Q1 2025 Sensient Technologies Corp Earnings Call
All participants will be in a listen-only mode. Should you need assistance, please a single conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your touch on telephones. Through all your questions, you may press star and two.
There's also note today's venice being recorded.
Speaker Change: At this time, I'd like to turn the floor over to Mr. Tobin Tornehl. Please go ahead, sir.
Good morning.
Speaker Change: Welcome to Sensient Learning's call for the first quarter of 2025. I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation.
Speaker Change: I'm joined today by Paul Manning, Sensient Chairman, President and Chief Executive Officer.
Speaker Change: Earlier today, we released our 2025 first quarter results. The copy of the earnings release and the slides we will be using during today's call are available on the Investor Relations section of our website at Sensient.com.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: It's also reflects how management reviews and evaluates the company's operations and performance.
Speaker Change: non-GAAP financial results should not be considered an isolation from or a substitute for financial information calculated in accordance with GAAP.
Speaker Change: A reconciliation of nine 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 reconciliation and connection with the comments we make today.
Speaker Change: I'd also like to remind everyone that Captain Smith during this call, including responses to your questions, may include forward-looking statements.
Speaker Change: 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 RSEC violence.
Speaker Change: We urge you to read Sensient's previous SEC filings, including our 10K and our forthcoming 10Q for a description of additional factors that could potentially impact our financial results.
Speaker Change: Please keep these factors in mind when you analyze our comments today. We'll start on slide 5 of our deck. Now we'll hear from Paul Manning. Thanks Tobin. Good morning and good afternoon.
Paul Manning: Earlier today we reported our first quarter results. I'm pleased that we started the year strong delivering 4% local currency revenue growth, 10% local currency adjusted EBITDA growth and 11% local currency adjusted EPS growth.
Paul Manning: These results align with our expectations and position us to deliver on our full-year guidance.
Paul Manning: As we continue to build on a strong 2024, our performance is a direct result of our continued focus on sales execution, customer service, and commercialization of new technologies.
Paul Manning: In the last 90 days, we have experienced some profound changes. First and most notably, vans on synthetic colors in the United States.
Paul Manning: A second note worthy development in the last 90 days is the U.S. implementation of a series of tariffs.
Paul Manning: Based on current information, we expect the impact of tariffs to be around $10 million annually.
Paul Manning: We believe we will be able to address the impact of terrorists by taking price.
Paul Manning: In the face of these regulatory developments and trade and tariff uncertainty, we remain committed to our strategy and we believe we are well positioned to grow our business long-term.
Paul Manning: During the quarter, we generated strong new sales wins across each of our groups and our sales pipelines continues to support our growth expectations.
Paul Manning: The continued sales win's momentum is the result of our innovative product portfolio, which has a wide array of natural flavors and colors, as well as personal care products.
Paul Manning: We are seeing particularly strong new winds and natural colors and a synthetic color conversion pipeline that continues to grow daily.
Paul Manning: Furthermore, our customer service levels remain robust, and we are well positioned to capitalize on these substantial market trends.
Paul Manning: As I mentioned, the current trade and tariff landscape has introduced additional complexity and certainty to our businesses.
Paul Manning: This situation remains dynamic. We will continue to position our supply chain organization to minimize any disruptions to our customers and to optimize the flow of goods.
Paul Manning: I would also emphasize that we continue to focus on optimizing our cost structures throughout our groups.
Paul Manning: Our portfolio optimization plan remains on track to be completed by the end of this year and we still anticipate annual cost savings of approximately 8 to 10 million dollars.
Now turning the slide six in our group results.
Paul Manning: The Color Group began 2025 with excellent first quarter results, delivering 8.2% local currency revenue growth and 13.5% local currency operating profit growth.
Paul Manning: In the first quarter, the group saw strong growth across all product lines and is benefiting from its strong new sales wins, particularly in natural colors.
Turning to Slide 7
Paul Manning: The flavors and extracts group delivered 1.7% local currency revenue growth and 6.2% local currency operating profit growth in the quarter.
Paul Manning: The group's adjusted EBITDA margin was 16.9% up 70 basis points from versus the prior year's comparable quarter.
Paul Manning: The flavors extracts and flavor ingredients product lines reported very strong new sales winds which drove the group's strong operating leverage improvement.
Paul Manning: The Natural Ingredients Product Line, which consists of dehydrated onion, garlic, caps comes and other vegetables, saw a decrease in sales during the quarter, primarily due to a challenging prior year comparable and lower demand stemming from a number of factors.
