Q3 2021 Sensient Technologies Corp Earnings Call
Good morning, and welcome to the sensing Technologies Corporation 2021 third quarter earnings Conference call, all participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Mr. Steve Rolfs. Please go ahead Sir.
Good morning, welcome to <unk> third quarter earnings call I'm, Steve Ross Senior Vice President and Chief Financial Officer of <unk> Technologies Corporation, and I'm joined this morning by Paul Manning, <unk>, Chairman, President and Chief Executive Officer.
Earlier. This morning, we released our 2021 third quarter financial results a copy of the release and our Investor presentation is available on our website.
<unk> Dot com.
During our call today, we will be explaining the differences between our GAAP results and our adjusted results. The adjusted results for 2021, and 2020 removes the impact of the divestiture related costs the operations divested and the impact of the costs related to our operational improvement plan.
We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the.
Comparability of results between reporting periods.
It also reflects our management reviews and evaluates the company's operations and performance.
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 measures is available 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 that remedial action and the timing of a return.
A more normal economic activity, including impacts on our business related to current logistics challenges. We urge you to read sentience previous SEC filings and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please.
These factors in mind, when you analyze our comments today.
Now, we'll hear from Paul Manning, Thanks, Steve Good morning.
Earlier today, we released our third quarter results reported strong consolidated adjusted local currency revenue growth of 13% and double digit adjusted EBIT Dag growth for the quarter.
Each of our groups contributed to our positive performance in the quarter.
Flavor and extract group had another outstanding quarter reporting, 12% adjusted local currency revenue growth and 16% adjusted local currency profit growth.
Color group had a strong quarter delivering 18% adjusted local currency revenue growth and 15% adjusted local currency profit growth.
With our food and pharmaceutical colors business and our personal care business is both contributing to the color group's strong quarter.
Asia Pacific delivered 10% adjusted local currency revenue growth and 11% adjusted local currency operating profit growth.
Despite some headwinds related to raw materials and logistics I'm very pleased with our results this quarter and our performance. So far this year and we are well above our expectations.
Our positive performance in each group is a direct result of our ongoing focus on customer service product on time delivery and sales execution.
Which continues to drive a very high level of new product wins for the year.
We are focused on gaining share at our customers and our sales attrition rates remain low.
The overall sales pipelines are strong and continue to build.
We're seeing a resumption of larger new product launches and we are optimistic that these will continue to increase in the quarters ahead.
As mentioned during our past quarterly calls we are encountering numerous supply chain challenges.
Theres been an increase in certain input costs, including labor transportation and raw materials.
We're still experiencing delays in shipping as shipping and logistics.
Despite these challenges we believe our overall supply chain is strong and we can manage through these issues with pricing increases and by holding more safety stock to support continued good performance of on time delivery and customer lead times.
We expect transportation constraints and higher input costs to remain with us throughout the end of the year and well into 'twenty two but we are confident that we will continue to mitigate both.
Overall, we're generating strong growth in each of our businesses and expect this momentum to continue well into the fourth quarter and next year.
Turning to the group results [noise].
Flavor and extract group had another great quarter with 12% adjusted local currency revenue growth and 16% adjusted local currency profit growth.
The performance this quarter is on top of last year's strong third quarter performance of 13% adjusted local currency revenue growth and 24% adjusted local currency operating profit growth.
During the third quarter of this year the group completed the acquisition of flavor solutions.
This business brings a portfolio of technology platforms, including functional flavors and taste modulation, a library of savory flavors and good customer relationships.
The integration of this business is proceeding as planned and the business contributed approximately $2.4 million of revenue to the flavor and extract group in the third quarter.
Flavor and extract group experienced growth in almost all product lines during the quarter, including sweet beverage and savory flavors bio nutrients and natural ingredients.
The group continues to benefit from its transition to more value added product solutions as well as a robust sales and customer service focus.
The group's adjusted operating profit margin increased 50 basis points in the quarter and has increased 70 basis points year to date.
We are well on track to achieve the 50 to 100 basis point improvement that we forecasted for the year.
And we expect good performance in the fourth quarter and into next year.
