Sensient Technologies Corporation Aktie

Good morning, and welcome to the Sensient Technologies Corporation 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Mr. Tobin Tornehl, Vice President and Chief Financial Officer. Please go ahead, sir.

Good morning. Welcome to Sensient's earnings call for the second quarter of 2026. I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I'm joined today by Paul Manning, Sensient's Chairman, President and Chief Executive Officer.

Earlier today, we released our 2026 second quarter results. A copy of the earnings release and the slides we'll be using during today's call are available on the Investor Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, cost of the company's portfolio optimization plan from our 2025 results and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance.

Non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today.

I'd also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sensient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. We'll start on Slide 5 of our deck.

Now, we'll hear from Paul.

Thanks, Tobin. Good morning, good afternoon. Earlier today, we reported our second quarter results. We delivered 10% local currency revenue growth, 21% local currency adjusted EBITDA growth and 26% local currency adjusted EPS growth in the second quarter. These results continue to build on our strong first quarter results and are well above our earlier projections for the year. We continue to have outstanding results from the Color Group, which delivered 17.6% local currency revenue growth and 36.8% local currency operating profit growth. The commercial activity around natural color conversions continues to be very strong, and the momentum is building as customers approach their launch dates.

Flavors & Extracts Group also had a solid quarter, delivering 3.8% local currency revenue growth and local currency operating profit growth of 6.1%. The Asia Pacific Group contributed strongly with local currency revenue growth of 12.3% and local currency operating profit growth of 23.7%. Each of our groups has delivered strong results for the first half, and we expect even stronger results in the second half of the year.

During the second quarter, we continued to generate strong new sales wins across each of our groups, and our sales pipelines continue to grow to support our revenue expectations. Our emphasis on sales execution, delivering exceptional customer service and constant innovation continues to drive our performance. We're delivering very high win rates in natural colors, specifically natural color conversions. Our long-term strategy and preparations have positioned us to support our customers throughout this conversion process and achieve our $1 billion sales target. Aside from natural colors, our robust and innovative product portfolios across our other food, personal care and pharmaceutical product lines are enabling us to win across the globe. As I've stated before, despite a choppy macroeconomic environment and sluggish overall food market, we believe we are well positioned to continue our sales momentum.

As I've mentioned on previous calls, we made a strategic shift over 15 years ago in anticipation of the conversion of synthetic colors to natural colors in the U.S. and beyond. We're seeing strong conversion activity and newly converted natural color products are already hitting the shelves in the U.S., Canada and Mexico. I will reaffirm what I've said previously. The U.S. conversion to natural colors is the single largest opportunity in Sensient's history. We are aggressively pursuing the commercial opportunities while also executing on our considerable investments in our production capacity, supply chains and product innovation to support us for our $1 billion sales goal.

Turning to Slide 6 and our group results. The Color Group had excellent second quarter results, delivering 17.6% local currency revenue growth and 36.8% local currency operating profit growth. The Group's second quarter adjusted EBITDA margin was 28.3%, up 320 basis points compared to prior year. This included approximately $4.3 million from onetime tariff refunds, which contributed 200 basis points to the Group's adjusted EBITDA margin. Excluding the tariff refund, the Group's adjusted EBITDA margin would have been 26.3%. Without the tariff refund, the Group still had an outstanding quarter and continued our increased investments in support of the natural color conversion opportunity.

The Group continues to sell technically differentiated products, control its costs, execute pricing and most importantly, deliver quality new wins. We are seeing acceleration in customer orders for conversions of the synthetically colored products in the U.S. Alongside these conversions, the vast majority of new product launches throughout the world continue to utilize natural colors. I can reaffirm that the pipeline to our $1 billion sales goal looks very promising. We approach the second half of the year, I now expect the Color Group to deliver local currency revenue growth in the high-teens for 2026, with natural color conversion sales building as the year progresses.

During the second quarter, the Color Group invoiced approximately $25 million of natural color conversion revenue. This $25 million is in addition to the $20 million of revenue that we cumulatively invoiced through the end of Q1. I also expect that the EBITDA margin for the Color Group in Q3 will be similar to prior year's Q3 EBITDA margin of 24.7%. Overall, the Color Group is progressing very nicely in 2026, and remains on a great sales trajectory.

Turning to Slide 7. Flavors & Extracts Group saw local currency revenue growth in the second quarter of 3.8% and increased local currency operating profit by 6.1%. The Agricultural Ingredients business, in particular, had nice volume growth in the quarter. The Group's adjusted EBITDA margin was 18.1%, up 30 basis points versus the prior year's comparable quarter. The results align with our expectations for the second quarter. The Group continues to optimize its costs and focus on new and defensible flavor wins, and these factors have fueled the favorable profit leverage. Overall, for the Flavors & Extracts Group, we expect local currency revenue growth of mid-single digits for the year.

Now turning to Slide 8. The Asia Pacific Group had a very strong quarter, delivering 12.3% local currency revenue growth and 23.7% local currency operating profit growth. The Group's adjusted EBITDA margin was 24.4%, up 210 basis points versus the prior year second quarter. Overall, the Asia Pacific Group got off to a substantially faster start than we anticipated in the first half and is set up nicely for the rest of the year. The Asia Pacific Group continues to generate strong new sales wins across all geographies, expect the Group to deliver high single-digit revenue growth for the full year.

Turning to Slide 9. Regarding our full year guidance, we expect our local currency revenue to be up high single to low double digits. Based on our strong start to the year, we now expect local currency adjusted EBITDA and EPS growth in the mid-to-high teens for the year. Our previous guidance called for high single to double-digit growth rates. On the capital allocation front, we previously communicated expectations for consolidated capital expenditures in 2026 of between $150 million to $170 million to ensure that we are prepared for the forthcoming natural color conversion activity. I would anticipate we still land within that range, but trending toward the top end. We continue to expect to spend around $250 million for natural color capital over the next few years.

We also continue to anticipate an increase in our natural color working capital requirements. We are full steam ahead on this multiyear plan to add the necessary capacity and allow for future growth in the future -- sorry, further growth in the future. Beyond capital expenditures, we will evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks in the near term. Now before I turn the call over to Tobin, I'd like to provide some information on 2 of our more innovative natural color technology platforms shown on Slide 10.

To provide a little background, Mexico, like the U.S., recently announced an official ban on Red 3. Brands will have until mid-2028 to replace Red 3 with alternative solutions. As we have discussed, the U.S. ban goes into effect in January of 2027 for food, beverage and pet products with a slightly later date of January 2028 for pharmaceuticals. Our technical teams have been working with our customers to convert their products, and this slide depicts some of our most successful technologies to enable this conversion.

First, UberBeet is our stable and concentrated beet platform designed for pink bakery items that undergo heat processing. This technology offers benefits to mitigate taste impact and potential bakery rise issues. Secondly, our Microfine technology excels in pink icings, fat-based coatings and frostings, which mitigates the bleeding of color into the baked good item. Lastly, Watermelon Rose is an ultra-high temperature stable vegetable-based technology that delivers vivid pink shades that work well in the harsh temperatures used to make strawberry milks and high acid juices. Marine Blue Azure is a natural color innovation, which solves many heat stability challenges with standard spirulina-based blue solutions. This technology is especially effective in confection applications such as gummies, hard boiled candy and fruit snacks along with gelatin.

As I've said before, the key to a successful natural color conversion for food and beverage brands is to maintain the variety and vibrancy in colors that consumers are used to seeing in their favorite products. To that end, the vast majority of our customers are striving to match their existing synthetic shade through their development. At this point, we observed very few instances where customers are electing to remove color or use less color. Our R&D efforts continue to be focused on removing performance gaps that exist between synthetic and natural colors. If you'd like more information on the natural color technologies, please visit our website.

Overall, I'm pleased with our financial performance in the second quarter. I'm excited about the growth opportunities within each of our groups, and I'm looking forward to the continued progression towards our natural sales target. The growth we are experiencing is a result of our execution of our long-term strategy. Since 2019, the company's local currency adjusted revenue compounded annual growth rate is approximately 6%. Our growth this year is above this historical rate, and I remain optimistic about 2026 and the future of our business.

Tobin will now provide you with additional details on the second quarter results.

Thank you, Paul. In my comments this morning, I'll be explaining the differences between our GAAP results and our non-GAAP or adjusted results. The adjusted results for 2025 remove the cost of the portfolio optimization plan. While we do not have any portfolio optimization plan costs in our 2026 second quarter results, we believe that the removal of these prior year costs produces a clear comparative picture of the company's performance for investors. This also reflects how management reviews the company's operation and performance.

Now turning to Slide 12. Sensient's revenue was $462.1 million in the second quarter of 2026, compared to $414.2 million in last year's second quarter. Operating income was $76.7 million in the second quarter of 2026, compared to $57.7 million in the comparable period last year. Operating income in the second quarter of 2025 included $3.3 million or approximately $0.06 per share of Portfolio Optimization Plan costs. Excluding the cost of the Portfolio Optimization Plan in the prior year, adjusted operating income was 23.4% in local currency in the second quarter of 2026, compared to $61 million in the prior year period. Interest expense was $8.2 million in the second quarter of 2026, up from $7.4 million in the second quarter of 2025.

The company's consolidated adjusted tax rate was 25.1% in the second quarter of 2026, compared to 25.2% in the comparable period of 2025. Local currency adjusted EBITDA was up 20.9% in the second quarter of 2026. Foreign currency translation increased EPS by approximately $0.02 in the second quarter of '26. The company received approximately $5 million of tariff refunds in the second quarter, most of which was in the Color Group, as Paul mentioned. No additional refunds of any significance are expected in future periods. This refund resulted in approximately $0.09 benefit to EPS and improved Color Group and Flavor & Extracts Group operating profit by $4.3 million and $500,000, respectively.

Turning to Slide 13. Cash flow from operations was $48 million in the second quarter of 2026. Capital expenditures were $39 million in the second quarter of 2026. And as Paul indicated, we continue and anticipate our capital expenditures to be between $150 million and $170 million for the full year, likely closer to the $170 million. Our net debt to credit adjusted EBITDA is 2.3x as of June 30, 2026. As we communicated last quarter, we also expect higher investments in inventory throughout the year to support the increased natural color conversion revenue. Debt is expected to increase further with our leverage ratio entering the mid to upper 2s later in the year.

Overall, our balance sheet remains well positioned to support our capital expenditures, sensible acquisition opportunities and our long-standing dividend. As Paul indicated, we'll continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth for years to come. We maintain our goal of pushing our ROIC to the mid-teens over the next few years as we look ahead to peak natural color conversion activity. We will evaluate sensible acquisition opportunities and where there is a strategic advantage on the technology, supply chain or geography front.

As we stated last quarter, we are constantly monitoring the situation in the Middle East. And although we do not have any significant operations in this region, we are working to mitigate any potential supply chain risk that may result from the overall increase in fuel transportation and certain commodity prices. We have already adjusted prices where necessary to minimize our financial impact, and we'll continue to try to avoid any major disruptions to our customers.

Turning to Slide 14. Revisiting our 2026 guidance. We now expect our local currency revenue to be up high single to low double digits. Based on our strong results halfway through the year, we now expect local currency adjusted EBITDA and EPS to grow at a mid- to high-teen growth rates. Our previous guidance called for high single-digit to double-digit local currency adjusted growth. We expect our third quarter interest expense to be approximately $9 million and our fourth quarter interest expense to be around $9.5 million. We expect our third and fourth quarter adjusted tax rates to be approximately 25%.

Based on current exchange rates, we expect the impact of currency on EPS to be immaterial in both the third and fourth quarters. As we explained, we do not expect any further benefit from the tariff refunds in the second half of the year. With that in mind, we expect EBITDA margins for the Color and Asia Pacific Group to be in the mid-20s and EBITDA margins for the Flavors & Extracts Group will be in the high teens.

We'll now open the call up for questions.

[Operator Instructions] Today's first question comes from Ghansham Panjabi with Baird.

Congrats on all the progress. First off, on the conversion between synthetic to natural, it sounds like customers generally intend to maintain the same color aesthetic. If you can just give us some sense as to whether that's true across the various product categories that are converting based on what you're seeing now? And just given that natural color conversion has some technical challenges, including potentially influencing taste because you obviously use a lot more volume, et cetera. How are customers managing through that? And is your Flavors & Extract segment also participating in that reformulation activity?

Yes. So I would tell you, in general, customers are very, very keen to match the synthetic color in the food product. So for example, you have a drink or a piece of candy, a snack, pretty much pretty well across the board. Colors are utilized in a lot of different ways from a marketing standpoint to linking the consumer expectation to a flavor. And so maintaining the color, I think, is pretty -- you talk to any CPG, I think that's pretty evident to them that you have to really maintain your color. If you don't, then interestingly enough, you get a lot of complaints about your flavors, which obviously haven't changed, but because the color changed, the consumer believes the flavor has also changed. This is more of a psychological outcome than anything else.

And then, of course, if you use a substandard looking color, that impacts the consumer's preference for your product as well. So I think it's -- while some brands might have experimented with this years ago, perhaps Europe, when they did their conversion 15-plus years ago, they were less fewer technologies available to really get those kind of great matches. The technology has advanced so considerably even over the last 5 years that by and large, we can get an exact match or a really, really excellent looking vibrant color in just about any application. Of course, there are always exceptions, but I would tell you that those are more at the margins than anything else.

I can't think of off the top of my head, any customer that you've heard of or anybody else has heard of that is specifically deciding to make their product use less color to save on money or to some other complexity. I genuinely would tell you that customers really want to match this and they want to match it really, really well.

So to your second point about the technical challenges, yes, they are considerable. Light, heat, acid conditions, these are all things that impact color considerably. Shelf life can impact color -- natural color considerably. But you raised a very good point. When you're using that much natural color, these colors can oftentimes react with other ingredients in the product, the finished products, and they could also create unusual tastes and smells in the finished products. And so yes, we have a very strong link with our Flavors Group, where Flavors has a series of -- they pioneered a series of taste masking platforms specific to disguising natural color off notes.

So to my knowledge, I'm not aware of any other flavor company that emphasizes this and has built that into their portfolio in the same way that we have. Why would they? They don't have a color business like we do. And so yes, Flavors is becoming more and more a critical part of the formulation exercise with color and with our consumers to ensure that when they get these products, you don't notice anything except a great-looking color with a beautiful label and possibly a declaration on the front, something to the effect of not using synthetic colors anymore. So yes, it's really come together very, very nicely.

Okay. And then relative to that $1 billion opportunity set, if you will, where did you exit 2Q? Because I think it's -- you said $25 million incremental relative to the cumulative $20 million. So is it sort of mid-40s in terms of the exit run rate? And then how are you thinking about that buildup into the back half of the year because you have some large customers that are looking to convert early part of next year as well?

