Sensient Technologies Corporation Q3 FY2025 earnings call

• Financial performance: Continued to build on strong first half, with 14% local currency adjusted EBITDA growth and 18% local currency adjusted EPS growth in Q3; local currency revenue grew 3.5%. - Color Group: Delivered 7.9% local currency revenue growth and 23.8% local currency operating profit growth in Q3, with adjusted EBITDA margin improvement. - Flavors and Extracts Group: Flavors, extracts, and flavor ingredients product lines had 4.5% local currency revenue growth and contributed to local currency operating profit growth. - Strategic focus: U.S. conversion to natural colors is the single largest opportunity, with significant investments in production capacity, product portfolio optimization, and supply chain building. - Sales and commercialization: Strong new sales wins across groups due to innovative product portfolio, sales execution, customer service, and new tech commercialization; margin strength from new sales wins and pricing discipline. - Challenges: Flat overall consumer market, stagnant growth in North American and European food and beverage sector, new product launch activity down, and trade and tariff landscape introducing complexity and uncertainty, especially in Asia Pacific. - Sensient Agricultural Ingredients: Renamed from Natural Ingredients, impacted by lower sales volumes and higher crop costs in 2025, but expected improvements in Q4.

Color Group: Had excellent third - quarter results with 7.9% local currency revenue growth and 23.8% local currency operating profit growth. The group's third - quarter adjusted EBITDA margin improved to 24.7% from 22.2%, an increase of 250 basis points versus the prior year. Flavors and Extracts Group: Saw local currency revenue decline by 1.2% in the third quarter but increased local currency operating profit by 7.8%. The group's adjusted EBITDA margin was 17.7%, up 130 basis points versus the prior year's comparable quarter. Asia Pacific Group: Had volume headwinds in the third quarter, delivering flat local currency revenue and local currency operating profit. The group's adjusted EBITDA margin was 24.2%, up 40 basis points versus the prior year's third quarter.

• Local currency adjusted EBITDA and EPS: Now expect double - digit local currency adjusted growth in both EBITDA and EPS, up from previous high single - digit expectations. - Revenue: Maintain consolidated full - year local currency revenue guidance of mid - single - digit growth. - Capital expenditures: 2025 capital expenditure guidance around $100 million; anticipate total capital expenditures in 2026 to be at least $150 million. - EPS: 2025 GAAP EPS expected to be between $3.13 and $3.23.

• Trade and tariff landscape: Introduces additional complexity and uncertainty to the business, with witnessed demand and volume disruptions in some areas, particularly in Asia Pacific, due to this uncertainty.

Q: Can you give us a sense as to what portion of the $100 million in sales related to food and nutraceuticals conversion is in the process of reformulation conversion?

A: The $100 million is a cross - section of various customers including candy, beverage, baked goods, processed foods, etc., with the only possible exclusions being pet food and pharmaceutical OTC. Most customers are moving in the direction of conversion but it's complex with elements like formulation challenges, stability testing, test marketing, etc., making it hard to precisely quantify when specific products will launch.

Q: What exactly is driving the Food and Pharma growth of almost 11% during Q3 if not the $100 million conversion?

A: Driven by a good strategy focused on product performance, having a robust service level, being regarded as a good natural color company and a resource for other components of customers' success. Less than a million dollars of products converted from synthetic to natural in Q3, so the growth is from ongoing strategy.

Q: On the 100 million target, what about customers outside of the current share on the synthetic side and the potential of non - 10 to 1 conversion?

A: The 100 million is a benchmark with some synthetic colors having less interesting natural color solutions and some brands potentially attempting to use less color or put in opaque packages, but data suggests that going with less than the synthetic color match risks brand issues as consumers are sensitive to color changes related to flavor expectations.

Q: How do you see other private label brands following suit like Walmart committing to natural colors and the impact on price?

A: Walmart's move is positive and meaningful for other private labels to follow as consumers want natural colors. Conversion to natural colors makes them more expensive but not dilutive to quality expectation as these are strong brands expecting high - performing colors, and no diminishment of quality or price between private label and brand in natural color products.