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Ingredion Incorporated Reports Third Quarter 2019 Results

Ingredion Incorporated Reports Third Quarter 2019 Results
  • Third quarter 2019 reported and adjusted EPS* were $1.47 and $1.82, respectively, compared with $1.32 and $1.70 in the third quarter 2018, respectively
  • Year-to-date 2019 reported and adjusted EPS were $4.51 and $5.03, respectively, down from $4.80 of reported EPS and down from $5.31 of adjusted EPS in the year-ago period
  • 2019 adjusted EPS expected to be in the range of $6.45-$6.65

WESTCHESTER, Ill., Oct. 31, 2019 (GLOBE NEWSWIRE) -- Ingredion Incorporated (INGR), a leading global provider of ingredient solutions to diversified industries, today reported results for the third quarter 2019. The results, reported in accordance with U.S. generally accepted accounting principles (“GAAP”) for 2019 and 2018, include items that are excluded from the non-GAAP financial measures that the Company presents.

"We are pleased to have delivered modest net sales and operating income growth despite the challenging environment. We advanced our specialties strategy, which delivered specialty volume growth across every region, while also managing pricing actions across our entire business to offset the impacts of currency and input cost inflation,” said Jim Zallie, Ingredion's president and chief executive officer.

“We continued executing well against our Cost Smart savings program to drive additional operational efficiencies. Most recently, we made the decision to move to an import model and cease production at our Lane Cove facility in Australia to address persistent corn cost increases due to water scarcity. In addition, we initiated a significant restructuring of our South America business by streamlining operations to create a more agile business in the region.”

“Looking ahead, we expect ongoing macroeconomic pressures in the fourth quarter resulting from the impacts of trade disputes, uncertainty from the political transition in Argentina, and Brexit postponements, which is reflected in our revised full-year EPS guidance range of $6.45-$6.65. We are confident in our team’s ability to continue executing against our strategic initiatives to achieve our long-term profit growth outlook. We remain committed to returning capital to shareholders, as evidenced by the Board’s decision to increase the dividend for the fifth consecutive year,” Zallie concluded.

*Adjusted diluted earnings per share (“adjusted EPS”), adjusted operating income, adjusted effective income tax rate and adjusted cash flow from operations are non-GAAP financial measures. See section II of the Supplemental Financial Information entitled “Non-GAAP Information” following the Condensed Consolidated Financial Statements included in this press release for a reconciliation of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures.

Diluted Earnings Per Share (EPS)

  3Q18
  3Q19 YTD18 YTD19
Reported EPS $1.32   $1.47 $4.80 $4.51
Income Tax Settlement $(0.03)   - - -
Income Tax Reform $0.03   - $0.03 -
Impairment/Restructuring Costs $0.38   $0.32 $0.48 $0.47
Acquisition/Integration Costs -   - - $0.02
Other Tax Matters -   $0.03 - $0.03
Adjusted EPS** $1.70   $1.82 $5.31 $5.03

**Totals may not foot due to rounding


Estimated factors affecting change in reported and adjusted EPS

  3Q19   YTD19  
Margin 0.06   (0.20)  
Volume 0.10   0.08  
Foreign exchange (0.11)   (0.39)  
Other income (0.02)   (0.04)  
Total operating items 0.03   (0.55)  
Other non-operating income (0.02)   (0.04)  
Financing costs 0.01   0.04  
Shares outstanding 0.12   0.37  
Tax rate (0.02)   (0.11)  
Non-controlling interest -   0.01  
Total non-operating items 0.09   0.27  
Total items affecting EPS 0.12   (0.28)  

