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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:
June 30, 2024
  

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 July 23, 2024
Common Stock, par value $0.10 per share
  
42,374,796

SENSIENT TECHNOLOGIES CORPORATION
INDEX

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

 
 
1
 

 
 
2
 
 
 
3
 
 
 
4
 
 
  
 
5
     
 
6
     
Item 2.
 14
     
Item 3.
19
     
Item 4.
19
     
PART II. OTHER INFORMATION:
  
     
Item 1.
19
     
Item 1A.
19
     
Item 2.
19
 
 
Item 5.
 20
     
Item 6
 Exhibits.  20
     
 
21
     
 
22

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 June 30,
    
Six Months
Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
                         
Revenue
  
$
403,525
    
$
374,313
    
$
788,195
    
$
743,319
  
Cost of products sold
    
272,803
      
252,136
      
530,924
      
496,479
  
Selling and administrative expenses
    
81,065
      
70,586
      
158,208
      
144,411
  
Operating income
    
49,657
      
51,591
      
99,063
      
102,429
  
Interest expense
    
7,653
      
6,352
      
14,698
      
12,354
  
Earnings before income taxes
    
42,004
      
45,239
      
84,365
      
90,075
  
Income taxes
    
11,072
      
11,206
      
22,493
      
22,391
  
Net earnings
  
$
30,932
    
$
34,033
    
$
61,872
    
$
67,684
  
                                 
Weighted average number of common shares outstanding:
                                
Basic
    
42,154
      
42,043
      
42,129
      
42,006
  
Diluted
    
42,398
      
42,235
      
42,351
      
42,245
  
                                 
Earnings per common share:
                                
Basic
  
$
0.73
    
$
0.81
    
$
1.47
    
$
1.61
  
Diluted
  
$
0.73
    
$
0.81
    
$
1.46
    
$
1.60
  
                                 
Dividends declared per common share
  
$
0.41
    
$
0.41
    
$
0.82
    
$
0.82
  

See accompanying notes to consolidated condensed financial statements.

1
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months
Ended June 30,
    
Six Months
Ended June 30,
  
   
2024
    
2023
    
2024
    
2023
  
                         
Comprehensive income
  
$
8,483
    
$
41,199
    
$
35,812
    
$
91,151
  

See accompanying notes to consolidated condensed financial statements.

2
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)


  
June 30,
2024
(Unaudited)
    
December 31,
2023
  
Assets
           
Current Assets:
            
Cash and cash equivalents
  
$
30,339
    
$
28,934
  
Trade accounts receivable
    
315,604
      
272,164
  
Inventories
    
553,415
      
598,399
  
Prepaid expenses and other current assets
    
44,897
      
37,119
  
                 
Total current assets
    
944,255
      
936,616
  
                 
Other assets
    
92,501
      
94,873
  
Deferred tax assets
    
37,171
      
41,564
  
Intangible assets, net
    
11,615
      
12,112
  
Goodwill
    
418,185
      
424,065
  
Property, Plant, and Equipment:
                
Land
    
32,752
      
31,901
  
Buildings
    
349,407
      
343,594
  
Machinery and equipment
    
798,717
      
781,789
  
Construction in progress
    
37,117
      
59,091
  
     
1,217,993
      
1,216,375
  
Less accumulated depreciation
    
(726,853
)
    
(711,098
)
     
491,140
      
505,277
  
                 
Total assets
  
$
1,994,867
    
$
2,014,507
  
                 
Liabilities and Shareholders’ Equity
                
                 
Current Liabilities:
                
Trade accounts payable
  
$
107,218
    
$
131,114
  
Accrued salaries, wages, and withholdings from employees
    
33,525
      
26,412
  
Other accrued expenses
    
52,802
      
52,024
  
Income taxes
    
6,495
      
13,296
  
Short-term borrowings
    
26,995
      
13,460
  
                 
Total current liabilities
    
227,035
      
236,306
  
                 
Deferred tax liabilities
    
14,087
      
14,260
  
Other liabilities
    
36,435
      
37,817
  
Accrued employee and retiree benefits
    
24,872
      
27,715
  
Long-term debt
    
634,663
      
645,085
  
Shareholders’ Equity:
                
Common stock
    
5,396
      
5,396
  
Additional paid-in capital
    
114,730
      
115,941
  
Earnings reinvested in the business
    
1,754,059
      
1,726,872
  
Treasury stock, at cost
    
(618,233
)
    
(622,768
)
Accumulated other comprehensive loss
    
(198,177
)
    
(172,117
)
                 
Total shareholders’ equity
    
1,057,775
      
1,053,324
  
                 
Total liabilities and shareholders’ equity
  
$
1,994,867
    
$
2,014,507
  

See accompanying notes to consolidated condensed financial statements.

3
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months
Ended June 30,
  
   
2024
    
2023
  
             
Cash flows from operating activities:
            
Net earnings
  
$
61,872
    
$
67,684
  
Adjustments to arrive at net cash provided by operating activities:
                
Depreciation and amortization
    
29,725
      
28,590
  
Share-based compensation expense
    
4,911
      
4,766
  
Net (gain) loss on assets
    
(195
)
    
81
  
Portfolio Optimization Plan costs
     1,495       -  
Deferred income taxes
    
529
      
(2,643
)
Changes in operating assets and liabilities:
                
Trade accounts receivable
    
(49,449
)
    
6,062
  
Inventories
    
36,730
      
(16,927
)
Prepaid expenses and other assets
    
(6,612
)
    
3,534
  
Accounts payable and other accrued expenses
    
(22,722
)
    
(18,329
)
Accrued salaries, wages, and withholdings from employees
    
7,824
      
(19,713
)
Income taxes
    
(6,591
)
    
