Tobin Tornehl: Good morning. Welcome to Sensient's earnings call for the Q3 2026. I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I'm joined today by Paul Manning, Sensient's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2026 Q3 results. A copy of the earnings release and the slides we'll be using during today's call are available on the investor relations section of our website at sensient.com. 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 from our 2025 results, and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods.
Tobin Tornehl: This also reflects how management reviews and evaluates the company's operations and performance. Non-GAAP financial results should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today. I'd also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings.
Tobin Tornehl: We urge you to read Sensient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. We'll start the presentation on slide five. Now, we'll hear from Paul.
Paul Manning: Thanks, Tobin. Good morning and good afternoon. Before I begin, I would tell you that given that we're joining you today from Milwaukee, Wisconsin, I'd like to open by congratulating the Milwaukee Brewers on their first-ever World Series championship on Wednesday evening. It was a truly dominant October run for the hometown team. Earlier today, we reported our Q3 results. We delivered 10% local currency revenue growth, 15% local currency adjusted EBITDA growth, and 18% local currency adjusted EPS growth in the Q3. These results build on our excellent H1 and set us up for a strong finish to 2026. Color Group continues to deliver exceptional results with 17% local currency revenue growth and 21% local currency operating profit growth. We remain focused on supporting our customers through their natural color conversion, and the momentum continues to build as they approach their conversion launch dates.
Paul Manning: Flavors & Extracts Group also had a solid quarter, delivering 3% local currency revenue growth and 9% local currency operating profit growth. The Asia Pacific Group had an outstanding quarter with local currency revenue growth of 15% and local currency operating profit growth of 32%. Each of our groups delivered strong results in the H1 and continued on that trajectory in the Q3. During the Q3, we continued to generate strong new sales wins across each of our groups. These sales wins are a direct result of our innovative product portfolio, exceptional service levels, and focus on customer collaboration. We are delivering particularly high win rates in natural colors as we see strong conversion activity, and newly converted natural color products continue to enter the market. In fact, 85% of all new launches in the US in the Q3 were naturally colored.
Paul Manning: We expect that figure to keep growing. At the same time, customers are actively working to convert their existing products to natural colors, and our sales pipeline continues to grow as we push towards our $1 billion conversion sales target. We are leveraging our outstanding technical and commercial teams, along with the substantial R&D, capital, and supply chain investments we have made over the last 15-plus years. The conversion momentum continues to build, and there has been nearly a 10% decline in total FDA synthetic color certifications over the last 12 months. This is a truly noteworthy indication of the natural color conversion progress. Customers are de-stocking synthetic colors and replacing them in earnest across their portfolios. I would anticipate a continued decline in synthetic colors going forward.
Paul Manning: Eventually, nearly all of our synthetic colors produced in the United States will be directed at Latin America and Asia Pacific customers. During the Q3, the Color Group recognized approximately $30 million of new natural color conversion revenue. This $30 million is in addition to the $45 million of natural color conversion revenue that we cumulatively recognized through the Q2. We expect a substantial number of conversions in 2027. This expectation is based on wins already achieved, plus our customers' projected natural color conversion launch dates. We also estimate the conversion activity to continue into 2028, such that we approach our incremental $1 billion run rate as we exit 2028. While our business focus remains substantially on natural color conversions, we continue to generate strong win rates across the globe in our other food, personal care, and pharmaceutical product lines.
Paul Manning: Turning to slide 6 and our group results. Color Group had excellent Q3 results, delivering 17% local currency revenue growth and 21% local currency operating profit growth. The group's Q3 adjusted EBITDA margin was 25.1%, up 40 basis points compared to the prior year. The group continues to make progress on its investments in natural colors, primarily in production capacity, working capital, and R&D. We expect these investments to continue into the foreseeable future. We are aggressively pursuing these initiatives to achieve our $1 billion natural color conversion sales target. The group remains focused on selling technically differentiated natural color products, controlling costs, executing pricing where necessary, and most importantly, delivering quality new wins. We are seeing acceleration in customer orders for conversions of their synthetically colored products in the US. The conversion is happening.
