Ingredion Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are with Q1 2022 unless stated otherwise. Ingredion makes ingredient solutions, including starches and sweeteners, and reports results across North America, South America, Asia-Pacific, and EMEA.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $2,137 million | $1,892 million |
| Gross profit | $487 million | $379 million |
| Operating income | $291 million | $210 million |
| Net income attributable to Ingredion | $191 million | $130 million |
| Diluted EPS | $2.85 | $1.92 |
| Cash used for operating activities | $51 million | $52 million |
| Capital expenditures and mechanical stores purchases | $76 million | $85 million |
- Gross margin rose to approximately 22.8% from 20.0%; operating margin was approximately 13.6% versus 11.1%.
- Sales increased 13%, while cost of sales rose 9%. Management attributed the sales and earnings improvement primarily to higher price and customer mix, which more than offset higher corn and other input costs. Lower volumes and unfavorable foreign exchange partly offset sales growth.
- Operating expenses increased 11% to $187 million, mainly reflecting inflation; they remained approximately 9% of sales. Financing costs rose 33% to $32 million, reflecting higher average debt and interest rates. The effective tax rate decreased to 25.1% from 28.9%.
Balance sheet, cash flow, and liquidity
- At March 31, cash and cash equivalents were $216 million and short-term investments were $5 million. Total debt was $2.639 billion, up from $2.483 billion at year-end 2022; this included $701 million of short-term borrowings and $1.938 billion of long-term debt. Cash declined $20 million during the quarter.
- Working capital movements contributed to operating cash use: accounts payable and accrued liabilities decreased $171 million, inventories increased $87 million, and accounts receivable and prepaid expenses increased $44 million.
- Reported available liquidity was approximately $1.204 billion: $524 million domestic and $680 million international, including cash, unused commercial-paper capacity, and foreign operating lines. The $1 billion commercial paper program had $497 million outstanding; the filing reports a 5.11% average rate and six-day weighted average maturity at quarter-end.
- Management said available cash, expected operating cash flow, debt-market access, and borrowing capacity should fund anticipated needs for at least the next 12 months. Capital investment commitments for 2023 were anticipated to be approximately $300 million.
- Dividends paid, including to non-controlling interests, were $47 million. No shares were repurchased during the quarter; the existing authorization permits repurchases of up to 6 million shares through December 31, 2025.
Business changes and segment results
Price and customer mix drove growth, while lower volume, currency effects, and higher input costs were recurring offsets. The filing describes slower inflation growth as economic growth slowed and supply chains recovered. Segment sales and operating income were:
| Segment | Sales, Q1 2023 (Q1 2022) | Operating income, Q1 2023 (Q1 2022) |
|---|---|---|
| North America | $1,356 million ($1,174 million) | $207 million ($156 million) |
| South America | $269 million ($252 million) | $41 million ($38 million) |
| Asia-Pacific | $277 million ($272 million) | $28 million ($22 million) |
| EMEA | $235 million ($194 million) | $57 million ($31 million) |
North America sales reflected 23% higher price mix and 7% lower volume. South America had 15% higher price mix, partly offset by 5% unfavorable currency and 3% lower volume. Asia-Pacific had 16% higher price mix, offset by 9% lower volume and 5% unfavorable currency. EMEA price mix rose 37%, partly offset by 15% unfavorable currency and 1% lower volume.
Outlook, risks, and unusual items
- The filing provides no specific full-year sales, earnings, or EPS guidance. It does anticipate approximately $300 million of 2023 capital investment commitments and states that liquidity is expected to cover anticipated needs for at least 12 months.
- Q1 other operating expense was $9 million, versus $2 million of other operating income in Q1 2022; the 2023 expense was primarily related to a U.S. work stoppage.
- Commodity and foreign-currency cash flow hedges generated $58 million of losses recognized in accumulated other comprehensive loss before reclassifications during Q1. Management expected $41 million of net hedge losses to be reclassified into earnings over the next 12 months.
- Key stated risks include raw-material and energy prices and availability, supply-chain disruption, foreign-exchange and interest-rate movements, demand and customer preferences, competition, labor relations, manufacturing and product-quality issues, climate and regulatory matters, and acquisition and integration risks.
- Ingredion disclosed an Illinois EPA Notice of Violation concerning reported air-emissions exceedances at its Bedford Park facility and ongoing discussions with the agency. It also described a separate Indianapolis environmental matter under discussion with the U.S. Department of Justice. Management did not believe currently known proceedings would be material, but noted outcomes are uncertain.
- A $27 million Brazilian tax benefit was recorded in Q4 2022, not Q1 2023, relating to recovery of certain local-government tax incentives; the company expected recovery within five years. The related balance in other assets was $29 million at March 31, 2023.
Important facts for investors to verify
- Whether price increases and customer mix can continue to offset lower volumes, input-cost inflation, and foreign-exchange effects.
- Working-capital trends and the company’s ability to convert reported earnings into operating cash flow.
- Short-term borrowing levels, commercial-paper refinancing exposure, and interest costs as rates and funding needs change.
- Execution and funding of the anticipated 2023 capital program, and any subsequent updates to outlook or liquidity expectations.
- Developments, potential penalties, and resolution of the environmental matters, along with the timing and recoverability of the Brazilian tax incentives.