimated environmental remediation costs associated with our Granada, Spain, location.
| 14. |
Subsequent Event
|
On April 28, 2022 , the Company announced its quarterly dividend of $0.41 per share would be payable on June 1, 2022 .
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry conditions, Company performance, and financial results. Forward-looking statements include
statements in the future tense, statements referring to any period after March 31, 2022, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or conditions. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other
factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results.
These factors and assumptions include, among others, the impact and uncertainty created by the ongoing COVID-19 pandemic, including, but not limited to, its effects on our employees, facilities, customers, and suppliers; the availability and cost
of raw materials, energy, and other supplies; the availability and cost of labor, logistics, and transportation; the uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and
transportation, and generally on economic conditions; governmental regulations and restrictions; and general economic conditions, including inflation; the pace and nature of new product introductions by the Company and the Company’s customers; the
Company’s ability to anticipate and respond to changing consumer preferences and changing technologies; the Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various productivity-improvement and
cost-reduction efforts, acquisition and divestiture activities, and operational improvement plan; the effectiveness of the Company’s past restructuring activities; changes in costs of raw materials, including energy; industry, regulatory, legal,
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; currency exchange rate fluctuations; and the matters discussed under Item 1A in Part II of this Quarterly Report on Form 10-Q and Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31,
2021. Except to the extent required by applicable law, 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
therein will not be realized.
OVERVIEW
Revenue
Revenue was $355.5 million and $359.7 million for the three months ended March 31, 2022 and 2021, respectively. The decrease in revenue was primarily due to the sale of the Company’s Fragrances product line on April 1, 2021, partially offset by
favorable pricing and volumes. For the three months ended March 31, 2022, the impact of foreign exchange rates decreased consolidated revenue by approximately 2%.
Gross Profit
The Company’s gross margin was 35.1% and 32.1% for the three months ended March 31, 2022 and 2021, respectively. The increase in gross margin was primarily due to an increase in pricing and volumes, partially offset by higher input costs.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.3% and 19.1% for the three months ended March 31, 2022 and 2021, respectively. The increase in selling and administrative expenses as a percent of revenue was primarily due to an
increase in expenses in the Color segment and higher performance-based executive compensation recorded in Corporate & Other, partially offset by divestiture & other related expenses and operational improvement plan costs in the prior
period.
Selling and administrative expenses for the three months ended March 31, 2021 included divestiture & other related expenses and operational improvement plan costs totaling $2.5 million. There were no divestiture & other related costs or
operational improvement plan costs for the three months ended March 31, 2022. These expenses increased selling and administrative expense as a percent of revenue by 70 basis points for the three months ended March 31, 2021.
Operating Income
Operating income was $52.8 million and $46.9 million for the three months ended March 31, 2022 and 2021, respectively. Operating margins were 14.8% and 13.0% for the three months ended March 31, 2022 and 2021, respectively. The increase in
operating margin is primarily due to higher pricing and volumes, and the lack of divestiture & other related costs and operational improvement plan costs in the current period, partially offset by higher performance-based executive compensation
recorded in Corporate & Other.
Interest Expense
Interest expense was $3.0 million and $3.4 million for the three months ended March 31, 2022 and 2021, respectively. The decrease in expense was primarily due to the lower average interest rate in the current period compared to the comparable
prior year period.
Income Taxes
The effective income tax rates for the three months ended March 31, 2022 and 2021 were 25.6% and 27.1%, respectively. The effective tax rates for the three months ended March 31, 2022 and 2021 were both impacted by changes in estimates
associated with the finalization of prior year foreign tax items and the mix of foreign earnings.
Divestitures
On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. This sale also included an earnout based on future performance, which
could result in additional cash consideration for the Company. On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line) for $36.3 million of net cash.
In the three months ended March 31, 2021, the Company incurred $1.6 million related to the divestitures, primarily for costs associated with employee separation and accelerated depreciation of fixed assets. There were no costs related to the
divestitures incurred during the three months ended March 31, 2022.
