Zacks Investment Research downgraded Ingredion Inc (INGR) to a Zacks Rank #5 (Strong Sell) on Sep 10. Disappointing second quarter 2013 results and a cut in full-year 2013 guidance led to the downgrade.
Why the Downgrade?
On Jul 31, Ingredion, an ingredient solutions provider, reported dismal second quarter 2013 results. Though earnings of $1.20 per share beat the Zacks Consensus Estimate by 1.7%, it declined 10% from the prior-year quarter.
The year-over year decline was due to weak operating income and a challenging macro-economic environment, particularly in South America, which has risen recently and difficult to offset in the short-term. The company is also witnessing shrinking margins in Argentina.
The company stated that growth in Argentina has been lower than expected. The situation worsened with government policies curbing Ingredion’s ability to pass on higher raw-material prices to customers. Besides Argentina, the current state of the Brazilian economy also remains a concern.
The company had also cautioned its investors in May about the anticipated weakness in the global economy, currency headwinds in Brazil, Argentina and Pakistan and inflationary pressure.
Ingredion’s sales of $1.633 billion lagged the Zacks Consensus Estimate of $1.666 billion by 2% and were flat year over year as price/mix improvements were offset by volume declines and currency devaluations. Operating income also declined 17% year-over-year on an adjusted basis to $140 million due to higher costs and weaker volumes, particularly in South America.
Management remains positive on the long-term prospects as it expects raw material prices to subside and improved volume performance in key markets, owing to the company’s sales and operating income from capital investments. However, the economic pressure faced in Argentina remains an overhang and is expected to take a toll on full-year 2013 results.
Owing to sluggish second quarter results and a tough macro-economic environment, the company reduced its earnings guidance for 2013. Ingredion now expects earnings per share in the range of $5.10 to $5.40 per share compared with the prior range of $5.60 to $6.00 per share.
This maker of high-fructose corn syrup witnessed sharp downward estimate revisions after announcing its second quarter 2013 results. All the estimates for the third quarter and 2013 declined over the past 60 days. The Zacks Consensus Estimate for the third quarter decreased 17.5% and that for 2013 went down 10.4% over the last 60 days.
Other Stocks to Consider
Not all stocks are performing as poorly as Ingredion. Other food companies that are worth considering are Green Mountain Coffee Roasters, Inc (GMCR), Pinnacle Foods Inc (PF) and Dole Food Co. Inc. (DOLE). While Green Mountain and Pinnacle Foods hold a Zacks Rank #1 (Strong Buy), Dole Food holds a Zacks Rank #2 (Buy).