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Financial Performance Overview
The company reported revenue of $392.3 million for the three months ended March 31, 2025, up from $384.7 million in the same period of 2024. This 2% increase was primarily driven by favorable pricing and higher sales volumes, though partially offset by unfavorable foreign exchange impacts that decreased revenue by around 2%.
Gross margin improved to 33.6% in Q1 2025 compared to 32.9% in Q1 2024. This was despite $1.8 million in costs related to the company’s Portfolio Optimization Plan, which reduced gross margin by 50 basis points. The improvement was mainly due to the favorable pricing and volume increases, partially offset by higher raw material costs.
Selling and administrative expenses as a percentage of revenue decreased slightly to 19.9% in Q1 2025 from 20.1% in the prior year period. Portfolio Optimization Plan costs of $1.1 million and $2.7 million in Q1 2025 and Q1 2024 respectively increased selling and administrative expenses as a percentage of revenue by 20 and 70 basis points in those periods. This was offset by lower performance-based executive compensation costs in 2024.
Operating income rose to $53.5 million in Q1 2025 compared to $49.4 million in Q1 2024. Operating margins improved to 13.6% from 12.8%, despite the Portfolio Optimization Plan costs reducing margins by around 80 basis points in both periods. The increase was primarily attributable to the favorable pricing and volume impacts, partially offset by higher raw material costs and executive compensation expenses.
Interest expense increased slightly to $7.3 million in Q1 2025 from $7.0 million in the prior year quarter, mainly due to higher average interest rates.
The effective tax rate decreased to 25.4% in Q1 2025 from 27.0% in Q1 2024. The lower rate was driven by changes in estimates related to prior year foreign tax items and the mix of foreign earnings. The Q1 2024 rate was also impacted by limited deductibility of Portfolio Optimization Plan costs.
Segment Performance
The company reports results across three main segments: Flavors & Extracts, Color, and Asia Pacific.
Flavors & Extracts Revenues in the Flavors & Extracts segment were $187.8 million in Q1 2025, down slightly from $188.0 million in the prior year period. This 0.1% decrease was primarily due to unfavorable foreign exchange impacts.
Color Revenues in the Color segment increased 4.0% to $162.6 million in Q1 2025 from $156.4 million in Q1 2024. This was driven by higher sales volumes, particularly in the Food & Pharmaceutical Colors and Personal Care product lines.
Asia Pacific The Asia Pacific segment saw revenues rise 4.0% to $41.9 million in Q1 2025 from $40.3 million in the same quarter of 2024. This increase was mainly attributable to higher sales volumes.
Geographic Markets
Regionally, the company saw the following revenue trends:
| Region | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| North America | $228.3 million | $222.1 million | +2.8% |
| Europe | $75.9 million | $78.4 million | -3.2% |
| Asia Pacific | $61.9 million | $59.8 million | +3.5% |
| Other | $26.2 million | $24.4 million | +7.3% |
The increase in North America was driven by higher sales volumes and favorable pricing. Europe declined slightly due to unfavorable foreign exchange impacts. Asia Pacific and the Other regions saw moderate growth from increased volumes.
Retirement Plans and Hedging Activities
The company’s defined benefit pension plan expenses were $476,000 in Q1 2025 compared to $440,000 in Q1 2024. The non-service cost portion is recorded in interest expense, while the service cost is included in selling and administrative expenses.
The company uses forward exchange contracts and foreign currency denominated debt to hedge its exposure to foreign exchange risk. As of March 31, 2025, the company had $55.3 million in forward exchange contracts designated as cash flow hedges outstanding, compared to $70.3 million at the end of 2024. The company also had $308.1 million in net investment hedges as of Q1 2025, up from $295.3 million at the end of 2024.
Portfolio Optimization Plan
In Q4 2023, the company’s Board of Directors approved a plan to optimize certain production facilities and improve efficiencies, known as the Portfolio Optimization Plan. This has involved evaluating the closure of manufacturing and sales facilities in the Flavors & Extracts and Color segments, as well as centralizing and eliminating certain positions.
For the three months ended March 31, 2025, the company incurred $2.9 million in costs related to this plan, primarily for dual plant operating costs, non-cash inventory charges, professional services, and employee separation costs. In the prior year quarter, the company incurred $2.8 million in Portfolio Optimization Plan costs, mainly for employee separation and asset impairment.
These costs have reduced gross margin by 50 basis points and selling and administrative expenses as a percentage of revenue by 20 and 70 basis points in Q1 2025 and Q1 2024 respectively.
Acquisition
On February 14, 2025, the company acquired Biolie SAS, a natural color extraction business in France, for $4.8 million in cash. This acquisition is part of the company’s Color segment.
Outlook and Analysis
The company has demonstrated resilience in the face of macroeconomic headwinds, delivering solid revenue growth and margin expansion in the first quarter of 2025. The 2% revenue increase was driven by favorable pricing and higher sales volumes, though foreign exchange impacts provided a modest headwind.
Gross margin improvement, despite the Portfolio Optimization Plan costs, indicates the company’s ability to effectively manage input costs and operational efficiency. The decrease in selling and administrative expenses as a percentage of revenue also points to disciplined cost control.
Operating income and margins rose due to the favorable pricing and volume impacts, though this was partially offset by higher raw material costs and executive compensation expenses. The company’s focus on productivity improvements and cost savings through the Portfolio Optimization Plan should continue to benefit margins going forward.
The decline in the effective tax rate was a positive, reflecting the company’s success in managing its global tax position. This, combined with the slightly higher interest expense, resulted in a modest increase in net earnings.
Geographically, the company saw the strongest growth in North America and Asia Pacific, while Europe experienced a slight decline due to foreign exchange headwinds. The company’s diversified global footprint and product portfolio have helped mitigate regional volatility.
Looking ahead, the company’s acquisition of Biolie SAS in the Color segment demonstrates its strategic focus on expanding its natural color capabilities to meet evolving consumer preferences. This, coupled with the ongoing Portfolio Optimization Plan initiatives, positions the company well to drive further operational improvements and capitalize on growth opportunities.
Overall, the company’s first quarter 2025 results reflect its ability to navigate a challenging macroeconomic environment through disciplined execution, cost management, and strategic investments. The company appears well-positioned to deliver continued revenue growth and margin expansion in the coming periods.