Paul Manning: We anticipate the lower volumes and higher costs to persist throughout most of the year for the Sensient Natural Ingredients business.
Paul Manning: On a positive note, the business continues to substantially optimize its manufacturing process and this will improve our cost position significantly for the next crop year.
Paul Manning: Also, the impact of tariffs on imported Chinese dehydrated products that compete against our U.S. growing products has the potential to improve demand as companies evaluate their ongoing purchasing activities.
Paul Manning: Despite these dynamics in the natural ingredients business, I expect the flavors and extracts group to deliver solid results for the year.
Paul Manning: The group's adjusted EBITDA margin was 23.9%, up 50 basis points versus the prior year's comparable quarter.
Paul Manning: The group continues to experience growth in the most all regions primarily driven by new sales wins.
Turning to Slide 9.
We remain committed to our guidance for the year.
Paul Manning: As we previously communicated, we expect consolidated annual local currency revenue to grow at a mid-single digit rate.
Paul Manning: We expect this revenue growth to deliver mid to high single digit local currency adjusted EBITDA growth, which should result in high single digit to double digit local currency adjusted EPS growth for the year.
Paul Manning: While we navigate the shifting tariff landscape and general market volatility, we believe that our annual versus quarterly consolidated guidance provides a better understanding of the state
on the capital allocation front.
Paul Manning: While we had previously indicated that excess cash would be used in 2025 to buy back stock, we now feel as the result of the accelerated natural color conversion activity and regulatory timelines that I'll speak about shortly.
Paul Manning: It is more prudent to increase our capital expenditures for the year and to defer any buyback program to a later date.
Paul Manning: We previously expected capital expenditures to be between $70 million and $80 million US dollars and we now expect CapEx to be between $80 million and $90 million
Paul Manning: We feel that these internal investment opportunities will drive growth and position us well in the current environment.
Paul Manning: Given the sudden legislative change on natural color conversions in the United States, we anticipate our capital expenditures to remain elevated to the next several years as we continue to invest in our natural color capabilities.
Paul Manning: Beyond capital expenditures, we will continue to evaluate sensible acquisitions, acquisition opportunities.
Paul Manning: Now before I turn the call over to Tobin, I'd like to revisit some of my commentary from the last call with regard to the news headlines around synthetic and natural colors.
Journey to Slide 10
Paul Manning: As discussed during the last conference call, several US states and the federal government have taken action to ban all or certain synthetic colors.
Paul Manning: Ultimately, we believe that a ban in one state will lead to a ban across the US since it is unlikely that CPGs will manufacture products for a specific state.
Paul Manning: Various state deadlines for the removal synthetic colors from school meals have been set as early as August 2025.
Paul Manning: Also, the FDA is banned red-3 with an effective date of January 20, 27.
Paul Manning: The state of West Virginia's complete ban on synthetic colors goes into effect on January 1st, 2028.
Paul Manning: In addition to the conversion of the US, we believe that this change will also drive substantial conversion activity in Latin America.
Paul Manning: As I have said repeatedly, the conversion from synthetic to naturals is the largest revenue opportunity that we have seen in our company's history.
Paul Manning: In the United States, and selectively throughout Latin America, our synthetic colors revenue for the food and beverage market is approximately 110 million.
Paul Manning: with a conversion factor of about 10 to 1 on revenue in order to maintain the same color shade. There is a significant opportunity for sensing to outpace our mid-term outlook on natural colors in the coming years.
Paul Manning: Journey to Slide 11, the conversion from synthetic to natural does not come without its challenges for sensing and our customers.
Paul Manning: We have dedicated resources working with our customers on everything from product design and formulation development, customer facility investment considerations and crop planning.
We are investing in further botanical seed development.
Paul Manning: and investing in our processing capabilities to ensure a manufacturing capacity is able to support the increased demand in the years to come.
Paul Manning: It is important to note that while some synthetic colors can be repaced relatively quickly, other conversions require a longer lead time to scale crops to the levels that would support the conversion.
Paul Manning: Our teams are busy working on production capital and supply chain expansion to help our customers prepare for this conversion.
to that end, I'd like to start on to slide 12. 12.
Paul Manning: and highlight two natural color innovations stemming from our multi-year research and development program.
Paul Manning: First, we are excited to announce a new natural blue color, Marine Blue Capri.
Paul Manning: This new product answers the need for a low pH, light-stable bright blue for the beverage market that provides a replacement for synthetic color blue 1.