Operational Improvement Plan
During the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of the Operational Improvement
Plan, the Company combined its New Jersey cosmetics manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company centralized certain Flavors &
Extracts segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions.
In the three months ended March 31, 2021, the Company incurred $1.0 million related to the Operational Improvement Plan recorded in Corporate & Other, primarily for costs associated with exiting its New Jersey cosmetics manufacturing
facility. There were no costs related to the Operational Improvement Plan incurred during the three months ended March 31, 2022.
Acquisition
On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors business located in New Jersey. The purchase price for this acquisition was $14.9 million
in cash with approximately $1.0 million of such amount being held back by the Company for 12 months in order to satisfy post-closing indemnification claims that may arise. The assets acquired and liabilities assumed were recorded at their
estimated fair value as of the acquisition date. The Company acquired net assets of $0.4 million and identified intangible assets, principally customer relationships, of $5.0 million. The remaining $9.5 million was allocated to goodwill. This
business is now part of the Flavors & Extracts segment.
COVID-19
COVID-19 has adversely affected most of the world through widespread illness, quarantines, factory shutdowns, and travel and transportation disruptions and restrictions. These adverse effects could continue in parts of the world. While the
Company’s financial position remains strong, the Company has seen several financial and operational impacts from the pandemic as of this filing. We have experienced various degrees of supply chain challenges and attempted to mitigate those
challenges by increasing inventory in certain key raw materials and using secondary suppliers and new methods of procurement where available. In addition, we have experienced inflationary increases in costs associated with certain raw materials,
logistics, transportation, and labor. In response, we have taken pricing actions to offset these increases.
For the three months ended March 31, 2022, demand for many of the Company’s products remained strong. All of the Company’s production facilities are open and operating as of this filing, but the Company continues to monitor developments and
regulations in regions where its production facilities are located. Governmental and social responses to the COVID-19 pandemic continue to evolve. There continues to be uncertainty related to the impacts of new COVID-19 variants, and we expect that
the situation will remain dynamic and difficult to predict for the foreseeable future. There can be no assurance that our experience to date with respect to facility operations, customer demand, the availability of supplies and transportation, and
other factors impacting our results and financial condition will be predictive of the ongoing impacts in the short or long term. It is difficult to predict how economic conditions and changes in customer and consumer behavior may impact our results
over the longer term. As a result of any of the foregoing, our results or financial condition could be adversely impacted and the impacts could be material.
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude the results of the
divested product lines, the divestiture & other related costs, and the operational improvement plan costs and (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which
eliminate the effects that result from translating its international operations into U.S. dollars, the results of the divested product lines, the divestiture & other related costs, and the operational improvement plan costs.
The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year 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 report. 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
the Company believes 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.
