Q3 2024 Sensient Technologies Corp Earnings Call

Operator: During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movement, cost of the company's portfolio optimization plan, and other items as noted in the company's file. 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. This also reflects how management reviews and evaluates the company's operations and performance.

During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements.

Cost of the company's 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. It's also reflect how management review.

Use and evaluates the companys operations and performance.

Operator: Non-GAAP financial results should not be considered an isolation from or 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 and slides. We encourage investors to review these reconciliations in connection with the comments we made.

non-GAAP financial results should not be considered in isolation from or 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.

Bailable on our press release and slides, we encourage investors to review these reconciliations in connection with the comments we make today.

Operator: I'd also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking 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 files. We urge you to re-sentence previous SEC filings, including our 10-K 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.

I'd also like to remind everyone that 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 filings, we urge you to read <unk> previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially.

In fact, our financial results.

Please keep these factors in mind when you analyze our comments today.

As we introduced during our last quarterly call, we will be referring to a slide deck that will be referenced throughout todays call.

Operator: As we introduced during our last quarterly call, we will be referring to a slide deck that will be referenced through today's call. This slide deck is also available on our website. We'll start on slide five of that deck.

Slide deck is also available on our website, we will start on slide five of that deck now we'll hear from Paul Manny Thanks, Kelvin and good morning, and good afternoon.

Tobin Tornehl: Now we'll hear from Paul Manning.

Paul Manning: Thanks, Tobin.

Paul Manning: Good morning and good afternoon. Sensient reported strong local currency revenue growth of approximately 9% in the third quarter. This revenue increase was primarily volume-driven, with price contributing low single digits. Our consolidated local currency adjusted EBITDA was up 13% for the third quarter of 2024. The company's third quarter adjusted EBITDA margin was 17.6%, up 60 basis points from the prior year's third quarter. With the continued resumption of volume growth across the groups, we expect revenue and EBITDA growth to continue to be strong in the fourth quarter. The volume improvement is due to our high level of new sales wins across each of our groups, our focus on sales execution, the end of customer destocking, and the stabilization of end customer demand in North America and Europe.

Paul Manny: <unk> reported strong local currency revenue growth of approximately 9% in the third quarter. This revenue increase was primarily volume driven with price contributing low single digits.

Paul Manny: Our consolidated local currency adjusted EBITDA was up 13% for the third quarter of 2024.

Paul Manny: The company's third quarter adjusted EBIT margin was 17, 6% up.

Paul Manny: 60 basis points from the prior year's third quarter.

Paul Manny: With the continued resumption of volume growth across the groups, we expect revenue and EBITDA growth to continue to be strong in the fourth quarter.

Paul Manny: The volume improvement is due to our high level of new sales wins across each of our groups are focused on sales execution. The end customer destocking and the stabilization of end customer demand in North America and Europe.

Paul Manning: Our sales pipelines remain robust in each of our regions. Each group is focused on expanding new sales win rates and working with our customers to support their development needs and new product launches.

Paul Manny: Our sales pipelines remain robust in each of our regions. Each group is focused on expanding new sales win rates and working with our customers to support their development needs and new product launches.

Paul Manny: Turning to slide six.

Paul Manning: Turning to slide 6. The Color Group had an excellent quarter, delivering 13% local currency revenue growth and 31% local currency operating profit growth. The group's third quarter EBITDA margin was 22.2 percent, an increase of 250 basis points versus the prior year's third quarter. The group's year-to-date local currency revenue is now up 5% and local currency operating profit is up approximately 11%. We saw solid volume growth in both the food and pharmaceutical and personal care product We expect this volume growth to continue throughout the remainder of the year. The group is benefiting from its strong new sales wind, particularly in natural colors, innovative products, and exceptional customer service.

Paul Manny: The color group had an excellent quarter, delivering 13% local currency revenue growth and 31% local currency operating profit growth.

Paul Manny: The group's third quarter EBITDA margin was 22, 2% an increase of 250 basis points versus the prior year's third quarter.

Paul Manny: The group's year to date local currency revenue is now up 5% in local currency operating profit is up approximately 11%.

Paul Manny: We saw solid volume growth in both the food and pharmaceutical and personal care product lines.

We expect this volume growth to continue throughout the remainder of the year.

The group is benefiting from its strong new sales wins, particularly in natural colors innovative products and exceptional customer service as we expected and discussed during our last few calls volume is the main driver of the strong operating leverage we now see in the color group.

Paul Manning: As we expected and discussed during our last few calls, volume is the main driver of the strong operating leverage we now see in the color group. We expect this leverage to continue in the fourth quarter and we expect the relationship between local currency revenue and operating profit growth in the fourth quarter to be similar to the group's third quarter results. For the year, I now expect the color group to deliver high single-digit local currency revenue growth.

Paul Manny: We expect this leverage to continue in the fourth quarter and we expect the relationship between local currency revenue and operating profit growth in the fourth quarter to be similar to the group's third quarter results.

Paul Manny: For the year I now expect the color group to deliver high single digit local currency revenue growth previously I expect the group to deliver mid to high single digit growth.

Paul Manning: Previously, I expected the group to deliver mid to high single-digit growth.

Paul Manny: Turning to slide seven the flavors and extracts group had a strong quarter delivering 7% local currency revenue growth and 13% local currency operating profit growth.

Paul Manning: Turning to slide 7. The Flavors and Extracts Group had a strong quarter, delivering 7% local currency revenue growth and 13% local currency operating profit growth. The group's third quarter EBITDA margin was 16.4%, up 30 basis points versus the prior year's third quarter. The group's year-to-date local currency revenue is up 8% and local currency operating profit is up approximately 9%. The group continues to benefit from its strong new sales wins, its innovative product offerings, and its focus on sales execution and customer service. The Flavors, Extracts, and Flavor Ingredients product lines reported solid volume growth in the quarter, which contributed to the group's operating leverage improvement.

Paul Manny: The group's third quarter EBITDA margin was 16, 4% up 30 basis points versus the prior year's third quarter.

Paul Manny: The group's year to date local currency revenue is up 8% in local currency operating profit is up approximately 9%.

Paul Manny: The group continues to benefit from its strong new sales wins, its innovative product offerings and its focus on sales execution and customer service.

Paul Manny: The flavors extracts and flavor ingredient product lines reported solid volume growth in the quarter, which contributed to the group's operating leverage improvement.

Paul Manny: We expect this leverage to continue in the fourth quarter and we expect the relationship between local currency revenue and operating profit growth in the fourth quarter to be similar to the group's third quarter results.

Paul Manning: We expect this leverage to continue in the fourth quarter, and we expect the relationship between local currency revenue and operating profit growth in the fourth quarter to be similar to the group's third quarter results. For the year, I now expect the Flavors Group to deliver a high single-digit local currency revenue growth.

Paul Manny: For the year I now expect the flavors group to deliver a high single digit local currency revenue growth pre.

Paul Manning: Previously, I expected the flavors group to deliver mid to high single digit growth.

Paul Manny: Previously I expected the flavors group to deliver mid to high single digit growth.

Paul Manny: Now turning to slide eight.

Paul Manning: Now turning to slide 8. The Asia-Pacific Group reported 13% local currency revenue growth and 15% local currency operating profit growth in the third quarter. The group reported a strong third quarter EBITDA margin of 23.8%, which is in line with prior years. The group's year-to-date local currency revenue is up 9% and local currency operating profit is up approximately 8%. The group continues to experience solid growth in almost all regions and continues to have a high level of new sales. The group is performing very well and I expect Asia Pacific to have a strong finish in 2024.

Paul Manny: The Asia Pacific Group reported 13% local currency revenue growth and 15% local currency operating profit growth in the third quarter.

Paul Manny: The group reported a strong third quarter EBITDA margin of 23, 8%, which is in line with prior year.

Paul Manny: The group's year to date local currency revenue is up 9% in local currency operating profit is up approximately 8%.

Paul Manny: The group continues to experience solid growth in all regions and continues to have a high level of new sales wins.

Paul Manny: The group is performing very well and I expect Asia Pacific had a strong finish in 2024.

