Q3 2020 Sensient Technologies Corp Earnings Call
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I would now like to turn the conference over to Mr., Steve Ross. Please go ahead Sir.
Good morning, I'm, Steve Roberts, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation, I would like to welcome all of you to sentence third quarter earnings call. I'm joined this morning by Paul Manning Fencing, Chairman, President and Chief Executive Officer.
This morning, we released our 2023rd quarter financial results.
Copy of the release and our Investor presentation is now available on our website at Sensient Dot com.
During our call today, we will reference certain non-GAAP financial measures, which we believe provide investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods.
These non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is available on the Investor information section of our website at Sensient Dotcom and in our press release, we encourage investors to review these reconciliations in connection with the comments we make this morning.
I would also like to remind everyone that comments made this morning, including responses to your questions may include forward looking statements.
Our actual results may differ materially, particularly in view of the uncertainties created by the COVID-19 pandemic governmental attempts at remedial action and the timing of a return of more normal economic activity we earn.
We urge you to read sense since filings, including our 10-K, our second quarter 10-Q, and our forthcoming third quarter 10-Q.
For a description of additional factors that could potentially impact our financial results.
Please bear these factors in mind, when you analyze our comments today.
Due to changes we have made to our portfolio and the divestitures, we announced last year, we are updating our group and product lines. The most notable change is that our flavors and fragrances segment will now be named the flavors and extracts segment.
You will also notice some small changes to the names we use for some of our product lines.
Intense focused portfolio strengthens our ability to service the food pharmaceutical and personal care markets. We will continue to report the three divested product lines of fragrances yogurt fruit preparations and inks as long as these product lines impact our company.
Now we'll hear from Paul.
Thanks, Steve Good morning.
Sensing reported third quarter earnings this morning, and I'm pleased to report that results were in line with our expectations and our overall guidance for the year.
I'm very pleased with the continued revenue and profit growth in our flavors and extract group as well as our food and pharmaceutical business in the color group.
Our Asia Pacific Group also posted solid profit growth in the quarter.
Overall, each of our groups performed well despite the adverse impact of COVID-19.
COVID-19 continues to be a net negative to the company.
The market decline in the makeup industry continues to impact the color group's personal care business.
And on a geographic basis, we continued to see headwinds in Asia Pacific Europe, and Latin America.
In the mid to this pandemic, we have ensured our employees are safe and healthy our facilities remain open our supply chain remains strong and we have delivered our products on time to our customers.
Based on current trends I expect that we will deliver on our EPS outlook for the year as the foundation of our business remains strong.
Our focus over the years on customer service on time delivery and sales execution has led to a high level of revenue from new product wins during the second half of 2019 and the first half of this year.
Furthermore, as the pandemic continues and new product development at certain companies has slowed we have.
We have focused on regaining lost business and gaining share at our customers.
This focus coupled with lower overall sales attrition is paying off in our results and should continue to benefit future periods.
Last year at this time, we announced three divestitures in the second quarter, we completed the sale of banks and I'm pleased to say that we completed the sale of the yogurt fruit Pratt business during the third quarter.
This is our second completed divestiture in 2020, and I'm optimistic that we will complete the divestiture of fragrances in the near future.
As I mentioned last year. The divestiture. These three businesses allows us to focus on our key customer markets.
Mood pharmaceutical and personal care.
Im very pleased with the progress of our flavors and extracts group. This year. The group had an impressive quarter with adjusted local currency revenue growth of 13% and profit growth of 24%. This.
This is the third straight quarter of revenue growth, which has resulted in continued profit and margin improvement.
This growth is based on the group's focus on sales execution, which has resulted in a high win rate a focus on retaining existing business and an overall decline in the group's attrition rate.
Additionally, the groups focused on transitioning the product portfolio to more value added solutions.
And the reduction of its production cost structure from restructuring and ongoing initiatives is complementing the revenue growth in the overall improvement in the group's profit and margin.
