Q4 2024 Sensient Technologies Corp Earnings Call
Good morning, and welcome to the <unk> Technologies Corporation 2020 for fourth quarter and year end earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
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. Tobin Tornado. Please go ahead Sir.
Tobin Tornado: Good morning.
Tobin Tornado: Welcome to the sense answer earnings call for the fourth quarter and full year of 'twenty 'twenty four I'm Tobin tornado, Vice President and Chief Financial Officer of Sensing Technologies Corporation.
Paul Manning: I'm joined today by Paul Manning, <unk>, Chairman, President and Chief Executive Officer.
Paul Manning: Earlier today, we released our 2020 for fourth quarter and full year results a copy of the earnings release and the slides will be using during today's call are available on the Investor Relations section of our website since in dotcom.
Paul Manning: During our call today, we will reference certain non-GAAP financial measures, which removes the impact of currency movements cost us a comp based 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.
Paul Manning: And improves the comparability of results between reporting periods.
Paul Manning: This also reflects how management reviews and evaluates the companys operations and performance.
Paul Manning: non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP.
Paul Manning: A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release since lives.
Paul Manning: We encourage investors to review these reconciliations in connection with the comments we make today.
Paul Manning: 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 factors, including those set forth in our SEC filings weird.
Paul Manning: You to read since its previous S. E C filings in our forthcoming 10-K for a description of additional factors that could potentially impact our financial results.
Paul Manning: Please keep these factors in mind when you analyze our comments today.
Paul Manning: The slide deck that will be referenced throughout todays call is available on our website. We will start on slide five now we'll hear from Paul Thanks Tobin.
Speaker Change: Good afternoon.
Speaker Change: Earlier today, we reported our fourth quarter and full year 'twenty 'twenty four results I'm very pleased to report that we finished the year with a strong fourth quarter, delivering 8.9% local currency revenue growth, 18.8% local currency adjusted EBITDA growth and 29, 4%.
Speaker Change: Local currency adjusted EPS growth.
Speaker Change: For the full year of 'twenty 'twenty, four we reported 7.4% local currency revenue growth and eight 3% local currency adjusted EBITDA growth.
Speaker Change: Each of our groups had outstanding local currency revenue in local currency operating profit growth in 2024.
Speaker Change: Since 2019, we have shown strong operational and financial growth.
Speaker Change: Our performance is a direct result of our continued focus on sales execution customer service and commercialization of new technologies.
Speaker Change: We have proven to our customers that we are a reliable supplier and our innovative product portfolio has a wide variety of natural flavors and natural colors.
Speaker Change: Along with personal care products.
Speaker Change: The volume improvement we experienced throughout 'twenty four is due to our record level of new sales wins across each of our groups.
Speaker Change: And the stabilization of end customer demand in North America and Europe.
Speaker Change: But an overall decline in new product launches in the market in 2024, we were able to capitalize on strong launch activity with local and regional customers and our ongoing expansion into new market segments and geographies.
Speaker Change: We continue to focus on optimizing our cost structure and reducing our inventory.
Speaker Change: Our portfolio optimization plan is on track to be completed by the end of 2025, and we believe we will achieve our targeted savings of approximately $8 million to $10 million annually.
Speaker Change: While we do not anticipate any further portfolio optimization plans, we are relentlessly focused on managing our fixed cost and SG&A.
Speaker Change: We will also continue to focus on reducing our inventory over the next year.
Speaker Change: Now turning to slide six.
Speaker Change: The color group finished 'twenty 'twenty four with excellent fourth quarter results, delivering 14% local currency revenue growth and 27, 4% local currency operating profit growth.
Speaker Change: For the full year of 2020 for the color group delivered seven 3% local currency revenue growth and 14, 2% local currency operating profit growth.
Speaker Change: The group's full year 'twenty 'twenty four adjusted EBITDA margin improved to 22, 1%.
Speaker Change: An increase of 110 basis points versus the prior year.
In the fourth quarter. The group saw outstanding volume growth in all product lines, plus low single digit pricing.
Speaker Change: The group is benefiting from a strong new sales wins, particularly in natural colors.
Speaker Change: The color group had an excellent 2024, and I expect continued success in 2025 and beyond.
Speaker Change: Turning to slide seven.
Speaker Change: The flavors and extracts group had a solid quarter delivering three 4% local currency revenue growth and 18.4% local currency operating profit growth.
Speaker Change: For the full year of 2020 for the flavors and extracts group delivered 7.1% local currency revenue growth.
Speaker Change: And 10, 8% local currency operating profit growth.
Speaker Change: The group's full year adjusted EBITDA margin was 16, 1% up 30 basis points versus the prior year.
Speaker Change: The group continues to benefit from its strong new sales wins, particularly with its local and regional customer base.
Speaker Change: Flavors extracts and flavor ingredient product product lines reported solid volume growth in the quarter, which contributed to the group's operating leverage improvement.
Speaker Change: The flavors and extracts group had a solid 'twenty 'twenty four and I expect another good year in 2025.
Speaker Change: Now turning to slide eight the Asia Pacific Group had an exceptional fourth quarter, delivering 25, 2% local currency revenue growth and 41, 7% local currency operating profit growth.
Speaker Change: For the full year of 'twenty 'twenty four is specific group reported a 13% local currency revenue growth and 14, 1% local currency operating profit growth.
