センシエント・テクノロジーズ（SXT）2026年第3四半期決算説明会：天然色素の成長が業績を牽引

要点

• センシエント・テクノロジーズ（NYSE: SXT）が発表した2026年第3四半期の売上高は、前年同期の4億1,210万ドルから増加し4億5,580万ドルとなった。現地通貨ベースの売上高は10%増、調整後EBITDAは15%増、調整後EPSは18%増となった。
• カラー事業が業績を牽引し、現地通貨ベースの売上高は17%増、営業利益は21%増となった。同事業の調整後EBITDAマージンは40ベーシスポイント上昇し25.1%となった。
• 第3四半期には天然色素への切り替えにより約3,000万ドルの売上高が発生し、第2四半期までに計上された4,500万ドルに加わった。経営陣は、すでに計上された切り替えビジネスの年換算価値が1億6,000万ドルを超える可能性があると述べた。
• 経営陣は、2028年末までに天然色素の売上実行レートを10億ドル純増させる目標を維持している。最初の注文は年換算プロジェクト価値のわずかな部分に過ぎない可能性があるものの、2026年末までに目標の約20%の契約が完了する可能性があると示した。
• センシエントは、通期の現地通貨ベース売上高成長率を1桁台後半から2桁台前半、現地通貨ベースの調整後EBITDAおよびEPSの成長率を10%台半ばから後半とする見通しを据え置いた。
• 同社は2026年のGAAP EPS予想の下限を引き上げ、範囲を従来の4.10〜4.20ドルから4.15〜4.20ドルに狭めた。高水準の設備投資と運転資本需要により負債が増加し、フリーキャッシュフローが抑制されると予想されている。

主要財務データ

事業および業績ハイライト

カラー事業

カラー事業の売上高は現地通貨ベースで17%増加し、営業利益は21%増加した。調整後EBITDAマージンは前年同期比で40ベーシスポイント上昇し25.1%に達した。

経営陣はこの成長の要因として、天然色素への切り替え、技術的に差別化された製品、価格設定、新規顧客の獲得を挙げた。第3四半期の米国内における新製品発売の約85%で天然色素が使用された。また同社は、過去12か月間におけるFDA（米国食品医薬品局）の合成着色料認証総数が10%近く減少したことを切り替え活動の証拠として挙げた。

センシエントは第2四半期までの累計4,500万ドルに続き、第3四半期に約3,000万ドルの天然色素切り替え売上高を計上した。経営陣は2027年に大幅な切り替え活動が行われ、2028年まで継続して採用が進むと見込んでいる。

同社は生産能力、R&D、在庫、サプライチェーンの準備に投資している。食品着色料の運転資本は、売上増加と顧客の製品発売準備を反映し、7,000万ドル以上増加した。

フレーバー＆エキストラクト事業

フレーバー＆エキストラクト事業は、現地通貨ベースで売上高が3%増、営業利益が9%増となった。調整後EBITDAマージンは80ベーシスポイント上昇し18.5%となった。

農業原料は好調な数量増加を記録した。経営陣は、技術的に差別化された案件の獲得とコスト最適化が、2027年に向けて引き続き利益レバレッジを支えるはずだと述べた。

アジア太平洋事業

アジア太平洋の売上高は現地通貨ベースで15%増加し、営業利益は32%増加した。調整後EBITDAマージンは330ベーシスポイント拡大して27.5%となった。

同事業は、各市場におけるカラーおよびフレーバーの案件獲得から恩恵を受けた。ただし経営陣は、製品ミックスや獲得タイミングが業績に影響を与える可能性があるため、第3四半期のマージンを標準的な四半期ランレートとして扱うことに対して注意を促した。

パーソナルケア

経営陣はパーソナルケアの通期成長率を1桁台半ばと見込んでおり、これは第4四半期の改善を暗示している。同社は最近の変動の主な原因として、関税や貿易制約に対応した受託製造拠点の変更を含む、地政学的およびサプライチェーンの変動を挙げた。

経営陣の見通し

センシエントは2026年の以下の予想を維持した。

• 現地通貨ベースの売上高成長率は1桁台後半から2桁台前半。
• 現地通貨ベースの調整後EBITDAおよびEPS成長率は10%台半ばから後半。
• GAAP EPSは4.15〜4.20ドル（従来の予想範囲は4.10〜4.20ドル）。
• 連結設備投資額は約1億6,000万ドル。
• 通期の支払利息は約3,400万ドル。
• 通期の税率は約25%。
• 全社費用は約6,600万ドル（業績連動報酬の増加を反映）。
• カラーおよびアジア太平洋のEBITDAマージンは20%台半ば、フレーバー＆エキストラクトのマージンは10%台後半。

事業別では、経営陣はカラー事業の現地通貨ベース売上高成長率を10%台後半、フレーバー＆エキストラクトの成長率を1桁台半ば、アジア太平洋の成長率を2桁台前半と見込んでいる。