|
Three Months Ended March 31,
|
||||||||||||
|
(In thousands except per share amounts)
|
2022
|
2021
|
% Change
|
|||||||||
|
Revenue (GAAP)
|
$
|
355,521
|
$
|
359,702
|
(1.2
|
%)
|
||||||
|
Revenue of the divested product lines
|
-
|
(25,570
|
)
|
|||||||||
|
Adjusted revenue
|
$
|
355,521
|
$
|
334,132
|
6.4
|
%
|
||||||
|
Operating Income (GAAP)
|
$
|
52,789
|
$
|
46,897
|
12.6
|
%
|
||||||
|
Divestiture & other related costs – Cost of products sold
|
-
|
25
|
||||||||||
|
Divestiture & other related costs – Selling and administrative expenses
|
-
|
1,547
|
||||||||||
|
Operating income of the divested product lines
|
-
|
(2,927
|
)
|
|||||||||
|
Operational improvement plan – Selling and administrative expenses
|
-
|
1,001
|
||||||||||
|
Adjusted operating income
|
$
|
52,789
|
$
|
46,543
|
13.4
|
%
|
||||||
|
Net Earnings (GAAP)
|
$
|
37,071
|
$
|
31,668
|
17.1
|
%
|
||||||
|
Divestiture & other related costs, before tax
|
-
|
1,572
|
||||||||||
|
Tax impact of divestiture & other related costs
|
-
|
793
|
||||||||||
|
Net earnings of the divested product lines, before tax
|
-
|
(2,927
|
)
|
|||||||||
|
Tax impact of the divested product lines
|
-
|
723
|
||||||||||
|
Operational improvement plan costs, before tax
|
-
|
1,001
|
||||||||||
|
Tax impact of operational improvement plan
|
-
|
(296
|
)
|
|||||||||
|
Adjusted net earnings
|
$
|
37,071
|
$
|
32,534
|
13.9
|
%
|
||||||
|
Diluted Earnings Per Share (GAAP)
|
$
|
0.88
|
$
|
0.75
|
17.3
|
%
|
||||||
|
Divestiture & other related costs, net of tax
|
-
|
0.06
|
||||||||||
|
Results of operations of the divested product lines, net of tax
|
-
|
(0.05
|
)
|
|||||||||
|
Operational improvement plan costs, net of tax
|
-
|
0.02
|
||||||||||
|
Adjusted diluted earnings per share
|
$
|
0.88
|
$
|
0.77
|
14.3
|
%
|
||||||
Divestiture & other related costs are discussed under “Divestitures” above and
Note 2, Divestitures, in the Notes to the Consolidated Condensed Financial Statements included in this report. The Operational Improvement Plan is discussed under “Operational Improvement
Plan” above and Note 3, Operational Improvement Plan, in the Notes to the Consolidated Condensed Financial Statements included in this report.
Note: Earnings per share calculations may not foot due to rounding differences.
The following table summarizes the percentage change for the results of the three months ended March 31, 2022, compared to the results for the three months ended March 31, 2021, in the respective financial measures.
|
Three Months Ended March 31, 2022
|
||||||||||||||||
|
Revenue
|
Total
|
Foreign Exchange Rates
|
Adjustments (1)
|
Adjusted Local Currency
|
||||||||||||
|
Flavors & Extracts
|
(9.1
|
%)
|
(1.9
|
%)
|
(12.3
|
%)
|
5.1
|
%
|
||||||||
|
Color
|
9.4
|
%
|
(1.9
|
%)
|
(0.5
|
%)
|
11.8
|
%
|
||||||||
|
Asia Pacific
|
7.8
|
%
|
(5.6
|
%)
|
(1.0
|
%)
|
14.4
|
%
|
||||||||
|
Total Revenue
|
(1.2
|
%)
|
(2.2
|
%)
|
(7.4
|
%)
|
8.4
|
%
|
||||||||
|
Operating Income
|
||||||||||||||||
|
Flavors & Extracts
|
2.1
|
%
|
(1.2
|
%)
|
(11.4
|
%)
|
14.7
|
%
|
||||||||
|
Color
|
15.3
|
%
|
(2.4
|
%)
|
0.2
|
%
|
17.5
|
%
|
||||||||
|
Asia Pacific
|
21.5
|
%
|
(7.8
|
%)
|
(1.7
|
%)
|
31.0
|
%
|
||||||||
|
Corporate & Other
|
1.4
|
%
|
0.0
|
%
|
(24.0
|
%)
|
25.4
|
%
|
||||||||
|
Total Operating Income
|
12.6
|
%
|
(3.2
|
%)
|
(0.4
|
%)
|
16.2
|
%
|
||||||||
|
Diluted Earnings per Share
|
17.3
|
%
|
(4.0
|
%)
|
4.4
|
%
|
16.9
|
%
|
||||||||
| (1) |
For Revenue, adjustments consist of revenues of the divested product lines. For Operating Income and Diluted Earnings per Share, adjustments consist of the results of the divested product
lines, divestiture & other related costs, and operational improvement plan costs.
|
Note: Refer to table above for a reconciliation of these non-GAAP measures.