Speaker Change: The group's full year adjusted EBITDA margin was 22, 7%, which is in line with the prior year.
Speaker Change: The group continues to experience exceptional growth in almost all regions and continues to have a high level of new sales wins.
Speaker Change: I expect the Asia Pacific Group to have another strong year in 2025.
Speaker Change: Turning to slide nine.
Speaker Change: I'm very pleased with <unk> performance in 'twenty 'twenty, four and over the last few years.
Speaker Change: Our focus on sales execution customer service and innovative technologies are fueling the growth in each of our groups.
Speaker Change: Our product portfolio is strong and we remain focused on our key customer markets of food pharmaceutical and personal care.
Speaker Change: That's the end of 'twenty 'twenty four performance puts us on track with our long term goals of mid single digit local currency revenue growth.
Speaker Change: Over the last five years, so I think its local currency adjusted revenue cumulative annual growth rate is more than 6%.
Speaker Change: Our positive financial performance over the last five years as a direct result of executing on our strategy with a focus on novel technologies and underserved customer segments.
Speaker Change: Now turning to 2025, I expect consolidated annual local currency revenue to grow at a mid single digit rate with low single digit pricing and low to mid single digit volume growth.
Speaker Change: I expect this volume and revenue growth to deliver mid to high single digit local currency adjusted EBITDA growth.
Speaker Change: Which should result in high single digit to double digit local currency adjusted EPS growth for 2025.
So the groups I expect both the color group flavors and extracts to deliver mid single digit local currency revenue growth.
Speaker Change: I expect the Asia Pacific group to deliver high single digit local currency revenue growth.
Speaker Change: I expect our flavors and extracts group to continue to deliver an improved EBITDA margin.
Speaker Change: And I expect both the Asia Pacific Group and the color group to maintain their healthy EBITDA margins.
Speaker Change: Over the last year, our capital allocation plan is focused on paying down debt and reducing our interest expense burden.
Speaker Change: We successfully lowered our leverage ratio to 2.3 at the end of 2024 from $2 six at the end of 2023.
Speaker Change: We spent approximately $60 million in capital expenditures and 24.
Speaker Change: We have very good internal investment opportunities that should drive future growth and I expect our capital expenditures to be between 70 million and $80 million in 2025.
Speaker Change: 20 to 25, we expect to use any excess cash to buy back stock or do you pay down debt, while continuing to evaluate sensible acquisition opportunities.
Speaker Change: We recently acquired.
Speaker Change: Only a small French startup.
Speaker Change: With an innovative process to extract natural color products.
Speaker Change: This technology will initially benefit our personal care product line.
Speaker Change: May in time benefit our food colors product line as well.
Speaker Change: The acquisition is an example of our strategy to focus on technologies or supply chain capabilities that can improve and further diversify our portfolio.
We continue to take a sensible approach to acquisitions by paying reasonable multiples and ensuring alignment to our strategy.
Speaker Change: Yeah.
Speaker Change: Before I turn the call over to Toby and I'd like to discuss our recent news concerning synthetic colors and tariffs.
Speaker Change: Turning to slide 10.
Speaker Change: Currently in the U S. There is a great deal of discussion around synthetic food colors with the focus from the New administration. The Fda's recent ban on Red three and certain state bans or restrictions of synthetic colors.
Speaker Change: Focus on natural colors is now getting more attention in the United States and Latin America.
Speaker Change: Zimmer demand for natural colors and clean labels.
Speaker Change: Continue to gain traction in other parts of the world as well.
Speaker Change: In Europe natural colors are already are the norm.
Speaker Change: While this shift in the U S reduces the demand for synthetic colors and new launches overall the shift in natural colors is an outstanding opportunity for sensing.
Speaker Change: Hello, some natural sources are less highly concentrated than synthetic colors and as a result natural colors sales volumes can be up to 10 times more than synthetic color sales volumes.
Speaker Change: This conversion will significantly increase revenue, while maintaining a similar profit portfolio with the color group.
Speaker Change: Turning to slide 11.
Speaker Change: Currently natural colors represent approximately 60% of the food and pharmaceutical revenue of the color group.
Speaker Change: As we just mentioned the FDA has banned red three with an effective date of January 15th 2027.
Speaker Change: Sentient sells approximately 6 million U S dollars globally of Red three.
Speaker Change: Which is less than 0.5% of total company revenue.
Speaker Change: Dancing has three years maintained a portfolio replacement colors available for our customers to support the required conversion from red three to a natural color.
Speaker Change: Relatively speaking this is a fairly straightforward conversion for sensing.
Speaker Change: Yeah.
Speaker Change: Turning to slide 12, sensing and anticipated the potential shift from synthetic colors to natural colors.
Speaker Change: More than 15 years ago.
Speaker Change: Since then we have made significant R&D capital supply chain and quality control investments.
Speaker Change: These investments allow us to deliver leading colored technologies.
Speaker Change: A global network of R&D centers and production sites.
Critically we have invested in sourcing and agronomy programs to ensure continuity of supply for our customers as we lead the market in these conversions.
Speaker Change: In addition, we have deployed a food safety program called sort of sure.
Speaker Change: To ensure the natural colors, we sell are safe for consumption.
Speaker Change: As a company we take pride in offering the most comprehensive natural and synthetic color portfolio in the world and providing safe products to our customers.
