What happened

Shares of Sensient Technologies (NYSE:SXT) dropped 14% today after the company reported third-quarter 2018 earnings results. For the last two years, the business has been struggling under the weight of a restructuring, which has sapped both sales and earnings. Although CEO Paul Manning expressed confidence that the worst is now behind the business, not much changed for the three months ended Sept. 30. That prompted the company to admit that full-year 2018 earnings will come in below the previously expected range. 

The flavor and fragrance specialist reported a 3% drop in revenue during the third quarter of 2018 compared with the prior year. Despite a nearly 8% decrease in selling and administrative expenses in that span, operating income came in 3.4% lower in the most recent period.

As of 11:24am EDT on Friday, the stock had settled to a 13.4% loss.

A suddenly sliding chart drawn on a chalkboard.

Image source: Getty Images.

So what

On paper, it might appear that Sensient Technologies is only really struggling relative to the market's (and its own) expectations. In the first nine months of 2018, operating income jumped 31% versus the same period last year. The consistently healthy level of profitability has allowed the business to reduce the number of shares outstanding nearly 5% and grow its dividend payout by double digits this year. The last increase alone, announced the day before third-quarter earnings, was a cool 9%, which bumped the stock's dividend yield to 2.1%.

While the share count reduction and dividend increase are real, most comparisons to 2017 come with an asterisk because the company ate some hefty restructuring expenses that sapped operating profits. Account for that with simple adjustments, and Sensient Technologies reported adjusted operating profit that was 4.5% lower in the first nine months of 2018 compared with last year.

Now what

If it's any consolation to investors, most of the flavor and fragrance industry is struggling right now, which has prompted it to consolidate recently. The industry's headwinds have created problems for Wall Street, namely because many stocks have earned premium valuations thanks to consistent growth over the years.

With that bedrock assumption looking more like quicksand, many flavor and fragrance stocks are down in the last year. Until companies such as Sensient prove they can successfully shed costs and integrate acquisitions, investors might not expect Mr. Market's enthusiasm for the industry to improve all that much.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.