Sensient (SXT) Q4 2025 Earnings Call Transcript

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Date

Friday, Feb. 13, 2026 at 9:30 a.m. ET

Call participants

• Chairman, President, and Chief Executive Officer — Paul Manning
• Vice President and Chief Financial Officer — Tobin Tornehl

Takeaways

• Full-year local currency revenue growth -- 3% achieved, with each segment showing adjusted operating profit growth and margin improvement.
• Full-year local currency adjusted EBITDA growth -- 10% increase, building on multiyear financial performance.
• Full-year local currency adjusted EPS growth -- 15% increase; all groups grew adjusted local currency operating profit.
• Adjusted EBITDA margin -- Expanded by 100 basis points, reflecting disciplined cost control and pricing strategy.
• Color Group full-year local currency revenue growth -- 7.4% growth, with 16.9% local currency operating profit growth and adjusted EBITDA margin increasing to 23.7% from 22.1%.
• Color Group Q4 performance -- Delivered 7% local currency revenue growth and 7.2% local currency operating profit growth, supported by record new sales tied to natural color conversion momentum.
• Flavors & Extracts full-year local currency revenue and profit -- Revenue declined 1.3%, but local currency operating profit rose 3.4%; adjusted EBITDA margin improved by 60 basis points to 16.7%.
• Flavors & Extracts Q4 performance -- Revenue down 2.4% and adjusted local currency operating profit dropped 11.6% due to severe California rains and weather-driven agricultural disruptions, including a one-time $3,000,000 inventory loss in Agriculture Ingredients.
• Asia Pacific Group full-year performance -- Local currency revenue rose 2.4% and adjusted local currency operating profit increased 3.8% despite Q4 supply chain disruptions from tariffs; Q4 revenue declined 1.9% with flat local currency operating profit; Q4 adjusted EBITDA margin improved 90 basis points to 22.6%.
• Full-year cash flow from operations -- $45,000,000, up from $21,000,000 prior year, with capital expenditures of $89,000,000.
• Net debt to credit adjusted EBITDA -- 2.3x as of year-end; management stated balance sheet remains positioned for higher capital expenditures and acquisition opportunities.
• 2026 revenue guidance -- Anticipates consolidated local currency revenue growth in the mid single digit to double digit range, with stronger growth in the second half due to natural color conversions.
• 2026 segment outlook -- Color Group revenue expected in the high single digit to double digit range; Flavors & Extracts and Asia Pacific projected for mid single digit to high single digit revenue growth; both groups to start flat in Q1 and accelerate from Q2 onward.
• 2026 adjusted EBITDA and EPS guidance -- Company expects adjusted EBITDA to grow mid single digit to double digit, and adjusted EPS to rise mid single digit to high single digit, with low single digit growth in first half and acceleration in the back half.
• 2026 capital expenditure plan -- Guidance of $150,000,000 to $170,000,000 in consolidated capex; $225,000,000 to $250,000,000 in color conversion-related spend through 2028.
• Interest expense outlook -- Expects $36,000,000 interest expense in 2026, up due to investments and working capital requirements.
• Tax rate guidance -- Management expects a consolidated tax rate of approximately 25% in 2026.
• Natural color pipeline -- Paul Manning reported $5,000,000 in invoiced synthetic-to-natural conversion revenue in Q3 and Q4, with expectations of accelerating activity in subsequent quarters.
• Natural color revenue multiplier -- Conversions from synthetic to natural color produce a stated "ten-to-one" revenue multiple for similar color shades.
• EBITDA margin trajectory for Color Group -- Management guided for a temporary decrease of 50 to 100 basis points in 2026, primarily in the first half due to upfront investment, then improvement in the second half and leverage gains into 2027.
• Share repurchase plans -- No share buybacks anticipated for the year; focus remains on investment and acquisition opportunities.
• Natural color sales goal -- Company reiterated intent to reach $1,000,000,000 in sales, underpinned by ongoing customer conversions and significant R&D and capital investment.