Paul Manning: I expect the group to deliver in the fourth quarter at least what the group delivered in the third quarter for local currency revenue and operating profit growth. I expect the Asia-Pacific Group to deliver at least high single-digit revenue growth for the full year of 2024.

Paul Manny: I expect the group to deliver in the fourth quarter at least what the group delivered in the third quarter, the local currency revenue and operating profit growth.

Paul Manny: I expect the Asia Pacific group to deliver at least high single digit revenue growth for the full year of 2024.

Paul Manny: Turning to slide nine.

Paul Manning: Turning to slide nine. After a challenging 2023, Sensient's 2024 performance puts us back on track with our long-term goals of mid-single-digit local currency revenue growth and high single-digit local currency adjusted EBITDA. In 2024, we now expect to deliver consolidated, high single-digit local currency revenue and adjusted EBITDA growth. We previously expected to deliver mid- to high-single-digit growth for both local currency revenue and adjusted EBIT dollars. We also expect to deliver mid-single-digit local currency-adjusted EPS growth. The reason for the mid-single-digit adjusted EPS growth is primarily because of higher taxes and Higher Interest Expense.

Paul Manny: After a challenging 2023, San San H 'twenty 'twenty four performance puts us back on track with our long term goals of mid single digit local currency revenue growth and high single digit local currency adjusted EBITDA.

Paul Manny: In 'twenty 'twenty four we now expect to deliver consolidated high single digit local currency revenue and adjusted EBITDA growth.

Paul Manny: We previously expected to deliver mid to high single digit growth for both local currency revenue and adjusted EBITDA.

Paul Manny: We also expect to deliver mid single digit local currency adjusted EPS growth.

Paul Manny: The reason for the mid single digit adjusted EPS growth is primarily because of higher taxes and higher interest expense.

Paul Manny: And looking ahead to 2020 five we expect our local currency revenue to grow at a mid single digit rate.

Paul Manning: In looking ahead to 2025, we expect our local currency revenue to grow at a mid-single-digit rate. We expect a decrease in our interest expense as a result of our focus on debt repayment and a lower expected interest rate environment. We also expect our tax rate to be relatively flat at approximately 25%.

Paul Manny: We expect a decrease in our interest expense as a result of our focus on debt repayment and a lower expected interest rate environment.

We also expect our tax rate to be relatively flat at approximately 25%.

Paul Manning: As we began to do last quarter, we thought it would be helpful to highlight a few new technologies within our business. Turning to slide 10, we've highlighted a couple of our flavor technologies. The first to profile is called SensiMelt. SensiMelt is a novel technology that allows our bakery and savory customers to incorporate color and flavor bursts into their end product. Bakery and savory products are known for challenging production conditions, which typically degrade the performance of flavor and color. SensiML technology can overcome these challenging manufacturing conditions, extend product shelf life, and maintain the desired flavor profile.

Paul Manny: As we began to do last quarter, we thought it'd be helpful to highlight a few new technologies within our businesses.

Paul Manny: Turning to slide 10.

Paul Manny: Highlighted a couple of our flavor technologies.

The first a profile is called sense about sensor melt is a novel technology that allows our bakery in savoury customers to incorporate color and flavor bursts into their end products.

Paul Manny: Bakery and savory products are known for challenging production conditions, which typically degrades the performance of flavor and color.

Paul Manny: Sentimental technology can overcome these challenging manufacturing conditions extend product shelf life and maintain the desired flavor profile.

Paul Manny: Drew boost is a second technology, we'd like to highlight it as a portfolio of products that supports our customers' continuing efforts to reduce sugar and salt.

Paul Manning: TrueBoost is a second technology we'd like to highlight. It is a portfolio of products that supports our customers' continuing efforts to reduce sugar and salt. amplify the boldness of flavors and enhance the overall mouthfeel of products by imparting juiciness and creaminess to the end product. Trueboost provides natural and clean label benefits across all of our customers and markets. More information on these technologies and others can be found at our website. Overall, the growth we are experiencing is a direct result of the implementation of our strategy and the opportunities from the markets we have chosen to operate.

Paul Manny: Amplify the boldness of flavors and enhance the overall mouthfeel of products by empowering Juicy nursing creaminess till the end product.

Paul Manny: <unk> provides natural and clean label benefits across all of our customers and markets.

Paul Manny: More information on the information on these technologies and others can be found at our website.

Paul Manny: Overall the growth we're experiencing is a direct result of the implementation of our strategy and the opportunities in the markets, we have chosen to operate it.

Paul Manning: I'm excited about the growth opportunities within each of our groups, and I remain optimistic about 2024 and the future of our business.

Paul Manny: I'm excited about the growth opportunities within each of our groups and I remain optimistic about 2024 and the future of our business.

Speaker Change: Tobin will now provide you with additional details on the third quarter results.

Tobin Tornehl: Tobin will now provide you with additional details on the third quarter results.

Tobin Tornehl: Thank you, Paul. In my comments this morning, I'll be explaining the differences between our GAP results and our non-GAP or adjusted results. The adjusted results for 2024 remove the cost of the portfolio optimization. We believe the removal of these costs produces a clearer picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance.

Paul Manny: Paul.

Tobin: My comments this morning, I will be explaining the differences between our GAAP results in our non-GAAP or adjusted results the.

Speaker Change: The adjusted results for 2024 removes the cost of the portfolio optimization plan.

Speaker Change: We believe the removal of these costs produces a clearer picture of the company's performance for investors. There's also reflect how management reviews, the company's operations and performance.

Tobin Tornehl: Turning to slide 12. Sensient's revenue was $392.6 million in the third quarter of 2024, compared to $363.8 million in last year's third quarter. Operating income was $50.5 million in the third quarter of 2024 compared to $44.5 million of income in the comparable period last year. Operating income in the third quarter of 2024 includes $1.2 million of portfolio optimization plan costs, which is approximately $0.03 per share. In the fourth quarter of 2023, we incurred $28 million of portfolio optimization plans. So far this year, we've incurred approximately $5.8 million of additional. Excluding the cost of the Portfolio Optimization Plan, adjusted operating income was $51.7 million in the third quarter of 2024 compared to $44.5 million in the prior year.

Speaker Change: Turning to slide 12.

<unk> revenue was $392 6 million in the third quarter of 2024 compared to $363 8 million in last year's third quarter.

Operating income was $50 5 million in the third quarter of 2024 compared to $44 5 million of income in the comparable period last year.

Speaker Change: Operating income in the third quarter of 2024 includes $1 2 million of portfolio optimization plan costs, which is approximately <unk> <unk> per share.

Speaker Change: In the fourth quarter of 2023, we incurred $28 million of portfolio optimization plan costs. So far this year, we've incurred approximately $5 8 million of additional costs.

Excluding the cost of the portfolio optimization plan adjusted operating income was <unk>.

Speaker Change: $51 7 million in the third quarter of 2024 compared to $44 5 million in the prior year period, an increase of 17, 1% in local currency.

Tobin Tornehl: an increase of 17.1%. The company's consolidated adjusted tax rate was 23.1% in the third quarter of 2024, compared to 17.5 in the comparable period of 2020. Local currency adjusted EBITDA was up 12.8% in the third quarter of 2024 and up 5.5% for the year-to-date period. Foreign currency translation reduced EPS by approximately 1 cent in the third quarter of 2020.

Speaker Change: The company's consolidated adjusted tax rate was 23, 1% in the third quarter of 2024 compared to 17, five four and five in the comparable period of 2023 local currency adjusted EBITDA was up 12, 8% in the third quarter of 2024 and up five 5%.

Speaker Change: For the year to date period.

Speaker Change: Foreign currency translation reduced EPS by approximately <unk> in the third quarter of 2024.

Speaker Change: Turning to slide 13.

Tobin Tornehl: Turning to slide 13, cash flow from operations was $136 million for the nine months ended September 30, 2024, up 27% compared to last year's comparable. Capital expenditures were $36 million, year-to-date, as of September 30, 2020. We expect our capital expenditures to be between $60 million and $65 million for the year. Our net debt-to-credit adjusted EBITDA is $2.4. With the continued high interest rate environment, we remain focused on reducing our debt levels and our interest. Overall, our balance sheet remains well-positioned for future investment.