Brain Blue Capri can also be used to achieve greens.
Clothing Major Gap in the Natural Color Rainbow [inaudible]
Paul Manning: One thought to be the holy grail of the natural color conversion market.
Paul Manning: We have met this challenge after more than 10 years of research and development in our labs in the US. It is one of the most significant technological breakthroughs that we have achieved as a company.
2nd milestone launches, Sienna Fortes
Paul Manning: This product launch allows our customers to achieve a natural dark brown shade replacing Class III and IV Caramel Color.
Paul Manning: In addition, with cocoa prices rising dramatically, this product allows customers to reduce cocoa usage and avoid all of the related sustainability concerns with that crop while maintaining a consistent visual appearance in their products.
Paul Manning: With the current tariff environment, this solution also offers a cost competitive alternative
Paul Manning: You'd like more information on natural color technologies, please take a look at our website.
Paul Manning: Overall, I am pleased with our financial performance in the first quarter. I am excited about the growth opportunities within each of our groups.
Paul Manning: I remain optimistic about 2025 and the future of the business.
Tobol: Tobin will now provide you with additional details on the first quarter results.
Thank you, Paul.
Speaker Change: In my comments this morning I'll be explaining the differences between our gap results and our non-GAAP or adjusted results. The adjusted results for 2025 and 2024 remove the cost of the portfolio optimization plan.
Speaker Change: We believe that the removal of these costs produces a clear picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance.
Turning to slide 14
Speaker Change: Sensient's revenue was 392.3 million in the first quarter of 2025 compared to 384.7 million in last year's first quarter.
Speaker Change: Operating Income was $53.5 million in the first quarter of 2025 compared to $49.4 million of income in the comparable period last year.
Speaker Change: Operating income in the first quarter of 2025 includes $2.9 million, approximately $5 cents for share, a portfolio optimization planning cost.
Speaker Change: Operating Income in the first quarter of 2024 included $2.8 million or $0.6 per share of Portfolio
Speaker Change: Excluding the cost of the portfolio optimization plan, adjusted operating income was 56.4 million in the first quarter of 2025 compared to 52.2 million in the prior year of period, an increase of 10.3% in local currency.
Speaker Change: Interest expense with $7.3 million in the first quarter of 2025 compared to $7 million in the first quarter of 2024
Speaker Change: The company's Consolidated Adjusted Tax Rate was 25.3% in the first quarter of 2025 compared to 26.1% in the comparable period of 2024.
Speaker Change: Local currency adjusted EBITDA was up 10.1% in the first quarter of 2025.
Speaker Change: born currency translation reduced EPS by approximately two cents in the first quarter of 2025.
Matthew Krueger, David Green.
Turning to slide 15.
Speaker Change: Net cash used in operating activities was $9 million in the first quarter of 2025, primarily due to higher incentive-based compensation payments
Speaker Change: Capitol expenditures were $16.9 million in the first quarter of 2025.
Speaker Change: And as Paul indicated, we now anticipate our capital expenditures to be between 80 million and 90 million for the full year. Our net debt to credit adjusted EBITDA is 2.5 times as of March 31st, 2025, down from 2.6 times as at the same time last year.
Speaker Change: Overall, our balance sheet remains well positioned to support our capital expenditures, sensible acquisition opportunities and our long-standing dividend.
Speaker Change: and in the future, any excess cash will be used to buy back stock or pay down debt.
Turning to slide 16
Speaker Change: Revisiting our 2025 guidance. We continue to expect or consolidate the 2025 local currency revenue to be up mid-single digits.
Speaker Change: 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 higher than the 28.8 million of interest expense recorded in 2024, and we expect our adjusted tax rate to be approximately 25.5%.
Speaker Change: For the year, both our interest expense and tax rate will fluctuate quarter to quarter, and as a result we continue to believe our local currency adjusted even to growth is an important measure of our performance. [inaudible]
Speaker Change: Based on current exchange rates, we now expect the impact of currency on EPS to be approximately a two-cent headwind for the year.
Speaker Change: Considering our gap earnings per share in 2025, we expect approximately $0.15 of portfolio optimization plan costs.
Speaker Change: We now expect our Gap EPS in 2025 to be between $3.13 and $3.23 per share compared to our 2024 Gap EPS of $2.94 per share.
Speaker Change: As you have all seen, the tariff situation is incredibly dynamic
Speaker Change: As Paul mentioned, we are mitigating the impact of tariffs with price. When and if any new tariffs come into effect, we will report on that effect after the fact.