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Risks

• Flavors & Extracts Q4 and full-year 2025 performance was negatively affected by severe California weather, including "unprecedented atmospheric river events," causing an "approximately $3,000,000" one-time inventory loss and persistent high crop costs.
• Management explicitly stated lower profit leverage for 2026, particularly in the first half, as significant investments in R&D, production, and supply chain development precede revenue realization from natural color conversions.
• Interest expense is projected to increase by $5,000,000 to $6,000,000 year over year to $36,000,000, driven by debt-financed capital expenditures and working capital needs, which will also weigh on EPS growth for 2026.
• Color Group EBITDA margin is expected to decline 50 to 100 basis points for the year before recovering, due to strategic investment outpacing early-stage incremental revenue.

Summary

Sensient Technologies (NYSE:SXT) delivered full-year 2025 local currency revenue growth of 3% and adjusted EBITDA growth of 10%, with Color Group outpacing other segments through a 7.4% local currency increase and record new sales tied to natural color initiatives. Management identified the large-scale, multi-year conversion to natural colors as the company’s foremost opportunity, reiterating a $1,000,000,000 sales objective and guiding for significant capex and front-loaded operating investment through at least 2027. Company guidance targets mid single digit to double digit consolidated local currency revenue and adjusted EBITDA growth for 2026, with the bulk of new natural color conversions and margin expansion expected in the back half of the year. Flavors & Extracts and Asia Pacific segments are projected to rebound sequentially after flat starts, as weather disruptions and supply chain constraints subside and agricultural and tariff headwinds are lapped. Immediate cost pressure, higher interest expense, and lower profit leverage are acknowledged by management as transitional, supporting a longer-term acceleration in growth, margin, and returns on invested capital.

• Paul Manning said the natural color conversion “is the single largest opportunity in the company's history,” requiring “considerable” ongoing investment in production, supply chain, and commercial resources.
• Management confirmed $5,000,000 of synthetic color revenue was converted to natural revenue in the second half, with “huge” pipeline activity and a majority of $100,000,000 potential conversions targeted for 2026 to 2027.
• Paul Manning stated, “Converting from synthetic colors to natural colors is a very complex technical evolution,” resulting in lengthy, multi-phase customer adoption timelines.
• Planned capital expenditures of $150,000,000 to $170,000,000 for 2026 and $225,000,000 to $250,000,000 through 2028 specifically support capacity for these conversions, with no share repurchases planned.
• Guidance projects company-wide debt and interest expense to rise in 2026 as capital is deployed ahead of the expected natural color revenue ramp in Q3 and Q4.
• Management expects natural color conversions to generate “revenue multiples of approximately ten-to-one on average to achieve similar color shade.”

Industry glossary

• Natural color conversion: The process of replacing synthetic colorants with naturally derived color ingredients in food, beverage, or other consumer products, often requiring re-formulation and extensive technical support.
• Adjusted EBITDA: A non-GAAP financial metric representing earnings before interest, taxes, depreciation, and amortization, excluding certain items to provide a clearer view of operating performance as defined by the company.
• Portfolio optimization plan: Company-initiated measures, including restructuring or cost initiatives, whose costs are excluded from non-GAAP results to enhance comparability period to period.

Full Conference Call Transcript

Tobin Tornehl: to Sensient's earnings call for the 2025. I am Tobin Tornehl, Vice President and Chief Financial Officer of Sensient Technologies Corporation. I am 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 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 the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's 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 would 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-Ks 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 will start on Slide 5. I will now turn the call over to Paul. Thanks, Tobin. Good morning and good afternoon. Earlier today, we reported our fourth quarter and full year 2025 results.

Paul Manning: I am very pleased to report for the full year of 2025, we delivered 3% local currency revenue growth

Tobin Tornehl: 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.

Paul Manning: Company also improved our overall adjusted EBITDA

Tobin Tornehl: EBITDA margin by 100 basis points. Our operating and financial performance in 2025 continues to build on our multiyear strong financial performance.

Paul Manning: While some tariff-induced customer supply chain disruptions

Ghansham Panjabi: 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. Polygroup 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 this specialty ingredients 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, 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 have 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 fifteen 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 organization. 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 two 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 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 and delivered 7% local currency revenue growth, but we are still only in the early stages of natural color conversions.