Paul Manning: As we approach the final quarter of the year, I continue to expect the Color Group to deliver local currency revenue growth in the high teens for 2026. Overall, the Color Group is having a fantastic year and remains on a great sales trajectory. Turning to slide 7, Flavors & Extracts Group saw local currency revenue growth in the third quarter of 3% and local currency operating profit growth of 9%. The agricultural ingredients business, in particular, had a nice volume growth in the quarter. The group's adjusted EBITDA margin was 18.5%, up 80 basis points versus the prior year's comparable quarter. The results align with our expectations for the third quarter. The group continues to focus on new and technically differentiated flavor wins and optimizing its costs. These factors have fueled a favorable profit leverage that we expect to continue into 2027.
Paul Manning: Overall, for the Flavors & Extracts Group, we expect local currency revenue growth of mid-single digits for the year. Turning to slide 8, the Asia Pacific Group had an outstanding third quarter, delivering 15% local currency revenue growth and 32% local currency operating profit growth. The group's adjusted EBITDA margin was 27.5%, up 330 basis points versus the prior year's third quarter. The Asia Pacific Group continued to generate strong new color and flavor sales wins across all geographies. I now expect the group to deliver low double-digit revenue growth for the full year. Turning to slide 9, regarding our full-year guidance, our growth expectations remain consistent with our previous guidance. We continue to expect our local currency revenue to be up high single to low double digits, and our local currency adjusted EBITDA and EPS growth in the mid to high teens for the year.
Paul Manning: On the capital allocation front, we expect consolidated capital expenditures to be around $160 million for the year. We continue to expect to spend around $250 million for natural color capital, with the majority in 2026 and 2027. We also continue to anticipate an increase in our natural color working capital requirements as we build our supply chain. We are absolutely committed to delivering $1 billion in incremental natural color sales. We are fully engaged on this multi-year plan to add the necessary capacity and allow for further potential growth in the future. Beyond capital expenditures, we will evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks in the near term. Before I turn the call over to Tobin, I would like to profile some of the consumer research that our Color Group has conducted to reinforce the Value of Color.
Paul Manning: This is shown beginning on slide 10. To provide a little background, Sensient's Value of Color series is a large-scale research initiative spanning several years. It quantifies how food color drives consumer perception, preference, and purchasing behavior. To date, this multi-phase research has engaged over 12,000 consumers in the United States, testing more than 70 consumer products across seven major food, beverage, and pet food categories to help deliver actionable color insights for our customers. Turning to slide 11, you can see an example of some of the findings from the research, specifically focused on breakfast cereal. Color has a powerful influence on how people perceive the taste of food, and there is a clear linkage between color vibrancy and variety and the consumer's perception of flavor intensity. The critical point of this research is that color has a powerful influence on how people perceive the taste of food.
Paul Manning: As a result, when considering the impacts for natural color conversions, it is imperative that food and beverage brands maintain as much consistency in the appearance of their products to minimize the risk of a perceived change in flavors. In other words, for brands to win, they should match the synthetic color to drive taste and quality expectations. Analyzing our pipeline, the vast majority of our customers are striving to match the synthetic colors. There are very few instances where customers plan to remove color or use a dull, less vibrant color match. Another insight which became apparent through the data gathered was that consumers are willing to pay more for natural colors within the cereal category. They also associate quality with the visual appearance in their bowl. Additionally, we concluded that natural color use continues to increase purchase intent across all categories.
Paul Manning: This research has reinforced much of what I have said before regarding the importance of maintaining color consistency, quality, and vibrancy. Our R&D efforts continue to be focused on removing performance gaps that exist between synthetic and natural colors. If you would like more information on any of our natural color technologies, please visit our website. Overall, I am very pleased with our financial performance in the third quarter. I am excited about the growth opportunities within each of our groups, and I am looking forward to the continued progression towards our natural color sales target. The growth we are experiencing is the result of our execution of our long-range strategy, and I remain optimistic about the rest of 2026, and I expect 2027 and 2028 to be outstanding years for our business. Tobin will now provide you with additional details on the third quarter results.
