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SENSIENT TECHNOLOGIES CORP - Quarter Report: 2023 September (Form 10-Q)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:
September 30, 2023
 

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to
 
Commission file number: 001-07626

Sensient Technologies Corporation
(Exact name of registrant as specified in its charter)

Wisconsin
 
39-0561070
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

777 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202-5304
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(414) 271-6755

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.10 per share
SXT
New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐    No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
 
Outstanding at October 31, 2023
Common Stock, par value $0.10 per share
 
42,249,509



SENSIENT TECHNOLOGIES CORPORATION
INDEX

      
Page No.
       
PART I. FINANCIAL INFORMATION:
 
       
 
Item 1.
Financial Statements:
 
 

 
 
 

1
 

 
 
 

2
 
 
 
 
 

3
 

 
 
 

4
 
 
 
 
 

5
   
 
 
 

6
   
 
 
 
Item 2.
13
 

 

 
Item 3.
17
   
 
 
 
Item 4.
17
       
PART II. OTHER INFORMATION:
 
       
 
Item 1.
18
   
 
 
 
Item 1A.
18
   
 
 
 
Item 2.
18
   
 
 
  Item 5.
18
   
 
 
 
Item 6.
18
   
 
 
 

19
   
 
 
 

20

PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
(Unaudited)

 
Three Months
Ended September 30,
   
Nine Months
Ended September 30,
 
   
2023
   
2022
   
2023
   
2022
 
                         
Revenue
 
$
363,829
   
$
361,076
   
$
1,107,148
   
$
1,088,303
 
Cost of products sold
   
250,202
     
239,318
     
746,681
     
710,696
 
Selling and administrative expenses
   
69,096
     
74,265
     
213,507
     
222,081
 
Operating income
   
44,531
     
47,493
     
146,960
     
155,526
 
Interest expense
   
6,294
     
3,672
     
18,648
     
9,748
 
Earnings before income taxes
   
38,237
     
43,821
     
128,312
     
145,778
 
Income taxes
   
6,694
     
7,773
     
29,085
     
34,012
 
Net earnings
 
$
31,543
   
$
36,048
   
$
99,227
   
$
111,766
 
                                 
Weighted average number of common shares outstanding:
                               
Basic
   
42,045
     
41,896
     
42,020
     
41,885
 
Diluted
   
42,233
     
42,242
     
42,241
     
42,199
 
                                 
Earnings per common share:
                               
Basic
 
$
0.75
   
$
0.86
   
$
2.36
   
$
2.67
 
Diluted
 
$
0.75
   
$
0.85
   
$
2.35
   
$
2.65
 
                                 
Dividends declared per common share
 
$
0.41
   
$
0.41
   
$
1.23
   
$
1.23
 

See accompanying notes to consolidated condensed financial statements.

1

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months
Ended September 30,
   
Nine Months
Ended September 30,
 
   
2023
   
2022
   
2023
   
2022
 
                         
Comprehensive income
 
$
18,229
   
$
8,997
   
$
109,380
   
$
56,171
 

See accompanying notes to consolidated condensed financial statements.

2

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)


 
September 30,
2023
(Unaudited)
   
December 31,
2022
 
Assets
           
Current Assets:
           
Cash and cash equivalents
 
$
31,985
   
$
20,921
 
Trade accounts receivable
   
284,668
     
302,109
 
Inventories
   
587,024
     
564,110
 
Prepaid expenses and other current assets
   
41,477
     
47,640
 
                 
Total current assets
   
945,154
     
934,780
 
                 
Other assets
   
94,646
     
96,609
 
Deferred tax assets
   
30,857
     
32,717
 
Intangible assets, net
   
17,352
     
18,600
 
Goodwill
   
415,618
     
415,715
 
Property, Plant, and Equipment:
               
Land
   
31,269
     
31,444
 
Buildings
   
336,152
     
322,268
 
Machinery and equipment
   
759,191
     
722,294
 
Construction in progress
   
71,223
     
65,809
 
     
1,197,835
     
1,141,815
 
Less accumulated depreciation
   
(691,286
)
   
(658,622
)
     
506,549
     
483,193
 
                 
Total assets
 
$
2,010,176
   
$
1,981,614
 
                 
Liabilities and ShareholdersEquity
               
                 
Current Liabilities:
               
Trade accounts payable
 
$
110,973
   
$
142,365
 
Accrued salaries, wages, and withholdings from employees
   
26,818
     
43,738
 
Other accrued expenses
   
55,676
     
51,231
 
Income taxes
   
7,543
     
14,446
 
Short-term borrowings
   
22,807
     
20,373
 
                 
Total current liabilities
   
223,817
     
272,153
 
                 
Deferred tax liabilities
   
16,202
     
15,977
 
Other liabilities
   
37,115
     
37,191
 
Accrued employee and retiree benefits
   
26,830
     
26,364
 
Long-term debt
   
648,556
     
630,331
 
Shareholders’ Equity:
               
Common stock
   
5,396
     
5,396
 
Additional paid-in capital
   
116,775
     
124,043
 
Earnings reinvested in the business
   
1,750,027
     
1,702,700
 
Treasury stock, at cost
   
(624,007
)
   
(631,853
)
Accumulated other comprehensive loss
   
(190,535
)
   
(200,688
)
                 
Total shareholders’ equity
   
1,057,656
     
999,598
 
                 
Total liabilities and shareholders’ equity
 
$
2,010,176
   
$
1,981,614
 

See accompanying notes to consolidated condensed financial statements.