センシエントは引き続き約2億5,000万ドルの天然色素設備投資を計画しており、支出の大部分は2026年と2027年に行われる。同社は短期的な自社株買いは予定していないが、技術、サプライチェーン、または地域面で戦略的利益をもたらす買収は検討する。

リスクおよび注目点

• 年末には一般的に顧客が新製品の発売を控え、運転資本や注文を削減するため、第4四半期の業績は季節的な不確実性の影響を受ける。
• 顧客が製品の再処方、パッケージの更新、消費者テストの実施、生産およびサプライチェーンの調整を行う必要があるため、天然色素の製品投入スケジュールは変動する可能性がある。
• 初期の天然色素の発注額は年換算プロジェクト価値の約10%にとどまる場合があり、契約成立が即座にフル売上実行レートに結びつくわけではない。
• 新しい生産設備が稼働を開始するにつれて減価償却費が増加し、カラー事業の約25%のEBITDAマージン前後に四半期ごとの緩やかな変動が生じる可能性がある。
• 設備投資および在庫投資により、2027年中に負債とレバレッジが増加すると予想されている。経営陣は、同社が3.5倍の財務制限条項（コベナンツ）の範囲内にとどまっていると述べている。
• 経営陣は、同社が生産能力と運転資本に資金を投じるため、フリーキャッシュフローが2028年まで抑制された状態が続く可能性があることに同意した。
• 天然色素市場全体が即座に切り替わった場合、業界の供給は不十分となるだろう。しかし経営陣は、予想される切り替えのタイムラインは対応可能であると考えており、センシエントは計画された新製品の発売を支援するために供給業者、技術の選択肢、在庫を分散していると述べた。

アナリストQ&Aの要点

天然色素切り替えのペース：経営陣は、10億ドルの売上純増目標の約20%が2026年末までに契約完了する可能性があると述べた。残りの切り替えは2027年と2028年にわたって予想されており、同社は2028年末までにフルでの売上純増実行レート達成を目指している。

切り替えの経済性：センシエントは、合成着色料に対する天然色素の売上マルチプルが平均して約10対1であることを妥当な平均値と引き続き見なしている。この比率は色の濃さによって異なり、より濃い着色が必要な用途では一般にマルチプルが高くなる。

カラー事業のマージン：経営陣は、カラー事業のEBITDAマージンの前提として約25%を使用することを推奨した。減価償却のタイミングや製品ミックスにより、上下に約30ベーシスポイントの四半期ごとの変動が生じる可能性があるが、同社は差別化された製品がマージン水準を支えると予想している。

第4四半期の見通し：経営陣は、天然色素におけるもう一つの好調な四半期と、パーソナルケアの前四半期比での改善を予想している。また、通常の第4四半期の季節性と顧客注文の不確実性を強調しつつも、フレーバー＆エキストラクトおよびアジア太平洋での良好な業績を見込んでいる。

資本リターン：センシエントは、天然色素への切り替え活動が拡大するにつれて、今後数年間で投下資本利益率（ROIC）を約9%〜10%から10%台半ばまで向上させることを目指している。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning and welcome to the Sensient Technologies Corporation 2026 Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Tobin Gorne. Please go ahead, sir.

Unknown Speaker

Good morning. Welcome to Sensient's earnings call for the third quarter of 2026. I'm Tobin Gorne, 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 third 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, costs 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. It 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 the presentation on slide 5. Now we'll hear from Paul.