Paul Manning: The group also delivered adjusted local currency operating profit growth

Ghansham Panjabi: of 7.2% in the 2025. The Color Group remains in a great position for the future and I am 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 $1,000,000,000 sales goal. Turning to Slide 9, Flavors and 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 ingredients 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, Latin America. The future continues to look very bright for flavors growth in each of our regions. Focusing on the fourth quarter, Flavors and 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 one-time inventory loss at Agriculture Ingredients of approximately $3,000,000 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.

Tobin Tornehl: The group's adjusted EBITDA margin was

Paul Manning: 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 2026 as some of these disruptions linger into the first quarter, where we still expect flat revenue versus the 2025.

Paul Manning: Turning to Slide 12.

Paul Manning: I am very pleased with the trajectory we have been on over the last six 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 and Extracts and Asia Pacific groups should both be in line to deliver mid single to high single digit revenue growth in 2026.

Both Flavors and Extracts and 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 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 $150,000,000 to $170,000,000 in 2026. We expect to be north of $125,000,000 again in 2020

Paul Manning: Our total natural

Paul Manning: color conversion-related capital expenditures are expected to be between $225,000,000 and $250,000,000 between 2025 and 2028, which will position us to capture the $1,000,000,000 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 have stated before, we have approximately $100,000,000 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 ten-to-one on average to achieve similar color shade. Turning to Slide 13, as we have 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 that two of our most successful natural color platforms, Uber Beat and our Advanced Emulsion Technology or AET. Uber Beat 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-like color by using natural ingredients.

This platform can be utilized to achieve a variety of shades from light pink to dark red velvet and to withstand baking or high heat processing. Like many of our natural color solutions, we can provide Uber Beat products in many different formats from liquids to powders. Customers appreciate the performance attributes while meeting their cost-in-use targets for conversion. Next, I would 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

Paul Manning: in finding the right solution to meet their needs in the most demanding applications.

Paul Manning: 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 would like more information on our natural color technologies, please visit our website. Overall, I am pleased with our financial performance in 2025. I am excited about the growth opportunities within each of our groups. Our pipeline for natural color conversions continues to build and I grow more confident each day in our ability to achieve our sales goal. As customers continue to refine their launch timeline, we will provide updates throughout the year in our quarterly calls.

Our growth is a direct result of the execution of our strategy in seizing the opportunities in the markets in which we operate. Our product portfolio is strong. 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.

Tobin Tornehl: Thank you, Paul. In my comments this morning, I will 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 portfolio optimization plan. We believe that the removal of these costs produces a clear 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 $393,400,000 in the fourth quarter 2025 compared to $376,400,000 in last year's fourth quarter. Operating income was $38,200,000 in the 2025 compared to $42,000,000 of income in the comparable period last year.

Operating income in the 2025 includes $6,300,000, approximately $0.12 per share, of portfolio optimization plan costs. Operating income in the 2024 included $900,000, or approximately $0.06 per share, portfolio optimization plan costs. Excluding the cost of the portfolio optimization plan, adjusted operating income was $44,500,000 in the 2025 compared to $42,900,000 in the prior year period. In local currency, adjusted operating income was flat in the quarter. Interest expense was $7,500,000 in the 2025, up from $6,400,000 in the 2024. The company's consolidated adjusted tax rate was 17.1% in the 2025, compared to 24.9% in the comparable period of 2024. Local currency adjusted EBITDA was flat in the 2025. Foreign currency translation had minimal impact in the 2025.

Turning to Slide 16. Cash flow from operations was $45,000,000 in the 2025, up from $21,000,000 in the 2024. Capital expenditures were $32,000,000 in the 2025, 2025 and $89,000,000 for the full year. Our net debt to credit adjusted EBITDA is 2.3 times as of 12/31/2025. 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 will continue to invest in our natural color 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 digit. 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 $36,000,000. 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 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 $7,300,000, and our consolidated tax rate will be approximately 25%. Thank you for participating in the call today. We will now open for questions.

Operator: We will now begin the question and answer session. To ask a question, our first question comes from Ghansham Panjabi with Baird. Please go ahead.