The color group had a terrific quarter, delivering 18% adjusted local currency revenue growth and 15% adjusted local currency profit growth.
The group benefited from strong growth in food and pharmaceutical colors and the personal care business.
Whether you're in the food and pharmaceutical product line was up double digits in the quarter.
The group continues to see solid demand for natural colors in each of our key product lines and regions.
The group's product portfolio production capacity and innovation pipeline are well positioned to support this continuing demand.
I anticipate our food and pharmaceutical business to continue the strong growth in the fourth quarter and into next year.
The personal care business continued to rebound delivering double digit revenue growth in the quarter.
The group is focused on product line diversification and we are seeing good progress on expanding our revenue and skincare body care and other categories.
I anticipate good growth in personal care in the fourth quarter and next year and ongoing success in our diversification strategy.
The Asia Pacific Group delivered 10% adjusted local currency revenue growth and 11% adjusted local currency profit growth in the quarter.
The group's focus on sales execution customer service and new technologies related to the natural colors and flavors continue to be the main drivers for the group's growth.
The group has also created a solid infrastructure local technical support and a strong local sales force across the region.
During the quarter the group had growth in almost all regions and I anticipate the group to continue to grow into the fourth quarter and next year.
Overall I'm very pleased with the results of our groups. So far this year, our flavors and extract group is having another great year as is our Asia Pacific Group.
Color group is achieving solid revenue growth in food and pharmaceutical and personal care.
The growth in all of our businesses results from our exceptional customer service model diverse technology platforms, and our strong new product wins.
With the completion of our divestitures. This year, we're able to focus on our key customer markets food pharmaceutical and personal care.
We are on track for the year.
Operating above our previous guidance for adjusted revenue EBITDA and EPS.
The strong growth we saw this quarter across our businesses came primarily from higher volumes.
Looking at our volume growth, while we are likely seeing some benefit as customers are ordering ahead and building larger safety stocks. The vast majority of our volume growth is coming from new wins share gains and ongoing positive market trends in natural colors and flavors.
We have implemented pricing actions, but the impact of higher pricing has not yet had a significant impact on our results.
We expect that trend to improve moving forward.
I continue to expect the flavor is the next Jack group to deliver mid single digit revenue growth and 50 to 100 basis points of annual improvement to the operating profit margin for the foreseeable future.
I also expect the color group to deliver mid single digit revenue growth along with an operating profit margin above 20%.
I expect the Asia Pacific group to deliver mid to high single digit revenue growth over the long term.
I'm very optimistic about this year and the future of our business Steve will now provide you with additional details on the third quarter results.
Thank you Paul our third quarter GAAP diluted earnings per share was <unk> 80 cents included in these results are approximately four cents per share of divestiture costs and the cost of the operational improvement plan. In addition, our GAAP earnings per share. This quarter include approximately $7.0 million of revenue and in.
Immaterial amount of operating income related to the results of the divested operations.
Last year's third quarter GAAP results include divestiture at operational improvement plan costs, which decreased last year's third quarter results by approximately <unk> <unk> per share. In addition, our GAAP earnings per share in the third quarter of 2020 include approximately $29.0 million of revs.
And approximately four cents per share of earnings related to the divested product lines.
Excluding these items consolidated adjusted revenue was $349.0 million, an increase of 13% in local currency compared to the third quarter of 2020.
Our adjusted local currency EBITDA was up 12, 9% for the quarter and our.
Our adjusted local currency EPS was up nine one for the quarter nine 1% for the quarter.
The acquisition of flavor solutions contributed $6.0 million of revenue and an immaterial amount of operating income through our third quarter results.
Our cash flow from operations was down in the third quarter, primarily due to an increase in strategic investments in our inventory position as well as an increase in receivables due to strong sales growth in the third quarter, we remain focused on optimizing our working capital levels and we will continue to make strategic investments.
What's in our inventory in the fourth quarter to support our forecasted demand and ensure we have an appropriate safety and ensure we have appropriate safety stock positions.
We still expect our capital expenditures to be around $65 million for the year.
