Sensient Technologies Corp

NYSE:SXT

Earnings Call Transcript 2020-Q3

[Operator]

[00:00:02] Good morning and welcome to the Sensient Technologies Corporation, two twenty twenty third quarter earnings conference call, all participants will be in. Listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions, to ask a question. You may press star, then one on your telephone keypad to withdraw your question, please. Press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Steve Rolfs. Please go ahead, sir.

[Steve Rolfs, SVP and CFO]

[00:00:39] Good morning, I'm Steve Ross, senior vice president and chief financial officer of Science and Technology Corporation. I would like to welcome all of you to Sentients third quarter earnings call. I'm joined this morning by Paul Manning, sentients chairman, president and chief executive officer. This morning we released our twenty twenty third quarter financial results. A copy of the release and our investor presentation is now available on our website at Tensioned Dotcom. During our call today, we will reference certain non gap financial measures, which we believe provide investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. These non gap financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with Gap. A reconciliation of non gap financial measures to the most directly comparable gap financial measure is available on the Investor Information section of our website at Sentience dot com.

[00:01:48] And in our press release, we encourage investors to review these reconciliations in connection with the comments we make this morning. I would also like to remind everyone that comments made this morning, including responses to your questions, may include forward looking statements. Our actual results may differ materially, particularly in view of the uncertainties created by the covid-19 pandemic, governmental attempts at remedial action, and the timing of a return of more normal economic activity. We urge you to read sentients filings, including our 10K, our second quarter TENGKU and our forthcoming third quarter ten queue for a description of additional factors that could potentially impact our financial results. Please bear these factors in mind when you analyze our comments today. Due to changes we have made to our portfolio and the divestitures we announced last year, we are updating our group and product lines. The most notable change is that our Flavors and Fragrances segment will now be named the Flavors and Extract segment.

[00:03:01] You will also notice some small changes to the names we use for some of our product lines. Sentience focused portfolio strengthens our ability to service the food, pharmaceutical and personal care markets. We will continue to report the three divested product lines of fragrances, yogurt, fruit preparation's and inks. As long as these product lines impact our. Now we'll hear from Paul.

[Paul Manning, Chairman, President and CEO]

[00:03:30] Thanks, Steve. Good morning. Since a reported third quarter earnings this morning and I'm pleased to report that results were in line with our expectations and our overall guidance for the year, I'm very pleased with the continued revenue and profit growth in our flavors and extract group, as well as our food and pharmaceutical business in the color group. Our Asia Pacific group also posted solid profit growth in the quarter. Overall, each of our groups performed well despite the adverse impact of covid-19, covid-19 continues to be a net negative to the company. The market decline in the makeup industry continues to impact the color group's personal care business, and on a geographic basis, we continue to see headwinds in Asia Pacific, Europe and Latin America. In the midst of this pandemic, we have ensured our employees are safe and healthy.

[00:04:27] Our facilities remain open, our supply chain remains strong, and we have delivered our products on time to our customers. Based on current trends, I expect that we will deliver on our EPS outlook for the year as the foundation of our business remains strong, our focus over the years on customer service, On-Time Delivery and sales execution has led to a high level of revenue from new product wins during the second half of twenty nineteen and the first half of this year.

[00:04:59] Furthermore, as the pandemic continues, a new product development at certain companies has slowed. We have focused on regaining lost business and gaining share at our customers. This focus, coupled with lower overall sales attrition, is paying off and our results and should continue to benefit future periods.

[00:05:20] Last year this time, we announced three divestitures in the second quarter, we completed the sale of inks, and I'm pleased to say that we completed the sale of the yogurt fruit prep business during the third quarter. This is our second completed divestiture in twenty twenty. And I'm optimistic that we will complete the divestiture of fragrances in the near future. As I mentioned last year, the divestiture these three businesses allows us to focus on our key customers, markets, food, pharmaceuticals and personal care.

[00:05:54] Very pleased with the progress of our Flavors and extracts group. This year, the group had an impressive quarter with adjusted local currency revenue growth of 13 percent and profit growth of twenty four percent. This is the third straight quarter of revenue growth which has resulted in continued profit and margin improvement. This growth is based on the group's focus on sales execution, which has resulted in a high win rate, a focus on retaining existing business and an overall decline in the group's attrition rate. Additionally, the group's focus on transitioning the product portfolio to more value added solutions and the reduction of its production cost structure from restructuring and ongoing initiatives is complementing the revenue growth in the overall improvement in the group's profit and margin.