So that's right. So your numbers are right. So we were about $20 million cumulatively coming into this quarter. We added -- we invoiced another $25 million. So just for everybody's clarity, we distinguish between invoice and projections. So these are amounts we actually invoice. So for example, in Q2, we invoiced $25 million. One could project from that a substantially higher amount of revenue derived from those activities. So I would tell you that -- approximately $25 million, I feel really good about that. That's a nice step-up from Q1.

We're still by some accounts in sort of the earlier innings of this conversion program. I would fully expect that this continues to grow as we enter into Q3 and Q4. Many consumer -- many of our customers are driving towards a January 1, 2027 conversion deadline, whether that's stemming from the Walmart expectation of that date or a series of school lunch programs that are obligating products to be naturally colored in the school system by January 1, 2027.

So those are 2 big factors. But I would tell you another big factor as the year progresses is there's plenty of companies that are working towards more of a January 1, 2028 deadline, but they're not waiting until Q4 of next year to launch all those. They have a very systematic launch plan where they're going to launch products each quarter between now and that January 1, 2028. So I think all those things start coming together more and more as we get into the back half. So I would fully expect these invoiced values to rise in Q3 and to rise again in Q4 and then, of course, to continue as we get into 2028.

And our next question today comes from Josh Spector at UBS.

If I can follow up on Ghansham's question actually, just specifically thinking about the second half. So if I take away some of the stuff you just said there, it sounds like you expect the invoiced natural colors to increase through the second half. I mean we pretty easily get to that natural colors organic probably up in like the low to maybe high 20s year-on-year in the second half, which kind of puts the segment easily 20% plus. You said high teens, which could mean that there's no acceleration. So I just want to see if I'm thinking about the cadence there right and maybe the magnitude of second half growth or if there's anything else we should be considering?

No. I think, listen, we give guidance to give folks a frame of reference. We never want to disappoint in that guidance. And I think you're seeing us raising once again this quarter. But no, I think the second half is going to be very, very strong for colors on natural color conversions, number one. But remember, the base business of colors is still growing. That $25 million of invoice, that's for natural color conversions, but there's actually also other natural color launches that continue, and we continue to have very strong win rates in that part of the market. There are some customers in other parts of the world that are still buying synthetic colors.

Obviously, large parts of LatAm and Asia Pacific are far less converted than certainly Europe and certainly where the U.S. is going to be. So there is that business that's still growing. We still have PCSM doing a very nice -- growing very, very nicely this year as well. So we're really doing well. And so let me not exclude my Pharma brothers and sisters out there, too. They're also having an outstanding quarter, and a lot of that's being driven by natural color conversions also.

So yes, I think the message I'd like to give you is that the pace and the momentum continues to build on the natural color conversions, and it continues to be very, very strong in the balance of the business as well. So yes, second half is going to be a really, really great half, and we feel quite good about that. If it's high teens and maybe it's -- yes, sure, it could be your figure. I just don't want to disappoint you, Josh.

That's very well understood. I do want to keep this kind of medium-term focus, I suppose, and just thinking about margins. And if I back out the tariff impact, you gave that number, you were 26% plus EBITDA margins. My math is that incremental is around 31%, 32%. It seems like your guide, you're going back to saying the incremental is more like 25%. So is there a reason for that? Why was 2Q better? Why would 3Q see the incremental step down?

It all comes down to mix. I think our guidance here on mid-20s, I think we feel very, very confident with that. Could there be a quarter where it's 26%, 27%? Sure. Could there be a quarter where it's 24%? Sure. And again, a lot of that is just driven by mix. And not necessarily mix stemming exclusively from natural color conversions or natural colors could be another segment of the business.

But I think -- I would leave you with this thought. We feel very solidly committed to the mid-20s EBITDA margin. If Q3 comes in at 25%, I wouldn't see that as a disappointment. I would just see it as more of a function of mix than really anything else. So I wouldn't get terribly concerned with that. I mean, could it come in at 26% again? Sure. But I think 25% is we want to give you a number you can really kind of take to the bank, so to speak.

And our next question today comes from Larry Solow with CJS Securities.

Just to ask the question another way. So the $25 million invoiced this quarter, plus or minus, is it safe to say you're at about $100 million annual run rate?

Yes. I think your math is probably not too far off. Typically, in a normal state of affairs, and maybe this would be helpful for folks to hear my perspective on this. When a customer, a CPG or otherwise launches a product, let's just say they're going to launch a new drink and it's got color in it, natural color in it or synthetic, whatever, but natural. In a normal state of affairs, let's say we project that to be a $1 million opportunity for Sensient. We're going to be able to generate $1 million of annualized revenue.

Typically, we would get anywhere between 20% and 30% of that in the first PO. So let's just say he wants to launch January 1. He has this inkling that it's going to be a great launch. He wants to launch right on New Year's, get the thing ramped up for when the jets are in the Super Bowl and get everybody excited. Yes, first PO, it may be $300,000 for that first PO. It could be $200,000. And so then they may assess how is this doing? Am I loading my channels as I had expected and anticipated.

And then once you get past that sort of that first half, then you typically get to a state of affairs where it's more than likely about 25% per quarter. So you're -- generally speaking, that's right. $25 million would typically represent about $100 million in projected revenue for these products, in normal cases.

Now the natural color conversion can add a little wrinkle here because the difference between the natural color conversion and then the new launch is the conversion is replacing products that are synthetically colored on the shelves today. So he may not order 30% in his first PO. He may order 10% as he brings in the next batch of products, putting the naturally colored ones in the back, make sure the consumers buy all the synthetic ones first and then they eventually have a full shelf conversion, so to speak. So that's changing that ratio a little bit, which is to say the $25 million could be understating, and it could be above that $100 million. It could be like $130 million or so.

But I would tell you, it's not going to be less than like $100 million type projection would be how I would describe that. And so it's this shifting on the shelves that is creating a little bit of noise and making the normal projections of a launch a little bit trickier to assess. So this is why we like giving you folks the invoice figure. We'll keep giving you that each quarter, and I think that will give you a sense of the progression of the launches.

No, I appreciate that granularity. So that -- so it's not like the customer is ordering more than a quarter's worth. So you're at least -- let's just say $100 million, but in theory, you're probably at a greater than $100 million run rate today. And you think this number by the end of '28 or early '29 could be $250 million a quarter, right? That's based on what you're saying?

Yes. To get to the $1 billion, that's about right. You would -- in a normal state of affairs, yes. Now of course, there's seasonality, there's more beverage in this part of the year and there's more ice cream in that part of the year. But yes, at the macro level, you're about right in your thinking there.

Right. And just directionally on the margins. So just excluding the tariffs impact, obviously, you had a nice significant jump up this quarter. Maybe some of that was timing or whatever. But I think when we started the year, we thought there was going to be for the first 2, 3 quarters compression in the Color segment because you're investing ahead of kind of revenue. The revenue has been a little bit better than expected, but not crazy better than expected. So -- but your margin profile has been a lot better than we thought. Is there anything else? Is it perhaps timing of some of those expenses? Or you mentioned mix, but was the mix within Color even better? I'm just trying to parse out anything that kind of drove that difference?

Yes. The short answer, Larry, is we're actually doing a lot better on revenue and wins than I thought. So for example, I'm looking at my Q2 performance sheet, Larry, you'd love to see this thing. We were up substantially in the U.S., and we were up substantially above our budget. And why is that? Because we got more wins earlier than we expected. We got really nice mix of new wins. And I think that is what has essentially made those incremental costs, those investments that you referred to there, more technical folks, commercial engineers, all these folks we've added ahead of this program. Yes, we were able to really overwhelm those costs with just new wins and revenue to a greater degree than we had anticipated.

So it's not really a timing thing. So the drop back in Q3, again, ex the tariff benefit sounds like there's a little bit -- maybe a little bit of conservatism in there, but it's not that expenses are necessarily accelerating relative to Q2?

No, I don't think so. And I don't think -- for '25 and '26, I guess I don't feel like it's as dramatic as it seems. If it was '26 going to '19, yes, there's something wrong here. But I think that again, we want to be able to deliver on those figures. And I don't necessarily know what the mix is. And hey, maybe I'll have some better news than I thought in Q3.

Got you. Just last question for you, Paul. Just on IFF, I know that they sold their -- I guess, their food ingredients already earlier this year. And then they just announced that they're selling their functional and natural color stuff to SuanNutra, I guess. I'm just curious, do you compete -- does IFF compete with you at all in natural colors? And does maybe the change to SuanNutra, which hasn't happened yet, so maybe hard for you to say, but I don't know if you know of SuanNutra, but is that a potential future more of a competitor now on that Color side? And any thoughts on that?

Well, I think that business that was sold, I don't think it was a particularly large natural color business.

[indiscernible] total revenue. So I don't -- I think it may be more functional stuff than natural colors. I don't know what it is.

Yes. I believe the natural color was a smaller fraction of that. I don't think it was necessarily as broad of a range of products. I believe it was fairly heavy in things like carmine and annatto, which tend to be on a different part of the market that we traditionally play in. So we've got -- as you know, we've got a number of competitors in this space. So we take them all very seriously, but I want to beat them all very seriously. And so yes, we look at all new competitors, and I think about how I'm going to outcompete with those new competitors. But I don't necessarily anticipate a substantial change under new ownership. A competitor is a competitor from my standpoint, and we will compete rigorously against them.

The commentary from SuanNutra though, was interesting that I guess the CEO, the Chairman came out with something saying that the industry is shifting more towards clinically supported ingredients versus generally regarded as safe. I don't know if that -- does that mean -- is he thinking that there'll be more regulation? And maybe does that impact Colors? And is that sometimes more regulation in this case, could be a mixed bag. Any thoughts on that?

Well, regulations tend to be really good for our business because it creates technical complexities and formulations for our customers. And so -- maybe the reference there was, okay, the U.S. is moving in this direction through a combination of regulation, but really -- and consumer demand. Europe was there principally through legislation. But I think the rest of the world is moving similar to the U.S. with a combination of principally consumer demand in this area, but also a series of legislative actions that outlaw various synthetic colors. There have been countries in Southeast Asia, which attempted to outlaw certain synthetic colors like synthetic lakes.

And so these things can be really, really beneficial. It would be great if the governments of Latin America and Asia all got together and outlaw synthetic colors. I would love nothing more, Larry. Because then that will be the next wave of conversions for us. But I think in general, that is going to be the next wave of conversions for us as those countries and markets continue to replicate some of the products in Europe and the U.S., that's going to be a strong undercurrent. So a lot of folks are looking at this U.S. conversion and they think, well, after that, well, Sensient just goes back to mid-single digit. Yes, I don't think so. I think the next wave is going to be pet food in the U.S. I think you're going to see some movements in over-the-counter in the U.S. You're going to definitely see more activity in Latin America, which is maybe 1/3 naturally colored today, 2/3 synthetic. So a big market, highly colored food in LatAm in general.

And then Ditto for Southeast Asia, China, India, these are markets that still use a considerable amount of synthetic color, and these would be beautiful conversion opportunities. And then, of course, as you've heard me say before, personal care is also another area of the market that can be a ripe ground for natural color conversions. A lot more technical challenges than on the food side of things. But there, again, another beautiful potential follow-on opportunity to stack on top of this U.S. conversion for us. So this is a good time to be in this company, Larry.

[Operator Instructions] Our next question comes from Nicola Tang at BNP Paribas.

I thought I'd actually follow up there where you left off in terms of talking about the global opportunity. I think I also saw that Nestle has extended their commitment to their global portfolio, not just U.S. as well by the end of 2026, which seems, I guess, an ambitious target. I wanted to try and put some numbers around this.

So I think you have around $100 million of revenue in synthetic colors outside of the U.S. or outside the Americas. In a scenario where we see momentum on conversion outside of the Americas, any reason why that conversion multiplier would be any different from the 8% to 10% average that we're talking about on the Americas side? That's the first question.

Yes. So good question. I think based on our experiences thus far, we've typically used 10x as our ratio. As you get to certain parts of the world, it may be a lower. Maybe our experience in Brazil would be on the lower end of that conversion, maybe it's 5 to 6x to 1. LatAm, though, I think, would be as strong as the U.S. on that conversion ratio. And again, you go down to LatAm, the products are beautiful, Nicola. I don't know if you've been to Mexico and a food store, but it's just beautiful. Everything is colored, brightly colored.

So yes, you would expect particularly high ratios there. China and India, I think you'd be probably in that 8 to 10 range as well. But again, some of the products may be more weakly colored, which could lend themselves to lower ratios. I guess I'd have to kind of look at the whole landscape to give you a more definitive answer. But I would tell you that typically, in the highly colored markets, which is most of the ones I've referenced, 8 to 10 is a really good number to use, maybe more like 10. Where you see more lightly, it's going to be lower than that. So the blended average, I don't know, anywhere between 7% and 10%, but I could get back to you about a more definitive answer on that one.

Yes, sure. That would be interesting. And just for reference, like what's the ratio in Europe, which obviously is already quite converted already?

Well, Europe is a different matter, and I would tell you a couple of things. Back in 2008, 2009 when that took place, there wasn't nearly as much technology that was available. The conversion was expected in a very, very short time frame. So in my opinion, most of the customers, the folks selling products in Europe kind of had to move -- had to move very quickly and had to move with what was available. And what was available, I would tell you, is not nearly as effective and performance driven as what is available today. In fact, interestingly enough, we see more and more wins in Europe where we've upgraded customers' colors.

So how do we now bring in some of the newer technologies that make your product look substantially better or enable you to produce them substantially more efficiently in your production plant. So Europe is in need of some upgrading on some of the colors, I would tell you, in my opinion. And certainly, that forms parts of our pipeline today because, yes, it was a very different experience than what you're seeing now and what you'll see in the future, I think.

Okay. And then maybe -- I know it's been asked a few times around margins, but in the Colors business. But I was wondering, given what you said about better-than-expected kind of momentum in terms of wins, but that we're still very much at the early innings of this potential conversion opportunity. Surely, as we go forward, wouldn't the operating leverage can improve from where we are? And therefore, I guess my question is, what's your view or do you have a new view on kind of midterm margins, EBITDA margins for the Colors business?

Well, maybe for the sake of variety, I'll pass this one off to Tobin, and you all can hear his thoughts on this topic.

Yes. And Paul was kind of talking about it before. But overall, I think the mid-20s for the Color Group for the full year is what we feel good about. So think around 25%. That can change quarter-to-quarter. This last quarter, excluding the tariffs, they were 26% and change, so really healthy. Paul talked about the investments that we continue to make. So people, we're investing in SG&A people across our Color Group, and that's been occurring. So our next round of investments will be in production and cost of goods sold as more revenue comes.

But overall, I think mid-20s, we feel really good about. And as Paul indicated, could that be 26% on a quarter? Could it be 24% on a quarter? Sure. But overall, I would say I would think mid-20s for the Color Group and then also for our Asia Pacific Group. Our Flavor Group coming back to them, I think the high teens, that is definitely where we're kind of modeling them for the year. So that's how we kind of look at the margin. So hopefully, that helps, Nicola.