Speaker Change: Most of the markets best known brands in the Americas continued to use synthetic colors that had been approved by the F. D. A for more than 50 years.
Speaker Change: If theres repeating what many of you have already heard me say synthetic colors are amongst the most highly regulated food ingredients in the world.
Speaker Change: For example, every single production batches synthetic color is inspected and certified by the F. D. A.
Speaker Change: A market shift in natural colors must consider that there is currently no equivalent inspection and certification program.
There are also significant supply chain challenges enhanced product storage requirements and complex product applications as.
Speaker Change: As well as other regulatory hurdles such as the color additive petition process.
Speaker Change: A program with regulators, new natural color introductions in the United States.
Speaker Change: Yeah.
Speaker Change: All that said Centene is the largest food color company in the World and these are the challenges we have embraced and overcome through significant investments in R&D.
Speaker Change: We have a very broad natural color portfolio and sophisticated production capabilities to support our customers' transition to natural colors.
Speaker Change: Like more information on natural color technologies. Please take a look at our web site.
Speaker Change: Turning to tariffs the discussion about tariffs is very dynamic we continue to monitor these developments and potential impact of sense. It.
Speaker Change: There are certain aspects of the proposed tariffs that could be beneficial to sense, Ian while in other cases, the tariffs could be negative.
Speaker Change: That said, we have navigated previous tariffs and I do expect we'd be able to navigate any potential future tariffs mainly by increasing prices.
Speaker Change: Overall, I'm very happy with our financial performance in 'twenty 'twenty four I'm excited about the growth opportunities within each of our groups.
Speaker Change: The growth we're experiencing is a direct result of the implementation of our strategy and the opportunities in the markets we have prioritized.
Speaker Change: I'm optimistic about 2025, and the future of our business.
Speaker Change: Doble and I'll provide you with additional details on the fourth quarter results.
Thank you Paul.
Speaker Change: In my comments this morning, I will be explaining the differences between our GAAP results in our non-GAAP or adjusted results.
Speaker Change: The adjusted results for 2024, and 2023 removes the cost of the portfolio optimization plan. 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.
Speaker Change: Turning to slide 13.
<unk> revenue was $376 4 million in the fourth quarter of 'twenty 'twenty four compared to $349 3 million in last year's fourth quarter.
Speaker Change: Operating income was $42 million in the fourth quarter of 2024 compared to eight point.
Speaker Change: $1 million of income in the comparable period last year.
Speaker Change: Operating income in the fourth quarter of 2024 includes <unk> 9 million of portfolio optimization plan costs operating income in the fourth quarter of 2023 included $27 8 million approximately $60 65 per share our portfolio optimization plan costs.
Speaker Change: Excluding the costs of the portfolio optimization plan adjusted operating income was $42 9 million in the fourth quarter of 2024 compared to $35 9 million in the prior year period, an increase of 28% in local currency.
Speaker Change: Interest expense was $6 4 million in the fourth quarter of 2024 compared to $6 5 billion in the fourth quarter of 'twenty three.
Speaker Change: The company's consolidated adjusted tax rate was 24, 9% in the fourth quarter of 2024 compared to 26, 5% in the comparable period of 'twenty three.
Speaker Change: Local currency adjusted EBITDA was up 18, 8% in the fourth quarter of 2024 and up eight 3% for the full year of 2024.
Speaker Change: Foreign currency translation translation reduced EPS by approximately 1% in the fourth quarter of 'twenty four.
Speaker Change: On slide 14.
Speaker Change: Cash flow from operations was $157 million million dollars in 2024 compared to $170 million in 2023 capital expenditures were $59 million in 2024 compared to $88 million in 2023.
Speaker Change: Free cash flow was $98 million in 2024 compared to $82 million and 23, an increase of 19, 7%.
Speaker Change: Total debt was $633 million.
Speaker Change: 633 million as of December 31, 2024, our net debt to credit adjusted EBITDA is two three times as of December 31 2024.
Speaker Change: Overall, our balance sheet remains well positioned to support our capital expenditures sensible acquisition opportunities and our long standing dividend and any excess cash will be used to buyback stock or pay down debt.
Speaker Change: At this time, we expect our 2025 capital expenditures to be between $78 million and $80 million.
Speaker Change: Turning to slide 15.
Speaker Change: Regarding our 2025 guidance, we expect our 2025 local currency revenue to be up mid single digits. We expect our local currency adjusted EBITDA to be up mid to high single digits and our local currency adjusted EPS to be up high to double digits in 2025.
Speaker Change: We expect our interest expense to be slightly above the $28 8 million of interest expense recorded in 2024, and we expect our adjusted tax rate to be approximately 25, 5%.
Speaker Change: Both our interest expense and our tax rate will fluctuate quarter to quarter and as a result, we continue to believe our local currency adjusted EBITDA growth is an important measure of performance.
Speaker Change: Based on current exchange rates, we expect currency to be a headwind of approximately 10 to 15 in 2025.
Speaker Change: Considering our GAAP earnings per share in 2025, we expect approximately approximately 13 cents of portfolio optimization plan costs, we expect our GAAP EPS in 2025 to be between $3.05 to $3 15.
Speaker Change: Per share compared to our 2024 GAAP EPS of $2.94.
