Q2 2025 Sensient Technologies Corp Earnings Call
Good morning, and welcome to the sensient Technologies Corporation, 2025 second quarter 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 will be an opportunity to ask questions to ask a question. You may press star then 1 on your touchtone phone to withdraw your question. Please press star then 2 please note this event is being recorded.
Tobin Tornel: I would now like to turn the conference over to Mr. Tobin tornel. Please go ahead sir.
Good morning.
Tobin Tornel: Welcome to Sensei and earnings call for the second quarter of 2025, I'm Tobin tornel. Vice president and Chief Financial Officer of sensient Technologies Corporation.
Tobin Tornel: I'm joined today by Paul Manning sentience chairman, president and chief executive officer.
Tobin Tornel: Earlier today, we released our 2025 second quarter 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 at sensient.com.
Tobin Tornel: 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.
Tobin Tornel: We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. It's also reflects how management reviews and evaluates the company's operations and performance.
Non-gaap Financial results should not be considered in isolation from or a substitute for financial information. Calculated in accordance with gaap.
Tobin Tornel: A Reconciliation of non-gaap financial measures to the most directly comparable. Gaap Financial measures is available in our press release and slides,
Tobin Tornel: We encourage investors to review these reconciliations and connection with the comments we make today.
Tobin Tornel: I'd also like to remind everyone that comments made during this call, including responses, to your questions may include forward-looking statements our actual results May differ materially from those that may be expressed or implied due to a wide range of factors. Including those set forth in our SEC filings, we urge you to read, sensei's, previous seccc filings, including our 10K and our forthcoming 10q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind, when you analyze our comments today we'll start.
Tobin Tornel: On slide 5, now we'll hear from Paul.
Paul Manning: Thanks Joan. Good morning, good afternoon.
Speaker Change: Earlier today, we reported our second quarter results.
Speaker Change: I'm pleased that we continue to build on our strong first quarter results and delivered 14% local currency adjusted ebit, dog growth and 21% local currency, adjusted, EPS growth,
Speaker Change: Local, currency, Revenue, grew low, single digits during the quarter. We had particularly strong Revenue performance from the Color Group, delivering 6.6% local currency growth.
Speaker Change: The asia-pacific group delivered 7.6% local, currency Revenue growth.
Speaker Change: And the flavors extracts and flavor ingredients product Lines, within our flavors and extracts group.
Speaker Change: Delivered 4.6%. Local currency Revenue, growth.
Speaker Change: These results align with our expectation and position us to deliver on our full year. Local currency, adjusted Revenue.
Speaker Change: Guidance for Revenue ebit, Dot and eps.
Speaker Change: Our emphasis on sales execution, customer service. And commercialization of new technologies continue to drive our performance.
Speaker Change: We're seeing significant activity at customers as they prepare for the conversion of synthetic colors to natural colors in the United States.
Speaker Change: As I've said before, the US conversion to natural colors is a single largest revenue opportunity in sensing history.
Speaker Change: We made a strategic shift in natural colors more than 15 years ago, investing internally, and through Acquisitions and Technologies, production capabilities, and supply chain.
Speaker Change: We believe that the conversion to natural colors was inevitable. Given the broader Market conversion to more natural food products,
Speaker Change: We have invested heavily in capital for natural colors, building and expanding production facilities around the world and we will continue to invest in our facilities in the immediate future. And for years to come,
Speaker Change: But the foreseeable future to ensure we continue to optimize our portfolio.
Speaker Change: We have also worked to build a resilient supply chain to provide the Botanicals necessary to produce natural colors.
Currently our commercial technical engineering and supply chain. Teams are busier than ever preparing and supporting our customers for these conversions.
During the second quarter, we continue to generate strong new sales. Wins cross. Each of our groups and our sales pipelines. Remain robust. In each of our regions,
These sales wins are a result of our Innovative product portfolio across our food, personal care, and pharmaceutical product lines.
Speaker Change: Each of our groups remain focused on collaborating with our customers to support their development requirements.
Speaker Change: And our customer service levels remain strong.
In short. We're, well, positioned to capitalize on the market trends. We see across our portfolio.
As I mentioned on our last call the current trade and tariff landscape has introduced additional complexity and certainty to our businesses.
This situation continues to fluctuate and based on current information. We expect the annual impact of tariffs to be slightly less than the 10 million dollars. We communicated previously.
Speaker Change: We've already taken price to offset the impacts of the initial wave of terrorists.
Speaker Change: We will continue to position our supply chain organization, to minimize, any disruptions to our customers and to optimize the flow of goods.
Speaker Change: Also, as we turn to the second half of the Year, our portfolio optimization plan continues to remain on track for an end of the year, completion.
Journey to slide 6 in our group results.
Color group had excellent second. Quarter results, delivering 6.6%, local currency Revenue, growth and 22.1%. Local currency, operating profit growth.
Speaker Change: The group's second quarter adjusted Eva de margin improved to 25.1% from 22.2% and an increase of 290 basis points versus the prior year.
Speaker Change: In the second quarter of the group, saw strong new sales wins particularly in natural colors.
Speaker Change: I should note these winds are not yet the result of any significant natural color conversions.
Speaker Change: I will touch on our estimated time of these conversions later in our discussion.
Speaker Change: Color group is progressing nicely and I'm very excited about the future ahead of us.