3

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months
Ended September 30,
 
   
2023
   
2022
 
             
Cash flows from operating activities:
           
Net earnings
 
$
99,227
   
$
111,766
 
Adjustments to arrive at net cash provided by operating activities:
               
Depreciation and amortization
   
43,360
     
39,262
 
Share-based compensation expense
   
7,285
     
12,476
 
Net (gain) loss on assets
   
(81
)
   
283
 
Deferred income taxes
   
2,082
     
20,465
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
18,830
     
(39,520
)
Inventories
   
(21,455
)
   
(112,021
)
Prepaid expenses and other assets
   
842
     
(39,598
)
Accounts payable and other accrued expenses
   
(20,572
)
   
24,110
 
Accrued salaries, wages, and withholdings from employees
   
(16,749
)
   
1,819
 
Income taxes
   
(6,536
)
   
(4,342
)
Other liabilities
   
587
     
198
 
                 
Net cash provided by operating activities
   
106,820
     
14,898
 
                 
Cash flows from investing activities:
               
Acquisition of property, plant, and equipment
   
(67,718
)
   
(51,703
)
Proceeds from sale of assets
   
130
     
94
 
Acquisition of new business
    -       (1,048 )
Other investing activities
   
2,036
     
947
 
                 
Net cash used in investing activities
   
(65,552
)
   
(51,710
)
                 
Cash flows from financing activities:
               
Proceeds from additional borrowings
   
197,577
     
187,715
 
Debt payments
   
(174,083
)
   
(87,657
)
Dividends paid
   
(51,900
)
   
(51,681
)
Other financing activities
   
(8,034
)
   
(2,056
)
                 
Net cash (used in) provided by financing activities
   
(36,440
)
   
46,321
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
6,236
     
11,330
 
                 
Net increase in cash and cash equivalents
   
11,064
     
20,839
 
Cash and cash equivalents at beginning of period
   
20,921
     
25,740
 
Cash and cash equivalents at end of period
 
$
31,985
   
$
46,579
 

See accompanying notes to consolidated condensed financial statements.

4

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
(Unaudited)

 

   
   
   
Treasury Stock
   
   

 
Three Months Ended September 30, 2023
 
Common
Stock
   
Additional
Paid-In
Capital
   
Earnings
Reinvested
in the
Business
   
Shares
   
Amount
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Equity
 
Balances at June 30, 2023
 
$
5,396
   
$
114,330
   
$
1,735,807
     
11,909,833
   
$
(624,048
)
 
$
(177,221
)
 
$
1,054,264
 
Net earnings
   
-
     
-
     
31,543
     
-
     
-
     
-
     
31,543
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(13,314
)
   
(13,314
)
Cash dividends paid – $0.41 per share
   
-
     
-
     
(17,323
)
   
-
     
-
     
-
     
(17,323
)
Share-based compensation
   
-
     
2,519
     
-
     
-
     
-
     
-
     
2,519
 
Non-vested stock issued upon vesting
    -       (67 )     -       (1,285 )     67       -       -  
Other
    -       (7 )     -       492       (26 )     -       (33 )
Balances at September 30, 2023
 
$
5,396
   
$
116,775
   
$
1,750,027
     
11,909,040
   
$
(624,007
)
 
$
(190,535
)
 
$
1,057,656
 

Three Months Ended September 30, 2022
                                         
Balances at June 30, 2022
 
$
5,396
   
$
116,596
   
$
1,672,000
     
12,058,773
   
$
(631,853
)
 
$
(203,172
)
 
$
958,967
 
Net earnings
   
-
     
-
     
36,048
     
-
     
-
     
-
     
36,048
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(27,051
)
   
(27,051
)
Cash dividends paid – $0.41 per share
   
-
     
-
     
(17,235
)
   
-
     
-
     
-
     
(17,235
)
Share-based compensation
   
-
     
3,785
     
-
     
-
     
-
     
-
     
3,785
 
Balances at September 30, 2022
 
$
5,396
   
$
120,381
   
$
1,690,813
     
12,058,773
   
$
(631,853
)
 
$
(230,223
)
 
$
954,514
 

Nine Months Ended September 30, 2023  
                                         
Balances at December 31, 2022
 
$
5,396
   
$
124,043
   
$
1,702,700
     
12,058,773
   
$
(631,853
)
 
$
(200,688
)
 
$
999,598
 
Net earnings
   
-
     
-
     
99,227
     
-
     
-
     
-
     
99,227
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
10,153
     
10,153
 
Cash dividends paid – $1.23 per share
   
-
     
-
     
(51,900
)
   
-
     
-
     
-
     
(51,900
)
Share-based compensation
   
-
     
7,285
     
-
     
-
     
-
     
-
     
7,285
 
Non-vested stock issued upon vesting
   
-
     
(12,686
)
   
-
     
(242,110
)
   
12,686
     
-
     
-
 
Benefit plans
   
-
     
375
     
-
     
(18,172
)
   
952
     
-
     
1,327
 
Other
   
-
     
(2,242
)
   
-
     
110,549
     
(5,792
)
   
-
     
(8,034
)
Balances at September 30, 2023
 
$
5,396
   
$
116,775
   
$
1,750,027
     
11,909,040
   
$
(624,007
)
 
$
(190,535
)
 
$
1,057,656
 

Nine Months Ended September 30, 2022  
                                         
Balances at December 31, 2021
 
$
5,396
   
$
111,352
   
$
1,630,713
     
12,107,549
   
$
(634,408
)
 