Tobin Tornehl: Thank you, Paul. In my comments this morning, I will be explaining the difference between our GAAP results and our non-GAAP or adjusted results. The adjusted results for 2025 remove the cost of the Portfolio Optimization Plan. While we do not have any Portfolio Optimization Plan costs in our 2026 third quarter results, we believe that the removal of these prior year costs produces a clearer comparative picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance. We will start on slide 13. Sensient's revenue was $455.8 million in the third quarter of 2026, compared to $412.1 million in last year's third quarter. Operating income was $72.4 million in the third quarter of 2026, compared to $57.7 million in the comparable period last year.
Tobin Tornehl: Operating income in the third quarter of 2025 included $3.3 million, approximately $0.09 per share of Portfolio Optimization Plan costs. Excluding the cost of the Portfolio Optimization Plan in the prior year, adjusted operating income was up 18.6% in local currency in the third quarter of 2026, compared to $61 million in the prior year period. Interest expense was $8.3 million in the third quarter of 2026, up from $7.3 million in the third quarter of 2025. The company's consolidated adjusted tax rate was 24.6% in the third quarter of 2026, compared to 23.8% in the comparable period of 2025. Local currency adjusted EBITDA was up 15.4% in the third quarter of 2026. Foreign currency translation had no impact on the EPS in the third quarter of 2026. Turning to slide 14. Cash flow from operations was $40 million in the third quarter of 2026.
Tobin Tornehl: Capital expenditures were $38 million in Q3 2026, and as Paul indicated, we anticipate our capital expenditures to be around $160 million for the full year. Our net debt to credit adjusted EBITDA is 2.3 times as of 30 September 2026. As we communicated the last couple of quarters, we also expect higher investment in inventory throughout the year to support the increased natural color conversion revenue. Debt is expected to continue to increase further with our leverage ratio remaining around its current level. Overall, our balance sheet remains well-positioned to support our capital expenditures, sensible acquisition opportunities, and our long-standing dividend. As Paul indicated, we will continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth for years to come.
Tobin Tornehl: We maintain our goal of pushing our ROIC to the mid-teens over the next few years as we look ahead to peak natural color conversion activity. We will evaluate sensible acquisition opportunities where there is a strategic advantage on the technology, supply chain, or geography front. Turning to slide 15. Reiterating our 2026 guidance, we continue to expect our local currency revenue to be up high single to low double digits, and our local currency adjusted EBITDA and EPS to grow at mid to high-teen growth rates. Based on current exchange rates, we expect the impact on currency on EPS to be immaterial in Q4. We expect our full-year interest expense to be around $34 million, and our tax rate for the year to be around 25%. We expect our full-year corporate expense to be approximately $66 million, with the increase driven by higher performance-based compensation.
Tobin Tornehl: We are increasing the low end of our GAAP EPS range to $4.15 from $4.10, and narrowing the GAAP EPS range to $4.15 to $4.20. We still expect EBITDA margins for the Color Group and Asia Pacific Group to be in the mid-20s for the year, and EBITDA margins for the Flavors & Extracts Group will be in the high teens for the year. We will now open the call up for questions.
Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Thank you, operator. Good morning, everybody.
Paul Manning: Morning, Ghansham.
Tobin Tornehl: Morning.
Ghansham Panjabi: I hear there's a big parade in town. I know our team's excited.
Paul Manning: Well, I'm looking over my shoulder, and I'm realizing I'm sitting up here while they're down there.
Tobin Tornehl: There is a lot of people walking the streets right now.
Ghansham Panjabi: Yeah. Congrats again to the Brewers. Paul, in the past, you have given us invoice sales by quarter for the natural color sales specific to the conversion from existing synthetic. That could include load-ins and so on and so forth. So off the $100 million in synthetic color sales that feed into the billion opportunity for natural color over time, where do you think you will be from a conversion standpoint by the end of 2026?
Paul Manning: Yeah. I think as we have tried to make it, a couple factors here. We like to just speak in actual revenue rather than projected revenue. If you look at our actual revenue, which we have been profiling each quarter, one could probably infer from that the annualized value of that would be north of $160 million, and that would probably be a pretty good guess. That is comment number one. When you look at kind of the pace of the launches, we have talked about there is a fair amount of activity in 2026 leading up to many of the milestones set by Walmart and some other retailers, 1 January 2027 being their deadline. As we get into 2027, most customers are still working towards a 1 January 2028 deadline, but there are others working towards a 1 July 2028 deadline.
