Sensient Technologies Corporation (SXT) recently reported first quarter 2012 earnings of 58 cents per share, beating the Zacks Consensus Estimate by a penny and surging 9.4% from the year-ago level of 53 cents. The better-than-expected results were attributable to top-line growth.
Total revenue perked up 4.6% year over year to $365.7 million during the quarter. In local currency revenue climbed 6.3%.
Quarter Highlights
During the quarter, sales of the Color Group segment increased 4.5% year over year to $131.3 million. Flavors & Fragrances Group revenue jumped 4.3% to $214.7 million. Moreover, revenue at Corporate & Other, which includes the company’s operations in Asia Pacific and China, as well as the company’s flavor businesses in Central and South America rose 7.5% to $37.2 million, benefiting from solid performances in Thailand, Australia, and New Zealand.
Operating income of the Color Group segment leaped 14.2% to $25.5 million; marking the highest quarterly upside, driven by strong growth in the North American food color business and the inks business in both North America and Europe. To improve the performance of the segment, Sensient expects to further focus on strong growth opportunities in digital inks, pharmaceutical coatings, specialty industrial colors, cosmetic ingredients and natural food colors. Flavors & Fragrances Group operating income inched up 1.6% to $29.1 million, driven by strong performance in North America, partially offset by the weak performance in Europe.
Selling and administrative expenses surged 7.4% to $68.8 million and cost of products sold increased 3.5% to $250.3 million. However, operating income of the company expanded 6.6% to $46.5 million
Financial Position
The company ended the quarter with cash flow from operations of $9.0 million, down from $28.4 million recorded in the prior-year period, due to higher working capital and inventory restocking. As of March 31, 2012, long-term debt was $336.7 million, up from $323.2 million as of December 31, 2011. During the quarter, the company repurchased approximately 400,000 shares.
The company expects cash flows in the second quarter of 2012 to be up sequentially due to timely collection of receivables.
Outlook
The company expects to achieve mid to high single-digit revenue growth in 2012, along with continued improvement in operating margins. Based on its growth prospects, management lifted its earnings outlook from the range of $2.48 – $2.58 per share to $2.50 – $2.59 per share for 2012.
Our Take
We remain optimistic on the stock given its better-than-expected results, strong balance sheet position, strategic investments in infrastructure and continuous enhancement of shareholder value. The Zacks Consensus Estimates for the upcoming quarter and fiscal 2012 are 69 cents and $2.55 per share, respectively, reflecting year-over-year growth of 3.48% and 5.37%.
Sensient, which competes with McCormick & Co. Inc. (MKC), carries a Zacks #3 Rank, implying a short-term Hold rating. Besides, we are also maintaining our long-term Neutral recommendation on the stock.
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