(1,998
)
Other liabilities
    
1,429
      
595
  
                 
Net cash provided by operating activities
    
58,946
      
51,702
  
                 
Cash flows from investing activities:
                
Acquisition of property, plant, and equipment
    
(22,850
)
    
(45,137
)
Proceeds from sale of assets
    
296
      
53
  
Other investing activities
    
(336
)
    
2,054
  
                 
Net cash used in investing activities
    
(22,890
)
    
(43,030
)
                 
Cash flows from financing activities:
                
Proceeds from additional borrowings
    
132,189
      
187,037
  
Debt payments
    
(120,571
)
    
(143,923
)
Dividends paid
    
(34,685
)
    
(34,577
)
Other financing activities
    
(3,016
)
    
(8,003
)
                 
Net cash (used in) provided by financing activities
    
(26,083
)
    
534
  
                 
Effect of exchange rate changes on cash and cash equivalents
    
(8,568
)
    
6,419
  
                 
Net increase in cash and cash equivalents
    
1,405
      
15,625
  
Cash and cash equivalents at beginning of period
    
28,934
      
20,921
  
Cash and cash equivalents at end of period
  
$
30,339
    
$
36,546
  

See accompanying notes to consolidated condensed financial statements.

4
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
(Unaudited)

                   
Treasury Stock
    
   

 
Three Months Ended June 30, 2024
  
Common
Stock
    
Additional
Paid-In
Capital
    
Earnings
Reinvested
in the
Business
    
Shares
    
Amount
    
Accumulated
Other
Comprehensive
Income (Loss)
    
Total
Equity
  
Balances at March 31, 2024
  
$
5,396
    
$
112,389
    
$
1,740,500
      
11,806,249
    
$
(618,621
)
  
$
(175,728
)
  
$
1,063,936
  
Net earnings
    
-
      
-
      
30,932
      
-
      
-
      
-
      
30,932
  
Other comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(22,449
)
    
(22,449
)
Cash dividends paid – $0.41 per share
    
-
      
-
      
(17,373
)
    
-
      
-
      
-
      
(17,373
)
Share-based compensation
    
-
      
2,916
      
-
      
-
      
-
      
-
      
2,916
  
Non-vested stock issued upon vesting
     -       (528 )     -       (10,076 )     528       -       -  
Other
     -       (47 )     -       2,680       (140 )     -       (187 )
Balances at June 30, 2024
  
$
5,396
    
$
114,730
    
$
1,754,059
      
11,798,853
    
$
(618,233
)
  
$
(198,177
)
  
$
1,057,775
  

Three Months Ended June 30, 2023
                                          
Balances at March 31, 2023
  
$
5,396
    
$
112,589
    
$
1,719,096
      
11,917,944
    
$
(624,473
)
  
$
(184,387
)
  
$
1,028,221
  
Net earnings
    
-
      
-
      
34,033
      
-
      
-
      
-
      
34,033
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
-
      
7,166
      
7,166
  
Cash dividends paid – $0.41 per share
    
-
      
-
      
(17,322
)
    
-
      
-
      
-
      
(17,322
)
Share-based compensation
    
-
      
2,499
      
-
      
-
      
-
      
-
      
2,499
  
Non-vested stock issued upon vesting     -       (663 )     -       (12,644 )     663       -       -  
Other
     -       (95 )     -       4,533       (238 )     -       (333 )
Balances at June 30, 2023
  
$
5,396
    
$
114,330
    
$
1,735,807
      
11,909,833
    
$
(624,048
)
  
$
(177,221
)
  
$
1,054,264
  

Six Months Ended June 30, 2024  
                                         
Balances at December 31, 2023
  
$
5,396
    
$
115,941
    
$
1,726,872
      
11,885,398
    
$
(622,768
)
  
$
(172,117
)
  
$
1,053,324
  
Net earnings
    
-
      
-
      
61,872
      
-
      
-
      
-
      
61,872
  
Other comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(26,060
)
    
(26,060
)
Cash dividends paid – $0.82 per share
    
-
      
-
      
(34,685
)
    
-
      
-
      
-
      
(34,685
)
Share-based compensation
    
-
      
4,911
      
-
      
-
      
-
      
-
      
4,911
  
Non-vested stock issued upon vesting
    
-
      
(5,893
)
    
-
      
(112,472
)
    
5,893
      
-
      
-
  
Benefit plans
    
-
      
299
      
-
      
(21,405
)
    
1,122
      
-
      
1,421
  
Other
    
-
      
(528
)
    
-
      
47,332
      
(2,480
)
    
-
      
(3,008
)
Balances at June 30, 2024
  
$
5,396
    
$
114,730
    
$
1,754,059
      
11,798,853
    
$
(618,233
)
  
$
(198,177
)
  
$
1,057,775
  

Six Months Ended June 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
    
-
      
-
      
67,684
      
-
      
-
      
-
      
67,684
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
-
      
23,467
      
23,467
  
Cash dividends paid – $0.82 per share
    
-
      
-
      
(34,577
)
    
-
      
-
      
-
      
(34,577
)
Share-based compensation
    
-
      
4,766
      
-
      
-
      
-
      
-
      
4,766
  
Non-vested stock issued upon vesting
    
-
      
(12,619
)
    
-
      
(240,825
)
    
12,619
      
-
      
-
  
Benefit plans
    
-
      
375
      
-
      
(18,172
)
    
952
      
-
      
1,327
  
Other
    
-
      
(2,235
)
    
-
      
110,057
      
(5,766
)
    
-
      
(8,001
)
Balances at June 30, 2023
  
$
5,396
    
$
114,330
    
$
1,735,807
      
11,909,833
    
$
(624,048
)
  
$
(177,221
)
  
$
1,054,264
  

See accompanying notes to consolidated condensed financial statements.