Paul Manning: As we said, the run rate would probably be towards the end of 2028, the run rate of the billion dollars. Is it about 20% by the end of 2026? That is probably about right. Then another chunk in 2027, and then the balance of it in 2028 is largely what we expect. The reason I can tell you that is, we are the largest food color company in the world. We are essentially talking to every single customer brand out there, so we have a very broad perspective. From that perspective, and given our years as the incumbent color supplier, we have a great deal of collaboration with our customers. In particular, in this case, what are their launch dates?
Paul Manning: As we look ahead to 2027, and we see how our bigger customers have planned their launches for the 2027 year, planned their launches for 2028 year, we have very good visibility. Do these things slip? Of course they do. Multinationals' launch dates will slip in normal times. Now we are in an instance where they may be converting hundreds of products from synthetic to natural. Not only do you have the complexity of the reformulation with the natural color, you have to repackage, you have to make sure you can produce. You do not produce products the same way with the natural colors you will with a synthetic. There is consumer testing. There is aligning on the supply chain. There is a lot of moving parts, and this is a very aggressive timeline that most folks are working towards, most customers are working towards.
Paul Manning: We have seen some movements to the left, and we have seen more movements to the right. But I think ultimately, about 20% for the end of this year is probably about right, and the balance coming in 2027 and 2028.
Ghansham Panjabi: Okay, that is very helpful. For the Color Group, it looks like Q3 incremental margins were roughly 26%. I know you are obviously layering in cost to support the growth there. You have communicated that prior. But is that the ballpark for how we should model operating leverage for Q4 onwards, or will there be some lumpiness associated with costs as you ramp up the investment to support the growth?
Paul Manning: Well, I would say this. I think much of the SG&A has been added over the last 1 year plus. That is not to say that there will not be more. I think what will change moving forward is as the equipment comes online and we start layering depreciation, you would see the impact of that. As the little green light goes on on the equipment, as I like to say, that may create moderate lumpiness. By moderate, you could see mild shifting in that 25% EBITDA. But our projections for the year on EBITDA for color, we feel very good about this 25%. I think we feel very good about this 25% next year. Might there be some movements quarter to quarter? Yes. Is it indicative of anything more than the timing of depreciation? No.
Paul Manning: I think we continue to command very good sales wins, technically differentiated product. We like to deal on the more advanced part of this market, which commands a more defensible position with higher margins in general. No, listen, I look at our pipeline, and I look at the opportunities, and 25%, I feel really, really good about that. Throughout 2027, regardless, really, of depreciation. You are not going to see some big movement down in that 25% in any one quarter, but could there be shifting of 30 basis points plus or minus? Sure. Does that mean anything? Like I said, it does not. When we start selling low-margin commodity junk, then you would see that. But since we are not going to do that, you should not see much shift off that 25%.
Ghansham Panjabi: Okay, very clear. Thank you.
Operator: The next question comes from Josh Spector with UBS. Please go ahead.
Josh Spector: Yeah. Hi, good morning. Just on your comments-
Paul Manning: Hi, Josh.
Paul Manning: On the exit rate. Hey, I just wanted to ask, that 20%, obviously, the simple math is maybe your natural color conversion will be about $50 million in Q4. It kind of triangulates with your guidance. Is that what you are expecting at this point based on the visibility of orders in hand?
Paul Manning: Well, so let me just be clear here, right? So, when you get a win from a customer, right, they are going to give you a PO. They are not going to give you a PO for the full value of that project, right? Because they are going to give you some fraction of the annualized volume. In a normal product launch, a new-to-the-world product, you would get 25% to 30% of the volume. So, let us just say you win a million-dollar sale of an LTO or just a line extension of an existing customer, new product to the market. He would probably give you about $250,000 to $300,000 on his first order, right? As he is loading up the channels, as he is putting enough product out there for consumers to try this new product. And then, in the next quarter, he may get another 25% and so forth.