Yes, sure. And then maybe a final one around. You mentioned that the sort of working capital around sort of serving naturals will increase. Can you -- I know we've talked in the past about risk of, I guess, bottlenecks upstream in terms of getting access to raw materials. Can you just talk us through what's happening upstream and also how we should think about, I guess, weather events and kind of other kind of risks to raw material supply?

Yes. Well, we -- our plan is built around having enough raw materials to achieve our $1 billion target and then, of course, retain that $1 billion and grow that, too. So we've been doing this supply chain thing going on almost 20 years now. So this is really nothing new for us. Our program is really about just continuing to expand growing regions, continue to expand relationships that you have, the number of growers who are entering this market and processors, these folks are making investments, too. I'm not the only one seeing what's going on here.

So yes, I feel really good about our footprint. Now is our raw material footprint sufficient to -- right now to affect the entire change, the natural color conversion change, I'd say we feel really, really good. Now there are always the weather events to your point. So we anticipate that there will be routinely some kind of weather event, political event, whatever you may think about. But my goal is to never talk about ever on a call like this, a supply chain problem because we will have mitigated that either through holding working capital on some of these more problematic raw materials, having backup alternative formulas, which is an interesting concept, right? That can help you moderate a lot of the supply chain risk.

But then just having lots of growers in both hemispheres, we're having continuous harvest in some part of the world, we're harvesting. So there's a lot of ways that we have and we will continue to mitigate these risks because you're absolutely right. I mean if you think you're just going to get this one raw material from this one guy in this one country, that's great, right up to the part where like somebody takes over that part of the country and now you're not getting anything. So we are particularly paranoid about this part of the business, but we've got a lot of experience here, too, and we've done an awful lot to mitigate that, and we continue to do that day in and day out in this company. We have an entire organization singularly dedicated to this activity.

And so -- and as technologies emerge, maybe we won't be so dependent on the supply chain as it exists today in this format. So yes, in short, we're going to get to our $1 billion. And I would tell you that raw material and the supply chain is going to be part of why we get to the $1 billion because we do a lot of thinking on this, and we've done a lot of mitigation activity. So I feel really good. I can't speak about the rest of the market, but I can speak very, very strongly about our $1 billion.

And that concludes our question-and-answer session. I'd like to turn the conference back over to the company for any closing remarks.

Okay. Thank you. That concludes our call today. Thank you, everyone, for participating. And if you have any follow-up questions, please feel free to contact the company. Have a great weekend.

Thank you, sir. And this does conclude our conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Good morning, and welcome to the Sensient Technologies Corporation 2026 First Quarter Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornehl. Please go ahead, sir.

Great. Thank you. Good morning. Welcome to Sensient's earnings call for the first quarter of 2026. The I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I'm joined today by Paul Manning, Sensient's Chairman, President and Chief Executive Officer. Earlier today, we released our 2026, First quarter results. A copy of the earnings release and the slides we'll be using during today's call are available on the Investor Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, cost of the company's portfolio optimization plan and other items as noted in the company's filings.

We believe the removal of these items provides investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. This also reflects how management reviews and evaluate the company's operations and performance. Non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides.

We encourage investors to review these reconciliations in connection with the comments we make today. I'd also like to find everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors. -- including those set forth in our SEC filings. We urge you to read Sensient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today.

We'll start on Slide 5 of the deck. Now we'll hear from Paul.

Thanks, Tobin. Good morning, good afternoon. Earlier today, we reported our first quarter results. We've gotten off to a very strong start to 2026, delivering 7% local currency revenue growth, 10% local currency adjusted EBITDA growth and 14% local currency adjusted EPS growth. These results exceeded our early expectations and position us nicely for the year. We continue to have particularly strong results from the Color Group, which delivered 12.3% local currency revenue growth and 13.2% local currency operating profit growth.

Commercial activity around natural color conversions continues to be very strong and the momentum is building. Flavors & Extracts Group also had a solid quarter, delivering 1.7% low currency revenue growth and local currency operating profit growth of 5.1%. Asia Pacific Group contributed local currency revenue growth of 4.7% and local currency operating profit growth of 14.5%. Each of our groups has had a nice start to the year. During the first quarter, we generated strong new sales wins across each of our groups and our sales pipelines continue to grow to support our revenue expectations.

While we are seeing particularly high win rates in natural colors, our innovative product portfolio is also fueling success in each of our other businesses. Our customer service levels remain exceptionally high. And despite a sluggish overall food market in many geographies, we believe we are well positioned to continue our sales wins success. As I mentioned on previous calls, the preparations for the wholesale conversion of synthetic colors to natural colors in the United States remains our priority and current strategic focus.

We are not seeing any slowdown in conversion activity and I will reaffirm what I previously stated that the U.S. conversion to natural colors is the single largest opportunity in Sensing's history. We are continuing investments around the world to increase our production capacity and to optimize our product portfolio. We also are building, continuing to build a resilient supply chain to provide the botanicals necessary to produce natural colors and to support the needs of our customers in alignment with their launch dates.

These investments will support and position us for our $1 billion natural color sales goal. We advance further with customers on application support, they are also confirming that while natural colors may cost more than synthetic options, the cost impact remains manageable since natural colors are still a relatively small part of overall ingredient costs in most product categories. First quarter had no shortage of newsworthy developments in trade, tariffs, and geopolitics. We are continually monitoring these situations, but would like to provide some information around the conflict in Iran.

We do not have any significant operations in the Middle East, and we are working to mitigate any potential supply chain risks that may result from the overall increase in fuel and certain commodity prices. In past circumstances like COVID and the invasion of Ukraine by the Russians, we have proven our ability to adjust prices where necessary and to minimize our financial impact and any major disruptions to our customers. This continues to be my expectation with the war in Iran. Now turning to Slide 6 and our group results. [indiscernible] had an excellent first quarter, delivering 12.3% local currency revenue growth and 13.2% in local currency operating profit growth. The group's first quarter adjusted EBITDA margin was 24.4%, flat to prior year despite our increased investments in support of the natural color conversion opportunity, the group continues to sell technically differentiated products, control its costs, execute on pricing strategy and deliver quality new wins.

We are starting to see an uptick in customer orders for conversion of their synthetically colored products in the U.S. and the pipeline to $1 billion continues to look very promising. I now expect the Color Group to deliver double-digit local currency revenue growth in 2026. Previously, I expected high single to double-digit growth. I continue to expect the natural color conversion sales to build as the year progresses. As the sales build, I expect profit leverage to improve as well. Profit leverage in Q2 and Q3 for the Color Group will be similar to the relationship in Q1.

Overall, the Color Group got off to a tremendous start to 2026 and remains on a great trajectory, and I'm very excited about the future ahead of us. Turning to Slide 7. Flavors & Extracts Group saw local currency revenue growth in the first quarter of 1.7% and an increased local currency operating profit growth of 5.1%, the group's adjusted EBITDA margin was 17.2%, up 30 basis points versus the prior year's comparable quarter. The results exceeded our expectations in the first quarter. The group continues to optimize its cost and focus on new and defensible flavor wins, and these factors have fueled the favorable profit leverage.

Overall, we expect Q2 to be similar to Q1 with strengthening revenue and profit performance as we move through 2026. Now turning to Slide 8. Asia Pacific Group had a nice rebound in the first quarter, delivering 4.7% local currency revenue growth and 14.5% local currency operating profit growth. The group's adjusted EBITDA margin was 26.1%, up 220 basis points versus the prior year's first quarter. Overall, the Asia Pacific Group got off to a substantially faster start than we anticipated and is set up nicely for the future. The regional demand constraints that the group has experienced over the last few quarters improved in Q1.

Plus, we generated strong new sales wins. Pending resolution of the Iran war, I continue to expect improvement throughout the year with greater sales and profit improvement in the back half of 2026. Now turning to Slide 9. Regarding our full year guidance, we are increasing our local currency ranges for the year. We now expect our local currency revenue to be up high single to double digits. Our previous guidance was for mid-single to double digits. We now expect local currency adjusted EBITDA and EPS to grow at high single to double-digit rates.

Our previous guidance called for mid-single digit to double-digit local currency adjusted EBITDA growth and mid-single to high single-digit local currency adjusted EPS growth. On the capital allocation front, we still expect consolidated capital expenditures of $150 million to $170 million in 2026 to ensure that we are prepared for the forthcoming natural color conversion activity and that we can achieve our $1 billion sales goal.

As I mentioned last quarter, we expect to spend between $225 million and $250 million on natural color capital over the next couple of years. We continue to anticipate an increase in our natural color working capital and maintain our goal of significantly improving our ROIC to the mid-teens over the next few years. Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks at this time.

Now before I turn the call over to Tobin, I'd like to provide some information on a couple of our innovative technologies shown on Slide 10 is some information about 2 of our popular natural color platforms. Avalanche is a global portfolio of clean label alternatives to titanium dioxide. We're also showing a range of extrusion stable natural colors that are ideal for use in production processes utilizing high heat or pressure. Titanium oxide is a whitening agent commonly used in baked goods, frostings confections and makeup applications. In recent years, there has been a growing demand from our customers to remove titanium dioxide from their products. This demand has been driven by bands or regulation changes across the globe. It's quite difficult to replace TiO2 due to its exceptional performance characteristics and cost effectiveness.

Our Avalanche portfolio addresses the market need for white products and is designed to best match the performance of titanium dioxide. The portfolio is robust and continues to grow as new technical application challenges arise. Next, I'd like to highlight our extrusion stable natural color offerings. They have been developed for maximum stability and performance in high heat or pressure process. For example, extrusion is commonly used to make breakfast cereals. Several large retailers and CPG companies have made announcements about their commitment to rapidly remove synthetic dies from this category and therefore, remains a priority for us.

You'd like more information on any of our natural color technologies, please visit our website. Since 2019, the company's local currency adjusted revenue compounded annual growth rate is approximately 6%. Our growth in the first quarter is above that historical rate, and I'm quite pleased with the trajectory we are on for 2026 and beyond. I'm excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build, and I'm pleased with our progress toward our overall revenue goal. We believe long-term investors are well positioned to benefit substantially from our execution. We will continue to emphasize investment in research and development, production capacity and a resilient supply chain in order to be ready to support our customers. The growth we are experiencing is a direct result of the execution of our long-term strategy seizing the opportunities in the markets in which we operate. I remain optimistic about 2026 in the future of our business. Tobin will now provide you with additional details on the first quarter results.

Thank you, Paul. In my comments this morning, I'll be explaining the differences between our GAAP results and our non-GAAP adjusted results. The adjusted results for 2025 remove the cost of the portfolio optimization plan. While we do not have any portfolio optimization plan costs in our 2026 first quarter results, we believe that the removal of these prior year cost produces a clear comparative picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance.

Turning to Slide 12. Sensient's revenue was $435.8 million in the first quarter of 2026 compared to $392.3 million in last year's first quarter. Operating income was $66.7 million in the first quarter of 2026 compared to $53.5 million of income in the comparable period last year. Operating income in the first quarter of 2025 included $2.9 million, approximately $0.05 per share of portfolio optimization plan costs. Excluding the cost of the portfolio optimization plan in the prior year, adjusted operating income was up 12.2% in local currency in the first quarter of 2026 compared to $56.4 million in the prior year period.

Interest expense was $7.9 million in the first quarter of 2026, up from $7.3 million in the first quarter of 2025. The company's consolidated adjusted tax rate was 24.9% in the first quarter of 2026 compared to 25.3% in the comparable period of 2025. Local currency adjusted EBITDA was up 10.4% in the first quarter of 2026. Foreign currency translation had approximately a $0.06 benefit on EPS in the first quarter of 2026. Turning to Slide 13, cash flow used in operations was $14 million in the first quarter of 2026. Capital expenditures were $29 million in the first quarter and as Paul indicated, we continue to anticipate our capital expenditures to be between $150 million and $170 million for the full year of 2026.

Our net debt to credit adjusted EBITDA is 2.4x as of March 31, 2026. As we communicated last quarter, we expect higher investments in inventory throughout the year to prepare for increased natural Color Conversion revenue. That is expected to increase further with our leverage ratio entering the upper does later in the year. Overall, our balance sheet remains well positioned to support our capital expenditures, sensible acquisition opportunities and our long-standing dividend. As Paul indicated, we continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth for years to come.

Turning to Slide 14, revisiting our 2026 guidance. Based on our first quarter results, we now expect our local currency revenue to be up high single to double digits. Our previous guidance was for mid-single to double digits. We now expect local currency adjusted EBITDA in EPS to grow at a high single to double-digit rate. Our previous guidance called for mid-single to double-digit local currency adjusted EBITDA growth and mid-single to high single-digit local currency adjusted EPS growth. We continue to expect acceleration in revenue and EBITDA growth in the second half of the year.

We expect our second quarter interest expense to be approximately $9 million and we expect our second quarter adjusted tax rate to be approximately 25%. Based on current exchange rates, we still expect the impact of currency on EPS to be immaterial for the year. Thank you for participating in the call today. We'll now open the call up for questions.

[Operator Instructions] And the first question will come from Ghansham Panjabi with Baird.

Paul, it sounded like the first quarter came in, but then you thought. Just maybe give us a bit more color upon intended, I guess. And what drove that? Was there just faster conversions of customers? Was there a bigger contribution from load-in benefit as it relates to inventory build, et cetera? Just give us a bit more perspective on that.

Well, the simple answer is we got more wins than we thought. -- not only natural color wins in the general business, the base business, but also more natural color conversions than I had anticipated. So that would be one. I think we saw a nice set of wins out of Asia Pacific. And in addition to that, we didn't see as much of that tariff distortions that I was sort of concerned about on the last call. So that ultimately moderated a bit as well. And then in flavors, again, new wins, I think was the driving factor there. I mean price is sort of on the low single-digit side of that 7% overall consolidated revenue that came in, in line with what I had anticipated. But yes, the short answer is wins.

And then it relates to the cadence of growth in that segment as the year unfolds. I mean, obviously, a very strong start to you don't have full control in terms of business wins, et cetera, but presumably, you have some view on backlog, et cetera. How should we think about the cadence of that as it relates to 2Q through 4Q specific to your overall guidance for that segment?

Well, I think overall, Q2 will look pretty similar to in fact, in each of the groups. I'd like to see a little bit more top line out of flavor you'll see that in Q2 and as we go through the year. But yes, I think there'll be some on the Color Group side of things. Barring some unforeseen larger conversions than I would tell you that I see right now, Q2 should look a lot like Q1 and then, of course, we would expect to see more and more of this building as we get into the back half of this year and certainly as we get into 2027. I think right now, with customers, many of them are getting into the phase of, okay, they've done a lot of the reformulation work, if not all of the reformulation work.

And then it's a matter of getting the rest of their ducks in a row, whether it's consumer test marketing regulatory reviews, aligning their production plans, scaling up these products, preparing for their eventual production of the natural colors. I think now we're getting into the phase where we may get a little bit more clarity from some on launch dates. But I think here, again, the short answer Q2 will look a lot like Q1. Q2 will look fairly similar to Q2 and Q1, but I think Q4 is where you'll see perhaps a more decided inflection point in natural colors. But I think ultimately, for the year, yes, we feel really good about where we are for each of the groups in terms of what they should deliver.