Speaker Change: joining slide 7, the flavors and extracts group saw local currency Revenue decline in the second quarter by 3.2%, but increased local currency operating profit by 8.6%
Speaker Change: The groups adjusted IBA de margin with 17.8% up 160 basis points versus the prior Year's comparable quarter.
Speaker Change: The flavors extracts and flavor, ingredient product lines, reported 4.6%, local currency, Revenue, growth and significant, local currency, operating, profit growth.
Speaker Change: The growth in these product lines is a result of our Innovative flavor Technologies and our focus on new and defensible.
Speaker Change: Flavor wins across North America. Europe, Latin, America, and Asia Pacific.
Speaker Change: As discussed during our last quarterly, call our natural ingredients business which consists of dehydrated onion, garlic, capsicums and other vegetables.
Speaker Change: Continues to be impacted by lower sales volumes and higher costs, which we anticipate to persist until the end of this year.
Speaker Change: On a positive note currently, we anticipate the crop that is being harvested this year and that will be sold. Mainly next, year will be at an improved cost position compared to the current year.
Speaker Change: By these Dynamics in the natural ingredients business, I still expect the flavors and extracts group to deliver solid results for the year.
Speaker Change: Now, turning to slide 8.
Speaker Change: The age specific group, had a solid second quarter, delivering 7.6% local, currency, Revenue growth and 8%. Local currency, operating profit growth. The group suggested IBA de margin was 22.3% of 30 basis points versus the prior year. Second quarter,
Speaker Change: The group continues to do growth in almost all regions primarily driven by new sales wins and flavors and natural colors.
Speaker Change: Each specific group continues on its multi-year success. And we expect more of the same in the future.
Turning to slide 9.
We remain committed to our guidance for the year. As we previously communicated. We expect Consolidated annual local currency Revenue to grow at a mid single digit rate.
Speaker Change: We originally communicated a mid to high single digit local currency. Adjusted ebit dot growth expectation.
Speaker Change: But we are now raising our guidance to high single digit. Local currency adjusted ebit growth.
Speaker Change: On the capital, allocation fund. While we increased our capital expenditure guidance, last quarter, to be between 80 and 90 million. We, we now feel as a result of the accelerated natural color conversion activity.
Speaker Change: In preparation for expanding our production capacity. We can expand further and Achieve around 100 million or slightly more for the year.
Speaker Change: This is a very positive development that will help us to more readily win, new natural color projects and to help accelerate our customers conversions.
Speaker Change: The increase Investments. We are making in natural colors is a great use of our cash and we anticipate our Capital expenditures will remain above 100 million next year, as we continue to invest in our natural color capabilities, as well as our flavors and extracts group and asia-pacific group.
Speaker Change: B on Capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share BuyBacks at this time.
Speaker Change: Now, before I turn the call over to Tobin, I'd like to provide more information on the current state of the synthetic color regulation and natural color conversion activity.
Speaker Change: Turning the slide 10, the regulatory, environment continues to evolve almost weekly more than half the states in the United States. Have some form of legislative activity for synthetic colors and food products.
Speaker Change: West Virginia, became the first and thus far, the only state to pass legislation that prohibits the sale of food products that contain synthetic colors.
Speaker Change: That law goes into effect in January 2028.
Speaker Change: additionally, Texas has passed legislation requiring food manufacturers to place, warning labels on packaged food products that contain
Speaker Change: Certain ingredients including synthetic colors and titanium dioxide with an effective. This in 2027
The main effect of these State actions is the conversion to natural colors at the national level.
Starting to slide 11 so far this year. We've seen a total of 112 color related bills introduced across US state legislatures.
Speaker Change: The significant number of leading branded food. Companies have recently announced plans to transition from synthetics to natural colors with many publicly targeting the end of 2027 as a deadline.
Speaker Change: while we continue to believe in the safety of all synthetic food colors,
Speaker Change: Sensing is engaged with a substantial number of Brands, to support their transition to natural colors.
Speaker Change: It's clear to us that the majority of consumers want natural colors in their foods and beverages.
Speaker Change: Turning the slide 12.
Speaker Change: I would like I would now like to take a moment to highlight 2 key technologies that are enabling our customers to successfully move from synthetic to natural colors without sacrificing the vibrancy and stability that their customers expect.
Speaker Change: as we have discussed and as experienced in the market has shown
Speaker Change: Contributing converting to vibrant. Natural colors, is critical for Brands conducting the transition of their products.
Speaker Change: Choosing less vibrant colors or eliminating color altogether has repeatedly led to poor outcomes in the market.
Speaker Change: More often than not consumers flavor, perception changes as a result of modifying a product synthetic vibrancy.
Whether it's an iconic soft drink or breakfast cereal using inferior, natural colors has caused such launches to fall flat in the market.
Speaker Change: It is our goal to help our customers succeed and build their brand to this transition.
Speaker Change: The first technology I want to highlight is our microfine range which is arguably the single most successful natural color technology we have ever launched.
Speaker Change: Microphones are natural colors. Use extensively in salty, snacks to impart.
Right. Reds yellows and other colors.
Speaker Change: Salty snacks are a very large category and the popularity of spicy varieties has increased demand for our microphones substantially over the last few years.
Speaker Change: Now, with the full transition to Natural as we are, uniquely positioned to help our customers maintain the color performance essential to their products.
Speaker Change: Micro finesse are also used extensively in Bakery and confectionery applications.
Speaker Change: Save a significant performance advantage over most standard natural color options in the market.