During the third quarter, we completed the acquisition of flavor solutions for approximately $15 million. We also purchased approximately $9 million of company stock for 105600 shares in the quarter, which brings our year to date total purchases to $32 million or 383.
Shares.
We have one 8 million shares remaining under our share repurchase authorization.
Our leverage ratio is now 2.0 times debt to adjusted EBITDA down from $2 six a year ago, leaving our balance sheet and a solid position to support potential acquisitions share repurchases as well as our dividend payout.
Yesterday, we announced a 5% increase in our dividend we have increased our quarterly dividend by 37% since 2016.
Resulting in a compound annual growth rate of six 4%.
The company will continue to be prudent in our approach to our capital allocation strategy.
Based on current trends and the current tax law.
We are reconfirming, our previously issued GAAP EPS guidance, which calls for mid to high single digit growth.
Paired to our 2020 reported GAAP EPS of $2.59.
Our full year guidance for 2021 includes approximately 25 cents of divestiture related costs operational improvement plan costs and the impact of the divested businesses.
We now expect our full year 2021, adjusted local currency revenue to grow at a high single digit rate, which is up from our previous guidance of a mid single digit growth rate.
We also now expect our full year 2021, adjusted EBITDA and adjusted EPS to both grow at a mid to high single digit rate on a local currency basis.
Our previous guidance called for mid single digit growth rates for both adjusted EBITDA and adjusted EPS.
Given current proposals related to changes in the corporate tax law, we continue to believe that our adjusted local currency EBITDA metric instead of EPS provides a more reliable measure for our underlying business growth.
Our reported results include the impact of currency and based on current exchange rates, we expect our earnings to benefit by approximately seven cents due to currency for the year.
Thank you for your time. This morning, we will now open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speaker phone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Ghansham Panjabi with Robert W. Baird. Please go ahead.
Thank you good morning, everybody.
Morning, guys I guess my first question Yeah. Good morning, you know obviously, there's a lot of inflation in the supply chain and just thinking back over time, you know what one of the typical plays out of your customers playbook on the food side and beverage side is to basically shrink package sizes in servings as part of their price increase strategies are you know I guess with that context do you see that as a <unk>.
Sort of a risk to volumes for 2022 and your comment on the potential pull forward that you might have seen in <unk> can you just give us some idea as to how much of a benefit you think that was.
Sure. So I think with respect that packet sizing yeah that could always potentially be a question from a volume standpoint, but.
But I would tell you that we've got a fairly diversified customer base, whether we're talking about food colors flavors personal care farm any of the businesses. So could it be a factor at some customers sure it could be but I think what would certainly offset that and.
It's just going to be I think that continued momentum around larger new product launches.
I mentioned that last year 'twenty 'twenty versus 2019 globally, we saw about the same number of product launches.
<unk> bought with the difference was in 2020 is that the launches were smaller.
Our state line extensions or a launch in a limited market.
What we're seeing right now in 'twenty, one and I think this is going to continue into 'twenty two it is larger.
Broader base launches new to the world type products in a number of different categories. So should that come to pass. This concept that package sizing, which I agree is kind of a traditional strategy used by Cpg's I think that can largely be offset by.
By the continued momentum in these launches.
Your second question around pull forward.
Yeah, I mean, there's certainly our customers are thinking about their supply chains, perhaps a little bit differently than they did in the past certainly there are indications in some of our markets and some of our product lines that customers are are stocking it themselves up.
At a little bit higher level than they would have traditionally I don't think there's much of a surprise there we're not seeing a whole lot of that in flavors, we're seeing more of that in colors with some of our customers are.
Stocking up.
And then colors also has the added dimension of say personal care kind of regaining some steam in that market. So there there is somewhat of a replenishment dimension to that side, but in short on the pull forward. It was a a limp or I should say stocking up of our customers I would say there is.
Did impact in flavors more of the impact is and colors for sure.
And I would say probably very little in Asia Pacific as well.
Okay, Perfect and then just as a follow up your comment on new business wins are are you, referring to a higher share of new product introductions at the customer levels that you're gaining relative to your competitors or these new business wins, just as a function of typical customers switching suppliers just trying to understand what's going on in the market.