And then just 1 final one. On the TiO2 opportunity set, can you sort of frame that for us as it relates to how big that is in terms of the addressable market, et cetera? And is that part of the $1 billion sales threshold that you're focused on in terms of natural colors? Or is that separate from that?

Yes, that's a great question, I would tell you that, that may be the single most challenging program, but the irony of that is titanium dioxide from a regulatory standpoint is actually considered natural colors. So I hadn't contemplated that in the $1 billion, but if I'm getting the $980 million, I need a little push over the edge, I may count that on, but I'll let you know about that. But no, I think this is 1 of those that -- and you'll see more and more of this, too, right? As you convert to natural colors, there will be the next wave of regulatory expectations, right? So titanium dioxide is 1 of them.

We've been working on this for a number of years. This came out really, Europe was first in sort of decrying the use of titanium dioxide, not only in food products, but also personal care products. And then the U.S. has sort of followed in the wake of that. It's I would say it's a conversion that's a little bit more in its infancy compared to the broader based natural color conversion -- but no, I think this could be a nice add-on, but I have not factored that into the $1 billion.

Next question will come from Josh Spector with UBS. .

I wanted to follow up just on just on the COLORZ growth, I'd just be curious, where is your confidence at today versus 3 months ago around the time line I mean a lot of investors are concerned that things could slip because your customers will be facing a lot of cost pressures in different areas. So obviously, 1Q was good. You're talking about new wins, but the stuff you thought would convert and move in the second half -- is that going faster or slower? Like any details there to help us understand the cadence would be helpful.

Josh, I pay attention to the time line very much the macro level, right? The expectation -- there are 2 really key dates here that I think the market has been moving towards January 1, 2027, which is essentially the Walmart deadline for having natural colors in its brand names throughout its stores in the U.S. And then the other noteworthy time frame that folks have been honing in on a January 1, 2028. So I think largely, customers remain on track with those. I'm very exceedingly confident. I think my confidence where with versus 3 months ago, I'm still very confident. I don't see -- I talked to a lot of customers.

We're dealing with just about any customer you've heard of, you could say, -- we've got a vast pipeline across big customers, middle-sized customers and small ones. And so we can say this with a great deal of authority, there is no slowdown at any of these customers. And there is no deviation from, well, maybe I won't do this, maybe I will, said by no 1 that I've interacted with in the last 6 months. And so I think that the organizations are committed. You can go to the FDA website. I think there's a couple of dozen household names that have pledged this already on the FDA and to the American public that they will do this. So yes, I continue to remain very confident.

Now what is the precise distribution of do we get 5% this month and 8% in the next month. Yes, that one's a little bit harder and quite frankly, possibly even unknowable to a large degree. But I think that customers are honing in on their launch date. Bear in mind that some of these brands have dozens, if not more than 100 products that they're attempting to convert that's a massive undertaking. These are all new launches. They require new packaging. They require new formulation, production scale-up. In some cases, customers need to implement capital in their plants to process it differently. So a lot of moving parts. So customers aren't being reluctant and they're not well. Maybe I'm not going to do this. No, they need to do it right and that takes time.

And so we should not expect some massive conversion in these very early days. I think we're pacing very much at the pace that I would expect, and it's one that would accelerate as we get, again, closer to these deadlines because every customer that I have evaluated and spoken to, and there's a lot of them, they're very committed to this.

I did want to ask on margins and colors. I mean if I go back to last call, you were talking about the year margins being down about 50 basis points. You were flat in first quarter. It sounds like from your comments earlier, you're thinking you're maybe flattish in 2Q, 3Q, corrective if I'm wrong, and you sound like you're up in fourth quarter. So are margins up there? And just what does that mean in terms of the OpEx investments? Is that embedded in there through the year? Is that slower and I'll throw 1 more if you're able to quantify what those OpEx investments are that you're going to grow into next year, that would be helpful as well.

Yes. So EBITDA we were flat for the quarter. As I noted in the comments, that's a bit better than I had anticipated. Really the moving parts here are you mentioned it, the capital expenditures -- and when, as I like to say, metaphorically, the little green light goes on, which is to say the equipment is up and running and producing product, and now you're depreciating it. So that is a variable. And then you're balancing that variable with you've got ongoing investments to ensure that we have the right personnel in place and we have the right engineers and we're doing the right testing and a lot of the other R&D and applications and processing engineering that goes into these conversions, right? So we made a lot of those investments. So that's a second factor.

And then you're balancing that with the inflow of revenue. And so if the capital is done before the sizable revenue comes in, which I'm not particularly -- that I don't have a problem with that. I'm okay with being early on capital. So that's where you may see a little bit of a headwind on that leverage. But in instances, our customers maybe move a launch to the left or a bigger launch happens, then that would balance a lot of that expenditure out and therefore, provide a little bit of a tailwind to the EBITDA margin. So I think net-net for the year will be flattish on the EBITDA in the Color Group. I would expect us to be up in Asia. I would expect us to be up in flavor for the year.

But color -- you got the variables, you're exactly right. And it's just a matter of how does the revenue flow and how do we progress along with our investments. And again, it may be a quarter or so that were early by. And I would consider I would be thrilled I was early on capital implementation, I had a bunch of folks sitting around waiting for products to come in. I can't think of anything more exciting in this moment than something like that.

Our next question will come from Larry Solow with CJS Securities.

Paul, congrats to the year. So I guess, just kind of set the way I just ask those questions another way. Obviously, the quarter was a little bit better across segments, but in college to and the margin was a little bit better. It feels like and I think you're adjusting your margins a little bit. I guess, flattish on color side, you expect a little bit of a pressure, I think, last quarter. So is the change, basically, it sounds like revenue is a little bit faster coming in conversions are a little bit faster. No change on the expected investment this year. Is that kind of a good way to summarize what's happening in collars just for the year?

Yes, I think that's about right. Yes, revenue was a little bit better than we thought, and I think that -- and that went a long way. I think that going back to the previous question, yes, I think some of this is it's all about the timing. And so again, you may have a quarter where it's not such a smooth slope on some of these variables. But yes, you're absolutely right. I think we did better than we thought. And so therefore, the EBITDA was not down as I had thought it might be. It was more flat.

And yes, I think that's a real positive outcome. I think it's indicative of a couple of things, though, too, right? not only wins, but it's high quality wins. And I think one of the things that I've talked about over the years, the point among many that distinguishes Sensient's is that we really pursue those natural color opportunities that are very strongly performance-based applications. Natural colors are exceedingly challenging in most formulations. But in others, it's a little bit more mundane, and then those are the ones that we tend to perhaps spend a little bit less time with.

And so when you focus on the more technically challenging, those tend to be I suppose, more positive on the gross margin front than, of course, the more mundane. So I think the mix is going to continue to play a good factor here. And I think perhaps in my own mind, the mix was a bit better than I thought it would be right out of the gate in Q1.

I appreciate that. And just like on the more kind of hard to call it long term because it's only a couple of year outlook, right, where you give -- you have the January 1, 27 and more importantly, that's for Walmart, which I know is a nice percentage of just products in the United States. But January 28, obviously, is the kind of deadline or soft deadline. Clearly, I don't think you expect everybody to be able to convert, right, just impossible. So I'm just curious, are companies getting more competitive, more maybe not anxious, but just trying to solidify their plans sooner than the next guy because it feels like it's going to be a little bit of a game of musical chairs in terms of if the full supply chain is not ready for the conversion. Maybe only some could convert. I'm just trying to get any kind of color on tenant on just how that's progressing as you get kind of closer to these dates.

Yes. I would tell you that the bulk of the activity is going to be in 2027, but a significant amount of the activity, as you just saw here in Q1 is going to be here in 2026. So I gave you some of the factors that may impact the timing of these launches. But there's also the phenomenon of competitors, right? So if a competitor in this category converts to natural colors, and he does it sooner than his competitor would. You could expect that is competitor may want to more rapidly move in that direction as well.

There is ultimately in markets, what I like to refer to and you can read about this one, too, there is a tipping point. There's a critical, critical mass of activity maybe it's 20%, maybe it's 30% of a market that it moves in this direction and then it moves very rapidly towards the end of -- and so part of what we're preparing for is that possibility that it may start off where you get 10% and 15% is converted and then you get up to about 20% and then it moves very rapidly in that direction. Now whether you want to call that a tipping point or just folks all pursuing the similar deadlines, one way or the other, I think everybody gets there.

But yes, you're right. This is a matter of guiding your customers like, hey, folks, you can't all convert in Q4 2027, and you don't want to either -- so I looked at a customer's launch plan just the other day, and they had it all kind of metered out over the course of the year, this product category here and this product there and right? So I think customers are really forming these plans up very, very, very nicely. And they've got a lot of risk in terms of their timing, they need to achieve their deadlines as well.

So Yes. I think the more we go into this direction, I mean, eventually, it just has to happen by virtue of the expectation of the market. But I think you may -- you could see more dramatic conversions sooner than we had thought because of some of that competitive activity when your competitors do it, and you're not, that's not a good thing for you and being a CPC competitor. So that remains to be seen. That's a bit of an uncharted territory, but then again, that's why we're like -- we're hitting it hard, Larry, on capital. We're hitting it hard on the supply chain. We are hitting it hard on stress testing this business, right? So I think we're going to be ready.

Great. Now I could just slip one more. Just I think a few weeks ago, I think just my question is more on the FDA and just their activity or their involvement. I know a couple of weeks ago, think they delayed some approvals of -- I think they were more genetically engineered natural colors. So potentially, these were competing products that you probably wouldn't want to be approved either but -- and I guess there engineered is maybe not "natural" -- but I guess my question is, is the FDA just getting more involved putting on with the natural and the involvement of the evolvement of natural colors or is it still more just -- I know they put out these recommendations and at all last year. I'm just curious if that was more of the -- just curious what's going on the FDA side and the supply chain. .

Yes. So Colors is -- let me start with 100,000 feet, and I'll tell a little story here, just to give everybody on a line a little bit of background. At 100,000 feet, colors are ingredients that have to be approved for use in food. So you may have heard other terms like grass. This is under a lot of controversy right now and in some corners, but Colors actually had to go through a full throttle, full throated, whatever you'd like to say, approval process with the FDA. And this approval process could entail tox studies, it could entail any number of tests, lots of data, ultimately a lot of time and money to get a color approved in the United States.

Now -- what has happened over the years is many have been approved. There are many approved, but there will be more and more that will get approved in the future. Now sometimes these approvals it may be the use of this natural red, and I'm going to get it approved for use in soda, but it's not approved for use in candy. That may be a separate set of testing and evaluation by the FDA. So -- when you look at these approvals, you have to note what applications in food that they are approved for -- and so it's a very, very interesting process. It's very unique. It's very unique, and I would almost argue exclusive to colors that every 1 of these has to be approved by the FDA.

So along the line, right, and you're seeing a lot more activity. So to your question, is the FDA more involved, yes, because there's a lot more, what they call, petitioning to use a new natural color in the market. And so from time to time, or at least maybe the one you're referring to, there was a beat route that was being challenged. -- sometimes entities may challenge the use of that natural color in a segment or they may challenge the name of that natural color that may challenge some other facet of the approval at the FDA. I wouldn't consider this to be unusual to any great degree. Long story short, there's a lot of natural colors that are approved.

We've got a good toolbox that we can work from. But it's not a complete toolbox -- and so we very much get involved with the FDA on submitting raw materials that we could use for Colors as well. So very much a very active process right now for sure. And that's all public information. So if you ever wanted to go and check that out, you could see what's actually in the FDA's funnel on natural colors.

[Operator Instructions] Our next question will come from Nicola Tang with BNP.

First one is a quick simple one. I was wondering if you could give us an update on the revenue related to the conversion of synthetic colors, I think [indiscernible] quarter, you're at about $5 million. Just wondering if you hear an update as of this quarter.

Sure. So yes, just to recap for everybody else on the line here. So couple of numbers we talk about, right? We talk about our $1 billion sales goal and that's derived from -- we have about $100 million of synthetic colors, and we think that will convert at about 10 to 1. So there's $1 billion is what we're chasing. The back half of last year, we invoiced specific towards that goal, this natural color conversion, about $5 million. That was what was invoiced. Now when you take that back half and you take Q1 of this year, now we've invoiced about $20 million or so towards that goal of natural colors.

So stated in a different way, you look at the colors growth was about 12%. You can do the math here, but about half of that was the base business just continue to do really well. And the other half was this incremental derived from these natural color conversions. But order of magnitude over the last 9 months, it's been about $20 million of invoiced in natural color conversions in the U.S.

That's great. Second question, I just wanted to ask a bit more about the reported EPS guidance. Just thinking more in absolute numbers. So at the midpoint, you're upgrading your EPS guide by about $0.10. But the beep actually, when I look at Q1 versus certainly consensus expectations is more like $0.20 -- so actually, to me, it looks like although you've upgraded your guidance or of the metrics, it's actually an implied downgrade on the rest of the year. So I was wondering if you could help me, am I misunderstanding or are there reasons why your maybe there was some pull forward in Q1 or maybe you're taking a more cautious outlook been just general macro in the Middle East, as you mentioned. Just wondering if you could help me understand the new EPS finance.

Okay. Let me -- I'll give the first part of SAB, and then I'll turn it over to Tobin. He loves this question. So EPS -- so yes, we raised our guidance. And I always like to start with revenue, we've got a very strong ability to control that figure, right? -- customers may delay a launch or move a launch or they may do this or that. But in general, across an organization, this large -- we like to think we have a strong control over revenue, and we can predict that fairly well. [indiscernible] EBITDA. And so you see a nice raise on each one of those. As you get below EBITDA, that's where you then start to have to factor in things like interest and tax and then things we don't control like FX and other potential below the EBITDA line factors.

And so that's where the EPS figure can get somewhat separated from the net leverage that you see between revenue and EBITDA that you therefore expect on EPS. So I think in short, interest is up substantially, and I'm going to let Toby answer that. But there's a couple of other factors in there, too. You can.

Yes. I think -- and we kind of talked about it a little bit in our prepared comments, but through interest was up in the first quarter of $7.9 million versus $7.3 million last year. And we expect that to continue throughout the year, given the investments that we're making in natural colors. From the capital. And then as Paul mentioned, from people and R&D and everything. So we expect our overall interest expense to be up about $6 million throughout this year and that will progress on a quarterly basis as we kind of move forward. So you have that increasing.

Our leverage ratio right now is about 2.4. In our comments, I mentioned, we expect that to climb as well as our debt increases throughout the year. So we'll be in the higher 2s from that point. tax rate, we're about 25% in the first quarter. We're guiding for 25% this next quarter and roughly about 25% for the year. So you have those components was a benefit. As I mentioned in the prepared comments, about $0.06 in this first quarter. Exchange rates are all over the place right now given what's going on in the world. I would say that in the back half of the year, that would become more of a headwind.