Tobin Tornehl: Hey guys, good morning. Good morning, Ghansham. Good morning.

Operator: Morning, Paul. Obviously, lot going on.

Ghansham Panjabi: Maybe we could start off on that $100,000,000 conversion opportunity you have 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? Just trying to get a sense as to what the pipeline looks like. Obviously, they will be layering in as the year unfolds as you outlined.

Tobin Tornehl: So

Paul Manning: the 2025, we would have invoiced on the order of about $5,000,000 in Q3 and Q4. So that is just invoiced values. So pretty modest impact to the top line right now. There is 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 too, come to get a little bit closer by the end of this year. So to give you a little context of what drives that timeline, to reformulate with natural colors, it is essentially a new product launch.

If you think about a large CPG or even not such a large CPG, a mid-sized company, there is a lot that goes into formulating a product. And so in many instances, you take a CPG who is working on a product that might be on a store shelf for the last forty or fifty 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 is a lot of testing. There is 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 six to twelve months stability testing of the product. So you net all those things together and you say, great. But then at the same time, there is a lot of compliance questions. How do we want to label this?

Ghansham Panjabi: We have to redo our packaging.

Paul Manning: Many consumer product good companies, when they redo packaging, that could be a six to twelve month evolution unto itself. And so there is an awful lot of complexity that goes into these launches. And then, of course, when you are doing this across your entire portfolio that uses synthetic colors, this is an enormous undertaking. We have observed customers where this is the work that is happening with all the folks wearing white lab coats. And so it is an enormous undertaking. It is very complex. They have to get it right.

If you are a brand owner and you do not formulate this thing properly and your color looks wrong or your stability is off, or there is some taste or smell associated with the product, that can have a hugely detrimental impact to your business and to your brand. So there is a lot of care that goes into these launches. And so that is what is largely impacting the timeline. And therefore, that is why I would tell you that there will 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 are going to see really, really nice top line growth out of the Color Group. We feel very, very good. You will see that right out of the gate here in Q1. I think you will be very, very happy with the top line. So what we can expect 2026, I think we can certainly expect to see double digit out of the Color Group. We may be surprised. Maybe there are more, but we do not want to disappoint folks and so I do not want to give you an overly aggressive expectation because, you know, to some degree, I do not always control that.

When a CPG is redoing packaging, there is not a lot I can do to move that timeline. And so we want to be very thoughtful about what we are projecting for you, but I think you will be very, very happy with the Color Group top line right out of the gate. I do want to say something else about the operating leverage there, but I will let you go on with question two before I take all the airtime here.

Ghansham Panjabi: No. That is great. I am looking forward to being very happy. I could use that. So the FDA changed to the NOR 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, you know, we can adjust our models and keep the actual operating leverage in mind to segregating between the incremental expense.

Paul Manning: Sure. So I think first of all, the FDA coming out with some guidance on the labeling, I do not think that, in my opinion, that is not really going to modify the timing of any brands. That may provide a bit of clarity perhaps in some instances. But I do not think that is a material change in any of the timeline or launch dates. To your second question about operating leverage, I am glad you asked that one. Some folks are looking at Q4 and they are saying, Color was up 7%, but only 7% of profit. Well, we have made considerable investments throughout 2025.

In order to get to the type of $1,000,000,000 sales goal I have delivered to publicly and in this company, you need more technical people to work on all these projects. Folks working on the formulation, 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. 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 made lots of investments there. We have made investments in our commercial organization. We have made and we have 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 is 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 are going to see us talking about some very, very interesting new technologies that we are introducing to the market that will be very, very exciting certainly long term for the business, but even in the short term.

So it is these types of investments that we made, and this is a principal reason why you do not see that same beautiful leverage that you saw throughout most of the year for Color. 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 are going to see that again here in Q1. A little bit less in Q2, a lot less in Q3, and, like, a lot less in Q4. So the investments continue, but the revenue continues to grow very, very nicely. And, you know, 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 am going to invest and I am 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 do not have the exact number. But I think everybody is going to be exceedingly happy that we did make these investments and I think it is going to pay off and really allow us to execute very smartly. So all very intentional, all very acceptable from my standpoint.