$
(174,628
)
 
$
938,425
 
Net earnings
   
-
     
-
     
111,766
     
-
     
-
     
-
     
111,766
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(55,595
)
   
(55,595
)
Cash dividends paid – $1.23 per share
   
-
     
-
     
(51,681
)
   
-
     
-
     
-
     
(51,681
)
Share-based compensation
   
-
     
12,476
     
-
     
-
     
-
     
-
     
12,476
 
Non-vested stock issued upon vesting
   
-
     
(3,239
)
   
-
     
(61,821
)
   
3,239
     
-
     
-
 
Benefit plans
   
-
     
560
     
-
     
(11,786
)
   
618
     
-
     
1,178
 
Other
   
-
     
(768
)
   
15
     
24,831
     
(1,302
)
   
-
     
(2,055
)
Balances at September 30, 2022
 
$
5,396
   
$
120,381
   
$
1,690,813
     
12,058,773
   
$
(631,853
)
 
$
(230,223
)
 
$
954,514
 

See accompanying notes to consolidated condensed financial statements.

5

SENSIENT TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1.
Accounting Policies

In the opinion of Sensient Technologies Corporation (the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of September 30, 2023, and the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Expenses are charged to operations in the period incurred.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2022, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.

2.
Acquisition

On October 3, 2022, the Company acquired Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively, Endemix), a natural colors business located in Turkey. The Company paid $23.3 million in cash for this acquisition, which is net of $1.3 million in debt assumed, with $1.7 million of such amount being held back by the Company for 12 months to satisfy any indemnification claims that may arise. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $8.9 million and identified intangible assets, principally technological know-how and customer relationships, of $4.9 million. The remaining $9.5 million was allocated to goodwill. This business is part of the Color segment.

3.
Trade Accounts Receivable

Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is also adjusted for any known current economic conditions. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and evaluate as economic conditions change. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.

The following table summarizes the changes in the allowance for doubtful accounts during the three and nine month periods ended September 30, 2023 and 2022:

(In thousands)
Three Months Ended September 30, 2023
 
Allowance for
Doubtful Accounts
 
Balance at June 30, 2023
 
$
4,293
 
Provision for expected credit losses
   
13
 
Accounts written off
   
(244
)
Translation and other activity
   
(76
)
Balance at September 30, 2023
 
$
3,986
 

(In thousands)
Three Months Ended September 30, 2022
 
Allowance for
Doubtful Accounts
 
Balance at June 30, 2022
 
$
4,494
 
Provision for expected credit losses
   
51
 
Accounts written off
   
(33
)
Translation and other activity
   
(105
)
Balance at September 30, 2022
 
$
4,407
 

(In thousands)
Nine Months Ended September 30, 2023
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2022
 
$
4,436
 
Provision for expected credit losses
   
504
 
Accounts written off
   
(1,051
)
Translation and other activity
   
97
Balance at September 30, 2023
 
$
3,986
 

(In thousands)
Nine Months Ended September 30, 2022
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2021
 
$
4,877
 
Provision for expected credit losses
   
883
 
Accounts written off
    (1,129 )
Translation and other activity
    (224 )
Balance at September 30, 2022
  $ 4,407  

6

4.
Inventories
 
At September 30, 2023, and December 31, 2022, inventories included finished and in-process products totaling $414.8 million and $385.2 million, respectively, and raw materials and supplies of $172.2 million and $178.9 million, respectively.

5.
Debt

On May 31, 2023, the Company entered into an agreement to issue $75 million and €40 million in five-year, fixed-rate, senior notes at coupon rates of 4.94% and 4.15%, respectively. The notes were issued on May 31, 2023, and proceeds have been used to repay a portion of existing indebtedness under the Company’s Third Amended and Restated Credit Agreement, as amended. The notes will mature in May 2028.

On August 31, 2023, the Company entered into Amendment No. 10 (Amendment) to the Receivables Purchase Agreement, dated as of October 3, 2016.  The Amendment extended the termination date from August 31, 2023 to August 30, 2024.

6.
Fair Value

Accounting Standards Codification 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of September 30, 2023 and December 31, 2022. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $1.0 million and a liability of $0.2 million as of September 30, 2023 and December 31, 2022, respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at September 30, 2023 and December 31, 2022 was $648.8 million and $630.8 million, respectively. The fair value of the long-term debt at September 30, 2023 and December 31, 2022 was $639.5 million and $622.2 million, respectively.

7.
Segment Information

The Company evaluates performance based on operating income before share-based compensation, interest expense, and income taxes (segment operating income). Total revenue and segment operating income by business segment and geographic region include both sales to customers, as reported in the Company’s Consolidated Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate market prices and are eliminated in consolidation.

7

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. The Company’s three reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor, extracts, and essential oils products that impart a desired taste, texture, aroma, or other characteristics to a broad range of consumer and other products. The Color segment produces natural and synthetic color systems for use in foods, beverages, pharmaceuticals, and nutraceuticals; colors and other ingredients for personal care, such as active ingredients, solubilizers, and surface treated pigments; pharmaceutical and nutraceutical excipients, such as colors, flavors, coatings, and nutraceutical ingredients; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color, flavor, and essential oils products in the Asia Pacific countries. The Company’s corporate expenses and share-based compensation are included in the “Corporate & Other” category.