Speaker Change: Given the evolving situation, we believe that focusing on our full-year guidance is prudent through the changing tariff picture and timing of pricing actions.
Speaker Change: With regards to the specifics on the second quarter, our current estimates would indicate an adjusted tax rate of approximately 25.5%, interest expense in line with prior year's second quarter and the impact of currency on the EPS to be immaterial.
Speaker Change: Thank you for participating in the call today. We'll now open the call up for questions.
Speaker Change: Ladies and gentlemen, we will now begin that question and answer session to ask a question you may press star and then one on your touch tone telephones to withdraw your questions you may press star in two.
Speaker Change: At this time, we'll pause momentarily to assemble the roster.
Speaker Change: And our first question today comes from Ghansham Panjabi from Baird. Please go ahead with your question.
Hey guys, good morning.
Thank you for your time.
Speaker Change: Orning, Paul, I just want to go back here, you know, comment about the broad opportunity set as a related natural.
Stephen Rolfs: on the significance of that. The same would also be true, I guess, where competitors and presumably their competitor responds from a capacity standpoint will be significant as well.
Speaker Change: Can you just lay out for us your specific modes for that product line and also your ability not only for flex production on your end but also manage the upstream supply chain to be able to support customer growth for what looks like a very long tail period.
Stephen Rolfs: Sure, so just to kind of frame it up and to reiterate a comment I made in the previous comments.
Stephen Rolfs: The opportunity we're looking at here between the US, Sensient Business and the Latin America Sensient Business. We have about $110 million of revenue, so $110 million from synthetic.
So the opportunity is to convert that [inaudible]
Stephen Rolfs: And then you obviously subtract out the 110 that was synthetic because of course that goes away.
Stephen Rolfs: So I think just to kind of frame up the nature of the opportunity in the US and parts of Latin America.
Stephen Rolfs: So we have that to begin. Now, one of the single biggest challenges in natural color conversions is the technical application side.
Stephen Rolfs: Whereas one could squeeze a fruit into a glass and observe a change in color. That's not exactly how that works in an application. When you're dealing with an application, you have all sorts of other ingredients that could react inadvertently with a natural color.
You have the natural color could provide different.
Stephen Rolfs: Outcomes in that formula. You may have problems with the color retaining its shape.
Stephen Rolfs: Because of a high heat situation, natural colors are very very sensitive to things like light and heat and acid or what we would call pH.
Stephen Rolfs: You add on to that, natural colors have a much more limited shelf life compared to synthetics.
Stephen Rolfs: And so the technical challenge can be rather pronounced. And I think one of the things that is distinguished to a sentient over the years.
Stephen Rolfs: and within these applications not only do you have the complexity of formulating that can a soda or whatever that product may be.
Stephen Rolfs: So there's a part of this market where yeah you could go buy some natural botanical and buy it by the time and sell it by the train car load and some customer may buy that.
Stephen Rolfs: Help our customers through that process that has distinguished us probably the most significant light.
Now.
Stephen Rolfs: As you get these natural raw materials, so answering, getting to the point about your supply chain,
Stephen Rolfs: Spirits are grown all over the world, all different parts of the world, and like a fine wine...
Stephen Rolfs: for our customers so that that red is the same red year after year after year and regardless of where they may sell it and the storage conditions that they may have, so.
Stephen Rolfs: But then probably the last piece here is as you take that product and you manufacture it, so as you take that botanical
Whatever it may be, a fruit or vegetable.
You extract the color from that [inaudible]
Stephen Rolfs: and then you manufacture that for your customer. There's a lot of technology, know-how, intellectual property, whatever you'd like to call it, associated with the manufacturer of natural colors as well. So this is why we're calling for additional CAPEX expenditures so we can continue to invest very strongly there.
Stephen Rolfs: but the ability to extract a color, okay, you can extract a product in the high school chemistry lab. I did it when I was 16.
Stephen Rolfs: But that's not really what we're talking about here. The nature of this extraction is one of sequencing extraction using the correct solvents, being able to retain a certain amount of color.
Stephen Rolfs: that here again, all those things come together to enable us to really help the customers formula to be a great success on the on the store shelves, and so...
Stephen Rolfs: CapEx, we spoke to that supply chain that is an ongoing, that is a big challenge. That is the single, I would tell you, that number one challenge of natural color conversions is stemming from the complexity of the supply chain and the magnitudes of the change that we're talking about.
