Sensient Technologies Corporation (SXT) Q1 2015 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Sensient Technologies Corporation 2015 First Quarter Conference Call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation. I would like to welcome all of you to Sensient's conference call to discuss 2015 first quarter financial results. I'm joined this morning by Paul Manning, Sensient's President and Chief Executive Officer. Yesterday, we released our 2015 first quarter financial results. A copy of the release is now available on our website at sensient.com. Before we begin, I would like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements as defined in the Securities Litigation Reform Act of 1995. Our statements may be affected by certain factors, including risks and uncertainties, which are discussed in detail in the company's filings with the Securities and Exchange Commission. We urge you to read Sensient's filings for a description of these factors. Please bear these factors in mind when you analyze our comments today. Now, we'll hear from Paul Manning. Paul Manning - President, Chief Executive Officer & Director: Thanks, Steve. Good morning. Sensient reported adjusted earnings per share of $0.76, an increase of 7% compared to the $0.71 reported in last year's first quarter. Foreign currency translation had a significant impact in the quarter and the local currency earnings per share increased by $0.10 or 14%. Operating income increased by 4.5% in local currency and operating margins improved 60 basis points to 15.5%. Cash flow from operating activities increased by more than 50% to $30.6 million in the quarter. Our strong cash flow performance was driven by strong earnings and substantial inventory reductions. We reduced inventory by approximately $23 million in the first quarter, which follows a $15 million reduction in last year's fourth quarter. Working capital reduction will continue to be an area of focus. Sensient's Color Group is the global leader for food and beverage colors, and we have the unique ability to provide both synthetic and natural color solutions to our customers. We are also the global leader for digital inks and cosmetic ingredients and we have strong capabilities in pharmaceutical excipients and industrial colors. The Color Group's revenue was off 9% and operating income was down 12% in the first quarter. Foreign currency translation reduced both the revenue and operating income by approximately 9%. In addition, operating income was further reduced by the impact of foreign currency transaction effects, most notably due to the Swiss Franc, but the Group was also impacted by the weaker euro, British pound, Mexican peso and Canadian dollar. Many of the Color Group's businesses reported positive local currency results in the quarter. Food and beverage color business reported mid single-digit growth for both revenue and operating income, driven by strong results in the U.S. and Latin America. The pharmaceutical business reported mid-to-high single-digit growth in sales and profits, and the global cosmetic business grew operating income almost 10% despite a difficult revenue comparable. The technical Color segment was impacted by the strong Swiss Franc and by soft demand in Europe and the Middle East. This unit reported lower revenue and operating income in the quarter, and we expect demand in its markets to be challenging for the remainder of the year. This business has reported solid growth for the past few years and we continue to see good long-term opportunities in this market. The Flavors & Fragrances Group has strong capabilities in sweet, beverage and savory flavors, natural ingredients and fragrances. We have realigned our commercial and technical activities around common product lines to better serve our customers, and we are continuing our efforts to shift the Group's product mix from simple ingredients to more complex flavors and flavor systems. We are progressing with the restructuring program and other efforts to lower costs. The combination of upgrading our product mix and reducing our cost structure will make the Flavors & Fragrances Group more competitive. Flavors & Fragrances Group reported higher revenue and operating income in local currency and improved its operating margin in the first quarter. Excluding the impact of currency, the Group's revenue increased 3% and its operating income grew by 4%. Operating margins for the Group increased 70 basis points to 14.8%. Foreign currency translation reduced revenue by approximately 7% and operating profit by about 3% in the quarter. Our actions and strategies to improve the business and increase operating margins are on track. Several of the businesses are making this transition and are already delivering improved local currency results. The natural ingredients, North American beverage, European sweet and Latin American businesses each reported solid revenue increases and double-digit profit growth in the quarter. Within the fragrance business, revenue from fragrance compounds grew by more than 30% as we continue to shift our focus from lower margin aroma chemicals to higher value fragrances. We are moving forward, but we have more work to do. The Corporate & Other segment, which includes our operations in Asia-Pacific, reported improved results in the quarter. Both revenue and operating income increased in local currency terms. Operating income for Asia-Pacific increased by more than 10% in the first quarter and we also reported lower corporate expenses. During the fourth quarter earnings call, we explained that foreign currency would have a significant impact on the 2015 results. The combined impact of the strong dollar and the foreign currency translational effect was $0.07 in the first quarter. Since the February 2015 conference call, the dollar has continued to strengthen against many foreign currencies including the euro. Our initial adjusted EPS projection for 2015, before currency impact was between $3.25 and $3.35. From this base estimate, we removed the combined impact from foreign currency translation and transaction effects of approximately $0.23 per share to arrive at our previously announced guidance. With the continued strengthening of the dollar, we now expect the full year currency impact to be approximately $0.29 per share or $0.06 greater than what we projected earlier this year. While the outlook for the company's operating performance has not changed, Sensient is revising its adjusted earnings per share guidance to a range of $3 to $3.09 due to the increased currency impact. The previous guidance was $3.02 to $3.12. Last year, we implemented several actions to enhance shareholder value. In total, these actions improved the company's cost structure, returned significant cash to shareholders and demonstrated our commitment to best-in-class governance and compensation practices. One of these actions was to implement a restructuring plan to lower costs and to improve operating efficiencies by eliminating underperforming operations and consolidating manufacturing facilities principally in the Flavors & Fragrances Group. Our efforts are on track and we expect most of the activities to be completed by the end of this year. We expect to incur pre-tax charges of approximately $130 million and we will generate annual savings of about $30 million upon completion of the program. Company continued to repurchase shares on an opportunistic basis in the first quarter. Over the past 12 months, Sensient has generated $130 million – $135 million of free cash flow. We have used that cash to fund the share repurchases and dividends; and in total, we have returned approximately $240 million to shareholders in the last 12 months. Our strategy is working and the company has a very promising future. Despite currency headwinds and difficult market conditions, particularly in Europe, we're delivering earnings growth, higher margins, and strong cash flows. I was pleased with the first quarter results and the company is well-positioned for future growth. Steve will now provide you with additional details on the quarter.