Speaker Change: Second I want to highlight sensing is butterfly pea flower extract which is first approved by the FDA in 2021 with Beverages and many other product categories.
More recently, FDA approval, was extended to include cereals crackers and snack categories.
Speaker Change: This expansion allows our customers to achieve vibrant, blue and green colors in a wide array of products.
Speaker Change: Butterfly pea. Flower extract. Also provides bold. Brilliant purple shades for many beverages.
Speaker Change: Ize the color in application and created a reliable supply chain. That makes it an appealing option for customers today.
Speaker Change: As I said, the key to successful natural color transition for food and beverage Brands is to maintain the color, vibrancy and variety that consumers are used to seeing in synthetic colors.
Our R&D efforts are dedicated to removing any gaps that exist between synthetic and natural color performance.
Speaker Change: If you'd like more information on natural color Technologies, please visit our website.
Speaker Change: Overall pleased with our financial performance. In the second quarter, we're on track to deliver on our full year guidance.
Speaker Change: Excited about the growth opportunities within each of our groups.
Speaker Change: Given the synthetic and natural color regulatory timeline. I just outlined, we anticipate sensing its natural color, Revenue to increase more significantly. Beginning in 2027 to ensure our customers. Synthetic color products are off store shelves, starting January 2028,
Speaker Change: The growth. We're experiencing is a direct result of the execution of our strategy and seizing the opportunities in our markets.
Speaker Change: Our remaining optimistic about 2025 and the future of our business total will now provide you with additional details on the second quarter results. Thank you, Paul.
In my comments this morning, I'll be explaining the difference between our gaap results and our non-gaap or adjusted results.
Speaker Change: The adjusted results for 2025 and 2024 remove the cost of the portfolio optimization plan.
Speaker Change: We believe the removal of these costs produce a clearer picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance.
Turning slide 14.
Speaker Change: Cents Revenue was 44.2 million in the second quarter of 2025 compared to 403.5% second quarter. Operating income was 57.7 million in the second quarter of 2025 compared to 49.7 million of income in the comparable period. Last year, operating income in the second quarter of 2025 includes 3.3 million. Approximately 6 cents per share of portfolio, optimization plan costs operating income in the second quarter of 2024 included 1.8 million approximately 4 cents per share of portfolio. Optimization plant costs.
Speaker Change: Excluding these costs of the portfolio optimization plan adjusted. The operating income was 61 million in the second quarter of 2025 compared to 51.4 million in the prior year. Period. An increase of 16.9% in local currency Pinterest expense was 7.4 million in the second quarter of 2025 down from 7.7 million.
The second quarter of 2024.
The company's Consolidated adjusted tax rate was 25.2% in the second quarter of 2025 compared to 25.8% in the comparable period of 2024.
Speaker Change: Local currency, adjusted ibida was up for 14% in the second quarter of 2025.
Speaker Change: Foreign currency translation had minimal impact in the second quarter of 2025.
Turning to slide 15.
Speaker Change: Cash flow from operations was 48 million in the second quarter of 2025 up 10.2% compared to last year's comparable period.
Speaker Change: This Improvement is primarily due to improved earnings and working Capital Management.
Speaker Change: Capital expenditures were 21 million in the second quarter of 2025 and as Paul indicated. We, now anticipate our Capital expenditures to be around 100 million for the full year, our net debt credit adjusted ibida is 2.4 times as of June 30th 2025.
Speaker Change: Overall, our balance sheet remains well positioned to support our Capital expenditures, sensible acquisition opportunities and our long-standing dividend.
Speaker Change: As Paul indicated we'll continue to invest in our natural color capabilities. These investments will increase in the next few years which we expect to drive favorable volume and profit growth in years to come. And we believe will be beneficial to our return on invested capital.
Speaker Change: Turning to slide 16.
Speaker Change: Revisiting our 2025 guidance, we continue to expect our Consolidated 2025, local currency Revenue to be up mid single digits. We have now raised our local currency adjusted ibida.
To high single digits. Previously, our range was mid to high single digits. We expect our local currency, adjusted EPS to be up high to double digits in 25.
Speaker Change: We still expect our interest expense to be slightly higher than the 28.8 million of Ventures. Expense recorded in 2024 and we expect our adjusted tax rate to be approximately 25%.
Events and tax rate will fluctuate corded quarter. And as a result, we continue to believe our local currency adjusted ibida. Growth is an important measure of our performance.
Speaker Change: For the third quarter, we expect our interest expense to be approximately 7.7 million and our third quarter tax rate to be around 24%.
Speaker Change: Based on current exchange rates. We now, expect the impact of currency on the EPS, to be a slight Tailwind for the year. As a reminder, we got in both gaap and local currency for EPS. This is important to understand as our reported Gap results include the trans translational impact of foreign exchange rates, which is generally been unfavorable as a result of the strong US dollar in recent years.
Considering our gaap earnings per share in 2025. We expect approximately 20 cents of portfolio. Optimization plan costs,
We expect our gaap EPS in 2025 to be between 3 and 0.13 and $3.23 per share. Compared to our 2024, gaap EPS of 294.
Speaker Change: As you have all seen daily, the Tariff situation remains dynamic. As Paul mentioned, we are mitigating the impacts of tariffs with price when, and if any tariff changes come into effect will report on on that effect after the fact,
Thank you for participating in the call today. We'll now open the call for questions.