Speaker Change: Cash flow from operations was $136 million for the nine months ended September 32024 up 27% compared to last year's comparable period capital expenditures were $36 million year to date as of September 32024.

Speaker Change: We expect our capital expenditures to be.

Speaker Change: Between 60 million and $65 million for the year, our net debt to credit adjusted EBIT was 2.4.

Speaker Change: With the continued high interest rate environment, we remain focused on reducing our debt levels and our interest expense overall, our balance sheet remains well positioned for future investments.

Tobin Tornehl: Turn into slide 14. As Paul noted, we have increased our 2024 local currency revenue and local currency adjusted EBITDA to grow at a high single-digit growth rate for the year. We continue to expect our interest expense to be up approximately $4 million for the year compared to our 2023 full year. We expect our 2024 full-year adjusted tax rate to be around 25 percent compared to 23.4 percent in 2022. We continue to expect our local currency adjusted EPS to grow at a mid-single-digit rate. What this implies for the fourth quarter is that we expect our local currency revenue to grow at a high single-digit rate, and our local currency adjusted EBITDA to grow at a high teen growth.

Turning to slide 14.

Speaker Change: As Paul noted we have increased our 2024 local currency revenue in local currency adjusted EBITDA to grow at a high single digit growth rate for the year.

Speaker Change: We continue to expect our interest expense to be up approximately $4 million for the year compared to our 2023 full year interest expense.

Speaker Change: We expect our 2020 for full year adjusted tax rate to be a part of.

Speaker Change: Around 25% compared to 23, 4% in 2023.

Speaker Change: We continue to expect our local currency adjusted EPS to grow at a mid single digit rates in 2024.

Speaker Change: What this implies for the fourth quarter is that we expect our local currency revenue to grow at a high single digit rate and our local currency adjusted EBITDA to grow at a high teen growth rate.

Tobin Tornehl: We expect our fourth quarter interest expense to be around $7 million. and we expect our adjusted tax rate to be approximately 25%. We expect our Local Currency Adjusted EPS to grow at a low 20% growth rate in the fourth quarter. In considering our GAAP earnings per share in 2024, we continue to expect our GAAP EPS to be between $2.77 and $2.87 cents per Our GAAP EPS includes approximately $0.18 of portfolio optimization.

Speaker Change: We expect our fourth quarter interest expense to be around $7 million and we expect our adjusted tax rate to be approximately 25%.

Speaker Change: We expect our local currency adjusted EPS to grow at a low 20% growth rate in the fourth quarter.

Speaker Change: And considering our GAAP earnings per share in 2024, we continue to expect our GAAP EPS to be between $2 70 777 cents.

Speaker Change: And $2.87 per share our GAAP EPS includes approximately 18 sensor portfolio optimization plan costs.

Operator: Thank you for participating in the call today. We'll now open the call up for questions. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch dial. To withdraw your question, please press star then.

Speaker Change: Thank you for participating in our call today, we will now open the call up for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: To withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

At this time, we will pause momentarily to assemble our roster.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: The first question comes from Ghansham Panjabi with Robert W. Baird <unk> co. Please go ahead.

Operator: The first question comes from Ghansham Panjabi with Robert W. Baradinko.

Operator: Please go ahead.

Speaker Change: Hi, Good morning, everyone. This is Matt Krieger sitting in for Ghansham.

Matthew Krueger: Hi, good morning, everyone. This is Matt Krueger sitting in for Ghansham. Hey, Matt. Hey.

Yeah.

Matt Krieger: Alright. So you know my first question I wanted to focus a bit in on on the volumes for the quarter. Obviously, the volume performance was quite strong.

Matthew Krueger: So, you know, my first question, I wanted to focus a bit in on the volumes for the quarter. Obviously, the volume performance was quite strong. You know, by segment, can you break out what portion of your volume growth you feel was due to, you know, end market normalization due to the lack of destocking versus, you know, what portion of the volume growth is really sustainable kind of following the, you know, the washout of the comparisons on a year-over-year basis as we move forward? Okay, so overall, you look at Q3, we're up revenue 9% for the company.

Matt Krieger: By segment can you break out what portion of your volume growth do you feel was due to end market normalization due to the lack of Destocking versus you know what portion of the volume growth is really sustainable kind of following the you know the washout of the comparisons on a year over year basis as we move forward.

Matt Krieger: Okay. So overall you look at Q3, we were up revenue.

Matt Krieger: At 9% sure for the company.

Paul Manning: Price being kind of two, three, low single digit type levels. So you figure about six, seven percent volume overall. Now it varies a bit, you know, with Asia-Pacific having double digit volume, color having double digit volume, and flavors more like mid-single digit volume. And so, to answer the question explicitly, sure, there's a number of factors here. So the end market, you heard me talk about, you know, for the last couple of years, as we measured the market, the North American market, the volume of our end customers was down, you know, 1 to 2% in terms of volume.

Speaker Change: Price being kind of two three low single digit type level. So you figure about six 7% volume overall now it varies a bit.

Speaker Change: You know with Asia Pacific, having double digit volume color, having double digit volume and.

And flavors more like mid single digit volume.

Speaker Change: And so to answer the question explicitly sure Theres a number of factors here. So the end market you heard me talk about you know for the last couple of years as we measure the market then.

Speaker Change: The North American market, the volume of our end customers was down.

Speaker Change: 1% to 2% in terms of volume Europe was kind of flattish maybe up a percent and then of course things varies by Asia Pacific and Latam.

Paul Manning: Europe was kind of flattish, maybe up a percent, and then, of course, things varied by Asia Pacific and Latin. So now as we look at the market in North America, volume amongst all of our customers selling their product is more like flat. So we don't have that one to 2% headwind. in our biggest market, North America, Europe's still fairly consistent. So I figure maybe a portion of it was that. The node destocking...

Speaker Change: So now as we look at the market in North America volume amongst all of our customers selling their product is more like flat. So we don't have that 1% to 2% headwind.

Speaker Change: In our biggest market in North America, Europe still fairly consistent.

So I figured maybe a portion of it was that the no destocking.

Paul Manning: So this is where I think the differences in the groups will come out a little bit more obviously. That destocking impact, I think it was reprofiled last year, it was running anywhere from low to mid and in some cases even high single digit headwinds. And so Colors was largely at the peak of the de-stocking last year Q3. Flavors was not as much de-stocking last year Q3. You recall that Flavors kind of got a lot of their de-stocking out of their way faster than Colors did.

Speaker Change: So this is where I think the differences in the groups will come out a little bit more obviously.

Speaker Change: That destocking impact I think it was re profile last year. It was running anywhere from low to mid and in some cases, even high single digit headwinds.

Speaker Change: And so colors was largely at the peak of the Destocking last year Q3 flavors was with not as much Destocking last year Q3, you recall that flavor is kind of got a lot of their destocking out of their way faster than colors that.

Paul Manning: So, net-net, kind of to your question, what does this look like into the future? 2025, we're guiding in accordance with our long-term guidance, mid-single-digit revenue, where we anticipate pricing to be low-single and the balance to be made up from volume. So... specifically to Q3, you know, a couple points in the market, say low to mid on the de-stocking not happening as strongly in color. But the majority of the volume growth in colors and flavors in Asia-Pac are largely our new wins which continue to be very, very strong in each of the regions. We had a particularly nice uptick in Asia-Pacific in our new...

Speaker Change: So net net how does the your question what does it look like into the future 2025 are guiding.

Speaker Change: Accordance with our long term guy.

Speaker Change: Guidance mid single digit revenue, where we anticipate pricing to be low single and the balance to be made up from volume.

Speaker Change: So.

Speaker Change: Specifically to Q3, you know a couple of points in the market.

Speaker Change: Say low to mid <unk>.

Speaker Change: On the Destocking not happening as strongly and color.