Operating results by segment for the periods presented are as follows:

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia
Pacific
   
Corporate &
Other
   
Consolidated
 
Three months ended September 30, 2023:
                             
Revenue from external customers
 
$
185,029
   
$
142,026
   
$
36,774
   
$
-
   
$
363,829
 
Intersegment revenue
   
5,968
   
2,913
   
-
     
-
     
8,881
Total revenue
 
$
190,997
   
$
144,939
   
$
36,774
   
$
-
   
$
372,710
 
                                         
Operating income (loss)
 
$
23,078
   
$
22,925
   
$
8,095
   
$
(9,567
)
 
$
44,531
 
Interest expense
   
-
     
-
     
-
     
6,294
     
6,294
 
Earnings (loss) before income taxes
 
$
23,078
   
$
22,925
   
$
8,095
   
$
(15,861
)
 
$
38,237
 
                                         
Three months ended September 30, 2022:
                                       
Revenue from external customers
 
$
181,397
   
$
144,570
   
$
35,109
   
$
-
   
$
361,076
 
Intersegment revenue
   
5,649
   
6,899
   
112
   
-
     
12,660
Total revenue
 
$
187,046
   
$
151,469
   
$
35,221
   
$
-
   
$
373,736
 
                                         
Operating income (loss)
 
$
26,337
   
$
28,200
   
$
6,952
   
$
(13,996
)
 
$
47,493
 
Interest expense
   
-
     
-
     
-
     
3,672
     
3,672
 
Earnings (loss) before income taxes
 
$
26,337
   
$
28,200
   
$
6,952
   
$
(17,668
)
 
$
43,821
 

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia
Pacific
   
Corporate &
Other
   
Consolidated
 
Nine months ended September 30, 2023:
                             
Revenue from external customers
 
$
538,753
   
$
455,507
   
$
112,888
   
$
-
   
$
1,107,148
 
Intersegment revenue
   
19,380
   
11,056
   
-
     
-
     
30,436
Total revenue
 
$
558,133
   
$
466,563
   
$
112,888
   
$
-
   
$
1,137,584
 
                                         
Operating income (loss)
 
$
69,714
   
$
84,027
   
$
24,911
   
$
(31,692
)
 
$
146,960
 
Interest expense
   
-
     
-
     
-
     
18,648
     
18,648
 
Earnings (loss) before income taxes
 
$
69,714
   
$
84,027
   
$
24,911
   
$
(50,340
)
 
$
128,312
 
                                         
Nine months ended September 30, 2022:
                                       
Revenue from external customers
 
$
539,014
   
$
440,568
   
$
108,721
   
$
-
   
$
1,088,303
 
Intersegment revenue
   
20,096
   
15,607
   
293
   
-
     
35,996
Total revenue
 
$
559,110
   
$
456,175
   
$
109,014
   
$
-
   
$
1,124,299
 
                                         
Operating income (loss)
 
$
83,929
   
$
90,035
   
$
22,877
   
$
(41,315
)
 
$
155,526
 
Interest expense
   
-
     
-
     
-
     
9,748
     
9,748
 
Earnings (loss) before income taxes
 
$
83,929
   
$
90,035
   
$
22,877
   
$
(51,063
)
 
$
145,778
 

8

Product Lines

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Three months ended September 30, 2023:
                       
Flavors, Extracts & Flavor Ingredients
 
$
124,697
   
$
-
   
$
-
   
$
124,697
 
Natural Ingredients
   
66,300
     
-
     
-
     
66,300
 
Food & Pharmaceutical Colors
   
-
     
107,723
     
-
     
107,723
 
Personal Care
   
-
     
37,216
     
-
     
37,216
 
Asia Pacific
   
-
     
-
     
36,774
     
36,774
 
Intersegment Revenue
   
(5,968
)
   
(2,913
)
   
-
   
(8,881
)
Total revenue from external customers
 
$
185,029
   
$
142,026
   
$
36,774
   
$
363,829
 
                                 
Three months ended September 30, 2022:
                               
Flavors, Extracts & Flavor Ingredients
 
$
123,945
   
$
-
   
$
-
   
$
123,945
 
Natural Ingredients
   
63,101
     
-
     
-
     
63,101
 
Food & Pharmaceutical Colors
   
-
     
111,194
     
-
     
111,194
 
Personal Care
   
-
     
39,689
     
-
     
39,689
 
Inks
   
-
     
586
     
-
     
586
 
Asia Pacific
   
-
     
-
     
35,221
     
35,221
 
Intersegment Revenue
   
(5,649
)
   
(6,899
)
   
(112
)
   
(12,660
)
Total revenue from external customers
 
$
181,397
   
$
144,570
   
$
35,109
   
$
361,076
 

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Nine months ended September 30, 2023:
                       
Flavors, Extracts & Flavor Ingredients
 
$
383,210
   
$
-
   
$
-
   
$
383,210
 
Natural Ingredients
   
174,923
     
-
     
-
     
174,923
 
Food & Pharmaceutical Colors
   
-
     
346,635
     
-
     
346,635
 
Personal Care
   
-
     
119,928
     
-
     
119,928
 
Asia Pacific
   
-
     
-
     
112,888
     
112,888
 
Intersegment Revenue
   
(19,380
)
   
(11,056
)
   
-
   
(30,436
)
Total revenue from external customers
 
$
538,753
   
$
455,507
   
$
112,888
   
$
1,107,148
 
                                 
Nine months ended September 30, 2022:
                               
