Sensient Technologies Corporation — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the filing does not provide a standalone Q4 summary. Sensient develops and manufactures flavors, colors, and specialty ingredients. Its reportable segments are Flavors & Extracts, Color, and Asia Pacific.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1,380.3 million | $1,332.0 million | +3.6% reported; +9.1% adjusted local currency |
| Gross margin | 32.9% | 31.8% | +1.1 percentage points |
| Operating income | $170.0 million | $152.7 million | +11.4% |
| Operating margin | 12.3% | 11.5% | +0.8 percentage points |
| Net earnings | $118.7 million | $109.5 million | +8.5% |
| Diluted EPS | $2.81 | $2.59 | +8.5% |
| Adjusted diluted EPS | $3.13 | $2.79 | +12.2% |
| Cash from operations | $145.2 million | $218.8 million | Down $73.6 million |
| Capital expenditures | $60.8 million | $52.2 million | Up $8.6 million |
Adjusted results are non-GAAP measures and exclude divested product-line results and specified divestiture, operational-improvement, and other costs; 2020 adjusted results also exclude a one-time employee payment. Management cautions that these measures are supplemental and may not be comparable with similarly titled measures at other companies.
Segments and material changes
- Flavors & Extracts: Segment revenue was $739.4 million, down slightly from $742.0 million; segment operating income rose about 8% to $98.7 million. Growth in flavors, extracts, and natural ingredients was offset by the yogurt fruit preparations and fragrances divestitures.
- Color: Segment revenue increased about 9% to $545.3 million and segment operating income rose about 8% to $103.6 million. Food and pharmaceutical colors and Personal Care improved; the prior-year inks divestiture affected comparisons.
- Asia Pacific: Segment revenue rose about 12% to $135.3 million and operating income increased about 19% to $26.3 million, mainly on higher volumes and favorable mix.
- Reported revenue growth understates underlying comparison: divested product lines reduced 2021 revenue by $30.1 million versus $113.6 million in 2020. Adjusted revenue grew 10.8%.
- Gross and operating margins improved, reflecting higher volumes and the removal of lower-margin divested lines. Raw-material, labor, shipping, and other manufacturing costs remained pressures.
Cash, debt, and liquidity
- Cash and cash equivalents were $25.7 million at year-end. Current assets were $741.2 million and current liabilities were $232.3 million.
- Long-term debt was $503.0 million; the debt note reports $503.6 million total debt before debt fees and current portion. Short-term borrowings were $8.5 million.
- The company reported $291.2 million available under its revolving credit facility and $22.6 million under other bank lines. The $350 million multi-currency revolver was extended to May 2026. Management said it was in covenant compliance and expected operating cash flow and available borrowing capacity to fund anticipated needs.
- Debt maturities include $106.5 million in 2022 and $152.8 million in 2023. The company stated it expects to repay or refinance obligations through cash flow, additional notes, and revolving-credit capacity.
- Operating cash flow fell chiefly because inventory used $36.3 million of cash, as the company built strategic inventory amid supply-chain disruption. The company repurchased $42.5 million of shares and paid $66.7 million in dividends in 2021.
Outlook, risks, and unusual items
- No revenue or earnings guidance is provided. Management estimated a 2022 effective tax rate of 24%–26%, before discrete items, and anticipated inflation would not significantly affect 2022 results if pricing and other actions remained effective.
- Management described ongoing supply-chain challenges and higher raw-material, logistics, and labor costs. Persistent or worsening inflation could pressure profitability, and price increases may not fully offset cost increases or could affect demand.
- COVID-19-related outbreaks caused some production and shipping delays in 2021 but no reported material company-wide impact. Further outbreaks, shutdowns, labor constraints, or customer disruptions could adversely affect operations and demand.
- The April 2021 fragrances divestiture generated $36.3 million net cash proceeds and a non-cash net loss of $11.3 million, primarily from foreign-currency translation reclassification. Sensient also acquired Flavor Solutions for approximately $14.9 million in cash.
- Environmental sampling at the former Granada, Spain site found soil and groundwater contaminants. The filing estimates remaining remediation costs at $0.9 million, while noting actual costs could exceed estimates.
- Several California wage-and-hour and representative-action cases were disclosed; the company said it intends to defend them. It stated that other ordinary-course claims were not expected to materially affect financial position, though outcomes could affect results or cash flows in a particular period.
- Other principal risks include raw-material availability and agricultural weather impacts (including 2021 onion crop disruption), customer concentration in certain product lines, competition, product quality and recall exposure, foreign exchange, regulation, cybersecurity, and LIBOR transition. About 18% of debt referenced LIBOR at year-end.
Important facts for investors to verify
- Whether adjusted growth and margin gains persist after divestiture effects and non-GAAP exclusions, and whether pricing offsets continued input-cost inflation.
- Whether inventory investment converts to sales and operating cash flow; reconcile the cash-flow decline with working-capital trends.
- Debt repayment and refinancing plans for the 2022–2023 maturities, revolver availability, and any borrowing-cost effects from benchmark-rate changes.
- Final Granada remediation costs and developments or potential exposure in the disclosed California employment matters.
- Assumptions supporting deferred-tax-asset recoverability: the filing reports $106.0 million of gross deferred tax assets and a $36.9 million valuation allowance.