Sensient Technologies Corp (SXT) 2011 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Sensient Technologies Corporation 2011 second-quarter conference call. Today's call is being recorded.

At this time for opening remarks, I would like to turn the call over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. I'm Steve Rolfs, Vice President, Administration of Sensient Technologies Corporation. I would like to welcome all of you to Sensient's conference call to discuss 2011 second-quarter financial results.

I am joined this morning by Mr. Kenneth P. Manning, Sensient's Chairman and Chief Executive Officer; Doug Pepper, Sensient's President and Chief Operating Officer; and Dick Hobbs, Sensient's Senior Vice President and Chief Financial Officer. Also with us today are Paul Manning, President of the Color Group, and Jim McCarthy, President of the Flavors & Fragrances Group.

Earlier today we released our second-quarter 2011 financial results. A copy of the release is now available on our website at Sensient.com.

Before we begin, I would like to remind everyone that comments made this morning including responses to your questions may include forward-looking statements as defined in the Securities Litigation Reform Act of 1995. Our statements may be affected by certain factors including risks and uncertainties which are discussed in detail in the Company's filings with the Securities and Exchange Commission. We urge you to read Sensient's filings for a description of these factors. Please bear these factors in mind when you analyze our comments today.

Now we'll hear from Ken Manning.

Thank you, Steve. Good morning. Sensient had a record second quarter. Earnings per share rose 15.5% to $0.67 compared to $0.58 in the second quarter of 2010. Consolidated revenues grew 12.9% to $377 million. Both the Color Group and the Flavor & Fragrance Group established all-time quarterly records for revenue and operating profit.

The Color Group had an exceptional second quarter and continued to perform well. Revenue increased 17.2% to $132.4 million and operating income increased 18% to $24.6 million. The strong performance was driven by volume gains and improved product mix. Demand remains strong for natural colors as well as pharma and cosmetic products. We will continue to focus on new product development at all of our Color business units.

The Flavor & Fragrance Group also delivered an outstanding performance in the second quarter. The Group's reported revenue of $226.5 million was an increase of 10.5% over last year's second quarter. Operating income increased 8.8% to $36.1 million compared to $33.2 million reported in the second quarter of 2010.

For the quarter, Asia-Pacific and China reported revenues of $33.6 million, an increase of 24.1% over the second quarter of 2010. Revenue grew in each of the Group's business units and the results were particularly strong in Thailand, China, and Japan.

The Company's financial results were strong and we delivered solid cash flows in the second quarter. We reduced our debt by $12.5 million during the quarter and we have continued to reinvest in our business. Our strategy of investing in operations, expanding our sales coverage, and developing new technologies for new products has been the foundation of our outstanding results. We see additional opportunities of growth and we expect that our business will continue to perform well in the future.

I remain very optimistic about the Company's future and as a result, I am increasing earnings guidance. For 2011, we now expect to report earnings between $2.32 and $2.37 per share. Our previous guidance had been in the range of $2.28 to $2.34 a share.

Dick Hobbs, our CFO, will now provide you with the details for the quarter.

Good morning. Sensient reported all-time record revenue of $377 million for the quarter ended June 30, 2011, an increase of 12.9% from $334 million in the same period last year. Revenue for the first six months of 2011 was $726.7 million, an increase of 12.1% from $648 million reported in the same period of 2010. The Color Group and the Company's operations in the Asia-Pacific region each reported double-digit local currency revenue growth in both the quarter and six months ended June 30, 2011.

Sensient's operating income for the second quarter of 2011 was $54.3 million, also an all-time record and an increase of 15.2% from $47.1 million in the same period of 2010. For the six months ended June 30, 2011, operating income increased 14.1% to $97.9 million from $85.8 million in the same period of 2010.

Foreign currency translation increased both revenue and operating profit by approximately 6% in the quarter and 4% for the six months ended June 30. Foreign currency translation had a similar impact on reported earnings per share in the quarter and year-to-date period.

Interest expense for the second quarter was down 6.4% from last year's second quarter. For the six months ended June 30, 2011, interest expense was down 2.7% from the comparable period in 2010.

Diluted earnings per share for the second quarter of 2011 increased 15.5% to $0.67, and all-time record level. Earnings per share for last year's second quarter were $0.58. For the six months ended June 30, 2011, diluted earnings per share were $1.20 compared to $1.06 in the prior period, an increase of 13.2%.

The Company reported $66.8 million of cash from operating activities in the first six months of 2011, a record for the first half and an increase of 4.1% from the $64.2 million reported in last year's comparable period. Total debt at June 30, 2011 was $331.4 million, a decrease of $12.5 million in the quarter.