5
Index
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 June 30, 2024, and the results of operations, comprehensive income, and shareholders’ equity for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023. 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.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to provide disclosures of significant segment expenses and other segment items. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and its related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to consistently categorize, and provide greater disaggregation of, information in the rate reconciliation table and further disaggregate income tax payments by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and its related disclosures.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2023, 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.
Portfolio Optimization Plan

During the fourth quarter of 2023, the board of directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.

The Company’s Felinfach site will continue to operate until all production activities have successfully transferred to other locations, and then will be closed. The Company has substantially completed all other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.

The Company recorded non-cash impairment charges in Selling and Administrative Expenses, primarily related to certain property, plant, and equipment during the three and six months ended June 30, 2024, when the estimated fair value of these assets was lower than the carrying value. The property, plant, and equipment related to a product line that was shut down and determined to not be usable at other plant locations.

6
The Company recorded $2.8 million and $3.7 million of accrued liabilities in Other Accrued Expenses on the Company’s Consolidated Balance Sheet related to the Portfolio Optimization Plan as of June 30, 2024 and December 31, 2023, respectively. The Company expects the Portfolio Optimization Plan will cost approximately $40 million, of which $32.4 million has been incurred through June 30, 2024, primarily related to non-cash impairment charges and proposed employee separation costs, and upon completion would reduce annual operating costs by approximately $8 million to $10 million, with the full benefit expected to be achieved after 2025. The Company anticipates to reduce headcount by approximately 100 positions, primarily in the Flavors & Extracts and Color segments, related to certain production and selling and administrative positions.

The following table summarizes the Portfolio Optimization Plan expenses by segment for the three months ended June 30, 2024:

 
(In thousands)
  
Flavors &
Extracts
    

Color
    
Corporate
& Other
    
Consolidated
  
Non-cash impairment charges – Selling and administrative expenses
  
$
-
    
$
154
    
$
-
    
$
154
  
Non-cash charges – Cost of products sold
    
283
      
(176
)
    
-
      
107
  
Employee separation – Selling and administrative expenses
    
240
      
35
      
-
      
275
  
Other production costs – Cost of products sold
     100       -       -       100  
Other costs – Selling and administrative expenses(1)
    
743
      
400
      
(27
)
    
1,116
  
Total
  
$
1,366
    
$
413
    
$
(27
)
  
$
1,752
  


(1)
Other costs include professional services, decommissioning costs, accelerated depreciation, accelerated lease costs, and other related costs.

The following table summarizes the Portfolio Optimization Plan expenses by segment for the six months ended June 30, 2024:

 
(In thousands)
  
Flavors &
Extracts
    

Color
    
Corporate
& Other
    
Consolidated
  
Non-cash impairment charges – Selling and administrative expenses
  
$
-
    
$
1,129
    
$
-
    
$
1,129
  
Non-cash charges – Cost of products sold
    
408
      
(194
)
    
-
      
214
  
Employee separation – Selling and administrative expenses
    
851
      
526
      
28
      
1,405
  
Other production costs – Cost of products sold
     100       -       -       100  
Other costs – Selling and administrative expenses(1)
    
1,059
      
684
      
(27
)
    
1,716
  
Total
  
$
2,418
    
$
2,145
    
$
1
    
$
4,564
  


(1) Other costs include professional services, decommissioning costs, accelerated depreciation, accelerated lease costs, and other related costs.

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.

7
Index
The following table summarizes the changes in the allowance for doubtful accounts during the three and six month periods ended June 30, 2024 and 2023:

(In thousands)
Three Months Ended June 30, 2024
  
Allowance for
Doubtful Accounts
  
Balance at March 31, 2024
  
$
3,882
  
Provision for expected credit losses
    
496
  
Accounts written off
    
(5
)
Translation and other activity
    
(98
)
Balance at June 30, 2024
  
$
4,275
  

(In thousands)
Three Months Ended June 30, 2023
  
Allowance for
Doubtful Accounts
  
Balance at March 31, 2023
  
$
4,045
  
Provision for expected credit losses
    
371
  
Accounts written off
    
(193
)
Translation and other activity
    
70
Balance at June 30, 2023
  
$
4,293
  

(In thousands)
Six Months Ended June 30, 2024
  
Allowance for
Doubtful Accounts
  
Balance at December 31, 2023
  
$
4,373
  
Provision for expected credit losses
    
803
  
Accounts written off
    
(752
)
Translation and other activity
    
(149
)
Balance at June 30, 2024
  
$
4,275
  

(In thousands)
Six Months Ended June 30, 2023
  
Allowance for
Doubtful Accounts
  
Balance at December 31, 2022
  
$
4,436
  
Provision for expected credit losses
    
491
  
Accounts written off
     (807 )
Translation and other activity
     173
Balance at June 30, 2023
   $ 4,293  

4.
Inventories
 
At June 30, 2024, and December 31, 2023, inventories included finished and in-process products totaling $407.1 million and $437.1 million, respectively, and raw materials and supplies of $146.4 million and $161.3 million, respectively.

5.
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 June 30, 2024 and December 31, 2023. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was a liability of $0.1 million and an asset of $1.0 million as of June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, was $634.7 million and $645.2 million, respectively. The fair value of the long-term debt at June 30, 2024 and December 31, 2023, was $638.3 million and $653.7 million, respectively.

6.
Segment Information

The Company evaluates performance based on operating income before share-based compensation; restructuring and other charges, including Portfolio Optimization Plan costs; 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.