Yeah, well those are definitely the two components, it's a new to the world product. But then it's also taking advantage of a situation where maybe somebody is letting a customer down on a service level and you can go in and in and take some of that business.
It will vary by geography, and business unit, what portions of the pie goes to to each one of those but certainly overall new wins stemming from new launches of customers.
It was very much the winning momentum behind this quarter and I think you're going to see more of that into Q4 and in 2022 as well.
Thanks, so much.
Thanks Ghansham.
The next question will be from Heidi <unk> with it.
Zane BNP. Please go ahead.
Morning.
Hi, Heidi So hi, so the first question is top line was very strong today in Q3, but why you didnt see we see more operating leverage this quarter I thought colors margin should be up year on year as personal care and recoveries due to make so could you explain that.
And then talking about personal care, perhaps you could talk a little bit more on outlook, where are we currently versus pre COVID-19 levels do you think in each region. Thank you.
Okay sure. So the simple answer to the first question is that pricing lags inflation in our business.
And I would tell you that's pretty much the case, whether you're talking about any of the divisions within flavors colors or Asia.
So.
Breaking that down a little bit more yeah, I think like pretty much every other company right now there is inflation in the market, whether it's stemming from raw materials of shipping.
Labor any number of factors, it's very very real and we are pratt passing those prices along to our customers.
But it's a evolving picture and so I think right now what you're seeing in Q3 is the vast majority almost all of that revenue growth was volume as we get into Q4, youre going to see a higher portion of that pie stemming from pricing and so that's really just more of a function of.
Of how pricing negotiations work when contract many of which are annual come due.
And so that that's really the nature of that piece I think operating leverage youll see that continue to improve particularly in Q4, but certainly as we get into 2022, I'm very very confident in that.
And so.
That's the first piece here and that really ultimately played into the colors margin, which get them. Then it gets into your second question about personal care, yes, personal care tends to command a higher.
Gross margin per se on many of the products than say some other businesses would.
But we have the added component not only pricing lagging.
Inflation.
But remember our plants in personal care have not necessarily been fully utilized until more recently, so theres a little bit of kind of balance sheet overhang in the Q3 number that you're not going to see in Q4. So I would expect that to also improve in Q4 and that will also contribute to a better outcome on the opera.
<unk> leverage side of the house.
And then going on to personal care you know it's interesting we talk about it in terms of hair care skincare and makeup and then of course body care. We have traditionally been very very strong in makeup.
What we are seeing right now and let me speak about Europe and Asia first.
First and foremost and then I'll talk about North America, and Latin America, we're seeing a very very strong return of demand on skin and hair care products that there was some slowing in some of those customers and some of those markets, but that has come back very very strong.
North America, and the same thing, but I think one of the big difference here is that makeup has really not necessarily.
<unk> begun its recovery as strongly as skin hair body care has and so what that should communicate as there is.
Forthcoming tailwind.
In the makeup side of our business.
I think a lot of the recovery for makeup will begin in Q4.
You look at our personal care business in Q3 2021, we are now above.
Our Q3 2019, so they're there that is to the point of your question. What is the inflection point of when is the inflection point where in it right now so I think personal care can then really represent a very nice tailwind for us.
In 2022, and I'm optimistic that makeup will come back very very strong and I think skin hair and body care are going to continue to be very strong. We've made a lot of very good inroads in those segments. During the course of Covid for sure.
Yeah.
Thanks. Thank you. So you said that you would traditionally makeup focused how much of personal care is make up at the moment.
Globally, I think we're less than I think were between about 40, and 50% I don't have that number right in front of me, but I can get that back to you, but order of magnitude 40% to 50%.
Well higher in North America than say some of our other regions.
Thanks, and then another question while I have you there what do you think of G, but buying D. D. W. I thought that was an interesting move any comments there.
Yeah, Hey, listen D D. William sends a very good company, a very well managed and they have some very good products. We certainly we certainly see them in the marketplace.
I would tell you that their product line is is really somewhat different from our product line and really where we're going in that market and so it wasn't necessarily a good fit for us, but I'm sure. It's a great fit for <unk>.