Paul Manning: What we are seeing on the natural color front is a little bit different. Think of this as more of a packaging change pace. So, initially, when natural colors came along and West Virginia passed its law, and the customers started looking at that, the law originally said, to the best of my recollection, "Hey, you have to have all of your synthetic colors off the shelf on 1 January 2028." That later came to be understood as 1 July 2028, everything off, but nothing new after 1 January. So, long story short, first POs in the Q3 sales wins, and even late Q2, were more along the lines of 10% of the annualized value, right? So, in other words, instead of $250,000 first PO on that million-dollar win, you might get about $100,000 because he is replacing the old with the new as he sells the old.
Paul Manning: That is a little bit of a change. When I talk about 20%, that means 20% of these things have been closed. They are not necessarily running at a full run rate. If you look at what would close, we would expect about 20% towards our goal to close. It may close on 23 December, right? You get your first PO, but you are not going to get your full annualized value. It is a little bit of a change based on what we saw in Q3 and late Q2 in terms of how the POs are coming to us. I think, again, this is just as customers have begun to interpret expectations a little bit differently, there is not this need to clear the shelf of all products with synthetic colors. They are metering in the newly developed products with the natural colors.
Paul Manning: They sell off the synthetic, and then they get to a normal ordering pace.
Josh Spector: Okay. I think I understand all that. I will probably follow up a bit more offline. Related with this, it seems like there is maybe some nuance with how you are framing the target now. I think your comments were approaching $1 billion and exiting 2028. I guess, is that a shift in your prior messaging at all? Is that a little bit later? Or would you frame that as higher confidence that now you are putting in more specific timelines, I suppose?
Paul Manning: Yeah. I think what we are trying to do, what I am trying to do is telling you the exit rate is to, based on the pipeline and the launch dates, that that is our. We have always felt like 2028, everybody is going to convert by sometime in 2028. Initially, it was the beginning, as the understanding of those state laws changed, it became mid to late 2028. It is an indication that the vast majority of these conversions will be completed in 2028. It may be later in 2028, maybe early in 2028, but we feel very confident based on our knowledge and our understanding of each of these customers and their launch plans that by the end of 2028, we would be at that $1 billion incremental run rate as a business.
Josh Spector: Okay. Thank you.
Operator: The next question comes from Larry Solow with CJS Securities. Please go ahead.
Larry Solow: I like Gary, but Larry works too.
Paul Manning: Hey, Larry.
Larry Solow: Congrats on the Brewers.
Paul Manning: You didn't change your name, though. I will still call you Larry.
Larry Solow: Yeah, thank you. Congrats to you as well, Paul. And the Brewers, you got the Brewers in one hand and the Jets on the other, so you should definitely talk more about the Brewers.
Paul Manning: Yeah. The other hand, I lost, though.
Tobin Tornehl: Packers won last night, Larry.
Larry Solow: Yeah. Yeah, absolutely. Question just on the margin profile, and I realize last quarter was a little bit of an aberration up, and now you are back down on the Color side. Just curious, still early stages, but how is it shaking out? I know we were kind of looking for a little bit of a lower gross margin, and then eventually, when you get some leverage up at a higher rate, maybe operating income would be about flat. But it sounds like if your SG&A expenses are already upfront, mostly paid, as you look out over the next few years, would you expect to actually get some margin improvement on the Color side?
Paul Manning: Anything is possible. I want to give you guys a number you can really rely upon, and I think 25% is that number. You bring up an interesting point, right? The timing of the SG&A, the timing of the depreciation, it may not line up that this is a pure, every quarter is 25.0. Again, it is just really nothing more to do than the timing of when equipment comes online. But I would tell you this, the majority of the SG&A expense we anticipated adding to the business, much of that has already taken place.
Larry Solow: Okay.
Paul Manning: The depreciation, the majority of that has not yet taken place. So, whereas we may be having less SG&A, we will have more depreciation as we move forward into 2027. So net-net, and that is why it is very easy for me to say, as I look at our modeling, 25% is a really good number. Is it 25% every quarter, every month, every week, and every day of the year? No. But I think, again, that is just more to do with the timing and the shifting. So, whereas we may have a higher gross margin, and that is offset by some SG&A, we then get a lower gross margin from the depreciation, but then we have less SG&A. But I would say this too, right? The SG&A, a lot of that is driven by adding new folks to the business, technical, commercial, and otherwise.
