MILWAUKEE — Sensient Technologies Corp. will accelerate investments in its naturally sourced colors at the expense of synthetic colors, which are being targeted for elimination through both national and state legislative actions.

In the United States and selectively throughout Latin America, Sensient’s synthetic colors revenue for foods and beverages is about $110 million, said Paul Manning, president and chief executive officer, in an April 25 earnings call to discuss first-quarter results. Since the conversion factor of moving to natural from synthetic is about 10 to 1 in revenue to maintain the same color shade, Sensient has a “significant opportunity” to outpace its mid-term outlook for naturally sourced colors in the coming years, he said.

“So in essence you're cannibalizing your product line but at a substantially higher ratio,” he said.

Milwaukee-based Sensient Technologies Corp. had net earnings of $34.5 million, equal to 82¢ per share on the common stock, in the quarter ended March 31, which was up 11% from $30.9 million, or 73¢ per share, in the previous year’s first quarter. Revenue increased 2% to $392 million from $385 million in the previous year’s first quarter.

Within the Colors business, revenue increased 4.8% to $168 million from $160 million, and operating income rose 10% to $34.9 million from $31.7 million.

“Given the sudden legislative change on natural color conversions in the United States, we anticipate our capital expenditures to remain elevated for the next several years as we continue to invest in our natural color capabilities,” Manning said.

The US Food and Drug Administration on April 22 announced a goal to phase out the synthetic dyes Green No. 3, Blue No. 1 and No. 2, Yellow No. 5 and No. 6, and Red No. 3 and No. 40 by the end of 2026. States have acted to ban synthetic dyes in school meals, too.

“Ultimately, we believe that a ban in one state will lead to a ban across the US since it is unlikely that CPGs will manufacture products for a specific state,” Manning said.

Sensient is investing in botanical development, expanding its supply chain to diversify crops and growing regions, and investing in processing capabilities.

“We love all of our customers,” Manning said. “We love some a little bit more than others, and I think it is those that we clearly will need to prioritize, but I think we have made a lot of money in this business by representing lots of different customers at various stages … whether they’re startup or established.”

Within Sensient’s flavors and extracts business, revenue increased 0.3% to $193.7 million from $193.1 million while operating income was up 5.5% at $25 million compared with $23.7 million. Volume was higher in flavors, extracts and flavor ingredient product lines but lower in natural ingredients. The decrease in the natural ingredients product line, which consists of dehydrated onion, garlic, capsicum, and other vegetables, was primarily due to a challenging prior year and lower demand, Manning said.

“The impact of tariffs on imported Chinese dehydrated products that compete against our US-grown products has the potential to improve demand as companies evaluate their ongoing purchasing activities,” he said.