Speaker Change: But the majority of the volume growth in colors, and flavors in Asia Pac or our largely our new wins, which continue to be very very strong in each of the regions. We had a particularly nice uptick in Asia Pacific and our new wins so.

Paul Manning: So yeah, while some of this is favorable comparisons to last year, and again, not having that destock, not having the market growth, headwind. By and large, the volume growth is stemming from new winds, and this is why I have confidence that we can keep up that level of new winds into 2025, and that should translate nicely. and support the mid-single-digit projection.

Speaker Change: So yeah, while some of this is favorable comparisons to last year and again, not having that destock not having the market growth headwind.

Speaker Change: By and large the volume growth is stemming from new wins and this is why I have confidence that we can keep up that level of new wins in the 25 and that should translate nicely.

And support the mid single digit projections.

Speaker Change: Okay.

Speaker Change: That's that's great. That's that's very helpful and kind of building on that a little bit you already mentioned that you expect volumes to be you know kind of in line with the long term the long term expectation or guide or target.

Matthew Krueger: That's great. That's very helpful. And kind of building on that a little bit, you already mentioned that you expect volumes to be kind of in line with the long-term expectation or guide or target.

Paul Manning: Are there any other high-level variances for 2025 that you can provide us, maybe expected contribution from the productivity initiatives that you have ongoing or any other notable kind of variances as we try to bridge to 2025? Yeah, I think with that volume... as I just gave you, for 2025, those expectations and low single-digit pricing. We expect to continue to get this nice operating leverage. Maybe not to the levels you're seeing right now. This is in part recovery from last year's weaker Q3, weaker Q4. But, yeah, I think as you think about 2025, what's going to feed into that.

Speaker Change: Are there any other high level variances for 2025 that you can provide US you know maybe expected contribution from the productivity initiatives that you have ongoing or any other notable kind of variances as we tried to bridge to 2025 estimates.

Speaker Change: Yeah I think.

Speaker Change: And with that volume.

Speaker Change: As I just gave you for 2025, those expectations and low single digit pricing, we expect to continue to get this nice operating leverage maybe not to the the levels you're seeing right. Now. This is in part recovery from last year's weaker Q3 Q4.

Speaker Change: Yeah.

Speaker Change: But yeah I think as you as you think about 2025, what's going to feed into that first and foremost it's always new wins that as these fundamentally most important metric we track as a company.

Paul Manning: First and foremost, it's always new wins. That is the fundamentally most important metric we track as a company. That is the true barometer of the strength of the strategy, the strength of our execution, strength of our service levels, the strength of our product technology. All governance starts, as I see it, with new win rates, which continue for us to be. Very, very high, I think kind of low to mid-teens rate as a percentage of revenue. So that's going to, I think, continue in earnest.

Speaker Change: That is the true barometer of the the team the strength of this strategy.

Speaker Change: Because of our execution strength of our service level is the strength of our product technologies, all governance starts as I see it with new win rates, which continue for us to be.

Speaker Change: Very very high.

Speaker Change: I think kind of low to mid teens rate as a percentage of revenue.

Speaker Change: So that's going to I think continue in earnest and so cup.

Paul Manning: And so, a couple of the variances that we expect to potentially play out a little bit differently in 2025. So, number one, I mean, the market. I would love it if the market would just be flat in Europe and North America. I'm not asking for a lot, just, you know, when it's down 2-3%, though, that's a little bit of a headwind. So my expectation is these markets in North America and Europe, our two largest markets, would be largely flat. They would potentially be upside to the market growth of LATAM and, of course, in Asia. And as much as you hear talk out of China, you know, we still see growth in China Perhaps it's not as strong as it had been in the past, but it's still solid strong growth for us So I think that will be a positive.

Speaker Change: Couple of the variances that we expect to potentially play out a little bit differently in 2025.

Speaker Change: So number one I mean the market.

Speaker Change: I would love it if the market would just be flat in Europe, and North I mean, I'm not asking for a lot. Just you know when it's down to 3%, though that's a little bit of a headwind. So are my expectation as these markets in North America, and Europe, our two largest markets would be largely flat.

Would potentially be upside to the market growth of Latam and of course in Asia.

And as much as you hear talk out of China, We still see growth in China, perhaps is not as strong as it had been in the past, but it's still solid strong growth for us.

Speaker Change: So I think that will will be a positive one of the things. We saw during COVID-19 you heard a lot of companies talking about S. Ku rationalization right there.

Paul Manning: One of the things we saw during COVID, you heard a lot of companies talking about SKU rationalization, right? It's like, hey, we can't even get our core products on the shelf. Forget product number 300, that drives a very small part of our revenue. And so many of our customers, many CPG companies. commissioned programs around SKU rationalization, which takes time and they can be complex. And so some of the discontinuations that we have seen in the market in 2023 and in 2024, I believe, and I think we could say that across most of our business, I would point to a lot of these initiatives around FKU rationalization.

Speaker Change: We can't even get our core products on the shelf forget product number of 300 and that drives a very small part of our revenue and so many of our customers many CPG companies.

Speaker Change: Commission programs around SKU rationalization, which take time and they can be complex.

Speaker Change: And so some of the discontinuation that we have seen in the market in 2023 and in 2024, I believe and I think we could say that across most of our businesses I wouldn't point to a lot of these initiatives around SKU rationalization I'd like to say.

Paul Manning: I'd like to think that that could moderate in 2025, but my crystal ball is a little foggy on that one. But if discontinuation rates. subside a little bit. That could be another touch of upside.

Speaker Change: That that could moderate in 2025, but my Crystal ball is a little foggy on that one, but if discontinuation rates.

Subside, a little bit that that could be another touch of upside.

Paul Manning: To your point about the portfolio optimization, we remain on track there. I think that's going to go very, very well. We expect to have very, very strong. Savings from that program, as you recall, we estimated $8 to $10 million of savings. We remain on track there. We expect on the cost side of that, the $40 million of charges, we're still right about in that ballpark with, again, the vast majority of that being non-cash related. So the timing of those, some of that is 2024, some of that is 2025, some of that is 2026.

Speaker Change: To your point about the.

Speaker Change: Portfolio optimization.

Speaker Change: We remain on track there I think that's going to go very very well, we expect to have very very strong.

Speaker Change: Savings from that program as you recall, we estimated $8 million to $10 million of savings. We remain on track. There. We expect on the cost side of that the $40 million of charges were still right about in that ballpark with again, the vast majority of that being noncash related.

Speaker Change: So the timing of those some of that is 2020 for some of that is 2025. Some of that is 2026. So I think that would certainly give further credence to our operating leverage projections and our improvements in operating profit growth.

Paul Manning: So I think that would certainly give further credence to our operating leverage projections and our improvements in operating profit growth.

Paul Manning: But I think the big thing and the question that folks have is like, hey guys, the EBITDA growth looks good and the profit looks good. Why is that not translating to EPS growth? And there's two words, tax and interest, that's why. And so you look at 17% OP growth in Q3, and you're like, well, why is it 8% EPS, tax, and interest? And those are the single biggest headwinds to EPS growth, and why we're not getting that flow through. So, you'll start to see us lapping some of that here in Q4. You heard Tobin estimate substantially higher growth rates on EPS.

Speaker Change: But I think the big thing and the question that folks have is like hey, guys. The EBITDA growth looks good in the property looks good why is that not translating to EPS growth.

Speaker Change: And there's two words tax and interest that's why and so you look at 17% O P growth in Q3, and you're like why is it 8% EPS.

Speaker Change: Tax and interest and those are the single biggest headwinds to EPS growth and why we're not getting that flow through.

Speaker Change: So you'll start to see us lapping some of that here in Q4, your Tobin estimate substantially higher growth rates on EPS.

Paul Manning: And so tax, we expect that not to be a headwind in 2025. So that's an important flow through to EPS. And interest rate, you saw the headwind there. I think that's somewhere around the order of magnitude about eight cents for the year in terms of EPS headwind interest. So I'd like to think that that will also not be a headwind, and possibly could be a slight tailwind, with less debt and potentially... actions from the Fed.