And you know I'm.
I'm not gonna have wished them well on it by any means but certainly I would say that we are we think that D. D. Williams is a very good company has is javan.
Thank you. Thank you.
Okay. Thanks Heidi.
Again, if you would like to ask a question. Please press Star then one.
The next question will be from Mark Connelly with Stephens. Please go ahead.
Mark.
Yeah.
Oh Boy galleries open perhaps your line is muted on your end.
Hear me.
Yeah, we can hear you mark sorry about that okay. So obviously one of the big players in your space, making a big push into B and C. As a priority in their plans.
Are you seeing significant new competitive pressure in that space and if if you are is it changing how you're approaching those customers.
Well I think you know these are big markets and depending on where you are in the world and what product line youre talking about colors or flavors or personal care are there. There's certainly a lot of market to be had there's a lot of customers to pursue and so yeah I would tell you that.
There's always competition is it more intense now than it was a year or two ago, that's hard to really quantify.
I would tell you, though that we are very very focused on our strategy and implementing our strategy and we're very focused on winning serving customers and so that's really.
That's been kind of our formula, but I can't.
Quantify whether the intensity of the competition has picked up per se.
In the P&C segment specifically.
Okay, that's fair.
Secondly, you've talked a lot about you know your interest in extra extraction Botanicals I'm can you talk about the potential avenues for growth. There is it all going to be inorganic or are there ways to either to build internally on the business you already have.
Yeah.
Well extracts and Botanicals or we can just why don't we just say extracts we see them as opportunities are there.
These are products that can be sold into the flavor market as a substitute for our flavor from the standpoint of a label.
These can be functional extracts, which which we sell into our pharmaceutical business.
We extract color from many different botanicals as well so it's a pretty.
It's pretty broad based.
Component of each one of our groups.
A lot of different types of companies and their many of the extracts that are out there come from very very fragmented markets.
Where are you at players, who perhaps don't come from traditional parts of the of the market.
And so I think there's definitely we are in our core and extraction is separation company. This is really.
Significant parts of our technology around the world. So we're able to put that to work in any one of those groups and with a large number of customers.
But there is nobody with a complete portfolio. So you sense, it and others would always be interested in and working with potentially acquiring companies that have a specific extract that they specialize in whether it's the growing of that extra back whether it's the processing of that are the customer network and access that.
They enjoy the partnerships that they have so there's opportunities not only for organic growth, but there's also opportunities to your point to are for inorganic growth.
And in acquiring something in that space, there's been a lot of.
Our activity there over the last number of years, but it's it's a it's very complementary and it more or less overlays every one of our business units today extracts.
Very helpful and if I could just squeeze one more in Paul you said in previous quarters that the the weather issues that we're having in California and elsewhere have not been a big concerns that's still true.
Well I I am not sure I would ever say, it's never a concern I would tell you that it's our job to mitigate those concerns and to be very.
Forward looking in terms of contracting for land water rights. These have become more and more scarce as everybody certainly knows but we certainly grow beyond just one region of California or even just.
You know we grow at a lot of different places to help mitigate some of those concerns.
But I think for right now we are our crops are looking pretty good onions is looking pretty good garlic's looking very good and so we expect to have a very good 2022 in that business. Yes. There are elements of inflation there that we are addressing and we'll address.
And so I think our our F&I business is going to have a really good 2022 on top of what has been a very good 21 in a very good 2020 for that business as well.
Super Good to hear thanks for your help.
Okay. Thanks Mark.
And the next question will be from David Greenwood hold Haven. Please go ahead.
Hi, Paul Steven.
Hi, Amy.
Thanks.
Good she is doing great.
The other line.
Okay.
A few questions.
Sort of just a very broad one initially which just to sort of all which part of the business are you most excited about.
And then you know going into 2022 as well.
What's going on in Mexico.
Well I'll tell you I get excited about every part of this business and I think that the businesses that we have you know these are great businesses.
And analyzed over and over and over again for many years by me and many others and and so they are what we have been focused on.
We went through a very painful restructuring process, we sold some pieces off and so what we have today the food.