But overall, FX should be about immaterial when you look at it for the year. So -- when you look at it, we did increase our EPS guidance from where we were in Q1. So right now, we're at high single-digit growth and double-digit growth. So that's kind of where we are at this point.

And then just going back on the previous -- you answered the previous question, I was just reflecting on it. When you said 20 million invoiced -- is that with reference to the EUR 100 million revenue synthetic revenue or the EUR 1 billion overall revenue opportunity?

The $1 billion. .

And then the final question would be just around raw materials. You mentioned you don't have significant direct exposure to Middle East, but I think there's a general view that input inflation there may be more input inflation, particularly on the synthetic side. I was wondering what you're expecting in terms of inputs this year? And are we mainly talking about synthetics? Or should we be thinking about certain naturals within your supply chain, which are either sourced I don't know from the Middle East or from Asia or something where there might be a potential disruption either in terms of cost availability?

So in short, we believe that there is a sufficient amount of inflationary inputs that we're going to need to take pricing to address that. This would be sort of low single-digit magnitude. So not unlike again, where we've done this in other instances of tariffs and wars and pandemics and the like. We would anticipate taking pricing there. The biggest factors here, there's certainly the logistical inflation substantially derived from energy and petroleum more specifically. So we face that. .

There's an impact of packaging as many of those raw materials have petroleum-based in inputs. And then of course, as many in the media are fond of saying, petroleum-based synthetic colors, of course, therefore, you realize that a couple of those synthetic colors are indeed derived. Of course, then again, many things in nature are derived from that as well.

But that aside, we would expect to see more on the raw material side of synthetic colors for food and for personal care that we would need to address. For natural colors, it would come sort of fertilizers and other input costs we see rising. So those would have an impact on natural colors. But a lot of these costs for harvest are built into the next year's harvest often time. You hear me talk about that with our raw materials or with our agricultural business. So in short, there's many of these different factors, but I think we can address this, and we will address this with a modest amount of price increase that we would expect to give principally focused in synthetic colors for food and personal care, but also anything related to logistics, which is effectively all in down and outbound freight.

And then, of course, a couple of other -- you'll hear propylene glycol is another one that's been heavily impacted by the war. So that's how we kind of see it playing out right now. And even if the war were to stop, there's still a sufficient enough backlog in other sources of a nurture here that the inflation is coming if it hasn't already, and so we're going to need to address that.

The next question is a follow-up from Joshua Spector with UBS.

Just a small follow-up and actually related to what you were just talking about, is just as you look at your 2Q guide, are you baking in anything in terms of a negative impact from transport logistics loss, et cetera? Or are you assuming your pricing offsets that more or less in real time?

I'm not assuming any bad, and I'm not assuming any good. So I didn't assume the inflation because at this point, it's fairly modest and some of it is, quite frankly, deferred. But I'm also not assuming any pricing in Q2. either from a guidance standpoint.

And that concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tornehl for any closing remarks. Please go ahead.

Okay. Thank you for your time today. That concludes our call. If you have any follow-up questions, please feel free to reach out to the company. Have a great weekend.

The conference has now concluded. You may now disconnect.

Good morning, and welcome to the Sensient Technologies Corporation 2025 Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Tobin Tornehl. Please go ahead.

Good morning and good afternoon. Welcome to Sensient's Earnings Call for the Fourth Quarter and Full Year of 2025. I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I'm joined today by Paul Manning, Sensient's Chairman, President and Chief Executive Officer.

Earlier today, we released our 2025 fourth quarter and full year results. A copy of the earnings release and the slides we'll be using during today's call are available on the Investor Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, cost of the company's portfolio optimization plan and other items as noted in the company's filings. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance.

Non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides. We encourage investors to review these reconciliations in connection with the comments we make today.

I'd also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sensient's SEC filings, including our 10-K to be filed later today for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today.

We'll start on Slide 5. Now we'll hear from Paul.

Thanks, Tobin. Good morning and good afternoon. Earlier today, we reported our fourth quarter and full year 2025 results. I'm very pleased to report for the full year of 2025, we delivered 3% local currency revenue growth, 10% local currency adjusted EBITDA growth and 15% local currency adjusted EPS growth. Each of our groups had adjusted local currency operating profit growth during the year and improved their EBITDA margins. The company also improved our overall adjusted EBITDA margin by 100 basis points. Our operating and financial performance in 2025 continues to build on our multiyear strong financial performance. While some tariff-induced customer supply chain disruptions and unforeseen weather events negatively impacted our fourth quarter results, we still reported 2% local currency revenue growth and flat adjusted local currency operating profit in the fourth quarter.

Color Group had another exceptional quarter and the natural color conversion momentum continues to be very strong and building. Our performance this year is a direct result of our focus on sales execution and customer service as well as our broad product portfolio. We continue to prove that we are a technical leader in the specialty ingredient space, a reliable supplier to our customers. And as a result, we continue to achieve new sales wins at customers across each of our groups.

Our innovative natural colors, flavors and Personal Care products continue to position us for future growth and capitalize on opportunities in the markets that we operate in. This is paying off in our results. Since 2019, the company's local currency adjusted revenue compounded annual growth rate is approximately 6%. With regard to the natural colors conversion momentum that I just mentioned, the industry continues to push forward aggressively on this activity in the United States, Canada and parts of Latin America.

I will repeat what I've stated before. This conversion to natural colors is the single largest opportunity in the company's history, and we continue our preparations to capture a substantial portion of the commercial opportunities. Over the last 15 years, we have invested considerably around the world, and we have pioneered many of the industry's leading natural color technologies. We have also invested substantially in production and supply chain capacity, quality control and our commercial organizations. I feel very good about our sales pipeline, and we will continue to aggressively pursue the natural color conversion opportunities as they unfold over the next 2 years.

We believe long-term investors are well positioned to benefit substantially from our execution. We will continue to emphasize investment in research and development, production capacity and a resilient supply chain in order to be ready to support our customers throughout this conversion process.

Now turning to Slide 7 and our group results. The Color Group had excellent results in 2025, delivering 7.4% local currency revenue growth and 16.9% local currency operating profit growth for the year. The group's adjusted EBITDA margin improved to 23.7% from 22.1%, an increase of 160 basis points versus the prior year. This margin improvement clearly speaks to our efforts to sell technically differentiated products, control costs, execute on our pricing strategy and deliver quality new wins.

In the fourth quarter, the group saw record new sales wins and delivered 7% local currency revenue growth, but we are still only in the early stages of natural color conversions. The group also delivered adjusted local currency operating profit growth of 7.2% in the final quarter of 2025. The Color Group remains in a great position for the future, and I'm very pleased with the progress we are making in our sales pipeline, along with the ongoing and substantial R&D and capital investments.

We expect the Color Group to get off to a strong start to the year in terms of revenue growth, but profit leverage will be challenged due to the investments in natural colors we are making to position ourselves for our $1 billion sales goal.

Turning to Slide 9. The Flavors & Extracts Group saw a local currency revenue decline for 2025 of 1.3%, but a 3.4% increase in local currency operating profit. The group's adjusted EBITDA margin was 16.7%, up 60 basis points versus the prior year. Flavors, extracts and flavor ingredient product lines reported 3.4% local currency revenue growth and significant local currency operating profit growth for the year. The growth in these product lines continues to be the result of our innovative flavor technologies and our emphasis on new and defensible flavor wins across North America, Europe and Latin America. The future continues to look very bright for Flavors growth in each of our regions.

Focusing on the fourth quarter, the Flavors & Extracts Group reported a revenue decline of 2.4% and adjusted local currency operating profit decline of 11.6%. The fourth quarter results were negatively impacted by severe rains in California late in the year, including what is described as an unprecedented atmospheric river events. These rains severely disrupted the harvesting activities for our agricultural ingredients business. These weather-related impacts further compounded some disruptions to our plant. Together, these issues led to a onetime inventory loss at agricultural ingredients of approximately $3 million in the quarter.

Aside from these weather and production impacts, as we stated throughout the year, our agricultural ingredients business, which consists of dehydrated onion, garlic, capsicums and other vegetables, was also impacted by lower sales volumes and significantly higher crop costs throughout 2025. As expected, we have now reached our revenue inflection point and expect a much improved top line for agricultural ingredients in 2026. Overall, we expect a slower start to the year for the Flavors & Extracts Group with strengthening revenue and profit performance as we move through 2026.

Now turning to Slide 11. The Asia Pacific Group delivered local currency revenue growth of 2.4% in 2025 and adjusted local currency operating profit growth of 3.8% in the year. In the fourth quarter, local currency revenue was down 1.9% and local currency operating profit was flat, primarily due to supply chain disruptions caused by significant tariff activities. The group's adjusted EBITDA margin was 22.6% for the quarter, up 90 basis points versus the prior year's fourth quarter. Asia Pacific Group is equipped to bounce back from some of the regional demand disruptions that it experienced in 2025. We expect this bounce back to be heavily weighted towards the back half of '26 as some of these disruptions linger into the first quarter, where we still expect flat revenue versus the first quarter of 2025.

Turning to Slide 12. I'm very pleased with the trajectory we have been on over the last 6 years. As we begin 2026, I expect consolidated annual local currency revenue to grow at a mid- to double-digit rate. Significant natural color conversion sales activity will drive us to the top end of this range. The Color Group local currency revenue growth should be in the high single-digit to double-digit range. The Flavors & Extracts and Asia Pacific groups should both be in line to deliver mid-single to high single-digit revenue growth in 2026. Both Flavors & Extracts in Asia Pacific will start out with flat revenue and profit in the first quarter and will accelerate in the second quarter into the back half of the year. Based on those revenue expectations, I expect adjusted EBITDA for the company to grow at a mid-single-digit to double-digit rate and our adjusted EPS to grow at a mid-single-digit to high single-digit rate.

Overall, our profit leverage for the company will be challenged in the first half of 2026 as we forge ahead with the necessary investments in research and development, expansion of our production capacity and supply chain investments to position us to maximize our natural color conversion opportunities.

We do anticipate our natural color conversion revenue to increase substantially in Q3 and Q4. Consequently, for the company, we anticipate low single-digit to mid-single-digit consolidated local currency adjusted EBITDA growth in the first half, which will turn to high single-digit to double-digit growth in the second half.

On the investment front, we are currently planning for consolidated capital expenditures of $150 million to $170 million in 2026. We expect to be north of $125 million again in 2027. Our total natural color conversion-related capital expenditures are expected to be between $225 million and $250 million between 2025 and 2028, which will position us to capture the $1 billion sales goal.

Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks during the year. We also anticipate that we will see a ramp-up in our natural color inventory throughout 2026 and into 2027 as well. Our focus is to capitalize on the natural color opportunity with a goal to significantly improve our ROIC to the mid-teens. As I've stated before, we have approximately $100 million of synthetic color revenue today that has the potential to be converted to natural colors. These conversions to natural colors result in revenue multiples of approximately 10:1 on average to achieve similar color shade.

Turning to Slide 13. As we've done for the last several quarters, I would like to now highlight some of our innovative technologies. Currently shown on this slide is some information about 2 of our most successful natural color platforms, UberBeet and our advanced emulsion technology, or AET. UberBeet is a global platform of high-performance heat stable beet solutions. These products allow food and beverage manufacturers across multiple segments to attain vivid red 40 synthetic light color by using natural ingredients. This platform can be utilized to achieve a variety of shades from light pink to dark red velvet and can withstand baking or high heat processing. Like many of our natural color solutions, we can provide UberBeet products in many different formats from liquids to powders and customers appreciate the performance attributes while meeting their cost and use targets for conversion.

Next, I'd like to talk about our advanced emulsion technology or AET. This is a platform that utilizes uniquely proprietary technology to deliver vibrant, consistent natural colors and outstanding performance across numerous applications. What makes these products unique is the ability to maintain the shade across various pH, heat and light conditions as well as to provide a degree of formulation stability that is unmatched in the industry. The need for strong performance across various conditions is where converting from synthetic colors to natural colors can be the most complex. Our technical and application teams are incredibly knowledgeable in assisting our customers in finding the right solution to meet their needs in the most demanding applications.

In summary, our products, R&D activities and supply chain development are centered around providing safe, consistent and high-performing products that can be tailored to meet the needs of each customer across multiple applications. If you like more information on our natural color technologies, please visit our website.

Overall, I'm pleased with our financial performance in 2025. I'm excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continue to build, and I grow more confident each day in our ability to achieve our sales goal. As customers continue to refine their launch time lines, we will provide updates throughout the year in our quarterly calls. Our growth is a direct result of the execution of our strategy and seizing the opportunities in the markets in which we operate. Our product portfolio is strong, and we remain focused on our key segments within the Food, Pharmaceutical and Personal Care segments.

Tobin will now provide you with additional details on the fourth quarter results.

Thank you, Paul. In my comments this morning, I'll be explaining the differences between our GAAP results and our non-GAAP or adjusted results. The adjusted results for 2025 and 2024 remove the cost of the portfolio optimization plan. We believe that the removal of these costs produces a clearer picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance.

Turning to Slide 15. Sensient's revenue was $393.4 million in the fourth quarter of 2025 compared to $376.4 million in last year's fourth quarter. Operating income was $38.2 million in the fourth quarter of 2025 compared to $42 million of income in the comparable period last year. Operating income in the fourth quarter of 2025 includes $6.3 million, approximately $0.12 per share of portfolio optimization plan costs. Operating income in the fourth quarter of '24 included $0.9 million or approximately $0.06 per share of portfolio optimization plan costs.

Excluding the cost of the portfolio optimization plan, adjusted operating income was $44.5 million in the fourth quarter of 2025 compared to $42.9 million in the prior year period. In local currency, adjusted operating income was flat in the quarter. Interest expense was $7.5 million in the fourth quarter of 2025, up from $6.4 million in the fourth quarter of 2024. The company's consolidated adjusted tax rate was 17.1% in the fourth quarter of 2025 compared to 24.9% in the comparable period of '24. Local currency adjusted EBITDA was flat in the fourth quarter of 2025. Foreign currency translation had minimal impact in the fourth quarter of 2025.

Turning to Slide 16. Cash flow from operations was $45 million in the fourth quarter of 2025, up from $21 million in the fourth quarter of 2024. Capital expenditures were $32 million in the fourth quarter of 2025 and $89 million for the full year. Our net debt to credit adjusted EBITDA is 2.3x as of December 31, 2025. Overall, our balance sheet remains well positioned to support our increased capital expenditures, sensible acquisition opportunities and our long-standing dividend. As Paul indicated, we'll continue to invest in our natural color production capabilities and capacities. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth for years to come with an eye on improving our ROIC.

Turning to Slide 17. To repeat our 2026 guidance, we expect our consolidated full year local currency revenue growth to be mid-single digit to double digits. In the first half of the year, we expect mid- to high single-digit growth. And in the second half, we expect high to double-digit growth. We expect our local currency adjusted EBITDA to also be up mid-single to double digits for the year with a breakdown of low single digit in the first half and double digits in the second half. We expect our local currency adjusted EPS to be up mid- to high single digits in 2026, with low single-digit growth in the first half and high to double-digit growth in the second half.