Thank you, Paul. Sensient reported revenue of $346.2 million and operating income of $46.4 million in the first quarter. The reported results include $7.1 million of restructuring costs in the quarter compared to $46.2 million of restructuring costs in the first quarter of 2014. Excluding these costs, operating income was $53.6 million in the quarter, which is an increase of 4.5% in local currency. Our adjusted operating margin increased 60 basis points to 15.5% in the quarter. Diluted earnings per share as reported were $0.65 in the quarter compared to $0.05 in the first quarter of 2014. Restructuring costs reduced reporting earnings per share by $0.12 in this year's first quarter and by $0.66 in last year's first quarter. Adjusted earnings per share increased 7% to $0.76 per share, which is an increase of 14% in local currency. Foreign currency translation had a significant impact on both revenue and operating income, reducing both by approximately 7% during the quarter. We are continuing our efforts to shift to technology-driven and value-added products while rationalizing non-strategic and low-margin business. Most of this impact was in the Flavors & Fragrances Group. Removing the effect of the rationalized business, consolidated revenue increased 2.1% and the Flavors & Fragrances Group revenue increased 4.1% in local currency terms. Sensient's cash from operating activities increased by 54% in the current quarter. The cash flow improvement was driven by strong earnings and lower inventories as we continue to focus on reducing working capital levels. Capital expenditures were $13.4 million during the quarter; and for the full year, we expect capital expenditures to be in the range of $75 million to $85 million. Free cash flow increased to more than $29 million in the first quarter, which includes $12.6 million from the sale of two facilities. The strong cash flow performance allowed the company to repurchase approximately 950,000 shares of stock during the quarter and we will consider further share repurchases on an opportunistic basis. Our balance sheet remains strong. Our debt-to-EBITDA ratio is 1.9 and we will keep debt levels in line within investment grade profile to maintain the flexibility for capital expenditures, dividend payments, share buybacks and acquisitions. Now, I will briefly review the results of our operating groups. The Color Group's revenue and operating income were $120.5 million and $26.1 million respectively in the first quarter. In local currency, revenue and operating income decreased by approximately 1% and 3% respectively. In addition to the effect of foreign currency translation, the Group's business in Switzerland was impacted by the stronger Swiss Franc. This business does most of its products in euros or dollars and the stronger Franc has reduced its local currency results. The Group's operating margin was 21.7% in the current quarter. The group has consistently delivered strong results in the food and beverage, cosmetics and pharmaceutical businesses performed well in the quarter. Flavors & Fragrances Group revenue and operating income were $206 million and $30.5 million respectively. In local currency, revenue increased by approximately 3% and operating income increased by about 4% in the quarter. The Group's operating margin increased 70 basis points to 14.8%. We are encouraged by the first quarter results and we remain optimistic about the potential for the Flavors & Fragrances business. Revenue in the Corporate & Other segment which includes the company's operations in the Asia Pacific region was $31.6 million in the quarter, an increase of approximately 2% in local currency. The adjusted operating expense in the Corporate & Other segment improved by approximately $2 million in the quarter. This improvement was driven by stronger profitability in Asia-Pacific and a reduction in corporate expenses. Thank you very much for your time this morning. We'll now open the call for questions.

