Sensient Technologies Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Full year 2025: 3% local currency revenue growth, 10% local currency adjusted EBITDA growth, 15% local currency adjusted EPS growth. Each group had adjusted local currency operating profit growth and improved EBITDA margins.
• Natural color conversion momentum is strong; industry pushing aggressively in US, Canada, Latin America. Conversion is largest opportunity in company's history.
• Invested in R&D, production capacity, supply chain. Color Group had excellent results, Flavors and Extracts recovery expected, Asia Pacific to bounce back in second half of 2026.

Segment Performance

• Color Group: In 2025, delivered 7.4% local currency revenue growth and 16.9% local currency operating profit growth. Adjusted EBITDA improved to 23.7% from 22.1%, an increase of 160 basis points. Fourth quarter saw 7% local currency revenue growth.
• Flavors and Extracts Group: 2025 local currency revenue declined 1.3% but local currency operating profit increased 3.4%. Adjusted EBITDA margin was 16.7%, up 60 basis points. Fourth quarter negatively impacted by weather and production issues, including a $3,000,000 inventory loss at Agriculture Ingredients.
• Asia Pacific Group: 2025 local currency revenue growth 2.4% and adjusted local currency operating profit growth 3.8%. Fourth quarter local currency revenue down 1.9% and operating profit flat due to supply chain disruptions from tariffs. Adjusted EBITDA margin for the quarter was 22.6%, up 90 basis points versus prior year.

Guidance

• 2026 consolidated annual local currency revenue mid to double digit growth, driven by natural color conversion. Color Group local currency revenue high single to double digit. Flavors and Extracts and Asia Pacific mid single to high single digit.
• Adjusted EBITDA mid single to double digit growth, EPS mid single to high single digit. First half low single to mid single digit adjusted EBITDA growth, second half high single to double digit.
• 2026 capital expenditures $150,000,000 to $170,000,000. Natural color conversion-related cap ex $225,000,000 to $250,000,000 2025-2028. No share buybacks expected in 2026.

Risks

• Tariff-induced customer supply chain disruptions.
• Unforeseen weather events negatively impacted fourth quarter results.
• Weather-related impacts on Flavors and Extracts' agricultural ingredients business, including lower sales volumes and higher crop costs.
• Supply chain disruptions in Asia Pacific due to significant tariff activities.

Question and Answer

Q: Good morning. Maybe we could start off on that $100,000,000 conversion opportunity you have outlined for the past several quarters at this point. How much of that, if any, converted in 2025? And what are you embedding for 2026?

A: In 2025, invoiced on the order of about $5,000,000 in Q3 and Q4. Expect some conversions in Q1, acceleration in Q2, and more in Q3 and Q4 as customer deadlines approach.

Q: Can you give us a sense, I know you spoke about increasing confidence in terms of the $100,000,000 converting. You just give us a sense of it sounds like the majority of that is going to happen, it feels like, in '27. So I guess from a high level, it looks like '26 is really that cost year with a little bit of revenue coming in, but your costs sound like they are going to outweigh that benefit. And then at some point, we will hit an inflection point either late this year or early next year where the revenue starts to increase and your actual margin will go up. So it feels like your margin in colors will actually be down this year. Right? Is that fair to say year over year, and then will start to come back up and perhaps rapidly next year?

A: You will probably see EBITDA margin down the first half maybe 100 basis points or so. But again, the revenue growth we are showing and then there could be, it could be more flattish. But we kind of remain in that ballpark, 24 or so, maybe 25, maybe as low as 23 at times, type EBITDA margin. But nothing to be alarmed of and certainly a very, very healthy trend overall.

Q: Firstly, sticking on the color side, we previously, or you were previously, referred to the legislation in West Virginia as kind of important signpost in terms of triggering conversion in the industry. It seems like there is a lawsuit so that it might be end up being a bit delayed, it seems. Have you seen any change in sort of discussions with your customers around the timing of converting given this potential delay in West Virginia?

A: Our customers are very committed to this conversion. It is really fundamentally driven now more and more by what the end consumer in the US and Canada wants. No, I have not seen a whole lot of wavering on that. And I think if anything, you saw that Walmart has indicated that they want to convert even sooner than that. So I think every customer that I have visibility to and certainly have discussed is very committed to this, very committed to this timeline.