Ingredion sees strong global sales gains | 2021-11-03


WESTCHESTER, ILL. — Despite double-digit sales gains in all the company’s global regions, adjusted net income slid at Ingredion, Inc., in the company’s third fiscal quarter. Higher corn costs were the principal source of pressure on profits.

In trading on the New York Stock Exchange Nov. 2 following the earnings announcement, shares of Ingredion fell about 6% in early trading, declining to an early morning low of $89.69, down $5.93 from the Nov. 1 close. By mid-afternoon Nov. 2, Ingredion shares had recouped half of the day’s decline.

Ingredion net income in the third quarter ended Sept. 30 was $118 million, equal to $1.76 per share on the common stock, up 28% from $92 million, or $1.37 per share, in the same period in 2020. Net sales were $1.76 billion, up 17% from $1.5 billion in the third quarter last year.

Adjusted earnings per share in the third quarter of 2021 were $1.67, down 6% from $1.77. Factors affecting comparability of the profit figures include a 30¢ per share swing in impairment costs, with charges of $16 million in the third quarter last year and a $12 million credit in this year’s third quarter. The asset impairment charge related to the contribution of the company’s Argentina assets to the Arcor joint venture and higher corn and manufacturing costs, 

In a call with investment analysts Nov. 2, James D. Gray, principal accounting officer, executive vice president and chief financial officer, said gross margins narrowed to 18.3% during the third quarter, down 340 basis points, largely due to the passthrough of higher corn costs. At the earnings per share level, higher corn costs sliced 26¢ per share from profits, partially offset by the benefit of higher volumes (7¢) and favorable foreign exchange (2¢).

The third-quarter results did not dampen the company’s optimism. To the contrary, Ingredion raised its full-year earnings-per-share guidance for 2021 to an adjusted $6.65 to $7, up from previous guidance of $6.65 to $6.85 and compared with 2020 earnings of $6.23. The outlook excludes special charges, including restructuring costs.

James P. Zallie, president and chief executive officer, highlighted Ingredion’s strong sales growth in the third quarter, noting impressive gains across all the company’s global regions.

“We delivered outstanding top-line performance of 17% net sales growth in the quarter resulting from well managed sales execution to fulfill strong customer demand,” Mr. Zallie said. “Every region achieved double-digit sales growth through a clear focus on managing price mix and partnering with customers to meet changing demand requirements as a result of global supply chain constraints. At the same time, we kept pace with higher input costs to deliver reported operating income up 12% and adjusted operating income down 9%, against previously anticipated high double-digit corn cost inflation.”

The sales strength was driven by the company’s specialty ingredients platforms, outpacing the balance of the company’s portfolio, Mr. Zallie said. Sugar reduction and specialty sweeteners were particular sources of strength, he said.

“In addition, consumers’ heightened focus on nutrition and wellness is underpinning the robust demand we are seeing for our clean and simple, texture and plant-based protein solutions,” he said.

Ingredion’s contribution of its Argentina business to a joint venture (Arcor) was completed during the quarter, which Mr. Zallie said reduced the company’s exposure both to currency swings and to the global high-fructose corn syrup market.

In North America, third-quarter operating income was $120 million, down 9% from $132 million in the third quarter a year earlier. Net sales were $1.08 billion, up 17%. Year-to-date, North America operating income was $403 million, up 13% from $358 million in January-September 2020. Sales were $3.1 billion, up 13% from $2.74 billion.

Mr. Gray attributed the drop in profitability in North America to higher corn and input costs together with costs associated with the ramp-up of operations at the company’s plant-based protein facilities.

In the updated guidance for the full year, Ingredion said operating income in North America will be up low single digits to mid-single digits versus 2020, lifted by higher volumes and lower operating expenses.

The issue of global supply-chain problems was addressed in remarks by Mr. Zallie during the Nov. 2 call. He noted problems have been attributed to ocean container availability, rail congestion, labor shortages and the impact of the pandemic, combined with strong international consumer demand. While Ingredion is a global company, Mr. Zallie said most of its volume is “sourced locally and delivered locally within region.”

“However, for a portion of our specialty food starch business, we have an interregional supply chain,” he said. “For example, about 5% of our US sales are imported from Asia Pacific, of which most are specialty food starches. Therefore, in the first half of this year, we resourced our global supply chain center of excellence to actively manage interregional sourcing and work closely with customers to identify opportunities to best service their needs.”

He said the company has had to “exercise agility” to keep customers supplied with tapioca and rice-based starches. He offered as an example that Ingredion has air freighted product to help customers with new product launches or reformulations.

“We anticipate the supply chain to remain constrained through the end of this year,” he said.

Offering an update on Ingredion’s acquisition of Chicago-based PureCircle, Ltd., Mr. Zallie said the maker of stevia products and sugar reduction solutions has enjoyed sales growth of more than 200% year-over-year with losses falling by 60%. He said both metrics are ahead of integration plans and that the acquisition is now cash accretive.

Plant-based ingredient sales have been growing rapidly, Mr. Zallie said. Sales doubled for a second consecutive quarter, from what he described as a small base. Production is ramping up at the company’s facilities in South Sioux City, Neb., and Vanscoy, Sask.

In the wake of a severe drought in Canada that reduced production, Mr. Zallie said the company is “actively managing yellow pea costs and availability.” 

“We are confident we have secured our yellow pea requirements for next year and are assessing the impact of increased raw material costs on next year’s financial projections,” he said.

In response to a question, Mr. Zallie expressed confidence in the future for plant-based proteins at Ingredion in coming years.

“We’re very encouraged by the progress our manufacturing and engineering teams have made to commission two entirely new production facilities in a completely new ingredient category to Ingredion,” he said. “And the Vanscoy facility, as we indicated, continues to produce at record rates in comparison to previous months. Right now, the focus is on South Sioux City completing that process stabilization and ramping up that supply to meet customer demand. Our plant-based protein sales in 2021 will be two to three times what they were last year. That said, they will be behind our first-year forecast. And that’s why we’re laser-focused on loading the facility and absorbing the costs associated with the new plant start-up. So while this will result in a larger operating loss than we had projected this particular year, we’re confident in the long-term prospects for the category and for the return on those investments.”

Year to date, Ingredion net income was $50 million, equal to 74¢ per share, down 79% from $233 million, or $3.47, in January-September 2020. Sales were $5.14 billion, up 17% from $4.39 billion.



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