Speaker Change: We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone to withdraw your question. Please press star then 2
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: In your first question comes from Larry solo with CJs Securities. Please go ahead.
Speaker Change: Great. Uh, thanks. Good morning everybody. Hey Larry.
Larry Solo: First question would be, uh, just if Paul lots of moving parts and, and positive things on the on the caller side. And, and as you mentioned, we've seen a lot of positive headlines. A lot of the, the larger cpgs committed to switching, um, within the next couple years, just curious. Um, you know, in the background, what's going on, you know, it's only been a few months, obviously. But supply chain, things like that, you know, advancement planning, you know, just Logistics and stuff like that, because obviously it's, it's going to be somewhat of an effort to to make that transition. So I need to get our color or just lay the land. You can give us on that side of the equation.
Larry Solo: Well, supply chain is perhaps, well, arguably the single biggest.
Larry Solo: Uh, Factor here in this conversion. Uh, you've heard me say this publicly many times, and I'll say it again. If the United States wanted to convert tomorrow, they couldn't because they're simply not enough raw material available, uh, to fulfill the type of demand and need. We're talking about here. So, like any Agricultural Product?
Larry Solo: There's a lead time associated with that and and of course, naturally a lot of planning goes into that uh, process. And so
Larry Solo: That's Point number 1, I mean, Point number 2. I think 1.
1 of the first things that we, as we embarked on this natural color strategy, 1516 years ago was
uh, it's it's about the supply chain stupid, because if you don't have enough sources and a variety of those sources,
Larry Solo: And you're not cultivating new ones and novel ones.
That's going to be the real limitation. You could have great technology and great capacity and wonderful sales people and and a terrific website. But if you don't have Botanicals the train stops. And so I think very early on WE identified that as a as perhaps a single most critical factor in this whole conversion activity and so
Larry Solo: Breath. This is kind of year, 1617 or more, uh, working in Earnest on this supply chain. And, and how we can, uh, uh, have enough mitigate as much of the risk as possible, uh, through diversification. And the identification of new sources, selective vertical integration. You've seen us, buy a couple businesses over the years.
Larry Solo: Focused in this area.
Larry Solo: But no, I think you're hitting on a, on a profoundly important Point, um, and that is the supply chain. Yeah, there's a lot of other factors too. But yeah, this is 1 that that we, we have worked and continue to work. Very, very diligently to ensure that we have it. When the time comes
Speaker Change: Yeah, I think that's a fair assumption. Um you know with January 1st 2028 now the regulations for West Virginia states that
Speaker Change: You will not have items on the shelves, on January 1st, 2028 that contain synthetic colors. So that
Speaker Change: 1 could rather easily assume then that natural colors need to start coming out in Earnest at some point in 2027. So if for no other reason, the West Virginia law
provides a bit of the guide rail there. Yeah, I think you're you're about right on the 2027 and, and what's noteworthy about the colors continued success. As we, as we mentioned in the comments there,
Speaker Change: Those results that great Revenue growth that great profit growth. There is no like major conversion or even minor conversion that I could speak to uh associated with those numbers.
Speaker Change: So it it's that makes that result all the more impressive and it also gives you a little sense of what is the real opportunity available here as these conversions begin in Earnest. And and when that may be
I don't want to say it's anybody's guess because there is a deadline here but yeah I I think 2027 in short that's probably the the that's going to be the single biggest year. I think we could all agree in this time frame.
Speaker Change: Got it. And if I could just please 1 more for Tobin just, um, the quarter, you know, nice earnings growth on on somewhat, you know, a little more modest, uh, sales growth obviously, nice margin Improvement and it, it looks like it was mostly gross margin or it is mostly all gross margin driven is, is that is that pricing is that mix?
What's kind of operate? What's kind of driving that um nice Improvement in gross margin. Thanks. Yeah. No with margins are up, AC the board, especially our ebit of margins across all 3 groups. So um we did see a good movement, their pricing is really a material for us, so low, single digits. So volume growth, uh mix, you know, which is a result of a lot of the new winds that were experiencing across all 3 of our groups. So that's really what's driving it as well as you know we're we've got our eye on our costs. Uh M. Making sure that we're we're we're maintaining our sdna base and being able to leverage that. And I think you're seeing that in our, our margin performance.
Speaker Change: Right. Thanks, I appreciate it.
Okay. Larry. Thanks.
Speaker Change: And your next question comes from gum. Punjabi with beard, please go ahead.
Gum Punjabi: Yeah, hey guys. Good morning uh, congrats progress morning, Paul so so I guess, you know, first off on the 110 of synthetic colors that you currently have exposure towards. Um,
how would you have us think about the activity at this point in terms of converting through, you know, towards natural? I mean, obviously it's a process with reformulations qualifications, Etc. And if you could break that out in terms of which specific categories within food and beverage are sort of seeing the highest initial momentum, um, that would be helpful as well.
Gum Punjabi: Yeah, so I think, uh, the the opportunity as we see it. So that's the number, the 110. That's a not only the us, but there's a component of that associated with Latin America. And so, while this conversion is a US conversion,
Gum Punjabi: There are certainly manufacturers outside the US who would export to the US, who will also be subject to these requirements. And so therefore, it provides
Opportunities outside of the us, too.
Gum Punjabi: Um, in in, for our, for our business. So I think that's that's really an important piece.
You know, in terms of which products and which customers big or small, I would tell you that, there's, there's no real obvious and predictable set of behaviors.
