Q1 2024 Sensient Technologies Corp Earnings Call
Operator: Good morning, and welcome to the Sensient Technologies Corporation 2024 First Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And 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, and welcome to the <unk> Technologies Corporation 2024 first quarter earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
You May press Star then one on your Touchtone phone and 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.
Stephen J. Rolfs: Good morning. Welcome to Sensient's Earnings Call for the first quarter of 2024. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation. I am joined today by Paul Manning, Sensient's Chairman, President, and Chief Executive Officer.
Good morning, welcome to <unk> earnings call for the fourth first quarter of 2024, I'm, Steve Rolfs, Senior Vice President and Chief Financial Officer of <unk> Technologies Corporation.
Stephen J. Rolfs: I'm joined today by Paul Manning, <unk>, Chairman, President and Chief Executive Officer.
Stephen J. Rolfs: Earlier today, we released our 2024 first quarter results. A copy of the release and our investor presentation is available on our website at sentient.com. During our call today, we will reference certain non-GAAP financial measures which remove the impact of currency movements, the cost of the Company's Portfolio Optimization Plan and other items as noted in the company's filing. 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.
Stephen J. Rolfs: Earlier today, we released our 2024 first quarter results a copy of the release and our Investor presentation is available on our website at <unk> Dot com.
Stephen J. Rolfs: During our call today, we will reference certain non-GAAP financial measures, which removes the impact of currency movements.
Stephen J. Rolfs: Most of the companies portfolio optimization plan and other items as noted in the company's filings. 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.
Stephen J. Rolfs: This also reflects how management reviews and evaluates the company's operations and performance. 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 today. I would also like to remind everyone.
Stephen J. Rolfs: This also reflects how management reviews and evaluates the companys operations and performance.
Stephen J. Rolfs: non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP.
Stephen J. Rolfs: A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release.
Stephen J. Rolfs: We encourage investors to review these reconciliations in connection with the comments we make today.
Stephen J. Rolfs: I would also like to remind everyone.
Stephen J. Rolfs: The comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filing. We urge you to read Sensient's previous SEC filings, including our 10K, and our forthcoming 10Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning. Thank you, Steve.
Stephen J. Rolfs: Comments made during this call including responses to your questions may include forward looking statements.
Stephen J. Rolfs: Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings.
Stephen J. Rolfs: We urge you to read.
Stephen J. Rolfs: <unk> SEC filings.
Stephen J. Rolfs: Including our 10-K.
Stephen J. Rolfs: And our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today.
Stephen J. Rolfs: Now, we'll hear from Paul Manning, Thank you Steve.
Paul Manning: Good morning and good afternoon. Our first quarter results came in as expected, and now with greater visibility for the year, we are raising our full year guidance to mid-single digit local currency revenue growth and mid-single digit local currency adjusted EBITDA growth. Sense8's local currency revenue increased by 4% in the first quarter. This revenue increase was mostly volume-driven, with pricing contributing about 1%. The positive trends we saw in customer order patterns in January continued throughout the quarter, giving us much greater confidence that we will continue to grow volume, revenue, and operating profit for the year. We're experiencing strong new sales winds across each of our groups, and our sales pipelines remain robust. We believe the impacts of destocking are now behind us for both flavor and color groups.
Paul Manning: Good morning, and good afternoon, our first quarter results came in as expected and now with greater visibility on the year, we are raising our full year guidance to mid single digit local currency revenue growth and mid single digit local currency adjusted EBITDA growth.
Paul Manning: <unk> local currency revenue increased by 4% in the first quarter.
This revenue increase was mostly volume driven with pricing contributing about 1%.
Paul Manning: The positive trends, we saw in customer order patterns in January continued throughout the quarter, giving us much greater confidence that we will continue to grow volume revenue and operating profit for the year.
Paul Manning: Yeah.
Paul Manning: We're experiencing strong new sales wins across each of our groups and our sales pipelines remain robust.
Paul Manning: We believe the impacts of Destocking are now behind us for both flavor and color groups.
Paul Manning: As we noted in our last call, Asia-Pacific will continue to feel the impacts of destocking with certain larger multinational accounts in the second quarter, and we anticipate this will be the last quarter of de-stocking for Asia-Pacific. Our consolidated local currency adjusted EBITDA was up 2% for the first quarter of 2024.
Paul Manning: As we noted in our last call Asia Pacific will continue to feel the impacts of destocking with certain larger multinational accounts in the second quarter.
Paul Manning: And we anticipate this will be the last quarter of Destocking for Asia Pacific.
Paul Manning: Our consolidated local currency adjusted EBITDA was up 2% for the first quarter of 2024.
Paul Manning: As mentioned during our last call, I expect operating leverage and margin improvement across our groups as our volume improves and as raw material inflation subsides. We therefore expect profit improvement compared to the prior year to significantly strengthen as the year goes on. Now turning to the group.
Paul Manning: As mentioned during our last call I expect operating leverage and margin improvement across our groups as our volume improves and as raw material inflation subsides.
Paul Manning: We therefore expect profit improvement compared to the prior year to significantly strengthen as the year goes on.
Paul Manning: Now turning to the groups.
Paul Manning: Flavors and Extracts Group had a solid first quarter, delivering 7% local currency revenue growth and 6% local currency operating profit growth. The group continues to benefit from its strong new sales win rate and its focus on sales execution and customer service. The group benefited from particularly strong volume growth in its natural ingredients product range. However, the group continues to be impacted by elevated costs in certain agricultural ingredients and raw materials, primarily in the natural ingredients product line, and based largely on inventory positions and crop cycles.
Paul Manning: Flavors and extracts group had a solid first quarter, delivering 7% local currency revenue growth and 6% local currency operating profit growth.
Paul Manning: The group continues to benefit from its strong new sales win rate and its focus on sales execution and customer service.
Paul Manning: The group benefited from a particularly strong volume growth in its natural ingredients product line.
Paul Manning: The group continues to be impacted by elevated costs in certain agricultural ingredients and raw materials, primarily in the natural ingredients product line and based largely on inventory positions in crop cycles.
Paul Manning: These elevated costs will temper our operating leverage in the first half of the year, but we are confident that the group will deliver on our full year expectations. Furthermore, based on greater visibility for the year, I now expect the group to deliver at least mid-single-digit local currency revenue growth in 2024, which is an improvement from our previous guidance of low to mid-single-digit local currency revenue growth. The Color Group's local currency revenue was down low single digits in the first quarter.
Paul Manning: These elevated costs will tamper our operating leverage in the first half of the year, but we are confident that the group will deliver on our full year expectations.
Paul Manning: Furthermore, based on greater visibility for the year I now expect the group to deliver at least mid single digit local currency revenue growth in 2024.
Paul Manning: Which is an improvement from our previous guidance of low to mid single digit local currency revenue growth.
