Sensient Technologies Corporation

Good morning and welcome to the Central Technologies Corporation 2023 first quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please call 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 touch-tone 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. Welcome to Sentient's earnings call for the first quarter of 2023. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sentient Technologies Corporation. I am joined today by Paul Manning, Sentient's Chairman, President, and Chief Executive Officer. Earlier today, we released our 2023 first quarter results. A copy of the release and our investor presentation is available on our website at sentient.com. During our call today, we will reference certain non-GAAP financial measures which remove the impact of currency movements and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. Non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release, We encourage investors to review these reconciliations in connection with the comments we make today. 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 from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Censian's previous SEC filings, including our 10-K and our forthcoming 10-Q, for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning. Thanks, Steve.

Good morning and good afternoon. Censian's local currency revenue increased by 5% during the first quarter. We saw good top-line growth across most of our businesses with strong sales wins and effective pricing implementation. We are on track to deliver against our full-year guidance. As expected, and as we discussed last quarter, we continue to see destocking across the company. The impact was most pronounced in the flavors and extracts group and in the North American market. Additionally, we began to experience a decrease in customer order lead times as customers reverted back to pre-pandemic order timing and inventory levels. While our customers are going through a temporary effort to normalize their inventory levels, we are still seeing strong product development activity. We are maintaining our strong new sales winds and our sales pipeline remains robust. We expect good product launch activity for the balance of the year And this is a good development given last year's low product launch activity in the market. As the stocking moderates in the back half of the year, we expect incremental revenue improvement. Our new sales win rates continue to remain high across all three groups. In 2022, we had one of our best years in terms of new sales wins, despite a decline in new product market launches in many parts of the world. In the first quarter of 2023, our new win rate continued to be at this very high level. We continue to win new business based on our focus on sales execution, our outstanding customer service, and our broad product portfolio. We continue to achieve these new sales wins across all product lines and throughout most of our geographic regions. Also during the first quarter this year, we have continued to implement pricing in an effort to overcome the ongoing inflation. While supply chains and the raw material cost outlook may be improving in some areas, overall, we continue to experience elevated energy and commodity costs in certain geographic regions. As we discussed last quarter, the timing of our pricing actions versus the timing of cost inflation may distort our quarterly year-over-year performance, and as a result, we believe our full-year results will be the best indication of our performance. Now turning to the groups. The color group had a strong first quarter, delivering 10% local currency revenue growth and more than 6% local currency operating profit growth. The group's revenue growth benefited from a low double-digit price increase which was partially offset by an approximately mid-single-digit revenue headwind due to destocking. The food and pharmaceutical product line delivered 16 percent local currency revenue growth with solid volume growth. The food and pharmaceutical product lines are delivering a high level of new sales wins as a result of our innovative natural color portfolio and strong customer service. The magnitude of these wins has more than offset any customer destocking. The personal care product line revenue was down low single digits in the first quarter, primarily due to customer destocking, mainly in North America, and tough prior year comparisons. We expect personal care growth rates to resume in the back half of the year. I continue to expect the color group to deliver mid-single digit revenue growth and mid to high single digit local currency operating profit growth. We believe food and pharmaceutical colors will have solid growth throughout 2023 and beyond. Personal care will continue to struggle in the second quarter, but will have improved results in the second half of the year. The flavors and extracts group was down approximately 1% in local currency revenue during the quarter. The group's strong win rate and pricing were offset by customer destocking and ongoing market downturn in most product categories in North America. As mentioned during our last call, destocking largely began in the fourth quarter of 2022. Within this first quarter of 2023, we continued to experience destocking, most notably in natural ingredients and our traditional flavor categories. In some cases, these destocking activities were quite dramatic in the quarter. We believe that once our customers' inventory levels and order patterns begin to normalize, the flavors and extracts group should resume its mid-single-digit growth profile in the back half of 2023. For the year, I now expect the flavors and extracts group to deliver mid-single-digit revenue growth and low single-digit operating profit growth. The Asia-Pacific group continued the strong performance achieved over the last several years. In the first quarter, the group delivered 15% local currency revenue growth and 18% local currency operating profit growth. The group is not experiencing the destocking impact that the color group and the flavors and extract groups are experiencing. The Asia-Pacific group continues to benefit from strong new winds across almost all regions. The group's focus on sales execution and customer service, as well as the investments we have made in the region, are fueling the group's current growth and we believe position the group nicely for continued growth. Asia Pacific is a good example of our ability to shift our sales mix to higher margin specialty products and to deliver higher quality defensible sales wins. I continue to expect the Asia Pacific group to deliver mid to high single digit revenue growth and mid to high single-digit operating profit growth in 2023. As we communicated during our fourth quarter call, we anticipated that destocking would continue into the first part of this year and that our quarterly performance would at times be distorted due to the inflationary environment. Overall, we have proven that our strategy supports solid growth across each of our businesses and our product portfolio is robust. We are focused on the levers we can control to grow our business. These include our focus on sales execution, our strong customer service, our broad product portfolio, and our strategic pricing initiatives. Overall, I'm excited about our opportunities within each of our businesses and remain optimistic about 2023 and the future of our business. Steve will now provide you with additional details on the first quarter results.