Gum Punjabi: Um, I think we've seen very very small companies exceedingly. Eager want to go want to go first want. Perfect matches. We've seen very large
Uh, companies customers who say, hey, we want to go, we want to go first, we want to have great matches.
Gum Punjabi: And then you know then you see of course everything in the middle. But you know, as we look at this,
Speaker Change: There there is always been work in natural colors, natural colors is by no means new to the US or certainly any other part of the world.
Speaker Change: Our, our activity would suggest in the US market prior to these announcements that 80% of new product launches that had a color.
Speaker Change: That color was a natural color. So it's something that our customers are familiar with now.
Speaker Change: It's it's a little bit less familiar in certain applications than others. So for example, natural color use became pretty, widely used in beverages, not all beverages, but many beverages which is a an exceedingly difficult formulation environment,
Speaker Change: Can you get the same vibrancy? Can you avoid taste changes associated with a higher concentration of color in that formulation. And so, beverage has always been a strong user, but it's also been very uh challenging uh, to to put natural colors in many of those products.
Speaker Change: you know, as you go through the other types of product segments
Speaker Change: You know, there are those that that are are far more challenging than others, uh, processes that involve a lot of heat like, Extrusion or baking.
Speaker Change: You know, you can imagine that chair in your family room at home, right? If it's sitting in the sunlight for too long, the brown is no longer Brown, it's like tan and then like if it just keeps going like the color entirely goes out of that. And so you see a very similar phenomenon when you have even higher temperatures and exposure to light and colors. And so there's very very challenging manufacturing environments that our customers produce their products in
And so, these are a lot of the things that we've been working on with our customers.
Speaker Change: but most of our customers too had some level of contingency over the years, you know, maybe 10 years ago like, hey,
I might have to convert this 1 day so I I kind of like to have the answers to to what that would be.
Speaker Change: And so there's been some of that work but because our technologies have enhanced and improved substantially over that time period in many cases. We're we're redoing a lot of that. Reformulation work work.
Speaker Change: but I think the the advice we we give to our customers and all the data that we have observed around, the world would suggest that if you're a customer using synthetic colors and you want natural colors,
You, your goal should be to match that synthetic color.
Speaker Change: You might not get it exactly the synthetic color match, but you have to have a very vibrant attractive color.
Speaker Change: Nature is vibrant and attractive.
Speaker Change: And so when when folks get cute and they decide well it's natural. So it should look ugly and faded and pitted and no wrong answer. And I think that that is
Speaker Change: Probably the most important, guiding principle and, and the 1 that we share with the majority of our customers. They want to get that matched, they want their products to look attractive. They want natural colors to be a source of opportunity in their category.
Speaker Change: Many customers want to go first so that they can be the leader of their category and see natural colors as a mechanism to potentially grow their share in that category.
Speaker Change: And they believe that doing that with the right matches is going to be the most critical factor, or certainly among the most critical factors.
Speaker Change: And so,
Speaker Change: Yeah, the uh the mental momentum is very, very strong. I I think uh our our customers are very very engaged in this. In fact we even see somewhat of a reduction in launches that customers because of the uh focus and attention that they are providing to natural colors, they're taking folks from around their labs and having them work on this natural color. Reformulation has in some cases actually slowed launch activity in in other parts of the market for them.
Speaker Change: So, big effort, but very, very exciting. And we feel really, really good that we've got a lot of great technology to, to, to share with the customers here.
Speaker Change: Okay, thanks for that. And then for the color segment specific to 2q and you know the incremental were North to 60%, you know, it was 40% in the first quarter. Um I know there's variability you just depending on timing and so on and so forth. But was there anything unique that drove that sort of improvement? Um you know into Q? Going back to the earlier, question on margin expansion. Thanks.
Speaker Change: Yeah, no, I mean, got some just a color group reported really nice, um, ibida, margins north of 25%. So there was nothing real specific. I mean, really, really the the new winds that Paul is alluded to. And we've been talking about for the last, you know, last several years has really been driving that, uh, growth and then our focus on on costs, over the years and making sure that our cost basis, um, especially in sgna that we're able to leverage, that has been a focus, not only in the color group, but, but flavor and Asia and corporate as well. So, I think you're starting to see that not only in the color group, but, uh, flavor in Asia as well.
Speaker Change: Should we think about capex needs for 2026? I I realize Lots going on, and so on, but the opportunity sets big. So I'm just trying to get get a sense as to how much of an uptick we should uh keep in the back of our minds for next year.
Speaker Change: Okay, so the timeline on Sni. Uh, this is essentially, I think you'll see the inflection point. Late Q4.
Speaker Change: And, uh, the inflection point will be not only on Revenue, uh, but perhaps more importantly on the cost profile of that product line. Right now, we're dealing with a, a very heavy cost crop stemming from a number of factors, not least of which was a Downey mildew. Um,
Speaker Change: Well, I guess you'd call it a blight last year and the number of our growing regions.
Speaker Change: Um, and so I I think you'll see a nice turnaround in Sni for 2026.
But also as you can see we we more than overcame, whatever reductions in Sni uh we had to to to face from a headwind standpoint and flavor is really delivered.
Tobin Tornel: Nice mid single digit, Topline growth and uh, remarkably good leverage. And again, going back to Tobin's point on the heels of really really good product. Mix really, really tight cost control.