Financial Highlights

  • At September 30, 2019, total debt and cash and short-term investments were $2.1 billion and $446 million, respectively, versus $2.1 billion and $334 million, respectively, at December 31, 2018. The increase in cash and short-term investments was primarily due to the timing of short-term debt payments and stock repurchases in the prior year.
  • Net financing costs were $24 million, or flat to the third quarter from the year-ago period, as the impact of Argentina hyperinflationary accounting offset the benefit of lapping prior year foreign exchange losses.
  • Reported and adjusted effective tax rates for the quarter were 27.1 percent and 25.0 percent compared to reported and adjusted effective tax rates of 25.8 percent and 24.7 percent, respectively, from the year-ago period. The increase in reported and adjusted rates resulted from the relatively lower valuation of the Mexican peso impacting the U.S. dollar denominated balances in Mexico. This was partially offset by a change in earnings mix and other factors.
  • Third quarter capital expenditures were $75 million, up $1 million from the year-ago period.
  • Cost Smart is expected to deliver $30 million to $40 million of 2019 year-end cumulative run-rate savings. Cost Smart is achieving structural cost savings by aligning people and processes to improve effectiveness and efficiency across the organization.

Business Review

Total Ingredion

$ in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales % change
Third quarter 1,450 -52 9 50 1,457 0%
Year-to-Date 4,415 -223 -48 167 4,311 -2%

Net Sales

  • Third quarter net sales were slightly up from the year-ago period. Improved price/mix and volume growth were partially offset by foreign currency impacts.
  • Year-to-date net sales were down from the year-ago period. The decrease in year-to-date net sales was driven by unfavorable foreign currency impacts and planned Stockton HFCS and industrial starch volume shed, partially offset by favorable price/mix due to pricing actions.

Operating income

  • Reported and adjusted operating income for the quarter were $165 million and $193 million, respectively, increases of 6 percent and 2 percent, respectively, from the year-ago period. The increases were largely attributable to improved price/mix and specialty volume growth, partially offset by foreign exchange impacts and higher raw material costs.
  • Third quarter reported operating income was lower than adjusted operating income by $28 million due to restructuring costs related to the Cost Smart savings program.
  • Year-to-date reported and adjusted operating income were $494 million and $537 million, respectively, decreases of 9 percent from the year-ago period. The decreases were largely attributable to foreign exchange impacts and higher raw material and production costs, partially offset by improved price/mix.

North America

$ in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales % change
Third quarter 889 -1 -9 13 892 0%
Year-to-Date 2,679 -9 -51 18 2,637 -2%

Operating income

  • Third quarter operating income was $145 million, an increase of $7 million from the year-ago period. The increase was driven by improved price/mix and benefits from the Cost Smart savings program, partially offset by higher net corn costs.
  • Year-to-date operating income was $409 million, a decrease of $22 million from the year-ago period. The decrease was driven by higher inventory and production costs, higher net corn costs due to lower co-product values, and a modest impact from the extreme weather in the U.S. and Canada.

South America

$ in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales % change
Third quarter 228 -34 11 29 234 3%
Year-to-Date 709 -143 -3 104 667 -6%

Operating income

  • Third quarter operating income was $27 million, an increase of $5 million from the year-ago period. Favorable pricing actions, volume, and the benefits of the Cost Smart program more than offset foreign exchange impacts.
  • Year-to-date operating income was $61 million, a decrease of $7 million from the year-ago period. Higher input costs and foreign exchange impacts and were partially offset by favorable pricing actions.

Asia-Pacific

$ in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales % change
Third quarter 197 -1 5 -5 196 -1%
Year-to-Date 592 -16 -1 10 585 -1%

Operating income

  • Third quarter operating income was $22 million, down $3 million from the year-ago period. The decrease was driven by increased operating costs in Australia and the continuing impact of trade disputes, which have increased input costs and intensified competitive pressure on price/mix.
  • Year-to-date operating income was $65 million, a decrease of $10 million from the year-ago period. Specialty volume growth and improved price/mix were more than offset by higher regional input costs, foreign exchange impacts and increased operating costs in Australia.