Paul Manning

Thanks, Tobin. Good morning and good afternoon. Before I begin, I would tell you that given that we're joining you today from Milwaukee, Wisconsin, I'd like to open by congratulating the Milwaukee Brewers on their first ever World Series championship on Wednesday evening. It was a truly dominant October run for the hometown team. Earlier today, we reported our third quarter results. We delivered 10% local currency revenue growth, 15% local currency adjusted EBITDA growth, and 18% local currency adjusted EPS growth in the third quarter. These results build on our excellent first half and set us up for a strong finish to 2026. Color Group continues to deliver exceptional results with 17% local currency revenue growth and 21% local currency operating profit growth. We remain focused on supporting our customers through their natural color conversion, and the momentum continues to build as they approach their conversion launch dates. Flavors and Extracts Group also had a solid quarter, delivering 3% local currency revenue growth and 9% local currency operating profit growth. The Asia Pacific Group had an outstanding quarter with local currency revenue growth of 15% and local currency operating profit growth of 32%. All our groups delivered strong results in the first half and continued on that trajectory in the third quarter. During the third quarter, we continued to generate strong new sales wins across each of our groups. These sales wins are a direct result of our innovative product portfolio, exceptional service levels, and focus on customer collaboration. We are delivering particularly high win rates in natural colors as we see strong conversion activity and newly converted natural color products continue to enter the market. In fact, 85% of all new launches in the U.S. in the third quarter were naturally colored. We expect that figure to keep growing. At the same time, customers are actively working to convert their existing products to natural colors. And our sales pipeline continues to grow as we push towards our $1 billion conversion sales target. We are leveraging our outstanding technical and commercial teams along with the substantial R&D, capital, and supply chain investments we have made over the last 15-plus years. The conversion momentum continues to build, and there has been nearly a 10% decline in total FDA synthetic color certifications over the last 12 months. This is a truly noteworthy indication of the natural color conversion progress. Customers are destocking synthetic colors and replacing them in earnest across their portfolios. I would anticipate a continued decline in synthetic colors going forward. Eventually, nearly all of our synthetic colors produced in the United States will be directed at Latin America and Asia Pacific customers. During the third quarter, the Color Group recognized approximately $30 million of new natural color conversion revenue. This $30 million is in addition to the $45 million of natural color conversion revenue that we cumulatively recognized through the second quarter. We expect a substantial number of conversions in 2027. This expectation is based on wins already achieved, plus our customers' projected natural color conversion launch dates. We also estimate the conversion activity to continue into 2028, such that we approach our incremental $1 billion run rate as we exit 2028. While our business focus remains substantially on natural color conversions, we continue to generate strong win rates across the globe in our other food, personal care, and pharmaceutical product lines. Now, turning to slide 6 in our group results, Color Group had excellent third quarter results, delivering 17% local currency revenue growth and 21% local currency operating profit growth. Third quarter adjusted EBITDA margin was 25.1%, up 40 basis points compared to the prior year. The group continues to make progress on its investments in natural colors, primarily in production capacity, working capital, and R&D. We expect these investments to continue into the foreseeable future. We are aggressively pursuing these initiatives to achieve our $1 billion natural color conversion sales target. The group remains focused on selling technically differentiated natural color products, controlling costs, executing pricing where necessary, and most importantly, delivering quality new wins. We're seeing acceleration in customer orders for conversions of their synthetically colored products in the U.S. Conversion is happening. As we approach the final quarter of the year, I continue to expect the Color Group to deliver local currency revenue growth in the high teens for 2026. Overall, the Color Group is having a fantastic year and remains on track for a great, remains on a great sales trajectory. Turning to slide 7, Flavors and Extracts Group saw local currency revenue growth in the third quarter of 3% and local currency operating profit growth of 9%. The agricultural ingredients business in particular had nice volume growth in the quarter. The group's adjusted EBITDA margin was 18.5%, up 80 basis points versus the prior year's comparable quarter. The results aligned with our expectations for the third quarter. The group continues to focus on new and technically differentiated flavor wins and optimizing its costs. These factors have fueled the favorable profit leverage that we expect to continue into 2027. Overall, for the Flavors and 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 an outstanding third quarter delivering 15% local currency revenue growth and 32% local currency operating profit growth. Group's adjusted EBITDA margin was 27.5%, up 330 basis points versus the prior year's third quarter. Asia Pacific Group continues to generate strong new color and flavor sales wins across all geographies. I now expect the group to deliver low double-digit revenue growth for the full year. Turning to slide 9, regarding our full-year guidance, our growth expectations remain consistent with our previous guidance. We continue to expect our local currency revenue to be up high single to low double digits and our local currency adjusted EBITDA and EPS growth in the mid to high teens for the year. On the capital allocation front, we expect consolidated capital expenditures to be around $160 million for the year. We continue to expect to spend around $250 million for natural color capital, with the majority in 2026 and 2027. We also continue to anticipate an increase in our natural color working capital requirements as we build our supply chain. We are absolutely committed to delivering $1 billion in incremental natural color sales. We are fully engaged on this multi-year plan to add the necessary capacity and allow for further potential growth in the future. Beyond capital expenditures, we will evaluate sensible acquisition opportunities, and we do not anticipate any share buybacks in the near term. Now, before I turn the call over to Tobin, I'd like to profile some of the consumer research that our Color Group has conducted to reinforce the value of color. This is shown beginning on slide 10. To provide a little background, Sensient's Value of Color series is a large-scale research initiative spanning several years. It quantifies how food color drives consumer perception, preference, and purchasing behavior. To date, this multi-phase research has engaged over 12,000 consumers in the United States, testing more than 70 consumer products across seven major food, beverage, and pet food categories to help deliver actionable color insights for our customers. Turning to slide 11, you can see an example of some of the findings from the research specifically focused on breakfast cereal. Color has a powerful influence on how people perceive the taste of food, and there is a clear linkage between color vibrancy and variety and the consumer's perception of flavor intensity. The critical point of this research is that color has a powerful influence on how people perceive the taste of food. As a result, when considering the impacts for natural color conversions, it is imperative that food and beverage brands maintain as much consistency in the appearance of their products to minimize the risk of a perceived change in flavors. In other words, for brands to win, they should match the synthetic color to drive taste and quality expectations. Analyzing our pipeline, the vast majority of our customers are striving to match the synthetic colors. There are very few instances where customers plan to remove color or use a dull, less vibrant color match. Another insight which became apparent through the data gathered was that consumers are willing to pay more for natural colors within the cereal category. They also associate quality with the visual appearance in their bowl. Additionally, we concluded that natural color use continues to increase purchase intent across all categories. This research has reinforced much of what I had said before regarding the importance of maintaining color consistency, quality, and vibrancy. 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 any of our natural color technologies, please visit our website. Overall, I'm very pleased with our financial performance in the third 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 color sales target. The growth we are experiencing is the result of our execution of our long-range strategy, and I remain optimistic about the rest of 2026, and I expect 2027 and 2028 to be outstanding years for our business. Tobin will now provide you with additional details on the third quarter results.