Within the flavors and extracts group the natural ingredients business had another strong quarter with local currency sales growth of 14.5% as a result of strong demand for seasonings snacks and packaged foods.
This business has a solid foundation to deliver a consistent and reliable supply of high quality natural ingredients to its customers.
Flavors extracts and flavor ingredients also had a nice quarter up 12% in local currency.
The business is strong technology platform and flavor modulation and enhancement, it's clean label solutions and its applications expertise.
Our leading factors in the growth of this business.
Overall, the flavors and extracts group's operating profit margin was up 110 basis points in the quarter.
Long term I expect mid single digit revenue growth with continued margin improvement for the group.
Now turning to colors revenue for food and pharmaceutical colors was up low single digits for the quarter.
The group continues to see solid demand for natural colors in the market there.
Theres also a strong consumer interest in functional natural extracts and Nutraceuticals and the group's product portfolio and innovation are well positioned to support this demand.
Despite the continued growth in food and pharmaceutical colors revenue in personal care continues to be down as a result of the negative impacts of COVID-19 on the color makeup market.
The demand for makeup in Europe, North America, and Asia continues to be down substantially for the year.
Given the uncertainty with KOVA 19, and ongoing restrictions I anticipate challenges for this cosmetics product line to continue.
The color group's adjusted operating profit increased 3% in the quarter.
Food and pharmaceutical colors had a great quarter generating profit growth of more than 20% and.
And about 15% for the first nine months of 2020.
However, the lower demand from makeup and other personal care products continues to be a drag on the group's profit performance.
Overall, the color group's operating profit margin increased 110 basis points in this quarter.
Long term I continue to expect mid single digit revenue growth from food and pharmaceutical colors.
As well as personal care once demand normalizes from the impacts of COVID-19.
Weve made good product progress in our Asia Pacific Group this year, similar flavors and extracts and colors. The group has focused on sales execution and building a stronger customer service and technology driven organization.
The group is created a solid infrastructure and has been focused on localizing production.
During the quarter the group had solid sales growth in certain regions. However.
This growth was offset by declines in other regions as government COVID-19 restrictions continued to significantly impact many sales channels.
The group had another strong quarter of profit growth up approximately 15% in the quarter and 17% for the first nine months of 2020.
The group's operating profit margin increased 200 basis points in the quarter.
This was the third straight quarter of strong profit improvement.
The Asia Pacific Group is well positioned for long term growth and I anticipate that as certain COVID-19 related restrictions ease that.
The group will resume mid to high single digit revenue growth.
Overall I'm very pleased with the results of our groups. This year, our flavors and extract group is having a great year and the food and pharmaceutical business within the color group continues to have solid revenue and very strong profit growth.
Our Asia Pacific Group is well positioned for future revenue growth.
Overall COVID-19 continues to be a headwind for the company.
Despite this headwind I'm excited about the future growth opportunities for sensing do this.
Due to the strength of our portfolio technologies, and our exceptional customer service.
Steve will now provide you with additional details on the third quarter results.
Thank you Paul and my comments this morning, I will be explaining the differences between our GAAP results and our adjusted results.
The adjusted results for 2020, and 2019 remove the impact of the divestiture related costs, the operations divested or to be divested and our recently implemented operational improvement plan.
We believe that the removal of these items provides a clearer picture to investors of the company's performance. This also reflects how management reviews, the company's operations and performance.
During the third quarter the company initiated a plan primarily to consolidate some of our global cosmetic manufacturing operations. The company expects to complete this operational improvement plan during the first half of 2021 the cost.
The cost of this plan are estimated to be approximately $5 million to $7 million.
Our third quarter GAAP diluted earnings per share was 78 cents included in these results are $1.4 million or approximately three cents per share of costs related to the divestitures and other related costs and the cost of the operational improvement plan.
In addition, our GAAP earnings per share. This quarter include approximately four cents of earnings related to the results of the operation targeted for divestiture.
