Sensient Technologies Corporation

Good morning, and welcome to the Sentient Technologies Corporation 2021 First Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation. I would like to welcome all of you to Sensient's first quarter earnings call. I'm joined this morning by Paul Manning, Sensient's Chairman, President, and Chief Executive Officer. This morning, we released our 2021 first quarter financial results. A copy of the release and our investor presentation is now available on our website at sentient.com. During our call today, we will reference certain non-GAAP financial measures, which we believe provide investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. These non-GAAP financial results should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release. We encourage investors to review these reconciliations in connection with the comments we make this morning. I would also like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements. Our actual results may differ materially, particularly in view of the uncertainties created by the COVID-19 pandemic, governmental attempts at remedial action, and the timing of a return of more normal economic activity. We urge you to read Sentient's previous SEC filings and our forthcoming 10Q for a description of additional factors that could potentially impact our financial results. Please bear these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning.

Thanks, Steve. Good morning. I'm pleased to report 4% consolidated adjusted local currency revenue growth. Our flavors and extracts group reported 9% adjusted local currency revenue growth, more than 20% adjusted local currency operating profit growth, and 130 basis points adjusted operating profit margin improvement in the quarter. Our Asia Pacific group reported 5% adjusted local currency revenue growth and over 30% adjusted local currency operating profit growth. Our balance sheet is strong, and our debt to EBITDA is now at 2.4, down from 2.9 a year ago. In April, we completed the sale of our fragrances business, and we are currently assessing various acquisition opportunities. Overall, I'm pleased with our first quarter results and our starts of the year. We continue to see an increase in new sample requests and strong activity in the sales pipeline. both of which are good indicators of future product development opportunities and product launches. Our sales attrition rates continue to be at the low levels we achieved throughout 2020. The impact of COVID-19 continues to vary depending on geographic region and product line. Geographically, we are beginning to see positive trends in the U.S. and certain Asia Pacific countries. However, Europe and Latin America continue to be impacted by government regulations, slower vaccine rollouts, and softer markets. From a product line standpoint, we continue to see growth in a number of our sweet, savory, and natural ingredient product lines. However, we continue to see headwinds in personal care makeup and QSR. We expect much of the personal care headwind to subside later in the year. During the first quarter, we experienced an increase in the number of supply chain challenges, from shipping container shortages to Brexit disruptions, Suez Canal backups, and unusual weather in Texas. Despite these challenges, we continue to provide robust customer service, and we have mitigated raw material shortages and cost increases. I'm very pleased to report that in early April, we closed on the sale of our fragrance business. This completes the third of our three divestitures identified in 2019 and positions the company to be strongly focused on our core product lines within food, pharma, and personal care. We continue to look at sensible acquisition opportunities that support our strategic initiatives within these core product lines. Turning to the group results, the flavors and extract group had another strong quarter with 9% adjusted local currency revenue growth and 21% adjusted local currency profit growth. The group continues to benefit from a strong sales and customer service focus and a continued transition to more value-added product solutions. The group's operating profit and profit margin improvement is a direct result of the strong sales growth, product mix shifts, and our ongoing fixed cost takeout initiatives. Overall, the group's adjusted operating profit margin increased 130 basis points in the quarter compared to last year's first quarter. We are well on track to achieve our 50 to 100 basis point operating profit margin improvement for the year and our mid-single digit revenue growth goal for the year. Within the flavors and extracts group, the savory business had another very strong quarter. Our savory business supplies companies with flavors, flavor enhancers, and taste modulators that are found in a wide variety of products, including plant-based proteins, savory snacks, sauces, and prepared foods, which are supplied to food service, CPG, and other innovative food companies. This business continues to grow as a result of its strong flavor technologies and exceptional customer service. Our savory business is well positioned for growth, and I'm optimistic about its future opportunities. In the first quarter, we acquired a production facility for a natural ingredients business that will give us additional capacity to better service our customers and to support the increased demand we see within this business. We look forward to bringing this facility online and anticipate it contributing to the group in the latter part of this year. I continue to expect flavors and extract group to deliver mid-single-digit revenue growth and continued operating profit margin improvement over the long term. Within the color group, revenue for food and pharmaceutical colors was up low single digits for the quarter. The group continues to see demand for natural colors and functional extracts used in food, nutraceutical, and pharmaceutical OTC applications. The group's focus on sales execution and customer service, as well as its strong technology platform and brand positions us to capitalize on the strong consumer demand for natural colors. We believe our low single-digit growth this quarter is a result of a slowdown in product launches that use natural colors. However, we expect a much improved second quarter and back half of the year due to the increasing rise in new sample requests and new customer project activities. Also in the color group, revenue in our personal care business continues to be down as a result of the negative impacts of COVID-19 on the makeup industry. During our last call, we communicated that the first half of 2021 would be challenging for this business. As we enter the second quarter, we are already seeing signs of recovery. The personal care business continues to make solid progress on our operational improvement plan, which is designed to consolidate some of our cosmetic manufacturing operations to better align our cost structure for the future. The Color Group's adjusted operating profit was down approximately 13% in local currency in the first quarter. The profit decrease is primarily a result of the ongoing lower volumes in personal care. Many of our personal care customers experienced growth in the first quarter. As our business lags their results, we are optimistic that our second quarter results and back half of this year should be much improved. Turning to our food and pharmaceutical business, we were up in many of our markets. However, we experienced unfavorable product mix due to a soft market in Europe and lower new product launches in the U.S. Looking ahead to the second quarter of this year and beyond, we expect profit to improve in the color group in both personal care and the food and pharmaceutical business. Over the long term, I continue to expect mid-single-digit revenue growth from food and pharmaceuticals and mid-single-digit revenue growth from our personal care business once the impacts of COVID-19 subside. Our Asia Pacific group had another strong quarter with 5% adjusted local currency revenue growth and over 30% adjusted local currency profit growth. The group had solid revenue growth in almost all regions driven by strong new sales wins, a strong focus on customer service, and solid utilization of our technology platforms. Over the last year, the group has reduced its cost structure, which along with the volume growth is contributing to the group's operating profit and margin improvement. Based upon current trends, I expect the age-specific group to continue to deliver mid-single-digit sales growth throughout the year. We've had a good start to 2021, and we are on track with our guidance we outlined for the year. Despite the ongoing impact of COVID-19, we continue to see an increase in customer sample requests, which is an excellent bellwether of new product innovation. As always, I'm very excited about our new sales wins. I remain optimistic about the year and the future of our business. Steve will now provide you with additional details on the first quarter results.