With the natural color investments Paul outlined earlier, we anticipate our debt position to increase in 2026, resulting in our interest expense for the year to be around $36 million. We expect our tax rate to be approximately 25% for the year. The natural color investments will lead to a short-term decrease in profit leverage in the first half of the year as we make these investments prior to the full realization of the natural conversion revenue.

For the first quarter of 2026, we estimate that local currency adjusted EBITDA will grow at a low single-digit rate. Interest expense will be around prior year's interest expense of approximately $7.3 million, and our consolidated tax rate will be approximately 25%.

Thank you for participating in the call today. We'll now open the call up for questions.

[Operator Instructions] Our first question comes from Ghansham Panjabi with Baird.

Obviously, a lot going on. Maybe we could start off on that $100 million conversion opportunity you've outlined for the past several quarters at this point. How much of that, if any, converted in 2025? And what are you embedding for 2026? I'm just trying to get a sense as to what the pipeline looks like. Obviously, they'll be layering in as the year unfolds as you outlined.

So for the 2025, we would have invoiced on the order of about $5 million in Q3 and Q4. So that's just invoiced values. So pretty modest impact to the top line right now. There's a huge level of activity in the pipeline across a whole range of customers. And so we expect, obviously, some conversions here in Q1, Q2. I would anticipate an acceleration in those in Q3 and Q4 as the deadline and as customers self-imposed deadlines to come to get a little bit closer by the end of this year.

So to give you a little context of what drives that time line, to reformulate with the natural colors, it's essentially -- it's a new product launch. So if you think about a large CPG or even not such a large CPG, a midsized company, there's a lot that goes into formulating a product. And so in many instances, you take a CPG who's working on a product that might be on a store shelf for the last 40 or 50 years. So the idea that you would then go and change that formula presents a considerable risk to that big brand to that big company. And so naturally, there's a lot of testing. There's a lot of formulation work that goes into this. Converting from synthetic colors to natural colors is a very complex technical evolution, requires a lot of testing. Some of this may also require consumer testing. The brands want to ensure that the stability of the product is very good. So there may also be 6- to 12-month stability testing of the product.

So you net all those things together and you say great. But then at the same time, there's a lot of compliance questions. How do we want to label this? We have to redo our packaging. Many consumer product good companies, when they redo packaging, that could be a 6- to 12-month evolution unto itself. And so there's an awful lot of complexity that goes into these launches. And then, of course, when you're doing this across your entire portfolio that uses synthetic colors, this is an enormous undertaking. We have observed customers where this is the -- this is the work that is happening with all the folks wearing white lab coats.

And so it's an enormous undertaking. It's very complex. They have to get it right. If you're a brand owner and you don't formulate this thing properly and your color looks wrong or your stability is off or there's some taste or smell associated with the product, that can have a hugely detrimental impact to your business and to your brand. So there's a lot of care that goes into these launches.

And so that's what's largely impacting the time line. And therefore, that's why I would tell you that there'll be some activity in Q1 and Q2 for the Color group. More activity in the back half for sure and then even more as we roll into 2027. Nevertheless, you're going to see really, really nice top line growth out of the Color Group. We feel very, very good. You'll see that right out of the gate here in Q1. I think you'll be very, very happy with the top line.

So these -- what we can expect for 2026, I think we can certainly expect to see double digit out of the Color Group. We may be surprised. Maybe there are more launches, but we don't want to disappoint folks. And so I don't want to give you an overly aggressive expectation because to some degree, I don't always control that when a CPG is redoing packaging, there's not a lot I can do to move that time line. And so we want to be very, very thoughtful about what we're projecting for you. But I think you'll be very, very happy with the Color Group top line right out of the gate.

Now I do want to say something else about the operating leverage there, but I'll let you go on with question two, Ghansham, before I take all the airtime here.

Yes. That's great. I'm looking forward to being very happy. I could use that. So the FDA changed the new artificial color designation. How does that change the cadence in terms of conversion, if at all? And then just as you teed up, just the operating leverage associated with the investments, where exactly the investments go? And can you quantify to any material extent that we can adjust our models and keep the actual operating leverage in mind disaggregating between the incremental expense?

Sure. So I think, first of all, the FDA coming out with some guidance on the labeling. I don't think that, in my opinion, that's not really going to modify the timing of any brands that may provide a bit of clarity perhaps in some instances. So -- but I don't think that's a material change in any of the time line or launch dates.

To your second question about operating leverage, I'm glad you asked that one because some folks are looking at Q4 and they're saying, well, color was up 7%, but only 7% of profit. Well, we've made considerable investments throughout 2025. In order to get to the type of $1 billion sales goal I've delivered publicly and in this company, you need more technical people to work on all these projects, folks working on the formulations, the applications, troubleshooting with customers, helping customers scale these products up. Many customers have to make investments in their production plants. They have to modify their current production, which is geared towards synthetic colors and therefore, having a technical person, a process engineer as well available to customers to help them scale up is an important consideration here. So we've made lots of investments there. We've made investments in our commercial organization. We've made and we've accelerated a lot of our R&D.

Now remember, up until about a year ago, even less than that, natural color conversion was sort of like it was happening, but there was no real defined time frame. So you sort of manage your R&D according to that type of market. But when there's now an imposed time frame for conversions, that suddenly puts us in a position to accelerate a lot of our R&D activity. And I think throughout this year, you're going to see us talking about some very, very interesting new technologies that we're introducing to the market that will be very, very exciting, certainly long term for the business, but even in the short term.

So it's these types of investments that we made, and this is a principal reason why you don't see that same beautiful leverage that you saw throughout most of the year for color. You certainly saw it on the year. I mean we were still up about 17% on profit. But in Q4, you saw a little bit of that deleverage. You're going to see that again here in Q1, a little bit less in Q2, a lot less in Q3 and like a lot, lot less in Q4. So the investments continue, but the revenue continues to grow very, very nicely.

And I made it very clear to the team. We are going to invest very, very strongly. We are not going to be late. We are going to capture the vast majority of these conversion activities. And so I made the choice. I'm going to invest and I'm going to show you 7% revenue and 7% profit. I could have not invested and showed you 7% revenue and probably 20% profit or so. I don't have the exact number. But I think everybody is going to be exceedingly happy that we did make these investments, and I think it's going to pay off and really allow us to execute very smartly. So all very intentional, all very acceptable from my standpoint, and I think it's going to pave the way for a really, really good '26 and '27 for the Color Group.

Now I think that pretty much got up your two. Is there anything else there, Ghansham, that we wanted to go through?

Just a clarification, and then I'll turn it over. So the investments you're making, just to give us some perspective, obviously, you're ramping up spending to align with the growth opportunity, et cetera, and '26 we'll see part of that, especially in the first half, as you outlined. Will '27 be more normalized based on what you know at this point? Or will there be flow-through into '27 as well in terms of investments?

Well, I would think it would be better than normalized. I think it would be hyper leverage and revenue growth in '27. But I would tell you that even I'm looking here at a forecast and you look -- you start to see this leverage unfolding as we go through the year. But you're going to see very, very strong revenue growth throughout. That's a strong indication that you want to be seeing that we're capitalizing on these conversions. But you start to see that leverage again in the back half beginning in Q3, but it really picks up considerably in Q4. So I would fully expect that leverage to build even beyond that as we get into '27 and 2028.

And the next question comes from Larry Solow with CJS Securities.

Can you give us a sense -- I know you spoke about increasing confidence in terms of the $100 million converting. Could you just give us a sense of -- it sounds like the majority of that is going to happen, it feels like in '27. So I guess from a high level, it looks like '26 is really that cost year with a little bit of revenue coming in, but your costs are -- sound like they're going to outweigh that benefit. And then at some point, we'll hit an inflection point, either late this year or early next year, where the revenue starts to increase and your actual margin will go up. So it feels like your margin in Colors will actually be down this year, right? Is that fair to say year-over-year and then we'll start to come back up and perhaps rapidly next year? Is that a good way to look at it?

Kind of. So I would tell you that you'll probably see EBITDA margin down the first half, maybe 100 basis points or so, something like that. Nothing to worry about. Again, it really stems from these investments. As you get into the second half, right, you would start to see the EBITDA margin improve versus prior year. We finished last year at an EBITDA margin here...

23.7%.

Yes, 23.7%. So I think you'd probably see us in that 23% or so. So we may be down 50 to 100 basis points for the year. But again, with the revenue growth we're showing, and then there could be -- it could be more flattish. But I think what we've said is on the quest to get that $1 billion, we're going to be in this range, the sort of 23% to 25% range throughout. You may see some, again, a little bit of a dip here in the first half, but I think the dip becomes not a dip in the second half. But we kind of remain in that ballpark 24% or so, maybe 25%, maybe as low as 23% at times type EBITDA margin. But nothing to be alarmed of and certainly a very, very healthy trend overall.

Okay. And I'm just curious, so it sounds like the demand side of the equation, you have not lost any confidence in. On the cost side and the supply side, it sounds like clearly, you're investing a lot company specific. I'm curious just how the -- on a macro level, has the industry been trying to adapt? Like are we seeing more crops being put out in the field? Can you give us any kind of update or any color on that side of the equation?

Yes. No, for sure. I mean, certainly, I'm not the only one who sees these headlines in the industry. So there's a lot of folks out there growing products, not only that we work very closely with. And of course, we've expanded what they would be growing. But certainly, there's a number of additional players who've entered the crop growing part of this industry. And that's a really positive thing. I think I've mentioned this once before. When you look at the fully absorbed cost of a natural color, raw materials can be a considerable portion of that. And you know that because you see us manufacturing in the U.S. and Europe and places like that. And nevertheless, we remain very, very profitable. So that tells you to some degree that raw materials can be a big part of the cost. So the more growers there are, the more competition that creates, the more efficiencies that creates, the better scenario that you have.

And so I would tell you that we certainly see that. We absolutely see customers have a very much better grasp on the supply chain, I think, now than certainly 9, 10 months ago. But they also understand that the supply chain is not just the raw material. That's great if you have truckloads of black carat showing up, but what are you going to do with it? And so that's the capital side of the equation, too, that we -- I just gave you some numbers there, $225 million to $250 million to really capture this $1 billion opportunity. And so a lot of investment there, Larry, and it's really very much within the Americas, but there's also activity within Europe. And so the capital piece is, I would tell you, every bit is important as securing the raw materials. And so that's just another dimension to keep in mind.

Got you. And just last question, perhaps just for Tobin. So I see your guide on interest expense somewhat higher than we had thought actually increasing like $5 million, $6 million year-over-year. We actually had it coming down on an improved cash flow, but obviously, the investments are offsetting that. So I guess can you just sort of walk us through that? Is the increased interest and higher debt? It's mostly related to the CapEx, I guess, but it does sound like you're going to have some working capital usage as well.

Yes. Yes. Overall, our leverage ratio right now is about 2.3. We're guiding to about $36 million in interest, which is up $6 million, as you said, year-over-year, really due to the investments that Paul just outlined and the working capital investments. So you'll see our debt increase this year. But overall, our leverage ratio should be below 3 by the end of the year in the high 2s, I would say. But you'll see that increase, and it's primarily due to the investments. And that's also what's impacting our EPS, which we're guiding mid- to high is because of that increased interest.

[Operator Instructions] Our next question comes from Nicola Tang with BNP Paribas.

A couple of questions. Firstly, sticking on the Color side. We previously -- or you previously referred to the legislation in West Virginia as a kind of important signpost in terms of triggering conversion in the industry. It seems like there's a lawsuit so that it might be -- end up being a bit delayed, it seems. Have you seen any change in sort of discussions with your customers around the timing of converting given this potential delay in West Virginia? That's the first one.

I would say as a general statement, Nicola, our customers are very committed to this conversion. And it's not because necessarily of any particular law or any other particular legislation. It's really fundamentally driven now more and more by this is what the end consumer in the U.S. and Canada wants. And so I think the brands are responding very strongly to that. Obviously, what initiated this whole thing back a year ago was the West Virginia legislation, along with a lot of the changes in laws around school lunch programs in several states. And so I would tell you, if you go to the FDA website, that's a very interesting summary of many of the brands, by no means all of them, but many of the brands that are committing publicly to we are going to convert and they're racing towards a January 1, 2028 deadline according to what they have said.

So no, I have not seen a whole lot of wavering on that. And I think if anything, you saw that Walmart has indicated that they want to convert even sooner than that. And so that has created a lot of activity in the market that, if anything, perhaps has moved some of those conversions to the left. And then as much as Walmart may be converting their brand sooner, that may, therefore, inspire brand managers at CPGs to attempt to move to the left as well so that they can be competitive with their brands.

So no, in short, I think every customer that I have visibility to and certainly have discussed is very committed to this, very committed to this time line. It does remain to be seen how some of them plan to roll this out. Do they start with flagship products? Do they start with perhaps not flagship products? Do they do a lot? And then that is a little bit more of, again, why it's difficult for me to tell you precisely what a forecast would be. But as you're looking at the big picture here, you look at '26 and '27, I think you're going to see the vast majority of these things happen.

And so that's the really exciting part. So I don't want folks to get particularly, hey, this quarter, the leverage this or oh, this interest that. I need people to pay attention to the big picture. Pay attention to what's going to happen in 2026. 2026 is going to be a fantastic year. Show me another food ingredients business that's going to grow like we're growing. And show me another food ingredients business that has the opportunity that we are presenting here and that we're being very clear about the opportunities for. And I think if you look at that for '26 and you look at that for '27 and into '28, that's the story. It's very, very exciting. This is not some opaque. Well, maybe they'll convert. No, they're converting. -- and isn't that exciting.

And so I think that's really the message here. And so don't get -- again, don't get particularly troubled by any one change of an interest rate or a leverage for one. I think the big picture for this year is it's going to be a really, really great year.

That's clear. On that point, I just wanted to clarify your comments on Colors top line growth. I think you mentioned an answer to Ghansham's question, double digits. Did I hear you correct? Because I think in the prepared remarks, you said high single to double digits.

Yes. No. I think double digits, that sounds really good to me, too, Nicola. That's exactly what we want you to take away here.

And double digits in your mind means 10% because you talked about the guidance...

That's right. 2 digits before the decimal. That's right. So 10% or better, exactly.

Right. But this year, when you -- or last year in 2025, when you guided to double-digit growth in local currency EBITDA in the end, you delivered 15%. So I was just trying to understand the double digits you mean...

Yes. I think color we did 17%, which is technically correct. That is double digits. I suppose I can get a little bit more granular on the double digits, but that tends to be what analysts would describe as a high-level problem. But I'd be happy to maybe become a little bit more granular about the doubles. But I would say at least 10%, and it could be better than that. But again, I don't want to disappoint anybody. So I think 10% is a really good base to start from.