8
Index
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, share-based compensation, and restructuring and other charges, including Portfolio Optimization Plan costs, 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 June 30, 2024:
                              
Revenue from external customers
  
$
202,020
    
$
162,925
    
$
38,580
    
$
-
    
$
403,525
  
Intersegment revenue
    
7,193
      
4,775
      
-
      
-
      
11,968
  
Total revenue
  
$
209,213
    
$
167,700
    
$
38,580
    
$
-
    
$
415,493
  
                                         
Operating income (loss)
  
$
26,209
    
$
31,502
    
$
7,880
    
$
(15,934
)
  
$
49,657
  
Interest expense
    
-
      
-
      
-
      
7,653
      
7,653
  
Earnings (loss) before income taxes
  
$
26,209
    
$
31,502
    
$
7,880
    
$
(23,587
)
  
$
42,004
  
                                         
Three months ended June 30, 2023:
                                        
Revenue from external customers
  
$
181,752
    
$
156,532
    
$
36,029
    
$
-
    
$
374,313
  
Intersegment revenue
    
6,532
      
3,931
      
-
      
-
      
10,463
  
Total revenue
  
$
188,284
    
$
160,463
    
$
36,029
    
$
-
    
$
384,776
  
                                         
Operating income (loss)
  
$
24,456
    
$
29,217
    
$
7,575
    
$
(9,657
)
  
$
51,591
  
Interest expense
    
-
      
-
      
-
      
6,352
      
6,352
  
Earnings (loss) before income taxes
  
$
24,456
    
$
29,217
    
$
7,575
    
$
(16,009
)
  
$
45,239
  

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia
Pacific
    
Corporate &
Other
    
Consolidated
  
Six months ended June 30, 2024:
                              
Revenue from external customers
  
$
390,042
    
$
319,289
    
$
78,864
    
$
-
    
$
788,195
  
Intersegment revenue
    
12,263
      
8,436
      
22
      
-
      
20,721
  
Total revenue
  
$
402,305
    
$
327,725
    
$
78,886
    
$
-
    
$
808,916
  
                                         
Operating income (loss)
  
$
49,887
    
$
63,181
    
$
16,656
    
$
(30,661
)
  
$
99,063
  
Interest expense
    
-
      
-
      
-
      
14,698
      
14,698
  
Earnings (loss) before income taxes
  
$
49,887
    
$
63,181
    
$
16,656
    
$
(45,359
)
  
$
84,365
  
                                         
Six months ended June 30, 2023:
                                        
Revenue from external customers
  
$
353,724
    
$
313,481
    
$
76,114
    
$
-
    
$
743,319
  
Intersegment revenue
    
13,412
      
8,143
      
-
      
-
      
21,555
  
Total revenue
  
$
367,136
    
$
321,624
    
$
76,114
    
$
-
    
$
764,874
  
                                         
Operating income (loss)
  
$
46,636
    
$
61,102
    
$
16,816
    
$
(22,125
)
  
$
102,429
  
Interest expense
    
-
      
-
      
-
      
12,354
      
12,354
  
Earnings (loss) before income taxes
  
$
46,636
    
$
61,102
    
$
16,816
    
$
(34,479
)
  
$
90,075
  

9
Index
Product Lines

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Three months ended June 30, 2024:
                        
Flavors, Extracts & Flavor Ingredients
  
$
134,749
    
$
-
    
$
-
    
$
134,749
  
Natural Ingredients
    
74,464
      
-
      
-
      
74,464
  
Food & Pharmaceutical Colors
    
-
      
125,327
      
-
      
125,327
  
Personal Care
    
-
      
42,373
      
-
      
42,373
  
Asia Pacific
    
-
      
-
      
38,580
      
38,580
  
Intersegment Revenue
    
(7,193
)
    
(4,775
)
    
-
      
(11,968
)
Total revenue from external customers
  
$
202,020
    
$
162,925
    
$
38,580
    
$
403,525
  
                                 
Three months ended June 30, 2023:
                                
Flavors, Extracts & Flavor Ingredients
  
$
133,688
    
$
-
    
$
-
    
$
133,688
  
Natural Ingredients
    
54,596
      
-
      
-
      
54,596
  
Food & Pharmaceutical Colors
    
-
      
120,165
      
-
      
120,165
  
Personal Care
    
-
      
40,298
      
-
      
40,298
  
Asia Pacific
    
-
      
-
      
36,029
      
36,029
  
Intersegment Revenue
    
(6,532
)
    
(3,931
)
    
-
      
(10,463
)
Total revenue from external customers
  
$
181,752
    
$
156,532
    
$
36,029
    
$
374,313
  

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Six months ended June 30, 2024:
                        
Flavors, Extracts & Flavor Ingredients
  
$
259,554
    
$
-
    
$
-
    
$
259,554
  
Natural Ingredients
    
142,751
      
-
      
-
      
142,751
  
Food & Pharmaceutical Colors
    
-
      
242,385
      
-
      
242,385
  
Personal Care
    
-
      
85,340
      
-
      
85,340
  
Asia Pacific
    
-
      
-
      
78,886
      
78,886
  
Intersegment Revenue
    
(12,263
)
    
(8,436
)
    
(22
)
    
(20,721
)
Total revenue from external customers
  
$
390,042
    
$
319,289
    
$
78,864
    
$
788,195
  
                                 
Six months ended June 30, 2023:
                                
Flavors, Extracts & Flavor Ingredients
  
$
258,513
    
$
-
    
$
-
    
$
258,513
  
Natural Ingredients
    
108,623
      
-
      
-
      
108,623
  
Food & Pharmaceutical Colors
    
-
      
238,912
      
-
      
238,912
  
Personal Care
    
-
      
82,712
      
-
      
82,712
  
Asia Pacific
    
-
      
-
      
76,114
      
76,114
  
Intersegment Revenue
    
(13,412
)
    
(8,143
)
    
-
      
(21,555
)
Total revenue from external customers
  
$
353,724
    
$
313,481
    
$
76,114
    
$
743,319
  

Geographic Markets

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Three months ended June 30, 2024:
                        