Stephen Rolfs: So I think this is where our investments over time are going to play out quite well. So we've been talking about the conversion and natural colors for more than 15 years in this company. And so we're very, very excited about this because I think we've prepared really well. We spent tens of millions of dollars here.
Stephen Rolfs: And I think we're very, very excited and I really liked my chances against the rest of the competition in the market.
Stephen Rolfs: Okay, thank you for that. And then just as a follow-up.
Speaker Change: You know, historically you've been targeting, you know, smaller customers in the context to be company size and, you know, some of the larger peers, etc.
Stephen Rolfs: With your position in natural, is that going to be different going forward and I just want to, you know, relate that to the market share wins you called out a specific to the color segment.
Yeah, so it's an excellent, it's a great question.
Stephen Rolfs: So some of the answer here is going to depend on the time frame. So right now, the only definitive time frame that I can speak to is January 1, 2028 from the state of West Virginia, effectively advanced in better colors.
So between now and then...
Stephen Rolfs: It's our ability to secure a supply chain, have adequate capital, manufacturing resources available, and of course, a sufficient range of technical solutions.
Stephen Rolfs: So I think our chances are quite good there. And so first order of business is take the 110 million that you have and convert that.
Stephen Rolfs: You could probably estimate that our market share is about, you know, a little bit less than half, perhaps a bit more less than half, so say 35 to 40%.
Stephen Rolfs: So our ability to take additional share of the market will be determined by our ability to deploy that supply-chaining capital.
Stephen Rolfs: But it's also going to be based on that time frame.
Stephen Rolfs: And so, if the conversion time frame is one year or 18 months or two, if it gets accelerated, then you obviously have to make more choices. You have to ration because there's a finite amount of supply chain available. If the time frame is extended,
Stephen Rolfs: four years or something, perhaps one could argue is more practical, then you have a little bit of a different answer. But in either case, I think that
Stephen Rolfs: We obviously we love all of our customers, we love some a little bit more than others, and I think it is those that we clearly will need to prioritize.
Stephen Rolfs: But I think we have made a lot of money in this business by representing lots of different customers at various stages of their, you know, whether they're start-up or established.
Speaker Change: Okay, and just finally on for the color segments specific to 2025, what are what's the, um,
Speaker Change: What are you estimating in terms of core sales growth and how do you disaggregate that between volume and pace and just separately as it relates to the 10 million tariff impact which specific raw materials are being impacted?
Thanks again.
Sure, so...
Speaker Change: You know, I think our consolidated guidance for the year remains mid-single of digits. I think you'll see whether it's color...
S&I, Flavors
Speaker Change: Asia-Pacific, there's pluses or minuses of those and so I think what we've said for color for the year mid-single could there be upside? Well, they're sure the sec was upside in Q1.
Speaker Change: Some of that upside will be dictated as to what customers really attack this conversion faster, so someone will move it to next quarter or even Q4.
Speaker Change: That could provide some upside obviously, but our guidance at the time we made our guidance did not contemplate any major legislative shifts moving these numbers.
Speaker Change: to move in these conversion dates to the lab. So, that's a little bit harder to predict, but I think our expectation is mid-single for the company for revenue.
Speaker Change: Midda'ai on EBITDA, and of course, high to double digit on EPS, so we feel very, very good about that predicting that at anyone quarter. Always a tricky game.
Speaker Change: But I think we should feel really really good about the color group for 2025 and well beyond that too. But I also think we should really feel good about the flavors group when you look at the growth of traditional flavors.
Speaker Change: 6-7% top line, and when you do the algebra to realize that the group level we were up by 6, but F and I was down in revenue, you'd come to the quick conclusion that flavors EBITDA growth.
Speaker Change: with substantially in the double digits versus prior year. So we're really liking what I'm seeing out of the flavors group. We are really, really executing quite nicely there and again this key strategic area of traditional flavors.
Speaker Change: So I think that's good and I think Asia Pacific will continue to be a really strong
Speaker Change: Contributor to the top line and bottom line growth. You saw that color in Asia or each running at about 24 or beyond in EBITDA margin.
Speaker Change: I think that's pretty good. I think flavors is going to be well on its way, and I foresee some really nice conversions, some really nice wins in flavors as we move to the rest of the year.
Speaker Change: and I also anticipate substantial reduction in crop costs coming at S&I.
Speaker Change: Starting in sort of mid-delay Q4, that's going to be a beautiful outcome for that business as we get into the very very end of this year and throughout 26 and beyond.