Paul Manning: The color group's local currency revenue was down low single digits in the first quarter.
Paul Manning: As mentioned during our last call, we anticipated the impacts of destocking to continue throughout the first quarter. I'm happy to say that the headwinds of destocking for the color group are now behind us. We are seeing an improvement in customer order patterns, and the group is benefiting from its strong new sales win. Exceptional Customer Service.
As mentioned during our last call we anticipated the impact of Destocking to continue throughout the first quarter.
Paul Manning: I'm happy to say that the headwinds of Destocking for the color group are now behind us.
We are seeing an improvement in customer order patterns and the group is benefiting from its strong new sales wins and exceptional customer service.
Paul Manning: I expect the volume picture will continue to improve sequentially throughout 2024. And now I expect the Color Group to deliver mid-single-digit local currency revenue growth in 2024, which is up from our previous guidance of low- to mid-single-digit local currency revenue growth. The Asia Pacific Group reported 4% local currency revenue growth in the first quarter, and it experienced good growth in most regions. As mentioned in prior calls, the group continues to be impacted by certain larger multinational customers, which has produced some volatile swings in order patterns and results. However, we believe this pattern will come to an end at the end of the second quarter.
Paul Manning: I expect the volume picture will continue to improve sequentially throughout 2024.
Paul Manning: And now expect the color group to deliver mid single digit local currency revenue growth in 2024, which is up from our previous guidance of low to mid single digit local currency revenue growth.
Paul Manning: The Asia Pacific Group reported 4% local currency revenue growth in the first quarter.
Paul Manning: Group experienced good growth in most regions.
Paul Manning: As mentioned in prior calls the group continues to be impacted by certain larger multinational customers.
Paul Manning: Has produced some volatile swings in order patterns and results.
Paul Manning: We believe this pattern will come to an end at the end of the second quarter.
Paul Manning: Overall, the group is well positioned for growth, and I continue to expect the group to deliver mid-single-digit revenue growth in 2024. The Portfolio Optimization Plan that we initiated in the fourth quarter of 2023 is progressing as expected. Our plan is designed to right-size our cost base and to optimize our organizational structure with a focus on driving improved productivity in certain businesses and functions in both the color and flavor groups. Once fully implemented by the end of 2025, we expect that it will generate annual cost savings of approximately $8 to $10 million, including the costs incurred in the fourth quarter of 2023 and the first quarter of 2024. We continue to expect to incur pre-tax charges of approximately $40 million, of To date, we have incurred approximately $30 million in portfolio optimization expenses.
Paul Manning: Overall, the group is well positioned for growth and I continue to expect that group to deliver mid single digit revenue growth in 2024.
Paul Manning: The portfolio optimization plan that we initiated in the fourth quarter of 2023 is progressing as expected.
Paul Manning: Our plan is designed to right size, our cost base and to optimize our organizational structure with a focus on driving improved productivity in certain businesses and functions in both the color and flavor groups.
Paul Manning: Once fully implemented by the end of 2025, we expect that will generate annual cost savings of approximately $8 million to $10 million.
Paul Manning: Including the cost incurred in the fourth quarter of 2023.
Paul Manning: And first quarter of 2024, we continue to expect to incur pre tax charges of approximately $40 million.
Paul Manning: Of which approximately $30 million will be noncash.
Paul Manning: To date, we have incurred approximately $30 million of portfolio optimization expense.
Paul Manning: We are carefully managing this process to ensure we continue to meet customers' needs and to minimize the disruption to the business. We also continue to focus on strategically managing our inventory positions. We reduced our inventory by $30 million in the first quarter, and we expect continued improvement in our inventory throughout the remainder of the year.
Paul Manning: We are carefully managing this process to ensure we continue to meet customers' needs and to minimize the disruption to the business.
Paul Manning: Okay.
Paul Manning: We also continue to focus on strategically managing our inventory positions, we reduced our inventory by $30 million in the first quarter and we expect continued improvement in our inventory throughout the remainder of the year.
Paul Manning: We will use our improving cash flow to reduce our debt and interest expense. As we communicated, we expect a much improved financial picture in 2024, including sales volume growth, local currency revenue growth, and local currency adjusted EBITDA growth. We now expect, on a consolidated basis, mid-single-digit local currency revenue growth and mid-single-digit local currency adjusted EBITDA growth in 2024. We previously expected low- to mid-single-digit local currency growth in both revenue and adjusted EBITDA.
Paul Manning: We will use our improving cash flow to reduce our debt and interest expense.
Paul Manning: As we communicated we expect a much improved financial picture in 2024, including sales volume growth local currency revenue growth in local currency adjusted EBITDA growth.
Paul Manning: We now expect to deliver on a consolidated basis mid single digit local currency revenue and mid single digit local currency adjusted EBIT <unk> growth in 2024.
Paul Manning: We previously expected low to mid single digit local currency growth in both revenue and adjusted EBITDA.
Paul Manning: We continue to expect our Local Currency Adjusted EPS to grow at a low to mid-single-digit rate in 2024. Overall, we have proven that our strategy supports solid growth across each of our businesses and our product portfolio is robust. We are focused on the levers we can control to grow our business. These include... Our focus on sales execution, our strong customer service, and our innovative product offering.
We continue to expect our local currency adjusted EPS to grow at a low to mid single digit rate in 2024.
Paul Manning: Overall, we have proven that our strategy supports solid growth across each of our businesses and our product portfolio is robust we.
Paul Manning: We are focused on the levers we can control to grow our business. These include.
Paul Manning: Our focus on sales execution, our strong customer service and our innovative product offering.
Paul Manning: Overall, I'm very excited about our opportunities within each of our groups and remain optimistic about 2024 and the future of our business. Now, before I turn it over to Steve, I just wanted to thank Steve for his 27 years of service to Sensient. I should note that that is a GAP number. Steve would tell you on an adjusted basis, non-GAP, that felt more like about 102 years.
Paul Manning: Overall, I'm very excited about our opportunities within each of our groups and remain optimistic about 2024 and the future of our business.
Speaker Change: Now before I turn it over to Steve I just wanted to thank Steve for his 27 years of service to <unk>.
Speaker Change: I should note that that is a GAAP number Steve I'd tell you on a adjusted basis non-GAAP that felt more like about 102 years.
Paul Manning: So, as you know, though, Steve will be retiring at the end of June, and this is actually his last conference call. So I've worked very closely with Steve for at least nine years, a little bit more than that, too, as his CFO. His other financial leadership roles within the company. So Steve, we'd like to thank you for all your hard work for Sensi on behalf of the board and everyone here. We wish you luck in your retirement. You'll have to let us know what you're doing. So now, for the last time. Steve will provide additional details on the quarter.
Speaker Change: So as you know, though Steve will be retiring at the end of June and this is actually his last conference call. So I worked very closely with Steve for at least nine years, a little bit more than that too.
