# Sensient Technologies Corp: Form 10-Q for the period ended Jun 30, 2023

- Company: [Sensient Technologies Corp](/companies/sxt.md) (CIK 310142)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 12:04 ET
- Period: 2023-06-30
- Accession: 0001140361-23-038503
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/310142/000114036123038503/brhc20056589_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/310142/000114036123038503/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $374.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $743.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $252.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $496.5m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $70.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $144.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $51.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $102.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $6.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $12.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $11.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $22.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $34.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $67.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.81 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.81 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.61 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 42,235,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 42,245,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $51.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $45.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $34.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-06-30 | $36.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $968.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $2.05bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $222.6m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-06-30 | $686.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $15.4m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-06-30 | $1.05bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,259 characters.

### 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 June 30, 2023, 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 Company’s ability to manage economic and capital market conditions and the impact of recessions and economic downturns; the impact of macroeconomic and geopolitical volatility, including inflation and shortages impacting the availability and cost of raw materials, energy, and other supplies; the availability and cost of labor, logistics, and transportation; the impact and uncertainty created by the COVID-19 pandemic and efforts to manage it on the global economy, including, but not limited to, its effects on our employees, facilities, customers, and suppliers, governmental regulations and restrictions, and general economic conditions; the uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and transportation, and on general economic conditions; 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; 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 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. 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 $374.3 million and $371.7 million for the three months ended June 30, 2023 and 2022, respectively. Revenue was $743.3 million and $727.2 million for the six months ended June 30, 2023 and 2022, respectively. The increase in revenue for the three and six months ended June 30, 2023 was primarily due to increased pricing, offset by lower volumes. For the three months ended June 30, 2023, the impact of foreign exchange rates increased consolidated revenue by approximately 1%. Foreign exchange rates did not have a material impact on revenue for the six months ended June 30, 2023.

#### Gross Margin

The Company’s gross margin was 32.6% and 35.2% for the three months ended June 30, 2023 and 2022, respectively. The Company’s gross margin was 33.2% and 35.2% for the six months ended June 30, 2023 and 2022, respectively. The decrease in gross margin for both the three and six months ended June 30, 2023 was primarily due to the lower volumes, higher input costs, and unfavorable product mix, partially offset by higher pricing.

#### Selling and Administrative Expenses

Selling and administrative expense as a percent of revenue was 18.9% and 20.4% for the three months ended June 30, 2023 and 2022, respectively. Selling and administrative expense as a percent of revenue was 19.4% and 20.3% for the six months ended June 30, 2023 and 2022, respectively. The decrease in selling and administrative expense as a percent of revenue for the three and six months ended June 30, 2023 was primarily due to lower performance-based executive compensation in 2023.

#### Operating Income

Operating income was $51.6 million and $55.2 million for the three months ended June 30, 2023 and 2022, respectively. Operating margins were 13.8% and 14.9% for the three months ended June 30, 2023 and 2022, respectively. The decrease in operating margin was primarily due to the lower volumes, higher input costs, and unfavorable product mix, partially offset by higher pricing and lower performance-based executive compensation in 2023.

Operating income was $102.4 million and $108.0 million for the six months ended June 30, 2023 and 2022, respectively. Operating margins were 13.8% and 14.9% for the six months ended June 30, 2023 and 2022, respectively. The decrease in operating margin was primarily due to higher input costs, lower volumes, and unfavorable product mix, partially offset by higher pricing and lower performance-based executive compensation in 2023.

#### Interest Expense

Interest expense was $6.4 million and $3.1 million for the three months ended June 30, 2023 and 2022, respectively, and $12.4 million and $6.1 million for the six months ended June 30, 2023 and 2022, respectively. The increase in expense for the three and six months ended June 30, 2023, was primarily due to an increase in the average interest rate and average debt outstanding.

#### Income Taxes

The effective income tax rates for the three months ended June 30, 2023 and 2022, were 24.8% and 25.9%, respectively. For the six months ended June 30, 2023 and 2022, the effective income tax rates were 24.9% and 25.7%, respectively. The effective tax rates for the three and six months ended June 30, 2023 and 2022, were both impacted by changes in estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings.

