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Ingredion: Reports Second Quarter 2019 Results

Westchester / IL. (ingr) Ingredion Incorporated, a leading global provider of ingredient solutions to diversified industries, reported results for the second 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.

«During the second quarter, we experienced foreign exchange impacts and rapidly changing raw material markets. Our teams have taken aggressive pricing actions to mitigate foreign exchange impacts. We experienced an increase in the net cost of corn in North America due to continued crop inventory imbalances arising from the U.S./China trade dispute. We are closely monitoring raw material markets and selectively capitalizing on opportunities to partially offset the higher cost of corn,» said Jim Zallie, Ingredion’s president and chief executive officer.

«As a result of the actions we took to accelerate our Cost Smart savings program, we now expect to deliver USD 30 million to USD 40 million of 2019 year-end cumulative run-rate savings, an increase from the USD 24 million to USD 34 million of savings previously anticipated.»

«Our specialty growth platforms delivered increased net sales in the quarter led primarily by sugar reduction and specialty sweeteners. We are nearing startup of Allulose production at our manufacturing facility in San Juan del Rio, Mexico, which will complement our existing portfolio of specialty sweeteners. In addition, we progressed our plant-based proteins growth strategy and are actively filling our customer pipeline with anticipated sales in the second half of the year. We have also expanded our relationship with Verdient Foods to increase the capacity to produce food-grade, higher-value specialty pulse-based flours and concentrates.»

«We expect modest growth in the second half of the year. However, due to the recent increase in corn costs, our expectation for net corn costs in the second half in North America is higher. Our adjusted EPS guidance for 2019 is now in the range of USD 6.60 to USD 6.90,» added Zallie.

*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)

Q2/2018 Q2/2019 YTD-2018 YTD-2019
Reported EPS USD 1.57 USD 1.56 USD 3.47 USD 3.04
Income Tax Settlement USD 0.02 USD 0.02
Impairment/Restructuring Costs USD 0.07 USD 0.10 USD 0.11 USD 0.15
Acquisition/Integration Costs USD 0.01
Adjusted EPS** USD 1.66 USD 1.66 USD 3.60 USD 3.20

**Totals may not foot due to rounding

Estimated factors affecting change in reported and adjusted EPS

Q2/2019 YTD-2019
Margin (0.09) (0.26)
Volume (0.01) (0.02)
Foreign exchange (0.13) (0.28)
Other income 0.01 (0.02)
Total operating items (0.22) (0.58)
Other non-operating income (0.02)
Financing costs 0.08 0.03
Shares outstanding 0.12 0.25
Tax rate 0.02 (0.09)
Non-controlling interest 0.01
Total non-operating items 0.22 0.18
Total items affecting EPS (0.40)

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Financial Highlights

  • At June 30, 2019, total debt and cash and short-term investments were USD 2.1 billion and USD 301 million, respectively, versus USD 2.1 billion and USD 334 million, respectively, at December 31, 2018. The decrease in cash and short-term investments was primarily due to the timing of changes in working capital and recent acquisitions and investments.
  • Net financing costs were USD 16 million, or USD 9 million lower in the second quarter from the year-ago period. This decrease resulted from foreign exchange gains lapping losses in the same quarter from the year-ago period, partially offset by higher net interest expense due to higher debt balances.
  • Reported and adjusted effective tax rates for the quarter were each 29.6 percent compared to reported and adjusted effective tax rates of 31.4 percent and 30.5 percent, respectively, from the year-ago period. The decrease in reported and adjusted rates resulted from the relative 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.
  • Second quarter capital expenditures were USD 156 million, down USD 4 million from the year-ago period.
  • Cost Smart is now expected to deliver USD 30 million to USD 40 million of 2019 year-end cumulative run-rate savings, higher than the previously stated USD 24 million to USD 34 million target. Cost Smart is achieving structural cost savings by aligning people and processes to improve effectiveness and efficiency across the organization. For example, the Company’s global business service center in Guadalajara, Mexico is now fully operational.

Business Review – Total Ingredion

USD in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales Change
Second quarter 1,496 -77 -24 39 1,434 -4%
Year-to-Date 2,965 -171 -57 117 2,854 -4%

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Net Sales

  • Second quarter and year-to-date net sales were down from the year-ago period. The decrease in 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 to mitigate foreign exchange impacts and higher net corn costs.