Speaker Change: So tax we expect that not to be a headwind in 2025. So that's an important flow through to EPS and interest rate you saw the headwind there I think that's somewhere around the order of magnitude about eight cents for the year in terms of EPS headwind interest.

Speaker Change: So I'd like to think that that will also not be a headwind and possibly could be a slight tailwind.

Less debt and potentially.

Speaker Change: Actions from the fed so those are some of the variances that we would at this point as I'm sitting here in late October would reasonably project for 2025.

Paul Manning: So those are some of the variances that we would, at this point, as I'm sitting here in late October, would reasonably project for 2025.

Speaker Change: Great. That's that's that's very helpful. Paul that's that's plenty for me I'll step back in the queue.

Matthew Krueger: Great, that's very helpful, Paul. That's plenty for me. I'll step back in the queue.

Nicola Tang: Okay, Matt. The next question comes from Nicola Tang with BNP. Please go ahead. Hi everyone, thanks for taking the time. Hello. First, maybe picking up on your comments there on new wins, I think you mentioned low to mid-teens as a percentage of revenue, which is pretty impressive. Can you talk a little bit about... What's driving this? Is it customers who are looking to reformulate? Is it penetration and wins with new customers? Just trying to understand a bit what's driving this momentum and what's giving you confidence? As we look into 2025, that's the first one. OK.

Okay Matt.

The next question comes from <unk> Chang with BNP. Please go ahead.

Speaker Change: Hi, everyone and thanks for all of them.

Hello.

First maybe picking up on your comments around new wins, I think you mentioned low to mid teens as a percentage of revenue, which is pretty impressive can you talk a little bit about what's driving this is it are customers looking to reformulate isn't penetration and wins with new customers.

Speaker Change: Just trying to understand a bit what's driving this momentum and what's giving you confidence.

Speaker Change: As we look at slide 25.

Last one I'll stop there.

Speaker Change: Okay.

Paul Manning: So I think it's very much part of our program here in the company. Great ideas are great, but it's really the ability to implement and execute on those ideas. So our sales force has done a really, really nice job. The leadership in each of our business units who are driving these sales folks and supporting them and working with them, it's a big part of the success. doing your job. being responsive to customers, understanding what they really need. And so I would put the first one at sales execution and the ability to. service customers exceedingly well.

Speaker Change: So I think it's very much part of our program here in the company great ideas are great, but it's really the it's the ability to implement and execute on those ideas. So our sales force has done a really really nice job the leadership in each of our business units, who are driving these sales folks and supporting them and working with them.

Speaker Change: The big part of this success.

Speaker Change: During your job.

Responsive to customers.

Speaker Change: Understanding what they really need and so I would put the first one at sales execution and the ability to <unk>.

Speaker Change: Service customers exceedingly well.

Paul Manning: Number two, I would tell you that a lot of our product line has really driven a good deal of success here. I'll note Natural Colors. which has had our growth there has been very, very strong this year. And I think that some of that is related to new launches. typically discuss a launch rate of about 80% of new products containing natural colors. So I think that is a big part of it, so some of that is the market we chose to emphasize. But just to give you some perspective, we're up double digits on natural color growth and in fact we're up more than 20% of natural colors in Q3, so that's been a big driver.

Speaker Change: Number two I would tell you that a lot of our product line has really driven a good deal of success here I'll note natural colors, which has had our growth there has been.

Speaker Change: Very very strong this year.

Speaker Change: And I think that some of that is related to new launches. We typically discuss at a loss rate of about 80% of new products containing natural colors. So I think that that is a big part of it. So some of that is the market we chose to emphasize.

Speaker Change: But just to give you some perspective, we're up double digits on natural color growth and in fact, we were up more than 20% in natural colors in Q3, So that's been a big driver.

Paul Manning: A lot of that just new launch activity, there is some conversion activity in the market. But by and large, the lion's share of new launches contain natural colors, and we have built a really strong, outstanding natural color business with Great products coming from a really strong new product development program, a very robust supply chain that we continue to invest in, and a really strong capital program where we've invested in our plants to bring customers the types of volumes and performance they would expect. in this kind of market. So it's a very complex market, and you have to really be fully invested in it.

Speaker Change: A lot of that just new launch activity. There is some conversion activity in the market.

Speaker Change: But by and large the lion's share of new launches contain natural colors, and we have built a really strong outstanding natural color business with.

Speaker Change: Great products coming from a really.

Strong new product development program.

Speaker Change: <unk> robust supply chain that we continue to invest in.

Speaker Change: And a really strong capital program, where we've invested in our plants to bring customers the types of volumes and perform as they would expect.

Speaker Change: In this kind of market. So it's a very complex market and you have to really be fully invested in it.

Paul Manning: And I think a lot of that growth we're seeing right now are the fruits of many of the investments we've made, probably over the last 15 to 20 years, quite frankly. So I think that's very important.

Speaker Change: And I think a lot of that growth were seeing right now are the fruits of many of the investments we've made.

Speaker Change: Over the last 15 to 20 years quite frankly, so I think that's very important.

Paul Manning: I think we continue in the flavor group to emphasize the local and regional customer base from startups to more established brands. And I think the level of service and the level of innovation we're able to bring them is part and parcel with the execution piece. But customer selection has been a big part of our success as well. We work very hard to identify where we can be successful and really emphasize those types of products. And related to that, the focus on selling more flavors. Years ago, we didn't have nearly the same focus we do today on selling flavors.

Speaker Change: I think we continue in the flavor group ticking emphasize the local and regional customer base from startups to more established brands.

Speaker Change: I think the level of service and the level of innovation, we're able to bring them, it's part and parcel with the execution piece, but customer selection has been a big part of our success as well we worked very hard to identify where we can be successful and really emphasize.

Speaker Change: Those types of products and related to that the focus on selling more flavors years ago. We didn't have nearly the same focus we do today on selling flavors flavors generally constitute the most defensible products that we have in our entire portfolio.

Paul Manning: Flavors generally constitute the most defensible products that we have in our entire portfolio. they are very technically driven in most cases and they rely on a lot of applications and formulation support from the business. So I think that's been another big driver. So it's really a combination of the markets we've chosen, right, we got out a lot of those industrial businesses after our restructuring actions were completed and we really honed in on food, pharma, and personal care. So that's a big part of it, the types of products and technology we were able to deploy in natural colors and flavors in particular.

Speaker Change: They are a very technically driven in most cases and they rely on a lot of applications that formulation support from the business. So I think that's been another.

Speaker Change: Big drivers so it's really a combination of the markets we've chosen.

Speaker Change: We got a lot of those industrial businesses. After our restructuring actions were completed and we really honed in on food pharma and personal care.

Speaker Change: So that's a big part of it the types of products and technology, we're able to deploy it in natural colors and flavors in particular.

Paul Manning: And then of course, as I led off with, the very strong sales execution. So I think these are the things that really would drive that success. Many other factors, but those would be sort of top three that come to mind.

Speaker Change: And then of course as I led off with the very strong sales execution. So I think these are the things that really would drive that success.

Speaker Change: Many other factors, but those would be sort of top three that come to mind.

Speaker Change: That's great. Thank you second one I wanted to ask a bit about personal care I think some of the larger phase like P. T kept payors has been flagging a slowdown fears of a slowdown in the industry, particularly in North America and in China. What was wondering whether that's something that you see is it.

Nicola Tang: That's great, thank you.

Nicola Tang: Second one, I want to talk a bit about personal care. I think some of the larger places like beauty care players have been flagging a slowdown or fears of a slowdown in the industry, particularly in North America and in China. was wondering whether that's something that you see as a risk or if you see any signs of slowdown in your personal care business. I know it was pretty strong in the last quarter but I'm just trying to think ahead. Yeah, well I would say that Personal Care has had a really good year, a lot of nice sales within our makeup category.

Speaker Change: Basically if you see any signs of slowdown in your personal care business I know it was pretty strong in the last quarter.

Speaker Change: Just trying to think ahead of that.

Speaker Change: Yeah, well I would say that personal care has had a really good year.

Speaker Change: A lot of nice sales within our makeup category.