Now, tariffs.
Speaker Change: Terrace Art Taxes, and so taxes are just another name for costs.
Speaker Change: And so, we are even as we speak going out with pricing on that to recover those costs. As you know from our performance during COVID, we were quite good at taking pricing, quite effective with that.
Speaker Change: and so I feel very good that we will recover that, so I'll provide that update today.
Speaker Change: and we will provide another update in July as to our ability to successfully execute on that, but I feel it's quite good, but we naturally can't give updates after this call.
Speaker Change: about how well our pricing is going on tariffs, but rest assured that we feel very confident that we will recover that. Now, Tobin can speak to some of the...
Tobin Tornehl: Other details of the magnitude of the tariffs that you might find interesting here. Yeah, it's just a touch on my fault. So that $10 million of tariff impact is on an annual basis.
Tobin Tornehl: at represents approximately about 1% of our cost of good soul, and roughly about 2% of our total raw material costs on an annual basis.
Tobin Tornehl: and the impact, Ghansham, is a bit higher in color than in flavor. Maybe two-thirds of that impact of color, one-third is rest of the business. So, but again, we feel like we can address that.
Okay, terrific, thanks so much. Okay, thank you.
Speaker Change: Our next question comes from Nicola Tang from BMP Parabop. Please go ahead with your question.
Nicola Tang: Hi everyone, maybe very first, a very quick first one following up on the tariffs just to check is the 10 million solely related to raw materials as it also related to tariffs on some of your finished goods.
Speaker Change: Yeah, that relates to everything at this time. So, and that's across our total company. So, exactly, raw materials and finish good. But the biggest impact is in fact raw materials.
Speaker Change: And so, as you know, our capital footprint is designed that we manufacture in the countries that we sell to. So, for example, we manufacture in the US, for the US.
Speaker Change: We largely manufacture in China for China, so we don't necessarily have this model where we've exported manufacturing to lower cost regions to then imported into the US or Europe . We don't do that.
The tariff taxes raw materials.
Speaker Change: So, we naturally don't source all of our raw materials or components from the U.S. That's impossible in practical and that would be a logical for us to do that. And so, as a result, we do import certain raw materials.
Speaker Change: The finish goods for the United States are made in the United States and I think that's been kind of the way we rolled for many, many decades now.
Speaker Change: Great, that's pretty clear. Thank you. I think in the prepared remarks you talked about, the kind of market being somewhat dynamic and I appreciate the visibility is low but I was wondering if you could share some colour on what your sort of volume trends across key geographies or key end markets however, you know, you think it makes sense to talk about it.
Speaker Change: Just trying to understand the underlying demand trends and whether or not we're seeing a slowdown particularly in the US given the tariff uncertainty and maybe tagging on to that Do you think that any of the positive volume momentum that you saw in Q1 might have been related to customers pre-buying ahead of tariffs?
Speaker Change: You may recall, for a number of years there, the market was down from a volume standpoint and that the revenue that you were seeing from many food companies was really just pricing.
so
Speaker Change: Being in a neutral market, I see that as a high positive because, again, we've been working with a minus one to minus two percent market growth in the U.S.
Speaker Change: So in Q1 we saw a largely flat market on volume.
Speaker Change: Yep, there were some categories that were quite interesting and surprising, some that were down, some that were flat, but net net flat. As you look at Europe , similar, a slight, maybe 50 basis points better in volume growth in Europe versus the US.
Speaker Change: As you get beyond that, obviously the data is a little bit different, a little bit harder to get. It's not as systematic as, for example, you would see in Europe in the US and so it's mostly anecdotal and to that end, I would tell you that volume in Asia, customer volume, it's still a positive.
Speaker Change: Even when people talk about China, certainly there's volume growth there, particularly in the personal care side of the business. So those are good. So our growth in the company
Speaker Change: Outside of SNI was I think he could conclude that it was pretty decent to really good volume growth across the board so that's really nice and you saw that play out in the really nice operating leverage we got.
Speaker Change: Now your question about did the Q1 Momentum was that in part?
Fueled by somebody's desire to prepy or stock up.
Speaker Change: You know, the only place where I've seen a substantial dynamic like pre-bying or delaying buying would be kind of in our SNI business, and this is the one business where we do in fact largely compete with imported products, in this case from China.
Speaker Change: So yeah, we saw a whole number of folks either stock up a bit in Q4 or they're not buying now because they want to just kind of see if this terra thing passes before they have to make another purchase.