Unknown Speaker

Thank you, Paul. In my comments this morning, I'll be explaining the difference 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 third 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 operations and performance. We'll start on slide 13. Sensient's revenue was $455.8 million in the third quarter of 2026 compared to $412.1 million in last year's third quarter. Operating income was $72.4 million in the third quarter of 2026 compared to $57.7 million in the comparable period last year. Operating income in the third quarter of 2025 included $3.3 million, approximately $0.09 per share of portfolio optimization plan costs. Excluding the costs of the portfolio optimization plan in the prior year, adjusted operating income was up 18.6% in local currency in the third quarter of 2026 compared to $61 million in the prior year period. Interest expense was $8.3 million in the third quarter of 2026, up from $7.3 million in the third quarter of 2025. The company's consolidated adjusted tax rate was 24.6% in the third quarter of 2026 compared to 23.8% in the comparable period of 2025. Local currency adjusted EBITDA was up 15.4% in the third quarter of 2026. Foreign currency translation had no impact on the EPS in the third quarter of 2026. Turning to slide 14, cash flow from operations was $40 million in the third quarter of 2026. Capital expenditures were $38 million in the third quarter of 2026, and as Paul indicated, we anticipate our capital expenditures to be around $160 million for the full year. Our net debt to credit-adjusted EBITDA is 2.3x as of September 30, 2026. As we communicated the last couple of quarters, we also expect higher investment in inventory throughout the year to support the increased natural color conversion revenue. Debt is expected to continue to increase further with our leverage ratio remaining around its current level. Overall, our balance sheet remains well positioned to support our capital expenditures, sensible acquisition opportunities, and our longstanding dividends. As Paul indicated, we will 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 where there is a strategic advantage on the technology supply chain or geography front. Turning to slide 15, reiterating our 2026 guidance, we continue to expect our local currency revenue to be up high single to low double digits and our local currency adjusted EBITDA and EPS to grow at a mid to high teen growth rate. Based on current exchange rates, we expect the impact on currency on EPS to be immaterial in the fourth quarter. We expect our full-year interest expense to be around $34 million and our tax rate for the year to be around 25%. We expect our full-year corporate expense to be approximately $66 million, with the increase driven by higher performance-based compensation. We are increasing the low end of our GAAP EPS range to $4.15 from $4.10 and narrowing the GAAP EPS range to $4.15 to $4.20. We still expect EBITDA margins for the Color Group and Asia Pacific Group to be in the mid-20s for the year, and EBITDA margins for the Flavors and Extracts Group will be in the high teens for the year. We will now open the call up for questions.

Operator

We will now begin the question and answer session. [Operator Instructions] Our first question comes from Ghansham Panjabi with Baird. Please go ahead.

質疑応答

Ghansham Panjabi

Good morning, everybody. I hear there's a big parade in town.

Paul Manning

I know our team's excited. Morning, Ghansham. Morning. Excellent. Well, I'm looking over my shoulder and I'm realizing I'm sitting up here while they're down there. There's a lot of people walking the streets right now.

Ghansham Panjabi

Congrats again to the Brewers. So Paul, in the past, you've given us invoice sales by quarter for the natural color sales specific to the conversion from existing synthetic. But, of course, that could include load-ins and so on and so forth. So, after $100 million in synthetic color sales that feed into the billion opportunity for natural color, over time, where do you think you'll be from a conversion standpoint by the end of 2026?