Speaker Change: CFO and <unk>.
Speaker Change: As other financial leadership roles within the company so Steve we'd like to thank you and all your hard work presenting on behalf of the board and everyone. Here. We wish you luck in retirement, you'll have to let us know what you're doing.
Speaker Change: So now for the last time.
Speaker Change: Steve will provide additional details on the quarter.
Stephen J. Rolfs: In my comments this morning, I will be explaining the differences between our GAF results and our adjusted results. The adjusted results for 2024 remove the cost of the Portfolio Optimization Plan. We believe that the removal of these costs provides a more clear picture to investors of the company's performance. This also reflects how management reviews the company's operations and performance.
Stephen J. Rolfs: Thank you Paul and my comments this morning, I will be explaining the differences between our GAAP results in our adjusted results the adjusted.
Stephen J. Rolfs: Results for 2024 remove the cost of the portfolio optimization plan, we believe that the removal of these costs produces a more clear picture to investors of the company's performance.
Stephen J. Rolfs: This also reflects our management reviews, the Companys operations and performance.
Stephen J. Rolfs: Sensient's operating income was $49.4 million in the first quarter of 2024, compared to $50.8 million in the comparable period last year. Operating income in the first quarter of 2024 includes $2.8 million, which is approximately $0.06 per share of portfolio optimization costs. Excluding the cost of the portfolio optimization plan, adjusted operating income was $52.2 million in the first quarter of 2024, compared to $50.8 million in the prior year period. The company's consolidated adjusted tax rate was 26.1% in the first quarter of 2024, compared to 24.9% in the comparable period of 2023. Local currency adjusted EBITDA was up 2.2% in the first quarter of 2024, but foreign currency translation was not material to EPS.
Stephen J. Rolfs: <unk> operating income was $49 4 million in the first quarter of 2024 compared to $58 million of income in the comparable period last year operating income in the first quarter of 2024 includes $2 8 million, which is approximately <unk> <unk> per share of portfolio optimization.
Stephen J. Rolfs: Costs excluding.
Stephen J. Rolfs: Excluding the cost of the portfolio optimization plan adjusted operating income was $52 2 million in the first quarter of 2024 compared to $50 8 million in the prior year period the.
Stephen J. Rolfs: The company's consolidated adjusted tax rate was 26, 1% in the first quarter of 2024 compared to 24, 9%.
Stephen J. Rolfs: In the comparable period of 2023.
Stephen J. Rolfs: Local currency adjusted EBITDA was up two 2% in the first quarter of 2024.
Stephen J. Rolfs: Foreign currency translation was not material to EPS.
Stephen J. Rolfs: Cash flow from operations was $15 million in the first quarter of 2024. Capital expenditures were $11 million in the first quarter of 2024. We expect our capital expenditures to be around $65 million for the year. Our net debt to credit-adjusted EBITDA is $2.6.
Stephen J. Rolfs: Cash flow from operations was $15 million in the first quarter of 2024 capital expenditures were $11 million in the first quarter of 2024, we expect our capital expenditures to be around $65 million for the year.
Stephen J. Rolfs: Our net debt to credit as adjusted EBITDA is 261.
Stephen J. Rolfs: Overall, our balance sheet remains well-positioned for future investment. Regarding our 2024 guidance, we now expect our 2024 local currency revenue and local currency adjusted EBITDA to be up mid-single digits in 2024. This is an increase from our previous guidance, which had called for a low to mid single-digit growth rate in 2024 for both local currency revenue and local currency adjusted EBITDA growth. We still expect our interest expense to increase this year compared to our 2023 full-year interest expense.
Stephen J. Rolfs: Overall, our balance sheet remains well positioned for future investments.
Regarding our 2024 guidance, we now expect our 2024 local currency revenue in local currency adjusted EBITDA to be up mid single digits in 2024.
Stephen J. Rolfs: This is an increase from our previous guidance, which had called for a low to mid single digit growth rate in 2024 for both local currency revenue in local currency adjusted EBITDA growth.
Stephen J. Rolfs: We still expect our interest expense to be to increase this year compared to our 2023 full year interest expense.
Stephen J. Rolfs: And we continue to expect our 2024 full-year adjusted tax rates to be in the range of 24 to 25 percent. As a result, we continue to expect our local currency adjusted EPS to be up low to mid-single digits in 2024. In considering our GAAP earnings per share in 2024, we continue to expect approximately $0.15 of portfolio optimization costs. We continue to expect our GAAP EPS in 2024 to be between $2.80 and $2.90, compared to our 2023 GAAP EPS of $2.21.
Stephen J. Rolfs: And we continue to expect our 2020 for full year adjusted tax rate to be in the range of 24% to 25%.
Stephen J. Rolfs: As a result, we continue to expect our local currency adjusted EPS to be up low to mid single digits in 2024.
Stephen J. Rolfs: And considering our GAAP earnings per share in 2024, we continue to expect approximately 15 of portfolio optimization costs.
Stephen J. Rolfs: We continue to expect our GAAP EPS in 2024 to be to be between $2 80, and $2 90.
Stephen J. Rolfs: Compared to our 2023, GAAP EPS of $2 21.
Stephen J. Rolfs: To reiterate Paul's comments, he mentioned the elevated agricultural costs impacting our flavors and extracts segment, as well as the order patterns impacting our Asia-Pacific segment. These factors will impact the pattern of sequential quarterly results, but we are confident that each segment will deliver on our expectations for the year.
Stephen J. Rolfs: To reiterate Paul's comments, you mentioned, the elevated agricultural costs impacting our flavors and extracts segment as well as the order patterns impacting our Asia Pacific segment.
Stephen J. Rolfs: These factors will impact the pattern of sequential quarterly results, but we are confident that each segment will deliver to our expectations for the year.
Operator: Thank you for participating in our call today. We will now open the call for questions. Thank you. We will now begin the question and answer session.
Speaker Change: Thank you for participating in our call today, we will now open the call for questions.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one touchtone phone and to withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble our roster.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Ghansham Panjabi with Baird. Please go ahead.
Operator: Hi. Good morning, Paul. Good morning, Steve. Thanks. Morning, Ghansham. Hey, this is actually Matt Krieger sitting in for Ghansham.
Ghansham Panjabi: Hi, Good morning, Paul Good morning, Steve.
Ghansham Panjabi: Good morning Ghansham.
Ghansham Panjabi: Hey, this is actually Matt Krieger sitting in for Ghansham.
Matt Krieger: Steve, I'm not going to try to match Paul's gymnast-level send-off there, but congratulations on your pending retirement. You know, I just wanted to touch on operating leverage flow-through for the flavors and extracts segment here a little bit. You know, just trying to dig into why it wasn't, you know, more significant given the, you know, the strong volume growth compared to expectations. I know you mentioned higher agricultural and raw material costs, but can you talk in a little more detail about what those were? You know, how big was that headwind on a year-over-year basis, and how would you expect that to progress moving forward? What does that headwind for the year look like?
