Ingredion Incorporated — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020. Ingredion produces starches and sweeteners and operates across North America, South America, Asia-Pacific, and EMEA.
Financial performance and position
- Revenue: $1.614 billion, up 5% from $1.543 billion. Management attributed growth to price and product mix, including pass-through of higher corn costs, PureCircle, and specialty volume growth in Asia-Pacific.
- Profitability: Gross profit was $351 million, up 9%; gross margin improved to 22% from 21%. Operating loss was $170 million versus operating income of $153 million, primarily reflecting a $360 million impairment. Net loss attributable to Ingredion was $246 million, or $3.66 per diluted share, compared with net income of $75 million, or $1.11 per diluted share.
- Cash flow: Operating cash flow was $22 million, down from $65 million, mainly due to working-capital changes. Capital expenditures and mechanical-store purchases were $63 million; investing cash outflow was $64 million. Financing cash outflow was $40 million. Cash and cash equivalents ended the quarter at $576 million, down from $665 million at year-end 2020.
- Liquidity and debt: Current assets were $2.610 billion and current liabilities $1.380 billion. Total debt was $2.197 billion, including $448 million of short-term borrowings and $1.749 billion of long-term debt. The company reported approximately $1.0 billion of revolver availability and $736 million of unused foreign operating lines. It said available cash, operating cash generation, borrowing capacity, and debt-market access should cover needs for at least 12 months.
- Other: The effective tax rate was (29.3)%, versus 42.6%; excluding the impairment, management said it would have been 32.0%. The impairment received no corresponding tax benefit. The quarterly dividend declared was $0.64 per share; $14 million was spent repurchasing shares.
Material changes and segment results
- The $360 million non-cash impairment arose from classifying assets and liabilities for the planned Argentina joint venture as held for sale. It included $311 million for cumulative translation losses and $49 million to write down net assets to agreed fair value. The charge is subject to finalization at closing.
- Regional sales and operating income (Q1 2021 versus Q1 2020): North America $945 million and $134 million (sales down 2%, operating income up 7%); South America $273 million and $40 million (up 15% and 54%); Asia-Pacific $235 million and $25 million (up 24% and 25%); EMEA $161 million and $31 million (up 5% and 15%). Asia-Pacific sales included PureCircle, acquired in July 2020.
- Ingredion amended its term loan agreement, extending the $380 million borrowing maturity to March 15, 2022 and reducing the LIBOR margin from 0.80% to 0.75%. The company reported compliance with its financial covenants at quarter-end.
Outlook, commentary, and risks
- No specific full-year earnings or revenue guidance is provided in the supplied filing text. The company expects to deliver $170 million in total Cost Smart savings by year-end 2021, revising its prior $125 million target.
- Ingredion expected the 51%-owned Grupo Arcor joint venture, in which it will hold 49%, to close in Q3 2021, subject to regulatory approvals and other conditions. It will combine Argentine manufacturing operations serving Argentina, Chile, and Uruguay.
- Management reported no material supply-chain interruptions in Q1 and said facilities continued operating as essential businesses. It cautioned that sales volumes depend partly on consumer activity and food and beverage consumption away from home, and continued monitoring COVID-19 conditions and vaccine rollout.
- Risks highlighted include pandemic-related demand, currency and political conditions (particularly in South America), raw-material and energy costs and availability, ability to pass costs through to customers, competition, manufacturing disruptions, acquisitions and integration, and regulatory, environmental, tax, and market risks.
- Controls: Management concluded disclosure controls were not effective at March 31, 2021 because of a material weakness in IT general controls over user access. Remediation was in progress, with completion expected by the end of Q3 2021.
- Subsequent events: Ingredion acquired German food-texture company KaTech on April 1 for $42 million. On May 3 it agreed to an exclusive license for Amyris’s Reb M sweetener and a 31% interest in Amyris’s Brazilian manufacturing facility; closing was expected in Q2 2021.
Investor verification points
- Confirm the Arcor joint venture’s approvals, closing timing, final transferred balances, and final impairment amount.
- Assess underlying earnings and cash generation apart from the exceptional impairment, including working-capital movements and regional volume trends.
- Track the $170 million Cost Smart savings target and whether cost inflation can be passed through to customers.
- Monitor the IT-control weakness remediation timetable and any effects on financial reporting.
- Review short-term debt maturities, covenant headroom, and liquidity after the KaTech acquisition and planned strategic investments.