Corn Products International, Inc. (now Ingredion) — Q2 2011 Form 10-Q
Business context and period: The filing is for the quarter and six months ended June 30, 2011. Corn Products International produced starches, sweeteners and related products across North America, South America, Asia Pacific and EMEA. Results include National Starch, acquired October 1, 2010; therefore, comparisons with 2010 are not on a fully comparable basis.
Key financial results
| Metric | Q2 2011 | Q2 2010 | First half 2011 | First half 2010 |
|---|---|---|---|---|
| Net sales | $1,584.6m | $1,003.0m | $3,044.0m | $1,940.3m |
| Gross profit | $271.8m | $163.8m | $570.0m | $306.7m |
| Gross margin | 17.2% | 16.3% | 18.7% | 15.8% |
| Operating income | $134.9m | $76.5m | $362.3m | $148.3m |
| Net income attributable to CPI | $79.3m | $36.8m | $232.9m | $80.3m |
| Diluted EPS | $1.01 | $0.48 | $2.97 | $1.05 |
| Operating cash flow | Not separately stated | Not separately stated | $102m | $185m |
- Q2 sales increased 58%; management attributed the increase to 34% higher volume, 20% better price/product mix and 4% favorable currency translation. National Starch contributed about $353m of quarterly sales.
- First-half sales increased 57%; management cited 36% higher volume, 18% better price/product mix and 3% favorable currency translation. National Starch contributed about $701m.
- First-half earnings include a $58.4m NAFTA award, equivalent to $0.75 per diluted share, recorded in other income. Excluding specified unusual items, management said net income grew 50% in Q2 and 76% in the first half year over year.
Balance sheet, liquidity and capital
- At June 30, cash and equivalents were $273m, current assets $1.976bn and current liabilities $848m. Total assets were $5.314bn.
- Total debt was approximately $1.77bn, broadly unchanged from year-end 2010; long-term debt carrying value was $1.653bn. The fair value of long-term debt was $1.717bn. First-half weighted average interest rate on total debt was approximately 5.0%.
- First-half operating cash flow of $102m was below $185m a year earlier, mainly because of working-capital investment, particularly higher inventory and receivables. Capital expenditures were $89m; cash used for investing was $104m, including a $15m acquisition payment. Cash declined $29m to $273m.
- The $1bn revolving credit facility was amended to extend maturity to June 6, 2014; $240m was drawn at quarter-end. The company also reported approximately $479m of unused foreign operating lines. Management expected cash flows and borrowing availability to cover anticipated needs for the foreseeable future.
- 2011 capital expenditure guidance was approximately $280m–$300m. The board raised the quarterly dividend 14% to $0.16 per share, paid July 25, 2011.
Material changes, outlook and risks
- Reported growth reflected the National Starch acquisition, improved selling prices and favorable foreign exchange. Management said volumes were relatively stable overall amid a challenging economy, and expected improved sales and earnings for full-year 2011.
- Corn costs per ton rose approximately 44% in Q2 and 35% in the first half versus prior-year periods. Management cited pricing and acquired specialty-starch operations as drivers of improved gross margins; higher financing costs partly offset operating-income growth.
- The company incurred approximately $13m for a 12-day maintenance project at its Argo facility in Q2. A North American manufacturing optimization plan is expected to finish by September 30, 2012; accelerated depreciation was $2.5m in Q2, with about $3.8m expected per quarter until completion.
- Key exposures include commodity prices, co-product pricing, currency and interest rates, customer demand and collections, energy and raw-material availability, competition, and successful integration and realization of National Starch synergies. The company hedged forecast corn and natural-gas purchases, but could not hedge co-product price risk.
- The $58.4m NAFTA damages payment followed resolution of the Mexican HFCS beverage-tax dispute; the company waived post-award interest under its agreement with Mexico. No material changes in market risk were reported for the first half.
Important facts for investors to verify
- How much of reported and adjusted growth reflects National Starch versus organic pricing, volume and currency, especially as acquisition comparisons become more mature.
- Whether full-year earnings expectations and $280m–$300m capital spending remain achievable as corn, energy and other input costs evolve.
- Whether working-capital needs, particularly inventory and receivables, reverse sufficiently to support cash generation and dividends.
- Debt, borrowing availability and interest expense following the acquisition financing and the interest-rate swaps on the $350m 2015 notes.
- Execution, costs and expected benefits of the manufacturing optimization plan, integration program and planned maintenance.