Today's question-and-answer session will be conducted electronically. Your first question comes from the line of Mike Ritzenthaler with Piper Jaffray. Michael Ritzenthaler - Piper Jaffray & Co (Broker): Yes. Good morning.

Hi, Mike. Michael Ritzenthaler - Piper Jaffray & Co (Broker): First question is around, Paul, I guess around the shifts and realignment within Flavors & Fragrances. I'd be interested in how you are thinking about the changing culture within the sales organization and in selling systems and is that a big shift I guess first of all? And secondly, how would you gauge progress versus your expectations on the sales front? Paul Manning - President, Chief Executive Officer & Director: Well, I would say this, it's a – broadly speaking, it's not terribly dissimilar from what we did in the Color Group over and what we continued to do in the Color Group over the last several years. I think first of all it begins with how we measure our sales people. I think certainly we align their incentive programs. We align their training to executing on those types of sales, the types of sales that involve flavors and technology platforms that we've had and we continue to develop. I think as well, there is a fairly good foundation in most of the businesses. I think – certainly, we have had success in many of these areas. I talk about a number of our businesses that have a very good portfolio, operate at very good profit levels today. So it's not as though we're starting from zero; cupboard was not by any means empty, but it just needed stronger emphasis, more training, additional sales people and sales people that I think have more of a technical background to them. The notion of a sales person executing a sale because the purchasing agent or the technical person likes them I think is a little bit of the thing of the past. I think today it's more along the lines of what is the sales person, what is Sensient as a supplier, what kind of value we're creating for our customers. So I think that's an important piece as well. To the point you raised about how do you measure the progress, I think certainly gross margin and operating margin are very good metrics. We spend a lot of time at those because those are very good indications of the improvements in our mix. I think that new wins are always key with many customers not really generating much in the way of organic growth, certainly at the big multinational level that is, a lot of the growth has to come from new wins, new wins at big companies and new wins at regional and smaller companies as well. And so, I think that that's another factor that we look at very closely is how many wins can we generate and again according to the customers' timeline how quickly can we get those new wins. So, I'd say gross margin and new wins are two of the bigger metrics that I look at to measure that progress. And to that point, I would say that we continue to make those improvements and I see those progress – you see the operating margin improvement. I think you're going to continue to see that. What I guided in the first call of the year is we would – we are working towards 100 basis point to 200 basis point improvement and operating margin for the Flavors Group for the year. And so that is a real manifestation, I think, of this strategy. Michael Ritzenthaler - Piper Jaffray & Co (Broker): Yeah. That's good color. Thanks. Thanks for elaborating on that more. With free cash significantly year-over-year, can you elaborate a little more on the puts and takes within cash from ops and working capital? I think in your prepared comments – or Steve's prepared comments, I can't remember who was – on the inventories. How much more runway does Sensient have on that particular metric? And are we setup for the middle of the year pacing ahead of last year as well in your opinion? Paul Manning - President, Chief Executive Officer & Director: Well, I'll say this. We introduced this concept about a year ago that we felt as if the company was very high in certain parts on inventory levels. We felt that with better management, better sourcing and certainly better production techniques that we could – there was a lot we could do to bring down those inventory levels. And so, inventory doesn't necessarily move on a dime. And so what you've seen though is kind of over the last six months, a realization of this program that we instituted about a year ago. And to that end, if you look at the balance sheet at the end of September, the value of inventory is about $475 million. If you look at the balance sheet at the end of March, it was about $410 million. Now, part of that was currency, but the bigger part, the much bigger part was actual physical reductions in the inventory that we had in the business. I think there is certainly more of that. We certainly – when you start this program, you always get bigger removals of inventory than, say, you may get a year or two down the line, but certainly I think that we're seeing that nice benefit, I think we're going to continue to see a nice benefit throughout the year, and – but even beyond what we've done in this sort of initial approach that there is more opportunity for us to operate in a much more lean manufacturing-type environment. So, I would say there continues to be upside. Michael Ritzenthaler - Piper Jaffray & Co (Broker): Would you say that 60 days is a reasonable target or kind of sustainable target or is it more like, I don't know, 50 days, 55 days, something like that? Paul Manning - President, Chief Executive Officer & Director: Well, the industry's benchmark that we look at, essentially where our competitors and much of the company – many of the companies in sort of the specialty chemical arena would be is about 110 days to 120 days, somewhere in that range. And we think that – and we have many businesses that operate well below that, but I would say that, sure, there are some businesses that could operate and some in fact, today that we have that operate in 60 days, but I would say is a broad-based measure. When you take – we have an agricultural business, we have other businesses with a very broad product line it is fundamentally a specialty chemical company. I would say that that range of 115 – let's say, 115 days is kind of industry-standard. I think over time, we can do better than that. Michael Ritzenthaler - Piper Jaffray & Co (Broker): Okay, outstanding. Thank you very much for your help there. Paul Manning - President, Chief Executive Officer & Director: Yes.

