Sensient Technologies Corporation (NYSE:SXT) Q2 2023 Earnings Call Transcript

And in fact, we’ve already achieved the end for some particularly say in our sweet flavor categories, where I noted earlier that there’s only so much a customer could have held as inventory, given the perishability limitations of those products. So that those are all positives. So I think you’ll start to see some improvement in flavor in Q3. And then you had Asia Pacific for Q2. So yes, I think we effectively had a number of our customers who accelerated destocking efforts in Q2, and they moved very, very purposefully, to do so. And in a way that was very, very directed and short-term. Let’s get it done and let’s get it done now. So that was completed substantially among those customers in Q2. And then, color, to the last part of your question, what gives me confidence in color, say, in Q4, and beyond.

If there’s one very, very strong foundation to our company, it’s been certainly food colors. And our personal care business, I think, in general, color is up until the start of Q2 has been running really, really high win rates, really, really high revenue. And then, destocking came very, very dramatically here in Q2. We were still up 2% but we would call that fairly substantial destocking efforts, that was about a 9%, 10% headwind for colors in Q2. So much higher than in Q1. We may have a rate that is at least that much in Q3, probably about that much in Q3. And then we think flavors, unlike color, sorry, flavors kind of lingered a little bit longer, we think colors will be a little bit shorter, but more dramatic. So, but I don’t know 100%.

So I think that again, I look to the very, very solid win rate. Colors has the highest win rate in the company right now. They have excellent pricing implementation as well. And their attrition is very, very manageable. So I think those are other factors that give me significant confidence in colors. And then, again, with a new product launch activity, continue to improve. Colors is also very, very well positioned to capitalize with those new wins. So I think I covered all your questions in there.

David Green: Yes. That’s perfect. And maybe just specifically on colors. I don’t know if there’s more to flush out here or not, in terms of, the demand versus destock dynamic. And whether really, that we should really be focused just on that destock in terms of the driver of the weakness for Q2, and potentially for Q3.

Paul Manning: Well, I would tell you this, as how we got to that 2% growth in color. About 4% of that was a market decline. So destocking was more than twice that. So if destocking could go away, David, I’d be the happiest guy on the planet right now.

David Green: Great. And then just another quick one on input costs that you’ve talked about. You just mentioned water, energy, labor. Just sort of wanting to get a more general sense of that. Is that something that sort of, you see as being quite persistent? And it’s a little bit counterintuitive, I guess, on the energy side, because I think historically you’ve said energy costs in Europe for a headwind, when energy prices was already high in Europe. Now energy prices in Europe have come down a long way. So I’m just trying to understand the sort of moving parts there.

Paul Manning: Yes. I’ll answer the first part of that. Then I’ll have Steve answer, as well. So the main costs that, we still see elevated costs in many categories, certainly not as elevated, as they had been previous, you just mentioned one of them on the energy. For sure, energy is down in many of the regions, in fact, most. Growing costs, though, it’s been a persistent factor. The issue is growing costs, as you grow a crop with elevated input costs, that crop doesn’t come out of the ground, the next day. The crop comes out of the ground, like months later, and then you’d start selling it. So what you’re selling now is a reflection of input costs from like, a year ago, or depending on what crop you’re selling. So there is a lagging factor there.