Okay. Got it. And then just maybe to give the other two divisions a bit of airtime. How confident are you in terms of an improvement in Flavors & Extracts? And is it solely driven by the recovery in ag ingredients? Or do you also expect improvement on the Flavors side? And then I guess a similar question to Asia. You talked about this rebound in the second half, but what gives you confidence in a rebound other than just lapping the impact of this year?

Okay. Yes. Great. So Flavors & Extracts, I think on the 2/3 of the Flavor Group, that is what we call flavors and flavor ingredients, they were up nearly mid-single on top line, but substantially on the profit side of that ledger, well above that #10 on the profit growth there. So I have every reason to believe that, that continues. Q1, I think we said that we'll be fairly flat in the Flavor Group for Q1 on revenue and profit, principally related to order timing and things of that nature. But for the year, mid-single digit for the Flavor Group, I feel very confident and comfortable with that, and that should translate to high single-digit growth on the EBITDA.

Now as you just noted, SAI, I think we are in a -- we said we had a really tough 2025, and that was absolutely true. But I think we're at -- as I noted in the monologue there in the beginning, we have hit that inflection point. So I think you're going to see some top line growth out of that business this year, which will only contribute to that Flavor Group top line growth. And we have a lot of work underway. We think there's a lot of cost that we can take out of that business.

Most notably, we got our biggest crop ever, which is outstanding news because, as you know, with agricultural products, when you don't have the product, you don't sell the product. And I think there have been instances over the years where we just didn't have enough. We were losing opportunities because we didn't have that. And so we've addressed that in the process of addressing that, the season ran longer and the season ran longer, and we had some rather highly unusual weather events, which I would describe as onetime in nature. I don't think this is going to be every Q4 we're having this conversation because we've been able to make a lot of adjustments from that. So no, I think there's going to be a nice resumption back to the normal cadence you become accustomed to see out of the Flavor Group.

And then similar for Asia Pacific, yes, the whole tariff logistical nightmare that has become the tariff policy as it pertains to sections of Asia Pacific, certainly played out. You saw that in Q4. You'll see it here again in Q1. We're going to be flat in Asia Pacific on revenue and profit. But as we get into Q2, you're going to see return to what you've also very much become accustomed to revenue and profit growth. What gives me confidence in that is that the business is not impacted by that tariff are doing exceedingly well right now. And so I think once we sort of stabilize in the logistical side of things, we're very, very happy with Asia Pacific, who, of course, as we noted, mid-single-digit top line, high single-digit EBITDA for that group as well. So once again, I think we're going to -- we're positioned for a very nice year in that group.

There are no further questions at this time. I will turn the conference back to the company for any closing remarks.

Okay. Thank you. That concludes our call today. If you have any follow-up questions, please contact the company. Have a great day.

The conference has concluded. You may now disconnect.

Good morning, and welcome to the Sensient Technologies Corporation 2025 Third Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Tornehl. Please go ahead.

Good morning. Welcome to Sensient's earnings call for the third quarter of 2025. I'm Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I'm joined today by Paul Manning, Sensient's Chairman, President and Chief Executive Officer. Earlier today, we released our 2025 third quarter results. A copy of the earnings release and the slides we will be using during today's call are available on the Investor Relations section of our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which remove the impact of currency movements, cost of the company's portfolio optimization plan and other items as noted in the company's filings.

We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. Non-GAAP financial results should not be considered in isolation from or a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release and slides.

We encourage investors to review these reconciliations in connection with the comments we make today. I'd also like to remind everyone that comments made during this call, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sensient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please keep these factors in mind when you analyze our comments today. We'll start on Slide 5. Now we'll hear from Paul Manning.

Thanks, Tobin. Good morning, good afternoon. Earlier today, we reported our third quarter results. I'm pleased that we continue to build on our strong first half of the year and delivered 14% local currency adjusted EBITDA growth and 18% local currency adjusted EPS growth. Local currency revenue grew 3.5% during the quarter. We continue to have particularly strong results from the Color Group, delivering 8% local currency revenue growth and 24% local currency operating profit growth. Flavors, extracts and flavor ingredients product lines within our Flavors & Extracts Group also had a nice quarter, delivering 4.5% local currency revenue growth and significantly contributing to the group's local currency adjusted operating profit growth of 7.8%. These results align with our expectations and position us for a strong finish to the year. We are also increasing several elements of our full year guidance for 2025.

Previously, we indicated local currency adjusted growth of high single digits for EBITDA and high single digit to double digit for EPS. We now expect double-digit local currency adjusted growth for both EBITDA and EPS. The major storyline for Sensient and the industry continues to be the conversion of synthetic colors to natural colors in the U.S. This activity remains at the forefront of our current strategic focus and continues to accelerate as we work with our customers to prepare them for this change. As I said before, the U.S. conversion to natural colors is the single largest opportunity in the company's history. Over the years, we have invested significantly around the world to increase our production capacity and to optimize our product portfolio. We're also working to build a resilient supply chain to provide the botanicals necessary to produce natural colors. Aside from our work to support these anticipated conversions, our emphasis on sales execution, customer service and commercialization of new technology continues to drive our current performance.

During the third quarter, we continued to generate strong new sales wins across each of our groups. These sales wins are a result of our innovative product portfolio across our food and pharmaceutical and personal care product lines. These new sales wins and our pricing discipline are not only driving our revenue growth, but are also the main reasons for the margin strength we are seeing across each group. We remain focused on collaborating with our customers to support their development requirements and our sales pipelines remain robust in each of our regions. We continue to win new business across the company despite a flat overall consumer market.

Growth in the North American and European food and beverage sector has been stagnant for the last several years. New product launch activity continues to be down across many categories in the Americas and Europe, and Q3 was a continuation of this trend. Also, as I mentioned during our last several calls, the current trade and tariff landscape has introduced additional complexity and uncertainty to our businesses. While we have already taken price to offset the impacts of the initial wave of tariffs and we'll continue to take these pricing actions into next year, we have witnessed some demand and volume disruptions in some areas of our business due to this uncertainty, particularly in Asia Pacific. We will continue to position our supply chain organization to minimize any disruptions to our customers and to optimize the flow of goods.

Now turning to Slide 6 and our group results. Color Group had excellent third quarter results, delivering 7.9% local currency revenue growth and 23.8% local currency operating profit growth. The group's third quarter adjusted EBITDA margin improved to 24.7% from 22.2%, an increase of 250 basis points versus the prior year. This margin improvement is a testament to our efforts to sell technically differentiated products, control costs, execute on our pricing strategy and deliver quality new wins. In the third quarter, the group saw strong new sales wins. While these wins were particularly impressive in natural colors, let me clarify that the wins recognized in the third quarter are not yet the result of any significant conversions of existing products in the U.S. The Color Group remains on a great trajectory, and I couldn't be more excited about the future ahead of us.

Turning to Slide 7. The Flavors & Extracts Group saw local currency revenue decline in the third quarter by 1.2%, but increased local currency operating profit by 7.8%. The group's adjusted EBITDA margin was 17.7%, up 130 basis points versus the prior year's comparable quarter. The Flavors, Extracts and Flavor Ingredients product lines reported 4.5% local currency revenue growth and significant local currency operating profit growth. The growth in these product lines is a result of our innovative flavor technologies and our focus on new and defensible flavor wins across North America, Europe and Latin America.

Turning to our Natural Ingredients business. We have renamed that business to Sensient Agricultural Ingredients. Agricultural ingredients consists of dehydrated onion, garlic, capsicums and other vegetables. To this point in the year, the business has been impacted by lower sales volumes and significantly higher crop costs. We expect improvements to begin in Q4 2025. Despite these dynamics in the Agricultural Ingredients business, I still expect the Flavors & Extracts Group to deliver solid results for the year.

Now turning to Slide 8. The Asia Pacific Group saw volume headwinds in the third quarter, delivering flat local currency revenue and local currency operating profit. The group's adjusted EBITDA margin was 24.2%, up 40 basis points versus the prior year's third quarter. The flat revenue is a result of lower volumes within certain selling regions that we expect to persist through the end of this year. The Asia Pacific Group is equipped with strong leadership and operations and the group's new sales wins momentum sets it up nicely for 2026 in the future.

Turning to Slide 9. Regarding our full year guidance, we now expect our local currency adjusted EBITDA and EPS to grow at a double-digit rate. Our previous guidance called for high single-digit local currency adjusted EBITDA growth and high single-digit to double-digit local currency adjusted EPS growth. We are maintaining our consolidated full year local currency revenue guidance of mid-single-digit growth. On the capital allocation front, last quarter, we increased our capital expenditure guidance to be around $100 million to ensure that we are prepared for the forthcoming natural color conversion activity. The increased investments we are making in natural colors is a great use of our cash. And over the next couple of years, we anticipate elevated capital expenditures. We will give more guidance on our 2026 capital estimate in February. However, as of now, we anticipate our total capital expenditures in 2026 to be at least $150 million as we continue to invest in our natural color capabilities as well as across our Flavors & Extracts and Asia Pacific groups.

Beyond capital expenditures, we will continually evaluate sensible acquisition opportunities, but we do not anticipate any share buybacks at this time. Now before I turn the call over to Tobin, I'd like to provide more information on the current state of the synthetic color regulation and natural color conversion activity, along with a few of our innovative technologies.

Turning to Slide 10. The regulatory environment and effective legislation has not seen much change since the last time we spoke. West Virginia became the first and still the only state to pass legislation that prohibits the sale of food products that contain synthetic colors. There has been no change on timing and that law goes into effect in January 2028.

Additionally, Texas has passed legislation requiring food manufacturers to place warning labels on packaged food products that contain certain ingredients, including synthetic colors and titanium dioxide effective 2027. As I've stated, the main effect of these state actions is the conversion to natural colors at the national level. Across the country, companies are stepping up and committing to converting their existing products and setting -- conversion time lines to meet that January 2028 deadline. Today, we have approximately $100 million of synthetic color revenue that has the potential to be converted to natural colors. Previously, we had valued this opportunity at about $110 million. However, it appears less likely that we will see wholesale conversions in the pet food and over-the-counter pharmaceutical spaces. As I said previously, the conversion to natural colors results in revenue multiples of approximately 10:1 on average.

Turning to Slide 11. The FDA is now maintaining a master tracking list on their website commitments within the industry and progress made towards those commitments. Under the parent companies currently recognized as of today, more than 50 brands have pledged replacement of FD&C synthetic colors. These include some very well-known and highly colored products. We have also recently seen Walmart announced that it will eliminate synthetic dyes in all of its private label products by the beginning of 2027. This change was noted by Walmart to be a direct response to end consumer demand. Turning to Slide 12. I'd now like to take a moment to highlight Certasure, our product safety program for natural colors. This internal standard has been in place for years and guarantees customers a high level of product safety and quality. Raw materials go through rigorous screening for pesticides, heavy metals, microbiological adulteration and unauthorized solvents. We hope this program will become the market standard for all suppliers and are working with the FDA to support the development of a national testing protocol as we enter a more natural world of color. As we have done for the last several quarters, I would now like to highlight some of our innovative technologies.

Currently shown on the slide is some information about one of our most successful natural color products, Pure-S Orange. This novel Paprika-based solution is a clear testament to the efficacy of the Certasure program. Paprika is a widely popular source of color solutions with usage across a variety of categories, but it is also a high-risk raw material. Around 60% of Paprika raw material lots fail Sensient Certasure screening. These failures are often due to exceeding levels of pesticides and adulteration. While our Certasure program prevents the use of contaminated raw materials, it appears that other companies may not have such stringent standards as Sensient as we frequently see our failed lots of Paprika go back into the open market for others to procure. Only batches that pass our Certasure process are used to make innovative color technologies like Pure-S Orange.

Pure-S Orange leverages a clean purification technology to achieve the industry's brightest and clearest natural orange. While there are other great natural orange options like a NATO, beta-carotene, and carrot juice, none of them compares to Pure-S stability and clear vivid orange in beverages. As we have discussed and as we experience and as experience in the market has shown, converting to vibrant natural colors is critical for brands conducting the transition of their products. It is our goal to help our customers succeed and to preserve their brands through this transition.

Turning to Slide 13. Next, I want to highlight some exciting technologies from our Flavors & Extracts Group that can play an important role as companies open up formulas and perform some of the necessary reformulation work that will support the conversion to natural colors. First is BioSymphony, a signature innovation that elevates the flavor profile for a number of different product categories. BioSymphony gives developers the flexibility to elevate the taste perception of their products and to enhance the overall taste experience. Second is pure mask technology, includes a range of products that are ideal for balancing taste and neutralizing off notes that could originate from various ingredients in the customer's product. This portfolio is effective in addressing a wide variety of taste issues from bitterness relating to high-protein ingredients or potential off notes from the incorporation of natural colors. In summary, our R&D and supply chain efforts are centered around providing safe and consistent products. If you'd like more information on our natural color or taste modulation technologies, please visit our website.

Overall, I'm pleased with our financial performance in the third quarter. We are on track to deliver a strong performance for 2025. I'm excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build. Customers continue to refine their launch time lines, we can provide more definitive guidance on revenue timing going forward. Looking ahead to 2026, we will give more detailed guidance during our conference call this coming February. However, we continue to expect our long-term consolidated local currency revenue to grow at a mid-single-digit rate. We would expect any potential acceleration in natural color conversions to be incremental to this growth rate. As I mentioned earlier, we anticipate our capital expenditures to be north of $150 million in 2026 to support our natural color conversion preparation activities. Growth we're experiencing is a direct result of the execution of our strategy and seizing the opportunities in the markets in which we operate. I remain optimistic about 2025 and the future of our business.

Tobin will now provide you with additional details on the third quarter results.

Thank you, Paul. In my comments this morning, I'll be explaining the differences between our GAAP results and our non-GAAP or adjusted results. The adjusted results for 2025 and 2024 remove the cost of the portfolio optimization plan. We believe that the removal of these costs produces a clearer picture of the company's performance for investors. This also reflects how management reviews the company's operations and performance.

Turning to Slide 15. Sensient's revenue was $412.1 million in the third quarter of 2025 compared to $392.6 million in last year's third quarter. Operating income was $57.7 million in the third quarter of 2025 compared to $50.5 million of income in the comparable period last year. Operating income in the third quarter of 2025 includes $3.3 million, approximately $0.09 per share of portfolio optimization plan costs.

Operating income in the third quarter of 2024 included $1.2 million, approximately $0.03 per share of portfolio optimization plan costs. Excluding the cost of the portfolio optimization plan, adjusted operating income was $61 million in the third quarter of 2025 compared to $51.7 million in the prior year period, an increase of 15.7% in local currency. Interest expense was $7.3 million in the third quarter of 2025, down from $7.7 million in the third quarter of 2024. The company's consolidated adjusted tax rate was 23.8% in the third quarter of 2025 compared to 23.1% in the comparable period of '24. Local currency adjusted EBITDA was up 14.3% in the third quarter of 2025. Foreign currency translation had a minimal impact on the third quarter of 2025.

