Sensient Technologies Q3 2025: Contradictions Emerge on Natural Color Conversion Impact, Timing, and Tariff Strategy

Date of Call: October 31, 2025

Financials Results

• Revenue: $412.1M in Q3 2025, up from $392.6M in Q3 2024; local currency revenue +3.5% YOY
• EPS: Adjusted EPS grew 18% in local currency (Q3 2025 vs Q3 2024); company expects 2025 GAAP EPS $3.13–$3.23 vs 2024 GAAP EPS $2.94 (includes ~ $0.28 portfolio optimization plan costs)

Guidance:

• Consolidated full-year local currency revenue: mid-single-digit growth.
• Local currency adjusted EBITDA and adjusted EPS: now expected to grow at a double-digit rate in 2025.
• CapEx: ~ $100M in 2025; expect at least $150M in 2026 to support natural-color investments.
• No share buybacks anticipated; will evaluate acquisitions selectively.
• Q4 interest expense ~ $7.5M; Q4 adjusted tax rate ~ 24%.
• 2025 GAAP EPS guidance: $3.13–$3.23 (includes ~ $0.28 portfolio optimization costs).

Business Commentary:

* Strong Financial Performance: - Sensient Technologies Corporation reported local currency adjusted EBITDA growth of 14% and 18% local currency adjusted EPS growth for Q3 2025. - The growth was driven by the strong performance of the Color Group, which grew 8% in local currency revenue and 24% in local currency operating profit.

• Color Group Performance:
• The Color Group delivered 7.9% local currency revenue growth and 23.8% local currency operating profit growth for Q3.

• This performance was attributed to selling technically differentiated products, cost control, pricing strategy, and strong new sales wins, particularly in natural colors.

• Natural Color Conversion Opportunity:

• Sensient anticipates the conversion of $100 million in synthetic color revenue to natural colors, which could result in a revenue multiple of 10:1.

• The shift is driven by the regulatory requirement for companies to switch to natural colors in the U.S., with over 50 brands already committing to replacement.

• Capital Expenditure and Investment Strategy:

• The company increased its capital expenditure guidance to $100 million for 2025, and anticipates spending at least $150 million in 2026 to support natural color capabilities.
• This investment reflects Sensient's strategic focus on expanding its natural color production capabilities to capitalize on the expected conversion to natural colors.

Sentiment Analysis:

Overall Tone: Positive

• Management reported "14% local currency adjusted EBITDA growth and 18% local currency adjusted EPS growth," stated "we now expect double-digit local currency adjusted growth for both EBITDA and EPS," and said "we are on track to deliver a strong performance for 2025" and "I remain optimistic about 2025."

Q&A:

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated): Can you quantify what portion of the ~$100M synthetic-color revenue opportunity is already in the process of reformulation/conversion or in backlog?
  Response: Most customers are committed and moving toward conversion but exact backlog/timing cannot be precisely quantified; the company sees the January 1, 2028 deadline as the organizing target.

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated): Does reformulation activity (technical work, stability testing, etc.) now align with customers' stated conversion timelines?
  Response: Reformulation is complex (formulation, stability, test marketing, scale-up); timing is hard to predict product-by-product, but conversions are expected to occur across 2026–2028 with 2028 the firm deadline.

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated): The food & pharma business grew ~11% in Q3 — what's driving that if not the synthetic-to-natural conversions, and how much is from new natural-color wins?
  Response: Growth is driven by a selective, differentiated product and service strategy (high-quality products, execution and new wins); synthetic-to-natural conversions contributed < $1M in Q3.

• Question from Lawrence Solow (CJS Securities, Inc.): Beyond the ~$100M in current customers, is there a larger market of non-customers converting, and is the 10:1 revenue multiple an average — could customers choose cheaper or less vivid outcomes?
  Response: The $100M is a benchmark; Sensient will selectively pursue technically differentiated, higher-value conversions and avoid commoditized opportunities; the ~10:1 ratio is an average and will vary by application (higher in harsh/bright applications, lower in others).

• Question from Lawrence Solow (CJS Securities, Inc.): Could changes to GRAS/approval processes at the FDA materially affect the business?
  Response: Unlikely to materially change color regulation — colors are already tightly regulated and natural colors still require FDA petitioning; broader regulatory changes could have wide industry impacts but are uncertain.

• Question from Ming Tang (BNP Paribas): Walmart is moving to eliminate synthetic dyes in private label by 2027 — will other private labels follow and will conversions for lower-price items compromise vibrancy or price?
  Response: Walmart's move is meaningful and likely to accelerate others; private labels should follow; natural colors are costlier but still small versus total product cost, and management does not expect quality/vibrancy compromises as a result.

Contradiction Point 1

Natural Color Conversion and Revenue Impact

It involves differing statements about the impact of natural color conversions on revenue growth, which affects investor expectations regarding the company's financial performance.

What portion of the 11% food and pharma sector growth is from natural color conversions versus new natural color wins? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated)

2025Q3: The growth in food and pharma is mainly driven by a strong strategy focusing on product performance and service levels. Less than $1 million of conversion from synthetic to natural colors has occurred so far, suggesting that current results are not significantly impacted by the ongoing conversion activities. - Paul Manning(CEO)

Can you provide specifics on Sensient's growth in activity and business wins in natural colors? Also, what is the margin differential between natural and synthetic colors? - Ghansham Panjabi (Baird)

2024Q4: On the natural front, our food colors business was up double digits in revenue and volume. The conversion to natural colors is significant, driven by new product launches and existing brands switching. The conversion opportunity for Sensient is substantial, given the technical complexities involved. - Paul Manning(CEO)

Contradiction Point 2

Natural Color Conversion and Timing

It reflects inconsistencies in the timing of the natural color conversion, affecting strategic planning and market confidence.

What portion of the $100 million in sales is in the reformulation conversion process, and how much is currently in the backlog? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated)

2025Q3: The conversion process involves new launches, which can be complex and time-consuming. Most companies are aware of the requirement to convert to natural colors by January 1, 2028. - Paul Manning(CEO)

What supply chain challenges and advancements are associated with the natural color transition, and what is your outlook for natural color revenue growth in 2027? - Lawrence Scott Solow (CJS Securities)

2025Q2: The natural color conversion will likely begin in earnest in 2027 due to state regulations. - Paul Manning(CEO)

Contradiction Point 3

Tariff Impact and Price Recovery

It involves the company's approach to handling tariffs and price recovery, which is crucial for maintaining profitability and investor confidence.

What portion of the $100 million in sales is in reformulation conversion, and how much of that is in backlog? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated)

2025Q3: Tariffs represent approximately $10 million in annual costs, with 2/3 impacting Color and 1/3 the rest of the business. Price increases are planned to recover these costs. - Paul Manning(CEO)

Is the $10 million tariff impact only on raw materials or also on finished goods? - Ming Tang (BNP Paribas, Research Division)

2025Q1: Yes, the impact includes raw materials and some finished goods. Most impacts are on raw materials. Sensient manufacturers where they sell, not exporting from low-cost regions to high-cost regions. - Paul Manning(CEO)