Flavors, Extracts & Flavor Ingredients
 
$
381,041
   
$
-
   
$
-
   
$
381,041
 
Natural Ingredients
   
178,069
     
-
     
-
     
178,069
 
Food & Pharmaceutical Colors
   
-
     
328,087
     
-
     
328,087
 
Personal Care
   
-
     
126,651
     
-
     
126,651
 
Inks
   
-
     
1,437
     
-
     
1,437
 
Asia Pacific
   
-
     
-
     
109,014
     
109,014
 
Intersegment Revenue
   
(20,096
)
   
(15,607
)
   
(293
)
   
(35,996
)
Total revenue from external customers
 
$
539,014
   
$
440,568
   
$
108,721
   
$
1,088,303
 

9

Geographic Markets

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Three months ended September 30, 2023:
                       
North America
 
$
147,992
   
$
75,417
   
$
-
   
$
223,409
 
Europe
   
25,298
     
36,816
     
57
     
62,171
 
Asia Pacific
   
4,881
     
13,344
     
35,791
     
54,016
 
Other
   
6,858
     
16,449
     
926
     
24,233
 
Total revenue from external customers
 
$
185,029
   
$
142,026
   
$
36,774
   
$
363,829
 
                                 
Three months ended September 30, 2022:
                               
North America
 
$
142,097
   
$
74,220
   
$
27
   
$
216,344
 
Europe
   
26,795
     
34,591
     
44
     
61,430
 
Asia Pacific
   
7,091
     
16,770
     
34,433
     
58,294
 
Other
   
5,414
     
18,989
     
605
     
25,008
 
Total revenue from external customers
 
$
181,397
   
$
144,570
   
$
35,109
   
$
361,076
 

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Nine months ended September 30, 2023:
                       
North America
 
$
417,095
   
$
231,348
   
$
124
   
$
648,567
 
Europe
   
86,092
     
124,465
     
184
     
210,741
 
Asia Pacific
   
16,372
     
47,801
     
110,380
     
174,553
 
Other
   
19,194
     
51,893
     
2,200
     
73,287
 
Total revenue from external customers
 
$
538,753
   
$
455,507
   
$
112,888
   
$
1,107,148
 
                                 
Nine months ended September 30, 2022:
                               
North America
 
$
407,684
   
$
223,508
   
$
87
   
$
631,279
 
Europe
   
90,565
     
116,184
     
175
     
206,924
 
Asia Pacific
   
23,628
     
49,199
     
105,222
     
178,049
 
Other
   
17,137
     
51,677
     
3,237
     
72,051
 
Total revenue from external customers
 
$
539,014
   
$
440,568
   
$
108,721
   
$
1,088,303
 

8.
Retirement Plans
 
The Company’s components of annual benefit cost for the defined benefit plans for the periods presented are as follows:
 

 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(In thousands)
 
2023
   
2022
   
2023
   
2022
 
Service cost
 
$
372
   
$
404
   
$
1,111
   
$
1,219
 
Interest cost
   
415
     
235
     
1,237
     
719
 
Expected return on plan assets
   
(248
)
   
(194
)
   
(732
)
   
(598
)
Recognized actuarial loss
   
(138
)
   
12
     
(415
)
   
36
 
Total defined benefit expense
 
$
401
   
$
457
   
$
1,201
   
$
1,376
 
 
The Company’s non-service cost portion of defined benefit expense is recorded in Interest Expense on the Company’s Consolidated Statements of Earnings. The Company’s service cost portion of defined benefit expense is recorded in Selling and Administrative Expenses on the Company’s Consolidated Statements of Earnings.

9.
Derivative Instruments and Hedging Activity

The Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk in order to reduce the effect of fluctuating foreign currencies on short-term foreign currency denominated intercompany transactions, non-functional currency raw material purchases, non-functional currency sales, and other known foreign currency exposures. These forward exchange contracts generally have maturities of less than 18 months. The Company’s primary hedging activities and their accounting treatment are summarized below.

Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $16.1 million and $70.1 million of forward exchange contracts designated as cash flow hedges outstanding as of September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023, gains of $0.8 million were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying transactions’ impact on earnings in the same period. For the three months ended September 30, 2022, amounts reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying transactions’ impact on earnings in the same period were not material. For the nine months ended September 30, 2023 and 2022, gains of $1.4 million and $0.6 million, respectively, were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying transactions’ impact on earnings in the same period. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the financial statements of the Company.

10

Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of September 30, 2023 and December 31, 2022, the total value of the Company’s net investment hedges was $328.8 million and $315.5 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended September 30, 2023 and 2022, the impact of foreign exchange rates on these debt instruments decreased debt by $11.0 million and $18.4 million, respectively, which has been recorded as foreign currency translation in OCI. For the nine months ended September 30, 2023 and 2022, the impact of foreign exchange rates on these debt instruments decreased debt by $2.8 million and $42.4 million, respectively, which has been recorded as foreign currency translation in OCI.

10.
Income Taxes

The effective income tax rates for the three months ended September 30, 2023 and 2022, were 17.5% and 17.7%, respectively. For the nine months ended September 30, 2023 and 2022, the effective income tax rates were 22.7% and 23.3%, respectively. The effective tax rates for the three and nine months ended September 30, 2023 and 2022, were impacted by changes in estimates associated with changes in valuation allowances, the finalization of prior year foreign tax items, and the mix of foreign earnings.