Turning to Slide 16. Cash flow from operations was $44 million in the third quarter of 2025. Capital expenditures were $20 million in the third quarter of 2025. And as Paul indicated, we still anticipate our capital expenditures to be around $100 million for the full year of '25. Our net debt to credit adjusted EBITDA is 2.3x as of September 30, 2025. Overall, our balance sheet remains well positioned to support our capital expenditures, sensible acquisition opportunities and our long-standing dividend. As Paul indicated, we'll continue to invest in our natural color production capabilities and capacity. These investments will remain elevated for the next few years, and we expect to drive favorable volume and profit growth for the years to come.

Turning to Slide 17. Revisiting our 2025 guidance, we expect our consolidated full year local currency revenue growth to be mid-single digits. We have now raised our local currency adjusted EBITDA to double digits. Previously, our expectations was high single-digit growth. We now expect our local currency adjusted EPS to be up double digits in 2025. Last quarter, we guided high single to double-digit growth. We expect our fourth quarter interest expense to be around $7.5 million, and we expect our fourth quarter adjusted tax rate to be around 24%. Based on current exchange rates, we still expect the impact on currency on EPS to be a slight tailwind for the year. Considering our GAAP EPS in '25, we now expect approximately $0.28 of portfolio optimization plan costs. We expect our GAAP EPS in 2025 to be between $3.13 and $3.23 compared to our 2024 GAAP EPS of $2.94. Thank you for participating in the call today.

We'll now open the call for questions.

[Operator Instructions] Our first question comes from Ghansham Panjabi from Baird.

I guess, first off, on the -- it sounds like you've honed in on the $100 million in sales as it relates to food and nutraceuticals and the potential with that conversion, et cetera. Can you give us a sense as to what portion of that is in the process of reformulation conversion? I mean, clearly, regulations are moving around, and there seems to be a sense of urgency with these public mandates and goals that a lot of these companies have announced, as you pointed out in your slide deck. But can you just quantify that in terms of backlog?

Well, let me -- I think I get where you're going with this one, Ghansham. The $100 million, I mean it's a cross-section of really a whole range of customers. In fact, it's everything from candy to beverage to baked goods to processed foods, you name it. In fact, as I noted in the comment, really the only thing that you would probably exclude from this longer term, maybe even is the pet food and the pharmaceutical OTC. So that said, any customer that I've spoken with or any of our sales folks or other leaders have spoken with, everybody is moving in this direction. The only real variable here, I think you go back a few months, I would tell you that there were probably 3 groups of customers. Group 1, we're doing it. We're going there. We knew that we were going to have to do this, and we want to do this. There was another group maybe Group 2 was a bit more -- we need to kind of understand where this may make some sense, which products. And then there was a Group 3 that I must tell you was a bit more cautious, perhaps wondering if this is really going to happen, was there really going to be a requirement here. In -- even just the last few months, I don't hear anything of a Group 3 anymore. And I would tell you that just about every company out there is either well down the path of this, working very, very diligently or it's really the bucket 2 has probably evolved to yes, we're going to do. We just need to figure out which ones go first and which ones go last in terms of how we prioritize. So there is a strong expectation from customers that this deadline of January 1, 2028, is the deadline. There's really no kind of playing around with that one. And so I think everyone that we're speaking with, every customer and every prospect, they're fully aware of the requirement, and it's going to be either sometime in 2027 or sometime in 2028, but one way or the -- or sorry, 2026 or 2027. But one way or the other, I think everybody gets there in 2028 is certainly the goal that we observe.

Sure. But it does take time for the reformulation and so on. And I assume your technical people are a big part of that process. So I guess that's what I'm referring to is the activity starting to match up with the customers' narrative as it relates to wanting to push towards natural at this point?

Yes. Well, I think you said it perfectly. These are like new launches and new launches are very, very complex and they can take some time. And beyond just the formulation challenges of trying to match a synthetic color, select the right color to include in that formulation, then there's stability testing. How well does that color do in that formulation. They may have never experimented with that particular beverage or that candy or that baked good. So there's a need to conduct stability testing. Will this color still look good? Will this formulation hold up 6 months down the line after it's been sitting in a warehouse or on a store shelf. Many companies will do test marketing. How does the consumer perceive this product? Do they like it? Is it aligned very strongly with the taste expectations? And then there's 1,000 other elements that go into these launches and the bigger the company, the bigger the risk. There's regulatory questions, there's repackaging, production scale up. So it is a massive, massive undertaking. What has happened here is the biggest multinationals who may have hundreds of products that they're reformulating, they are essentially doing hundreds of launches, relaunches within a fairly narrow window and time frame. And so yes, it's a complicated game. It gets less complicated as you get to smaller customers who maybe have a handful of products that they're looking to launch. They still have to contend with all those factors that I just described. But that's what puts a lot of -- folks want to ask me, well, when is it going to happen and what percent by what month and what date?

Well, that's a hard question to answer because most of our customers haven't necessarily definitively pointed out a specific time line for all these hundreds and dozens of products that they may be reformulating. So yes, but your comment there really gets at what is the complexity of predicting precisely when somebody launches. And that's why I encourage folks to just remember, it's January 1, 2028. That's 9 quarters from now. So there's not a whole heck of a lot of variability that would be associated with these outcomes, I would suggest right now.

Okay. That's very clear. And then -- so on the food and pharma growth of almost 11% during 3Q, what exactly is that being driven by if you're saying that you're not really benefiting yet from the $100 million converting, et cetera? And how much of that 11% growth is being driven by maybe new wins in natural color, how would you have to think about that?

So the reason that business is growing so well is because it's -- we have a really good strategy. We're focused on really understanding why we win and why we're successful at customers. We are very selective about the types of projects and customers we want to work with. We tend to say no business that doesn't align very closely with our strategy. So you're going to see us continue to avoid commoditized high-volume here today, gone tomorrow. Let me send out a bit and win this by a penny type business. We stay away from that stuff. So we very much insist on having that differentiated defensible business model. And so that means that the product starts with product performance, [indiscernible] great products that we continue to use today. Many have been developed over the years, and we continue to develop them. But I would tell you that's a considerable source of our success. We continue to have exceedingly robust service levels across the board. And this is on the basic blocking and tackling of the business, samples and documents and sales people showing up and being responsive that is certainly a foundation for why we're successful there as well. But the natural colors, I think where generally regarded as a very good natural call company. And so we've got really great products. We have products that I would argue others do not have and certainly do not have them to the same level of precision and consistency. And so I think our customers recognize this more and more, and they see us as a tremendous resource, not just for providing color or flavor or cosmetic ingredient, but all the other components of making their launch and their business successful. So I think it's really just a continuation of the ongoing strategy, nothing particularly new that I would comment we did during Q3. But what I would note is I think I asked [indiscernible] before this, what was the final amount of conversion in Q3, products that were synthetic that converted to natural and we've calculated less than $1 million so that's not at all driving those results right now. So when those conversions start happening, it should be a real exciting time around here.

The next question comes from Larry Solow from CJS Securities.

Great. I appreciate that was some good color, Paul. Just a follow-up on that. I guess, on the $100 million target, I guess, to change, that's obviously your existing customer base. Curious, there's a whole outside of your current share on the on the synthetic side. I suppose there are lots of customers out there who are using synthetic callers today who will be switching to natural who are not a customer of yours today, at least on that synthetic piece, but I suppose our target. So I'm just kind of curious outside of that. I know you focused on that initial 100, but I suppose there's a much greater circle outside of that. And then I guess on the flip side, is there also a possibility that some of this $100 million, yes, they have to get away from synthetic, but are there places where there's not a 10 to 1 conversion or there may be not a great alternative for them to get to that exact color and maybe they don't match color and can go on a cheaper route to get a much even like Pepsi has is naked out there. So I'm just kind of throwing out other alternatives to where you go natural, but not necessarily that exact color match and 10:1 revenue ratio.

All right. I see where you're going there. So the first one, the $100 million. So the simplest way to look at this is $100 million at that 10:1 ratio. Now to your point, are we going to get $100 million of that No. Do you know why? Because I don't necessarily want all $100 million of that. Some of this stuff, there's a whole range of natural colors. There's a very strongly performance-driven technically differentiated variety. And then there's sort of the belly wash commodity variety, and it's a spectrum. And so our business has very strongly focused on the former and largely ignored or avoided the latter. And so in that $100 million, yes, there may be some synthetic colors that lend themselves to less exciting natural color solutions. We may be less interested in some of those. But then again, there's some synthetic colors in the market out there, not in that $100 million that maybe weren't real interesting to us as a synthetic color. Maybe we just never had that business. But you know what, when those convert to natural, it's really technically challenging. It's really performance [indiscernible] stuff, and we'd be super excited to get it. So it's all those puts and takes. So I think right now, we use 100 as kind of just a good benchmark. You're absolutely right. There's pluses or minuses within that. And we'll keep you folks kind of posted, I think, as we kind of continue on this journey. But I like our chances. We've been putting in a heck of a lot of work and there's a lot of folks bringing this thing together. But the nice thing, this is a culmination of 15-plus years in this company. So as I said before, this is very much the long game strategy in this company. And so I think we have a very good chance and very good opportunity here to win very, very nice looking projects. Now to the second part of your question, kind of that 10:1, yes, that too is an average. So think of it this way. The brighter a product appears and the more harsh the manufacturing environment it took to bring it to you, the higher that ratio % going to be. So think about maybe something that got baked in an oven and it's got a natural color. That may be a higher ratio than 10:1. Still has that bright vivid but it's being produced in a very, very tough, harsh environment. So heat, light, hot, low asset conditions like a low PH. These are all very, very damaging to color. I think I told you, if you look at that sofa in your room and buy the sunlight [indiscernible] as brown as it used to be. Well, that's what happens to color and food and beverages, too. So it's a -- it's trying to find ways to retain that vibrancy despite those really tough situations. Those types of products lend themselves to a higher ratio. Now on the other end of the spectrum, to your point, guy is like, "Well, I just want this lightly colored, I've got to know opaque package or I'm going to get really cute and try to take color out. Well, a couple of things on that. So first of all, some of those would come in, obviously, at lower than a 10:1 ratio. But I think our guidance to our customers is you want to match and you need to match this embedded color. All the data and all the cautionary tales in the market suggests that if you go with less than the synthetic color match, you were putting your brand at risk because consumers first complain more than any other it seems, they are set that the flavor has changed. So the color is very strongly tied to the flavor expectation of a product. And when you modify that in a way that's off the standard, consumers will revote in some cases. And then still in other cases, they may just simply not like it because the color doesn't look as good. So those are the reasons that we guide our customers and advise them to go with the best match possible that gives you the best chance to be as successful as possible. But I'm not going to deny that. I'm sure there will be a handful of brands out there who, again, will tend to use less color or no color or put it in a opaque package and try their luck with that. But that -- I don't believe anybody has ever demonstrated that to work in any market that I'm familiar with.

No, that all makes sense really helpful. One quick follow-up, Paul. Just you mentioned no real change in regulations or ongoing legislation things in the last few months. Just any thoughts on the potential change on the generally recognized as safe, I guess, the FDA made tighten regulations a little bit on that, where you actually are now required to file something where I think previously or currently it's kind of self-governed basically, right? Does that -- could that potentially have any effect on your business at all?

Not really. The [indiscernible] date that you're referring to, specific to colors. Color I continue to argue are the most regulated food product in the world, synthetic colors anyway. And as much as every manufacturing batch has to be approved by the FDA certified by the FDA. But even to get the right to manufacture those products, you have to petition the FDA for use of that product in food. And so that involves an extensive set of testing, topological testing, quality control, all sorts of parameters. And so that is the case with a natural color. If you'd like to add one, there is no grass process for adding natural colors. One would have to actually file with the FDA petition that and again, go through that rigorous process. So now there could be impacts on other components of the business, for example, flavors, which don't have that equivalent color additive petition but that would not be applicable to the cosmetic business. So there could be. But that is a rather vast and extensive part of the food world today. So attempting to modify that I'll be interested to see what that proposal could look like. But that would be a -- that may bring elements of the food industry to an absolute halt. In terms of bringing in new products into the market and introducing new ingredients. And so I think that's an interesting conversation [indiscernible] process foods is another one. And so I think a lot remains to be seen on those 2 fronts. But I think there's a lot of good discussions underway on both of those.

[Operator Instructions] Next question comes from Nicola Tang from BNP Paribas.

I want to stick on the color topic, but then I do have some questions on other divisions as well. On colors, you mentioned in the remarks that even Walmart is also committed to converting some of its products towards natural colors as well. Firstly, how -- do you see other private label brands also following suit? How meaningful could this be from a Walmart or a general private label point? And given these tend to be lower price point items, do you see any impact in terms of this conversion price to, I guess, [indiscernible] earlier question around whether some of those customers might choose to compromise on vibrancy or something else? That will be the first question.

Okay. So yes, I think Walmart, the largest retailer certainly in the U.S. market, their declaration that their private brands great value being one of them will convert to natural colors by January 1, 2027. And was a big move in the right direction for the natural color market and this whole notion about conversion. Many folks have sort of wondered, is this really happened, could this -- could these deadlines [indiscernible], could this maybe just be all sorts of facade and it's really not going to happen? I really don't think that's going to happen. And Walmart making this and expectation and moving up the time line a year earlier than West Virginia, I think, is a very positive development because again, consumers want natural colors. So I suppose you could say, well, why don't we give consumers what they want. And certainly, that is what Walmart has said that they intend to do. They want to give consumers what they want. So they've deliberately made this edict, and they intend to do that by January 1, 2027. So that may move some of the other launches to the left, which again could be a positive. We certainly don't want everybody to attempt to convert their products in the fourth quarter of 2027 because that would be physically impossible. So this move is important for that reason. Now -- and because of its size and its influence, it's very, very meaningful for other brands and private labels to follow suit to be competitive with those brands that are converting. With respect to this generate lower price points, I don't think so. I think that when you look at a lot of products, raw materials are not necessarily, in fact, in general, they're not the driving costs behind bringing a product to market. Now synthetic colors or represent almost nothing to the cost of a product on an individual SKU basis. But as you convert to naturals, it certainly becomes more expensive. And in most applications, it becomes somewhat at the level of a flavor, which is to say still fairly small in the annals of raw materials, but substantially more than they would have been paying for us in better color. So I don't necessarily anticipate that being dilutive in any way to certainly, by no means, is that dilutive to the quality expectations of natural colors. I mean, these are fairly well-established brands and very, very strongly performing brands. So I think they have every expectation, I would assume, to have the highest performing colors in their products. So no, I don't think that there's any diminishment in quality or price or anything else between private label and brand on a product like a natural color.

Nicola? It looks like her line has dropped.

Hopefully, I didn't make or upset with that [indiscernible]

There are no further questions at this time. I'll turn the conference back to the company for closing remarks.

Okay. Thank you for joining the call today. That concludes our prepared comments. If you have any follow-up questions, please reach out to the company. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.