Matt Krieger: Steve I'm not going to try to match Paul's gymnast level.
Matt Krieger: Off there, but congratulations on your pending retirement.
Matt Krieger: Okay.
Matt Krieger: I just wanted to touch on operating leverage flow through for the flavors and extracts segment here a little bit.
Matt Krieger: Just trying to dig into why it wasn't more.
Matt Krieger: More significant given the.
Matt Krieger: The strong volume growth compared to expectations I know you mentioned higher agriculture.
Matt Krieger: Cultural and raw material costs.
Matt Krieger: But can you talk a little more detail about what those where how big was that headwind on a year over year basis, and how would you expect that to progress moving forward, what's that where does that headwind for the year look like.
Paul Manning: Okay, so Matt, I think as we look at, I'll kind of give you an overview for each of the groups, but let's start with flavors to go directly to your question. So, yeah, flavors had 6-7% revenue growth, but most of that was volume, and we noted it was only very moderately, say, 1% price.
Okay. So.
Matt Krieger: <unk>.
Matt Krieger: That I think as we look at all kind of give you an overview for each of the groups, let's start with flavors to go directly to your question.
Speaker Change: Yes flavors had six 7% revenue growth most of that was volume.
Speaker Change: Noted it was only very moderately say 1% price.
Paul Manning: So therefore, it was a big volume move. A lot of that volume, the majority of that volume, was S&I, but there was volume in other pockets around the balance of the flavor. But principally, it was an S&I story, so they had an absolutely spectacular revenue quarter in S&I. Lots of new wins. Lots of good activity there, principally savory-related food.
Speaker Change: So therefore, there was a big volume move a lot of that volume. The majority of that volume was SNR, but there was volume in other pockets around the balance of the flavor group, but principally it was an F&I story. So they had an absolutely spectacular revenue quarter, and F&I and lots of new wins.
Speaker Change: Lots of good activity, there principally savory related foods.
Paul Manning: The comparison for S&I was not as difficult, so certainly that had some benefit to us as well. Now, this is where leverage kind of comes into play here, right? So for 6% or 7% revenue, you'd sort of start to see something a little bit better than mid-single digit on profit, and you will as we get into the latter part of the year. But in the context of Q1.
Speaker Change: The comparison for F&I.
Speaker Change: Not as difficult so certainly that had some benefit to us as well.
Speaker Change: Now where the leverage kind of comes into play here right. So for six months to 7% revenue you would sort of start to see something a little bit better than mid single on profit.
Speaker Change: And you will as we get into the latter part of the year.
Speaker Change: But in the context of Q1.
Paul Manning: A lot of that selling was on these crops that had been grown in a previous crop year. So all those things we heard about with energy and water and fertilizers and agriculture and land and labor, all those things were built into that crop. And so that's the one we're selling right now. Now the good news is that the next crop comes in later this year, and the cost situation on that is much improved. We won't know precisely how much, but trends are quite positive because last year's crop was probably among the most expensive we've ever seen, period.
Speaker Change: A lot of that selling.
Speaker Change: Was on these crops that had been grown in a previous crop year. So all of those things, we heard about with energy and water and fertilizer and agriculture and land and labor all of those things were built into that crop and so that's the one we're selling right now.
Speaker Change: Now the good news is the next crop comes in later this year and the cost situation on that is much improved we wont know precisely how much but the trends are quite positive biggest last crop one was probably among the most expensive we've ever seen period.
Paul Manning: And so I would tell you that that was largely the story on operating leverage in the flavor group. As we kind of go into Q2, you'll see a little bit more of that, you know; you'll see very nice revenue growth. Again, I'm feeling confident about that, but you won't quite see that operating leverage in flavors yet. You'll start to see operating leverage in flavors in the back half of the year as the traditional flavors continue to accelerate and as we start selling the new crop at the. Yeah, when you draw it up, volume growth should generate operating profit leverage, and it will for the year, but in any one quarter, we could be contending with the more expensive inventory. I am going over to the color group.
Speaker Change: And so I would tell you that that was largely the story on operating leverage in the flavor group as we kind of go into Q2, you'll see a little bit more of that Youll see very nice revenue growth again, I'm feeling confident about that which you won't quite see that operating leverage in flavors, yet youll start to see the operating leverage in <unk>.
Speaker Change: Flavors in the back half of the year as the traditional flavors continues to accelerate and as we.
Speaker Change: Start selling the new crop at the lower cost position so.
Speaker Change: Yeah, when you draw it up volume growth should generate operating profit leverage and it will for the year, but in any one quarter, we could be contending with.
Speaker Change: The more expensive inventory.
Speaker Change: Going over to the color group.
Paul Manning: You know, I kind of mentioned on the last call that given how much you hold inventory, there's generally a lag between when you start seeing operating leverage from your volume growth. And that tends to be about a quarter to two quarters, depending on the business unit. So you see, colors were down in Q1, low single-digit revenue, and low single-digit profit. That's actually a positive sign because we had been, as you saw, in 2023, for that low single-digit revenue and minus mid-single-digit revenue, we were seeing well into the minus double digits on operating profit.
Speaker Change: I had kind of mentioned on the last call that you had.
Speaker Change: Given how much you'll hold inventory so there's generally a lag between when you start seeing operating leverage from your volume growth and that tends to be about a quarter to two quarters, depending on the business unit here.
Speaker Change: <unk> colors was down in Q1 low single digit revenue low single digit profit that's actually a positive sign because we had been as you saw in 2023 for that low single digit revenue even minus mid single digit revenue, we were seeing well into the minus double digits on operating profit.
Paul Manning: So you're seeing the inflection point now in Q1, so, as we get into, say, Q2 and beyond for the color group, I think you'll start to see that leverage play out in the color group. So I think you'll be very, very happy with how that progresses. So it'll progress a bit faster than color, but that's principally just based on this inventory component associated with those agricultural products. So I think big picture.
Speaker Change: So youre seeing the inflection point now in Q1, so therefore, as we get into say Q2 and beyond for the color group I think youll start to see that leverage very very nicely play out.
Speaker Change: In the color group. So I think it would be very very happy with how that progressive progressive it's faster than color, but that's principally just based on this inventory component associated with those agricultural products.
Speaker Change: So I think big picture.
Paul Manning: As the year kind of normalizes, and it is normalized, you're going to start to see that more traditional mid-single-digit, high-single-digit, mid-single-digit revenue leading to high-single-digit EBITDA growth, and we're very, very confident that we'll be at that type of pace as the year moves on.