Paul Manning: But there is also a fair amount of R&D underway, right? One of the things that we have talked about is this first version of the conversion to natural colors is generally from conventionally grown crops. These crops are being now grown at a scale that is rather unprecedented. As we get into 2027 and 2028, as farming techniques improve, as efficiencies grow, as more suppliers enter the market, that, in theory, drives down the raw material costs for us. All really good things. As we continue to optimize with our customers, kind of version two of a natural color, we think there is cost and optimization that can take place. So, yeah, we have got a lot of things in mind that can help us to continue to really maintain and, hey, in our wildest dreams, even grow off that 25%.
Paul Manning: But I think in terms of your modeling, let us stick with 25%. As some of these things come to fruition, you will certainly see that in the figures. But, no, I think we feel really, really good about maintaining that. You also saw in Asia, they hit 27.5%. I would not necessarily model that. But again, it just shows you that in any given quarter, through a product mix or more wins than you had anticipated, these types of factors can really give you a nice uplift in any one quarter. But I do not want folks to necessarily overreact or underreact to that. We give 25% because, again, that is what I think we can consistently deliver for you folks as you are modeling out the returns you can get here.
Larry Solow: Okay. The ratio, at least on volume and relative to price, has been hanging close to that. I realize it is still early, but high singles, close to 10, that is still something you are comfortable with in terms of revenue?
Paul Manning: You mean in the multiple, Larry? The conversion multiple?
Larry Solow: Yeah, correct. Correct.
Paul Manning: Yeah.
Larry Solow: Yeah.
Paul Manning: Yeah. No, we. 10 times is a good average. I would tell you that it depends greatly on the type of product. The more intensely colored, the higher that margin. The lower intensity of that color, the lower that ratio. I track all these wins, I look at all these ratios, and I will tell you, I feel really good, really good, Larry, about a 10 to one.
Paul Manning: I don't lose a wink of sleep over that.
Larry Solow: Great. Last question from me. Just free cash flow, it sounds like just with the rapid growth on the top line and the investment and the build-out, perhaps free cash flow doesn't turn or won't be free or positive until 2028. Is that fair?
Tobin Tornehl: Yeah. When we look forward, directionally, you are probably correct. Our leverage ratio right now is about 2.3. So, we anticipate the end of year right around where we are. You will see debt increasing as we spend more on capital and working capital and the investments we are making in the business. So, debt will increase and our leverage ratio will increase throughout next year, well within our covenants of 3.5. But with the whole goal of improving our ROIC, as I mentioned, getting to the mid-teens from where we are at right now, around 9% to 10%. But yeah, free cash flow will be an impact of that, but I think at the end of it, getting our ROIC to mid-teens is going to be very nice.
Larry Solow: Sure. Absolutely. Okay, great. Thanks. I appreciate all that.
Paul Manning: Okay. Thanks, Larry.
Tobin Tornehl: Thanks, Larry.
Operator: Again, if you would like to ask a question, please press star and then one. Our next question comes from Nicola Tang with BNP. Please go ahead.
Nicola Tang: Hi, everyone.
Paul Manning: Hey, Nicola.
Larry Solow: Hello.
Nicola Tang: Hey. I wanted to ask first, just related to your new, the revised EPS guidance. I think just in simple terms for me, it is $0.025 higher, but you beat consensus for Q3 by about $0.04, and actually you are guiding to a slightly lower interest cost. So, to me, it reads like an implied downgrade on the core business for Q4. Am I misunderstanding this, or can you explain what is driving that?
Paul Manning: Sure
Nicola Tang: it implies a sequential slowdown versus Q3, and I understand there is usually seasonality, but perhaps you could remind us of that usual seasonality.
Paul Manning: Yeah, sure. I will start off and I will let Tobin augment. You are right, it was a great Q3. We are having a great year to date, and we are going to have a great 2026. I think that is number one. I think number two, that is right. Seasonality in this business is a very real thing. Sensient was started in 1882, and we were selling alcohol. There was not much seasonality then, but after 1919, there has been seasonality in this business. It is just a fixture and a function of the food industry. Two big factors there. There are fewer launches by our customers in Q4, and then there is a substantial working capital pullback in most businesses, as let us face it, folks are trying to please investors, and they are also trying to hit their budget. What do they do? They order a lot less in Q4.