11.
Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three and nine month periods ended September 30, 2023 and 2022:

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at December 31, 2022
 
$
(599
)
 
$
(1,792
)
 
$
(198,297
)
 
$
(200,688
)
Other comprehensive income before reclassifications
   
2,974
     
-
     
8,977
     
11,951
 
Amounts reclassified from OCI
   
(1,432
)
   
(366
)
   
-
     
(1,798
)
Balances at September 30, 2023
 
$
943
   
$
(2,158
)
 
$
(189,320
)
 
$
(190,535
)

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at June 30, 2023
 
$
1,997
   
$
(2,036
)
 
$
(177,182
)
 
$
(177,221
)
Other comprehensive loss before reclassifications
   
(239
)
   
-
     
(12,138
)
   
(12,377
)
Amounts reclassified from OCI
   
(815
)
   
(122
)
   
-
     
(937
)
Balances at September 30, 2023
 
$
943
   
$
(2,158
)
 
$
(189,320
)
 
$
(190,535
)

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at December 31, 2021
 
$
206
   
$
(353
)
 
$
(174,481
)
 
$
(174,628
)
Other comprehensive income (loss) before reclassifications
   
516
     
-
     
(55,514
)
   
(54,998
)
Amounts reclassified from OCI
   
(621
)
   
24
     
-
     
(597
)
Balances at September 30, 2022
 
$
101
 
$
(329
)
 
$
(229,995
)
 
$
(230,223
)

11

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at June 30, 2022
 
$
(152
)
 
$
(337
)
 
$
(202,683
)
 
$
(203,172
)
Other comprehensive income (loss) before reclassifications
   
380
     
-
     
(27,312
)
   
(26,932
)
Amounts reclassified from OCI
   
(127
)
   
8
     
-
     
(119
)
Balances at September 30, 2022
 
$
101
   
$
(329
)
 
$
(229,995
)
 
$
(230,223
)


(1)
Cash Flow Hedges and Pension Items are net of tax.

12.
Commitments and Contingencies


The Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters, based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.

13.
Subsequent Events

On October 19, 2023, the Company announced its quarterly dividend of $0.41 per share would be payable on December 1, 2023.

12

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry conditions, Company performance, and financial results. Forward-looking statements include statements in the future tense, statements referring to any period after September 30, 2023, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results. These factors and assumptions include, among others, the Company’s ability to manage economic and capital market conditions and the impact of recessions and economic downturns; the impact of macroeconomic and geopolitical volatility, including inflation and shortages impacting the availability and cost of raw materials, energy, and other supplies; the availability and cost of labor, logistics, and transportation; the impact and uncertainty created by the COVID-19 pandemic and efforts to manage it on the global economy, including, but not limited to, its effects on our employees, facilities, customers, and suppliers, governmental regulations and restrictions, and general economic conditions; the uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and transportation, and on general economic conditions; the pace and nature of new product introductions by the Company and the Company’s customers; the Company’s ability to anticipate and respond to changing consumer preferences and changing technologies; the Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various productivity-improvement and cost-reduction efforts, acquisition and divestiture activities, and operational improvement plan; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; currency exchange rate fluctuations; and the matters discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Except to the extent required by applicable law, the Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

OVERVIEW

Revenue
Revenue was $363.8 million and $361.1 million for the three months ended September 30, 2023 and 2022, respectively. The increase in revenue for the three months ended September 30, 2023, was primarily due to increased pricing, offset by lower volumes. Revenue was $1.1 billion for both the nine months ended September 30, 2023 and 2022. Revenue for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was impacted by higher prices, partially offset by lower volumes. For the three and nine months ended September 30, 2023, the impact of foreign exchange rates increased consolidated revenue by approximately 3% and 1%, respectively.

Gross Margin
The Company’s gross margin was 31.2% and 33.7% for the three months ended September 30, 2023 and 2022, respectively. The Company’s gross margin was 32.6% and 34.7% for the nine months ended September 30, 2023 and 2022, respectively. The decrease in gross margin for both the three and nine months ended September 30, 2023, was primarily due to the lower volumes, higher input costs, and unfavorable product mix, partially offset by higher prices.

Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 19.0% and 20.6% for the three months ended September 30, 2023 and 2022, respectively. Selling and administrative expense as a percent of revenue was 19.3% and 20.4% for the nine months ended September 30, 2023 and 2022, respectively. The decrease in selling and administrative expense as a percent of revenue for the three and nine months ended September 30, 2023, was primarily due to lower performance-based compensation expense in 2023.

Operating Income
Operating income was $44.5 million and $47.5 million for the three months ended September 30, 2023 and 2022, respectively. Operating margins were 12.2% and 13.2% for the three months ended September 30, 2023 and 2022, respectively. The decreases in operating income and operating margin were primarily due to lower volumes, higher input costs, and unfavorable product mix, partially offset by higher pricing and lower performance-based compensation expense in 2023.

13

Operating income was $147.0 million and $155.5 million for the nine months ended September 30, 2023 and 2022, respectively. Operating margins were 13.3% and 14.3% for the nine months ended September 30, 2023 and 2022, respectively. The decreases in operating income and operating margin were primarily due to higher input costs, lower volumes, and unfavorable product mix, partially offset by higher pricing and lower performance-based compensation expense in 2023.

Interest Expense
Interest expense was $6.3 million and $3.7 million for the three months ended September 30, 2023 and 2022, respectively, and $18.6 million and $9.7 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in interest expense for the three and nine months ended September 30, 2023, was primarily due to an increase in the average interest rate and average debt outstanding.