I think it is going to pave the way for really, really good 2026 and 2027 for the Color Group. Now, I think that pretty much got at your two. Is there anything else there on Ghansham that we wanted

Tobin Tornehl: go through?

Ghansham Panjabi: Just a clarification and then I will turn it over. So the investments you are making, just to give us some perspective, obviously, you are ramping up spending to align with the growth opportunity, etcetera, and '26 we will 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?

Paul Manning: Well, would think it would be better than normalized. I think it would be hyper leverage and revenue growth in 2027. But I would tell you that even, I am looking here at a forecast and you start to see this leverage unfolding as we go through the year. You are going to see very, very strong revenue growth throughout. That is the strong indication that you want to be seeing that we are 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.

Ghansham Panjabi: Okay. Fantastic. Thank you.

Paul Manning: Okay. Thank you.

Operator: And the next question comes from Lawrence Scott Solow with CJS Securities. Please go ahead. Great. Thanks for taking the question. Paul, could Yes. Good morning, Larry.

Lawrence Scott Solow: Good morning everybody.

Paul Manning: Can you give us a sense, I know you spoke about increasing confidence

Lawrence Scott Solow: in terms of the $100,000,000 converting. 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 sound like they are going to outweigh that benefit. And then at some point, we will 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 will start to come back up and perhaps rapidly next year? Is that a good way to look at it?

Paul Manning: Kind of. So I would tell you that you will 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, you would start to see the EBITDA margin improve versus prior year. We finished last year at an EBITDA margin here. 23.7. Yeah. 23.7. So I think you would probably see us in that 23 or so. So we may be down 50 to 100 basis points for the year. But again, the revenue growth we are showing and then there could be, it could be more flattish.

But I think what we have said is on the quest to get that a billion, we are going to be in this range, this sort of 23–25% 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.

Lawrence Scott Solow: Okay. And I am just curious, so it sounds like the demand side of the equation you have not lost any confidence in. On cost side and the supply side, sounds like clearly you are investing a lot company-specific. I am 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?

Paul Manning: Oh, yeah. No. For sure. I mean, certainly, I am not the only one who sees these headlines in the industry. So there is a lot of folks out there growing products, not only that we work very closely with, and, of course, we have expanded what they would be growing. But certainly, there is a number of additional players who have entered the crop-growing part of this industry. And that is a really positive thing. I think I have 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 US 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.

Tobin Tornehl: We

Paul Manning: we absolutely see customers have a very much better grasp on the supply chain now than certainly nine, ten months ago. But they also understand that the supply chain is not just the raw material. That is great if you have truckloads of black carrots showing up, but what are you going to do with it? And so that is the capital side of the equation too that, you know, I just gave you some numbers there, $225,000,000 to $250,000,000, to really capture this billion dollar opportunity. And so a lot of investment there, Larry, and it is really very much within the Americas. But there is also activity within Europe.

And so the capital piece is, I would tell you, every bit as important as securing the raw materials. And so that is just another dimension to keep in mind.

Lawrence Scott Solow: 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 $5,000,000–$6,000,000 year over year. We actually had it coming down on 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 is mostly related to the CapEx, I guess, but it does sound like you are going to have some working capital usage as well.

Tobin Tornehl: Yeah. Yeah. You know, overall, our leverage ratio right now is about 2.3. We are guiding to about $36,000,000 in interest, up million dollars as you said year over year, really due to the investments that Paul just outlined and the working capital investments. So you will see our debt increase this year, but overall our leverage ratio should be below three by the end of the year. In the high twos, I would say. But you will see that it will increase and it is due to the investments. And that is also what is impacting our EPS, which we are guiding mid to high, is because of that increase in interest.

Lawrence Scott Solow: Okay. Fair enough. I appreciate the color. Thanks, guys.

Paul Manning: Okay. Thanks, Larry. Thanks, Larry.

Operator: Our next question comes from Nicola Tang with BNP Paribas. Please go ahead. Hi, Ron. Hi, Nicola.

Paul Manning: Hi. A couple of questions.