Europe, Middle East, and Africa (EMEA)

$ in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales % change
Third quarter 136 -16 2 13 135 -1%
Year-to-Date 435 -55 10 32 422 -3%

Operating income

  • Third quarter operating income was $24 million, down $2 million from the year-ago period. Higher corn costs and unfavorable foreign exchange impacts were partially offset by strong pricing actions.
  • Year-to-date operating income was $71 million, a decrease of $15 million from a year ago. Unfavorable foreign exchange impacts, driven primarily by the Pakistan rupee, and higher raw material costs were partially offset by improved price/mix and specialty volume growth.

Updated 2019 Outlook

The Company expects 2019 adjusted EPS to be in the range of $6.45-$6.65 compared to adjusted EPS of $6.92 in 2018. This expectation excludes acquisition-related, integration and restructuring costs, as well as any potential impairment costs. Compared with last year, we expect fourth quarter adjusted operating income to be flat to slightly down, higher financing costs driven by the impact of Argentina hyperinflation, and a higher effective tax rate due to the anticipated mix of earnings. Compared with last year, the 2019 full-year outlook is as follows: North America operating income is expected to be down assuming continuation of current market conditions for corn and co-products, which have been negatively impacted by late crop plantings and delayed harvest in the U.S. and continued crop inventory imbalances arising from the U.S./China trade dispute; South America operating income is expected to be down due to the impact of macroeconomic uncertainty; Asia-Pacific operating income is expected to be down driven increased input costs and anticipated slower customer demand, intensified competitive pressure on price and by foreign currency weakness; EMEA operating income is expected to be down due to foreign currency weakness, higher raw material costs and postponement of Brexit; higher-value specialty ingredients are expected to deliver continued growth; and our adjusted effective tax rate is expected to be in the range of approximately 27.0-28.0 percent. Cash from operations is expected to be in the range of $600 million to $640 million. Capital expenditures are anticipated to be between $335 million and $355 million including mechanical stores of $50 million to $60 million.

Conference Call and Webcast Details
Ingredion will conduct a conference call today at 7 a.m. Central Time hosted by Jim Zallie, president and chief executive officer, and James Gray, executive vice president and chief financial officer. The call will be webcast in real time and will include a presentation accessible through the Company’s website at www.ingredion.com. The presentation will be available to download a few hours prior to the start of the call. A replay of the webcast will be available for a limited time at www.ingredion.com.

ABOUT THE COMPANY
Ingredion Incorporated (INGR), headquartered in the suburbs of Chicago, is a leading global ingredient solutions provider serving customers in more than 120 countries. With annual net sales of nearly $6 billion, the company turns grains, fruits, vegetables and other plant materials into value-added ingredients and biomaterial solutions for the food, beverage, paper and corrugating, brewing and other industries. With Ingredion Idea Labs® innovation centers around the world and more than 11,000 employees, the Company develops ingredient solutions to meet consumers' evolving needs by making crackers crunchy, yogurt creamy, candy sweet, paper stronger, and adding fiber to nutrition bars. For more information, visit ingredion.com.

Forward-Looking Statements
This news release contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends these forward-looking statements to be covered by the safe harbor provisions for such statements.

Forward-looking statements include, among other things, any statements regarding the Company's future financial condition, earnings, revenues, tax rates, capital expenditures, cash flows, expenses or other financial items, including the Company’s expectations for 2019 adjusted EPS, operating income, adjusted effective tax rate, cash from operations and capital expenditures, any statements concerning the Company's prospects or future operations, including management's plans or strategies and objectives therefor, and any assumptions, expectations or beliefs underlying the foregoing.

These statements can sometimes be identified by the use of forward-looking words such as "may," "will," "should," "anticipate," "assume", "believe," "plan," "project," "estimate," "expect," "intend," "continue," "pro forma," "forecast," "outlook," "propels," "opportunities," "potential," “provisional” or other similar expressions or the negative thereof. All statements other than statements of historical facts in this release or referred to in this release are "forward-looking statements."

These statements are based on current circumstances or expectations, but are subject to certain inherent risks and uncertainties, many of which are difficult to predict and are beyond our control. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, investors are cautioned that no assurance can be given that our expectations will prove correct.