Tobin Tornel: And and let's not forget, we used to have a hell of a lot more plants and flavors and now we don't. So we we've got continued and substantially better optimization and utilization of our plants which really, really
Tobin Tornel: Feeds nicely into that Leverage.
Tobin Tornel: On the, on the capex front.
Tobin Tornel: Yeah, that's right. We we raise capex last quarter and we're doing it again and I would do it more if I could. But my constraint right now is how quickly I can get equipment and how quickly I can get little green lights to turn on and Facilities around the world.
So the faster we have Capac capex in place this equipment. And again, this is all that 10 million Rays. Essentially, 100% of it was with respect to natural colors.
Tobin Tornel: We want to win and we want to win substantially and and we're going to put our money towards our strategy as we have for the last 15 plus years.
Tobin Tornel: And so, I, uh, I only wish I could have added more to the guidance in 2025, quite frankly. So,
Tobin Tornel: We're we're feeling good with where we at. We've got a lot of capacity, but we're going to want to have a lot more capacity as this conversion heats up. And and we want to enable customers to go faster if they want with this conversion and having that supply chain squared away. And having the capacity available are big in that discussion. And so we, we gave a little bit of a hint about 2026. It would be, uh, I I'll tell you right now. It's going to be north of a 100 million depending on the timing and, and other factors will refine that as we move forward.
Tobin Tornel: But I I think we're going to be very very happy that we did this and uh and it's going to enable us to to really win uh a good share of these conversion opportunities.
Speaker Change: Okay, very helpful. Thank you. Okay, thanks, gotcha. Thanks, gotcha.
Nicolas Tang: and your next question comes from Nicolas tang with BNP paraba, please go ahead
Speaker Change: Hi everyone. Um, hey Nicholas. Hello. Hey, thanks for taking questions. Um, first, I guess a follow up on the capex point. Um, you mentioned that you already have a lot of crusty, but you want to enable, um, sort of, you know, customers to, to grow faster. Um, based on your current capacity to you, um, feel comfortable in terms of the conversion of the 110 million, um, of existing synthetics, um, revenues that we are afraid to earlier or does the capex investment that we're talking about, also help to, I suppose fund, or support the the capacity for for the conversion of existing customers as well.
Speaker Change: Just trying to understand how much you know sort of incremental growth opportunities. There is on top of just the conversion within customers. Yeah.
Speaker Change: so, today's
Speaker Change: Yeah, so today's manufacturing footprint would be insufficient.
Speaker Change: To convert that 110.
Speaker Change: Now, could it get us halfway there? I don't know. I hadn't necessarily thought about that question. Uh, but it could certainly get us a fraction of the way there.
Speaker Change: And so this incremental spend is is really essential to uh, the longer term opportunity.
Do you also see an opportunity to um uh take more share? So, beyond just converting the 110 or that's really what you're thinking about in terms of this capex step up for the next few years.
Well, I always think about growing the business and if I uh, if I have something that somebody else doesn't have uh good for us. And so yeah, I think that this puts us in a very, very good position
Speaker Change: Our existing Sheriff synthetic. But, you know, you don't necessarily uh,
Speaker Change: You know when every single opportunity. So we want to ensure the odds of that grow and grow and capital is 1 of those levers. We have
To ensure, we, we capture our share and we're always going from war.
Speaker Change: But remember, too, there's, there's slices of the natural color Market that we're not particularly interested in. They're not as defensible.
Um, much more uh basic applications stability, formulation applications expertise or not. Really
Speaker Change: Uh, considerable factors in winning those types of products.
Speaker Change: So selling buckets of something or other to somebody who's going to buy it this year and give it to somebody else. Next year, we, we largely tend to stay away from that sort of uh, transactions. And then there's definitely an element of that in natural colors as there is with, with every Market. I think.
Speaker Change: Okay. Um, and the second question was more around. Um,
Speaker Change: Pricing or the relative pricing of Naturals and synthetics and how this could develop over time. I think today, you talked about, you know, to exactly color match. And he talks a little about the importance of this, um, you know, kind of average 1 to 10 conversion. Um, synthetics to Naturals, I was wondering given what you said about the challenges around supply chain, um, around like physical, you know, availability of products but also the increase in technology.
Speaker Change: Or more complex, um, technology that we're seeing whether actually the price, the relative cost for the rest of price point of Naturals, could actually be higher than the 10 to 1 going forward. Or do you think it will come down
Speaker Change: Well the the sort of the 10 to 1 or 8 to 10 depending on who you talk to that's that's an average case. So if you just think of a normal distribution of data data that that's probably kind of right down the middle. There are some applications that it might be 15 or 20 times and then there are other applications that maybe 3 or 4 times.
Speaker Change: So there there's a lot of uh, possibilities within that.
Speaker Change: So as this begins in Earnest this conversion you could imagine that. There'll be a lot of folks who want to enter from a supply standpoint. The growing of these Botanicals the processing of these Botanicals. And so I think that would be fundamentally a good long-term program when when you think about the FAQ fully absorbed cost of a natural color,
Speaker Change: To to be produced. The vast majority of that cost is raw materials. Maybe even 60, 70% in some cases.
Speaker Change: So every lever of 1 could have to reduce that raw material cost, you really want to pull it. I mean, it's certainly our expectation. We we want to optimize the economics for our customers as much as possible. We want them to be successful. We want them to be eager to do this.
Speaker Change: And so yeah, finding those additional supplies and just having more Supply available as we proceed.
