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Sensient Q2 Earnings Fall, Issues FY13 Earnings Guidance

Source: Sensient Technologies Corporation
26/07/2013

26 January 2013 - Sensient Technologies Corporation reported diluted earnings per share of 65 cents in the second quarter which includes restructuring costs of 9 cents per share.

As adjusted, to remove the impact of the restructuring costs, diluted earnings per share were 74 cents, an all-time quarterly record and an increase of 5.7% over the 70 cents reported in the second quarter of 2012. Consolidated revenue reached a new quarterly record of $378.8 million compared to $367.8 million in the second quarter of 2012. Operating income was $48.7 million, as reported, and included $6.6 million of pre-tax restructuring costs. Adjusted operating income was $55.3 million compared to $54.3 million reported in the second quarter of 2012. Foreign currency translation did not have a significant impact on revenue or operating income in the second quarter.

Revenue for the six months ended June 30, 2013 was $744.5 million, compared to $733.4 million reported in the first half of 2012. Diluted earnings per share, as reported, were $1.08, which includes restructuring costs of 28 cents. As adjusted, to remove the impact of the restructuring costs, diluted earnings per share were $1.36 compared to $1.28 reported in last year’s first half. Foreign currency translation did not have a significant impact on revenue or earnings per share in the first half of the year.

Cash provided by operating activities in the second quarter of 2013 was $44.5 million, an increase of 11% from the $40.1 million reported in the second quarter of 2012. For the first six months of 2013 cash provided by operating activities increased 43% to $70.0 million compared to $49.1 million in the first six months of 2012.

Earlier this year, the Company announced that it was initiating a broad and strategic restructuring plan. The plan includes relocating the Flavors & Fragrances Group headquarters to Chicago, consolidating several operating facilities throughout Europe and North America, and reducing the Company’s global headcount. The plan is progressing as scheduled and within the Company’s original cost estimates. The Company has included non-GAAP results to remove the costs related to the restructuring plan and provide investors with a view of operating performance excluding significant and non-recurring items.

“Sensient delivered solid results in the second quarter,” said Kenneth P. Manning, Chairman and CEO of Sensient Technologies Corporation. “We continue to see opportunities for growth in all of our Groups, and I remain very optimistic about the Company’s future.”

BUSINESS REVIEW

The Color Group reported revenue of $126.6 million in the second quarter of 2013, compared to $129.2 million reported in the comparable period last year. Second quarter operating income increased 4.4% to an all-time quarterly high of $27.7 million from $26.6 million in the second quarter of 2012. Color Group operating margins increased 140 basis points to 21.9% in the second quarter. Strong performances in digital inks and cosmetics contributed to the record results. Foreign currency translation did not have a significant impact on revenue or operating income in the quarter.

The Flavors & Fragrances Group reported quarterly revenue of $227.9 million compared to the $218.9 million reported in the comparable period last year. Operating income was $32.6 million in the quarter compared to $33.5 million reported in last year’s second quarter. Second quarter results were impacted by higher raw material costs. Foreign currency translation did not have a significant impact on revenue or operating income in the quarter.

The Corporate & Other segment, which includes the Company’s operations in Asia Pacific and China, and the flavor businesses in Central and South America, reported revenue of $38.8 million in the second quarter, an increase of 8.5% compared to $35.8 million reported in last year’s second quarter. Revenue growth, in local currency terms, was very strong throughout the Asia Pacific region.

2013 OUTLOOK

Sensient has narrowed its guidance for 2013 diluted earnings per share, which is now expected to be between $2.68 and $2.73, excluding the impact of the restructuring charge. The Company’s previous guidance had been a range of $2.66 to $2.73 per share, excluding the restructuring charge.

Sensient Technologies Corporation

(In thousands, except percentages and per share amounts)
Consolidated Statements of Earnings Three Months Ended June 30, Six Months Ended June 30,
2013 2012 % Change 2013 2012 % Change
Revenue $ 378,806 $ 367,777 3.0 % $ 744,446 $ 733,437 1.5 %
Cost of products sold 256,285 247,822 3.4 % 504,788 498,150 1.3 %
Selling and administrative expenses 73,843 65,657 12.5 % 154,642 134,500 15.0 %
Operating income 48,678 54,298 -10.4 % 85,016 100,787 -15.6 %
Interest expense 4,008 4,347 8,269 8,753
Earnings before income taxes 44,670 49,951 -10.6 % 76,747 92,034 -16.6 %
Income taxes 12,388 15,046 23,026 28,223
Net earnings $ 32,282 $ 34,905 -7.5 % $ 53,721 $ 63,811 -15.8 %
Earnings per common share:
Basic $ 0.65 $ 0.70 -7.1 % $ 1.08 $ 1.29 -16.3 %
Diluted $ 0.65 $ 0.70 -7.1 % $ 1.08 $ 1.28 -15.6 %
Average common shares outstanding:
Basic 49,751 49,537 0.4 % 49,731 49,656 0.2 %
Diluted 49,917 49,771 0.3 % 49,892 49,884 0.0 %
Reconciliation of Non-GAAP Amounts
The Company recorded restructuring costs of $6.6 million ($4.7 million after-tax or $0.09 per share) and $19.4 million ($14.1 million after-tax or $0.28 per share) for the three and six month periods ended June 30, 2013, respectively, related to the 2013 restructuring program to relocate the Flavors & Fragrances Group headquarters to Chicago, as well as a profit improvement plan across all segments of the Company.
Three Months Ended June 30,
Reported Restructuring Adjusted Reported
2013 Impact 2013 2012 % Change
Revenue $ 378,806 $ - $ 378,806 $ 367,777 3.0 %
Cost of products sold 256,285 277 256,008 247,822 3.3 %
Selling and administrative expenses 73,843 6,365 67,478 65,657 2.8 %
Operating income 48,678 (6,642 ) 55,320 54,298 1.9 %
Interest expense 4,008 - 4,008 4,347
Earnings before income taxes 44,670 (6,642 ) 51,312 49,951 2.7 %
Income taxes 12,388 (1,940 ) 14,328 15,046
Net earnings $ 32,282 $ (4,702 ) $ 36,984 $ 34,905 6.0 %
Earnings per common share:
Basic $ 0.65 $ (0.09 ) $ 0.74 $ 0.70 5.7 %
Diluted $ 0.65 $ (0.09 ) $ 0.74 $ 0.70 5.7 %
Average common shares outstanding:
Basic 49,751 49,751 49,537 0.4 %
Diluted 49,917 49,917 49,771 0.3 %