Paul Manning: We've been quite strong there. Body wash, we're doing very, very well. Skin care, and so... Here again, I think we've emphasized certain segments within personal care, which we've done very, very well with. We certainly also have in our personal care ingredients business, we have a number of products that fit within the fragrance market, which, as you know, is doing quite well right now. So I would say this. Personal care above any of the other markets we serve, the timing of where our customers are and where we are can have significant lag. Some of this stems from the shelf life of these products.

Speaker Change: We have been quite.

Speaker Change: Strong their body wash, we're doing very very well.

Speaker Change: Skin care and so on.

Speaker Change: Here again, I think we've emphasized certain segments within personal care with which we've done very very well with we certainly also have in our personal care ingredients business, we have a number of products that.

Speaker Change: Fit within the fragrance market, which as you know is doing quite well right now.

Speaker Change: So I would say this.

Speaker Change: Personal care above any of the other markets, we serve the timing of where our customers are and where we are can have significant lags.

Speaker Change: Some of this stems from the shelf life of these products. It provides a level of flexibility for us and for our customers, but it's been a lot of changes in the personal care market something like north of 20% of that market is now transacted through e-commerce.

Paul Manning: It provides a level of flexibility for us and for our customers.

Paul Manning: But it's been a lot of changes in the personal care market. Something like north of 20% of that market is now transacted through e-commerce. And many, many years ago, that number was probably more like about 2%. So there's been a lot of change there. There's been the... The growth in influencers and other brands that are low capital intensive brands that utilize contract manufacturers has driven a lot of the changes in that market as well. So it's not just large multinationals. driving that industry. There's a lot of third-party manufacturers really throughout the world. supporting Upstart Brands, Influencer Brands, Indies, whatever you want to call them.

Speaker Change: And many many years ago that number was probably more like about 2%. So theres been a lot of change there there's been the.

Speaker Change: The growth in Influencers and other brands that are low capital intensive brands that utilize contract manufacturers has driven a lot of the changes in that market as well. So it's not just large multinationals.

Speaker Change: Driving that industry, there's a lot of third party manufacturers really throughout the world.

Speaker Change: Supporting upstart brands Influencer brands in these wherever you want to call them.

Paul Manning: And so, yeah, while there may be some who in the market, our customers who are having a little bit of a struggle right now, there's also plenty who are doing quite well. And so, as you look ahead to 2025, we have a very high level of confidence that we're going to continue to perform, not to 17%. I don't think that's a realistic long-term expectation. But certainly that mid-single digit, maybe a little bit higher in some regions, maybe about that in other regions. I think is a very sustainable level. And there again, mostly driven by volume, mostly driven by the selection of these customers.

Speaker Change: And so.

Speaker Change: Yeah, while there may be some who in the market our customers who are having a little bit of a struggle right. Now there's also plenty who are doing quite well.

Speaker Change: And so as you look ahead to 2025, we have a very high.

Speaker Change: High level of confidence that we're going to continue to perform not the 17% I don't think that's a realistic long term expectation, but certainly that mid single digit maybe a little bit higher in some regions maybe about that in other regions. I think is a very sustainable level and there again, mostly driven by volume.

Speaker Change: <unk>, mostly driven by the selection of these customers.

Paul Manning: the implementation, or the execution amongst the sales force, and then, of course, having really good product.

Speaker Change: The implementation.

Speaker Change: The execution amongst our sales force and then of course Havent really good products.

Speaker Change: Thank you, it's actually quite nice segue into my last question, which is on your long term.

Nicola Tang: Thank you. It's actually quite nice to weigh in to my last question, which is on your long-term targets. Thanks for articulating them in the slides. On the revenue, the mid-single digits, can you just remind us of your ambitions by division? Does that hold by division?

Speaker Change: Thankfully, so lots of connecting with them in the slides.

Speaker Change: On the revenue the mid single digits can you just remind us.

Speaker Change: Your ambitions by Division by Division and then in terms of the EBITDA at a high single digit you could talk with Mike can you talk us through the tea leaves us here and where you see the most upside of senses, yeah from a margin perspective is it more on the flavor and extract side I'm.

Paul Manning: And then in terms of the EBITDA, the high single-digit EBITDA growth rate, can you talk us through the key levers here and where you see the most upside in terms of, from a margin perspective, is it more on the flavours and extracts side? remind us of the moving parts. Yeah, so I think the mid-single digit, it's a good average to just use across the three groups. I mean, clearly Asia-Pacific's been operating above that. So yeah, they may have a little bit of a higher opportunity there. But of course, that's also a smaller part of the portfolio.

Speaker Change: Just remind us the major parts ex.

Speaker Change: Yeah, So I think that mid single digit it. It's a good arris is use across the three groups I mean, clearly Asia Pacific's operating above that so yeah. They may add.

Speaker Change: A little bit of a higher opportunity there but of course, that's also a smaller part of the portfolio.

Paul Manning: Certainly, as you look at things like natural colors, they're going to be on the higher end of that, possibly even above that range. certain segments of personal care, certain segments within flavors. So, without getting into 26 shades of gray here, I would say mid-single digit across the groups would be a pretty good proxy. And, you know, we'll keep you posted as we go along during the course of the year, where are we sort of above that, where are we a little bit below that. With respect to your question around leverage, yeah, I think a lot of that is going to be the product mix, the types of products we're emphasizing and where we have been emphasizing, a very, very strong focus on costs and maintaining costs and not letting costs get out of control from a production standpoint.

Speaker Change: Certainly as you look at things like natural colors are going to be on the higher end of that possibly even above that range.

Speaker Change: Certain segments of personal care certain segments within flavors, so without getting into 26 shades of gray here I would say mid single digits across the groups would be a pretty good.

Speaker Change: Proxy.

Speaker Change: And we'll keep you posted as we go along during the course of the year wherever we sort of above that where are we a little bit below that.

Speaker Change: With respect to your question around leverage Yeah, I think a lot of that is going to be the product mix. The types of products, we're emphasizing and where we have been emphasizing a very very strong focus on costs and maintaining cost and not letting costs get out of control from a production standpoint.

Paul Manning: and from an SG&A stamp. But really that, you know, it's the sales and the volume stemming from that. Manufacturing businesses can be very, very sensitive to volume declines, and that can have a outsized impact on EBITDA. but it works the other way too, right? So when volume is good and it's consistent and it's steady, that should have, offer us a nice operating leverage. Again, consistent with having a relatively. Products and Cost Mitigation. SG&A managing that, although being a little bit different in our thinking when it comes to R&D and investing in innovation, that those don't necessarily.

Speaker Change: And from an SG&A standpoint.

Speaker Change: But really that you know, it's the sales and the volumes stemming from that our manufacturing businesses can be very very sensitive to volume declines and that can have a outsized impact on EBITDA.

Speaker Change: But it works the other way too right. So when volume is good and it's consistent and it's dirty that that should have offer us a nice operating leverage again consistent with having a relatively.

Speaker Change: Our strong focus on.

Production cost mitigation.

Speaker Change: SG&A managing that although being a little bit different in our thinking when it comes to your R&D and investing in innovation that those those don't necessarily like.

Paul Manning: get the same scrutiny as Tobin's lunch expense that we look at very closely. So, you know, that leverage should continue to flow through very nicely.

Speaker Change: Get the same scrutiny is tobin launch expense.

Speaker Change: We've looked at very closely.

Speaker Change: So you know that leverage should continue to flow through very nicely.

Speaker Change: The biggest margin uplift opportunity continues to be flavors, I think you're going to see a nice improvement there.

Paul Manning: The biggest margin uplift opportunity continues to be flavors. I think you're going to see a nice improvement there. You know, the EBITDA as we profile in Asia-Pacific and colors is quite robust. are quite competitive. possibly even industry leading by some accounts. So our biggest opportunity is flavors, and we're just gonna continue to focus there on the product mix, and of course, we've got our portfolio optimization that's gonna contribute there as well.

Speaker Change: The EBITDA as we profile in Asia Pacific and colors is quite robust.

Speaker Change: Quite competitive.