[00:06:46] Within the flavors and extracts group, the natural ingredients business had another strong quarter, with local currency sales growth of fourteen point five percent as a result of strong demand for seasoning, snacks and packaged foods. This business has a solid foundation to deliver a consistent and reliable supply of high quality natural ingredients to its customers. Flavors, extracts and flavor ingredients also had a nice quarter, up 12 percent in local currency. The business is strong technology platform and flavor modulation and enhancement, its clean label solutions and its applications expertise are leading factors in the growth of this business. Overall, the flavors and extracts groups operating profit margin was up one hundred and ten basis points in the quarter. Long term, I expect mid single digit revenue growth with continued margin improvement for the group.

[00:07:44] Now, turning to colors, revenue for food and pharmaceutical colors was up low single digits for the quarter. The group continues to see solid demand for natural colors in the market. There's also strong consumer interest in functional natural extracts and nutraceuticals. And the group's product, portfolio and innovation are well positioned to support this demand.

[00:08:07] Despite the continued growth in food and pharmaceutical colors, revenue and personal care continues to be down as a result of the negative impacts of covid-19 on the color makeup market. The demand for makeup in Europe, North America and Asia continues to be down substantially for the year. Given the uncertainty with covid-19 and ongoing restrictions, I anticipate challenges for this cosmetics product line to continue. The color groups adjusted operating profit increased three percent in the quarter. Food and pharmaceutical colors had a great quarter, generating profit growth of more than 20 percent and about 15 percent for the first nine months of twenty twenty. However, the lower demand from makeup and other personal care products continues to be a drag on the group's profit performance. Overall, the color groups operating profit margin increased one hundred and ten basis points in this quarter. Long term, I continue to expect mid single digit revenue growth from food and pharmaceutical colors as well as personal care once demand normalizes from the impacts of covid-19. We've made good product progress in our Asia-Pacific group this year. Similar flavors and extracts and colors, the group has focused on sales execution and building a stronger customer service and technology driven organization. The group has created a solid infrastructure and has been focused on localizing production during the quarter.

[00:09:41] The group had solid sales growth in certain regions. However, this growth was offset by declines in other regions as government covid-19 restrictions continue to significantly impact many sales channels.

[00:09:55] The group had another strong quarter of profit growth, up approximately 15 percent in the quarter and 17 percent for the first nine months of 2020. The group's operating profit margin increased 200 basis points in the quarter. This was the third straight quarter of strong profit improvement. The Asia Pacific Group is well positioned for long term growth, and I anticipate that a certain covid-19 related restrictions ease. The group will resume mid to high single digit revenue growth.

[00:10:30] Overall, I'm very pleased with the results of our group's this year. Our Flavors and extract group is having a great year and the food and pharmaceutical business within the color group continues to have solid revenue and very strong profit growth.

[00:10:42] Our Asia Pacific Group is well positioned for future revenue growth. Overall, covid-19 continues to be a headwind for the company. Despite this headwind, I'm excited about the future growth opportunities for sensing the strength of our portfolio technologies and our exceptional customer service. Steve will now provide you with additional details on the third quarter results.

[Steve Rolfs, SVP and CFO]

[00:11:06] Thank you, Paul. In my comments this morning, I will be explaining the differences between our gap results and our adjusted results. The adjusted results for 2020 and 2019 remove the impact of the divestiture related costs, the operations divested or to be divested, and our recently implemented operational improvement plan. We believe that the removal of these items provides a clearer picture to investors of the company's performance. This also reflects how management reviews the company's operations and performance.

[00:11:42] During the third quarter, the company initiated a plan primarily to consolidate some of our global cosmetic manufacturing operations. The company expects to complete this operational improvement plan during the first half of 2021. The cost of this plan are estimated to be approximately five to seven million.

[00:12:04] Our third quarter gap diluted earnings per share with seventy eight cents. Included in these results are one point four million, or approximately three cents per share of costs related to the divestitures and other related costs and the cost of the operational improvement plan. In addition, our gap earnings per share this quarter include approximately four cents of earnings related to the results of the operations targeted for divestiture, which represents approximately twenty three point six million of revenue in the quarter. Last year's third quarter gap results included approximately two cents of earnings per share from the operations to be divested and approximately thirty four point one million of revenue. Excluding these items, consolidated adjusted revenue was 300 million, an increase of approximately six point one percent in local currency compared to the third quarter of 2019.