Actual results and developments may differ materially from the expectations expressed in or implied by these statements, based on various factors, including changing consumption preferences including those relating to high fructose corn syrup; the effects of global economic conditions, including, particularly, economic, currency and political conditions in South America, trade relations between the United States and China and economic and political conditions in Europe, and their impact on our sales volumes and pricing of our products; our ability to collect our receivables from customers and our ability to raise funds at reasonable rates; future financial performance of major industries which we serve, including, without limitation, the food, beverage, paper and corrugated, and brewing industries; fluctuations in worldwide markets for corn and other commodities, and the associated risks of hedging against such fluctuations; genetic and biotechnology issues; our ability to develop or acquire new products and services at rates or of qualities sufficient to meet expectations; availability of raw materials, including corn, including the impact of recent excess precipitation in the U.S. corn-planting season, potato starch, tapioca, gum Arabic and also the specific varieties of corn upon which some of our products are based; fluctuations in the markets and prices for our co-products, particularly corn oil; fluctuations in aggregate industry supply and market demand; the behavior of financial markets, including foreign currency fluctuations and fluctuations in interest and exchange rates; volatility and turmoil in the capital markets; the commercial and consumer credit environment; general political, economic, business, market and weather conditions in the various geographic regions and countries in which we buy our raw materials or manufacture or sell our products; energy costs and availability; freight and shipping costs; and changes in regulatory controls regarding quotas; tariffs, duties, taxes and income tax rates, particularly United States tax reform enacted in 2017; operating difficulties; energy issues in Pakistan; boiler reliability; our ability to effectively integrate and operate acquired businesses; our ability to achieve budgets and to realize expected synergies; our ability to achieve expected savings under our Cost Smart program; our ability to complete planned maintenance and investment projects successfully and on budget; labor disputes; ; increased competitive and/or customer pressure in the corn-refining industry; and the outbreak or continuation of serious communicable disease or hostilities, including acts of terrorism. Our forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of the statement as a result of new information or future events or developments. If we do update or correct one or more of these statements, investors and others should not conclude that we will make additional updates or corrections. For a further description of these and other risks, see "Risk Factors" and other information included in our Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent reports on Forms 10-Q and 8-K.

CONTACTS:
Investors: Ryan Koller, 708-551-2592
Media: Becca Hary, 708-551-2602


   
Ingredion Incorporated ("Ingredion")  
Condensed Consolidated Statements of Income  
(Unaudited)  
                         
(in millions, except per share amounts)     Three Months Ended September 30,   Change %     Nine Months Ended September 30,   Change %  
        2019     2018             2019     2018        
Net sales before shipping and handling costs     $ 1,574   $ 1,563     1 %     $ 4,660   $ 4,752     (2 %)  
Less: shipping and handling costs       117     113             349     337        
Net sales       1,457     1,450     0 %       4,311     4,415     (2 %)  
Cost of sales       1,113     1,116             3,322     3,367        
Gross profit       344     334     3 %       989     1,048     (6 %)  
                           
Operating expenses       153     148     3 %       457     465     (2 %)  
Other income, net       (2 )   (3 )           (3 )   (7 )      
Restructuring/impairment charges       28     34             41     45        
Operating income       165     155     6 %       494     545     (9 %)  
Financing costs, net       24     24             62     65        
Other, non-operating expense (income), net       1     (1 )           1     (3 )      
Income before income taxes       140     132     6 %       431     483     (11 %)  
Provision for income taxes       38     34             120     126        
Net income       102     98     4 %       311     357     (13 %)  
Less: Net income attributable to non-controlling interests       3     3             7     8        
Net income attributable to Ingredion     $ 99   $ 95     4 %     $ 304   $ 349     (13 %)  
                           
                           
Earnings per common share attributable to Ingredion                          
common shareholders:                          
                           
