Sensient Technologies Corporation (NYSE: NYSE:SXT) reported a decrease in local currency revenue and adjusted EBITDA in its third-quarter earnings conference call. The company attributed the decline to customer destocking and lower volumes in the Color Group while noting gradual improvements in the Flavors Group. Despite these challenges, Sensient remains optimistic about its long-term growth prospects, forecasting volume improvements in the fourth quarter and into the first quarter of 2024.
Key takeaways from the call:
- Sensient Technologies reported a single-digit decrease in local currency revenue and a 7% decrease in local currency adjusted EBITDA.
- The company anticipates volume improvements in Q4 2023 and Q1 2024, attributing the decline to customer destocking and lower volumes in the Color Group.
- The company is focusing on winning new business, managing cost inflation, and optimizing its cost structure.
- Capital expenditures for Q3 2023 were $22.6 million, with total expected capital expenditures for the year around $85 million.
- Sensient expects 2023 local currency revenue to be up low single digits compared to 2022, and 2023 local currency EPS to be down low double digits compared to 2022 adjusted EPS of $3.29.
- The company is optimistic about new product wins and expects to see improvement in 2024, with destocking no longer being a major headwind.
During the call, Sensient CEO Paul Manning discussed the company's strategic investment in natural ingredients within the flavors and extracts group. He also addressed the recent ban on Red Dye No. 3 in California, stating that while not a significant source of revenue for Sensient, it opens up opportunities for natural colors, aligning with the company's focus on natural alternatives.
Manning also noted the uncertain impact of GLP-1, a drug that reduces calorie consumption, on Sensient's business, stating that it depends on factors such as adoption rate and economic viability. Despite the uncertainties, the company is prepared to adapt to different segments and product lines.
The company also reported receiving more urgent orders from customers, indicating a potential over-aggressive destocking. However, Sensient's efficient service levels have resulted in shorter lead times, albeit making forecasting more challenging. The company expects this trend of larger in-month orders to continue and anticipates improved performance in 2024.
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