Paul Manning

Yes, so I think as we've tried to make it, a couple of factors here. So we like to just speak in actual revenue rather than projected revenue. So if you look at our actual revenue, which we've been profiling each quarter, one could probably infer from that that the annualized value of that would be north of $160 million, and that would probably be a pretty good guess. So that's comment #1. When you look at kind of the pace of the launches, we've talked about there's, there's a fair amount of activity in '26 leading up to many of the milestones set by Walmart and some other retailers, January 1, 2027 being their deadline. As we get into 2027, most customers are still working towards a January 1st, 2028 deadline. But there are others working towards the July 1st, 2028 deadline. And as we said, the run rate would probably be towards the end of 2028, the run rate of the $1 billion. You know, is it about 20% by the end of 2026? That's probably about right. And then another chunk in 2027 and the balance of it in 2028 is largely what we expect. And the reason I can tell you that is, you know, we're the largest food color company in the world. We are essentially talking to every single customer brand out there. So we have a very broad perspective. And from that perspective, and given our years as the incumbent color supplier, we have a great deal of collaboration with our customers. We have, in particular in this case, what are their plans? So as we look ahead to 2027, we see kind of how our bigger customers have planned, plan their launches for the 2027 year, plan their launches for 2028 year. We have very good visibility. Now, do these things slip? Of course they do. Multinational launch dates will slip in normal times. Now we're in an instance where they may be converting hundreds of products from synthetic to natural. So not only do you have the complexity of the reformulation with the natural color, you have to repackage, you have to make sure you can produce. You don't produce products the same way with a natural colors you would with a synthetic. There's consumer testing. There's aligning on the supply chain. So there's a lot of moving parts, and this is a very aggressive timeline that most folks are working towards, most customers are working towards. So we've seen some movements to the left, but we've seen more movements to the right. I think ultimately about 20% for the end of this year is probably about right, and the balance coming in '27 and '28.

Ghansham Panjabi

Okay, that's very helpful. And then for the color segment, you know, it looks like 3 key incremental margins, roughly 26%. I know you're obviously layering in cost to support the growth there. You've communicated that prior. But is that the ballpark for how we should model operating leverage for Q onwards? Or will there be some lumpiness associated costs as you ramp up the investment to support that?

Paul Manning

Well, I would say this. I think many of the or much of the SG&A has been added over the last 1 year-plus. That's not to say that there will not be more. I think what will change moving forward is that the equipment comes online and we start layering depreciation. You know, you would see the impact of that now as things, you know, as the little green light goes on on the equipment, as I like to say. That may create moderate lumpiness. By moderate, you could see mild shifting in that 25% EBITDA. But, you know, our projections for the year on EBITDA for color, we feel very good about this 25%. I think we feel very good about this 25% next year. Might there be some movements quarter to quarter? Yes. Is it indicative of anything more than the timing of depreciation? No. I think we continue to see some movements quarter to quarter. We continue to win sales with technically differentiated products. So we like to deal on the more advanced part of this market, which commands a more defensible position with higher margins in general. So, no, listen, I look at our pipeline and I look at the opportunities, and 25%, I feel really, really good about that. '27 regardless really of depreciation. So you're not going to see some big movement down in that 25% in any one quarter, but could there be shifting of 30 basis points, plus or minus? Sure. Does that mean anything? Like I said, it does not. When we start selling low margin commodity junk, then you would see that. But since we're not going to do that, you shouldn't see much shift off that 25%.

Operator

Okay, very clear. Thank you. And the next question comes from Joshua Spector with UBS. Please go ahead.

Joshua Spector

Yes, hi, good morning. Just on your comments on the exit rate, hey, I just wanted to ask, I mean, that 20%, obviously the simple math is maybe your natural color conversion will be about $50 million in fourth quarter. Yes, that triangulates with your guidance. Is that what you're expecting at this point based on the visibility of orders in hand?

Paul Manning

Well, so let me let me just be clear here, right? So when you get a win from a customer, right, they're going to give you a PO. They're not going to give you a PO for the full value of that project, right, because they're going to give you some fraction of the annualized volume. In a normal product launch, and new to the world of product, you'd get 25% to 30% of the volume. So let's just say you win a $1 million sale of an LTO or just a line extension of an existing customer, new product to the market. He would probably give you about $250,000 to $300,000 on his first order, right? As he's loading up the channels, as he's putting enough product out there for consumers to try this new product. And then, you know, in the next quarter you may get another 25% and so forth. What we are seeing on the natural color front is a little bit different. Think of this as more of a packaging change pace. So initially, when natural colors came along and West Virginia passed its law and the customers started looking at that, the law originally said, to the best of my recollection, hey, you have to have all of your synthetic colors off the shelf on January 1st, 2028. This later came to be understood as July 1st, 2028, everything off, but nothing new after January 1st. So long story short, first POs in the Q3 sales wins and even late Q2 were more along the lines of 10% of the annualized value, right? So in other words, instead of $250,000, $100,000 first PO and that million-dollar win you might get like about $100,000 because because he's replacing the old with the new as he sells the old. So that's a little bit of a change. So when I talk about 20%, that means 20% of these things have been closed. They're not necessarily running at a full run rate. And so if you look at what would close, we would expect about 20% towards our goal to close, it may close on December 23rd, right? You get your first PO, but you're not going to get your full annualized value. So it's a little bit of a change based on what we saw in Q3 and late Q2 in terms of how the POs are coming to us. And I think, again, this is just as customers have begun to interpret expectations a little bit differently, there's not this need to clear the shelf of all products with synthetic colors. They are metering in the newly developed products with the natural colors off the synthetic and then they get to a normal ordering pace.

