Westchester / IL. (ingr) Ingredion Incorporated, a leading global provider of ingredient solutions to diversified industries, 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 USD 6.45-USD 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.
Diluted Earnings Per Share (EPS)
| Q3-2018 | Q3-2019 | YTD-2018 | YTD-2019 | ||||||
| Reported EPS | USD 1.32 | USD 1.47 | USD 4.80 | USD 4.51 | |||||
| Income Tax Settlement | USD (0.03) | – | – | – | |||||
| Income Tax Reform | USD 0.03 | – | USD 0.03 | – | |||||
| Impairment/Restructuring Costs | USD 0.38 | USD 0.32 | USD 0.48 | USD 0.47 | |||||
| Acquisition/Integration Costs | – | – | – | USD 0.02 | |||||
| Other Tax Matters | – | USD 0.03 | – | USD 0.03 | |||||
| Adjusted EPS** | USD 1.70 | USD 1.82 | USD 5.31 | USD 5.03 | |||||
**Totals may not foot due to rounding
Estimated factors affecting change in reported and adjusted EPS
| Q3-2019 | YTD-2019 | |||
| 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) |
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Financial Highlights
- At September 30, 2019, total debt and cash and short-term investments were USD 2.1 billion and USD 446 million, respectively, versus USD 2.1 billion and USD 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 USD 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 USD 75 million, up USD 1 million from the year-ago period.
- Cost Smart is expected to deliver USD 30 million to USD 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
| USD 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% | |
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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 USD 165 million and USD 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 USD 28 million due to restructuring costs related to the Cost Smart savings program.
- Year-to-date reported and adjusted operating income were USD 494 million and USD 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.
The Company expects 2019 adjusted EPS to be in the range of USD 6.45-USD 6.65 compared to adjusted EPS of USD 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 USD 600 million to USD 640 million. Capital expenditures are anticipated to be between USD 335 million and USD 355 million including mechanical stores of USD 50 million to USD 60 million.