[00:13:00] This revenue growth was primarily a result of the Flavors and extracts group, which was up approximately 13 percent in local currency. Consolidated adjusted operating income increased ten point one percent in local currency to forty one point five million in the third quarter of 2012. This growth was led by the flavors of an extra X group, which increased operating income by twenty four point one percent in local currency. The Asia Pacific Group also had a nice growth in operating income in the quarter, up fifteen point five percent in local and local currency, and operating income in the food and pharmaceutical business in the color group was up over 20 percent in local currency. The increase in operating income in these businesses is a result of the volume growth.

[00:13:51] Paul explained earlier, combined with the overall lower cost structure across the company, our adjusted diluted earnings per share was 77 cents in this year's third quarter, compared to seventy four cents in last year's third quarter. As Paul mentioned, the overall impact of covid on the company's results has been a headwind. The impact on our food and pharmaceutical businesses is mixed, but as we have discussed, the negative impact in our personal care business is significant. We have reduced debt by approximately 60 million since the beginning of the year. We have adequate liquidity to meet operating and financial needs through our cash flow and available credit lines. Our debt to EBITDA is two point six, down from two point nine at the start of the year. Cash flow from operations was one hundred and forty three million for the first nine months of 2020, an increase of 12 percent compared to prior year. Capital expenditures were thirty four million in the first nine months of 2020, compared to twenty six point one million in the first nine months of 2019. Our free cash flow increased seven percent to one hundred nine million for the first nine months of this year. Consistent with what we communicated during our last call, we expect our adjusted consolidated operating income and earnings maybe flat to lower in 2020 because of the level of non-cash performance based equity expense. In 2020, we also expected a higher tax rate in 2020 compared to our 2019 rate, which was lower as a result of a number of planning opportunities. Based on current trends, we are reconfirming our previously issued full year gap earnings per share guidance of two dollars and 10 cents to two dollars and 35 cents per share. The full year guidance also now includes approximately five cents of currency headwinds based on current exchange rates.

[00:15:53] We are also reconfirming our previously issued full year adjusted earnings per share guidance. Of two dollars and 60 cents to two dollars and 80 cents, which excludes divestiture related costs, operational improvement plan costs, the impact of the investor to be divested businesses and foreign currency impacts. The company expects foreign currency impacts to be minimal in the fourth quarter.

[00:16:20] We are also maintaining our adjusted EBITDA guidance low to mid single digit growth. In conclusion, we continue to expect long term revenue growth rates of mid single digits in each of our groups. Our stock based compensation and other incentive costs have reset this year going forward. This should be less of a headwind. We do expect our tax rate to trend up slightly in future years under current law. As a result, we believe adjusted EBITDA is a better measure of the company's operating performance and expect this metric to grow at a mid single digit rate or better.

[00:17:02] In terms of our capital allocation priorities, we will continue to pay down debt in the near term. We also continue to evaluate acquisition opportunities. Absent an acquisition, we have the ability to buy back shares.

[00:17:16] We expect our capital expenditures to be in a range of 50 to six million, 50 to 60 million annually. Our divestiture activity and our operational improvement plan allows us to focus on our key customer markets of food, pharmaceutical excipients and personal care while providing the foundation for future revenue and margin growth.

[00:17:42] Thank you for your time this morning. We'll now open the call for questions. Thank you.

[Operator]

[00:17:49] We will now begin the question and answer session to ask a question. You may press star, then one on your telephone keypad to withdraw your question, please. Press star, then two. At this time, we will pause momentarily to assemble our roster. And the first question will be from Mark Connelly with Stephens. Please go ahead.

[Mark Connelly, Stephens Inc.]

[00:18:18] Thank you. So you've talked in the past about the benefits of B2C clients in terms of food innovation, but one of the most common questions we get is what are supermarkets doing in terms of prioritization? There's a view that supermarkets are deemphasizing new and smaller companies that are that they see as less reliable, although I have to say in my own area, we're not seeing that. So I was hoping you could just give us a sense of how that's impacting your customer base, just the access to the market right now.