Nicola Tang: Firstly, sticking on the color side, we previously, or you were previously, referred to the legislation in West Virginia as kind of important signpost in terms of triggering conversion in the industry. It seems like there is 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 is the first one. Thanks.

Paul Manning: I would say the general statement, Nicola, our customers are very committed to this conversion. And it is not because necessarily of any particular law or any other legislation. It is really fundamentally driven now more and more by this is what the end consumer in the US 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, there is 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 are racing towards a 01/01/2028 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 timeline. 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, you know, that is a little bit more of, again, why it is difficult for me to tell you precisely what a forecast would be. But as you are looking at the big picture here, you look at 2026–2027, I think you can see the vast majority of these things happen. And so that is the really exciting part. So I do not want folks to get particularly, hey, this quarter, the leverage is this or oh, this interest that. I need people to pay attention to the big picture. Pay attention to what is going to happen in 2026. 2026 is going to be a fantastic year.

Show me another food ingredients business that is going to grow like we are growing. And show me another food ingredients business that has the opportunity that we are presenting here and that we are being very clear about the opportunities for. And I think if you look at that for '26, and you look at that for 2027, and into '28, that is the story. It is very, very exciting. This is not some opaque, well, you know, maybe they will convert—no. They are converting. And is not that exciting? And so I think that is really the message here.

So do not get, again, do not get particularly troubled by any one change of an interest rate or a leverage for one. I think that the big picture for this year is it is going to be a really, really great year.

Lawrence Scott Solow: Okay.

Nicola Tang: On that point, I just wanted to clarify your comments on colors top line growth. I think you mentioned in answer to Ghansham's question double digits. Did I hear you correct? Because I think in the prepared remarks, you said high singles to double digits.

Paul Manning: Yeah. No. I think double digits. That sounds really good to me too, Nicola. That is exactly what we want you to take away here.

Nicola Tang: And double digits in your mind means 10%? Because you talked about

Paul Manning: That is right.

Nicola Tang: two digits before the

Paul Manning: decimal. That is right. So 10 or better. Exactly.

Nicola Tang: Right. But so 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, just trying to understand, does double digit do you mean

Paul Manning: Yeah. I think Color we did 17. Is technically correct. That is double digits. I, you know, 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 would be happy to maybe become a little bit more granular about the doubles, and it could be. But I would say, at least ten, better than that. But, again, I do not want to disappoint anybody. So I think ten is a really good base to start from.

Nicola Tang: 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 and Extracts? And is it solely driven by the recovery in agging Ingredients? Or do you also expect improvement on the flavor 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?

Paul Manning: Okay. Yes, great. So Flavors and Extracts, I think on the two-thirds of the flavor group that is what we call Flavors flavor ingredients, they were up nearly mid single on top line, but substantially on the profit side of that ledger, well above that number on the profit growth there. So I have every reason to believe that continues. Q1, I think we said that we will 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 said we had a really tough 2025 and that was absolutely true. But I think we are at, as I noted in the monologue there in the beginning, we have hit that inflection point. So I think you are 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 is 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 do not have the product, you do not sell the product. And I think there have been instances over the years where we just did not have enough. We were losing opportunities because we did not have that, and so we have addressed that

Lawrence Scott Solow: in the process of addressing that.

Paul Manning: The season ran longer. And the season ran longer and we had some rather highly unusual weather events, which I would describe as one-time in nature. I do not think this is going to be an every Q4 we are having this conversation. Because we have been able to make a lot of adjustments from that. So, no, I think there is going to be a nice resumption back to the normal cadence you have become accustomed to see out of the flavor group. And then similar for Asia Pacific, yeah, the whole tariff logistical nightmare that it has become, the tariff policy as it pertains to sections of Asia Pacific, certainly played out. You saw that in Q4.

You will see it here again in Q1. We are going to be flat in Asia Pacific on revenue and profit. But as we get into Q2, you are going to see return to what you also very much have 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 are 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 are positioned for a very nice year in that group.

Lawrence Scott Solow: Thank you.

Ghansham Panjabi: Thank you.

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

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

Operator: The conference has concluded. You may now disconnect.

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