Yes, thanks, Mike.

Your next question comes from the line of Brett Hundley with BB&T Capital Market. Brett Michael Hundley - BB&T Capital Markets: Hey, good morning, gentlemen. Paul Manning - President, Chief Executive Officer & Director: Hey, Brett.

Good morning, Brett. Brett Michael Hundley - BB&T Capital Markets: Thanks for taking the question. I wanted to follow on Mike's line of questioning on margin performance in Flavors & Fragrances clearly a focus. Given talk of a push over time up towards higher levels and Paul, you've talked about 100 basis points or 200 basis points as you've mentioned as far as improvement. When I adjust your margin in flavors, I get something closer to a 14.3% margin when I adjust for currency. And certainly it's an improvement year-on-year, but I think we'd like to see more of that towards the 100-basis point to 200-basis point level. And so, I'm wondering if you can talk a little bit about the step function there and when that improvement seems to come, if you can attach some timing expectations. I know you also have potentially greater cost savings realization in 2016, but if you can lead us through the rest of 2015, that would be really helpful. Paul Manning - President, Chief Executive Officer & Director: Yeah. So I'll have to get back to you on your 14.3%, but for the time being for the purposes of the call, let me just give a broad sweep on how we generate – conceptually how we generate this margin, and I'll give you a sense to the specifics of your question about what happens this year. Broadly speaking, we will get this operating margin improvement through really some key actions; noteworthy number one would be mix. Again, how do we sell more of the flavors, fewer of the individual ingredients, because the differences in gross margin between those outcomes can be somewhat substantial. So, mix first and foremost; emphasizing that more sophisticated portion of our portfolio, not abandoning it what we sell today, but elevating it in many cases, is priority number one. Certainly cost factors into this as well. The restructuring is a big part of that. And we will get the biggest portion of our benefit in the gross margin line, because again it's production costs that were taken out at this phase rather than SG&A cost. So I think the restructuring will have a big piece of this as well with our goals in that front. To a certain degree, there are products and product lines for which price may be an element upon which we improve the gross margin. I don't want to get into that specifically for obvious reasons, but clearly there are some products that we sell that have a competitive advantage, a very strong one. And so, to the extent that that would be practical that's also something that we would consider. So broadly speaking, those are the same elements. When you consider what we did in the Color Group that was principally and very strongly linked to a mix improvement far less in fact very insignificant part of that improvement was related to cost. So, as we look at Flavors & Fragrances as we go about the year, I think, why I believe that a 100 basis points to 200 basis point is achievable is because number one, it's more time to continue to execute on our strategy and selling the types of products that we believe create value for our customers, that's the mix piece. Number two, as the restructuring savings begin to accelerate and to improve, that's also going to add to this. You noted that we sold two of our facilities here in the first quarter. Once you process through your inventory, now you start generating the full brunt of those savings in your business, and that's why we'd see that accelerating over the course of the year. So, those are the two areas – again, principally those are the two areas. And as we continue to move through the year and continue to sell that into the portfolio, I think that's where you will see the manifestation of these higher gross margins. Brett Michael Hundley - BB&T Capital Markets: I appreciate the comments. I wanted to rotate over to Asia. Your top line has been a little bit mixed there, but you saw a nice growth in Q1 and we can back into some pretty nice adjusted margins there as well. Can you take me through your performance in that area over the world, and can this top line continue to gain momentum there? And then I just want to ask a follow-up to that question. Paul Manning - President, Chief Executive Officer & Director: Yeah, so top line, yes. I think there is a lot more we can do in Asia-Pac. So I think that would be the first answer. I think in terms of where we are, I mean we really started Asia-Pac as really a trading business many, many years ago, and we've built it to where it is today. We need in and we will continue to make more investments in the region for local production as well as effectively integrating many of their activities with the rest of the Color Group and the Flavor Group, certainly a lot of synergies there between the business units that can be achieved. I think that we've done quite well, but there is certainly more opportunities not only to expand on our existing business, but to grow certain product lines into countries that perhaps we don't have as strong of an emphasis today, whether that's in color, cosmetics, or even flavor sales, there are certain countries for which our penetration has been not as strong as it's going to be moving forward. So I think there is a lot of opportunity there, because in my opinion we're really just sort of skimming the surface, and there is a tremendous growth. We have products that are very well received by our customers for many of our customers having other choices, particularly from suppliers that are local is very compelling. And so I think that's explained a lot of our success to-date and that will accelerate, and I think will explain our success moving forward. Brett Michael Hundley - BB&T Capital Markets: And if I dig into that answer a little bit further, I mean, I was focused on colors in Asia, but honestly feel free to talk broader portfolio if you want, but can you dig into maybe some of the broader talking points or timetables on your strategy there? Do you – is it assets, do you need a partner or are there certain dynamics that you need to change competitively? Can you maybe dig in a little bit on that? Paul Manning - President, Chief Executive Officer & Director: Some of it's going to depend on the product line we're talking about. When we talk about our food color business, I talk in terms of sensing colors being the leader in food colors. So, when you're the leader in a particular market that certainly gives you access to many of the companies that you'd like to have access to. I think, when you consider some of our other businesses, take our inks business, digital inks has not been a strong of a market trend in Asia-Pacific, certainly compared to Europe and the Middle East it has not been kind of. But that would be another area for which we can provide a very compelling product line, which is generally not widely available in many of the markets in that region. So I think this is – it's more than just simply selling your products that you're selling in U.S. and Europe to that market, I mean, certainly that could be part of this. But it's also what products do we have across this very wide portfolio for which we have opportunities to really introduce those countries to a particular technology or a particular market trend that we may be doing very well in another part of the world like Europe or the Middle East. Brett Michael Hundley - BB&T Capital Markets: Thanks for your time, Paul. Paul Manning - President, Chief Executive Officer & Director: Yes. Thanks Brett.

