Sensient Technologies Corp. swung to a first-quarter loss of $2.08 million due to a restructuring charge, although excluding the charge it posted a 14.7% jump in net income to $35.37 million.
Consolidated revenue increased 0.7% to $368.1 million for the quarter. The flavors and fragrances group reported first-quarter revenue of $213.4 million compared to the $215.8 million reported in last year’s first quarter.
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Sensient Technologies Corporation (NYSE: SXT) reported adjusted net earnings of 71 cents per share, a first quarter record and an increase of 14.5% over the prior year period’s adjusted net earnings of 62 cents per share. Consolidated revenue increased to $368.1 million in the first quarter of 2014 from $365.6 million in last year’s first quarter. The Company has continued to rationalize non-strategic business, which has impacted revenue growth. First quarter revenue grew by approximately 4%, as adjusted to remove the effect of the non-strategic business. Adjusted operating income increased 10.6% to $54.3 million compared to adjusted operating income of $49.1 million in last year’s first quarter. Adjusted consolidated operating margins increased 140 basis points to 14.8% on strong performances across all of the operating groups. Foreign currency translation reduced both revenue and operating income by approximately one percent in the first quarter.
On March 4th, the Company announced that it was initiating a further restructuring plan to eliminate underperforming operations, consolidate manufacturing facilities and improve efficiencies within the Company. In 2013, the Company had restructuring costs to relocate the Flavors & Fragrances Group headquarters and consolidate manufacturing facilities. Pre-tax restructuring and other costs of $52.7 million and $12.8 million were recognized in the first quarters of 2014 and 2013, respectively. The costs incurred in the first quarter of 2014 include approximately $40 million of non-cash costs related to the write-down of fixed assets and intangibles. The restructuring and other costs reduced first quarter earnings by 75 cents per share in 2014, and 19 cents per share in 2013. Diluted earnings per share, as reported, were a loss of 4 cents in the first quarter of 2014 compared to income of 43 cents in the comparable period last year. As reported, the Company’s operating income was $1.6 million and $36.3 million in the first quarters of 2014 and 2013, respectively. Consolidated operating margins, as reported, were 0.4% in the first quarter and 9.9% in the comparable period last year. The Company has included non-GAAP results to remove the costs related to the restructuring plan and other costs, and provide investors with a consistent view of the Company’s operating performance.
Cash provided by operating activities in the first quarter of 2014 was $19.8 million, as reported, which includes $3.4 million of payments related to restructuring and other costs. Adjusted to remove the restructuring impact, cash provided by operating activities was $23.3 million in the first quarter compared to $25.6 million reported in last year’s first quarter. The decrease was primarily driven by a higher use of cash to fund working capital this year.
In March, the Company also announced a comprehensive plan to enhance shareholder value. The Board of Directors increased the Company’s regular quarterly cash dividend by 9%, to 25 cents per share. The Company has increased the annual dividend payment to shareholders in each of the last nine years with this action. Sensient also plans to purchase up to two million shares of stock over the next twelve months, representing four percent of the Company’s outstanding shares. The Company’s purchases will be made on an opportunistic basis depending on market and other conditions. Sensient purchased 200,000 shares in March.
“Sensient delivered a very strong performance in the first quarter of 2014,” said Paul Manning, President and CEO of Sensient Technologies Corporation. “The results this quarter clearly demonstrate that our strategy is working. There is additional upside potential for the margins in both businesses, and we expect the Flavors & Fragrances Group’s operating margin to improve significantly in the next few years.”
The Color Group reported revenue of $133.6 million in the quarter, an increase of 3% from the $129.5 million reported in the comparable period last year. Operating income increased 10.2% to $29.4 million from $26.7 million in last year’s first quarter. The Color Group’s operating margin increased 140 basis points to 22.0% in the quarter, driven by strong performances across the Group. In particular, the digital inks and cosmetics businesses reported double digit growth in local currency. Foreign currency translation did not have a significant impact on either revenue or operating income in the first quarter.
The Flavors & Fragrances Group reported first quarter revenue of $213.4 million compared to the $215.8 million reported in last year’s first quarter. Operating income increased 5.4% to $29.9 million, compared to $28.4 million in the first quarter of 2013. The Flavors & Fragrances Group’s operating margin increased to 14.0% in the quarter, an improvement of 80 basis points from the margin in last year’s first quarter. The Natural Ingredients and North American Beverage businesses reported double digit operating income growth in the quarter. Foreign currency translation did not have a significant impact on revenue, but reduced operating income by approximately one percent in the first quarter.
The Corporate & Other segment, which includes the Company’s operations in Asia Pacific and China, and the flavor businesses in Central and South America, reported revenue of $35.3 million in the first quarter compared to $34.9 million in the comparable period last year. In local currency terms, revenue grew by approximately 7% in this segment.
Sensient has increased its 2014 diluted earnings per share guidance to be within the range of $2.92 and $3.00, excluding restructuring and other costs. The Company’s previous guidance had been a range between $2.86 and $2.94 per share.