Over the last 12 months, total debt has decreased by $57.7 million, resulting in a debt to total capital ratio of 23.6% compared to 30.7% one year ago. Prior to the translation impact of foreign currency, total debt decreased $79.4 million in the last 12 months. Debt to EBITDA is now at 1.4 compared to 1.9 at June 30, 2010.

I will now take a brief look at the results of our operating groups. In the second quarter, Sensient's Color Group reported all-time record revenue of $132.4 million, an increase of 17.2% from $113 million in the comparable period of 2010. Revenue for the six months ended June 30, 2011 was $258.1 million, an increase of 16.8% from $220.9 million reported in the prior year period. Foreign currency translation increased Color Group revenue by approximately 7% and 4% in the second quarter and year-to-date period respectively.

The Color Group's second quarter operating income of $24.6 million was an all-time record and was up 18% from $20.9 million in the same period in 2010. For the six months ended June 30, 2011, operating income increased 20.5% to $47 million from $39 million in the prior-year period. Foreign currency translation increased operating income by approximately 8% and 5% in the quarter and year-to-date period respectively. Operating margin in the quarter increased to 18.6% from 18.5% reported in the second quarter of 2010.

The Color Group reported increased volumes in all of its main product lines. Food and beverage color volumes increased due to solid demand for natural colors. Nonfood product lines including cosmetics, pharmaceutical, and technical colors also performed well in the quarter.

Flavors & Fragrances Group revenue in the quarter ended June 30, 2011, was $226.5 million, up 10.5% from the prior year's quarterly revenue of $205 million and an all-time high for the group. For the six-month period, revenue increased 9.5% to $433.2 million from $395.7 million in the prior-year period. Solid revenue growth was reported across the Group for both the quarter and six-month period. Foreign currency translation for the Flavors & Fragrances Group increased revenue by approximately 5% and 3% in the quarter and six months ended June 30, 2011 respectively.

The Group reported all-time record operating income of $36.1 million, an increase of 8.8% from $33.2 million in the prior year's second quarter. Operating income for the six months ended June 30, 2011 was $65.1 million, an increase of 7.8% from $60.4 million in the prior year. Foreign-currency translation increased operating income by approximately 4% and 3% in the quarter and first half respectively. The quarter's operating margin was 16% compared to 16.2% in the second quarter of 2010.

Revenue in the Corporate and Other segment, which includes the Company's operations in the Asia-Pacific region in China, was $33.6 million in the second quarter of 2011 compared to $27.1 million in the prior year's second quarter. For the first half of 2011, revenue was $65.1 million, an increase of 26.8% from revenue of $51.4 million in the first half of 2010. As stated in local currency, revenue in the Corporate and Other segment was up 16.1% from last year for the quarter and 19.5% in the first half. We saw volume growth in most of our key markets across the region.

As Mr. Manning stated, Sensient has increased its guidance for the remainder of 2011. As a result, Sentient expects 2011 diluted earnings per share as reported to be between $2.32 and $2.37. The Company's previous guidance had been between $2.28 and $2.34.

Thank you very much for your time this morning. We will now open the call for questions.

(Operator Instructions). Summit Roshan, KeyBanc.

Good morning and congrats on the good quarter. Looking at your guidance here, kind of hitting at the top range, that [337], what kind of growth are you expecting in the back half?

What we expect throughout both the Color and Flavor Group is mid to high single-digit growth.

Okay, and you think -- color has been doing pretty good here the last couple of quarters. You've been seeing double digit. Do you think that's still possible going into the back half here?

Certainly we expect that, and Paul Manning is on the call and he may during the course of the call talk about some of the prospects. But certainly we expect the Color Group is in good position to be at the higher end of that range.

Okay, I appreciate that. And on your currency assumption going into the back half, what are you expecting for FX to contribute to EPS there?

We see the FX narrowing. Certainly there is -- as we look to last year and we were at last year -- certainly it's possible there could be some benefit to currency in the second half of the year and we have factored that into our guidance.

So you are seeing that narrowing?

We factored it in conservatively.

Okay, thanks for that. One last if I could squeeze one in. Looking at your segments, could I get an idea of how volumes fared? It was good to see volumes growth in Colors and Fragrances. Do you think you could break out pricing and volumes for us?

Well, with the volumes, we are looking at -- after you take out the currency, it's a little bit under half of the impact and the remainder of the impact is pricing and mix.

And that's across both segments?

That's right.

Okay. Thanks for your time.

(Operator Instructions). As there are no questions, are there any closing remarks?

Well, I would just like to thank everyone for their time this morning. If there is a follow-up or if there are any follow-up questions, please feel free to call the Company after the call. That will conclude our call for today. Thank you.

This concludes today's conference call. You may now disconnect.