Speaker Change: And possibly even are industry leading.

Speaker Change: Some accounts so our biggest opportunity is flavors and we're just going to continue to focus there on on the product mix and then of course, we've got our portfolio optimization, that's going to contribute there as well.

Alright, great. Thank you.

Nicola Tang: All right, great. Thank you.

David Green: Okay, thanks Nicola. Thank you. Again, if you would like to ask a question, please press star, then. Our next question comes from David Green of Bolthaven. Please go ahead. Hi everyone. A couple of quick questions.

Speaker Change: Okay, well thank you.

Speaker Change: And he would like to ask a question. Please press Star then one.

Speaker Change: Our next question comes from David Greenfield Haven. Please go ahead.

Speaker Change: Hi, everyone.

Speaker Change: Hello, David.

Speaker Change: A couple of quick questions.

Paul Manning: Just starting off on colours, you've mentioned natural colours as a sort of area of strong grey, so is there anything else within colours you'd call out as being a big driver? Sure, yeah, I think our cosmetic business, our personal care business... That was even a bigger driver, although not as big as the food color business. It was a fairly significant driving force for our success here in Q3, and I think once again it will do the same in Q4. So, that personal care, whether we're talking about makeup, skin, or hair, we've carved out a nice position there.

David: Just starting off on colors you've.

Speaker Change: And natural colors as a sort of Arab strong. So is there anything else within colors you'd call out as being a big driver.

David: Yes.

Speaker Change: Sure Yeah, I think our cosmetic business, our personal care business.

Speaker Change: That was even a bigger driver, although not as big as the food color business. It was a fairly significant driving force for our success here in Q3, and I think once again it will do the same in Q4.

Speaker Change: So that personal care, whether we're talking about makeup skin or hair, we've that we've carved out a nice position. There we have really good products and again I think that there is constant.

Paul Manning: We have really good products, and again, I think that there's constant. need for innovation in that market, whether driven by performance expectations of the end consumer or regulatory changes. Regulatory drives a lot of our innovation work in the personal care market. Now, pharma is a smaller part, pharmaceutical excipients, where we're selling colors and flavors and coatings. That is also a nice piece of the growth picture as we look to the future. But here again, not as large as food colors, but certainly has many of the same attributes. and the technology that we're able to deploy.

Speaker Change: Need for innovation in that market, whether driven by performance expectations at the end consumer or regulatory changes I guess, it really drives a lot of our innovation work in the personal care market.

Speaker Change: Pharma is a smaller part pharmaceutical excipient, its where were selling colors and flavors and coatings.

Speaker Change: That is also a nice piece of the growth picture as we look to the future.

Speaker Change: But here again, not as largest food colors, but certainly has many of the same attributes.

Speaker Change: And technology that we're able to deploy so yeah colors are very broad based level of success and again I go back to that you know we don't have those industrial businesses like we used to which tended.

Paul Manning: So yeah, color is a very broad-based level of success, and again, I go back to that, you know, we don't have those industrial businesses like we used to. tended to not be as defensible, profitable. I think you like to use the term moat. They didn't have such a good moat. The moat was kind of dried up and the alligators that were on strike or something. So we got rid of those. It's really it's food and personal care with a piece of pharma in there as well. And we feel good about that portfolio.

Speaker Change: And it would not be a defensible profitable I think he likes to use the term boat. They didn't have such a good moat. The most kind of dried up in the alligators that were on strike or something so.

Speaker Change: We got rid of those it's really it's food and personal care with a piece of pharma in there as well and we feel good about that portfolio.

Yeah.

Paul Manning: And just on the de-stock, I know that Colours was the last in and will be the last out. Are we fully through the de-stock now or has there still been any headwind on this quarter? No, no, the destocking is over for colors. In fact, it was more or less over in the beginning of the year. That might have been a little bit in personal care in Europe, maybe for Q1. But by and large, destocking, that's in the past, thankfully. Great.

Speaker Change: And just on the destock I know the <unk>.

Speaker Change: <unk> was.

Speaker Change: The loss than.

Speaker Change: We will be the last out.

Speaker Change: Are you are we fully through the destock now or is there still any headwind on this quarter.

Speaker Change: No no. The Destocking is over for colors in fact, it was more or less over in the beginning of the year that might have been a little bit in personal care in Europe, maybe for Q1, but by and large destocking is that.

Speaker Change: That's in the past thankfully.

Speaker Change: Great.

David Green: And a quick one, I'm not sure if I've got the right numbers here, but eBit margins in colour were 18.4% in Q3. EBITDA margin for color in Q3 was 22.2. Ah, sorry. I've got the wrong number there. Apologies. That's EBITDA though, David. EBIT, if you're asking for EBIT, was 18.4 that you said. Yes, so the EBIT. So actually, your EBIT margin was 18.4 for Q3, which was actually below Q2, which was 18.8%.

Speaker Change: And a quick one I'm not sure if I've got the right numbers here.

Speaker Change: City margins in color.

Speaker Change: 18, 4% in Q3.

Speaker Change: Yeah.

Speaker Change: EBITDA margin for color in Q3 was 22 two.

Speaker Change: Sorry, I've got the wrong number that I apologize.

Speaker Change: EBIT, that's EBITDAR, though David EBIT, you're asking where EBIT was 18 four that you set.

Speaker Change: Yeah. So the so the EBIT so actually your EBIT margin was 18 point for Q3, which was actually below Q2, which was 18, 8%. So I was just wondering given the strength in topline within colors, why the EBIT margins didn't actually improvement.

Paul Manning: So I was just wondering, given the strength in topline within colours, why the EBIT margin didn't actually improve? Well, EBIT last year was 15.8, so that was a 260 basis point improvement. Right. So perhaps a touch short of the 18-8, but yeah, I wouldn't draw much of a conclusion from that, I think. Yeah, we will be approaching 19th of the year on eBit, but as you see on eBitDocs, it's quite robust. I think you can kind of write down that figure for long-term expectations, the EBITDA. Yeah, great.

Speaker Change: Ah well EBIT last year was 15.8, so that was 260 basis point improvement.

Speaker Change: Right.

To touch short of the 18, eight but yeah I wouldn't draw much conclusion from that I think.

Speaker Change: Yes.

Speaker Change: We will be approaching 19th of the year on a bit but as you see on EBITDA, So it's quite robust and.

Speaker Change: I think you can kind of write down that figure for for a long term expectations of the EBITDA.

Speaker Change: Yes, great.

Paul Manning: A couple more if I can just on flavours and extracts. Q3 was a sequential deceleration from Q2. Any reason for that specifically? Let's see here, well, we were up. Yeah, no, I mean, there is, I mean, there's seasonality in the business. Not all these quarters are the same. And so there's seasonality factors as much as, you know, you sell a lot of ice cream. Not many folks eat ice cream in January, most folks don't. So, beverage may be stronger in the beginning of the year where there's a lot more launches historically. So, you just kind of have that natural seasonality more than anything else.

Speaker Change: Couple more if I can just on flavors.

Speaker Change: Flavors and extracts.

Speaker Change: Q3 was a sequential dip.

Speaker Change: Ration from Q2's.

Any reason for that specifically.

Speaker Change: Oh lets see here, while we were up.

Speaker Change: Yeah, No I mean, there is I mean, there's seasonality in the business not all of these quarters are the same.

Speaker Change: And so theres seasonality factors as much as you sell a lot of ice cream not many folks eat ice cream in January right.

Speaker Change: Most folks don't.

Speaker Change: Beverage maybe stronger in the beginning of the year, where there's a lot more launches.

Speaker Change: Historically, so you just kind of have that natural seasonality more than anything else.

Paul Manning: Beyond that, it would really just be the timing of a win. with a customer or the mix of a particular product sale from a customer. So, no, again, I wouldn't take much away from that. These are not all equal quarters. Now, traditionally, if you go back many, many years, Q2 and 3 are traditionally the strongest quarters. with Q1 then being next and Q4 generally being by far the lightest quarter across each of So that may vary by food and personal care ingredient businesses. Some competitors may have a different mix of customers than we do, but I think that seasonality in general is something you'd see in most of the food.