I think that's going to be a real positive for us and for the industry so that we can continue to bring that 10x down to you know 8X and 7x and and whatever that may be and our continued efforts around R&D.
Development of better Solutions. You go back 15 years. It wasn't 10x. It was probably like 35x. And so over time through technology
Speaker Change: Uh, the development work, we've done and, and in this space and perhaps, even others, I think, has really gone a long way to, to reduce it to where we are today. So, I still think there's opportunities in the future to do that, but again, it's all in the interest of
Speaker Change: helping our customers to to really be successful with, with their product categories, and in these, in these spaces,
Okay, great. And then a final question, um, just on the flavors and extracts Division. I mean packaged food volumes from the industry perspective. We've been pretty lackluster for quite a long time. Um, I was wondering if you could talk a little bit about, you know, the your outlook, um, both in terms of the industry but also what you're seeing in terms of new win activities. Um, and what your outlook for growth here,
Speaker Change: so the the market data, I look at uh, for Q2 would suggest that the volume of goods sold in the United States food packaged Goods, not the revenue, but the volume was actually down in Q2
Speaker Change: Europe, was up modestly. And again, those are averages. So, there were some categories that did quite well, energy drinks. I, I contribute substantially to that market.
Speaker Change: Uh, but there are others that are sort of less interesting to to, folks, and so net, net. The volume was down in the US up slightly in Europe. They're a nice patches in Asia.
Speaker Change: Uh, with respect to launch activities, you know, to me, it's a little bit more of the same pretty flat. Not a lot of movement from q1. Yeah, line extensions. Yeah repackaging. Um, and and so I think
Speaker Change: Continued sort of fewer to the world product, new to the World products. And I think that's, that's on the heels of a lot of uncertainty with respect to interest rates tariffs.
Speaker Change: And and perhaps an unwillingness for for certain brands, to really take big bets on products that that may not do so well in the marketplace. So we we see kind of the continued
Speaker Change: maybe, uh,
Speaker Change: Slow launch activity, but Hey, listen. I mean, natural colors is an enormous launch activity and so whereas yeah, maybe there's products over here that aren't generating a lot of launch activities and at the macro level, it's not
Speaker Change: natural colors will will certainly provide
Uh, the enormous uptick, uh, that we, we would hope is going to help Drive our business longer terms. So I think the fact that we picked natural colors that we've been very focused on natural colors, I think we're going to be rewarded for that, uh, in in the market launches and the growth opportunities that are there, so,
Speaker Change: Yeah, the macro level is 1 thing but the the the markets and the segments that we've really been emphasizing is another and this is why you go back to 2019 our year-over-year, average revenue growth rate is north of 6% in local currency. So I think we, we picked the right segments and and I think we're going to continue to execute pretty well in these
All right. Thank you.
Nicolas Tang: Okay, thanks Nicola.
Nicolas Tang: again, if you have a question, please press star then 1
Speaker Change: Your next question comes from David green with bold Haven. Please go ahead.
Speaker Change: Hi Paul. Hi Simon. Hey, David
Speaker Change: Hey there. Um, yeah, first quick question. You've raised the uh, the local currency adjusted ebit dog guide.
Speaker Change: From mid to high single to high single, but you haven't changed the local currency adjusted uh from the high single digit to double digit. I just wondered what the moving parts were there.
Speaker Change: Uh well you're right, we raised eBid Doc and uh we retain we maintained Revenue. Uh EPS is still high to double digits and so
Speaker Change: You know, I think you're probably doing the math and you're saying, well, if they got mid single digit revenue and high e that die. How the heck, do they not get double digit EPS? Well, we can and I think that's certain
Speaker Change: But you know, EPS is is often times rather than perfect metric most notably since as you know it doesn't account for local currency and it doesn't take into account foreign exchange.
Which is why. If you look back over the last 10 years, people will say Sensei is, EPS is flat because it doesn't take into account local currency results. So it was an interesting metric.
Speaker Change: In in the, you know, in the time where folks only so domestically, but in an international world it's a little bit less relevant at times.
Speaker Change: but I think on the basis of local currency as we like to think about eps,
Yeah. Hi digit. Single digit to double digit. Double digits is very much potentially in play, but I think we like to leave wiggle room in, as much as tax could change. Interest could change the FED can do things that we can't predict, and nobody can
Speaker Change: and so they're moving Parts kind of below the ebitda line that that could impact that but I I think we just want to make sure David that we just never disappoint you
Speaker Change: Yeah.
Speaker Change: Um, and just maybe to to fne and to the cost headwinds, um, in Sni is, is there any way you can kind of give us a feel for what kind of headwind to Topline?
uh, those costs are those elevated costs from crop, are having
Speaker Change: Well, the top line is really a function of of a number of things. So number 1, we had a really good last year and and maybe a little bit too good and maybe we we want something that now we we don't have
Speaker Change: So you could almost call that. There was a little bit of culling there but I think first, first of all, they had a really good Q2. So, comparable, comparing that with with rather challenging? And then there's a bit of calling. There's a lot of tariff Distortion where we've seen the most Distortion in our results. Stemming from tariffs is Sni.
Speaker Change: in the first task of the year and um so in as much as we have a strong share a lot of these accounts and and
Speaker Change: um, we expect to see a little bit of an improvement sequentially in the back half of the year, but these tariffs
Speaker Change: And the very long shelf life of these products kind of contributed to to some of the headwind that that we're seeing right now. Um,
Speaker Change: so, yeah, I think on the cost,
Speaker Change: Probably perhaps argue with this single biggest cost is is the actual crop costs?
