Ingredion Incorporated — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Interim financial statements are unaudited; results may not indicate full-year performance. Ingredion produces starches, sweeteners, and other ingredients and reports across North America, South America, Asia-Pacific, and EMEA.
Financial performance
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Net sales | $2.069B | $2.044B | $4.206B | $3.936B |
| Gross profit | $441M | $390M | $928M | $769M |
| Gross margin | 21% | 19% | 22% | 20% |
| Operating income | $251M | $213M | $542M | $423M |
| Net income attributable to Ingredion | $163M | $142M | $354M | $272M |
| Diluted EPS | $2.42 | $2.12 | $5.27 | $4.04 |
| Financing costs | $30M | $17M | $62M | $41M |
Q2 sales rose 1% and operating income rose 18%; management attributed improvement primarily to pricing and customer mix, which more than offset lower volumes and higher raw-material and input costs. Q2 cost of sales fell 2%, mainly on lower volumes. Higher inflation increased operating expenses 5%. For H1, sales rose 7%, operating income 28%, and attributable net income 30%. Financing costs increased with higher interest rates and average debt.
Segments, Q2 year over year
- North America: Sales +5% to $1.342B; operating income +22% to $197M. Price and mix improved, while volume declined 10%.
- South America: Sales −11% to $257M; operating income −41% to $23M. Lower volumes, foreign exchange, higher input costs, and Argentina joint-venture currency effects weighed on results.
- Asia-Pacific: Sales −3% to $267M; operating income +29% to $27M. Pricing and mix gains offset some volume weakness.
- EMEA: Sales +4% to $203M; operating income +45% to $42M. Pricing and mix gains were partly offset by lower volume and unfavorable currency effects.
Cash flow, debt, and liquidity
- H1 operating cash flow was $279M, versus cash used of $4M in H1 2022. Management cited current-period earnings and more favorable working-capital changes; accounts payable and accrued liabilities were a partial offset.
- H1 investing cash outflow was $160M, including $154M of capital expenditures and mechanical-stores purchases. Expected 2023 capital investment commitments were approximately $300M.
- H1 financing cash outflow was $97M, including $95M of dividends. Cash and equivalents ended June at $257M, up from $236M at year-end 2022.
- Total debt was approximately $2.461B: $522M short-term borrowings and $1.939B long-term debt. Commercial paper outstanding was $390M; its June 30 average rate was 5.38%, with a 15-day weighted-average maturity. The H1 weighted-average rate on total debt was 4.3%, versus 3.1% a year earlier.
- Reported available liquidity was approximately $1.469B, including domestic commercial-paper/revolver availability and international cash, short-term investments, and unused local credit lines. Management expects available cash, operating cash flow, and borrowing access to fund anticipated needs for at least the next 12 months.
Outlook, commentary, and risks
- The filing provides no specific full-year earnings or revenue guidance. Management expects liquidity to cover anticipated capital expenditures, dividends, and other activities; future funding needs depend on growth, input costs, working capital, investment, and strategic initiatives.
- Management highlighted lower volumes across regions, elevated input costs, inflation, currency effects, and higher interest expense. Commodity, energy, foreign-exchange, and interest-rate exposures are managed in part with derivatives. At June 30, accumulated other comprehensive loss included $76M of net hedge losses expected to be reclassified into earnings within 12 months.
- Following the July 1 expiration of the Indianapolis facility union agreement, the parties entered a short-term extension with no work stoppage during negotiations.
- Ingredion reported air-emissions permit exceedances at its Bedford Park, Illinois facility and received an Illinois EPA Notice of Violation in February 2023; discussions were ongoing. A separate Indianapolis environmental matter was under discussion with the U.S. Department of Justice. Penalties and outcomes are not quantified clearly in the filing.
- A $27M Brazilian tax benefit for recovery of previously taxable local-government incentives was recorded in Q4 2022; the company expects recovery within five years. It reported $31M of remaining related tax incentives in other assets at June 30, 2023.
- Other disclosed risks include geopolitical and supply-chain disruption, changing customer demand, raw-material and energy price volatility, operating and product-quality issues, climate regulation, labor relations, foreign-market exposure, taxes, and access to financing.
Most important facts for investors to verify
- Whether pricing and customer mix can continue to offset volume declines, particularly in North America and South America.
- Whether input-cost trends, interest expense, and foreign-exchange effects improve or further pressure margins and earnings.
- Cash conversion and working-capital trends, planned capital investment of about $300M, and continued access to commercial-paper and credit facilities.
- Developments and potential financial consequences of the Bedford Park and Indianapolis environmental matters, and the Indianapolis labor negotiations.
- Realization and timing of the Brazilian tax-incentive recovery, and the amount of hedge losses ultimately reclassified into earnings.