Speaker Change: Thank you for participating in the call today after the questions. Today, we will have some closing comments before the end of the call. We will now open the call up to 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 to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: The first question comes from Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Thank you operator, and good morning, everybody.
Speaker Change: Good morning, guys morning.
Speaker Change: Good morning.
Speaker Change: So Paul I just wanted to go back to your comments on natural.
You said it was about 20% of your sales base and it's growing faster than the mid single digit growth rate for the company, but that you've targeted.
Speaker Change: Can you just give us more specifics on exactly what are you seeing that increase in activity on business wins were censored and also for flavors and extracts what activity are you seeing specific to the natural dynamic you were actually down a little bit in that vertical in flavors and extracts.
Speaker Change: So on the the natural front yeah. So in the quarter, we were up double digits on revenue and volume.
Speaker Change: On that part of our food colors business.
Speaker Change: A couple of things number one there is an ongoing conversion towards natural colors, such that today on average around the globe approximately 80% of all new product launches contain natural colors. So that's been sort of a a strong underlying current for a number of years for us taking advantage of.
Speaker Change: New to the world launches.
Speaker Change: Now the other piece that will come from time to time and I referenced this in my prepared remarks, when you have an existing brand on the market that's been using synthetic call it colors and they elected to convert to natural colors.
So what <unk> been seeing some of the.
Speaker Change: More outsized growth we've seen more recently is a handful of these have converted and then that of course has been very favorable to the topline and the bottomline for the group.
Speaker Change: So I would fully expect that 80% rate to continue that has been the rate for a number of years now so I don't see that abating anytime soon.
Speaker Change: And to the extent some of the legislative commentary and state actions May <unk>.
Speaker Change: Initiate faster conversions with some of the other brands.
Speaker Change: Again, very very high positives for Cynthia the conversion to natural colors that is the biggest opportunity in the history of Centene Corporation and it is probably the one I've been the most excited about in the 15 plus years I've been at this company.
Speaker Change: So we've been very very strongly focused on <unk>.
Speaker Change: How do we position ourselves to win the lion's share of these market conversions, given all the technical complexities the supply chain QC.
Speaker Change: Those complexities I mentioned earlier in the prepared remarks.
Speaker Change: So I feel exceedingly good about our chances there not not only throughout 2024, we show that but I think in 2025.
Speaker Change: Youll consider continue to see really really strong top line growth coming out of the food colors.
Speaker Change: Part of the organization.
On flavors.
Speaker Change: This is this notion of a natural flavor conversion.
Speaker Change: That has largely taken place if you were to look at our flavors portfolio I don't have the number in front of me, but if I was forced to gas, it's either 97 or 98% of our flavors are already natural flavors.
Speaker Change: So that conversion to the extent there there was has largely taken place such that today in the market.
Speaker Change: You don't see as many not nearly as many synthetic flavors as you would synthetic colors.
Speaker Change: And then our portfolio you see very very few synthetic flavors.
Speaker Change: It really in any part of the world.
Speaker Change: So now on the cosmetic side this purely acquisition that I referenced.
Speaker Change: Maybe further down the line compared to the food industry is the conversion of personal care products color, most notably <unk>.
Speaker Change: Converting from synthetic offerings to Natura offers much more technically complex than the food industry.
Speaker Change: Certainly no shortage of end consumer demand towards more natural products natural colors natural soluble lasers natural surface treated pigments all products that we sell all products that we are advancing R&D to help us have more stronger performing natural ingredient.
Speaker Change: And in those product offerings. So that's another one to keep your eye on is as a future opportunity within the company.
Speaker Change: Yeah.
Okay very helpful and then going back to your you know once again on the natural component specific color.
Speaker Change: Is the margin differential how should we think about that between natural versus synthetics specific color and I guess I'm asking because you know your comments about the tenex sort of volume differential just give it given the nature of the of the molecules et cetera.
Speaker Change: It seems like an enormous increase in cost for your customer as well.
Speaker Change: Oh, Yeah, I think well first of all.
Speaker Change: And the raw material impact of a synthetic color on a typical packaged products.
Speaker Change: Is exceedingly low for most CPG companies the expenses and the marketing the distribution that packaging raw materials are a very very small part of that cost picture.
Speaker Change: And within those raw materials synthetic colors and it it's almost well, it's an even more substantially lower impact to that finished product.
Speaker Change: It's nothing to blank at two two have tenex that potential costs rise.
Speaker Change: Nevertheless, it is still pales in comparison to other raw materials that CPG companies may be spending their money on so.
Speaker Change: So that said as you think about our profile financially.
Speaker Change: Yeah, you may see a you will see an increase in revenue an increase of volume that sentient, which sell to match that synthetic color.
Speaker Change: So you may see a little bit of erosion on the gross margin for that product sale compared to a synthetic color sale.
Speaker Change: But on a relatively fixed SG&A base, you would see consistency at the operating profit margin line. So in conclusion revenue would be up gross margin could be eroded a bit but operating profit margin would be stable and so that that a little bit more background on my car.
Speaker Change: Comment, but a very very important question and very very important consideration.
And so this is why I say things like this is a great opportunity for centene. It because it's a really technically strong challenge, there's a lot of supply chain and regulatory all sorts of different. This is not just hey, your raw material costs accident. His costs why so I'm gonna by his.