Income Taxes
The effective income tax rates for the three months ended September 30, 2023 and 2022, were 17.5% and 17.7%, respectively. The effective income tax rates for the nine months ended September 30, 2023 and 2022, were 22.7% and 23.3%, respectively. The effective tax rates for the three and nine months ended September 30, 2023 and 2022, were impacted by changes in estimates associated with changes in valuation allowances, the finalization of prior year foreign tax items, and the mix of foreign earnings.

Acquisition
On October 3, 2022, the Company acquired Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively, Endemix), a natural colors business located in Turkey. The Company paid $23.3 million in cash for this acquisition, which is net of $1.3 million in debt assumed, with $1.7 million of such amount being held back by the Company for 12 months to satisfy any indemnification claims that may arise. This business is part of the Color segment.

NON-GAAP FINANCIAL MEASURES

Within the following table, the Company reports certain non-GAAP financial measures, including percentage changes in revenue, operating income, and diluted earnings per share on a local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars.

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

The following table summarizes the percentage change for the results of the three and nine months ended September 30, 2023, compared to the results for the three and nine months ended September 30, 2022, in the respective financial measures.



Three Months Ended September 30, 2023
   
Nine Months Ended September 30, 2023
 
Revenue
 
Total
   
Foreign
Exchange
Rates
   
Adjusted
Local
Currency
   
Total
   
Foreign
Exchange
Rates
   
Adjusted
Local
Currency
 
Flavors & Extracts
 
2.1
%
 
2.6
%
   
(0.5
%)

 
(0.2
%)

 
0.9
%


(1.1
%)
Color


(4.3
%)
 
3.9
%
 
(8.2
%)

 
2.3
%


1.2
%

 
1.1
%
Asia Pacific


4.4
%


0.1
%
 
4.3
%

 
3.6
%


(2.5
%)


6.1
%
Total Revenue

 
0.8
%

 
2.8
%
 
(2.0
%)


1.7
%
   
0.7
%


1.0
%



   

   

   
   
 
   

   
Operating Income


   

   

   



 
   

 
Flavors & Extracts


(12.4
%)


1.2
%
   
(13.6
%)


(16.9
%)
 
0.6
%


(17.5
%)
Color

 
(18.7
%)

 
4.7
%


(23.4
%)
   
(6.7
%)


1.1
%

 
(7.8
%)
Asia Pacific

 
16.4
%


0.6
%


15.8
%

 
8.9
%


(2.7
%)


11.6
%
Corporate & Other


(31.6
%)


0.0
%


(31.6
%)

 
(23.3
%)


0.0
%


(23.3
%)
Total Operating Income

 
(6.2
%)

 
3.6
%


(9.8
%)

 
(5.5
%)


0.6
%


(6.1
%)
Diluted Earnings per Share

 
(11.8
%)


3.5
%

 
(15.3
%)


(11.3
)%


0.4
%


(11.7
%)

14

SEGMENT INFORMATION

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before share-based compensation and other costs (which are reported in Corporate & Other), interest expense, and income taxes.

The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.

Flavors & Extracts
Flavors & Extracts segment revenue was $191.0 million and $187.0 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately 2%. The increase was primarily a result of higher revenue in Natural Ingredients due to higher selling prices and volumes. Foreign exchange rates increased segment revenue by approximately 3%.

Flavors & Extracts segment revenue was $558.1 million and $559.1 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease was primarily a result of lower revenue in Natural Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices and the favorable impact of foreign exchange rates that increased segment revenue by approximately 1%, partially offset by lower volumes.

Flavors & Extracts segment operating income was $23.1 million and $26.3 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of approximately 12%. The decrease was primarily a result of lower segment operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs and an unfavorable product mix, partially offset by higher selling prices. The lower segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher raw material costs, lower volumes, and an unfavorable product mix, partially offset by higher selling prices. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 12.1% in the current quarter compared to 14.1% in the prior year’s comparable quarter.

Flavors & Extracts segment operating income was $69.7 million and $83.9 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of approximately 17%. The decrease was primarily a result of lower segment operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs, lower volumes, and an unfavorable product mix, partially offset by higher selling prices and lower manufacturing and other costs. The lower segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 12.5% in the current nine month period compared to 15.0% in the prior year’s comparable nine month period.

Color
Color segment revenue was $144.9 million and $151.5 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of approximately 4%. The decrease was a result of lower revenue in Food & Pharmaceutical Colors and Personal Care due to lower volumes, partially offset by higher selling prices and the favorable impact of foreign exchange rates that increased segment revenue by approximately 4%.  The lower volumes in Food & Pharmaceutical Colors were also partially offset by the favorable impact of the acquisition of Endemix in October 2022.

Color segment revenue was $466.6 million and $456.2 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of approximately 2%. The increase was a result of higher revenue in Food & Pharmaceutical Colors, partially offset by lower revenue in Personal Care.  The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices, the acquisition of Endemix in October 2022, and the favorable impact of foreign exchange rates that increased segment revenue by approximately 1%, partially offset by lower volumes.  The lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices.

15

Segment operating income for the Color segment was $22.9 million and $28.2 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of approximately 19%. The decrease in segment operating income was a result of lower operating income in Food & Pharmaceutical Colors and Personal Care. The lower operating income in Food & Pharmaceutical Colors was due to higher raw material costs and lower volumes, partially offset by higher selling prices and lower manufacturing and other costs. The lower operating income in Personal Care was due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. Foreign exchange rates increased segment operating income by approximately 5%. Segment operating income as a percent of revenue was 15.8% in the current quarter and 18.6% in the prior year’s comparable quarter.