Speaker Change: And that it would really just be the timing of a win win.

Speaker Change: With the customer or.

Or the mix of a particular product sale from a customer so again I wouldn't take much away from that these are not all equal quarters now traditionally if you go back many many years Q2 and three are traditionally the strongest quarters.

With Q1, then being the accident Q4 generally being by far the lightest quarter.

Across each of the groups.

Speaker Change: So that may vary by food and personal care ingredient businesses. Some competitors may have a different mix of customers than we do but I think that seasonality in general it's something you'd see in most of the food industry.

Speaker Change: Okay.

David Green: And then the final couple of questions, obviously the guidance for 2025 of the high single digit adjusted EBITDA growth. Given the comments you've made about interest costs and tax, so we should expect an EPS growth obviously higher than the high single digit. Well, when you look at 25, you know, right now we're looking at about this single digit from a revenue standpoint, we do expect interest to be more favorable, you know, in Q4, we expect it to go down. In Q3, it was about 7.7, we expect to go down about 7 million. And, you know, with hopefully a better interest rate environment, we expect, you know, our interest in 25 to be better from that standpoint.

Speaker Change: And then just final couple of questions. The obviously the guidance for 2025 with the high single digit adjusted EBITDA growth.

Speaker Change: Given the comments you've made about interest costs and tax so we should expect.

Speaker Change: EPS growth.

Speaker Change: Must be higher than the high single digits.

Speaker Change: Well when you look at 25, you know right now we're looking at about mid single digit from a revenue standpoint, we do expect interest to be more favorable in Q4, we expect it to go down in Q3. It was about 77, we expect to go down about $7 million and with.

Speaker Change: Hopefully a better interest rate environment, we expect our interest in 25 to be better from that standpoint, so to your point, we will get a little leverage there and then our tax rate, we expect not to be a headwind.

David Green: So to your point, we'll get a little leverage there. And then our tax rate, we expect not to be a headwind, you know, which was about 6% or 6 cents this year. So I don't think, you know, when you look at the bottom line, I mean, I don't think we'll be above, you will get leverage from that standpoint, more than we're getting this year, but I don't think you're going to be as high as you were kind of indicated.

Speaker Change: You know, which was about yes. It is.

Speaker Change: 6% or six cents. This year. So I don't think you know when you look at the bottom line I mean, I don't think we'll be above.

Speaker Change: You will get leverage from that standpoint more than we're getting this year, but I don't think you're going to be.

Speaker Change: As high as you were kind of indicating.

Speaker Change: Okay.

David Green: And the final question, sorry, it's just on the balance sheet. You've done a great job, obviously, of deleveraging now to 2.4 times. You generated a lot of cash in the quarter as well.

Speaker Change: And the final question sorry, just on.

Speaker Change: On the balance sheet, you've you've done a great job obviously of deleveraging.

Speaker Change: Now to two four times you generated a lot of cash in the quarter as well.

Speaker Change: Could you just give us a feel more broadly I mean, any any sort of expectations for where you might be pool.

Paul Manning: Could you just give us a feel more broadly, I mean, any sort of expectations for where you might be targeting for the end of next year? And then, in terms of thinking about what's the right leverage for the business, where do you need to be to start thinking about options such as share buyback? Yeah, no, you're exactly right. So our leverage has improved. We're at about 2.4 now. So, you know, our focus this year has really been, you know, to pay down our debt, lower that interest expense and the headwind that we're experiencing right now.

Speaker Change: Where you might be targeting for the end of next year and then in terms of thinking about what's the right leverage for.

For the business.

Where do you need to be to start thinking about options such as share buybacks.

Speaker Change: Yeah, Yeah, no you're exactly right. So our leverage has improved about two points for now. So you know our focus this year has really been you know to pay down our debt lower that interest expense and the headwind that we're experiencing right now. So we're at 2.4 I think you know as we kind of move forward with what I just mentioned.

Paul Manning: So we're at 2.4. I think, you know, as we kind of move forward with what I just mentioned on the lower interest expense and everything from that standpoint, we expect, you know, low twos, you know, rolling into next year. So low twos, I think, you know, from that standpoint, you know, then we'll start to look at potentials on buying back shares in 2025, barring any acquisitions or anything else from that standpoint. I think when you look at when you look at our capital this year, we should be around 60 to 65 million. And I think that's a good proxy as we kind of move forward 60 to 70 million is the range we would anticipate our capex to be and then our dividend is roughly around 70 million a year.

Speaker Change: The lower interest expense and everything from that standpoint, we expect you know low twos.

Speaker Change: You know rolling into next year, so low twos I think you know from that standpoint, you know then we'll start to look at potential zone buying back.

Speaker Change: Shares.

Speaker Change: In 2025, barring any acquisitions or anything else from that standpoint, I think when you look at when you look at our capital. This year, we should be around $60 million to $65 million and I think that's a good proxy as we kind of move forward $60 million to $70 million is the range we would anticipate.

Our capex to be in and our dividend is roughly around $70 million a year.

Paul Manning: Yeah, and I think I'd add to that, David, we're still a little bit fat on inventory. So I think we can do some more work there. That'll be a net positive, obviously, to the cash flow. And so, you know, as we've been saying, we'll continue to drive down that debt.

Speaker Change: Yeah, and I think I'd add to that David we're still a little bit fat on inventory. So I think we can do some more work there that'll be a net positive obviously to the cash flow.

And so yes, we've been saying, we will continue to drive down that debt.

Paul Manning: But it's probably safe to say, as you think about all these numbers and how they come together, that that we would probably be in a reasonably good position to buy back in 2025. You know, I think my philosophical approach to that would be one of you buy back with excess cash after you pay your dividend and your capex. maintain your debt. So if you're looking for what would conceptually be the order of magnitude, it would be whatever the excess cash is based on those other inputs that Tobin... Great.

Speaker Change: But it's probably safe to say as you think about all of these numbers and how they come together that we would probably be in a reasonably good position to buy back in 2025.

Speaker Change:

Speaker Change: You know I would say my philosophical approach to that would be one of your buyback with excess cash after you pay your dividend and your Capex in.

Speaker Change: Maintaining your debt so if you're looking for or what would conceptually be the order of magnitude it would be whatever the excess cashes based on those other inputs that Tobin just gave you.

Speaker Change: Okay.

David Green: Many thanks. Okay, thank you, David.

Speaker Change: Great.

Speaker Change: Many thanks.

Speaker Change: Okay. Thank you David.

Speaker Change: There are no further questions at this time I will turn the conference back to the company for any closing remarks.

Operator: There are no further questions at this time.

Operator: I will turn the conference back to the company for any closing remarks. Okay, thank you.

Speaker Change: Okay. Thank you before we end our call today I'd just like to recap.

Paul Manning: Before we end our call today, I'd just like to recap some items for the fourth quarter and some expectations. We expect our local currency revenue to grow at a high single-digit rate, and we expect our local currency adjusted EBITDA to grow at a high teen growth. We also expect our 4th quarter adjusted corporate expense to be similar to the 3rd quarter. Interest expense to be approximately $7 million and our adjusted tax rate to be around $25 As a result, we expect our local currency, adjusted EPS, to grow at a low 20% growth rate in the fourth quarter.

Speaker Change: Some items for the fourth quarter and some expectations, we expect our local currency revenue to grow at a high single digit rate and we expect our local currency adjusted EBITDA to grow at a high teen growth rate.

Speaker Change: We also expect our fourth quarter adjusted corporate expense to be similar to the third quarter.

Speaker Change: Interest expense to be approximately $7 million and our adjusted tax rate to be around 25%.

Speaker Change: As a result, we expect our local currency EPS adjusted EPS to grow at a low 20% growth rate in the fourth quarter.

Speaker Change: So thank you again that concludes our call today, if you have any follow up questions. Please contact the company.

Operator: So thank you again.

Operator: That concludes our call today. If you have any follow-up questions, please contact the company. Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Yeah.

Operator: The conference has concluded.

The conference has concluded you may now disconnect.

Operator: You may now disconnect.