Your next question comes from the like of Mike Sison with KeyBanc.

Hey, guys, nice start to the year. Paul Manning - President, Chief Executive Officer & Director: Hey, thanks Mike.

Paul, just a question for you, Kraft looks like they're gone similar out to Nestle, Hershey, and Frito-Lay, they announced recently they want to replace some of their net synthetic colors with natural colors, I think in mac and cheese for what it's worth. But how big of an opportunity is this trend for you near-term and maybe longer-term? I remember the beverage side that was a big-big plus for you guys, any thoughts, just generally on how much of food is synthetic these days and what the evolution of moving to naturals could be? Paul Manning - President, Chief Executive Officer & Director: Well, as you look at different geographies, there's a different answer for each one of them. If you consider Europe who is many-many years ahead of the rest of the world in terms of converting from synthetic to natural colors, you could see that the majority well above the majority of that market and the market sales that we generate there are coming from natural colors or what is also a different product line called coloring food stuff that we don't need to get into the technicalities here. Let's just say natural colors is predominant in Europe. When you come to the U.S., it's not nearly as large. There has not been a commensurate legislative change, which would effectively obligate our customers to make that conversion, much like occurred in Europe. So in short, the trajectory in the U.S. has been slower, not nearly as much of the market has converted to natural colors, but clearly with the article you referenced, there is an increasing trend and an increasing interest from many of the customers, and then that's really being driven by the end consumer, who wants more natural products whether that's color or flavor or otherwise. And so, we are very interested in the trend. We certainly see it as an opportunity. We have the ability to not only do the natural side, but the synthetic side and many customers aren't going to make a full-fledged conversion. You just – you referenced Kraft and they're talking about a product line and that's the way many of these companies will convert, they will select a product line or two as opposed to converting everything all at once. So, I would see the conversion taking place over many years, which would be pretty much expected in Latin America and for other parts of Asia as well, I think, would be a fair summary of that. But, no, it's certainly gotten an enhanced interest as of late. The health and wellness trend as it's described has had a huge impact. And I think the impact continues to grow as many of the large multinationals struggle to get any sort of revenue from volume. Most of their revenue is coming from price at this point, finding ways to really take a lot of the core brands and make them different or better has been a – there is some momentum building there, but how do they differentiate their products and natural simple labels, healthy claims is growing and some growing interest and I think large multinationals, I think they are seeing this as the necessary step to take to really get their businesses growing again. So, we see it as a positive. Again, whether they stay natural or synthetic we can certainly accommodate either request, but there are a lot of economic benefits to natural colors obviously. It's no other reason that the volume necessary to achieve the same shades versus synthetic could make for a compelling economic case. But either way, we think it's a good market. And the last point I'll make here, Mike, I'm kind of going on here, but I know you're interested in this point. When you consider the new product development launches and let's just take the U.S. for right now, the majority of the launches contain natural colors or natural ingredients. So, as the pace of new products introductions improves over the future, you can expect to see a more accelerated transition I think to natural colors to natural flavors and to other ingredients.