Joshua Spector

Okay, I think I understand all that. I'll probably follow up a bit more offline, but kind of related with this, it seems like there's maybe some nuance with how you're framing the target now. I think your comments were approaching a billion and exiting 2028. I guess, is that a shift in your prior messaging at all? Is that a little bit later? Or would you frame that as higher confidence that now you're putting in more specific timelines, I suppose?

Paul Manning

Yes, I think what we're trying to do, what I'm trying to do is tell you the exit rate is to, based on the pipeline and the launch dates, that is our, we've always felt like 2028, everybody's going to convert by sometime in 2028. Initially, it was the beginning, as the understanding of those state laws changed, it became mid to late 2028. And so it's an indication that the vast majority of these conversions will be completed in 2028. It may be later in 2028, maybe early in 2028, but we feel very confident based on our knowledge and our understanding of each of these customers and their launch plans that by the end of 2028, we would be at that $1 billion incremental run rate as a business.

Operator

Okay, thank you. And the next question comes from Lawrence Solow with CJS Securities. Please go ahead.

Lawrence Solow

It's Gary, but Larry works too. Hey Larry, no, that was still.

Operator

Hey Larry, you didn't change your name though. I will still call you Larry.

Lawrence Solow

Congrats to you as well, Paul, and the Brewers. You got the, you got the Brewers in 1 hand and the Jets in the other. So you should definitely go for the Lions. Yes. Yes. I lost that other hand. Packers 1 last time. Packers 1 last time. Yes, absolutely. Question, just on the margin profile, and I realize it's, you know, last quarter was a little bit of an aberration up, and now you're back down on the collar side. Just curious, still early stages, but how is it shaking out? I know we were kind of looking for a little bit of a lower gross margin. And then eventually, you know, when you get some leverage up at a higher rate, maybe operating income would be about flat. But it sounds like if your SG&A expenses are already up front, mostly paid, as you look out over the next few years, would you expect to actually get some margin improvement on the color side?

Paul Manning

I think it's possible. I want to give you guys a number you can really rely upon, and I think 25% is that number. But you bring up an interesting point, right? The timing of the SG&A, the timing of the depreciation, it may not line up that this is a pure every quarter. Quarter is 25.0. Again, it's just really nothing more to do than the timing of when equipment comes online. But I would tell you this, the majority of the SG&A expense we anticipated adding to the business, much of that has already taken place. But the depreciation, the majority of that has not yet taken place. And so whereas we may be having less SG&A, we may have more depreciation as we, you know, move forward into 2027. So net-net, you know, that's, that's why it's very easy for me to say, as I look at our modeling, 25% is a really good number. Is it 25% every quarter, every month, every week, and every day of the year? No, but I think, again, that's just more to do with the timing and the shifting. So whereas we may have a higher gross margin and that's offset by some SG&A, we then get a lower gross margin from the depreciation, but then we have less SG&A. But I would say this too, right? I mean, the SG&A, a lot of that is driven by adding new folks to the business, technical, commercial, and otherwise. But there's also a fair amount of R&D underway, right? One of the things that we've talked about is this first version of the conversion to natural colors is generally from conventionally grown crops. These crops are being now grown at a scale that is rather unprecedented. So as we get into '27 and '28, as farming techniques improve, as efficiencies grow, as more suppliers enter the market, that in theory drives down the raw material costs for us, all really good things. As we continue to optimize, customized with our customers, kind of version 2 of a natural color. We think there's costs and optimization that can take place. And so, yeah, we've got a lot of things in mind that can help us to continue to really maintain and, hey, in our wildest dreams, even grow off that 25. But I think in terms of your modeling, let's stick with 25. As some of these things come to fruition, you'll certainly see that in the figures. But no, I think we feel really, really good about maintaining that. You also saw in Asia, they hit 27.5. I wouldn't necessarily model that. But again, it just shows you that in any given quarter through a product mix or one product, wins than you had anticipated. These types of factors can really give you a nice uplift in any 1 quarter, but I don't want folks to necessarily overreact or underreact to that. We give 25% because, again, that's what I think we can consistently deliver for you folks as you're modeling out the returns you can get here.

Lawrence Solow

Okay, and the ratio, at least on volume and relative to price, has been hanging close to that? I realize it's still early, but high singles close to 10, I mean, that's still something you're comfortable with?

Unknown Speaker

In terms of revenue. You mean in the multiple, Larry, the conversion multiple? Yeah, yeah, no, we...

Paul Manning

Yes, 10 times is a good average. I would tell you that it depends greatly on the type of product. The more intensely colored, the higher that margin. Lower intensity of that color, the lower that ratio. But yeah, I track all these wins. I look at all these ratios and I would tell you I feel really good, really good, Larry, about a 10 to 1. I don't have, I don't lose a wink of sleep over that.

Lawrence Solow

Great. Last question for me, just free cash flow. It sounds like just with the rapid growth and, you know, top line and the investment and the build-out, perhaps free cash flow won't be free or positive until '28. Is that fair? Yes.