North America
  
$
156,650
    
$
82,535
    
$
82
    
$
239,267
  
Europe
    
32,064
      
45,825
      
60
      
77,949
  
Asia Pacific
    
5,103
      
15,648
      
37,017
      
57,768
  
Other
    
8,203
      
18,917
      
1,421
      
28,541
  
Total revenue from external customers
  
$
202,020
    
$
162,925
    
$
38,580
    
$
403,525
  
                                 
Three months ended June 30, 2023:
                                
North America
  
$
137,135
    
$
77,554
    
$
62
    
$
214,751
  
Europe
    
31,867
      
44,397
      
24
      
76,288
  
Asia Pacific
    
6,290
      
16,308
      
35,394
      
57,992
  
Other
    
6,460
      
18,273
      
549
      
25,282
  
Total revenue from external customers
  
$
181,752
    
$
156,532
    
$
36,029
    
$
374,313
  

10
Index
(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Six months ended June 30, 2024:
                        
North America
  
$
303,602
    
$
157,655
    
$
82
    
$
461,339
  
Europe
    
64,221
      
91,987
      
106
      
156,314
  
Asia Pacific
    
8,809
      
33,067
      
75,702
      
117,578
  
Other
    
13,410
      
36,580
      
2,974
      
52,964
  
Total revenue from external customers
  
$
390,042
    
$
319,289
    
$
78,864
    
$
788,195
  
                                 
Six months ended June 30, 2023:
                                
North America
  
$
269,103
    
$
155,931
    
$
124
    
$
425,158
  
Europe
    
60,794
      
87,649
      
127
      
148,570
  
Asia Pacific
    
11,491
      
34,457
      
74,589
      
120,537
  
Other
    
12,336
      
35,444
      
1,274
      
49,054
  
Total revenue from external customers
  
$
353,724
    
$
313,481
    
$
76,114
    
$
743,319
  

7.
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
June 30,
    
Six Months Ended
June 30,
  
(In thousands)
  
2024
    
2023
    
2024
    
2023
  
Service cost
  
$
509
    
$
371
    
$
881
    
$
739
  
Interest cost
    
529
      
413
      
930
      
822
  
Expected return on plan assets
    
(260
)
    
(245
)
    
(502
)
    
(484
)
Recognized actuarial gain
    
(91
)
    
(138
)
    
(182
)
    
(277
)
Total defined benefit expense
  
$
687
    
$
401
    
$
1,127
    
$
800
  
 
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.

8.
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 $30.7 million and $58.4 million of forward exchange contracts designated as cash flow hedges outstanding as of June 30, 2024 and December 31, 2023, respectively. For the three and six months ended June 30, 2024 and 2023, the amounts reclassified into net earnings in the Company’s Consolidated Statements of Earnings that offset the underlying transactions’ impact on earnings in the same period were not material. 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.

11
Index
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 June 30, 2024 and December 31, 2023, the total value of the Company’s net investment hedges was $304.8 million and $313.3 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 June 30, 2024 and 2023, the impact of foreign exchange rates on these debt instruments decreased debt by $1.9 million and increased debt by $3.8 million, respectively, which has been recorded as foreign currency translation in OCI. For the six months ended June 30, 2024 and 2023, the impact of foreign exchange rates on these debt instruments decreased debt by $8.5 million and increased debt by $8.2 million, respectively, which has been recorded as foreign currency translation in OCI.

9.
Income Taxes

The effective income tax rates for the three months ended June 30, 2024 and 2023 were 26.4% and 24.8%, respectively. For the six months ended June 30, 2024 and 2023, the effective income tax rates were 26.7% and 24.9%, respectively. The effective tax rates for the three and six months ended June 30, 2024 and 2023 were impacted by the mix of foreign earnings and changes in estimates associated with the finalization of prior year foreign tax items. The effective tax rates for both the three and six months ended June 30, 2024 were also impacted by the limited tax deductibility of costs related to the Portfolio Optimization Plan.

10.
Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three and six month periods ended June 30, 2024 and 2023:

(In thousands)
  
Cash Flow
Hedges (1)
    
Pension
Items (1)
    
Foreign
Currency
Items
    
Total
  
Balances at December 31, 2023
  
$
997
    
$
(2,079
)
  
$
(171,035
)
  
$
(172,117
)
Other comprehensive loss before reclassifications
    
(537
)
    
-
      
(25,163
)
    
(25,700
)
Amounts reclassified from OCI
    
(224
)
    
(136
)
    
-
      
(360
)
Balances at June 30, 2024
  
$
236
    
$
(2,215
)
  
$
(196,198
)
  
$
(198,177
)

(In thousands)
  
Cash Flow
Hedges (1)
    
Pension
Items (1)
    
Foreign
Currency
Items
    
Total
  
Balances at March 31, 2024
  
$
1,477
    
$
(2,147
)
  
$
(175,058
)
  
$
(175,728
)
Other comprehensive loss before reclassifications
    
(1,239
)
    
-
      
(21,140
)
    
(22,379
)
Amounts reclassified from OCI
    
(2
)
    
(68
)
    
-
      
(70
)
Balances at June 30, 2024
  
$
236
    
$
(2,215
)
  
$
(196,198
)
  
$
(198,177
)

(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
    
3,213
      
-
      
21,115
      
24,328
  
Amounts reclassified from OCI
    
(617
)
    
(244
)
    
-
      
(861
)
Balances at June 30, 2023
  
$
1,997
    
$
(2,036
)
  
$
(177,182
)
  
$
(177,221
)

(In thousands)
 
Cash Flow
Hedges (1)
    
Pension
Items (1)
    
Foreign
Currency
Items
    
Total
  
Balances at March 31, 2023
  
$
983
    
$
(1,914
)
  
$
(183,456
)
  
$
(184,387
)
Other comprehensive income before reclassifications
    
1,513
      
-
      
6,274
      
7,787
  
Amounts reclassified from OCI
    
(499
)
    
(122
)
    
-
      
(621
)
Balances at June 30, 2023
  
$
1,997
    
$
(2,036
)
  
$
(177,182
)
  
$
(177,221
)


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

12
Index
11.
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.

12.
Subsequent Event

On July 25, 2024, the Company announced its quarterly dividend of $0.41 per share would be payable on September 3, 2024.