Weighted average common shares outstanding:                          
Basic       66.9     71.2             66.9     71.8        
Diluted       67.4     71.9             67.4     72.7        
                           
Earnings per common share of Ingredion:                          
Basic     $ 1.48   $ 1.33     11 %     $ 4.54   $ 4.86     (7 %)  
Diluted     $ 1.47   $ 1.32     11 %     $ 4.51   $ 4.80     (6 %)  
                           


Ingredion Incorporated ("Ingredion")  
Condensed Consolidated Balance Sheets  
   
      (in millions, except share and per share amounts) September 30, 2019   December 31, 2018  
        (Unaudited)      
               
  Assets          
    Current assets        
      Cash and cash equivalents $ 443     $ 327    
      Short-term investments   3       7    
      Accounts receivable – net   981       951    
      Inventories   879       824    
      Prepaid expenses   36       29    
    Total current assets   2,342       2,138    
               
      Property, plant and equipment – net   2,226       2,198    
      Goodwill   795       791    
      Other intangible assets – net   442       460    
      Operating lease assets   132       -    
      Deferred income tax assets   11       10    
      Other assets   147       131    
  Total assets $ 6,095     $ 5,728    
               
  Liabilities and equity        
    Current liabilities        
      Short-term borrowings $ 81     $ 169    
      Accounts payable and accrued liabilities   876       777    
    Total current liabilities   957       946    
               
      Non-current liabilities   210       217    
      Long-term debt   2,001       1,931    
      Non-current operating lease liabilities   102       -    
      Deferred income tax liabilities   185       189    
      Share-based payments subject to redemption   28       37    
               
               
    Equity          
    Ingredion stockholders' equity:        
      Preferred stock – authorized 25,000,000 shares – $0.01 par value, none issued   -       -    
      Common stock – authorized 200,000,000 shares – $0.01 par value, 77,810,875      
      shares issued at September 30, 2019 and December 31, 2018   1       1    
      Additional paid-in capital   1,137       1,096    
      Less: Treasury stock (common stock; 11,052,615 and 11,284,681 shares at        
      September 30, 2019 and December 31, 2018, respectively) at cost   (1,044 )     (1,091 )  
      Accumulated other comprehensive loss   (1,214 )     (1,154 )  
      Retained earnings   3,713       3,536    
    Total Ingredion stockholders' equity   2,593       2,388    
    Non-controlling interests   19       20    
    Total equity   2,612       2,408    
               
  Total liabilities and equity $ 6,095     $ 5,728    



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Ingredion Incorporated ("Ingredion")  
Condensed Consolidated Statements of Cash Flows  
(Unaudited)  
   
        For the Year Ended September 30,  
  (in millions)   2019   2018  
               
  Cash provided by operating activities:          
    Net income   $ 311     $ 357    
    Adjustments to reconcile net income to          
    net cash provided by operating activities:          
    Depreciation and amortization     158       188    
    Mechanical stores expense     42       43    
    Deferred income taxes     2       (20 )  
    Charge for fair value mark-up of acquired inventory     -       -    
    Margin accounts     (4 )     6    
    Changes in other trade working capital     (51 )     (60 )  
    Other     32       65    
    Cash provided by operating activities     490       579    
               
  Cash used for investing activities:          
    Capital expenditures and mechanical stores purchases, net of proceeds on disposals   (231 )     (234 )  
    Payments for acquisitions, net of cash acquired of $4 and $-, respectively     (42 )     -    
    Investment in a non-consolidated affiliate     (10 )     -    
    Short-term investments     4       2    
    Other     1       2    
    Cash used for investing activities     (278 )     (230 )  
               
  Cash used for financing activities:          
    Proceeds from (payments on) borrowings, net     (19 )     (181 )  
    Repurchases of common stock, net     63       (177 )  
    Issuances of common stock for share-based compensation, net of settlements     1       (2 )  
    Dividends paid, including to non-controlling interests     (131 )     (137 )  
    Cash used for financing activities     (86 )