#### Acquisition

On October 3, 2022, the Company acquired *Endemix Doğal Maddeler A.Ş.* and *Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş.* (collectively, Endemix), a natural colors business located in Turkey. The Company paid $23.3 million in cash for this acquisition, which is net of $1.3 million in debt assumed, with $1.7 million of such amount being held back by the Company for 12 months to satisfy any indemnification claims that may arise. This business is part of the Color segment.

### NON-GAAP FINANCIAL MEASURES

Within the following table, the Company reports certain non-GAAP financial measures, including: percentage changes in revenue, operating income, and diluted earnings per share on a local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars.

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.

The following table summarizes the percentage change for the results of the three and six months ended June 30, 2023, compared to the results for the three and six months ended June 30, 2022, in the respective financial measures.

| Revenue | Three Months Ended June 30, 2023 Total | Foreign Exchange Rates | Adjusted Local Currency | Six Months Ended June 30, 2023 Total | Foreign Exchange Rates | Adjusted Local Currency |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Flavors & Extracts | (0.6%) | 1.0% | (1.6%) | (1.3%) | 0.1% | (1.4%) |
| Color | 2.7% | 1.1% | 1.6% | 5.6% | (0.1%) | 5.7% |
| Asia Pacific | (3.5%) | (2.8%) | (0.7%) | 3.1% | (3.8%) | 6.9% |
| **Total Revenue** | **0.7%** | **0.7%** | **0.0%** | **2.2%** | **(0.4%)** | **2.6%** |
| **Operating Income** |  |  |  |  |  |  |
| Flavors & Extracts | (18.5%) | 0.6% | (19.1%) | (19.0%) | 0.3% | (19.3%) |
| Color | (6.3%) | 1.3% | (7.6%) | (1.2%) | (0.5%) | (0.7%) |
| Asia Pacific | (1.9%) | (2.8%) | 0.9% | 5.6% | (4.1%) | 9.7% |
| Corporate & Other | (29.3%) | 0.0% | (29.3%) | (19.0%) | 0.0% | (19.0%) |
| **Total Operating Income** | **(6.6%)** | **0.7%** | **(7.3%)** | **(5.2%)** | **(0.8%)** | **(4.4%)** |
| **Diluted Earnings per Share** | **(12.0%)** | **(0.0%)** | **(12.0%)** | **(11.1)%** | **(1.1%)** | **(10.0%)** |

13

### 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 share-based compensation 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 $188.3 million and $189.3 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 1%. The decrease was primarily a result of lower revenue in Natural Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. 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 selling prices and the favorable impact of foreign exchange rates, partially offset by lower volumes. Foreign exchange rates increased segment revenue by approximately 1%.

Flavors & Extracts segment revenue was $367.1 million and $372.1 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately 1%. The decrease was primarily a result of lower revenue in Natural Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. 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 selling prices, partially offset by lower volumes. Foreign exchange rates had an immaterial impact on segment revenue for the six months ended June 30, 2023.

Flavors & Extracts segment operating income was $24.5 million and $30.0 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 19%. The lower segment operating income was primarily a result of lower operating income in Natural Ingredients due to lower volumes and higher raw material costs, partially offset by higher selling prices and lower manufacturing and other costs. Segment operating income as a percent of revenue was 13.0% in the current quarter compared to 15.9% in the prior year’s comparable quarter. Foreign exchange rates increased segment operating income by approximately 1%.

Flavors & Extracts segment operating income was $46.6 million and $57.6 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately 19%. The decrease was primarily a result of lower segment operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs, lower volumes, and unfavorable product mix, offset by higher selling prices and lower manufacturing and other costs. The lower segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher raw material costs, lower volumes, and higher manufacturing and other costs, partially offset by higher selling prices and a favorable product mix. Foreign exchange rates had an immaterial impact on segment operating income for the six months ended June 30, 2023. Segment operating income as a percent of revenue was 12.7% in the current six month period compared to 15.5% in the prior year’s comparable six month period.

#### Color

Segment revenue for the Color segment was $160.5 million and $156.3 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately 3%. The increase was a result of higher revenue in Food & Pharmaceutical Colors, partially offset by lower revenue in Personal Care. The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices, the acquisition of Endemix in October 2022, and the favorable impact of exchange rates, partially offset by lower volumes. The lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices. Foreign exchange rates increased segment revenue by approximately 1%.