Which represents approximately $23.6 million of revenue in the quarter last year's third quarter. GAAP results included approximately two cents of earnings per share from the operations to be divested and approximately $34.1 million of revenue.
Excluding these items consolidated adjusted revenue was $300 million, an increase of approximately 6.1% in local currency compared to the third quarter of 2019.
This revenue growth was primarily a result of the flavors and extracts group, which was up approximately 13% in local currency.
Consolidated adjusted operating income increased 10.1% in local currency to $41.5 million in the third quarter of 2020.
This growth was led by the flavors and extracts group, which increased operating income by 24.1% in local currency.
The Asia Pacific Group also had a nice growth in operating income in the quarter up 15.5% in local currency in local currency.
And operating income in the food and pharmaceutical business in the color group was up over 20% in local currency.
The increase in operating income in these businesses as a result of the volume growth Paul explained earlier combined with the overall lower cost structure across the company.
Our adjusted diluted earnings per share was 77 cents in this year's third quarter compared to 74 cents in last years third quarter.
As Paul mentioned, the overall impact of covered on the Companys results has been a headwind.
The impact on our food and pharmaceutical businesses is mixed but as we have discussed the negative impact in our personal care business is significant.
We have reduced debt by approximately 60 million since the beginning of the year, we have adequate liquidity to meet our operating and financial needs through our cash flow and available credit lines are.
Our debt to EBITDA is 2.6 down from 2.9 at the start of the year.
Cash flow from operations was $143 million for the first nine months of 2020.
An increase of 12% compared to prior year.
Capital expenditures were $34 million in the first nine months of 2020 compared to $26.1 million in the first nine months of 2019.
Our free cash flow increased 7% to $109 million for the first nine months of this year.
Consistent with what we communicated during our last call. We expect our adjusted consolidated operating income and earnings maybe flat to lower in 2020 because of the level of noncash performance based equity expense in 2020.
We also expected a higher tax rate in 2020 compared to our 2019 rate, which was lower as a result of a number of planning opportunities.
Based on current trends, we are Reconfirming, our previously issued full year GAAP earnings per share guidance of $2.10 to $2.35 per share.
The full year guidance also now includes approximately five cents of currency headwinds based on current exchange rates we.
We are also Reconfirming, our previously issued full year adjusted earnings per share guidance of.
Of $2.60 to $2.80, which is.
Which excludes divestiture related costs operational improvement plan costs, the impact of the divested or to be divested business.
Foreign currency impacts.
The company expects foreign currency impacts to be minimal in the fourth quarter.
We are also maintaining our adjusted EBITDA guidance low to mid single digit growth.
In conclusion, we continue to expect long term revenue growth rates of mid single digits in each of our groups are still.
Our stock based compensation and other incentive costs of reset this year going forward this should be less of a headwind.
We do expect our tax rate to trend up slightly in future years under current law as.
As a result, we believe adjusted EBITDA is a better measure of the company's operating performance and expect this metric to grow at a mid single digit rate or better.
In terms of our capital allocation priorities, we will continue to pay down debt in the near term we.
We also continue to evaluate acquisition opportunities.
Absent an acquisition, we have the ability to buy back shares.
We expect our capital expenditures to be in a range of 50 to 60 million $50 million to $60 million annually.
Our divestiture activity and our operational improvement plan allows us to focus on our key customer markets of food pharmaceutical excipients and personal care, while providing the foundation for future revenue and margin growth.
Thank you for your time this morning.
We will now open the call for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad too.
To withdraw your question. Please press Star then two at this.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Mark Connelly with Stephens. Please go ahead.
Thank you.
You've talked in the past about the benefits of BDC clients in terms of food innovation.
But one of the most common questions. We get is water supermarkets doing in terms of prioritization.
Theres a view that supermarkets are deemphasizing, new wind smaller companies that are that this year is less reliable, although I have to say in my own area. We're not seeing that so I was hoping you could just give us a sense of.