[Paul Manning, Chairman, President and CEO]

[00:18:53] Hey, Mark, good morning. So I would say this, there's many different channels that that our customers deal in supermarkets is certainly one of them. Supermarkets in the US is certainly a subset of that. Your comment about certain B and C brands perhaps being deemphasized in supermarkets in the US, that that's I think that's probably directionally correct. But I think B and C companies, many of the ones that we deal and I'm sure supermarkets is one channel, but they have many other channels, specialty stores online. A lot of these other areas that that continue to grow, certainly online, is yet a small fraction of what you could do in a supermarket channel. But I think directionally your comment is correct. I would tell you that we see some of that in the European market, perhaps a little bit less pronounced than in the US market. And I see that as being even less of a factor in, say, places like Latin America and Asia Pacific.

[Mark Connelly, Stephens Inc.]

[00:19:57] Ok, that's helpful. Thank you. And just one more question and then I'll jump in the queue in Asia. You talked a little more extensively last quarter about the impact of local restrictions. I was hoping you could give us a little bit of a sense of how that's evolving. You've obviously got a lot of local manufacturing and supply. Can you talk to about how much of what you produce in those countries in Asia stays within the country?

[Paul Manning, Chairman, President and CEO]

[00:20:24] So as a general statement in this country, we produce where our customers are. And so to that end, you know, our operations in China largely produce for China, although not you know, we do bring in products from other part of the sentience manufacturing footprint into China because we don't make everything there. But as a general statement, there are supply chains for raw material production tend to be fairly localized. That said, we have continued to generate really solid fact, probably even better than in normal times on time delivery and service levels to our customers. And so I'd like to tell you that we've been we've been out of front of this for really since this began seven months ago. We began to really accumulate certain raw materials in key markets and in key product lines and from that and plus having really good supply chain operations, we've been able to maintain output to our customers.

[00:21:27] As you think about lockdown's in Asia, say, versus Europe or the US, what we see happening right now is Asia lockdown's tend to be a little bit more broad based, in my opinion, than say what you may see elsewhere. So, for example, you look at the United States or Wisconsin where we are is on kind of a bad boy list right now for covid infections. And so that that has restricted certain travel. And but the lockdown's are very much pointed here. You go to Asia. Some of these lockdown's are less about an individual county or state or even city, and they're more broad based. So I think that has been the big difference between the markets as we see it and in our experience with our products.

[00:22:13] So nevertheless, Asia was able to generate some top line growth and they did really exceptionally well on their profit growth. So I think we were able to overcome that pretty nicely. But kind of circling back to your question, I would continue to tell you that we feel very good about our supply chain. Even though we do produce locally. We do still source many raw materials from Asia for the rest of the sense the operations in, say, the Americas and Europe.

[00:22:42] Nevertheless, we feel very good about that. And whether it came through sort of stockpiling some of those raw materials or just having a very broad based supply base, I think we've been able to capitalize on this pretty well.

[Mark Connelly, Stephens Inc.]

[00:23:00] Thank you, I'll jump back in the queue. Thank you.

[Operator]

[00:23:04] And the next question will come from Heidi Vesterinen with Exane. Please go ahead.

[Heidi Vesterinen, Exane BNP Paribas]

[00:23:10] Good morning. I have a few questions, the first one, why have you not upgraded your guidance after such a strong quarter?

[Paul Manning, Chairman, President and CEO]

[00:23:21] Oh, Heidi, so I'll take that one. I would say this, it was a really strong quarter. We had great results out of each of the three groups. Am I being conservative? Sure, I'm probably being conservative. I mean, we certainly feel very confident at being at the top end of that range, you know, possibly even above that.

[00:23:44] But, you know, it's I don't necessarily want to be too granular on any sort of 90 day period. I think that ultimately I think the businesses are going to continue to deliver and to deliver very nicely. You saw the flavor numbers, you saw the food colors and you saw the Asian profit numbers, not to mention they each had very, really good ibbett margin growth. So I feel good about them. I feel good about them in the rest of the year and into next year. But, you know, there's moving parts in taxes, moving parts and covid whether there may be additional lockdown's. It's hard to anticipate at this point. But we've kept guidance all year. Some companies remove their guidance. We did not. We've been very committed to that. And so, in short, yeah, maybe there's some moving parts, but maybe I'm being a little conservative.