Operating income

  • Reported and adjusted operating income for the quarter were USD 168 million and USD 178 million, respectively, decreases of 13 percent and 11 percent, respectively, from the year-ago period. The decreases were largely attributable to foreign exchange impacts and higher raw material costs, partially offset by improved price/mix.
  • Year-to-date reported and adjusted operating income were USD 329 million and USD 344 million, respectively, decreases of 16 percent and 14 percent, respectively, 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.
  • Second quarter reported operating income was lower than adjusted operating income by USD 10 million due to restructuring costs related to the Cost Smart program and Western Polymer integration costs.

North America

USD in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales Change
Second quarter 916 -3 -25 -3 885 -3%
Year-to-Date 1,790 -8 -42 5 1,745 -3%

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Operating income

  • Second quarter operating income was USD 139 million, a decrease of USD 11 million from the year-ago period. The decrease was driven by higher net corn costs due to lower co-product values and scheduled plant maintenance.
  • Year-to-date operating income was USD 264 million, a decrease of USD 29 million from the year-ago period. The decrease was driven by higher net corn costs due to lower co-product values, higher inventory and production costs, and a modest impact from the extreme weather in the U.S. and Canada.

South America

USD in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales Change
Second quarter 232 -47 3 27 215 -7%
Year-to-Date 481 -109 -14 75 433 -10%

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Operating income

  • Second quarter operating income was USD 16 million, a decrease of USD 4 million from the year-ago period. Foreign exchange impacts were partially offset by favorable pricing actions.
  • Year-to-date operating income was USD 34 million, a decrease of USD 12 million from the year-ago period. Foreign exchange impacts and lower volumes were partially offset by favorable pricing actions.

Asia-Pacific

USD in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales Change
Second quarter 201 -8 -1 3 195 -3%
Year-to-Date 395 -15 -6 15 389 -2%

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Operating income

  • Second quarter operating income was USD 23 million, down USD 4 million from the year-ago period. Higher corn costs primarily in Korea and foreign exchange impacts across the region were partially offset by specialty volume growth and favorable price/mix.
  • Year-to-date operating income was USD 43 million, a decrease of USD 7 million from the year-ago period. Specialty volume growth and improved price/mix were more than offset by higher regional corn costs and foreign exchange impacts.

Europe, Middle East, and Africa (EMEA)

USD in millions 2018 Net sales FX Impact Volume Price/mix 2019 Net sales Change
Second quarter 147 -18 -1 11 139 -5%
Year-to-Date 299 -38 4 22 287 -4%

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Operating income

  • Second quarter operating income was USD 23 million, down USD 6 million from the year-ago period. Unfavorable foreign exchange impacts across the region, driven primarily by the Pakistan rupee, and higher raw material costs were partially offset by improved price/mix.
  • Year-to-date operating income was USD 47 million, a decrease of USD 13 million from a year ago. Unfavorable foreign exchange impacts across the region, driven primarily by the Pakistan rupee, and higher raw material costs were partially offset by specialty volume growth and improved price/mix.

Updated 2019 Outlook

The Company expects 2019 adjusted EPS to be in the range of USD 6.60 to USD 6.90 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, the 2019 full-year outlook is as follows: North America operating income is expected to be down assuming current market conditions for corn and co-products, which have been negatively impacted by unprecedented weather and late crop plantings 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 flat reflecting macroeconomic challenges; Asia-Pacific operating income is expected to be down driven by foreign exchange rates, increased input costs and anticipated slower customer demand due to the regional impact of trade disputes; EMEA operating income is expected to be down due to foreign exchange, higher raw material cost and uncertainty around Brexit; adjusted effective tax rate is expected to be in the range of approximately 26.5-28.0 percent; and higher-value specialty ingredients are expected to deliver continued growth. The Company expects operating income to be up modestly in the second half of 2019 relative to 2018. Cash from operations is expected to be in the range of USD 610 million to USD 660 million. Capital expenditures are anticipated to be between USD 330 million and USD 360 million.