Flavors and colors, the F&I business of bio nutrients are personal care, they're all great businesses, great markets, great macro trends technology based businesses, where you can build a very defensible portfolio.
Yeah. These are big markets.
And I think there's you know to the point about macro trends theres, great macro trends here natural color use is way up the use of flavors and extracts in food formulations.
<unk> continues to be a very strong growing market bio nutrients, where we're dealing with are fermented ingredients and other.
Human and animal and plant nutrition markets really really strong opportunities there and then of course personal care market really built on technology, because there's a never ending performance gap between what the consumers have and what they want so great markets all of them and I I I Love All my businesses.
David and I can't say I like some even though a little bit more than others I just love them all.
Thanks. Thank you so very diplomatic answer.
Uh huh.
In terms of.
I guess, what's giving you confidence into Q4, and the sort of visibility you have going into 2022.
Is that is that a function of just what you see coming through in the pipeline. You know is it some phasing in terms of contracts that have come out of Q3, and they're going to be coming into Q4.
So any more color you could give us that.
Yeah, well most pragmatically I feel good about Q4, because I'm sitting here looking at our daily sales of the three groups for October and November and December and they look really good. So that gives me really good confidence for Q4.
I what gives me.
Confidence for 2022 is really I think our new wins I mean, we are winning at a very very high rate.
We're very aggressively pursuing these wins.
And all of our segments and in all of our markets. We have lots of ROI projects queued up for 2022.
And I think we've navigated our way through Covid, very very well and I think that whatever happens with Covid, where we're just going to keep selling and I think that whatever happens on the supply chain front you know, it's our job to mitigate that so we're not going to.
Find excuses in that part of the World, We're just going to keep focusing on running the business focus on servicing our customers and so but I think most pragmatically I'd see the wins I see the wins that are happening now and that have happened. This year and are going to happen in Q4 and those carry a nice.
Momentum into 2022, certainly there's pricing that we could speak to an end and maybe it will give you some more details about that in Q4.
But we got great people, we have people who want to win and that's what really they're focused on and so I think that's what gives me a lot of confidence about 'twenty, two and certainly beyond that.
Okay.
In sum in terms of the sort of win win.
Wins in the win rates you are saying is that is that sort of consistent across both color and flavors and extracts all one one more than all of that at all.
No I would say colors and flavors.
Very very strong wins pretty much very very similar order of magnitude and they are a touch higher than say Asia Pacific.
So I would say the win rates are very broad based and some of it has to do with I think we've picked good markets and good customers.
But we've also pick good salespeople and I think we incentivize them properly.
So that they're focused on that type of activity, but now the wins are very very broad based.
Right.
And in terms of.
Cosmetics.
In makeup.
I apologize if you already answer this.
It was my call dropped briefly.
So what we're all we're all we do you think in that business now relative to sort of prior.
Peak or prior levels.
Yeah to the previous question, we've really hit the inflection point on.
On the cosmetics and personal care business overall.
So.
Now if you take parts of the segments, a little bit skin hair body care certainly continue to have very nice growth makeup is coming back but makeup was a bit lagging those other segments.
So I think there is nice momentum in personal care.
Into Q4 and into 2022.
Great.
A couple of more if you don't mind.
With within within SME, I think historically, we've sort of been talking a little bit about.
In terms of category confectionery and chewing gum, having been quite weak.
Are you seeing the situation there improve as we sort of come through Lockdowns and vaccine rollouts become more.
More widespread.
So we do see so you are correct confection during the pandemic I think because it's oftentimes an impulse item.
The purchase occasions were reduced and Oh that was a market that was hurt during the pandemic.
If you look at consumer data confection is coming back.
And so that's you know.
That's a positive.
For both parts of our business color probably more so than.
Then flavor, but it does seem to be coming back and David you'll be happy to know that gum is coming back. So that tells you that people are more sensitive about oral hygiene and their breath. So that's another positive social trend that you may observe.
[laughter].
Just I'm not sure if you've ever give us any color on this but.
What are the margins in confectionery and gum any difference to the.
Segment level.
Yeah.
Uh huh.
We have not really gone to that level of granularity I would say that they are they are pretty consistent with what we would see across the food and beverage space.