[Heidi Vesterinen, Exane BNP Paribas]

[00:24:44] Thanks for that, that's great to hear and congratulations on the flavors. No. By the way, spectacular. So just to focus on that segment, so you confirm that there was nothing really one off or exceptional in nature in terms of growth? There's no, like, I don't know, pull forward of demand or I don't know if something went off. And also, what was the contribution of volume and price in that flavor growth number?

[Paul Manning, Chairman, President and CEO]

[00:25:15] So, yeah, flavors. We were up certainly well into the double digits and that that has translated very nicely to the operating profit. So we're starting to see that operating leverage I referenced at the beginning of this year where we would see an increasing profit picture as we went in terms of one off, I would not point to any one off. I think the demand has been pretty solid and it's been pretty well across the board. You look at each of our product categories I referenced in the script, whether it's Casani or flavor ingredients or any of our segments for that matter. The growth was really quite good and quite broad based. Certainly there are pockets where demand is is struggling considerably, for example, quick service restaurants. I think that that's been a very hard hit area. You look at some other product categories in the sweet flavors and even some of the dairy categories, some of them not doing as well. Some of them are rebounding. But then, of course, you see seasonings and snacks and things like that doing quite well. So, no, I wouldn't point to any one off. They just generate a lot of good wins.

[00:26:30] I think that our attrition is way down. And I think one of the things that I kind of talked about last year, but obviously was it was it was somewhat lost and what was going on. But we had very good win rates last year in the flavor group. And what was ultimately suppressing that optically was the fact that we had very high attrition in some of our legacy product lines now that we've largely flushed that through. And of course, as you know, we've sold two of our businesses and we expect to sell that third. I think we very strongly remove that headwind. So I suppose if there's one if there's a one timer that I would point to, maybe it's those businesses kind of going away and you can kind of see that distinction between our got gap and non gap on those business lines. But no, I think ultimately you're getting at the sustainability of the flavor results. And I feel really good about flavors moving forward. And I think that mid single digit revenue is going to be very, very achievable. And I think we've got a real nice future going there and flavors.

[Heidi Vesterinen, Exane BNP Paribas]

[00:27:41] Thank you very much. I'll get back in the kids. OK, thanks, I.

[Operator]

[00:27:47] Thank you. And our next question is from Mitra Ramgopal with Sidoti. Please go ahead.

[Mitra Ramgopal, Sidoti]

[00:27:54] Yes, hi. Good morning. Thanks for taking the questions. I believe in the first half, the net impact of covid on EPS was about 10 cents to sort of get a sense of that impact in 3Q and how you see it playing out over the rest of the year.

[Steve Rolfs, SVP and CFO]

[00:28:10] So on the negative impact and, you know, understand that this is somewhat subjective because we don't know exactly where every product goes with our customers, but we looked at, you know, we looked at direct costs and then we also looked at the sales impact. So year to date, the direct costs are probably close to five million dollars. However, you know, we're seeing an offset by lower travel and other gionet type expenses. So, you know that that mitigates most of the direct cost impact. And so where we really see the negative impact is on the top line. It is certainly most pronounced within the within the color group where, you know, our cosmetic business is down about 12 percent on the top line in the quarter. So we really have, you know, probably in excess of 20 million of revenue year to date that we're that we believe we're down as a result of covid. And you know what that converts into in terms of EPS? No, it's around 20 cents.

[Mitra Ramgopal, Sidoti]

[00:29:27] Ok, I know. That's great. Thanks for the color there. And obviously, you know, you've talked about the operational improvement plan. Was that something that was sort of as a result of what you're seeing with the covid-19 pandemic? Or was that something you were probably going to do in any event that you look to improve efficiencies?

[Paul Manning, Chairman, President and CEO]

[00:29:48] Yeah, it's probably a matter of interpretation. I think the profit improvement plan is, as we look at that, you know, for some folks who may be newer to the sentience story, they'll note that we did have a series of restructuring events over the last number of years, and those were designed to consolidate many of our facilities to shrink some of our capacity to ultimately remove some of our legacy products that were had become quite a headwind. We had tremendously high fixed costs in many parts of the company. And so we went through those restructuring programs. We took out a lot of that cost. And I think some of the impact you see and some of that operating leverage is obviously very closely linked to some of those efforts. But, you know, we're always looking at the business. And any time you talk to a plant manager and he's talking about volume and the need for volume to cover fixed costs. Well, you intuitively know you have a fixed cost problem in that facility. And so with that philosophy, which we've applied really everywhere in the company, we're always looking for opportunities in different parts of the world. And so, you know, and a different business line for that matter. So then a lot of work there and flavors. We've done work there and colors. We're doing some additional work there in colors now.

