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| SXT > SEC Filings for SXT > Form 10-Q on 7-Aug-2012 | All Recent SEC Filings |
7-Aug-2012
Quarterly Report
OVERVIEW
Sensient's second quarter revenue was $367.8 million in 2012 and $377.0 million in 2011. Revenue was $733.4 million and $726.7 million for the six months ended June 30, 2012 and 2011, respectively. The impact of foreign exchange rates decreased consolidated revenue by 4.5% and 3.2% in the quarter and six months ended June 30, 2012, respectively. Revenue for the Flavors & Fragrances segment decreased 3.1% for the quarter and increased 0.4% for the six months ended June 30, 2012, from the comparable periods last year. Color segment revenue decreased 3.4% for the quarter and increased 0.4% for the six months ended June 30, 2012, from the comparable periods last year. Corporate and Other revenue increased 6.1% and 6.7% for the three and six months ended June 30, 2012, respectively, from the comparable periods last year. Additional information on segment results can be found in the Segment Information section.
The gross profit margin increased 100 basis points to 32.6% for the quarter ended June 30, 2012, from 31.6% for the same period in 2011. For the six months ended June 30, 2012, the gross profit margin increased 90 basis points to 32.1% from 31.2% in the comparable period in 2011. Favorable product mix combined with higher selling prices more than offset the impact of higher raw material costs for both the quarter and six months ended June 30, 2012.
Selling and administrative expenses as a percent of revenue were 17.9% and 17.2% in the quarters ended June 30, 2012 and 2011, respectively. More than half of the increase in the quarter related to legal costs incurred by the Company in an attempt to recover costs from one of its former law firms. The action related to a significant environmental liability arising out of a 1988 transaction in which the law firm was the Company's legal advisor. No additional costs are expected related to this action. The remaining increase in 2012 was primarily due to higher employee costs, including increases in sales and technical staff, and normal inflationary increases. For the six months ended June 30, 2012 and 2011, selling and administrative expenses as a percent of revenue were 18.3% and 17.7%, respectively. The year-to-date increase in selling and administrative expenses as a percent of revenue was primarily due to the same items as mentioned above for the quarter's increase.
Second quarter operating income was $54.3 million in both 2012 and 2011. Operating income was $100.8 million for the six months ended June 30, 2012, an increase of 2.9% from $97.9 million reported in the comparable period of 2011. The impact of foreign exchange rates decreased operating income by 4.8% and 3.6% in the quarter and six months ended June 30, 2012, respectively. The changes in operating income were due to the revenue, gross profit margin and expense changes discussed above. Additional information can be found in the Segment Information section.
Interest expense for the second quarter of 2012 decreased 15.3% to $4.4 million from $5.1 million in the prior year's quarter. Interest expense decreased 12.3% to $8.8 million for the six months ended June 30, 2012, from $10.0 million in the same period in 2011. In both the three and six months ended June 30, 2012, the benefit of lower interest rates more than offset the impact of higher average debt.
The effective income tax rates were 30.1% and 31.9% for the quarters ended June 30, 2012 and 2011, respectively. The effective income tax rates were 30.7% and 31.9% for the six months ended June 30, 2012 and 2011, respectively. The effective tax rates in both 2012 and 2011 were reduced by changes in estimates associated with the finalization of prior year foreign and domestic tax items. In addition, the 2012 rate in the quarter and six-month period includes a change in estimate of the Company's current year effective tax rate. The Company expects the effective tax rate for the remainder of 2012 to be approximately 32.5%, excluding the income tax expense or benefit related to discrete items, which will be reported separately in the quarter in which they occur.
SEGMENT INFORMATION
Flavors & Fragrances -
Revenue for the Flavors & Fragrances segment was $218.9 million and $225.8
million in the second quarters of 2012 and 2011, respectively. Unfavorable
foreign exchange decreased revenue by $9.7 million. This was partially offset by
higher revenue in Europe ($2.5 million) primarily related to higher volumes in
fragrances and dehydrated flavors.
Flavors & Fragrances segment operating income was $33.5 million and $35.9 million in the second quarters of 2012 and 2011, respectively. The decrease was primarily attributable to lower profit in North America ($1.2 million) and Europe ($0.6 million) combined with the unfavorable impact of foreign exchange rates ($1.1 million). These decreases were partially offset by higher profit in Mexico ($0.5 million). The lower profit in North America was primarily related to increased raw material costs, partially reduced by higher selling prices. The lower profit in Europe was primarily due to softness in certain markets and higher costs. Higher profit in Mexico was primarily due to favorable pricing. Operating income as a percent of revenue was 15.3% and 15.9% for the second quarters of 2012 and 2011, respectively.
Revenue for the Flavors & Fragrances segment was $433.6 million and $431.8 million for the six months ended June 30, 2012 and 2011, respectively. The increase in revenue was primarily due to higher revenue in North America ($10.8 million), Europe ($2.8 million) and Mexico ($1.8 million). These were partially offset by the unfavorable impact of foreign exchange rates ($13.5 million). The higher revenue in both North America and Mexico was primarily due to higher prices and increased volumes. The higher revenue in Europe was primarily due to higher volumes of fragrances.
Operating income was $62.5 million and $64.5 million for the six months ended June 30, 2012 and 2011, respectively. Lower profit in Europe ($1.8 million) and the unfavorable impact of foreign exchange rates ($1.5 million) were partially offset by higher profit in Mexico ($0.9 million) and North America ($0.5 million). The lower profit in Europe was primarily due to softness in certain markets and higher costs. The higher profit in Mexico and North America were due to higher selling prices and favorable product mix.
