Ingredion Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Unaudited results. Ingredion produces starches, sweeteners and other ingredient solutions, operating across North America, South America, Asia-Pacific and EMEA.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1.763 billion | $1.502 billion | $5.139 billion | $4.394 billion |
| Gross profit | $323 million | $326 million | $1.041 billion | $920 million |
| Operating income | $172 million | $153 million | $224 million | $419 million |
| Net income attributable to Ingredion | $118 million | $92 million | $50 million | $233 million |
| Diluted EPS | $1.75 | $1.36 | $0.74 | $3.45 |
| Operating cash flow | Not separately provided | Not separately provided | $259 million | $562 million |
- Q3 gross margin was 18%, down from 22%; nine-month gross margin was 20%, versus 21%. Management attributed margin pressure primarily to higher corn and manufacturing costs, including ramp-up costs at plant-protein facilities.
- Q3 sales increased 17%, supported by price/mix, pass-through of higher corn costs, volume recovery and acquired businesses. Nine-month sales also rose 17%.
- Cash and cash equivalents were $434 million at September 30, 2021, versus $665 million at year-end 2020. Current assets were $2.733 billion and current liabilities $1.457 billion.
- Total debt was $2.146 billion, including $1.748 billion of long-term debt and $398 million of short-term borrowings. Cash less total debt implies net debt of about $1.712 billion. Long-term debt fair value was approximately $1.925 billion versus carrying value of $1.748 billion.
- Nine-month capital expenditures and mechanical-stores purchases were $186 million. Cash used in investing was $238 million; cash used in financing was $236 million.
Material changes and unusual items
- Nine-month earnings were substantially affected by a $340 million impairment related to transferring Argentina, Chile and Uruguay assets into the Arcor joint venture. The charge included $311 million from accumulated currency translation losses and $29 million from a write-down of contributed net assets. A $20 million favorable adjustment was recognized in Q3 after the transaction closed.
- The impairment had no corresponding income-tax benefit. The nine-month effective tax rate was 66.5%, compared with 34.4% in 2020; Q3’s rate declined to 22.2% from 30.1%.
- Q3 operating income and attributable net income increased year over year, reflecting volume recovery from 2020 pandemic shutdowns and the favorable impairment adjustment, partly offset by higher input and manufacturing costs. Nine-month attributable net income fell 79%.
- All four regions reported higher Q3 sales. North America operating income declined 9% to $120 million; South America rose 21% to $35 million; Asia-Pacific rose 17% to $21 million; and EMEA declined 8% to $23 million.
- Operating cash flow fell by $303 million year over year for the first nine months, primarily due to working-capital movements, including a $226 million inventory cash outflow and a $126 million outflow from receivables and prepaid expenses.
- Ingredion acquired KaTech for $40 million net of cash acquired in April 2021. It also established the Arcor joint venture and a 31%-owned Amyris joint venture during 2021.
Outlook, risks and liquidity
- Management said available cash, operating cash generation, debt-market access and borrowing capacity should meet operating and other cash needs for at least the next 12 months. The filing provides no specific earnings or revenue guidance.
- Management’s Cost Smart program targets $170 million of total savings by year-end 2021. The filing reports $19 million of restructuring charges related to the program and other initiatives during the first nine months of 2021.
- A new $1 billion unsecured revolving credit facility matures in June 2026; no revolver borrowings were outstanding at quarter-end. A $1 billion commercial-paper program had $350 million outstanding at a 0.28% weighted-average interest rate and 76-day weighted-average maturity. The company reported covenant compliance and approximately $799 million of unused foreign operating lines of credit.
- Key exposures include corn and natural-gas prices, freight and manufacturing costs, foreign exchange, energy availability (including Pakistan), COVID-19-related demand uncertainty, and the ability to pass higher input costs to customers. Ingredion said it had no material supply-chain interruptions in Q3 and its facilities continued operating.
- Brazilian indirect-tax credits remain subject to realization through tax offsets; $51 million of credits remained recorded at quarter-end. The filing also describes an ongoing environmental matter concerning the Indianapolis facility; the company said known proceedings and inquiries were not expected to be material, while acknowledging outcomes are uncertain.
- The company stated that a previously reported material weakness in certain IT access controls was remediated during Q3. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether price increases and mix can continue to offset corn, energy, freight and manufacturing-cost inflation, and whether gross margins recover.
- The ongoing cash and working-capital trend, particularly inventory and receivables, and how much cash is available in the U.S.; $419 million of quarter-end cash was held outside the U.S.
- The operational and financial performance of the Arcor venture and recent acquisitions, as well as whether plant-protein ramp-up costs decline.
- Commercial-paper refinancing and liquidity needs, covenant headroom, and planned capital returns; the company repurchased $68 million of stock in the first nine months and declared a $0.65 quarterly dividend.
- The accounting and tax treatment of the Arcor impairment, realization of Brazilian tax credits, and resolution of legal and regulatory matters.