Paul Manning: These two factors, more than any other, create a great deal of seasonality, and quite frankly, a little bit of unpredictability in Q4 results at times. As I look forward to Q4, to begin, natural colors is going to have another nice quarter, really nice quarter. You see that we had sequential growth in natural colors here in Q3. By the way, that 22% in food colors growth, that takes into account the loss of synthetic colors. The cannibalization factor that we have mentioned, as you replace the synthetic, you get the natural. Net of that, we were up 22% in Q3, so it was really, really nice. I think the pace will continue to be very, very nice for natural colors in Q4. I think you are going to see some sequential improvement in personal care as well.
Paul Manning: I think flavors is teed up to have a very nice Q4, and of course, so is Asia Pacific. Listen, I think we are going to have a really nice Q4 top line, sales wins, pricing. We have executed our pricing for the year, and I think we have been very, very successful there. But again, I think we are oftentimes somewhat constrained by the behavior of customers, given those two factors that I just mentioned. Then remind me, Tobin, what was our original guidance at the start of the year?
Tobin Tornehl: Start of the year? Yeah. We started, I think our original guidance was $360 million to $380 million.
Paul Manning: Okay.
Tobin Tornehl: Now,
Paul Manning: Then we ratcheted it up.
Tobin Tornehl: We went, and in April, we were $370 million to $390 million. July, we increased to $410 million to $420 million, and now we are increasing to $415 million to $420 million.
Paul Manning: Okay. I think we have done pretty well on raising the guidance and hitting the figures. I think Q4, as you close out the year, I think we are saying 420 versus 380 at the start of the year. I think it has been a nice year for us. Tobin, you want to add some more details there?
Tobin Tornehl: Yeah. No, I think that was a good summary. We did raise our guidance throughout the year. I think when you look at Q4, also take into account some of the items below our groups. For the year, our interest expense, as I just kind of mentioned to Larry, we anticipate our debt to continue to increase, so you will see an increase in our interest expense. We are modeling about $34 million for the year. Tax rate, there is a lot of movement in tax rate. Last year, we had a low Q4 tax rate. This year, we anticipate higher than what we reported last year for a full year tax rate around 25%.
Paul Manning: And our corporate expense, we anticipate to be around $66 million for the year, and that is really driven by our incentive-based compensation. So, those are some things to take into consideration for Q4.
Nicola Tang: Okay, that is helpful. Thanks. Next question, you referenced it there actually, just in terms of the food colors versus personal care. I think you had a particularly strong quarter in personal care colors last quarter, and then a bit of a slowdown this quarter. Can you explain a bit what was going on there? And I guess, the outlook from here.
Paul Manning: Yeah. That is right. Food colors is sequentially up Q3 versus Q2 from a growth rate standpoint. Personal care had a slowdown. There is a little bit of lumpiness in that market right now, a lot of moving parts. We had very nice profit growth in that business. As we look at the year for personal care, I would expect something in the range of mid-single digits, which would be, I think, very, very good. That implies an uplift in Q4 for that business. These are products with the longer supply chain, they have longer shelf lives, so these factors can become somewhat distortive. The other big thing you will see in personal care is a lot of production and product launches are coming from what we call TPMs, third-party manufacturers.
Paul Manning: These third-party manufacturers would be the driving force behind indie brands and startups and other sort of smaller businesses. More recently, the TPMs, large multinationals are using TPMs to drive some of their production. As tariffs come along and as other constraints in trade come along, this production has been shifting all over the world. A lot of TPM production moved from Europe to Asia Pacific last year. We still see a little bit of that. There is a lot of shifting of these supply chains, principally in response to tariffs and these other sort of geopolitical factors you are reading about. I would tell you that just base business win rates continue to build, particularly in Asia Pacific personal care, as well as Europe personal care, so we feel very good about that.