SEGMENT INFORMATION
The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before any applicable
divestiture & other related costs, share-based compensation, acquisition, restructuring including the Operational Improvement Plan, and other costs (which are reported in Corporate & Other), interest expense, and income taxes.
The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.
Flavors & Extracts
Flavors & Extracts segment revenue was $182.7 million and $200.9 million for the three months ended March 31, 2022 and 2021, respectively, a decrease of approximately 9%. Foreign exchange rates decreased segment revenue by approximately 2%.
The decrease was primarily a result of lower revenue in Fragrances and Natural Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenues in Fragrances was due to the divestiture of the product
line in April 2021. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher volumes, higher
selling prices, and the acquisition of Flavor Solutions, Inc. in July of 2021, partially offset by the unfavorable impact of foreign exchange rates.
Flavors & Extracts segment operating income was $27.6 million and $27.0 million for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately 2%. Foreign exchange rates decreased segment operating income by
approximately 1%. The higher segment operating income was primarily a result of higher operating income in Flavors, Extracts & Flavor Ingredients and Natural Ingredients, partially offset by the divestiture of the Fragrances product line in
April of 2021. The higher operating income in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices, higher volumes, and lower manufacturing and other costs, partially offset by higher raw material costs. The higher
operating income in Natural Ingredients was primarily due to higher selling prices and a favorable product mix, partially offset by lower volumes, higher raw material costs, and higher manufacturing and other costs. Segment operating income as a
percent of revenue was 15.1% in the current quarter compared to 13.4% in the prior year’s comparable quarter.
Color
Segment revenue for the Color segment was $148.4 million and $135.7 million for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately 9%. The increase was a result of higher revenue in Food &
Pharmaceutical Colors and Personal Care, primarily due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 2%.
Segment operating income for the Color segment was $30.7 million and $26.6 million for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately 15%. Foreign exchange rates decreased segment operating income by
approximately 2%. The increase in segment operating income was a result of higher segment operating income in Food & Pharmaceutical Colors and Personal Care. The higher operating income in Food & Pharmaceutical Colors was due to higher
volumes and selling prices, partially offset by higher raw material costs and higher manufacturing and other costs. The higher operating income in Personal Care was due to higher volumes and selling prices, partially offset by higher manufacturing
and other costs. Segment operating income as a percent of revenue was 20.7% in the current quarter and 19.6% in the prior year’s comparable quarter.
Asia Pacific
Segment revenue for the Asia Pacific segment was $36.5 million and $33.8 million for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately 8%. The increase was a result of higher volumes and selling prices,
partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 6%.
Segment operating income for the Asia Pacific segment was $8.2 million and $6.8 million for the three months ended March 31, 2022 and 2021, respectively, an increase of approximately 22%. The increase was primarily a result of higher volumes and
selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 8%. Segment operating income as a percent of revenue was 22.5% in the current quarter and 20.0% in the
prior year’s comparable quarter.
Corporate & Other
The Corporate & Other operating expense was $13.7 million and $13.5 million for the three months ended March 31, 2022 and 2021, respectively. Operating expense for the three months ended March 31, 2022 was consistent with the prior period
primarily due to an increase in performance-based executive compensation offset by the prior period including divestiture & other related expenses of $1.6 million and operational improvement plan expenses of $1.0 million. There were no
divestiture & other related expenses or operational improvement plan expenses in the current period.
LIQUIDITY AND FINANCIAL CONDITION
Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of March 31, 2022. The Company expects its cash flow from operations and its existing
debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, dividend payments, acquisitions, and stock repurchases. The Company’s contractual obligations consist primarily of operational commitments,
which we expect to continue to be able to satisfy through cash generated from operations and debt. The Company has various series of notes outstanding that mature from 2022 through 2027. The Company believes that it has the ability to refinance or
repay these obligations through a combination of cash flow from operations, issuance of additional notes, and substantial borrowing capacity under the Company’s revolving credit facility, which matures in 2026.