Speaker Change: I'm sure some did pray by a little bit in Q1, but we don't really see that beyond S&I and even there again it's episodic and it's hard to really draw a definitive conclusion.
Speaker Change: But yeah, but in short, I don't think that gender is much in the way of incremental momentum. Truth be told, it probably created more of a headwind and SNI than anything else.
Dynamics
Speaker Change: Can you give us a bit more colour on what exactly you'll be investing in? Is it more around capacity or is it more around developing the supply chain to your point on this being one of the biggest challenge for the colours conversion story?
Speaker Change: with this being mainly in the US, or does it still make sense to invest in capabilities outside of the US despite the terrorist given what you said about, you know, colors like fine wine and the terror point.
Tobin Tornehl: So, let me make a few comments, and then Tobin loves his topic, so I'm going to let him comment there too. Yeah, a lot of the CAPEX is going to be oriented towards additional capacity.
Tobin Tornehl: And yeah, in some cases, it's going to go to the US, because this is a US-driven demand. In fact, probably you could think that the majority would go there, but we really kind of have a much more integrated.
Manufacturing footprint in mind for something like this.
Tobin Tornehl: Because you're processing these raw materials all over the world. So in some cases it makes sense to extract and process it closer to the source.
Tobin Tornehl: and then you would, on a finished good basis, maybe you do that in the US, but then again, maybe you do that in Italy, or maybe you do that in Brazil, and so again, this is about optimizing the supply chain, but yeah, probably most of the CapEx would be US bound.
Um...
Tobin Tornehl: But in some cases, you could see it make more sense to do this in another part of the world at some stage of the processing.
part.
Tobin Tornehl: Yeah, and you know, just to touch on that, we did increase to 80 to 90 million from the 70 and 80 million we were anticipating at the beginning of the year.
Tobin Tornehl: We anticipate that that will kind of be the level as we move forward this year now given given the natural color landscape in the coming years we do anticipate that you know we'll be at an elevated level going forward in the future years and we believe that is going to be a very good use of our cash and our capital as we move forward so.
Nicole Tang: Does that answer your question, Nicola? Yeah, it does. Yeah, yeah, thanks so much.
Nicole Tang: Okay, thanks Nicola. Thank you. Once again, if you would like to ask a question, please press star and then one, to withdraw your questions you may press star, then two. Our next question comes from David Green from Boldhaven, please go ahead with your question.
Speaker Change: Hi Paul. Hi Tobin. Hey good morning. Hey good morning David.
David Green: First question from me, obviously you talked about the initials flow down at the beginning of the year where you said there just seemed to be a kind of air pocket.
David Green: and then an acceleration that started to come through in February and March. I just wondered if you could give us a feel for the sort of constant currency growth in terms of how that potentially progressed.
David Green: You know, let me think about that one. So yeah, January started slow and I guess February March, we're big enough to net 4%. I am...
David Green: Maybe your question is about what was going on with customers in their mindset and why would they slower in January ?
David Green: I would tell you that that's not an unusual phenomenon in any year. January is not necessarily indicative of much. You could have a bad January and a great year, you could have a great January to not great year.
David Green: And so there's a lot of things that go on behind the scenes of our customers macroeconomic trends they may be looking at, they may be pausing some launches because of consumer feedback or economic reads that they have.
David Green: And so, you know, that may defer some of the wins that we would have ordinarily had in any other month, but yeah, there's just a special sensitivity about January .
David Green: I don't know, folks come out of Christmas and have a lot of cookies and cake and they're just, you know, they're just kind of recovering a little bit.
David Green: Or is there something more substantive going on in the market? It's a tougher one to kind of figure out. And so I think this January you could certainly look to some of the commentary being made about tariffs, some of the commentary made about how production needs to shift.
David Green: I think there was a lot of worries rightfully so. There were a lot of questions rightfully so. Launching products is a risky proposition. And what a CPG doesn't want to do
David Green: It's taken on unnecessary risks by forcing a launch date because that was what was on the calendar. So it's not unusual for them to sit or defer things a bit.
David Green: in light of some of that news. So perhaps that's what happened more broadly in January but I think you know February and March we were able to overcome that dynamic and net where we got to at the mid-single vision.
Speaker Change: Can you give us any more, I appreciate that. Can you give us any more info for what the exit rate would have been in March?