[00:31:14] So I would say it's really in the normal course of business for us to be looking to operate as efficiently as possible. The rounds that we've been working on really closely have really been tied to fixed costs. But, you know, we're not blind to opportunities within FEMA as well. And whether that is automating certain processes or standardizing always in the mix for us. So we're always looking to the drive, that op margin. There's a lot more margin that this company is able to do, I think going to be able to produce. Many of you also who've been with the story for some time would note that Flavour's is now starting to move up on the op margin ladder. And I think that's going to continue certainly as we get into 2021. I could see that being up another 50 to 100 basis points and color in Asia right now. You see those folks are 20 percent roughly and 20 percent plus at times. So I feel quite good about those groups. And I think the focus here is going to be in flavour's. And so a lot of the activity has been in flavors. But, yeah, in short, it's kind of in the normal course of things, I would tell you, Mitra, OK, no, that's definitely great.

[Mitra Ramgopal, Sidoti]

[00:32:33] And then just curious, on the personal care side, obviously you're experiencing some softness due to covid. But I believe at one point this is an area you felt there were some really nice opportunities you'd be looking to expand into it. It was oral care, et cetera. I was wondering if anything has changed on that front.

[Paul Manning, Chairman, President and CEO]

[00:32:52] No cosmetics or as we oftentimes refer to it as personal care is an outstanding business for us. It's generated a lot of profit over the years. It's very profitable. It's a very technically driven business. A lot of applications are required. We have a very. The portfolio, and it's a tremendous market with tremendous customers, right, we deal in the who's who of the cosmetics world. And so, you know, as you look at that business today, it's makeup, it's skin care, it's hair care. But it's also more specifically personal care items, as you reference, such as oral care, things like body wash and those types of products, which, as you can imagine, are doing quite well. Well, actually, not so much the oral care. You may find this one interesting metric. A lot fewer people are brushing their teeth nowadays and chewing gum. Right. So be mindful of the next person you get close to, although you shouldn't get closer right. With the robotized. But you get the idea here. There's some temporary factors in the market that are playing out. But our business is the majority of our business. More than 50 percent of that business that we have is makeup. And then we've, as you, of course, is you know, we have a lot within hair care and hair colors. And then we also have skin care and other related products. So we continue to diversify that business. Makeup is still going to be a very good category. I think as restrictions continue to ease and as we potentially find vaccines and other opportunities to suppress this virus, I think we're going to see a very nice return to that business.

[00:34:36] But even with that, you know, come March, we start lapping a lot of these real negative headwinds we've had in cosmetics moving forward. But no, this is an outstanding business. It's very much going to be a part of our future. The dynamics are outstanding in it. And I think we've got a very strong leadership position there to boot.

[Mitra Ramgopal, Sidoti]

[00:34:59] Not as great. And then finally, just again, I was covered. Obviously, there have been some positive Selya. I believe you've talked in the past about a favorable product mix shift in terms of customers transitioning from synthetic to more natural, et cetera. Just wondering if there are any other trends you're seeing that you think would really be positive for you?

[Paul Manning, Chairman, President and CEO]

[00:35:23] Well, I think you mentioned one you mentioned natural colors, which is going to continue to be a very nice trend for our company, Natural Flavors, which has been a longstanding trend, I think that continues. But extracts and functional ingredients in general, whether it's design for a nutraceutical product, for a food product or even for a pharmaceutical over-the-counter product, that continues to be a very, very strong part of the portfolio for us. You've probably noted some CPG is talking about returning to their core brands, many of which do not really contain a lot of natural ingredients. I think that's kind of more of a temporary statement, because as I look at our pipelines around the company, I see a lot of activity continuing in this world of natural colors, extracts functional ingredients. So while there may be a small hiatus from new product launches and many of the markets from the large multinationals, the level of product launches and pipelines on B and C customers continues to be quite strong and we continue to generate wins. The revenue you're seeing in the company right now is no accident. And Steve, I told you about the headwinds here, but we've been able to be successfully winning new projects that a lot of different customers. And it's because we're very committed to continuing to operate this company. Our employees are very committed to the mission of this company, and that is providing these essential products throughout the world. But in some cases, we've won biggest customers call up and say, you guys are the only guys who are working. So we continue to take advantage where we can take advantage. And these products that we have or ideally suited for, for many of our customers right now who are trying to advance these more health driven products. But long term, it's a tremendous portfolio to do just that, because I think those trends are trends. They're by no means fads in any way.