Color -
Revenue for the Color segment was $127.9 million and $132.4 million for the
quarters ended June 30, 2012 and 2011, respectively. The unfavorable impact of
foreign exchange rates ($7.8 million) more than offset the higher sales of food
and beverage colors ($0.9 million) and sales of non-food colors ($2.4 million).
The higher sales of food and beverage colors were primarily due to higher
volumes and an increase in selling prices. The higher sales of non-food colors
were primarily due to higher selling prices.
Operating income for the quarter ended June 30, 2012, was $25.9 million, an increase of 5.3% from the $24.6 million reported in the comparable period last year. The increase was primarily due to higher profit on sales of food and beverage colors ($3.3 million) partially reduced by lower profit on sales of non-food colors ($0.5 million) and the unfavorable impact of foreign exchange rates ($1.5 million). The higher profit on sales of food and beverage colors was primarily driven by favorable product mix and higher selling prices. The lower profit on sales of non-food colors was primarily due to higher costs partially offset by increased selling prices and favorable product mix. Operating income as a percent of revenue increased to 20.3% in the second quarter of 2012 compared to 18.6% in the prior year's quarter.
The Color segment revenue was $259.2 million and $258.1 million for the six months ended June 30, 2012 and 2011, respectively. Higher sales of non-food colors ($8.2 million) and food colors ($3.8 million) were partially offset by the unfavorable impact of foreign exchange rates ($10.8 million). The increase in sales of food and beverage colors was due to both higher volumes and selling prices. The higher sales of non-food colors were due to both higher volumes and selling prices.
Operating income was $51.5 million for the first six months of 2012, an increase of 9.5% from $47.0 million reported for the first six months of 2011. The increase was primarily due to the higher profit on sales of food and beverage colors ($5.8 million) and non-food colors ($0.7 million), partially offset by the unfavorable impact of foreign exchange rates ($2.0 million). The higher profit on sales of food and beverage colors was primarily due to the increased revenue discussed above combined with favorable product mix. The higher profit on sales of non-food colors was primarily related to the increase in revenue and favorable product mix, partially offset by higher costs. Operating income as a percent of revenue was 19.9%, up from 18.2% in the prior year's first six months.
Corporate & Other -
Corporate & Other includes the Asia Pacific region, China and beginning in 2012
the Company's flavor businesses in Central and South America, in addition to the
corporate office expenses. The 2011 results have been restated to reflect this
change.
Revenue for the Corporate & Other segment was $38.5 million and $36.3 million for the quarters ended June 30, 2012 and 2011, respectively. The increase was primarily related to higher volumes in Asia Pacific.
The Corporate & Other segment reported an operating loss of $5.1 million and $6.2 million for the quarters ended June 30, 2012 and 2011, respectively. The improvement in results was primarily due to the profit on higher volumes in Asia Pacific, partially offset by legal expense discussed in the Overview section.
Revenue for the Corporate & Other segment was $75.7 million and $70.9 million for the six months ended June 30, 2012 and 2011, respectively. The increase was primarily due to higher volumes in Asia Pacific.
An operating loss of $13.2 million was reported in the first six months of 2012 compared to $13.6 million in the prior year period. The improvement in results was primarily due to the profit on higher volumes in Asia Pacific, partially offset by legal expense discussed in the Overview section.
LIQUIDITY AND FINANCIAL CONDITION
The Company's ratio of debt to total capital was 25.0% and 24.2% as of June 30, 2012, and December 31, 2011, respectively. The increase was due to higher debt at June 30, 2012, partially reduced by higher total equity. Debt increased due to the items noted below.
Net cash provided by operating activities was $49.1 million and $66.8 million for the six months ended June 30, 2012 and 2011, respectively. The decrease in cash provided by operating activities was primarily due to higher cash required to fund an increase in working capital. The increase in working capital was primarily driven by higher accounts receivables related to the increase in local currency sales in the first half of 2012 compared to 2011 and inventory restocking at certain locations.
Net cash used in investing activities was $46.7 million and $23.9 million for the six months ended June 30, 2012 and 2011, respectively. Capital expenditures were $47.8 million and $23.8 million for the six months ended June 30, 2012 and 2011, respectively. The increase in capital expenditures is related to the expansion of capabilities and improvement of efficiencies at various locations.
Net cash used in financing activities was $13.6 million in the first six months of 2012 and $46.7 million in the comparable period of 2011. The cash required to fund capital expenditures, treasury stock purchases and dividend payments in the first six months of 2012 caused the Company to increase debt by a net amount of $24.2 million compared to $28.5 million of net repayments of debt in the comparable period of 2011. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $21.5 million and $21.0 million were paid during the six months ended June 30, 2012 and 2011, respectively. Dividends were 43 cents per share for the first half of 2012 and 42 cents per share in the comparable period of 2011, reflecting the Company's increase in the quarterly dividend to 22 cents per share in the second quarter of 2012.
The Company's financial position remains strong. The Company expects that its cash flows from operations and existing lines of credit can be used to meet future cash requirements for operations, capital expenditures, acquisitions, if any, stock repurchases, if any, and dividend payments to shareholders.
CONTRACTUAL OBLIGATIONS
There have been no material changes in the Company's contractual obligations during the quarter ended June 30, 2012. For additional information about contractual obligations, refer to pages 21 and 22 of the Company's 2011 Annual Report, portions of which were filed as Exhibit 13.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements as of June 30, 2012.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company's critical accounting policies during the quarter ended June 30, 2012. For additional information about critical accounting policies, refer to pages 19 and 20 of the Company's 2011 Annual Report, portions of which were filed as Exhibit 13.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2011.
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