Speaker Change: That's the real basic part of the natural color market, we don't really play in that area.
Speaker Change: We play in the more innovative engineered products within the market customers looking for the exact match and so.
Speaker Change: We can drive a lot of technology, and a lot and really build that moat so to speak.
Speaker Change: In our commercial.
Speaker Change: Our commercial and our actions in the market.
Speaker Change: Okay and just one final one for me Paul just to kind of put a ball on the so the 225 guidance in terms of sales mid single digits. You know of course sales growth if you will.
Speaker Change: If natural colors, 20% of your sales space and that's growing 10% plus is that.
Speaker Change: Sort of two points that buildup to that mid single digit growth is that the right way to think about it on a go forward basis.
Speaker Change: So yeah natural causes a bit more than that about 75% of our color group is food colors.
Speaker Change: And within that about 60% is natural colors or whatever that would be 40% to 45%.
Speaker Change: So yeah that would be.
Speaker Change: That that would be the contribution from natural colors, and I think you may not be too far and your expectation there.
Speaker Change: So yes mid single digit we feel quite confident with the company and of course for the color group as well, but that's a very achievable level now.
Speaker Change: I don't control the pace of these conversions and I don't control the pace of customer launch activity.
Speaker Change: So we talk about the year there can be volatility in any given quarter, you may see a quarter, where we're up three or 4% you may see a quarter or up seven or 8%, but I think we land. This plane as we have for each of the last five years on average mid single digit range I think is a very achievable level.
Speaker Change: But to your point led significantly by the activity around natural colors.
Speaker Change: So I think it's that.
Speaker Change: I don't want to say it it's a it's a.
Speaker Change: Dramatic departure from the past I think it's been fairly fairly consistent.
Speaker Change: Again these launches and then the timing of those could could add considerably to the topline at any given point.
Speaker Change: Yeah.
Ghansham Panjabi: Okay. Thanks for taking my questions. Okay. Thanks Ghansham.
Speaker Change: The next question comes from Nicola Tang with BNP Paribas Exane. Please go ahead.
Speaker Change: Hi, Ron.
Speaker Change: Thanks for taking the questions.
Speaker Change: And Nicola Paolo Nicola.
Speaker Change: I'll start on the same topic on colors, and then I wanted to ask about a few other things as well. Thanks. So much for the interesting information and this new sites around natural colors product launches I just wanted to ask a bit more about penetration and why you think we might be up in the U S. Today, just wanted to stand in size this big opportunity.
Speaker Change: He was talking about so Cynthia.
Speaker Change: I think in an old side from what was Christian Hudson and Alterra and from couple of days ago. They talked about a 25% natural color conversion rate and feel that that is something like 60% in Europe. I was wondering if you had an estimate of what that penetration might look like today in the U S. That's the first one.
Speaker Change: Sure Yeah, there's no official database for this that that one could easily reference.
Speaker Change: So what I would tell you that the numbers that we use to describe the penetration rate in Europe youre looking at probably a good 80% plus of that market has converted away from synthetic colors to either natural colors or coloring foods.
Speaker Change: In the U S. It's probably more like about a third of the market has converted to natural colors, we don't customers in the U S don't typically use that coloring foods designation.
Speaker Change: And so figure about a third of the U S market has converted.
Speaker Change: And then you go to places like in Latam, you are a bit lower than that somewhere between about 25, and 30% and then in Asia Pacific, It's really going to vary considerably by countries. So for example in Japan. The majority of the market there would be natural colored but in China.
Speaker Change: And the estimates would be probably closer to a U S. Perhaps even a little bit below the U S in terms of penetration.
Speaker Change: So in short we're in the if you like baseball analogies folks seem to like that.
Speaker Change: We're in kind of the early third inning, maybe top of the third or bottom of the third.
Speaker Change: Just to say, there's lots of runway ahead of us.
Speaker Change: A lot of opportunity to convert there's a long runway and again food is really kind of phase one I see personal care as a phase two.
Speaker Change: To this market as well so a lot of good growth opportunities ahead of us.
Speaker Change: Pretty interesting and just on this topic you talked there about the high barriers to entry and in Naturals and the complexity in the investments that you put in at the time.
Speaker Change: And being a leader in colors generally he and I Wonder if you could talk a bit to the difference in competitive landscape in naturals that systems ethics.
Speaker Change: And Carlos.
Speaker Change: Yeah, well. So we are arguably one of the only companies in the world that does it all synthetic natural and coloring foods.
Speaker Change: Some competitors may offer synthetic for example, but theyre not basic they don't manufacture them, there's simply trading them.
Speaker Change: And so yeah. There was a group of competitors, who really just do synthetic and that's what they do and there's a group of competitors that do natural colors and that's what they do.
Speaker Change: So I think our advantages by doing both we have largely established ourselves as the incumbent and a great. Many customers around the world at the multinational level and at the local and regional level and we've invested considerably in our sales force over the years that is the most effective selling model.
Speaker Change: For colors.
Speaker Change: Particularly natural colors, which is a really challenging formulation problem for many customers. It's a lot of production and QC and all the other challenges that I described are really having a direct sales person is a huge huge advantage for four cents in and so.
Speaker Change: And as we go out and compete where we have some very good competitors for sure.