Speaker Change: As the year kind of normalizes and it is normalized that you're going to start to see that more traditional mid single digit high single digit mid single digit revenue leading to high single digit EBIT dollar growth and we're very very confident that we'll be at that type of pace as the year moves on here.
Speaker Change: Yeah.
Matt Krieger: Great, that's very helpful. And then, you know, just switching over to natural ingredients specifically, growth has ramped significantly higher to start the year and really has since the middle of last year. Can you talk about what's driving this pickup and growth and how sustainable that growth rate is for 2024 in the segment? You know, were there any specific conversions or legislative changes that are benefiting the naturals portfolio to drive that pickup and growth?
Speaker Change: Great. That's that's very helpful and then.
Speaker Change: Just switching over to natural ingredients, specifically that growth has ramped significantly higher to start the year and really has since the middle of last year.
Speaker Change: Can you talk about what's driving this pick up in growth and how sustainable that growth rate is for 2024 in the segment.
Speaker Change: Were there any specific conversions or legislative changes that are benefiting the naturals portfolio to drive that pickup in growth.
Paul Manning: On the regulatory side, this is a business where, you know, when you have the crop, you can sell it. And so we made comments over the last year or two that we want to continue to invest in that inventory because there is no substitute on the market. And so, when you have it, you can sell it. And then when you can sell it, you can have an outsized quarter like the one we did.
Speaker Change: Nothing on the regulatory side.
Speaker Change: This is a business where you know when you have the crop you can sell it and so we made comments over the last year or two that we want to continue to invest in that inventory because there is no substitute on the market.
Speaker Change: And so when you have it you can sell it and then when you can sell it you can have an outsized quarter like the one we did so I think number one we had a very good inventory position.
Paul Manning: So I think, number one, we had a very good inventory position. Number two, we had a very aggressive sales effort. We have new leadership in that business, and they're doing exceedingly well on the sales side. So that's another factor. But I would tell you, as I mentioned earlier, they had a little bit of an easier comp.
Speaker Change: Number two we had a very aggressive sales effort, we have new leadership in that business and they are doing exceedingly well on the sales side.
Speaker Change: So that's another factor.
Speaker Change: I'd tell you as I mentioned earlier.
Speaker Change: Had a little bit of an easier comp.
Paul Manning: That explains maybe a portion of that, for sure in the business. But I think, ultimately, that rate will normalize as the year goes on. I would see that as more of a one-off rather than a sustained trend in that business. So, we would still expect them to have very solid growth through the year. The kind of growth we saw in Q1, think of that as more of a... statistical anomaly rather than a rather new steady state.
Speaker Change: That explains maybe a portion of that.
Speaker Change: For sure in the business, but I think ultimately that rate will normalize as the year goes on I would see that as more of a one off rather than a sustained.
Speaker Change: Trend in that business and so we would still expect them to have very solid growth for the year. The kind of growth. We saw in Q1 think of that as more of a.
Speaker Change: A statistical anomaly.
Speaker Change: Rather than a rather new steady state.
Operator: Got it. That makes a lot of sense. That's really helpful. I'll turn it over.
Got it that makes a lot of sense, that's really helpful. I'll turn it over.
Speaker Change: Okay. Thanks, Matt.
Nicola Tang: The next question will come from Nicola Tang with BNP Exane. Please go ahead.
Speaker Change: The next question will come from Nicola Tang with BNP Exane. Please go ahead.
Nicola Tang: Hi everyone. Hi Nicola. Hi, and I sort of echo my congratulations and best wishes to Steve as well. On the guidance on the EPS side, I was wondering if you could explain a little bit or clarify what your expectations are in terms of interest costs. Do you still expect this plus 3 million year-on-year that you talked about previously? Just trying to understand why there's a limited sort of drop-through on your EPS guide relative to the upgrade on the EBITDA level, and maybe I'll close out with SSS.
Nicola Tang: Hi, everyone.
Nicola Tang: Nicola.
Nicola Tang: And then I sort of Echo my congratulations and best wishes to Steve as well.
Nicola Tang: On the guidance on the EPS side I was wondering if you could explain a little bit clarify what your expectations are in terms of interest costs do you expect this plus 3 million year on year that you talked about previously just trying to understand why those limited sort of drop through on your EPS guide relative to the upgrade.
Nicola Tang: The EBIT and EBITDA level.
Nicola Tang: Sure.
Nicola Tang: Awesome.
Paul Manning: Sure, so on the EPS guidance, you hit it on the head. It's really the interest expense, and then we'll have a slightly higher tax rate this year as well, and that's the only reason why that guidance was not increased. Last quarter, we did say about $3 million more on interest expense. And when you look at the interest rate environment, there seems to be less appetite for interest rate cuts. So if that's the case, it could be a little bit elevated above $3 million.
Speaker Change: Sure so on the EPS guidance.
Speaker Change: Hit it on the.
Speaker Change: It's really the interest expense and then we will have a slightly higher tax rate this year as well and that's the only reason why that.
<unk> was not increased.
Speaker Change: Last quarter, we did say about $3 million more on interest expense.
Speaker Change: And when you look at the interest rate environment, there seems to be less appetite for interest rate cuts. So if thats the case it could be a little bit elevated above the $3 million.
Paul Manning: It could be a little bit more towards $4 million, which is the way we see it. But as Paul mentioned, we've got opportunities in inventory and cash flow. And so as we bring down leverage, which will be our priority, we could make up for some of that.
Speaker Change: It could be a little bit more towards four.
Speaker Change: Is the way, we see it but its fall.
Speaker Change: Paul mentioned, we've got opportunities.
Speaker Change: Inventory and cash flow and so as we bring down leverage which will be our.
Speaker Change: Our priority.
Speaker Change: We could make up for some of that.
Nicola Tang: Got it. And then, on the flavors and extracts side, I wanted to ask a little bit more about the flavors bit. Whilst it's sort of improved sequentially, it seems like you're lagging a bit behind some of the bigger F&F players who've reported so far. Can you help us understand the discrepancy and perhaps explain a little bit some of the dynamics of what happened in flavors in Q1?
Speaker Change: In terms of the interest expense.
Speaker Change: Got it and then.
Speaker Change: On the flavor and extract side I wanted to ask a little bit more about actually the phases that.
Speaker Change: Yeah, well sit sort of improve sequentially. It seems like you're lagging a bit some of the bigger SNS KFC purported snowfall can you help us understand the discrepancy and perhaps explain a little bit on some of the dynamics of what happened in Q1.
Paul Manning: Yeah, well, I guess in any 91 day period, any number of things could happen across a segment or a customer group or that customer's inventory position or launch. So I wouldn't take too much away from 91 days. I think as you look at the year for us, we do expect mid-single-digit growth, most of that being volume. You know, as you reflect back on the last number of years, I think you can see that the volume growth in Sentient was quite robust.
Speaker Change: Yes, well I guess to the.