And the yield stemming from that and some of these matters I I mentioned before with, with, um, Downey mildew, uh, there's which contributes a lot to operational costs.
Speaker Change: so I think much of that has uh is is has been resolved much of that is still to be resolved, but I think the crop that is coming in now,
Speaker Change: It actually looks really good, and it's going to be at this point to predict that we we think it's going to be really, really good for the, the the duration of the harvest season, which will go for a few more months. So, I think we'll be in a very nice position in 2026 on Sni. Not only on Revenue, uh, but on profit, but I think you'll see some sequential improvements as we get into Q3 and 4 of 2025 as well. But, you know,
Speaker Change: Not every product line is always hitting on all thrusters at the same time. But the big picture here is flavors was still up almost 9% and ebit da,
Speaker Change: And we feel really, really good about that. And I think that as we get S and I, um,
Speaker Change: Firing on all thrusters. I think we have a really nice 2026 to to follow up a really, really nice, long run here in in the flavors group.
and just just, I know there's been a few questions around the the really positive operating leverage in both colors and Ethan, and I think you had mentioned um mix as a 1 of the drivers when when you say mix within those respective businesses, what does that mean specifically
so,
Speaker Change: next, for example, is
Speaker Change: Selling more flavors in, in the universe of flavors, there are things flavors like, you know, you know, I love grape flavor, for example, so that but there's also components of flavor systems. Uh, we, we call those flavor ingredients.
and so I think certain products in certain applications generate and command higher gross margins,
Uh, given the technical sophistication of those products, and I think our ability to execute on that in particular.
Would be what I would argue is 1 of the single biggest components in mix, that has contributed to the really positive outcomes there. You see in flavors the colors,
Speaker Change: Similar Dynamic right there. I you've heard me talk about their different parts of the natural color Market colors that are very precise and they have to be synthetic color matches.
Much more technically driven products versus, you know what, you might call a belly wash, natural color. Just some you know really not all that, interesting, not all that profitable, not all that defensive. And so when you sell more of the former and less of the latter, you have a real nice uplift stemming from mix. So those are a couple of examples uh that that I speak to to to to to explain the mix and the operating Leverage
Great. Um I guess well 1 1, more final uh question. It's it's not necessarily a huge part of the business, but when I look at Personal Care specifically within colors, uh it still looks a bit soft. Is there anything driving that or any expectations to when that might improve?
Speaker Change: No. Yeah it is a little bit soft in really, in Europe. Is the is the the big 1. Uh, let soft in North America as well. Quite nice growth in Asia, Pacific and latam
Speaker Change: So yeah, it was a little bit soft but it's softly very profitable business for us. And so I think um, this is 1 industry where there's there's a lot of change of foot. Whoever thought anybody was going to buy cosmetic products on e-commerce platforms.
Speaker Change: Whoever thought there was going to be such a push uh, to selling certain products across different, generational divides. And so there's been a lot of shift in the market. There's been a lot of movement towards third-party manufacturers. Manufacturing products.
Speaker Change: So the world are going to a department store and buying from a household brand name. Yes, there's still a lot of that.
Speaker Change: But there's also a lot of influencers, folks who don't even know how to.
Speaker Change: They don't they don't have the ability to manufacture products, they know how to develop the products.
Speaker Change: Action for them, and develop for them. And it's the influence that we've seen through a lot of these startup Brands and personal care space. That's really, really shaken that market substantially. And so
Speaker Change: You know, a couple years ago, it was all about skin. Now, it's all about fragrance and a couple years from now. It's not going to be bad either of those or maybe it'll be about both or maybe it'll be about makeup.
Speaker Change: And so, our game here has been to continue to diversify our platform, which historically has been color Cosmetics, makeup principally body care. And so, um, I think the long-term prospects are going to be most promising as this segment begins to convert to natural colors.
Speaker Change: So, if you look at sensing for the next 10 to 15 years, you'd say okay a lot of natural colors and food and beverage for the next.
Speaker Change: Call it 4 or 5 years.
And then it'll be very interesting to see how the technology evolves there. So for the next wave of of natural colors,
and then I think alongside that you're going to see as technology improves as much broader use of natural colors in Personal Care applications and that will be an enormous opportunity for sensing as well.
Speaker Change: So, yeah, we play the long game around here, and that's another long game, we're playing. And, and we would predict that there's, as we did the food. There is an inevitable conversion to natural colors that you will see in Personal Care in the coming years. So hey, they might add a little bit of a soft quarter. I'm okay with that because the long game that that's going to be.
Even more profitable and successful business, and it's already been for us.
Speaker Change: Great. Many thanks. Okay. Thanks David.
There are no further questions at this time, I will turn to conference back to the company and Tobin tornel for any closing remarks.
Thank you again, for your time today. Uh, before we conclude, I'd just like to re reiterate, some of the comments on our estimates for Q3
Speaker Change: Currently, we expect our interest expense to be about flat with prior year, around 7.7 million for the quarter. We expect our tax rate to be around 24% in Q3 and given the current exchange rates. We expect the overall impact in the quarter to be in material,
Speaker Change: That concludes our call today. If you have any follow-up questions, please contact the company. Thank you.
Speaker Change: The conference has concluded. You may now disconnect