13
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 June 30, 2024, 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 general business, economic, and capital market conditions, including actions taken by customers in response to such 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, disruptions and delays in the Company’s supply chain, and the conflicts between Russia and Ukraine and Israel and Hamas and other parties in the Middle East; the availability and cost of labor, logistics, and transportation; 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 Portfolio Optimization 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; the Company’s ability to enhance its innovation efforts and drive cost efficiencies; 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, 2023. 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 $403.5 million and $374.3 million for the three months ended June 30, 2024 and 2023, respectively.  Revenue was $788.2 million and $743.3 million for the six months ended June 30, 2024 and 2023, respectively. The increase in revenue for the three and six months ended June 30, 2024 was primarily due to higher volumes and selling prices. For the three months ended June 30, 2024, the impact of foreign exchange rates decreased consolidated revenue by approximately 1%. Foreign exchange rates did not have a material impact on revenue for the six months ended June 30, 2024.

Gross Margin
The Company’s gross margin was 32.4% and 32.6% for the three months ended June 30, 2024 and 2023, respectively. The Company’s gross margin was 32.6% and 33.2% for the six months ended June 30, 2024 and 2023, respectively. The decrease in gross margin for both the three and six months ended June 30, 2024 was primarily due to higher raw material costs, partially offset by higher volumes and selling prices.

Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.1% and 18.9% for the three months ended June 30, 2024 and 2023, respectively. Selling and administrative expense as a percent of revenue was 20.1% and 19.4% for the six months ended June 30, 2024 and 2023, respectively. For the three months ended June 30, 2024, selling and administrative expenses were increased by Portfolio Optimization Plan costs totaling $1.5 million, which increased selling and administrative expenses as a percent of revenue by approximately 40 basis points. For the six months ended June 30, 2024, selling and administrative expenses were increased by Portfolio Optimization Plan costs totaling $4.3 million, which increased selling and administrative expenses as a percent of revenue by approximately 60 basis points. See Portfolio Optimization Plan below for further information. The remaining increase in selling and administrative expense as a percent of revenue for the three months ended June 30, 2024 was primarily due to higher performance-based executive compensation in 2024.

14
Operating Income

Operating income was $49.7 million and $51.6 million for the three months ended June 30, 2024 and 2023, respectively. Operating margins were 12.3% and 13.8% for the three months ended June 30, 2024 and 2023, respectively. Portfolio Optimization Plan costs decreased operating margins by approximately 40 basis points for the three months ended June 30, 2024. The remaining decrease in operating margin was primarily due to the higher raw material costs and higher performance-based executive compensation in 2024, partially offset by higher volumes and selling prices.

Operating income was $99.1 million and $102.4 million for the six months ended June 30, 2024 and 2023, respectively. Operating margins were 12.6% and 13.8% for the six months ended June 30, 2024 and 2023, respectively. Portfolio Optimization Plan costs decreased operating margins by approximately 50 basis points for the six months ended June 30, 2024. The remaining decrease in operating margin was primarily due to the higher raw material costs and higher performance-based executive compensation in 2024, partially offset by higher volumes and selling prices.

Interest Expense
Interest expense was $7.7 million and $6.4 million for the three months ended June 30, 2024 and 2023, respectively, and $14.7 million and $12.4 million for the six months ended June 30, 2024 and 2023, respectively. The increase in expense for the three and six months ended June 30, 2024 was primarily due to an increase in the average interest rate.

Income Taxes
The effective income tax rates for the three months ended June 30, 2024 and 2023 were 26.4% and 24.8%, respectively. For the six months ended June 30, 2024 and 2023, the effective income tax rates were 26.7% and 24.9%, respectively. The effective tax rates for the three and six months ended June 30, 2024 and 2023 were impacted by the mix of foreign earnings and changes in estimates associated with the finalization of prior year foreign tax items. The effective tax rates for both the three and six months ended June 30, 2024 were also impacted by the limited tax deductibility of costs related to the Portfolio Optimization Plan.

Portfolio Optimization Plan
During the fourth quarter of 2023, the board of directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.

The Company’s Felinfach site will continue to operate until all production activities have successfully transferred to other locations, and then will be closed. The Company has substantially completed all other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.

In the three and six months ended June 30, 2024, the Company incurred $1.8 million and $4.6 million, respectively, related to the Portfolio Optimization Plan recorded in Corporate & Other, primarily for costs associated with decommissioning, employee separation, and impairment of fixed assets.

NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude restructuring and other costs, including the Portfolio Optimization Plan costs, and (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars and restructuring and other costs, including the Portfolio Optimization Plan costs.

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.

