SENSIENT TECHNOLOGIES CORP (SXT) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those statements
(Part II, Item 8 of this Form 10-K). This section generally discusses the results of our operations for the year ended December 31, 2024, compared to the year ended December 31, 2023. For a discussion of the year ended December 31, 2023, compared
to the year ended December 31, 2022, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed
with the Securities and Exchange Commission on February 22, 2024, which is incorporated herein by reference.

OVERVIEW

Sensient Technologies Corporation (the Company or Sensient) is a leading global manufacturer and marketer of colors, flavors, and other specialty ingredients. The Company uses advanced technologies at facilities around
the world to develop specialty food and beverage systems; personal care, essential oils, pharmaceutical, and nutraceutical systems; specialty colors; and other specialty and fine chemicals. The Company’s three reportable segments are the Flavors
& Extracts Group and the Color Group, which are both managed on a product line basis, and the Asia Pacific Group, which is managed on a geographic basis. The Company’s corporate expenses, share-based compensation, restructuring and other
charges, including the Portfolio Optimization Plan costs, and other costs are included in the “Corporate & Other” category.

The Company’s diluted earnings per share were $2.94 in 2024 and $2.21 in 2023. 2024 results were negatively impacted by $6.6 million ($2.5 million after tax, $0.06 per share) of Portfolio Optimization Plan costs. 2023
results were negatively impacted by $27.8 million ($27.4 million after tax, $0.65 per share) of Portfolio Optimization Plan costs. Adjusted diluted earnings per share, which exclude the Portfolio Optimization Plan costs, were $3.00 in 2024 and
$2.86 in 2023 (see discussion below regarding non-GAAP financial measures).

Additional information on the results is included below.

RESULTS OF OPERATIONS

2024 vs. 2023

Revenue

Sensient’s revenue was approximately $1.6 billion and $1.5 billion in 2024 and 2023, respectively.

Gross Profit

The Company’s gross margin was 32.6% in 2024 and 31.6% in 2023. The increase in gross margin was primarily due to higher volumes and selling prices, partially offset by higher raw material costs.

Selling and Administrative Expenses

Selling and administrative expense as a percent of revenue was 20.3% in 2024 and 21.0% in 2023. Selling and administrative expenses in 2024 and 2023 were increased by Portfolio Optimization Plan costs totaling $5.3
million and $24.7 million, respectively. Selling and administrative expense as a percent of revenue increased by approximately 40 basis points and 170 basis points in 2024 and 2023, respectively, as a result of these costs. See Portfolio Optimization Plan below for further information.

Selling and administrative expenses as a percent of revenue was further impacted by higher performance-based compensation costs in 2024.

Operating Income

Operating income was $191.6 million in 2024 and $155.0 million in 2023. Operating margins were 12.3% in 2024 and 10.6% in 2023. Portfolio Optimization Plan costs decreased operating margins by approximately 40 basis
points and 200 basis points in 2024 and 2023, respectively.

Additional information on segment results can be found in the Segment Information section.

Interest Expense

Interest expense was $28.8 million in 2024 and $25.2 million in 2023. The increase in expense was primarily due to an increase in the average interest rate.

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Income Taxes

The effective income tax rate was 23.4% in 2024 and 28.1% in 2023. The effective tax rates in both 2024 and 2023 were impacted by the release of valuation allowances related to net operating losses, changes in
estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, the mix of foreign earnings, and the limited tax deductibility of costs related to the Portfolio Optimization Plan. The effective tax
rate in 2023 was further impacted by the release of a valuation allowance related to the foreign tax credit carryover. See Note 11, Income Taxes, in
the Notes to Consolidated Financial Statements included in this report for additional information.

The 2025 effective income tax rate is estimated to be between 24% and 26%.

Portfolio Optimization Plan

During the fourth quarter of 2023, the Board of Directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio
Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in
Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the
closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate &
Other segment.

The Company’s Felinfach site will continue to operate until all production activities have successfully transferred to other locations, and then will be closed. The Company has substantially completed all
other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.

See Note 15, Portfolio Optimization Plan, in the Notes to Consolidated Financial Statements included in this
report for additional information.

NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude restructuring
and other costs, including the Portfolio Optimization Plan costs, (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which eliminate the effects that result from translating
its international operations into U.S. dollars and restructuring and other costs, including the Portfolio Optimization Plan costs, and (3) adjusted EBITDA, which excludes restructuring and other costs, including the Portfolio Optimization Plan
costs, and non-cash share based compensation expense.

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental
to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures
and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and
performance trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

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The following table summarizes the percentage change in the 2024 results compared to the 2023 results in the respective financial measures.

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SEGMENT INFORMATION

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income
before any applicable share-based compensation, acquisition, restructuring and other costs, including the Portfolio Optimization Plan costs, and other costs (which are reported in Corporate & Other), interest expense, and income taxes.