Speaker Change: They are also very strongly focused on natural colors, but I think the market tends to sort of divide itself into two camps cant, one, which I would put Cynthia and N. As I described earlier, we really wanted to focus on those technically challenging natural color conversions.
Speaker Change: There is one lesson learn that every brand around the world I think it's taken in by now when you convert from synthetic to natural colors, you have to have an exact match.
Speaker Change: No matter, how you may tried out smarted, our I'll think it or oh, its the new this it doesn't work when you don't match the synthetic color.
Speaker Change: But in order to match the synthetic color. It's among the more significant technical challenges that you can associate to this market.
Speaker Change: So those are the ones that we like those are the projects, we like to work on and that's where we can really leverage our strong R&D spend over the last decade in this area.
Speaker Change: Perhaps some of the advantages we have in terms of capitalizing our business isn't the ability to scale. These really really large conversions.
Speaker Change: And so the other part of the market, though can be a little bit more of the mundane the basic stuff.
Speaker Change: You know, it's kind of a it doesn't necessarily require a lot of formulation or applications work.
Speaker Change: Raw materials are more readily available.
Speaker Change: But a lot of those products they suffer from stability problems stabilization shelf life.
Speaker Change: Don't exactly match the synthetic colors so.
Speaker Change: We'll play there from time to time, but.
Speaker Change: But that's not really the area that we see the biggest advantage to two sense Ian so unfortunately not enough of the market is pursuing these exact.
Speaker Change: Shade matches, and they want really well formulated products and so they understand that.
Speaker Change: The nature of that is it is a lot different than the more basic building block model that you may see from time to time in.
Speaker Change: And some of the markets.
Speaker Change: Thank you and just to give some of the other divisions my bet is that time as well.
Speaker Change: Yeah, especially given the notable strength in Asia Pacific in terms of local currency growth I was wondering if you could explain a bit what was driving that.
Speaker Change: You just mentioned new salesmen is that could you be a bit more specific and then yeah.
Speaker Change: Help us understand what's underpinning your outlook for high single digit local currency prices in the division as well.
Speaker Change: So Asia Pacific Yeah, They had an awesome year and an awesome fourth quarter and you know for years, we've been investing and working on Asia.
Speaker Change: Really trying to elevate their portfolio their sales force the technical applications groups over there and so I think what you're seeing is really the culmination of a lot of years of work and effort.
On the strategy side of that business and the focus of the portfolio and so all of these comments I'm, making about natural colors in the pursuit of flavors, we've executed exceedingly well in Asia Pacific We have a very strong leadership team there.
Speaker Change: The hustler mentality is alive and well among the sales force that sensor and I can't speak to others. There, but we are we really emphasize folks who who like to win.
Speaker Change: And they want to come to work and they want us to succeed.
Speaker Change: All others need not apply so I think we really elevated the performance of the folks in that region and that has really really helped us execute and then end up on our new sales win which which was exceedingly hot in the quarter as well so.
Really three or four of those those factors that have really brought to bear that the opportunities that we've that we've had in Asia. We've had a lot of geographic expansion in Asia as well over the years.
Speaker Change: Whether we're talking about China, or India or southeast Asia.
Speaker Change: We've really kind of left no stone unturned, yeah, there's still a lot more we can go after.
Speaker Change: But our emphasis on expanding into new markets new segments.
Speaker Change: Has been really really really helpful. Now Nicole I didn't hear the second part about the high single digit you catch that about the high single digit can you repeat that part Nikola.
Speaker Change: He was just to ask about the guidance for 2025, so that decision kind of what's underpinning your confidence in the high single digits.
Speaker Change: Oh, yeah, Okay. So yeah, the high single digits for Asia, which would effectively be well, it's a bit it's a touch heavier than color and flavor.
Speaker Change: Yeah, I think it's more of what I've just described a continuation of the strategy a continuation of the emphasis on new wins.
Speaker Change: Servicing customers being fast being local and I think it's really more of the same. So so we feel quite good about our chances in in Asia for 25.
Speaker Change: Okay, and then if you don't mind, just a final one and then I'll stop hogging the questions I noticed that in the slides you reiterated the long term revenue outlook, but you didn't actually mention the long term and local currency EBITDA ambition of high single digit price that was one thing I just want to check that that target was still relevant.
Speaker Change: Yeah, I think it is I think as we look at 2025, we've got it mid on the revenue mid to high on the EBIT dock.
Speaker Change: Every year is a unique year every quarter can can have some choppiness, most notably because certain customers delay launches are they conduct launches things.
Speaker Change: Things change in a 90 day periods at it you can see a little bit of that volatility, but as you look over the year.
Speaker Change: I again, I think we land the plane in those ranges.
Speaker Change: Take 2025 for example, you know January was a very unusual months there was a lot in the news about tariffs there was a lot of them the news about.
Speaker Change: Some reluctance of companies to launch products others wanted to launch there was a.
Speaker Change: Keen focus on promotion activity.
Speaker Change: When we look at our January January started off very very slowly and in most parts of the world.
Speaker Change: And then for whatever reason at the end of January a light switch went off and then you know the new wins started building up again in the the organic orders started coming in again and so then that sort of starts playing out a much better February and March.
Speaker Change: And so you can have moments like that in the business that.
Speaker Change: So you I wouldn't be surprised if if Q1.
Speaker Change: It comes in you know three or 4%, maybe it's five but I think for the year.