Of how thats impacting your customer base, just the access to the market right now.
Hey, Mark good morning, So I would say this there's theres many different channels that our customers deal in supermarkets is certainly one of them supermarkets in the US is certainly a subset of that.
Your comment of that certain B and C brands, perhaps being deemphasized in supermarkets in the U.S.. That's I think that's probably Directionally correct.
But I think B and C companies many of the ones that we deal and sure supermarkets is one channel but.
Other than many other channels specialty stores online a lot of these other areas that continue to grow.
Certainly online is yet a small fraction of what you could do in a supermarket.
Channel, but I think Directionally. Your comment is correct I would tell you that we see some of that in the European market, perhaps a little bit less pronounced than in the us market.
And I see that as being even less of a factor in say places like Latin America and Asia Pacific.
Okay. That's helpful. Thank you and just one more question then I'll jump back in the queue.
In Asia, you talked a little more extensively last quarter about the impact of local restrictions I was hoping you could give us a little bit of a sense of how that's evolving you've obviously got a lot of local manufacturing and supply can you talk to about.
How much of what you produce in those countries in Asia stays within the country.
So.
As a general statement in this country, we produce where our customers are and so to that end our operations in China largely produce for China, although not Ics, we do bring in products from other part of the Sensient manufacturing footprint into China, We don't make everything there, but as a general statement yes.
Our supply chain.
For raw material production tend to be fairly localized.
That said, we have continued to generate really solid in fact, probably even better than in normal times on time delivery and service levels to our customers and so.
I'd like to tell you that we've been we've been out in front of this for really since it began seven months ago, we began to really accumulate certain raw materials in key markets and in key product lines.
And from that and plus having really good supply chain operations, we've been able to maintain.
Output to our customers.
As you think about Lockdowns in Asia say versus Europe or the us.
What we see happening right now is Asia lockdowns tend to be a little bit more broad based in my opinion than say, what you may see in our elsewhere.
So for example, you look at the United States will Wisconsin, where we are is on kind of a bad boy list right now for for cobot infections, and so that that has restricted certain travel and but the lockdowns are very much pointed here you go to Asia. Some of these lockdowns are less about an individual county or state or even city.
And they're they're more broad based so I think that has been the big difference between.
The markets as we see it in our experience with our products. So Nevertheless, Asia was able to generate some topline growth and they did really exceptionally well on their profit growth. So I think were able to overcome that pretty.
Pretty nicely, but kind of.
Kind of circling back to your question.
I would continue to tell you that we feel very good about our supply chain.
Even though we do produce locally we do still source many raw materials from Asia for the rest of the sensing operations and say the Americas and Europe never.
Nevertheless, we feel very good about that and whether it came through.
Sort of stockpiling some of those raw materials or just having a very broad based supply base.
I think we've been able to to capitalize on this pretty well.
Thank you I'll jump back into queue. Thank you.
And the next question will come from Heidi Vesterinen with Exane. Please go ahead.
Good morning, I have a few questions. The first one one notch upgrade.
Great its full year guidance after such a strong quarter.
Hello Heidi.
So I'll take that one.
I would say this it was a really strong quarter, we had great results out of each of the three groups.
Am I being conservative sure I'm, probably being conservative I mean, we certainly feel very confident at being at the top end of that range.
You know, possibly even above that but you know its I don't necessarily want to be too granular on any sort of 90 day period I think that.
Ultimately I think that the businesses are going to continue to delever and to deliver very nicely you saw the flavor numbers you saw the food colors and you saw the Asia profit numbers.
Not to mention the each said very really good EBIT margin.
Margin growth, so I feel good about them I feel good about them in.
The rest of the year and ended up into next year.
As you know Theres theres moving parts in taxes, moving parts encoded whether they there may be additional lockdowns, it's hard to anticipate at this point.