The Company’s discussion below regarding its operating segments has been updated to reflect the Company’s disaggregation of revenue, as summarized in Part II, Item 8, Note 12, Segment
and Geographic Information, of this report.

The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.

Flavors & Extracts

Flavors & Extracts segment revenue was $793.7 million in 2024 and $741.1 million in 2023, an increase of approximately 7%. The higher segment revenue was a result of higher revenue in Natural Ingredients and
Flavors, Extracts & Flavor Ingredients due to higher volumes and selling prices. Foreign exchange rates had an immaterial impact on segment revenue.

Flavors & Extracts segment operating income was $97.1 million in 2024 and $87.8 million in 2023, an increase of approximately 11%. Foreign exchange rates had an immaterial impact on segment operating income. The
higher segment operating income was a result of higher operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower operating income in Natural Ingredients. The higher operating income in Flavors, Extracts &
Flavor Ingredients was primarily due to lower raw material costs, higher selling prices, higher volumes, and a favorable product mix. The lower operating income in Natural Ingredients was primarily due to higher raw material costs, partially
offset by higher volumes and selling prices. Segment operating income as a percent of revenue was 12.2% and 11.8% for 2024 and 2023, respectively.

Color

Segment revenue for the Color segment was $647.9 million in 2024 and $608.0 million in 2023, an increase of approximately 7%. The higher segment revenue was a result of higher revenue in Food & Pharmaceutical
Colors and Personal Care due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 1%.

Segment operating income for the Color segment was $119.5 million in 2024 and $105.4 million in 2023, an increase of approximately 13%. The higher segment operating income was a result of higher operating income in
Personal Care and Food & Pharmaceutical Colors. The higher operating income in Personal Care was primarily due to higher volumes and selling prices and a favorable product mix. The higher operating income in Food & Pharmaceutical Colors
was primarily due to higher volumes and selling prices and a favorable product mix, partially offset by higher raw material and manufacturing and other costs. These increases were partially offset by the unfavorable impact of foreign exchange
rates, which decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.4% and 17.3% for 2024 and 2023, respectively.

Asia Pacific

Segment revenue for the Asia Pacific segment was $162.5 million and $146.1 million for 2024 and 2023, respectively, an increase of approximately 11%. Segment revenue was higher than the prior year primarily due to
higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 2%.

Segment operating income for the Asia Pacific segment was $34.5 million in 2024 and $30.8 million in 2023, an increase of approximately 12%. The increase in segment operating income was a result of higher volumes and
selling prices, partially offset by higher raw material and manufacturing and other costs and the unfavorable impact of foreign exchange rates, which decreased segment operating income by approximately 2%. Segment operating income as a percent of
revenue was 21.2% in 2024 and 21.1% in 2023.

Corporate & Other

The Corporate & Other operating loss was $59.5 million in 2024 and $68.9 million in 2023. The lower operating loss was primarily a result of lower Portfolio Optimization Plan costs, partially offset by higher
performance-based compensation costs in 2024. See the Portfolio Optimization Plan section above for further information.

LIQUIDITY AND FINANCIAL POSITION

Financial Condition

The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of December 31, 2024. The Company expects its cash flow
from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments, as well as potential acquisitions and stock repurchases. The Company’s
contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations, and debt. The Company has various series of notes outstanding that mature from 2025
through 2029, with approximately $56 million coming due in 2025. The Company believes that it has the ability to refinance or repay all of its obligations through a combination of cash flow from operations, issuance of additional notes, and
substantial borrowing capacity of approximately $257 million under the Company’s revolving credit facility, which matures in 2026.

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As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations in 2024. The
Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor-related costs. We continue to expect to manage these impacts in the near term, but persistent, accelerated, or expanded
inflationary conditions could exacerbate these challenges and impact our profitability.

In October 2017, the Board of Directors authorized the repurchase of up to three million shares. As of December 31, 2024, 1,732,981 shares were available to be repurchased under the existing authorization. The Company’s
share repurchase program has no expiration date. These authorizations may be modified, suspended, or discontinued by the Board of Directors at any time. There were no shares of Company stock repurchased in 2024 or 2023.

Cash Flows from Operating Activities

Net cash provided by operating activities was $157.2 million and $169.7 million in 2024 and 2023, respectively. Operating cash flow provided the primary source of funds for operating needs, capital expenditures, and
shareholder dividends. The decrease in net cash provided by operating activities in 2024 was primarily due to a decrease in the cash provided by accounts receivable, partially offset by a decrease in cash used for performance-based compensation
payments (which are determined based on prior year performance) made during 2024 compared to 2023.

Cash Flows from Investing Activities

Net cash used in investing activities was $59.2 million and $87.6 million in 2024 and 2023, respectively. Capital expenditures were $59.2 million in 2024 and $87.9 million in 2023. The Company paid $1.7 million in
2023 related to a purchase price holdback associated with the acquisition of Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve
Ticaret A.Ş.