Speaker Change: Last year, we said mid single and we delivered as you saw a seven 5% across the board. So things like that can happen and I don't I don't think folks should necessarily get particularly panicked about anything like that stable markets.
Speaker Change: Consistent markets at the macro level in over a year I think is a really good guide so I, yeah, I feel very good about the mid single digit.
Speaker Change: That will lead to mid to high single digit EBITDA controlling our cost good product mix will drive that for sure.
Speaker Change: And so and then of course as you know with the interest being.
Speaker Change: A lot less of a headwind this year and tax being a lot less of the headwind. This year, you should see and much more efficient translation to the EPS growth now I will mention once again, because it bears repeating FX.
Speaker Change: 10 to 15 cents that headwind.
Speaker Change: That number can change, but based on how we're calculating that right now that.
Speaker Change: That is 10 to 15 cents of EPS headwinds, which is to say if we didn't have that we'd have higher EPS to the tune of 10 to 15 cents and I think that sometimes being.
Speaker Change: Being a U S business, where we translate things back into dollars.
Speaker Change: And we're not European so we don't get the positive end of that we've been getting the negative end of that for a good 10 years now not every year, but for the most part 10 years.
Speaker Change: And that creates a real headwind.
Speaker Change: Headwind to act to EPS growth. So we will speak in terms of local EPS growth to help you really see what's happening in the business absent. These FX translational matters, which we have no control over.
Speaker Change: So I think that kind of how that should flow through the P&L here in.
Speaker Change: 2025, and we haven't really talked about buybacks more specifically, but I think that could be certainly a bigger part of the picture or a part of the picture here for sure in 2025.
Speaker Change: Alright, that's great. Thank you. Thank you very much okay. Thanks Nicholas.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question comes from David Greene with Bolt Haven. Please go ahead.
David Greene: Hi, Paul Hi, Tiger, Hi, David I have a big one.
Speaker Change: Uh huh.
Speaker Change: Hi, there.
Speaker Change: I guess just a quick question around.
Speaker Change: Obviously, the exit rate for Q4.
Speaker Change: At a group level I think was eight 9%.
Speaker Change: And it's very clear that a large part of that has been driven by.
Speaker Change: Ongoing new wins and those.
Speaker Change: Oversee take 12 months to annualize and at the same time, you win new business as well.
Speaker Change: It was really just to get a little color around that sort of and I know you talked a little bit too at the mid single digit guidance.
Speaker Change: In terms of whether that feels conservative and if I could.
Speaker Change: Just linked up with just a very simplistic observation.
Speaker Change: Your color guidance for 2025.
Speaker Change: So mid single digits right flavors is mid single digit in APAC high single digit.
Speaker Change: Obviously guiding at group level, it's a mid single digit I know, it's fairly nuance given the size with APAC just wondering if oh I should just again tie that into an element of conservatism.
David Greene: Yeah, you know David I can kind of take that but you're exactly right. So when you look at Q4 are our total local currency revenue was just about 9%. So we had really good new wins across all three of our groups.
Those new wins that we've talked about before.
David Greene: Are they benefit the quarter that we're in and then they also roll into next year. So we've got a healthy program on our sales force and the new wins that we're realizing and we're realizing across all the different segments. So from that standpoint, it's positive and it also helps us as we roll into the next year.
Speaker Change: So you know as Paul said you know this year it started a little slow at the beginning of the year, but now we're starting to see a little increases from that from that standpoint.
Speaker Change: Our guidance across each of the groups were mid single digits and flavor and color and in our Asia Pacific Group is slightly above from that standpoint. So you know overall for the full year looking at it you know mid single digit growth on a consolidated basis feels feels good from that from that point.
Speaker Change: You know Paul kind of mentioned first quarter with with how we started 3% to 5% is probably you know right in the range will probably be for the first quarter and then we'll kind of see how the how the year progresses.
Speaker Change: Yeah.
Speaker Change: Did you have another question David.
Speaker Change: Hello, David Your line may be muted.
Speaker Change: Oh, sorry about that in terms of.
Speaker Change: The natural colors conversion and apologies I know you've talked.
Speaker Change: Fair amount about this already but just outside of Red three are there any of the.
Speaker Change: So I wonder if a better word being.
Speaker Change: <unk> talked about there could be significant and are you already starting to see some of the it sounds like you all conversion benefit come through and.
Speaker Change: Are you seeing that et cetera are you seeing more incoming.
Speaker Change: With regards to the conversion.
Speaker Change: So in the Annals of synthetic colors red three is quite small as it's I think it's like the second smaller green III, maybe secondly, the smallest.
Speaker Change: But read three is super small the big ones are things like Red 40, yellow five yellow six.
Speaker Change: And you know at this point the FDA has outlawed red three with the Sunset date in a couple of years here.
Speaker Change: Those other synthetic colors. Some states have named them in their proposed legislation to either regulate or ban.
Speaker Change: The first phase has largely been around school, so foods and drinks that would be acceptable.
Speaker Change: Accessible to small kids, who go to school.
Speaker Change: But in other states, they're calling for the ban of all of them.
So how this shakes out is anybody's guess and so I think that.
Speaker Change: The short answer to your question is all of them are being considered at some level, but at this point. The FDA has only picked red three now this is not the first time in the history of the world that the FDA is delisted as synthetic color. This has happened a number of times before.