15
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
(In thousands, except per share amounts)
  
2024
    
2023
    
% Change
    
2024
    
2023
    
% Change
  
Operating Income (GAAP)
  
$
49,657
    
$
51,591
      
(3.7
%)
  
$
99,063
    
$
102,429
      
(3.3
%)
Portfolio Optimization Plan costs – Cost of products sold
    
207
      
-
              
314
      
-
          
Portfolio Optimization Plan costs – Selling and administrative expenses
    
1,545
      
-
              
4,250
      
-
          
Adjusted operating income
  
$
51,409
    
$
51,591
      
(0.4
%)
  
$
103,627
    
$
102,429
      
1.2
%
                                                 
Net Earnings (GAAP)
  
$
30,932
    
$
34,033
      
(9.1
%)
  
$
61,872
    
$
67,684
      
(8.6
%)
Portfolio Optimization Plan costs, before tax
    
1,752
      
-
              
4,564
      
-
          
Tax impact of Portfolio Optimization Plan costs(1)
    
(214
)
    
-
              
(569
)
    
-
          
Adjusted net earnings
  
$
32,470
    
$
34,033
      
(4.6
%)
  
$
65,867
    
$
67,684
      
(2.7
%)
                                                 
Diluted earnings per share (GAAP)
  
$
0.73
    
$
0.81
      
(9.9
%)
  
$
1.46
    
$
1.60
      
(8.8
%)
Portfolio Optimization Plan costs, net of tax
    
0.04
      
-
              
0.09
      
-
          
Adjusted diluted earnings per share
  
$
0.77
    
$
0.81
      
(4.9
%)
  
$
1.56
    
$
1.60
      
(2.5
%)

(1) Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.

Portfolio Optimization Plan costs are discussed under “Portfolio Optimization Plan” above and Note 2, Portfolio Optimization Plan, in the Notes to the Consolidated Financial Statements included in this report.

Note: Earnings per share calculations may not foot due to rounding differences.

The following table summarizes the percentage change for the results of the three and six months ended June 30, 2024, compared to the results for the three and six months ended June 30, 2023, in the respective financial measures.

   
Three Months Ended June 30, 2024
    
Six Months Ended June 30, 2024
  
Revenue
  
Total
    
Foreign Exchange Rates
    
Adjustments(1)
    
Adjusted Local Currency
    
Total
    
Foreign Exchange Rates
    
Adjustments(1)
    
Adjusted Local Currency
  
Flavors & Extracts
    
11.1
%
    
0.0
%
    
N/A
      
11.1
%
    
9.6
%
    
0.5
%
    
N/A
      
9.1
%
Color
    
4.5
%
    
(0.7
%)
    
N/A
      
5.2
%
    
1.9
%
    
0.2
%
    
N/A
      
1.7
%
Asia Pacific
    
7.1
%
    
(4.0
%)
    
N/A
      
11.1
%
    
3.6
%
    
(3.8
%)
    
N/A
      
7.4
%
Total Revenue
    
7.8
%
    
(0.7
%)
    
N/A
      
8.5
%
    
6.0
%
    
(0.1
%)
    
N/A
      
6.1
%
                                                                 
Operating Income
                                                                
Flavors & Extracts
    
7.2
%
    
(0.2
%)
    
0.0
%
    
7.4
%
    
7.0
%
    
0.1
%
    
0.0
%
    
6.9
%
Color
    
7.8
%
    
(1.0
%)
    
0.0
%
    
8.8
%
    
3.4
%
    
0.1
%
    
0.0
%
    
3.3
%
Asia Pacific
    
4.0
%
    
(5.2
%)
    
0.0
%
    
9.2
%
    
(1.0
%)
    
(4.8
%)
    
0.0
%
    
3.8
%
Corporate & Other
    
65.0
%
    
0.0
%
    
18.1
%
    
46.9
%
    
38.6
%
    
0.0
%
    
20.6
%
    
18.0
%
Total Operating Income
    
(3.7
%)
    
(1.4
%)
    
(3.4
%)
    
1.1
%
    
(3.3
%)
    
(0.7
%)
    
(4.4
%)
    
1.8
%
Diluted Earnings per Share
    
(9.9
%)
    
(2.5
%)
    
(4.9
%)
    
(2.5
%)
    
(8.8
%)
    
(0.7
%)
    
(6.2
%)
    
(1.9
%)


(1)
Adjustments consist of Portfolio Optimization Plan costs.

Note: Refer to table above for a reconciliation of these non-GAAP measures.

16
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, restructuring and other costs, including the Portfolio Optimization Plan costs, 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 $209.2 million and $188.3 million for the three months ended June 30, 2024 and 2023, respectively, an increase of approximately 11%. The increase was primarily a result of higher revenue in Natural Ingredients, primarily due to higher volumes. Foreign exchange rates had an immaterial impact on segment revenue for the three months ended June 30, 2024.

Flavors & Extracts segment revenue was $402.3 million and $367.1 million for the six months ended June 30, 2024 and 2023, respectively, an increase of approximately 10%. The increase was primarily a result of higher revenue in Natural Ingredients, primarily due to higher volumes. Foreign exchange rates increased segment revenue by approximately 1% for the six months ended June 30, 2024.

Flavors & Extracts segment operating income was $26.2 million and $24.5 million for the three months ended June 30, 2024 and 2023, respectively, an increase of approximately 7%. The higher segment operating income was primarily a result of higher operating income in Flavors, Extracts & Flavor Ingredients, primarily due to higher selling prices and lower raw material costs, partially offset by higher manufacturing and other costs. Segment operating income as a percent of revenue was 12.5% in the current quarter compared to 13.0% in the prior year’s comparable quarter. Foreign exchange rates had an immaterial impact on segment revenue for the three months ended June 30, 2024.

Flavors & Extracts segment operating income was $49.9 million and $46.6 million for the six months ended June 30, 2024 and 2023, respectively, an increase of approximately 7%. The increase was a result of higher segment operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower segment operating income in Natural Ingredients. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of lower raw material costs and higher selling prices, partially offset by higher manufacturing and other costs and lower volumes. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs, partially offset by higher volumes. Foreign exchange rates had an immaterial impact on segment operating income for the six months ended June 30, 2024. Segment operating income as a percent of revenue was 12.4% in the current six month period compared to 12.7% in the prior year’s comparable six month period.

