Ingredion Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Comparisons are with the corresponding 2022 periods. Figures are in U.S. dollars; financial statements are unaudited.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $2,033 million | $2,023 million | $6,239 million | $5,959 million |
| Gross profit | $421 million | $374 million | $1,349 million | $1,143 million |
| Gross margin | 21% | 18% | 22% | 19% |
| Operating income | $213 million | $182 million | $755 million | $605 million |
| Net income attributable to Ingredion | $158 million | $106 million | $512 million | $378 million |
| Diluted EPS | $2.36 | $1.59 | $7.63 | $5.63 |
| Cash from operating activities | — | — | $647 million | $80 million |
Q3 sales rose 1%; operating income rose 17%, and attributable net income rose 49%. Management attributed stronger results mainly to favorable pricing and customer mix and lower raw-material costs, partly offset by lower volumes. The lower Q3 effective tax rate, 13.5% versus 32.3%, also lifted net income. For the nine months, the effective tax rate was 21.9% versus 28.9%.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $335 million; current assets were $3,289 million and current liabilities were $1,668 million.
- Total debt was approximately $2.406 billion, including $466 million of short-term borrowings and $1.940 billion of long-term debt. Debt was $2.483 billion at December 31, 2022. Commercial paper outstanding was $333 million, at a 5.52% average interest rate and 14-day weighted average maturity.
- Management reported approximately $1.631 billion of available liquidity: $672 million domestic and $959 million international. It expects cash, operating cash flows and borrowing capacity to fund anticipated needs for at least the next 12 months.
- Nine-month capital expenditures and mechanical stores purchases were $233 million, versus $203 million a year earlier. Capital investment commitments for 2023 were anticipated to be approximately $310 million.
Material changes and segment trends
- Nine-month operating cash flow increased to $647 million from $80 million, principally due to working-capital changes and higher net income. Working capital benefited from lower inventory and receivables, partly offset by lower accounts payable and accrued liabilities.
- North America led operating-income growth: Q3 sales increased 3% and operating income 36%. South America Q3 sales fell 8% and operating income fell 33%, with lower volume and higher energy costs cited. Asia-Pacific sales fell 2% while operating income rose 22%; EMEA sales rose 1% and operating income rose 7%.
- For the nine months, operating income increased in North America, Asia-Pacific and EMEA, but decreased in South America. Price and mix supported results, while lower volumes were common across regions.
- Financing costs increased to $26 million in Q3 from $24 million and to $88 million for nine months from $65 million, primarily reflecting higher interest rates; the nine-month increase also reflected higher average debt.
Outlook, commentary and risks
- The filing provides no specific full-year earnings or sales guidance. Management said liquidity should cover anticipated needs and cited approximately $310 million of 2023 capital investment commitments.
- Management plans to realign operations into new reporting segments beginning in Q1 2024.
- Q3 included a $10 million impairment of equity-method investments. Other operating income included insurance recoveries; the prior-year quarter included charges related to a U.S. work stoppage. The Q3 tax-rate improvement reflected IRS Notice 2023-55, foreign tax credits, country earnings mix and a higher foreign-derived intangible income deduction.
- Risks highlighted include input and energy price volatility, lower demand or changing product preferences, foreign-exchange and interest-rate movements, supply-chain disruptions, facility operations and product safety, labor relations, geopolitical events, climate and regulatory matters, and the ability to execute acquisitions and investments.
- Ingredion disclosed an Illinois EPA Notice of Violation concerning air emissions at its Bedford Park facility and ongoing discussions with regulators regarding environmental matters at its Indianapolis facility. The company said known proceedings were not expected to be material, but cannot assure that current or future matters will not adversely affect results.
Most important facts for investors to verify
- Whether lower sales volumes persist and how pricing and customer mix develop across regions.
- Whether the improved gross margin and operating cash flow are sustainable, including the effects of input costs and working capital.
- The durability of the lower effective tax rate and the effects of tax-credit and foreign tax developments.
- Liquidity, commercial-paper refinancing and borrowing costs as short-term rates change.
- Progress and financial effects of the 2024 segment realignment, capital projects, and the environmental matters disclosed in the filing.