Speaker Change: And so that's not necessarily an unusual fact.
Speaker Change: So the question will ultimately come to the timing and whether or not the FDA takes action or a state takes action or weather.
Speaker Change: Both parties, let the market decide in the market effectively drives the pace at which products as it comes from so time will tell but yeah, we're definitely seeing a continuation in some segments, but an acceleration in others.
Speaker Change: Natural colors.
Speaker Change: And customer has fallen a number of different buckets, one of those buckets as we guys, where we were just going to continue on pace with natural colors. Another.
Speaker Change: Another bucket, maybe hey in light of this news, we're going to do this and whether it gets legislated or not we're going to convert.
And then you know you have various other constituents buckets, so to speak that have maybe a little bit of a different mindset on the question.
Speaker Change: So yes, I think those first two.
Speaker Change: That's what's driving a lot of the wins right now and certainly as I noted that could accelerate it at any point.
Speaker Change: Yeah.
Speaker Change: And just in terms of the reference to the buyback.
Speaker Change: In terms of thinking about quantum and where.
Speaker Change: You were comfortable with the leverage.
Speaker Change: You'll probably be down to the low twos.
Speaker Change: Have you seen in 'twenty five.
Speaker Change: Should we think about sort of magnitude of buybacks.
Speaker Change: Buybacks should we think about it in terms of the Max leverage you want to take holidays.
Speaker Change: Well, you're not going to be more than two and a half or how would you think you'd be thinking about that.
Speaker Change: Yeah, No I'll take that one David Yeah, you know we worked hard in 'twenty four to really pay down our debt and then you know lower floor that interest expense burden and our leverage ratio is about 2.3.
Speaker Change: From that standpoint, so you know rolling into this year in 2025.
Speaker Change: Our dividend we feel good about our our capital expenditures you know you probably noticed we increased our range. So we're about $70 million to $80 million. This year got a lot of good ROI projects, especially in our our flavor group from that standpoint. So we feel good from that standpoint, so excess cash we will use them to be.
Speaker Change: Buy back stock you know the first quarter is usually our lowest cash from ops.
Speaker Change: Cash flow standpoint from a quarterly standpoint, just because of a number of different payments. So we will probably start that program.
Speaker Change: Reassess its during the second quarter, but you know staying around two three we don't necessarily have.
Speaker Change: Can you go up to two five I think you mentioned, but we want to stay in the low twos is kind of where we're at and we'll we'll kind of look at it as we enter the second quarter. So that's what we're thinking about right now yeah, I think David kind of slow and steady wins the day on that one so I don't anticipate.
Speaker Change: We're going to announce some massive all at once buyback I think slow and steady.
Speaker Change: Ultimately earn the best return, it's the most efficient use of cash for investors and certainly many of our investors asked this question, we want to be responsive to it it is a tax efficient way to return.
Speaker Change: To execute returns for shareholders. So very very positive, but we think conceptually with respect to excess cash which is to say it wouldn't have an appreciable increase on the debt to EBITDA ratio.
Speaker Change: But hey, sometimes this is opportunistic too and so yeah, it's slow and steady with patches of opportunism built into that could be a feature of the program, but I think I'd, just reiterate probably not a lot of activity in Q1, given those typical every single Q1 style of dynamics.
Speaker Change: But the big message here is we have a lot of confidence in the future of the business between natural colors and in a lot of other activities going on in the flavor group in Asia.
Speaker Change: We see a lot of upside here, we got a lot of inventory, we still want to take out and that's going to be happening.
Speaker Change: So what are we going to do with all this cash well this is going to be part of the picture for sure.
Speaker Change: I guess just one one final question.
Speaker Change: On the portfolio optimization plan.
Speaker Change: Which feels like it's just very much on track.
Speaker Change: That's good for any incremental savings that rule there'll be pretty much just.
Speaker Change: In line with expectations.
Speaker Change: Yeah, no you're exactly right we're in line.
Speaker Change: With our original $8 million to $10 million. So that plan is moving just as we kind of laid out and started at the end of last year and we're on track right now to be done this year. So within the cost that we identified a $40 million and the savings of eight to 10.
Speaker Change: So moving along right.
Speaker Change: Fantastic.
Speaker Change: Thank you.
Speaker Change: Now you've got your.
Speaker Change: You've got your fireside chat now.
Speaker Change: Are there any further questions.
Speaker Change: There are no further questions at this time I will turn the conference back to the company for any closing remarks.
Speaker Change: Okay before we conclude the call today I'd just like to thank everyone for joining I'd also like to summarize our expectations for the first quarter.
Speaker Change: We expect our first quarter local currency revenue growth to be between three 3% and 5%. We also expect our adjusted EBITDA margin for the flavor and extracts group to be around 16, 5%, our adjusted EBITDA margin for the color growth to be around 23% and Asia Pacific's adjust.
Speaker Change: The EBITDA margin to be around 23, 5%.
Speaker Change: We expect interest expense to be around seven $5 million in the quarter and our adjusted tax rate to be around 25, 5% for the quarter.
We do not anticipate any significant share buybacks in the first quarter.
Speaker Change: So that concludes our call today. Thank you for joining if you have any follow up questions. Please contact us directly at the company. Thank you.
Speaker Change: The conference has concluded you may now disconnect.