From wsj.com:
HEARD ON THE NET
Sensient Fixates on Critics,
Struggles With Its Business
By AARON ELSTEIN
THE WALL STREET JOURNAL ONLINE
A former rear admiral in the U.S. Naval Reserve, Sensient Technologies Chief Executive Kenneth Manning isn't one to dodge a dispute. But while he engages the company's critics, shareholders have suffered.
Milwaukee-based Sensient is the former Universal Foods, the maker of such foods as Red Star yeast. Since Mr. Manning took the helm in 1996, the company has shed most of its packaged-foods business and evolved into a maker of colorings and flavorings. It even makes inks for computer printers. It sold Red Star in 2000.
Thus far, the move into non-packaged foods businesses has not panned out for investors. At $21.48 a share on the New York Stock Exchange, Sensient's shares are at the same level they held in 1991. Even as it has changed its name and business strategy, Sensient has been unable to avoid industrywide difficulties. A series of mega-mergers in the food business means food companies are pressuring suppliers like Sensient to reduce prices as they try to wring costs out of their businesses. And Sensient's profits from selling inks for printers were squeezed by the slump in computer sales.
But another reason for Sensient's struggles could be Mr. Manning's penchant for picking fights with critics. Over the past year the company has become involved in a protracted tussle with an analyst and has litigated against online message board participants. A Sensient spokesman says the tiffs are no distraction, stating "Senior management has been focused on executing its strategy."
In the fight with the analyst, Mr. Manning has declined to take questions from Bill Leach of Banc of America Securities for more than a year. In February 2001, Leach suggested that management had not been entirely forthright in failing to highlight a one-time gain stemming from the cessation of some health-care benefits for retired employees. The gain, which did receive mention in a footnote to the earnings report, added five cents to Sensient's earnings and helped the company meet Wall Street expectations of 31 cents a share for the quarter ending Dec. 31, 2000.
Mr. Manning wrote a letter in August to the president of Banc of America Securities saying Mr. Leach had "made borderline defamatory remarks" and threatened legal action if the analyst continued his "bullying type of behavior." Through all the hub-bub, Mr. Leach says he maintains a line of communication through the company's treasurer, though he wishes he could get some questions in on conference calls.
The company didn't sue Mr. Leach, but it has gone to court in other cases. In a suit filed in New York state court last November, Sensient said that an unknown person, who the company alleged "works in the financial community in New York," had defamed Mr. Manning by posting a message on an online message board saying the CEO had been "screwing the shareholders year after year." Sensient spokesman Jeffrey Remsik says the company has since withdrawn the suit and last month refiled it in a Milwaukee federal court, alleging that a person named Les French wrote "false" messages "with the intent to cause harm to Sensient." The company seeks unspecified damages and an injunction that would prevent Mr. French from posting defamatory messages about Sensient. Mr. French is executive director of the John Does Anonymous Foundation, Portland, Ore., which acts as a clearinghouse of information for people sued by companies for posting allegedly defamatory messages on the Yahoo! message boards. Mr. French declines to comment, and the case is pending.
In addition, Sensient reached an out-of-court settlement with one online critic and a suit against another is pending, says Mr. Remsik. And the company shows little indication that it will stop chasing critics.
"Sensient strongly believes in freedom of speech," the company said in a prepared statement. Nevertheless, "Sensient has a right and duty to defend its reputation on behalf of its employees, customers, suppliers and shareholders."
But analysts and investors wish the company would spend less time hunting critics and more time on improving its business after a tough 2000 and 2001, when earnings fell short of Wall Street's targets four times in eight quarters, according to Multex.com, a New York investment research firm. "Management has caused investors 10 years of pain," says Prudential Securities analyst Jeffrey Kanter, referring to the efforts to improve the company's business prospects. Mr. Kanter rates the stock "hold."
Analysts say Sensient has struggled as big food companies like Kellogg, which last year acquired Keebler Foods amid a wave of consolidation in the foods business, pressure suppliers to sell products at lower costs. And while inks for computer printers make up about only 10% of Sensient's sales, according to Bear Stearns analyst Terry Bivens, such sales are the company's most profitable, so the slowdown in computer sales has stung, too. Mr. Bivens rates the stock "neutral."
Mr. Manning became CEO in October 1996. Sensing the food business would be dominated by a handful of huge companies, he accelerated the company's shift in business strategy toward colorings, flavorings, and printer-inks and away from prepared foods. In November 2000, the company shed the Universal Foods.
Since 1997, the shift in strategy has contributed to a 21% gain in the company's share price. But over that same period of time the Dow Jones Food Products Index has risen about 40%, or nearly twice as much. At $21.79 a share, the stock trades at 14 times expected earnings, according to Multex.com. That's cheap compared to other packaged-food makers, which fetch on average a multiple of 27 times earnings, and it's also lower than Sensient's chief rival, International Flavors and Fragrances, which fetches 18 times anticipated earnings. Still, Bear Stearns' Mr. Bivens says that Sensient's stock "isn't screamingly cheap," given the difficulties the company has had hitting earnings targets recently.
Indeed, the company's recent earnings shortfalls have exasperated those who track the company.
Sensient officials say the company is turning the corner. "Over the years, management has implemented its strategy and we are starting to see results," says Mr. Remsik, the company's spokesman.
Indeed, fourth-quarter results came in surprisingly strong, with the company posting earnings before such business expenses as goodwill amortization of 42 cents a share, which was six cents ahead of expectations, according to Multex.com, and two cents better than in the year-ago quarter. For the year, revenue came in at $817 million, slightly ahead of 2000's $809 million of revenue. The company says it expects earnings in 2002 before certain business expenses to come in between $1.50 and $1.55 a share, compared with earnings per share of $1.36 in 2001.
While the company's recent performance was helped by an unspecified tax-benefit gain, which analysts estimate was worth four cents a share, some on Wall Street are taking comfort from these signs of improved performance. Indeed, one analyst recently broke away from the pack that rate Sensient shares "hold" and upgraded it to "buy." The analyst: Banc of America Securities' Bill Leach.
Write to Aaron Elstein at aaron.elstein@wsj.com
Updated March 6, 2002
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