Paul Manning: As we get into Q4, I think you are going to see some improvements in LATAM and North America as well, and those businesses come together, I think, to produce a really nice Q4. I would tell you that the lumpiness is really geopolitical and supply chain related more than anything else at this point, because the underlying business is good. The trends are really good in this market. Mass market growing very nicely, prestige market growing very, very nicely. So, I think we are pretty well set up for a successful Q4 there, and I feel quite good about 2027 on personal care as well.
Nicola Tang: Okay. Then final one around the supply chain. You mentioned that crops are growing at a scale that is unprecedented. I remember we spoke on the last call about how you are making sure that you are in the right place, that you are able to supply, and you do not have a sort of supply chain issue. That being said, I was reading Gattefossé sort of delaying some of their conversion in certain colors because there is not enough natural beta-carotene. So, I was wondering whether you are seeing across the industry there is a wider issue or constraint in terms of availability of various natural raw materials in order to sort of serve the conversion at the pace that the market would like to.
Nicola Tang: And then linked to this, I was wondering, could you talk a little bit more about the competitive landscape in terms of at a processing level in the Color Group space? I think we hear some of the peers now starting to make investments. Ultimately, it is a lot later than you have made those investments, but I was wondering if you have seen any change in competitive landscape and capacity. Thanks.
Paul Manning: So, to the first one on the supply chain, yeah, I think I said early on, if the whole market wanted to convert tomorrow, there would not be a supply chain or production capacity available to meet that type of demand. But over this timeframe that we have been talking about here, it becomes much more digestible for the industry. I would tell you that our service levels are quite good, Nicola, and my goal is to never have to get on a conference call and tell you guys I got a revenue problem because I have a supply chain shortage. So, we have been working on this for many, many years. We have got suppliers all over the world. We have got programs all over the world. We have technology that enables us to come up with lots of different supply chain solutions as well.
Paul Manning: We really have a nice connection between our formulation folks, our production folks, and supply chain. And so, I like what I am seeing. Again, this is a supply chain that is really, really scaling up, as you reiterated from what I have said. And so, yeah, there will be hiccups, but again, I have not talked to anybody publicly about hiccups in the supply chain because I have not had to. And it is my expectation that we will not talk to you guys about, "Oh, I cannot get this done because of the supply chain." So, a lot of work, a lot of infrastructure. You see the working capital levels in food colors have gone up more than $70 million. We got a lot more suppliers, a lot more raw materials, a lot more finished goods.
Paul Manning: A lot of that is driven from bigger sales, but it is also, right, having these products available for the launch dates. And so, the amount of working capital we have should give a hint to everybody as to the launches we expect coming up here in 2027. In terms of competitors, we are very much focused on the technologically differentiated part of this market, the things that are really hard to achieve, the colors that are very difficult to achieve in the formulation and the production environment of the customer. And so, we were out of the gate very, very quickly identifying which equipment would be the most difficult to get and take the longest, and we went and got it immediately. I did not sit around and wait for permission or any of this other business.
Paul Manning: We moved very, very quickly on that, and I feel really, really good. But you know what? There is a lot of challenges even in capital deployment nowadays, particularly in the United States. There is a lot of competing projects out there, data centers and otherwise, that are sucking up a lot of the raw materials, like steel, for example. Then, of course, as you are also very well aware, there is tariffs and other geopolitical constraints. So, I like the fact that we got on this one really, really quickly, and I like the idea that we have got plants in Europe and LATAM and the US that are well, well invested in, and we have completed a lot of our capital work in those plants. There is also a lot of work underway in the United States. So, we have been very, very aggressive from the very start.
Paul Manning: We have not wavered or changed any of our forecasting on the 1 billion. It has been 1 billion, and that is what we continue to drive. Having the right supply chain and the right capital, even with these competitors, that is still our expectation, and that has not changed regardless of what our competitors may or may not be doing.
Nicola Tang: Okay. Makes sense. Thanks.
Paul Manning: Okay. Thanks, Nicola.
Tobin Tornehl: Thank you.
Operator: There are no further questions at this time. I will turn the conference back over to management for any closing remarks.
Tobin Tornehl: Thank you. That concludes our call today. Thank you for participating. If you have any follow-up questions, please contact the company. Have a great weekend.
Operator: The conference has concluded. You may now disconnect.
