Corn Products International, Inc. (now Ingredion) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The filing is by Corn Products International, Inc. (“CPI”), the company’s name at the time. CPI produced and sold starches, sweeteners, and specialty ingredients through four geographic segments.
Financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net sales | $1,574.2 million | $1,459.5 million |
| Gross profit | $295.9 million | $298.2 million |
| Operating income | $161.0 million | $227.4 million |
| Net income attributable to CPI | $94.2 million | $153.6 million |
| Diluted EPS | $1.21 | $1.97 |
| Cash from operations | $29 million | $22 million |
| Capital expenditures | $59 million | $33 million |
- Net sales rose 8%, mainly from an 8% improvement in price/product mix; slight volume growth was partly offset by unfavorable currency translation.
- Gross margin was approximately 19%, versus 20% in the prior-year quarter. Cost of sales increased 10%; gross corn costs per ton rose approximately 13%.
- Operating income included $3.8 million of restructuring charges and $2.4 million of National Starch integration costs. Financing costs fell to $19.5 million from $26.6 million, primarily due to lower foreign-currency transaction losses and lower borrowing rates.
- Effective tax rate was 32.4%, compared with 22.6%; the prior-year rate benefited from the nontaxable NAFTA award.
- Cash and equivalents were $335 million at March 31, down from $401 million at year-end. Total debt was approximately $1.92 billion, down from $1.95 billion; debt included $141 million of short-term borrowings and current maturities and $1.779 billion of long-term debt. The weighted average interest rate was approximately 4.6%.
- Current assets were $2.14 billion and current liabilities were $894 million. The company reported $353 million borrowed under its $1 billion revolving credit agreement and approximately $433 million of unused foreign operating lines.
Changes and segment performance
- Reported operating income and EPS declined substantially versus Q1 2011, which included a $58.4 million NAFTA award. Excluding the award and integration/restructuring costs in both periods, management said operating income declined 5% and net income and diluted EPS declined 2% year over year.
- North America sales increased 14% to $892 million; operating income was nearly flat at $100 million. South America sales were flat at $368 million, while operating income fell 7% to $45.6 million amid softer demand and weaker currencies. Asia Pacific sales rose 4% to $189 million and operating income rose 6% to $20.3 million. EMEA sales fell 3% to $126 million and operating income fell 13% to $18.9 million.
- Operating cash flow improved modestly despite lower earnings, but working capital absorbed cash, including from higher inventories, margin accounts, and lower accounts payable and accrued liabilities. Investing and financing cash outflows were $59 million and $40 million, respectively.
Outlook, risks, and unusual items
- Management said the business performed as expected and anticipated another strong year in 2012. It forecast full-year capital expenditures of approximately $275–$325 million and expected operating cash flow and available borrowing capacity to fund planned spending, dividends, and other needs.
- The board declared a $0.20-per-share quarterly dividend, paid April 25, 2012. Management expected approximately $28 million of pension contributions during 2012.
- A North American manufacturing optimization plan was expected to finish by September 30, 2012. CPI anticipated recording about $4 million of restructuring charges per quarter until completion, primarily accelerated depreciation.
- Commodity, foreign-exchange, and interest-rate exposures are managed with derivatives. AOCI included $48 million of after-tax commodity-hedge losses, of which approximately $38 million was expected to be reclassified to earnings in the next 12 months; management expected these losses to be offset by changes in underlying commodity costs. The company also disclosed $87 million of net notional foreign-currency forward contracts.
- Management identified risks including corn and energy prices, co-product prices, demand and pricing pressures, currency movements, global economic conditions, customer credit, raw-material availability, and integration and synergy execution. It noted that up to approximately $13 million of Korean deferred-tax valuation allowance could be reversed in the near future.
Important facts for investors to verify
- Underlying earnings trends excluding the prior-year $58.4 million NAFTA award and current/prior integration and restructuring costs.
- Whether pricing continues to offset corn-cost inflation, and how volumes and foreign exchange affect each region.
- Working-capital requirements, cash conversion, planned $275–$325 million capital spending, and borrowing availability under credit facilities.
- Timing and earnings impact of commodity-hedge loss reclassifications, and the assumptions behind management’s expected offsets.
- Progress and remaining charges for the manufacturing optimization plan, plus any Korean tax valuation-allowance reversal.