Okay, great. And then, as 2Q through 4Q unfolds, this foreign currency issue is kind of unfortunately hurting the reported results for sales. Could you walk us through on a constant currency basis, what you expect Color should be able to do in the remaining quarters as well as Flavors & Fragrances understanding there is some product rationalization there? But just want to make sure I understand what the growth potential is for the next couple of quarters ex-currency as the year goes? Paul Manning - President, Chief Executive Officer & Director: Sure. So, I'll start with flavors. I think certainly I'll stick to the guidance that I provided on the last call. I would see a mid and then perhaps even mid to high single-digit operating profit growth. I mentioned once again, 100 basis point to 200 basis point improvement in operating margin. And I said, flat revenue, I think flat to perhaps slightly positive would be a reasonable guidance with respect to revenue. The culling you look at Q1, we had 3% top line and then 4% with the culling. The culling is not necessarily a steady straight line. You may generate more in one quarter than you would in the next, you may be looking to sell a product line which could accelerate it, so different factors may come into play. And so it's not – we didn't cull as much as I had anticipated we would for several of those reasons. But that aside, I think flat revenue to perhaps slightly positive would be appropriate for flavors. For Colors, as I mentioned on the last call, and I'll emphasize that again, we would guide low single digit OP, but a lot of that when you say FX, it's principally translational, but what we have in colors not as much in flavors, but more in colors. We've talked about Switzerland, but it applies to other currencies as well, the transactional effect of the currency has had a much larger impact on the Color Group than the Flavor Group. So, as you break down colors, food and pharma and cosmetics as we report had very nice quarters Q1. I think those rates can continue for the rest of the year, that mid, mid-to-high single digit revenue and operating profit growth on each one of them. I think our challenge is principally in the technical colors area. And so that it all, some of this depends on that market and the transactional impact. But I think the low single digit OP is what we're anticipating as well as that decline in operating margin again owing to this transactional loss on the FX run. And then Asia Pac, double digit at least in operating profit and then corporate, we continue to expect to take cost out, and I think you'll see those benefits for the rest of the year as well.

Great, thank you. Paul Manning - President, Chief Executive Officer & Director: Yes, thanks Mike.

Your next question comes from the line of Christopher Butler with Sidoti. Christopher W. Butler - Sidoti & Co. LLC: Hi, good morning everyone. Paul Manning - President, Chief Executive Officer & Director: Hey, Chris. Christopher W. Butler - Sidoti & Co. LLC: Just jumping something that you said as you look at the $0.29 hit from currency this year, could you break that out transaction versus translation?

Yeah, I think we had originally said that the transaction I think would be $0.05 to $0.07, and that's largely unchanged, I would say, most of it has come – most of the change has come from the translation element, so, most of the $0.06 change I would attribute to the translation. Christopher W. Butler - Sidoti & Co. LLC: And getting back to kind of big picture strategy, as we look at the Flavors Group, could you give us a sense of how much of that revenue is ingredients versus the complex flavors? And any sort of general sense on the growth in those two sort of sub segments? I'd have to imagine the ingredients are being hurt by culling, but more interested in signs of success on the complex flavors side? Paul Manning - President, Chief Executive Officer & Director: Yes, certainly, we look first – our first bellwether is our pipeline. And our pipelines within the Flavor Group are strongly oriented towards those types of projects. And those are the ones we're spending our time and dedicating sales and technical resources to execute. So, the pipeline certainly speaks to