Ingredion Incorporated — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparative periods ended September 30, 2021. Unaudited interim results. Ingredion makes starches, sweeteners and other ingredient solutions, operating across North America, South America, Asia-Pacific and EMEA.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2,023 million | $1,763 million | $5,959 million | $5,139 million |
| Gross profit | $374 million | $323 million | $1,143 million | $1,041 million |
| Operating income | $182 million | $172 million | $605 million | $224 million |
| Net income attributable to Ingredion | $106 million | $118 million | $378 million | $50 million |
| Diluted EPS | $1.59 | $1.75 | $5.63 | $0.74 |
| Cash provided by operating activities | Not stated for quarter | $80 million | $259 million |
- Q3 sales rose 15%, primarily from stronger price mix, including pass-through of higher corn and freight costs. Gross profit increased $51 million; gross margin held at 18%.
- Q3 operating income increased $10 million. Net income attributable to Ingredion and diluted EPS declined year over year, largely because Q3 2021 included a $20 million favorable adjustment related to Argentina joint-venture assets. Excluding that adjustment, management said current-period net income and diluted EPS were higher.
- For the first nine months, sales increased 16%, while gross margin declined to 19% from 20% as higher corn and other input costs outpaced growth. The substantial increase in reported operating income and net income primarily reflects the $340 million Argentina-related impairment recorded in 2021.
- Q3 effective tax rate was 32.3%, versus 22.2%; the nine-month rate was 28.9%, versus 66.5%. Comparisons were affected by prior-year Argentina items and tax benefits, as well as U.S. international tax matters.
Segments and material changes
- Q3: Sales rose in all four segments. North America sales increased 17% and operating income was $126 million, up from $120 million. South America sales rose 13% and operating income increased to $48 million from $35 million. Asia-Pacific sales rose 13% and operating income to $27 million from $21 million. EMEA sales rose 9% and operating income to $30 million from $23 million.
- Nine months: North America sales increased 20% and operating income to $443 million from $403 million; South America sales increased 4% and operating income to $125 million from $108 million; Asia-Pacific sales increased 13%, with operating income flat at $70 million; EMEA sales increased 13% and operating income to $90 million from $86 million. Price mix drove much of the sales growth; currency headwinds affected several regions.
- Inventories increased to $1.50 billion from $1.17 billion and accounts receivable to $1.41 billion from $1.13 billion since year-end 2021, reflecting, among other factors, higher input costs and pricing.
Cash, debt and liquidity
- Nine-month operating cash flow was $80 million, down from $259 million. Management attributed the decline primarily to working-capital use, which increased by $297 million, especially from receivables and inventory.
- Capital expenditures and mechanical-stores purchases were $203 million, equal to the prior-year period. Full-year 2022 capital spending was expected to be $290 million to $320 million.
- Cash and cash equivalents were $294 million at September 30, 2022, versus $328 million at December 31, 2021. Total debt was $2.448 billion, up from $2.046 billion; this included $709 million in short-term borrowings, including $622 million of commercial paper, and $1.739 billion in long-term debt.
- Commercial paper outstanding carried an average 3.50% rate and 16-day weighted-average maturity at quarter-end. The program has a $1 billion maximum and is backed by a $1 billion revolving credit agreement.
- Management reported total available liquidity of approximately $1.437 billion and expected available cash, operating cash flow and borrowing access to cover anticipated needs for at least the next 12 months. The filing reports $80 million of operating cash flow year to date, making working-capital requirements an important liquidity consideration.
Outlook, risks and unusual items
- Management cited strong price mix as offsetting higher corn, freight, raw-material and operating costs. It also described ongoing uncertainty from inflation, supply-chain changes, foreign exchange movements, COVID-19 and the Russia-Ukraine conflict. No specific full-year earnings or sales guidance is provided in the supplied filing text.
- Key exposures include commodity and energy prices, foreign exchange and interest rates, customers’ ability to absorb price increases, supply availability, currency and political conditions in South America and Europe, and energy availability in Pakistan. Ingredion uses derivatives to manage certain commodity, currency and interest-rate exposures.
- The U.S. Treasury’s final foreign tax credit regulations prompted a provisional tax liability in Q1 2022; the company said it would continue assessing the impact. The filing also describes an ongoing environmental matter involving the Indianapolis facility and DOJ discussions; Ingredion said the alleged violations were not material and that known legal matters were not believed likely to be material, while noting outcomes remain uncertain.
- On September 26, 2022, the board ended the prior share-repurchase authorization and approved a new program for up to 6 million shares through December 31, 2025. The company repurchased shares for $112 million during the first nine months. The quarterly dividend declared was $0.71 per share.
- Ingredion acquired Indian pharmaceutical-excipient manufacturer Amishi for $7 million in August 2022 and increased its PureCircle ownership from 75% to 85% through minority-share purchases totaling $40 million year to date.
Most important facts for investors to verify
- Whether pricing continues to offset corn, freight and other input-cost inflation, and whether gross margins stabilize or improve.
- Whether working-capital investment—particularly receivables and inventory—moderates and operating cash flow recovers.
- Commercial-paper balances, borrowing rates and liquidity needs, alongside planned capital spending, dividends and repurchases.
- The effect of foreign exchange, tax-rule changes and regional operating conditions on reported earnings and cash flows.
- How reported results compare after considering the unusual Argentina impairment and favorable adjustment in the 2021 comparison period.