Segment revenue for the Color segment was $321.6 million and $304.7 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately 6%. The increase was a result of higher revenue in Food & Pharmaceutical Colors, partially offset by lower revenue in Personal Care. The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices and the acquisition of Endemix in October 2022, partially offset by lower volumes. The lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the six months ended June 30, 2023.

Segment operating income for the Color segment was $29.2 million and $31.2 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 6%. The decrease in segment operating income was a result of lower operating income in Personal Care, partially offset by higher operating income in Food & Pharmaceutical Colors. The lower operating income in Personal Care was due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. The higher operating income in Food & Pharmaceutical Colors was due to higher selling prices and lower manufacturing and other costs, partially offset by higher raw material costs, lower volumes, and an unfavorable product mix. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.2% in the current quarter and 20.0% in the prior year’s comparable quarter.

Segment operating income for the Color segment was $61.1 million and $61.8 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately 1%. The decrease in segment operating income was a result of lower operating income in Personal Care, partially offset by higher operating income in Food & Pharmaceutical Colors. The lower operating income in Personal Care was due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. The higher operating income in Food & Pharmaceutical Colors was due to higher selling prices, partially offset by higher raw material costs, unfavorable product mix, and lower volumes. Foreign exchange rates decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 19.0% in the current six month period and 20.3% in the prior year’s comparable period.

#### Asia Pacific

Segment revenue for the Asia Pacific segment was $36.0 million and $37.3 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 4%. The decrease was a result of lower volumes and the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 3%, partially offset by higher selling prices.

Segment revenue for the Asia Pacific segment was $76.1 million and $73.8 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately 3%. The increase was a result of higher selling prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 4%.

Segment operating income for the Asia Pacific segment was $7.6 million and $7.7 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 2%. The decrease was primarily a result of the decrease in revenue as described above as well as higher raw material costs, partially offset by higher selling prices. Segment operating income as a percent of revenue was 21.0% in the current quarter and 20.7% in the prior year’s comparable quarter.

Segment operating income for the Asia Pacific segment was $16.8 million and $15.9 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately 6%. The increase was primarily a result of higher selling prices, partially offset by higher raw material costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 4%. Segment operating income as a percent of revenue was 22.1% in the current six month period and 21.6% in the prior year’s comparable period.

#### Corporate & Other

The Corporate & Other operating expense was $9.7 million and $13.7 million for the three months ended June 30, 2023 and 2022, respectively. The lower operating expense for the three months ended June 30, 2023, was primarily due to lower performance-based executive compensation in 2023.

The Corporate & Other operating expense was $22.1 million and $27.3 million for the six months ended June 30, 2023 and 2022, respectively. The lower operating expense for the six months ended June 30, 2023, was primarily due to lower performance-based executive compensation in 2023.

### 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 June 30, 2023. 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, and dividend payments, as well as potential 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 2023 through 2028. 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 sufficient 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 or six months ended June 30, 2023. 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 provided by operating activities was $51.7 million and $22.8 million for the six months ended June 30, 2023 and 2022, respectively. The increase in net cash from operating activities was primarily due to a decrease in cash used for inventory investments during 2023 compared to 2022 and an increase in cash provided by accounts receivable.

#### Cash Flows from Investing Activities

Net cash used in investing activities was $43.0 million and $30.8 million during the six months ended June 30, 2023 and 2022, respectively. Capital expenditures were $45.1 million and $32.5 million during the six months ended June 30, 2023 and 2022, respectively.

#### Cash Flows from Financing Activities

Net cash provided by financing activities was $0.5 million and $1.4 million for the six months ended June 30, 2023 and 2022, respectively. Net debt increased by $43.1 million and $37.9 million for the six months ended June 30, 2023 and 2022, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support capital expenditure investments during the six months ended June 30, 2023. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $34.6 million and $34.4 million were paid during the six months ended June 30, 2023 and 2022, respectively. Dividends paid were $0.82 per share for both the six months ended June 30, 2023 and 2022.

### CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended June 30, 2023. 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, 2022.

## Market risk

As filed, 270 characters.

There have been no material changes in the Company’s exposure to market risk during the quarter ended June 30, 2023. 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, 2022.

## Controls and procedures

As filed, 1,129 characters.

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: There have been no 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 June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 164 characters.

There were no material changes to the risk factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001140361-23-038503. Last ingested by Listed: Nov 4, 2026, 17:12 ET. No prices; not investment advice.