that. And now, it may depend a bit whether you're talking savory, sweet, beverage, fragrance (38:38) they all differ a bit, but I think you can certainly across the board say that the shift in the pipelines has really been well underway and that continues to be the case. I think our growth rate in certainly, the majority of our businesses, we referenced a few of them in the call here, has been the way we're able to get the double-digit operating profit was through those new wins in those, say, projects that are much closer to our strategy. I think in some of our businesses though one you consider our savory business for instance, where we've had a very long history of selling many of the ingredients that is as I've referenced on the previous call and maybe even previous calls. That's the area of biggest challenge for us. It's how do we shift and continue to shift that product line towards the more sophisticated end product. But I would tell you that overall, we're very much on track; nothing ever moves as fast as I wanted to as you know, Chris, but I think that certainly we're making the right progress. And I think that our beverage and sweet have made very good fragrances as well as we noted in the growth we're seeing there on the compounds versus the aroma chemicals. But it is a tough number to measure explicitly, and as much as some of these ingredients you may now be using in that finished more sophisticated product line. In other cases you might have culled it out, in other cases you may have intended to cull it, but somebody accepted your price increase. So I guess you didn't call it becomes the outcome there. So, there is a lot of moving parts in it; and again, we look very closely at the gross margin and the operating margin, if I were to say this about 60% or 70% of the flavors businesses are becoming either in the window I want that 40% and 20% or very close to it. And now it's about how do we move those last remaining business units to those levels of profit and that's ultimately going to bring us the overall group to that 40% gross margin, 20% operating margin benchmark that we think is achievable. Christopher W. Butler - Sidoti & Co. LLC: And as we look at SG&A, you've done a good job of bringing that down here over the past year, and I know it's about a year ago now that you had gone through some restructuring cost savings there. As we think about 2015, is $64 million – adjusted $64 million, what we could expect for the quarters going through the year? Paul Manning - President, Chief Executive Officer & Director: I don't have a SG&A projection per se. I would say this that I can – I would tell you that there is certainly a stronger emphasis on controlling the SG&A. So, from that basis, yeah, I think Q1 should be fairly consistent with the other quarters. Many of our open positions that we've been working on have been filled. As with any organization, there is always openings, but I don't anticipate a great increase in SG&A. Certainly, as we continue to upgrade the organization and add more capabilities, we will do that, but a lot of that is being offset by the cost reductions that we made previously. So, we've talked how we've added technical people and sales people to flavors, so that we get still a slight increase, but much of that was offset by the actions we took last year and the previous year in anticipation of these moves that you're seeing right now in 2015. Christopher W. Butler - Sidoti & Co. LLC: And just finally, the reporting change that you made with the Flavors & Fragrances, could you give us what the number would have been or what they – it looks like about $1 million that you moved in there of revenue from South America and Central America? Paul Manning - President, Chief Executive Officer & Director: Yes, that sounds about right. And the concept there is, as these businesses reach a level of maturity, at which time they could be absorbed into another business unit that's what kind of just control that decision. But yes, you're about right, it's about $1 million that was transferred over. Christopher W. Butler - Sidoti & Co. LLC: And it looks like last year that the operating profit was almost $0.5 million, so it looks like it's good profitable business for you.