Color
Segment revenue for the Color segment was $167.7 million and $160.5 million for the three months ended June 30, 2024 and 2023, respectively, an increase of approximately 5%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care, primarily due to higher volumes and higher selling prices. Foreign exchange rates decreased segment revenue by approximately 1%.

Segment revenue for the Color segment was $327.7 million and $321.6 million for the six months ended June 30, 2024 and 2023, respectively, an increase of approximately 2%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care.  The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices. The higher revenue in Personal Care was primarily due to higher selling prices and higher volumes. Foreign exchange rates had an immaterial impact on segment revenue for the six months ended June 30, 2024.

Segment operating income for the Color segment was $31.5 million and $29.2 million for the three months ended June 30, 2024 and 2023, respectively, an increase of approximately 8%. The increase in segment operating income was a result of higher operating income in Personal Care. The higher operating income in Personal Care was primarily due to higher selling prices and higher volumes. Foreign exchange rates decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.8% in the current quarter and 18.2% in the prior year’s comparable quarter.

17
Segment operating income for the Color segment was $63.2 million and $61.1 million for the six months ended June 30, 2024 and 2023, respectively, an increase of approximately 3%. The increase in segment operating income was primarily a result of higher operating income in Personal Care, partially offset by lower operating income in Food & Pharmaceutical Colors.  The higher operating income in Personal Care was primarily due to higher selling prices, lower manufacturing and other costs, and favorable volumes. The lower operating income in Food & Pharmaceutical Colors was primarily due to higher manufacturing and other costs, partially offset by higher selling prices, lower raw material costs, and a favorable product mix. Foreign exchange rates had an immaterial impact on segment operating income for the six months ended June 30, 2024. Segment operating income as a percent of revenue was 19.3% in the current six month period and 19.0% in the prior year’s comparable period.

Asia Pacific
Segment revenue for the Asia Pacific segment was $38.6 million and $36.0 million for the three months ended June 30, 2024 and 2023, respectively, an increase of approximately 7%. The increase was a result of higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 4%.

Segment revenue for the Asia Pacific segment was $78.9 million and $76.1 million for the six months ended June 30, 2024 and 2023, respectively, an increase of approximately 4%. The increase was a result of higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 4%.

Segment operating income for the Asia Pacific segment was $7.9 million and $7.6 million for the three months ended June 30, 2024 and 2023, respectively, an increase of approximately 4%. Foreign exchange rates decreased segment operating income by approximately 5%. Segment operating income as a percent of revenue was 20.4% in the current quarter and 21.0% in the prior year’s comparable quarter.

Segment operating income for the Asia Pacific segment was $16.7 million and $16.8 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of approximately 1%. Foreign exchange rates decreased segment operating income by approximately 5%. Segment operating income as a percent of revenue was 21.1% in the current six month period and 22.1% in the prior year’s comparable period.

Corporate & Other
The Corporate & Other operating expense was $15.9 million and $9.7 million for the three months ended June 30, 2024 and 2023, respectively. The higher operating expense was primarily a result of Portfolio Optimization Plan costs totaling $1.8 million negatively impacting the three months ended June 30, 2024, and higher performance-based executive compensation costs. See the Portfolio Optimization Plan section above for further information.

The Corporate & Other operating expense was $30.7 million and $22.1 million for the six months ended June 30, 2024 and 2023, respectively. The higher operating expense was primarily a result of Portfolio Optimization Plan costs totaling $4.6 million negatively impacting the six months ended June 30, 2024, and higher performance-based executive compensation costs. See the Portfolio Optimization Plan section above for further information.

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 June 30, 2024. 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 2024 through 2029. 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.

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 six months ended June 30, 2024. The Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor-related 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.

18
Cash Flows from Operating Activities
Net cash provided by operating activities was $58.9 million and $51.7 million for the six months ended June 30, 2024 and 2023, respectively. The increase in net cash from operating activities was primarily due to a decrease in cash used for performance-based compensation payments (which are determined based on prior year performance) made during 2024 compared to 2023 and an increase in cash provided by inventory during 2024 compared to 2023, partially offset by a decrease in cash provided by accounts receivable.

Cash Flows from Investing Activities
Net cash used in investing activities was $22.9 million and $43.0 million during the six months ended June 30, 2024 and 2023, respectively. Capital expenditures were $22.9 million and $45.1 million during the six months ended June 30, 2024 and 2023, respectively.

Cash Flows from Financing Activities
Net cash used in financing activities was $26.1 million and net cash provided by financing activities was $0.5 million for the six months ended June 30, 2024 and 2023, respectively. Net debt increased by $11.6 million and $43.1 million for the six months ended June 30, 2024 and 2023, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support capital expenditure investments during the six months ended June 30, 2024. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $34.7 million and $34.6 million were paid during the six months ended June 30, 2024 and 2023, respectively. Total dividends of $0.82 per share were paid for both the six months ended June 30, 2024 and 2023.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended June 30, 2024. 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, 2023.

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 June 30, 2024. 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, 2023.

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 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 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 June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

See Part I, Item 1, Note 11, 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, 2023.

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 June 30, 2024, 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 June 30, 2024, 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 six months ended June 30, 2024.

19
ITEM 5.
OTHER INFORMATION

During the three months ended June 30, 2024, 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

The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

20
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024

Exhibit
Description
Incorporated by Reference From
Filed Herewith
       
Certifications of the Company’s Chairman, President & Chief Executive Officer and 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 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

21
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:
August 7, 2024
  By:
 /s/  John J. Manning
  
     
John J. Manning, Senior Vice
President, General Counsel &
Secretary
       
Date:
August 7, 2024
  By:
 /s/  Tobin Tornehl
  
     
Tobin Tornehl, Vice President &
Chief Financial Officer


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