Sensient Technologies Corporation

(In thousands, except percentages and per share amounts)
Reconciliation of Non-GAAP Amounts (continued)
Six Months Ended June 30,
Reported Restructuring Adjusted Reported
2013 Impact 2013 2012 % Change
Revenue $ 744,446 $ - $ 744,446 $ 733,437 1.5 %
Cost of products sold 504,788 872 503,916 498,150 1.2 %
Selling and administrative expenses 154,642 18,543 136,099 134,500 1.2 %
Operating income 85,016 (19,415 ) 104,431 100,787 3.6 %
Interest expense 8,269 - 8,269 8,753
Earnings before income taxes 76,747 (19,415 ) 96,162 92,034 4.5 %
Income taxes 23,026 (5,306 ) 28,332 28,223
Net earnings $ 53,721 $ (14,109 ) $ 67,830 $ 63,811 6.3 %
Earnings per common share:
Basic $ 1.08 $ (0.28 ) $ 1.36 $ 1.29 5.4 %
Diluted $ 1.08 $ (0.28 ) $ 1.36 $ 1.28 6.3 %
Average common shares outstanding:
Basic 49,731 49,731 49,656 0.2 %
Diluted 49,892 49,892 49,884 0.0 %

The Company is presenting these non-GAAP amounts to provide investors with a view of operating performance excluding the restructuring impact.

Results by Segment Three Months Ended June 30, Six Months Ended June 30,

Revenue

2013 2012 % Change 2013 2012 % Change
Flavors & Fragrances $ 227,918 $ 218,918 4.1 % $ 444,959 $ 433,649 2.6 %
Color * 126,589 129,241 -2.1 % 254,467 261,497 -2.7 %
Corporate & Other 38,805 35,777 8.5 % 74,798 70,773 5.7 %
Intersegment elimination (14,506 ) (16,159 ) -10.2 % (29,778 ) (32,482 ) -8.3 %
Consolidated $ 378,806 $ 367,777 3.0 % $ 744,446 $ 733,437 1.5 %

Operating Income

Flavors & Fragrances $ 32,561 $ 33,459 -2.7 % $ 61,481 $ 62,524 -1.7 %
Color * 27,710 26,553 4.4 % 53,683 52,336 2.6 %
Corporate & Other (11,593 ) (5,714 ) (30,148 ) (14,073 )
Consolidated $ 48,678 $ 54,298 -10.4 % $ 85,016 $ 100,787 -15.6 %
Consolidated Excluding Restructuring Charge $ 55,320 $ 54,298 1.9 % $ 104,431 $ 100,787 3.6 %
* Beginning in the first quarter of 2013, the results of operations for the Company’s cosmetic and pharmaceutical businesses in Asia Pacific and China, previously reported in the Corporate & Other segment, are reported in the Color Group. Results for 2012 have been restated to reflect this change.
Sensient Technologies Corporation
(In thousands, except per share amounts)
Consolidated Condensed Balance Sheets
June 30, 2013 2012
Current assets $ 770,701 $ 721,690
Goodwill and intangibles (net) 452,358 452,556
Property, plant and equipment (net) 532,121 472,028
Other assets 45,715 37,783
Total Assets $ 1,800,895 $ 1,684,057
Current liabilities $ 213,309 $ 186,259
Long-term debt 342,699 340,048
Accrued employee and retiree benefits 60,464 54,924
Other liabilities 22,259 31,756
Shareholders' equity 1,162,164 1,071,070
Total Liabilities and Shareholders' Equity $ 1,800,895 $ 1,684,057
Consolidated Statements of Cash Flows
Three Months Ended June 30, 2013 2012
Net cash provided by operating activities $ 44,455 $ 40,139
Cash flows from investing activities:
Acquisition of property, plant and equipment (34,202 ) (30,908 )
Proceeds from sale of assets 7 1,289
Other investing activity (62 ) (30 )
Net cash used in investing activities (34,257 ) (29,649 )
Cash flows from financing activities:
Proceeds from additional borrowings 42,158 16,241
Debt payments (31,173 ) (11,822 )
Purchase of treasury stock - (1,744 )
Dividends paid (11,508 ) (10,987 )
Proceeds from options exercised and other 364 601
Net cash used in financing activities (159 ) (7,711 )
Effect of exchange rate changes on cash and cash equivalents (2,844 ) (4,073 )
Net increase (decrease) in cash and cash equivalents 7,195 (1,294 )
Cash and cash equivalents at beginning of period 19,470 13,349
Cash and cash equivalents at end of period $ 26,665 $ 12,055
Supplemental Information
Three Months Ended June 30, 2013 2012
Depreciation and amortization $ 12,930 $ 12,416
Dividends per share $ 0.23 $ 0.22


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