Speaker Change: Matthew Krueger, David Green, Nicola Tang
Speaker Change: Probably something higher than 4%. I don't know. I'm not sitting in front of it. We have that in front of us. I'd say overall we guided 3-5% in Q1 and came in at 4% right where we were. Yeah, in the other thing too, David is the month. It's never a linear.
Speaker Change: You know, some of our customers, you know, they have quarterly targets, they have to achieve as well and so that can oftentimes create different distortions.
versus what's actually happening in the market, so… [inaudible]
Speaker Change: And so, I think, based on everything we're seeing right now, I think we're feeling really good about mid-single digits for the year.
Speaker Change: and there's going to be pockets, there's going to be one month that's like, wow, this is great, and the next month, oh no, and then there's stuff in the tween, and that's just the nature run out of business, and so you gotta kind of keep your wits about you and say, hey, what's the long game here?
Speaker Change: And the long game is, have the right strategy, go after the right customers, focus on wins and customer service.
Coaching and developing your people.
Speaker Change: and just do your thing, and that's kind of what we're doing.
Speaker Change: Right. And I think there was an initial comment on the last set of numbers around the scope for sequential improvement in top line as we continue to go through the year. Is that something that still holds?
Speaker Change: I would say that given the dynamics in the market, I would look at our full-year guidance of mid-single digits as Paul just indicated. I would use that as opposed to any 90-day period, but we feel very confident on our mid-single digits and our full-year guidance. So that's what I would focus on, David, for this year.
Paul Manning, Paul Manning, Paul Manning, Paul Manning,
[inaudible]
Speaker Change: and I'm assuming no real change in terms of the price volume mix within the top line and grace which is sort of pricing it around a low single vision.
Yeah, that's fair. Yeah, yeah, pricings not that material.
Okay, I guess just the final one for me just around.
Speaker Change: The Colours Narrative, the colours that have been talked about.
Paul Manning: more publicly or so, and it's in addition.
Speaker Change: to Red 3's, now got Citrus, Red Number 2, Orange B, and then they've set a sort of, another six dies by the end of 2026. I'm just trying to get a feel for what percentage of the sort of total synthetic colour.
Speaker Change: Universe that represents, or whether there's sort of incrementally much more to go for after that and then just really trying to think about when potential legislation gets implemented on the federal rather than the state level. And, you know, any thoughts on timing around that.
Speaker Change: Well, since you know I like to tell the truth, I must admit that I didn't even know what citrus and orange beef synthetic colors were, and were the largest food manufacturer of synthetic colors in the world. So those are very much kind of orphan and at the margin type products.
Speaker Change: The big dogs are the red forty, the yellow five, the yellow six, and then there's kind of everything else, the blue one, the blue two.
Speaker Change: and so, you know, synthetic colors, it's very interesting because, as you know, synthetic colors are legal everywhere in the world, even in Europe . You might have consumed some synthetic colors this morning, David, and you might not even have known it, but...
Speaker Change: Timeline is a different matter. The one that we know for a fact, or the ones that we know for a fact, the red three as you noted.
the California School Lunch Band.
Speaker Change: which I believe is January 1st, 27. And then of course, State of West Virginia, January 1st, 2028. I know there's been talk and suggestions of other dates.
Speaker Change: Those are the only ones that we believe or I can see at this point as I look at the headlines and the like and the rule changes.
That is the only definitive date [inaudible]
Speaker Change: Could that change? Sure. Could that be acceleration? Sure. Could that be elongated? Sure. And so again, just based on what we know, that's the one date.
Speaker Change: And anything else may be, you know, reference or suggestion. I think color companies that have kind of come to the conclusion that they have their timeline for when they want to convert. So I want to convert this year. So I want to convert next year.
Speaker Change: So it remains to be seen really how these deadlines might change a bit, but again those are the definitive ones that we can all speak to.
Great. Many thanks.
Okay, thank you, David.
Speaker Change: Now, before I think we end, we want to, Tobin's got his—
Speaker Change: sort of end of the call, some guidance that you folks may find very useful.
So, Tobin, you want to do that and then we'll...
Speaker Change: Interest expense, we expect to be in line with prior years interest expense for the second quarter and given the dynamics with everything that's occurring with currencies and foreign exchange rates we expect.
Speaker Change: The impact to be immaterial in Q2, based on what we're seeing right now. So that's it for today. Thank you for participating in our call. If you have any follow-up questions, please contact the company.
Thank you.
Speaker Change: Ladies and gentlemen, with that we'll be concluding today's conference call and presentation we do thank you for joining. You may now disconnect your lines.