Ingredion reports disappointing Q3

Ingredion reports disappointing Q3

Challenges included volume softness, currency headwinds and higher costs.

Ingredion Inc. (NYSE: INGR), a leading global provider of ingredient solutions to diversified industries, reported results for the third quarter 2013.

"This was a disappointing quarter as many of the headwinds we faced in the second quarter persisted and in some cases accelerated. These challenges included volume softness, currency headwinds and higher costs," said Ilene Gordon, chairman, president and chief executive officer. "Notably, two-thirds of the decline in operating income in the quarter was a result of the challenges in South America, particularly Argentina. Conditions remain very challenging in Argentina as political and economic actions have significantly increased costs while our ability to price through higher costs continues to be constrained."

In the face of economic challenges, volume softness and the impact of last summer's drought in the U.S., our total business has held up well. And, looking longer-term, our early outlook for 2014 remains positive as we expect relief on raw material prices, improved volume performance, and sales and operating income from key capital investments," Gordon added.

Earnings per share (EPS)
Third quarter diluted earnings per share (EPS) declined 24 percent to $1.10 compared to $1.45 last year. The third quarter of 2012 included $0.07 of restructuring/impairment charges. Excluding these items, reported 2013 EPS decreased 28 percent to $1.10 in the quarter compared to $1.52 of adjusted EPS in the year-ago quarter. The estimated drivers of the decrease in the third quarter 2013 EPS versus the 2012 adjusted EPS were $0.27 from margin, $0.08 due to lower volumes and $0.05 of foreign currency devaluation partially offset by $0.01 of other income. Non-operating items had a negative $0.03 impact, consisting of a $0.01 increase in financing costs, a $0.01 negative impact from an increase in share count, and negative $0.01 from non-controlling interest.

First nine months EPS was down 9 percent to $3.71 compared to $4.06 in the first nine months of last year. The first nine months of 2012 included $0.18 of restructuring/impairment charges and $0.03 of business integration costs, which were substantially offset by a $0.16 benefit from the reversal of a tax valuation allowance in South Korea. Excluding these items, reported 2013 EPS decreased 10 percent to $3.71 in the first nine months compared to $4.11 of adjusted EPS in the year-ago period. The estimated drivers of the decrease in the first nine months 2013 EPS versus the 2012 adjusted EPS were $0.30 from margin, $0.15 due to lower volumes and $0.12 of foreign currency devaluation partially offset by $0.01 of other income. A lower tax rate provided a $0.19 benefit and lower financing costs contributed $0.02. These positive factors were partially offset by a $0.04 negative impact from an increase in share count and negative $0.01 from non-controlling interest.

Financial highlights
During the third quarter of 2013, net financing costs were $18 million versus $16 million in the year-ago period. The increase primarily reflected an increase in foreign currency transaction losses, partially offset by lower interest expense.

The third quarter effective tax rate was 25.8 percent compared to 25.5 percent in the year-ago period. For the first nine months of 2013, the effective tax rate was 25.9 percent compared to 25.5 percent in the first nine months of 2012. The tax rates associated with the adjusted EPS in the third quarter 2012 and year-to-date 2012 were 26.8 percent and 29.7 percent, respectively.

At September 30, 2013, total debt and cash and cash equivalents were $1.77 billion and $618 million, respectively, versus $1.80 billion and $609 million, respectively, at December 31, 2012.

In the first nine months of 2013, cash flow generated by operations was $362 million, up $250 million from the end of the second quarter of 2013.

Capital expenditures, net of disposals, were $202 million in the first nine months of 2013 and 2012.

During the quarter, the Company repurchased 880,000 shares for approximately $56 million.

Business Review

Total Ingredion

Third quarter 2013
Sales were down 4 percent as volume declines and currency devaluations more than offset price/mix improvements.

Operating income was $137 million. This was a 19 percent decrease compared to $169 million of reported operating income in the third quarter of 2012 and a 24 percent decrease, or $42 million, compared to the $179 million of adjusted operating income in the year-ago quarter. The decline was primarily due to a $28 million decline in operating income in South America, largely a result of higher costs and weaker volumes.

First nine months 2013
Sales were down 1 percent as volume declines and currency devaluations more than offset price/mix improvements.

Operating income was $452 million. This was down 6 percent compared to reported operating income in the first nine months of 2012 of $483 million and a 12 percent decrease compared to the $514 million of adjusted operating income in the year-ago period. The decrease was primarily due to higher costs and weaker volumes. Notably $60 million of the $62 million decline in operating income was attributable to South America.

North America

Third quarter 2013
Sales declined against a strong year-ago comparison (3Q12 volume was +4 percent) as positive price/mix was more than offset by negative volume across our end markets and slight currency headwinds.

Operating income was down 6 percent, or $6 million, from $103 million to $97 million primarily due to the impact of lower volumes on fixed cost absorption.

First nine months 2013
Sales increased slightly as positive price/mix was partially offset by negative volume and slight currency headwinds.

Operating income was up 3 percent, or $9 million, from $299 million to a record $308 million primarily due to favorable price/mix, continued focus on cost savings initiatives from manufacturing efficiencies, and the ability to hold dollar margins.

South America

Third quarter 2013
Sales were down largely due to currency devaluations in Brazil ($21 million impact) and Argentina ($16 million impact). Brazilian volumes rose but were offset by declines in Argentina.

Operating income in the quarter was $19 million, down 60 percent, or $28 million. Favorable price/mix was offset by higher raw material, energy and labor costs, currency devaluations and lower volumes. Approximately two-thirds of the operating income decline was attributable to Argentina.

First nine months 2013
Sales were down largely due to currency devaluations in Brazil and Argentina along with volume declines resulting from continued weak economic conditions.

Operating income was $80 million, down 43 percent, or about $60 million. Favorable price/mix was offset by higher raw material, energy and labor costs, currency devaluations and lower volumes. Approximately two-thirds of the operating income decline was attributable to Argentina.

Asia Pacific

Third quarter 2013
Sales declined as a result of weaker volumes and negative foreign exchange rates. Price/mix was slightly positive. The year-ago quarter included $6 million of sales related to a Chinese joint venture which was sold in 2012. Absent that impact, sales would have declined 2 percent instead of 5 percent.

Operating income decreased 17 percent from $29 million to $24 million. The decline in operating income was primarily a result of lower sweetener sales to the beverage industry in South Korea.

First nine months 2013
Sales were down as a result of lower volumes partially offset by favorable price/mix and foreign exchange rates. The year-ago period included $19 million of sales related to a Chinese joint venture which was sold in 2012. Absent that impact, sales would have been up 1 percent.

Operating income decreased 2 percent from $72 million to $70 million, largely due to higher operating expenses partially offset by better volume and price/mix.

Europe, Middle East, Africa (EMEA)

Third quarter 2013
Sales rose by $11 million due to price/mix improvement and volume growth partially offset by currency devaluations. Volume was negatively impacted by $3 million due to the 2012 closure of the Company's plant in Kenya and a change to its distribution model in that country. Absent that impact, sales would have been up about 11 percent.

Operating income was $17 million, down $2 million, a decrease of 11 percent mainly due to ongoing higher raw material and energy costs in Pakistan.

First nine months 2013
Sales rose by $23 million due to price/mix improvement and volume growth partially offset by currency devaluations. Volume was negatively impacted by $11 million due to the 2012 closure of the Company's plant in Kenya and a change to its distribution model in that country. Absent that impact, sales would have been up about 9 percent.

Operating income was $54 million, down $3 million, a decrease of 6 percent mainly due to ongoing higher raw material and energy costs in Pakistan.

 

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