[Mitra Ramgopal, Sidoti]

[00:37:34] And it's great. Thanks for taking the questions.

[Paul Manning, Chairman, President and CEO]

[00:37:36] OK, thanks, Mitra.

[Operator]

[00:37:39] Once again, if you would like to ask a question, please, press star, then one, the next question is a follow up from Mark Connelly with Stephens. Please go ahead.

[Mark Connelly, Stephens Inc.]

[00:37:50] Thank you. Just two more. I was hoping you could give us a little bit of a sense of what the impact of this restaurant recovery with restaurants opening at reduced capacities is. If this ends up being a new normal for, say, the next year or so, would you have to scale back any of your operations during that market more than you already have?

[Paul Manning, Chairman, President and CEO]

[00:38:15] I would say no, when we talk about restaurants, there's really kind of a very simple interpretation of things, you have the quick service, the brands you know and love, and oftentimes those are service through drive through anyway. They are still being hurt. But I think we can ultimately mitigate the impacts from that standpoint. But in a traditional sit down restaurant, you know that that's certainly part of our portfolio, but that doesn't constitute a vast part of our portfolio. So the short answer is no. Even if this were to continue, I would not anticipate the need to do any sort of production or supply chain reconfiguration on the food side of things to address that.

[Mark Connelly, Stephens Inc.]

[00:39:04] And just one financial question. I was a little bit high on my cash flow assumptions. Can you can you tell us if there's anything that might be swinging in the fourth quarter and how I should be thinking about working capital next year, assuming that we do have sort of a steady recovery?

[Steve Rolfs, SVP and CFO]

[00:39:25] Yeah, so, you know, year to date, our results on cash flow are good, we're up about 12 percent in cash flow from operations. There's a little bit of a dip in the third quarter. You know, one of the things going on there, there were there were a number of tax payment deferrals. So a lot of companies did not incensing included, did not make their federal tax payments in the first half of the year and then had to catch up in the third quarter. And that was in place in some other countries as well. And then our sales were very strong really throughout the quarter and certain product lines. And so I think there's a little bit of a timing element on receivables. So if there was a little bit of a dip in the quarter, it's just it's those two items. But again, still up double digits year to date. You know, we've made a lot of really nice progress in bringing inventories down primarily in our flavors and extracts group this year. So if you look at our on a normalized basis taking out the divestitures, I think we're down about twenty four days, you know, year over year. I think we can you know, we have some additional improvement we can make in flavors and in colors. But, you know, we've made a lot of improvement really over the last year. So I would look for more, maybe smaller incremental improvement next year.

[Mark Connelly, Stephens Inc.]

[00:40:56] That's super helpful. Thank you.

[Operator]

[00:41:01] And our next question is also a follow up, and it's from Heidi Vesterinen in with Exane. Please go ahead. Please proceed, Heidi. Perhaps your line is needed on your end.

[Heidi Vesterinen, Exane BNP Paribas]

[00:41:17] Sorry about that. Thanks for that. So we saw recently that Christian Hansen business was sold for nearly 21 times, even though can you explain how your food and beverage business compares with Christian Hansen, please? Thank you.

[Paul Manning, Chairman, President and CEO]

[00:41:35] Well, I think Christian Hansen is a great competitor, and I think under their new ownership, I think they're going to continue to be a great competitor. So, yeah, I guess that's what I'd say about that.

[Operator]

[00:42:02] Thank you. At this time, I would like to turn the conference back over to the company for any closing remarks as there are no further questions.

[Steve Rolfs, SVP and CFO]

[00:42:13] Ok, thank you very much, everyone. That will conclude our call for this quarter. Thank you for your time this morning. Goodbye.

[Operator]

[00:42:25] Thank you. That concludes today's presentation. Thank you very much for joining the call. You may now disconnect. Thank you.