Cash Flows from Financing Activities

Net cash used in financing activities was $81.5 million and $82.0 million in 2024 and 2023, respectively. The Company had a net decrease in debt of $7.8 million and $3.5 million in 2024 and 2023, respectively. For the
purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company has paid uninterrupted quarterly cash dividends since commencing public trading of its stock in 1962. Dividends paid per share were
$1.64 in 2024 and 2023. Total dividends paid were $69.4 million and $69.2 million in 2024 and 2023, respectively.

CRITICAL ACCOUNTING ESTIMATES

In preparing the financial statements in accordance with accounting principles generally accepted in the U.S., management is required to make estimates and assumptions that have an impact on the asset, liability,
revenue, and expense amounts reported. These estimates can also affect supplemental information disclosures of the Company, including information about contingencies, risk, and financial condition. The Company believes, given current facts and
circumstances, that its estimates and assumptions are reasonable, adhere to accounting principles generally accepted in the U.S., and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results
may differ from estimates and estimates may vary as new facts and circumstances arise. The Company makes routine estimates and judgments in determining the net realizable value of accounts receivable, inventories, and property, plant, and
equipment. Management believes the Company’s most critical accounting estimates and assumptions are in the following areas:

Revenue Recognition

The Company recognizes revenue at the transfer of control of its products to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. Revenue is recognized when
control of the product is transferred to the customer, the customer is obligated to pay the Company, and the Company has no remaining obligations, which is typically at shipment. See Note 1, Summary of
Significant Accounting Policies, in the Notes to Consolidated Financial Statements included in this report for additional details.

Goodwill Valuation

The Company reviews the carrying value of goodwill annually utilizing several valuation methodologies, including a discounted cash flow model. The Company completed its annual goodwill impairment test under Accounting
Standards Codification (ASC) 350, Intangibles – Goodwill and Other, in the third quarter of 2024. In conducting its annual test for impairment, the Company performed a qualitative assessment of its
previously calculated fair values for each of its reporting units. Fair value is estimated using both a discounted cash flow analysis and an analysis of comparable company market values. If the fair value of a reporting unit exceeds its net book
value, no impairment exists. The Company’s three reporting units each had goodwill recorded and were tested for impairment. All three reporting units had fair values that were above their respective net book values by at least 75%. Changes in
estimates of future cash flows caused by items such as unforeseen events or changes in market conditions could negatively affect the reporting units’ fair value and result in an impairment charge.

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Income Taxes

The Company estimates its income tax expense in each of the taxing jurisdictions in which it operates. The Company is subject to a tax audit in each of these jurisdictions, which could result in changes to the estimated
tax expense. The amount of these changes would vary by jurisdiction and would be recorded when probable and estimable. These changes could impact the Company’s financial statements. Management has recorded valuation allowances to reduce the
Company’s deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2024, the Company recorded gross deferred tax assets of $112.3 million with an associated valuation allowance of $29.7 million. Examples
of deferred tax assets include deductions, net operating losses, and tax credits that the Company believes will reduce its future tax payments. In assessing the future realization of these assets, management has considered future taxable income
and ongoing tax planning strategies. An adjustment to the recorded valuation allowance as a result of changes in facts or circumstances could result in a significant change in the Company’s tax expense. The Company does not provide for deferred
taxes on unremitted earnings of foreign subsidiaries, which are considered to be invested indefinitely.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method. Net realizable value is determined on the basis of estimated realizable values. Cost
includes direct materials, direct labor, and manufacturing overhead.

The Company’s inventories contain a variety of inventory types with varying characteristics that would impact potential inventory obsolescence. The Company estimates any required write-downs for inventory obsolescence
by examining inventories on a quarterly basis to determine if there are any damaged items or slow-moving products in which the carrying values could exceed net realizable value. Inventory write-downs are recorded as the difference between the
cost of inventory and its estimated market value. The Company recorded non-cash charges of $0.7 million and $3.1 million in 2024 and 2023, respectively, in Cost of Products Sold related to the Portfolio
Optimization Plan. The non-cash charges in 2024 were primarily related to trial production runs that did not meet quality specifications and thus were disposed of, and the non-cash charges in 2023 reduced the carrying value of certain
inventories, as they were determined to be excess. While significant judgment is involved in determining the net realizable value of certain inventories with shorter expirations, the Company believes that inventory is appropriately stated at the
lower of cost or net realizable value.

Commitments and Contingencies

The Company is subject to litigation and other legal proceedings arising in the ordinary course of its businesses or arising under applicable laws and regulations. Estimating liabilities and costs associated with these
matters requires the judgment of management, who rely in part on information from Company legal counsel. When it is probable that the Company has incurred a liability associated with claims or pending or threatened litigation matters and the
Company’s exposure is reasonably estimable, the Company records a charge against earnings. The Company recognizes related insurance reimbursement when receipt is deemed probable. The Company’s estimate of liabilities and related insurance
recoveries may change as further facts and circumstances become known.

NEW PRONOUNCEMENTS

Refer to the “Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Pronouncements” section within Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in this report for additional details.