Morningstar | Sensient Technologies Reports Fourth Consecutive Quarter of Lower Profits; $74 FVE Unchanged
Sensient Technologies' first-quarter results revealed no major surprises, as the company's year-on-year adjusted EBITDA fell for the fourth consecutive quarter. This is a concerning trend, as the hangover from the company's multi-year restructuring efforts (concluded in mid-2017) persists longer than we had anticipated. Both revenue and adjusted EBITDA have stagnated in recent years, and we expect more of the same in 2019. Going forward, however, we forecast a resumption of low- to mid-single-digit top-line growth and modest margin expansion from an improving product mix. Having updated our valuation model, our $74 per share fair value estimate and narrow-moat rating are unchanged.With first-quarter earnings, Sensient's management team reiterated its 2019 guidance for segment-level revenue and profit as well as companywide earnings. With soft first-quarter results now in the books, we are skeptical that full-year guidance will be achieved. Management is guiding to positive revenue and profit growth for all three segments even though both revenue and profits fell for all three segments in the first quarter. We do believe certain cost headwinds the company is facing will prove fleeting, allowing for growth to be restored in the second quarter and beyond. However, we're less confident about the magnitude of the upward inflection than management appears to be. We forecast adjusted earnings of $3.31 per share versus management's guidance to $3.35. Additionally, we expect adjusted EBITDA to grow only 2.3% in 2019 versus guidance to mid-single-digit growth.
Regardless, we still view shares as very slightly undervalued. Market sentiment surrounding the stock appears to have soured somewhat amid the company's middling performance in recent quarters. Consistent with our own valuation assumptions, it appears that only modest growth expectations are now priced in. As reflected by our low uncertainty rating, profit volatility in either direction is unlikely going forward.
Sensient Technologies is a manufacturer and marketer of colors, flavors and fragrances. The company's three reportable segments are: Flavors & Fragrances Group, which develops, manufactures, and supplies flavor and fragrance systems for the food, beverage, personal care, and household-products industries; Color Group, which provides natural and synthetic color systems for use in foods, beverages, pharmaceuticals, and nutraceuticals, colors and other ingredients for cosmetics; and Asia Pacific Group, which provides a range of products from its Flavors & Fragrances Group and Color Group, as well as products developed by regional technical teams to appeal to local preferences.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.