But we've kept guidance all year some companies remove their guidance. We did not we have been very committed to that and so in short yes, maybe there are some moving parts, but maybe I'm being a little conservative.
Thanks for that that's that's great to hear and.
And congratulations on the flavors number by the way Thanks, Hi, Taylor.
So just to focus on that segment.
So you kind of frame that there was nothing really won all four exceptional in nature in terms of no. There's no like no pull.
Forward of demand or I don't know something one off.
And also what was the contribution of volume and price in that leave us those numbers.
So yeah flavors, we are up.
Certainly well into the double digits and that that is translated very nicely to the operating profit. So we're starting to see that operating leverage I referenced.
The beginning of this year, where we would see an increasing profit picture as we went.
In terms of one off I I would not point to any one off I think the demand has been pretty solid and it's been pretty well across the board you look at each of our product categories I referenced in the script.
Whether its eni or flavor ingredients or any of our segments for that matter. The growth was was really quite good.
And quite broad based certainly there are pockets where demand is struggling considerably for example, quick service restaurants, I think that that's been a very hard hit area.
You look at some other product categories in the sweet flavors and even some of the dairy categories. Some.
Some of them not doing as well some of them are rebounding, but then of course, you see seasonings in snacks and things like that doing doing quite well so no I wouldnt point to any one off.
They just generate a lot of good wins I think.
I think that our attrition is way down.
And I think one of the things that I kind of talked about last year, but obviously it was it was it was somewhat lost in what was going on but.
We had very good win rates last year in the flavor group and what was ultimately.
Suppressing that optically what was the fact that we had very high attrition in some of our legacy product lines now.
Now that we've lapped largely flush that through and of course as you know we sold two of our businesses and we expect to sell that third.
I think we very strongly remove that headwind so I suppose that there is one.
Theres, a one timer that I would point to.
Maybe it's those businesses kind of going away and you can kind of see that distinction between our got GAAP and non-GAAP on those business lines.
But no I think ultimately getting at the sustainability of the flavor results.
And I feel really good about flavors moving forward and I think that mid single digit revenue is is going to be very very achievable.
And I think we've got a real nice future going there and flavors.
Thank you very much I will get back in the queue.
Okay. Thanks I.
Thank you and our next question is from Mitra Ramgopal with Sidoti. Please go ahead.
Yes, hi, good morning, Thanks for taking the questions.
I believe in the first half the net impact of co bid on EPS was about 10 cents.
Want to get a sense just that impact in Threeq and how you see it playing out over the rest of the year.
So on the the negative impact then.
I understand that this is somewhat subjective because we don't know exactly where every product goes with our customers, but we looked at we looked at direct costs and then we also looked at the sales impact.
So our year to date.
The the direct costs are probably close to $5 million. However, we're seeing an offset by lower travel and other best DNA type expenses. So.
You know that mitigates most of the direct cost impact and so where we really see the the negative impact is on the top line.
It is certainly most pronounced within the within the color group.
Well, our our cosmetic business was down about 12% on the top line in the key.
In the quarter.
So we really have probably in excess of $20 million of revenue year to date that were that we believe were down as a result of of of coated and what that converts into in terms of EPS is.
No. It's it's.
It's around 20 cents.
Okay, No that's great. Thanks Cody.
Color there.
And obviously you've talked about the operational improvement plan was that something that was sort of as a result of what youre seeing.
The COVID-19 pandemic or was that something you are probably going to do in any event as you look to improve efficiencies.
Yeah, it's probably a matter of interpretation I think the the profit improvement plan is as we look at that.
For for some folks who maybe newer to the sensing story they'll they'll know that we did have a series of restructuring.
Events over the last number of years and those were designed to consolidate many of our facilities to shrink some of our capacity to add.
Also made labor moves some of our legacy products that were had become quite a headwind we had tremendously high fixed costs in many parts of the company.
And so we went through those restructuring programs, we took out a lot of that cost I think some of the impact you see and some of that operating leverage is obviously very closely linked to some of those efforts.
