Sensient Edges Out Estimates

The Milwaukee, Wisconsin-based Sensient Technologies Corporation ( SXT - Snapshot Report ) reported fourth quarter 2011 earnings of 57 cents per share edging out the Zacks Consensus Estimate by a penny and surging 9.6% from the year-ago level of 52 cents. Reported earnings include a charge of 7 cents pertaining to a cost reduction plan and a gain of 7 cents per share related to the acquisition of Les Colorants Wackherr do Brasil. In fiscal 2011, earnings came in at $2.41 per share versus $2.17 in the prior year.

The better-than-expected results were attributable to higher operating income.

Total revenue inched up 0.3% year over year to $340.4 million during the quarter. Total revenue was impacted by 1% due to unfavorable currency exchange. In full-fiscal 2011, revenue increased 7.7% to $1.43 billion year over year.

Quarter Highlights

Sales of the Color Group segment dipped 0.4% year over year to $112.8 million during the quarter, due to unfavorable currency impact of 2%. Flavors & Fragrances Group reported revenue of $206.3 million, flat year over year, negatively impacted by 1% due to foreign currency translation. However, revenue at Corporate & Other, which includes the company’s operations in Asia Pacific and China, rose 4.6% to $30.8 million.

Notwithstanding the unfavorable currency impact of 1%, operating income of the Color Group segment leaped 10.6% to $20.3 million and that of Flavors & Fragrances Group spiked 9.3% to $29.4 million. Color Group segment operating income was driven by solid performance at North American operations and strong demand for natural colors while the same at Flavors & Fragrances Group benefited from U.S. flavor businesses.

Operating income of the company expanded 4.7% to $43.0 million due to cost saving initiatives introduced by the company in the quarter. Selling and administrative expenses climbed 6.6% to $65.2 million but cost of products sold decreased 2.1% to $232.2 million.

Financial Position

The company ended 2011 with cash flow from operations of $142.9 million, down 8.2% from the prior-year period. As of December 31, 2011, long-term debt was $312.4 million, down from $324.4 million as of December 31, 2010.

Outlook

The company expects 2012 earnings in the range of $2.48 to $2.58 per share.

Our Take

We remain optimistic on the stock given its better-than-expected results, continuous enhancement of shareholder value and strengthening balance sheet by debt reduction. The Zacks Consensus Estimates for the upcoming quarter and fiscal 2012 are 57 cents and $2.55 per share, respectively, reflecting year-over-year growth of 8.18% and 5.37%.

Sensient holds a Zacks #4 Rank, implying a short-term Sell rating. Besides, we are also maintaining our long-term Neutral recommendation on the stock.

One of Sensient Technologies’ primary competitors, McCormick & Co. Inc. ( MKC - Analyst Report ) posted results for the fourth quarter and fiscal year 2011 with operating earnings of $1.03 per share and $2.79 per share, respectively. The results surpassed the Zacks Consensus Estimate of 97 cents per share and $2.78 per share, respectively.