Yeah.
Okay.
And then.
If there are any more questions from other people, then I'm happy to drop off and come back home.
Are you you're looking good David David show. So go ahead.
So no pressure.
And in terms of price increases I think you alluded to the fact that you can maybe give us some detail in Q4.
Any more detail at this stage in terms of what kind of magnitude of price increases.
Well, it's really going to vary by location.
Business unit geography status of the customer you know do you already have a multiyear contract with them. So a lot of different components, but.
We certainly always endeavor to not only cover inflation.
To cover our gross margin so that that is what we would aspire to.
Yes.
Yes.
And in terms of your.
Youre purchasing for garlic and onions, specifically is that so are you largely done now for 2022, where you have you have a good visibility on your.
Costs will be for those.
Yeah, I think we have a pretty good visibility that is not completely not all of the onion crop has been entirely harvested processes and evaluated it at this point, but.
Signs are good and I think we're going to have a good run in that business in 'twenty two.
Right and then and then two final questions if I may.
Has there been any change in terms of I mean, I think we have talked about historically about.
The complete solutions being a larger parts of the business and it's obviously, it's a high margin products as well you're seeing a sort of continued shifts there and change towards.
More of a sort of complete solution pipe.
Product.
Not not really.
Maybe what you're referring to I think some folks may call that integrated selling.
I think for certain customers and on certain product lines integrated selling where you are bringing say multiple ingredients to the sale that that can be quite compelling for them.
But for other customers, they're not even slightly interested in it and in fact, they don't want to have anything to do with it not only from a purchasing standpoint from a technical standpoint. So.
In my opinion and the experience of this company that is not a broad based initiative. It is a very surgical initiative.
Based on the needs of the customer so that that would be probably the short answer on integrated selling.
Right.
And then my final question, you'll be pleased to hear him on.
Onto some M&A.
So you obviously made an acquisition last quarter.
So just be interested in sort of any update there and then going forward. What your thoughts are in terms of well I guess general use of the balance sheet given you've been delevering.
Hum.
Quite a lot in terms of.
What how do you think about optimal balance sheet and in terms of M&A are there any specific specific areas you would look at.
And are those likely to be sort of small bolt ons rather than larger deals.
Yeah, So I'll mention the M&A piece, and then I'll, let speak I'll, let Steve speak to the balance sheet component.
So yeah, we did the first part of your question, we bought flavor solutions in Q3, and we're very happy.
Nice business, great people nice cultural alignment with Santander.
We would view that as a bolt on acquisition in as much as that is not a huge amount of integration activity.
But the business has good products. They are good people they had some good customer relationships too and so.
We're very very happy and the integration is proceeding very nicely.
As you look to the future.
I think to my earlier point about the businesses.
I am very happy with these businesses and so each one of them has gas right every business in the world has some gaps and by that I mean, it could be a portfolio gap it could be a technology platform gap it could be a geographic access gap could be a supply chain gap and so to that.
And you could see sensing at pursuing activity in any one of our business units and in any part of the world. So.
So we'll keep you posted on that.
Well, we'll keep you posted by an announcement if it if we have any to make here in Q4 and beyond but yeah any one of the businesses could be good opportunities for us to acquire.
And David on the on the balance sheet.
Our leverage has come down nicely over the last couple of years or debt to EBITDA is at.
2.0, a year ago. It was at 2.6, we're really comfortable anywhere in that range.
We could go higher for a for a bolt on M&A opportunity.
I mentioned that we have bought back some shares year to date.
We're confident in the future and we have additional authorization there so.
We will continue to look at that and again I think we have that flexibility to do to do M&A and to the extent, there's not as much M&A as we'd like we have the ability to buy back shares as well.
Yeah.
Great many thanks.
Okay, David Thank you.
Ladies and gentlemen, there are no further questions at this time I will turn the conference back to the company for any closing remarks.
Okay. Thank you very much everyone for your time. This morning, I will conclude our call. Thank you.
And thank you Sir the conference has now concluded you may now disconnect.
Okay.
Yes.
Yeah.
Yes.
[music].