But you know we're always looking at the business and anytime you talk to a plant manager needs talking about volume and the need for volume to cover as fixed costs well you intuitively know you have a fixed cost problem in that facility and.
And so with that philosophy.
Which we've applied really everywhere in the company, we're always looking for opportunities in different parts of the world and so.
And a different business lines for that matter so.
Done a lot of work there and flavors, we've done work there and colors were doing some additional work there and colors now so I would say mitra its really in the normal course of business for us to be looking to operate as efficiently as possible.
The rounds that we've been working on really closely had really been tied to fixed costs, but you know, we're not blind to opportunities within SSG in Asia, as well and whether that is automating certain processes or standardizing, though is in the mix for us. So we're always looking to drive that Opie margin.
There's a lot more LP margin that this company is able to I think going to be able to produce have met many of you also who've been with the story for some time would note that flavors is now starting to move up on the LP margin ladder and I think thats going to continue certainly as we get into 2021 I can.
I could see that being up another 50 to 100 basis points and color and Asia right now you see those folks are 20%.
Roughly and 20% plus at times, so I feel quite good about those groups and I think the focus here is going to be in flavors and so a lot of the activity has been in flavors, but yeah in short it's that it's kind of in the normal course of things I would tell you Mitra.
Okay notice that this definitely great.
And then just curious on the personal care.
Personal care side, obviously, you are experiencing some softness due to coal we had but I believe it's one point, though this was an area. You felt there were some really nice opportunities you'd be looking to expand into it. It was oral care et cetera. I was wondering if anything has changed on that front.
No cosmetics or as as we will often times refer to it as personal care.
As an outstanding business for us it's generated a lot of profit over the years, it's very profitable very technically driven business lot of.
Lot of applications are required we have a very extensive portfolio and its a tremendous market with tremendous customers right. We deal in the who's who of the cosmetic.
World and so as you look at that business today, its makeup and skin care its hair care, but it's also more specifically personal care items as you reference such as oral care.
Things like body wash.
And those types of products, which as you can imagine or are doing quite well.
Actually not so much the oral care you will you may find this one interesting Mitch you're a lot fewer people are brushing their teeth nowadays.
And also the queuing gotten right so be mindful. The next person you get close to elation get closer alright with that over time, but you get the idea here. There's there's some temporary factors in the market.
That are playing out but our business is the majority of our business more than 50% of that business that we had is makeup and then.
And then Weve as you course as you know we have a lot within hair care and hair colors, and then we also have skin care and other related products.
So we continue to diversify that business makeup is still going to be a very good category I think as restrictions continue to ease and as we potentially find.
Vaccines and others.
Opportunities to suppresses virus I think we're going to see a very nice return to that business.
But even with that.
Come March we start lapping a lot of these real negative headwinds we've had in cosmetics.
Moving forward, but no. This is an outstanding business, it's very much going to be a part of our future.
The dynamics are outstanding in it and I think we've got a very strong leadership position there to boot.
Okay, No that's great and then.
Finally, just again.
It was really lots of cobot, obviously, they've been so positive Celia I believe you've talked in the past about a favorable.
Mick chef in terms of Costless transition and for us it function tadic to more natural et cetera, just wondering if there are any other trends.
You are seeing that you think will be.
The positive for you at all.
Well I think you mentioned one you mentioned natural colors, which is going to continue to be a very nice trend for our company.
As.
Natural flavors, which has been a long standing trend I think that continues but.
Extracts and functional ingredients in general whether it's designed for a nutraceutical product for a food products for even for a pharmaceutical over the counter products.
That continues to be a very very strong part of the portfolio for us.
You probably noted some cpgs talking about returning to their core brands.
Many of which do not really contain a lot of natural ingredients I think thats kind of more of a temporary.
Statement, because as I look at our pipelines around the company.