Unknown Speaker

Yes, you know, when we look forward, directionally you're probably correct. Our leverage ratio right now is about 2.3. So we anticipate the end of the year right around where we are. You will see debt increasing as we spend more on capital and working capital and the investments we're making in the business. So debt will increase, and our leverage ratio will increase throughout next year. We're well within our covenants of 3.5. But with the whole goal of improving our ROIC, as I mentioned, getting to the mid-teens from where we're at right now, around 9% to 10%. But, yes, free cash flow will be an impact of that, but I think at the end of it getting our ROIC to mid-teens is going to be very nice.

Lawrence Solow

Absolutely. Okay, great, thanks. I appreciate all that.

Unknown Speaker

Okay, thanks, Larry. Thanks, Larry.

Operator

Again, if you would like to ask a question, please press star and then 1. Our next question comes from Nicola Tang with BNP. Please go ahead.

Ming Tang

Hi, everyone.

Paul Manning

Hey, Nicola.

Ming Tang

Hello. Hey. I wanted to ask first, just related to your new, the revised EPS guidance. I think just in simple terms for me, it's 2.5 cents higher, but you beat consensus for Q3 by about 4 cents, and actually you're guiding to a slightly lower interest cost. So to me, it reads like an implied downgrade on the core business for Q4. Am I misunderstanding this, or can you explain what's driving that? And of course, it implies a sequential slowdown versus Q3, and I understand there's usually seasonality, but perhaps you could remind us of that usual seasonality.

Paul Manning

So, yes, sure. I'll start off and I'll let Tobin augment. So you're right. It was a great Q3. We're having a great year, year-to-date, and we're going to have a great 2026. So I think that's #1. I think #2, that's right. Seasonality in this business is a very real thing. Sazerac was started in 1882 and we were selling alcohol. There wasn't much seasonality then, but after 1919, there's been seasonality in this business. So it's just a fixture and a function of the food industry. Two big factors there. There are fewer launches by our customers in Q4, and then there is a substantial working capital pullback in most businesses, as let's face it, folks are trying to please investors and they're also trying to hit their budget. So what do they do? They order a lot less in Q4. So these 2 factors more than any other create a lot, a great deal of seasonality and quite frankly a little bit of unpredictability in Q4 results at times. As I look forward to Q4, to be honest, I'm again natural colors is going to have another nice quarter, really nice quarter. You see that we had sequential growth in natural colors here in Q3. And by the way, that 22% in food colors growth. That takes into account the loss of synthetic colors. So the cannibalization factor that we've mentioned as you replaced the place is synthetic, you get the natural. So net of that, we were up 22% in Q3. So it was really, really nice. I think the pace will continue to be very, very nice for natural colors in Q4. I think you're going to see some sequential improvement in personal care as well. I think Flavors is teed up to have a very nice Q4. And, of course, so is Asia Pacific. So, listen, I think we're going to have a very nice Q4, top line, sales wins, prospects. Pricing, we've executed our pricing for the year, and I think we've been very, very successful there. But again, I think we are oftentimes somewhat constrained by the behavior of customers, given those 2 factors that I just mentioned. And then remind me, Tobin, what was our original guidance at the start of the year? Start of the year. Okay. And then we ratcheted.

Unknown Speaker

Are there? Yes, we started, I think our original guidance was $3.60 to $3.80. And now we're...

Paul Manning

up. So we went in April, we were at $3.70 to $3.90. July, we increased to $4.10 to $4.20. And now we're increasing to $4.15 to $4.20. I think we've done pretty well on raising the guidance and hitting the figures. And so I think Q4, you know, as you close out the year, I think we're saying $4.20 versus $3.80 at the start of the year. So I think it's been a nice year for us. But, Tobin, you want to add some more details there? Sure. Yeah, no, I think that was a good summary.

Unknown Speaker

You know, we did raise our guidance throughout the year. I think when you look at Q4, also take into account some of the items below our groups. So for the year, our interest expenses, as I was just kind of mentioning to Larry, we anticipate our debt to continue to increase. So you will see an increase in our interest expense. We're modeling about $34 million for the year. Tax rate, you know, there's a lot of movement in tax rate. Last year, we had a low tax. Q4 tax rate. This year we anticipate higher than what we reported last year for a full year tax rate around 25%. And in our corporate expense, you know, we anticipate to be around $66 million for the year, and that's really driven by our incentive-based compensation. So those are some things to take into consideration for Q4.

Ming Tang

That's helpful, thanks. Next question, you referenced it there actually, just in terms of the food colors versus personal care. I think you had a particularly strong quarter in personal care colors last quarter and then a slowdown this quarter. Can you explain what was going on there and I guess, you know, the outlook from here?