Speaker Change: 91 day period, any number of things could happen across the segment of our customer group of that customer's inventory position or launch so I wouldn't take too much away from from 91 days I think as you look at the year for US we do expect mid.
Speaker Change: Mid single digit growth most of that being volume.
Speaker Change: As you reflect back on the last number of years I think you could see that the volume growth and sentiment was quite robust.
Paul Manning: And so I think, again, it's just one quarter. It's not indicative of anything, in my opinion. We continue to do exceedingly well on the new wind front, and, in fact, new winds continue to be quite robust in the first quarter. So I think it's just really more of a timing thing than anything else.
Speaker Change: And so I think again, it's one quarter not indicative of anything in my opinion.
Speaker Change: We continue to do exceedingly well on the new win front and in fact, new wins continue to be quite robust in the first quarter.
Speaker Change: So I think it's just really more of a timing thing than anything else.
Nicola Tang: All right, and then on the input cost side, you mentioned, or you sort of talked in the release about higher inputs, and I was wondering whether there's been any change in terms of your outlook on input costs for this year versus how you were thinking a couple of months ago. Perhaps you could talk a little bit about what you're seeing. And you talked about, I think, low single-digit pricing. Do you think this will be enough to sort of cover input cost inflation this year?
Speaker Change: Alright, and then.
Speaker Change: On the input cost side.
Speaker Change: You mentioned in there or are you sort of talked in the release about higher inputs and I was wondering.
Speaker Change: Whether there's been any change in terms of real outlook on input cost for this year. That's just how youre thinking a couple of months ago, perhaps you could talk a little bit about what you're seeing and.
Speaker Change: And you talked about I think low single digit pricing do you think this will be enough to sort of recover input cost inflation. This year.
Paul Manning: Yeah, so let me start off and then I'll let Steve add what he would like to there. I think the general picture on input costs is that they're moving in a direction that's more favorable to us and our profit. As you then liquidate your inventory, you start to enjoy that benefit to your operating profit. So I think, you know, the general state of affairs is that prices remain elevated in many categories. They're not rising. There are a couple of exceptions, but there are always a couple of exceptions in any given year.
Speaker Change: Yeah. So let me start off and then I'll, let Steve add what he would like to there.
Speaker Change: I think the general picture on input costs as they are moving in the direction thats more favorable to us and our profit.
Speaker Change: As you then liquidate your inventory you started enjoy that benefit to your to your operating profit. So I think the general state of affairs as things remain elevated in many categories.
Speaker Change: They are not rising.
Speaker Change: There are a couple of exceptions, but theres always a couple of exceptions in any given year.
Paul Manning: But I think the big picture is stable, declining in some areas. So I think we'll start to see those benefits continue through the P&L. You know, I did mention the one big one on the agricultural side, that improvement we anticipate in the back half of the year for sure, because that's driving a lot of the leverage impact and flavors. But I think, yeah, the overall story is that our price should capture what we need to capture here and continue to help our customers promote their own businesses.
Speaker Change: But I think the big picture is stable declining in some.
Speaker Change: So I think we'll start to see those benefits continue through the P&L I did mentioned that the one big one on the agricultural side that improvement we anticipate in the back half of the year for sure because thats driving a lot of the leverage impact in flavors, but I think the overall story is that our price capture what we need to <unk>.
Speaker Change: <unk> here.
Speaker Change: And continue to help our customers to promote their own businesses. So I think that we feel good about the pricing that we got.
Paul Manning: So yeah, I think that we feel good about the price that we got. So, Stephen, I don't know if you want to add anything to the mix there. I would just say that, yeah, there's not been any...
Speaker Change: So Stephen I know, if you want to add.
Stephen: Add anything to that mix there I would just say that yes, there has not been any big change in our outlook or expectations as Paul said, we're seeing an improving picture across a lot of the spend.
Stephen J. Rolfs: I would just say that, yeah, there's not been any big change in our outlook or expectations. As Paul said, we're seeing an improving picture across a lot of the spend. The one thing that we've mentioned a couple of times now is just when you're dealing with these agricultural products, there can be a lag, and so that's the only thing I would add. But I think, in general, the picture is improving.
Stephen: The one thing that we've mentioned a couple of times now is just when youre dealing with these agricultural products. There can be there can be a lag.
Stephen: And so that's the only thing I would add but I think in general.
Stephen: The picture is improving.
Operator: Okay, thank you. Again, if you have a question, please press...
Speaker Change: Great. Thanks, so much.
Speaker Change: Okay. Thank you.
Operator: Again, if you have a question, please press star, then 1. Our next question will come from David Green on Boldhaven. Please go ahead.
Speaker Change: So again, if you have a question. Please press Star then one our next question will come from David Greene with Bolt Haven. Please go ahead.
David Green: Congratulations, Stephen. Thank you all.
David Green: Hi, everyone.
David Green: Hey, David Hi, David.
David Green: Alright, congratulations Stephen.
David Green: Thanks, Paul.
David Green: I guess just a question around margins. I've talked about an expectation for an ongoing sequential improvement in volume, and just to sort of..., qualify that. So I'm assuming that also means, by definition, we should expect improving sequential performance in margins as well.
David Green: I guess, it's a question around.
David Green: Margins.
David Green: You talked about an expectation for <unk>.
David Green: Ongoing sequential improvement in volume.
Speaker Change: Just to sort of <unk>.
Speaker Change: Qualify Bob So I'm, assuming that also means by definition, we should we should expect improving sequential.
Performance in margins as well.
Paul Manning: Yeah, I think that's right. I think...
Bob: Yeah, I think Thats right I think.
Paul Manning: The year plays out as I described earlier. I think you would start to see that in color a bit sooner than flavors, but in flavors, you would see that as well. We're optimistic that colors will begin to knock back on the door at 20%. We're quite close here in Q1, but Asia will remain very, very profitable, and of course, Flavors as the most uplift opportunity, and so yes is the short answer to your question.
Speaker Change: The year plays out as I described.
Speaker Change: Earlier, I think you'd start to see that and color a bit sooner than flavors, but in flavors, you would see that as well.
Speaker Change: We're optimistic that colors begin to knock back on the door of 20%. We're very we're quite close here in Q1.
Speaker Change: But Asia will remain very very profitable in and of course.
Speaker Change: Flavors as the most uplift opportunity and so yes is the short answer to your question.
Speaker Change: Alright. Thanks.
Speaker Change: And then.
Just thinking.
Paul Manning: I just wanted to ask specifically about wind rates, and obviously you've talked about very high levels; are there any specific areas where it's been particularly strong?
Speaker Change: Once it all specific to you on win rates and obviously, you've talked about sort of very high levels are there any specific areas where.
Speaker Change: It's been in particular, where it's been particularly strong.
