Sensient reports drop in profits after arbitration payment

- Last updated on GMT

Flavors and Fragrance maker Sensient Technologies has reported a 13
per cent drop in its quarterly profits following sluggish sales and
a one off arbitration payment following a dispute with a customer,
reports Simon Pitman.

The Milwaukee-based company said that although the second quarter revenue of $263.8 million equaled the prior year's second quarter, improvements in North American food and beverage markets for both colors and flavors were offset by significantly higher raw material and energy costs, impacting bottom lines.

The arbitration payment, combined with the market conditions meant that Sensient's net income fell 13.8 per cent to reach $15.86 million, compared to $18.24 million in the corresponding quarter of 2004.

Sales for the first six months were $514.6 million, slightly down on the same period in 2004 when sales registered $517.9 million. Net income for the six months stood at $28.6 million, compared to $33.2 million in 2004. Approximately 10 per cent of the company's sales are derived from the cosmetics and personal care industry.

Breaking the figures down, the Flavors & Fragrances Group revenue grew to $165.9 million in the reported quarter, 2005, compared to $160.5 million in last year's second quarter. Operating income was $21.8 million compared to $22.0 million in the second quarter of 2004.

The company said that its Color Group revenue was $89.1 million in the quarter ended June 30, 2005, compared to $95.5 million in last year's second quarter. Operating income was $14.7 million compared to $17.7 million in the second quarter of 2004.

Group revenue in the quarter benefited from favorable foreign exchange rates and higher sales of traditional flavors in Canada and Latin America. Gains in these areas were impacted by lower sales of flavors in Europe and reduced revenue from aroma chemicals. Second quarter operating income was affected by an unfavorable product mix and higher costs. Currently the company is a major player in the global market for both cosmetics coloring and aromas.

"Our focus on cash flow and debt reduction has produced significant progress in strengthening our balance sheet,"​ said Kenneth Manning, CEO of Sensient Technologies Corporation. "In the second half of the year, we will have a marketing effort focused, not only on our core businesses, but also on new geographical markets where we've had success, such as China, Eastern Europe and Latin America. In addition, we expect to realize additional benefits from our cost reduction efforts that will offset higher costs."

Looking to the rest of the year, Sensient​ said it was confident that sales would remain firm and that the strengthened balance sheet would significantly boost net profits and earnings per share in the remaining two quarters.

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