Paul Manning

Yes, so that's right. So food colors is sequentially up, Q3 versus Q2 from a growth rate standpoint. Personal care had a slowdown. Yes, there's a little bit of lumpiness in that market right now. There are a lot of moving parts. We had very nice profit growth in that business. But as we look at the year for personal care, I would expect something in the range of mid-single digits, which would be, I think, very, very good. That implies an uplift in Q4 for that business. These are products with the longer supply chain. They have longer shelf lives. These factors can become somewhat distortive. The other big, the thing you'll see in personal care is a lot of production and product launches are coming from what we call TPMs, third-party manufacturers. These third-party manufacturers would be the driving force behind indie brands and startups and other sort of smaller businesses, but more recently they actually are now TPMs, large multinationals are using TPMs to drive some of their production. And as tariffs come along and as other constraints and trade come along, this production has been shifting all over the world. So a lot of TPM production moved from Europe to Asia Pacific last year. We still see a little bit of that. There's a lot of shifting of these supply chains principally in response to tariffs and these other sort of geopolitical factors you're reading about. And so I would tell you that just base business, win rates continue to build, particularly in Asia Pacific personal care, as well as Europe personal care. So we feel very good about that. And so as we get into Q4, I think you're going to see some improvements in LATAM in North America as well. And those businesses come together, I think, to produce a really nice Q4. But I would tell you that the lumpiness is really geopolitical and supply chain related more than anything else at this point. Because the underlying business is good. The trends are really good in this market. Mass market growing very nicely. Prestige market growing very, very nicely. So I think we're pretty well set up for a successful Q4 there, and I feel quite good about 2027 on personal care as well.

Ming Tang

Okay, and then final one around the supply chain. You mentioned that crops are being grown at a scale that's unprecedented. I remember we spoke on the last call about how you're making sure that you're in the right place, that you're able to supply and you don't have a supply chain issue. But that being said, I was reading, you know, Gatorade sort of delaying some of their conversion in certain colors because there's not enough natural beta carotene. So I was wondering whether you're seeing across the industry there's a wider issue or constraint in terms of availability of various natural raw materials in order to sort of serve the industry conversion at the pace that the market would like to. And then sort of linked to this, I was wondering, could you talk a little bit more about the competitive landscape in terms of sort of at a processing level in the color space? I think, you know, we hear some of the peers now starting to make investments. Ultimately, it's a lot later than you have made those investments. But I was wondering if you've seen any change in competitive landscape and capacity, thanks.

Paul Manning

So to the first one on the supply chain, yeah, I think I said early on, if the whole market wanted to convert tomorrow, there would not be a supply chain. More production capacity available to meet that type of demand. But over this timeframe that we've been talking about here, it becomes much more digestible for the industry. I would tell you that our service levels are quite good, Nicola. My goal is to never have to get on a conference call and tell you guys I got a revenue problem because I have a supply chain shortage. We've been working on this for many, many years. We've got suppliers all over the world. We've got programs all over the world. We have technology that enables us to come up with lots of different supply chain solutions as well. So we really have a nice connection between our formulation folks, our production folks, and supply chain. And so I like what I'm seeing. So again, this is a supply chain that's really, really scaling up, as you reiterated from what I said. And so, yes, there'll be hiccups. But again, I haven't talked to anybody publicly about hiccups in the supply chain because I have not had to. And it's my expectation that we will not talk to you guys about, oh, I think we're going to have to, I can't get this done because of the supply chain. So a lot of work, a lot of infrastructure. You see the working capital levels and food colors have gone up more than $70 million. We got a lot more suppliers, a lot more raw materials, a lot more finished goods. A lot of that's driven from bigger sales, but it's also, right, having these products available for the launch dates. And so the amount of working capital we have should give a hint to everybody as to the launches we expect coming up here in 2027. In terms of competitors, we are very much focused on the technologically differentiated part of this market, the things that are really hard to achieve, the colors that are very difficult to achieve in the formulation and the production environment of the customer. We were out of the gate very, very quickly. Which equipment would be the most difficult to get and take the longest? And we went and got it immediately. And I didn't sit around and wait for permission or any of this other business. And so we move very, very quickly on that. And I feel really, really good. But you know what? There's a lot of challenges even in capital deployment nowadays, particularly in the United States. A lot of competing projects out there, data centers and otherwise, that are sucking up a lot of the raw materials like steel, for example. And then, of course, as you're also very well aware, there's tariffs and other geopolitical constraints. So I like the fact that we got on this one really, really quickly, and I like the idea that we've got plants in Europe and LATAM and the U.S. that are well, well invested in and and we've completed a lot of our capital work in those plants. There's also a lot of work underway in the United States. So we have been very, very aggressive from the very start. We have not wavered or changed any of our forecasting on the $1 billion. It's been $1 billion, and that's what we continue to drive. And having the right supply chain and the right capital, even with these competitors, that's still our expectation, and that has not changed, regardless of what our competitors may or may not be doing.

Ming Tang

Okay. Makes sense. Thanks.

Paul Manning

Okay, thanks, Nicola. Thank you.

Operator

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

Unknown Speaker

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

Operator

The conference has concluded. You may now disconnect.

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