Paul Manning: Well, we've got a pretty broad-based portfolio, so we generally enjoy success in a lot of different areas. I would tell you that win rates have grown very nicely in personal care, so this is a market that was hit particularly hard during COVID, particularly our business, which was one of strong focus on makeup. So we're seeing a lot of nice wins there, and we're seeing an improvement in the win rates in those businesses on the personal care side. And we continue to enjoy very nice win rates in our natural color business. We are the largest food color company in the world.
Speaker Change: Well, we've got a pretty broad based portfolio. So we generally enjoy success in a lot of different areas.
Speaker Change: I would tell you that the win rates heavy have grown very nicely in personal care. So this is a market that was hit particularly hard during COVID-19, particularly our business, which was one of strong focus on makeup. So we're seeing a lot of nice wins, there and we're seeing an improvement in the win rates in those businesses.
Speaker Change: The personal care side, we continue to enjoy very nice win rates and our natural color business.
Speaker Change: We are the largest.
Speaker Change: Food color company in the World and so we continue to have very strong and very good access to those types of.
Paul Manning: And so we continue to have very strong and very good access to those types of customers who are converting. And so that's backed up by a very, very strong innovation program that is a very technically-driven conversion program. And then, of course, in flavors, we enjoy very, very good win rates across a lot of the local and regional accounts, and I think as we continue to expand and introduce Razor Spectre in the market, we continue to have improved access to some of the larger accounts as well.
Speaker Change: Customers, who are converting and so that's backed up by a very very strong innovation program that is a very technically driven conversion program.
Speaker Change: Then of course in flavors, we enjoy very very good win rates across a lot of the local and regionals and I think as we continue to expand.
Speaker Change: <unk> raised our spectrum in the market. We continue to have improved access to some of the larger accounts as well.
Paul Manning: Segment-wise, you know, when you look at the launch activity in Q1 around the world, this is an interesting question that folks are sort of looking at, like, well, hey, what's going to happen here, right, because there are a lot of macroeconomic factors, what's going to happen in the market. And so I think we've seen a little bit of a mixed bag. Overall, launches were down globally in Q1, so what would our customers be launching? Most notably in certain segments, like frozen desserts and the like. Quite a reduction there,
Segment Wise, you know you look at the launch activity in Q1 around the World. This is an interesting question that folks are sort of looking at like what hate what's going to happen here because there's a lot of macroeconomic factors.
Speaker Change: Whats going to happen in the market.
Speaker Change: So I think we've seen a little bit of a mixed bag overall launches were down globally in Q1, so what our customers would be launching.
Speaker Change: Most notably in certain segments like frozen desserts and the life you can see.
Speaker Change: Quite a reduction there.
Paul Manning: But I would tell you that the wins that we're seeing are pretty broad-based, and a lot of the difference is whether or not it's to a multinational, to a local or regional, to a branded or a generic. The generic market is actually, we talk about volume being flat in North America and Europe, but generic volume is actually up. And it's up pretty decently in North America, for example, Q1 They're up almost three and a half percent on volume for generic brands, whereas the branded guys were down 1 or 2% in terms of volume. So, yeah, our wins tend to be.
Speaker Change: But I would tell you that the wins that we're seeing are pretty broad based and a lot of the difference is whether or not it's to a multinational to a local or regional to a branded or generic.
Speaker Change: The generic market is actually.
Speaker Change: We talk about volume being flat in North America, and Europe, the generic volume is actually up.
Speaker Change: And it's up pretty decently in at least in North America. For example, Q1, they were up almost three 5% on volume where generic brands.
Speaker Change: The branded guys were down one or 2%.
Speaker Change: In terms of volume.
Speaker Change: So yes, our wins tend to be in and again a lot of places, but I would say that certainly F&I had a lot of wins in the savory foods areas.
Paul Manning: Again, a lot of places, but I would say that certainly S&I had a lot of wins in the savory foods area, dressings, dips, sauces, and things of that nature. We saw a lot of good activity in beverages. We saw a lot of good activity in natural colors for baked goods. So pretty, pretty broad base. I don't think there's any one particular category that's outpacing other categories right now, although I would tell you frozen desserts are perhaps a little bit slow at the moment from a launch activity standpoint. And so, we would largely mirror what you're seeing in the market from that.
Speaker Change: Dressings, and dips and sauces and things of that nature.
Speaker Change: We saw a lot of good activity in beverage we saw a lot of good activity in natural colors for baked goods.
Speaker Change: So pretty pretty broad based I don't think there's any one particular category. That's outpacing other categories right now, although I would tell you frozen desserts as perhaps a little bit slow at the moment from a launch activity standpoint.
Speaker Change: And so we would largely mirror what youre seeing in the market from that standpoint.
David Green: Right. And just, I can't quite remember in terms of thinking about sort of margin and mix within the specific segments. Can you, could you just remind me within, so within color specifically, the margins in personal care, sort of broadly speaking, versus the margins in food and pharma?
Speaker Change: Alright.
Speaker Change: And just I can't quite remember in terms of thinking about sort of margin mix within the specific segments can you could you just remind me within some within color specifically.
Speaker Change: The margins in personal cash sort of broadly speaking versus the margin since food and pharma.
Paul Manning: You know, in that segment, the margins are in a fairly narrow band. I would say we have similar margins across a lot of the different product lines.
Speaker Change: Yeah.
Speaker Change: And that segment the margins are in a fairly.
Speaker Change: Narrow band I would say, we earned similar margins across a lot of the different product lines there.
Speaker Change: And then obviously natural ingredients higher margin than flavors and extracts.
Paul Manning: and then obviously natural ingredients, a higher margin than flavors and extracts.
Paul Manning: Now, you know, that depends on the crop year. In this case, it's a bit lower, but ordinarily, long-term, yeah, it'd probably be right around the average, eBid.margin.
Speaker Change: No thats it.
Speaker Change: Depends on the crop year in this case, it's a bit lower but ordinarily is long term, yes. It would be it would be probably right around the average.
Speaker Change: EBITDA margin for the group.
David Green: And then I guess just a sort of final question around cash flow, which improved this quarter. I guess, sort of referencing back to your expectations for improving volume and margins, is there any reason why that doesn't drop through to better cash as well on a sequential basis?
Speaker Change: And then I guess just to sort of final question around cash flow, which improves.
Speaker Change: This quarter.
Speaker Change: I guess sort of referencing back to your expectations for improving.
Speaker Change: Volume and margins.
Speaker Change: Is there anything that any reason why that doesn't drop three two.
Paul Manning: No, I think we expect good cash flow this year. And we expect continued improvement. You know, we're up in the first quarter, but the first quarter traditionally is not the strongest quarter anyway. So, but we do expect continued improvement. And if we see cost improve, which we expect, you know that that will, that will be added to cash flow as well because we'll be spending less on the new inventory. And then finally, you know, our capital expenditures are going to be lower this year, so we should have a good free cash flow this year. Yeah, and we're David, I think I've mentioned this before, we're
Speaker Change: We had a cash as well on a sequential basis.