Yes. I don't have that exact figure, but our – yes, our businesses there are profitable, I would agree. Christopher W. Butler - Sidoti & Co. LLC: All right. I appreciate your time. Paul Manning - President, Chief Executive Officer & Director: Okay. Thanks, Chris.

Your next question comes from the line of Richard O'Reilly with Revere Associates.

Hi, good morning. Thank you. You raised – you increased the currency impact by $0.06, but you lowered your guidance by only $0.02 to $0.03 while you raised the top end of your pre-currency impact. Yet, your statement was that there was no change in the operational outlook. Can you just – without fine-tuning this, can you give an idea why you raised the upper end? Paul Manning - President, Chief Executive Officer & Director: Sure. So, I guess what we wanted to communicate when we said no change in the operational part of the business is that we were not changing our guidance to reflect some gap in sales or cost or something like that that the change was specific to FX. So, just that point to begin, I think – as we continue to move forward and we continue to execute on our plans, I want to make sure I deliver and we want to make sure as an organization, we're pushing the organization and we're doing well by our shareholders. I think that's maybe what drove it.

Okay, okay. So, you – basically, you do see a better year than you had thought back in January by a few pennies for whatever reason? Paul Manning - President, Chief Executive Officer & Director: Sure. I mean, from the standpoint that we were $0.76 that certainly lends some credence to-

Correct. Yeah, you beat the consensus by a few pennies there, right? Paul Manning - President, Chief Executive Officer & Director: Yes.

Okay. And then may be the number of shares outstanding is fewer than what you might have thought going into the year; that make a difference? Paul Manning - President, Chief Executive Officer & Director: Well, we – no would be the first part. I think that we build a range, we build our guidance. If we buyback that may move us to the, closer to the upper end of the guidance. But no, I didn't necessarily do the math on that before we initiated the buyback so much as-

Okay. Paul Manning - President, Chief Executive Officer & Director: I saw it as an opportunistic time to buy the stock.

Okay. Okay. Good. Thanks a lot. Paul Manning - President, Chief Executive Officer & Director: Okay. Thanks, Richard.

At this time, there are no further questions. I will now turn the conference back to the company for closing remarks.

Okay. Thank you again for your time this morning. That will conclude our call. If anyone has any follow-up questions after the call, by all means, feel free to contact the company. Thank you.