As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three months ended March 31, 2022.
The Company currently anticipates inflation will not significantly impact the remainder of 2022, as a result of the Company’s pricing and other actions; however, the Company, like others in its industry, has faced challenges due to conditions in
the global supply chain and global economy. In particular, the Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor-related costs. We continue to expect to manage these impacts in the
near term, but persistent, accelerated, or expanded inflationary conditions could exacerbate these challenges and impact our profitability.
Cash Flows from Operating Activities
Net cash used in operating activities was $0.9 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $29.0 million for the three months ended March 31, 2021. The decrease in net cash from
operating activities was primarily due to an increase in cash used for inventory and higher incentive payments in 2022.
Cash Flows from Investing Activities
Net cash used in investing activities was $12.2 million and $9.8 million during the three months ended March 31, 2022 and 2021, respectively. Capital expenditures were $12.7 million and $14.2 million during the three months ended March 31, 2022
and 2021, respectively. In addition, during the three months ended March 31, 2021, the Company received cash proceeds of $4.1 million related to the Company’s divestiture activities.
Cash Flows from Financing Activities
Net cash provided by financing activities was $14.9 million for the three months ended March 31, 2022, and net cash used in financing activities was $15.9 million for the three months ended March 31, 2021. Net debt increased by $33.8 million and
$12.5 million for the three months ended March 31, 2022 and 2021, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support inventory investments during the three months ended March 31, 2022.
For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company repurchased shares of its common stock for $11.7 million during the three months ended March 31, 2021. There were no repurchases
of shares of the Company’s common stock in the current period. Dividends of $17.2 million and $16.5 million were paid during the three months ended March 31, 2022 and 2021, respectively. Dividends paid were $0.41 and $0.39 per share for the three
months ended March 31, 2022 and 2021, respectively.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies during the quarter ended March 31, 2022. For additional information about the Company’s critical accounting policies, refer to “Critical Accounting Policies” under
Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have been no material changes in the Company’s exposure to market risk during the quarter ended March 31, 2022. For additional information about market risk, refer to Part II, Item 7A of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2021.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice
President and Chief Financial Officer, of the effectiveness, as of the end of the period covered by this report, of the design and operation of the disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based upon
that evaluation, the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered
by this report.
Changes in Internal Control over Financial Reporting: During the quarter ended March 31, 2022, the Company upgraded an enterprise resource planning software application used in a business unit within the Flavors & Extracts segment. The
upgrade included order taking, manufacturing, general ledger, and financial reporting processes. The Company also implemented a new financial consolidation software application during the quarter ended March 31, 2022. For both system changes, the
Company followed an implementation process that required significant pre-implementation planning, design, and testing. There have been no other changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| PART II. |
OTHER INFORMATION
|
| ITEM 1. |
LEGAL PROCEEDINGS
|
See Part I, Item 1, Note 13, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.
| ITEM 1A. |
RISK FACTORS
|
The Company is supplementing the risk factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 with the following risk factor:
| • |
The ongoing military conflict between Russia and Ukraine, and the global response to it, may adversely affect our operations.
|
In February 2022, Russia invaded Ukraine. This ongoing military conflict has increased the likelihood of supply chain interruptions and, for certain raw materials, decreased our ability to source materials that we need to make our products.
For example, suppliers located in Ukraine are our main source of sunflower oil, which is primarily used in our savory and beverage businesses. We have encountered difficulties, and may continue to encounter difficulties, in finding favorable
pricing and reliable alternative sources or substitutes for certain of the raw materials we need (including sunflower oil) for certain products. If these difficulties persist, accelerate, or expand, our operations could be adversely affected.