Speaker Change: No I think we expect good cash flow. This year, we expect continued improvement.
Speaker Change: We're up in the first quarter first quarter traditionally the.
Speaker Change: The strongest quarter anyway, so, but we do expect.
Speaker Change: Continued improvement and if we see.
Speaker Change: Cost improve which we expect that that will that will that will be additive to cash flow as well because we will be spending less on the new inventory and.
Speaker Change: And then finally, our capital expenditures are going to be lower this year. So we should have good free cash flow this year.
Paul Manning: Yeah, and we're, David, I think I've mentioned this before, we're still fat on inventory, so we have more work to do there. In Q1, there was a nice movement, about $30 million of production. So I'm not going to predict to you precisely how much inventory comes out in Q2, Q3, and Q4, but there should be an ongoing trend of lowering our inventory levels. I wish well. A very strong source of cash for the year, we expect.
Speaker Change: And David I think I've mentioned this before.
Speaker Change: We're still fat on inventories that we have.
Speaker Change: More work to do there Q1, there was a nice movement about $30 million of reduction so.
Speaker Change: I'm not going to predict.
Speaker Change: Precisely how much inventory comes out in Q2, three and four but there should be an ongoing trend.
Speaker Change: Lower our inventory levels.
Speaker Change: Of which well.
Speaker Change: Very very strong source of cash for the year, we expect.
Speaker Change: Great many thanks.
Speaker Change: Okay. Thanks, David.
Joan Lim: The next question will come from Joan Lim with BNP Paravis Exsing. Please go ahead.
Speaker Change: The next question will come from John Lim with BNP Paribas exiting please go ahead.
Joan Lim: Hello, just one question from me. Have you seen any changes in your competitive landscape for colors? Because one of your peers was actually talking about the importance of colors at their investor day. So I'm just interested to hear if there's been any. Well, we...
Joan Lim: Oh, just one question from me have you.
Joan Lim: <unk> seen any changes in your competitive landscape for colors, because one of your peers was actually talking about importance of colors at their investor day.
Speaker Change: Take care.
Speaker Change: Any changes.
Paul Manning: Well, we, you know, we have good competitors in color, and we're very mindful of where they are, and we want to feed them. And so, no, I don't think there's any particularly different trend. That I would note, you know, there's certainly a lot of activity around the world with natural color conversion. But I would put our portfolio against anybody's in the world, and in terms of the ability to make new products and innovative products, I'd put that against anybody's in the world.
Speaker Change: Well.
Speaker Change: We have good competitors in color and we're very mindful of.
Speaker Change: But where they are and we want to beat them.
Speaker Change: So.
Speaker Change: No I don't think theres, any particularly different trend.
Speaker Change: That I would note there.
Speaker Change: Certainly a lot of activity around the world with natural color conversions.
Speaker Change: But I would put our portfolio against anybody in the world and in terms of the ability to make new products and innovative products I put that against anybody in the world.
Paul Manning: OK, that's helpful. It's also a good trend, I suppose. More competition and more interest in natural colors. Yeah, for sure.
Speaker Change: Okay. That's helpful.
Speaker Change: Good trends I, suppose more competition and more interest in natural colors.
Paul Manning: Yeah, for sure. We see different conversion rates in different parts of the world. Outside of Europe, this is still at sort of an earlier stage of the transition. So, yeah, there's a very nice long-term runway for growth there on the backs of natural color conversions, for sure. And then, of course, more notably, new products that contain natural color.
Speaker Change: Yeah for sure we see different conversion rates in different parts of the world. So we still think.
Speaker Change: Outside of Europe.
Speaker Change: This is still at sort of an earlier stage of the transition. So yeah. There is a very nice long term runway for growth there on the backs of natural color conversions for sure and then of course more notably on new products that contain natural colors.
Joan Lim: Actually, just a follow-up question, what are the growth rates on natural color conversions in emerging markets?
Speaker Change: And actually just a follow up.
Speaker Change: What are the growth rates on natural color conversions.
Paul Manning: Yeah, that's a good question. It's a complex question,
Speaker Change: Emerging market.
Paul Manning: So the easy way to answer that is they're probably low to mid, maybe mid in some regions. Now, when you look at natural colors, oftentimes, what distorts numbers are things like caramel colors and titanium dioxide, which tend to be very, very high volume and contributors to Natural Colors. But they're not necessarily the highest value in the world of natural colors. So things that we sell would be substantially dwarfed by things like caramel and titanium dioxide.
Yeah. That's a good question. It's a complex question the easy way to answer that as Theyre, probably low to mid maybe mid in some regions.
Speaker Change: Now when you look at natural colors oftentimes, what distorts numbers are things like caramel colors, and titanium dioxide, which tend to be very very high volume.
Speaker Change: Contributors to natural colors.
Speaker Change: But they're not necessarily the highest value with the world of natural colors. So things that we sell would be substantially dwarfed by things like caramel in titanium dioxide. That's why we don't traditionally talk about our market share of natural colors, because quite frankly, there is a whole chunk of the market that I have absolutely zero.
Paul Manning: That's why we don't traditionally talk about our market share of natural colors because, quite frankly, there's a whole chunk of the market that I have absolutely zero interest in. And so when you factor out those types of products, yeah, you could see perhaps even a little bit of a better growth rate than that in emerging markets, Asia Pacific specifically. In Latin America, the growth rates are, as we see it, not as strong as you would see in a place in certain parts of Asia Pacific or Africa, or, for that matter, in the Middle East. I think as you look over to North America and still parts of Europe, the growth rates can continue to be quite good as well.
Speaker Change: <unk> and.
Speaker Change: And so when you factor out those types of.
Speaker Change: Of products, Yes, you could see perhaps even a little bit of a better growth rate than that in emerging markets Asia Pacific specifically Latin America. The growth rates are as we see it not as strong as you would see in a place in certain parts of Asia Pacific.
Speaker Change: Or Africa for that matter in the middle East.
Speaker Change: So.
Speaker Change: I think as you look over to North America.
Speaker Change: And still parts of Europe the growth rates.
Speaker Change: Continue to be quite good as well.
Joan Lim: Okay, that's very helpful. Thank you.
Speaker Change: Okay. That's very helpful. Thank you.
Okay. Thank you.
Operator: There are no further questions at this time. I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Speaker Change: There are no further questions at this time I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Paul Manning: Okay, if there are no further questions, that will conclude our call. So, thank you very much, everyone, for joining the call today.
Speaker Change: Okay. If there are no further questions that will conclude our call. So thank you very much everyone for joining the call today.
Operator: The conference is now concluded. You may now disconnect.
Speaker Change: The conference has now concluded.
Speaker Change: You may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].