Segment operating income for the Color segment was $84.0 million and $90.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of approximately 7%. The decrease in segment operating income was a result of lower operating income in Personal Care, partially offset by higher operating income in Food & Pharmaceutical Colors.  The lower operating income in Personal Care was primarily due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher selling prices, partially offset by higher raw material costs, lower volumes, and an unfavorable product mix. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.0% in the current nine month period and 19.7% in the prior year’s comparable period.

Asia Pacific
Segment revenue for the Asia Pacific segment was $36.8 million and $35.2 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately 4%. The increase was primarily a result of higher selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the three months ended September 30, 2023.

Segment revenue for the Asia Pacific segment was $112.9 million and $109.0 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of approximately 4%. The increase was primarily a result of higher selling prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 3%.

Segment operating income for the Asia Pacific segment was $8.1 million and $7.0 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately 16%. The increase was primarily a result of higher selling prices and the favorable impact of foreign exchange rates that increased segment operating income by approximately 1%, partially offset by higher raw material costs. Segment operating income as a percent of revenue was 22.0% in the current quarter and 19.7% in the prior year’s comparable quarter.

Segment operating income for the Asia Pacific segment was $24.9 million and $22.9 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of approximately 9%. The increase was primarily a result of higher selling prices, partially offset by higher raw material costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 3%. Segment operating income as a percent of revenue was 22.1% in the current nine month period and 21.0% in the prior year’s comparable period.

Corporate & Other
The Corporate & Other operating expense was $9.6 million and $14.0 million for the three months ended September 30, 2023 and 2022, respectively. The Corporate & Other operating expense was $31.7 million and $41.3 million for the nine months ended September 30, 2023 and 2022, respectively. The lower operating expense for both the three and nine months ended September 30, 2023, was primarily due to lower performance-based compensation expense in 2023.

LIQUIDITY AND FINANCIAL CONDITION

Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of September 30, 2023. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments, as well as potential acquisitions and stock repurchases. The Company’s contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations and debt. The Company has various series of notes outstanding that mature from 2023 through 2028. The Company believes that it has the ability to refinance or repay these obligations through a combination of cash flow from operations, issuance of additional notes, and sufficient borrowing capacity under the Company’s revolving credit facility, which matures in 2026.

16

As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three or nine months ended September 30, 2023. The Company continues to experience elevated costs for certain inputs, such as labor, raw materials, energy, and certain agricultural costs. We continue to expect to manage these impacts in the near term, but persistent, accelerated, or expanded inflationary conditions could exacerbate these challenges and impact our profitability.

Cash Flows from Operating Activities
Net cash provided by operating activities was $106.8 million and $14.9 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in net cash from operating activities was primarily due to a decrease in cash used for inventory investments during 2023 compared to 2022 and an increase in cash provided by accounts receivable.

Cash Flows from Investing Activities
Net cash used in investing activities was $65.6 million and $51.7 million during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2022, the Company paid $1.0 million related to the acquisition of Flavors Solutions, Inc.  Capital expenditures were $67.7 million and $51.7 million during the nine months ended September 30, 2023 and 2022, respectively.

Cash Flows from Financing Activities
Net cash used in financing activities was $36.4 million for the nine months ended September 30, 2023, and net cash provided by financing activities was $46.3 million for the nine months ended September 30, 2022. Net debt increased by $23.5 million and $100.1 million for the nine months ended September 30, 2023 and 2022, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support capital expenditure investments during the nine months ended September 30, 2023. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $51.9 million and $51.7 million were paid during the nine months ended September 30, 2023 and 2022, respectively. Dividends paid were $1.23 per share for both the nine months ended September 30, 2023 and 2022.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2023. For additional information about the Company’s critical accounting policies, refer to “Critical Accounting Policies” under Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk during the quarter ended September 30, 2023. For additional information about market risk, refer to Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 4.
CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice President and Chief Financial Officer, of the effectiveness, as of the end of the period covered by this report, of the design and operation of the disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting: There have been no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

17

PART II.     OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

See Part I, Item 1, Note 12, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.

ITEM 1A.
RISK FACTORS

There were no material changes to the risk factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of September 30, 2023, 1,267,019 shares had been repurchased under the 2017 Authorization. There is no expiration date for the 2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of September 30, 2023, the maximum number of shares that may be purchased under publicly announced plans is 1,732,981. No shares were purchased by the Company during the three or nine months ended September 30, 2023.

ITEM 5.
OTHER INFORMATION

During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

ITEM 6.
EXHIBITS

See Exhibit Index following this report.

18

SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023

Exhibit
Description
Incorporated by Reference From
Filed Herewith




Amendment No. 10 to Receivables Purchase Agreement, dated as of August 31, 2023, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National Association.
Exhibit 10.1 to Current Report on Form 8-K filed September 6, 2023 (Commission File No. 1-7626)





Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act

X




Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to 18 United States Code § 1350

X




101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

X




101.SCH
Inline XBRL Taxonomy Extension Schema Document

X




101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document

X




101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document

X

101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document

X




101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document

X




104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

X

19

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



SENSIENT TECHNOLOGIES CORPORATION





Date:
November 7, 2023
By:
 /s/  John J. Manning




John J. Manning, Senior Vice
President, General Counsel &
Secretary






 Date:
November 7, 2023
 By:
 /s/  Stephen J. Rolfs




Stephen J. Rolfs, Senior Vice
President & Chief Financial Officer



20