I see a lot of activity continuing in this world of natural colors extract functional ingredients. So while there may be a small hiatus from new product launches and many of the markets from the large multinationals.
The level of product launches and pipelines on B and C customers continues to be quite strong and we continue to generate wins right. The revenue you're seeing in the company right now is no accident and Steve.
I told you about the headwinds here.
But we've been able to be successfully winning new projects and a lot of different customers and it's because we're very committed to continuing to operate this company. Our employees are very committed to the mission of this company and that is providing these essential products throughout the world.
But but in some cases, we've won biggest customers call up and say you guys. The only guys were working.
So we continue to take advantage, where we can take advantage and these products that we have are ideally suited.
For for many of our customers right now who are trying to advance these more health driven products, but long term, it's a it's a tremendous portfolio add to.
To do just that because I think those trends are trends. They are by no means fads in any way.
Okay, No that's great. Thanks for taking the questions okay.
Okay. Thanks Mitra.
Once again, if you would like to ask a question. Please press Star then one.
The next question is a follow up from Mark Connelly with Stephens. Please go ahead.
Thank you just two more I was hoping you could.
Give us a little bit of a sense of what the impact is this restaurant recovery with restaurants opening at reduced capacity. If if this ends up being a new normal for say over the next year or so would you have to scale back any of your operation serving that market more than you already have.
I would say no.
When when we talk about restaurants.
There is really kind of in a very simple interpretation of things you had the quick service the.
The brands, you know and love and often times those are serviced through drive throughs anyway.
They are still being hurt, but I think we can ultimately mitigate the impacts from that standpoint, but in it.
But in a traditional sit down restaurant.
That's certainly part of our portfolio, but that doesnt constitute a vast part of our portfolio. So the short answer is no. Even if this were to continue I would not anticipate the need to do any sort of production or supply chain reconfiguration.
On the food side of things to address that.
Okay Thats helpful and just just one financial question.
I was a little bit high on my.
Cash flow assumptions can you can you tell us if theres anything that might be swinging in the fourth quarter and how I should be thinking about working cap.
Working capital next year, assuming that we do have sort of the steady recovery.
Yeah, so year to date our results on cash flow are good we're up about 12% in cash flow from operations.
Theres, a little bit of a dip in the third quarter one of the things going on there. There were there were a number of tax payment deferrals.
So a lot of companies did not sensing and included.
That make their federal tax payments in the first half of the year and then had to catch up in the third quarter.
And that was in place and some other countries as well and then our sales were very strong really throughout the quarter and certain product lines and so I think there is a little bit of a timing element on receivables.
So if there was a little bit a dip in the quarter.
It's just it's those two items, but again still up double digits year to date.
You know we've made a lot of.
Really nice progress in bringing inventories down primarily in our flavors and extracts group. This year. So if you look at our on a normalized basis, taking out the divestitures I think we're down about 24 days yeah.
Year over year.
I think we can you know we have some additional improvement we can make.
In flavors and colors, but we've made a lot of improvement really over the last year. So I would look for more maybe smaller incremental improvement next year.
That's super helpful. Thank you.
And our next question is also a follow up and Thats from Heidi Vesterinen with Exane. Please go ahead.
Please proceed hobby, perhaps your line is muted on your end.
Sorry about that thanks for that so.
So we saw recently that Christian Hansen colors business was sold for nearly 21 times EBITDA can you explain how your food and beverage colors business compares with with Christian Hansen. Please thank you.
Well I think Christian Hansen is a great competitor and I think under their new ownership I think they're going to continue to be a great competitor.
So.
Yeah, I guess, that's what I'd say about that.
Thank you.
At this time I would like to turn the conference back over to the company for any closing remarks as there are no further questions.
Okay. Thank you very much everyone that will conclude our call for this quarter.
Thank you for your time this morning Goodbye.
Okay.
Thank you that concludes today's presentation. Thank you very much for joining the call you may now disconnect. Thank you.