In addition, we have experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine military conflict on the global economy. These increased costs could adversely affect our
profitability. The military conflict may also increase the risk of cybersecurity incidents, including the risk of cyberattacks in retaliation for the United States’ and European Union’s support of Ukraine and sanctions against Russia or
otherwise. Such attacks, whether on us or on critical infrastructure and financial institutions globally, could also adversely affect our operations.
It is not possible to predict the broader or long-term consequences of this military conflict, which could include further sanctions, regional instability, a wider military conflict, and adverse effects on international trade policies and
economic conditions, cybersecurity, currency exchange rates, and financial markets.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of March 31, 2022, 1,267,019 shares had been repurchased under the 2017 Authorization. There is no expiration date for
the 2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of March 31, 2022, the maximum number of shares that may be purchased under publicly announced plans is 1,732,981.
No shares were purchased by the Company during the three months ended March 31, 2022.
| ITEM 6. |
EXHIBITS
|
The exhibits listed in the following exhibit index are filed as part of this Quarterly Report on Form 10-Q.
SENSIENT TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
|
Exhibit
|
Description
|
Incorporated by Reference From
|
Filed Herewith
|
|||
|
Amended and Restated By-Laws of Sensient Technologies Corporation, dated February 10, 2022
|
Exhibit 3.1 to Current Report on Form 8-K filed February 15, 2022 (Commission File No. 1-7626)
|
|||||
|
Amendment No. 8 to Receivables Purchase Agreement, dated as of February 28, 2022, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National Association
|
Exhibit 10.1 to Current Report on Form 8-K filed March 4, 2022 (Commission File No. 1-7626)
|
|||||
|
Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
X
|
|||||
|
Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to 18 United States Code § 1350
|
X
|
|||||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
X
|
||||
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
X
|
||||
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
X
|
||||
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
X
|
||||
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
X
|
||||
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
X
|
||||
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
X
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
SENSIENT TECHNOLOGIES CORPORATION
|
||||
|
Date:
|
May 3, 2022
|
By:
|
/s/ John J. Manning
|
|
|
John J. Manning, Senior Vice President, General Counsel & Secretary
|
||||
|
Date:
|
May 3, 2022
|
By:
|
/s/ Stephen J. Rolfs
|
|
|
Stephen J. Rolfs, Senior Vice President & Chief Financial Officer
|
||||
23
EXHIBIT 31
CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act
I, Paul Manning, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 3, 2022
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/s/ Paul Manning
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Paul Manning, Chairman, President &
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Chief Executive Officer
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EXHIBIT 31
CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act
I, Stephen J. Rolfs, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
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Date: May 3, 2022
|
|
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/s/ Stephen J. Rolfs
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Stephen J. Rolfs, Senior Vice President &
|
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Chief Financial Officer
|
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EXHIBIT 32
CERTIFICATION
Pursuant to 18 United States Code § 1350
The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, of Sensient Technologies
Corporation (the “Company”) filed with the Securities and Exchange Commission on or about the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such
report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Paul Manning
|
|||
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Name:
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Paul Manning
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||
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Title:
|
Chairman, President & Chief Executive Officer
|
||
|
Date:
|
May 3, 2022
|
||
A signed original of this written statement required by Section 906 has been provided to Sensient Technologies Corporation and will be retained by Sensient
Technologies Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32
CERTIFICATION
Pursuant to 18 United States Code § 1350
The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, of Sensient Technologies
Corporation (the “Company”) filed with the Securities and Exchange Commission on or about the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such
report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Stephen J. Rolfs
|
|||
|
Name:
|
Stephen J. Rolfs
|
||
|
Title:
|
Senior Vice President & Chief Financial Officer
|
||
|
Date:
|
May 3, 2022
|
||
A signed original of this written statement required by Section 906 has been provided to Sensient Technologies Corporation and will be retained by Sensient
Technologies Corporation and furnished to the Securities and Exchange Commission or its staff upon request.