Ingredion Inc. — Q1 2022 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Ingredion produces starches, sweeteners and other ingredients through four geographic segments: North America, South America, Asia-Pacific and EMEA. The company attributed higher sales to strong pricing and product mix, including pass-through of higher corn costs, and higher demand. Its operating environment included inflation, supply-chain volatility, COVID-19 impacts and the Russia-Ukraine conflict.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $1,892 million | $1,614 million |
| Gross profit / gross margin | $379 million / 20% | $351 million / 22% |
| Operating income (loss) | $210 million | $(170) million |
| Net income (loss) attributable to Ingredion | $130 million | $(246) million |
| Diluted EPS | $1.92 | $(3.66) |
| Cash from operating activities | $(52) million | $22 million |
| Capital expenditures and mechanical stores purchases | $85 million | $65 million |
Cost of sales rose 20% to $1,513 million, faster than sales, largely reflecting higher corn costs; management also cited higher freight costs as a cause of lower gross margin. Operating expenses increased 10% to $169 million, but fell to about 9% of sales from 10%.
Q1 2021 results included a $360 million impairment charge related to assets contributed to the Arcor joint venture, including $311 million from writing off cumulative currency translation losses. Q1 2022 had $2 million of restructuring charges. The large year-over-year improvement in reported operating income and profit therefore reflects both improved current-period results and the prior-year impairment.
Working-capital changes used $262 million of cash, principally as receivables and inventories increased. Cash and cash equivalents were $324 million at March 31, 2022, versus $328 million at year-end 2021. Total debt was $2,253 million, up from $2,046 million, including $514 million of short-term borrowings and $1,739 million of long-term debt. The weighted-average interest rate on total debt was approximately 3.1% in Q1.
Reported available liquidity was approximately $1.63 billion: $589 million domestic and $1.041 billion international. Management said cash, expected operating cash flow, debt-market access and committed borrowing capacity should provide sufficient liquidity for at least the next 12 months and the foreseeable future.
Material changes and segment results
- Net sales increased 17% overall, primarily from stronger price mix and higher corn-cost pass-through.
- North America sales rose 24% to $1,174 million, from 20% higher price mix and 4% volume growth; operating income rose to $156 million from $134 million.
- South America sales fell 8% to $252 million, partly reflecting operations contributed to the Arcor joint venture. Excluding those operations, sales rose 22%, with 25% higher price mix offset by 3% lower volume. Operating income was $38 million versus $40 million.
- Asia-Pacific sales increased 16% to $272 million; operating income declined to $22 million from $25 million, as higher corn costs, particularly in Korea, outweighed price mix.
- EMEA sales increased 20% to $194 million, including the effect of the KaTech acquisition and favorable price mix and volume. Operating income was $31 million in both periods.
Outlook, risks and unusual items
- No specific full-year earnings or sales guidance is provided in the supplied filing text. Management anticipated 2022 capital investment of $300 million to $335 million.
- Management cited ongoing cost and supply pressures, including corn, freight, energy and inflation, and noted that pricing and volume growth more than offset higher input costs in Q1.
- The Russia-Ukraine conflict may increase volatility in raw-material and energy availability and prices, foreign exchange and interest rates. Russia and Ukraine represented less than 0.5% of 2021 net sales, but the region is a supply source for Ingredion and some distribution partners.
- Final U.S. foreign-tax-credit regulations prompted a provisional tax liability and may limit credits from certain countries, primarily in South America. The filing does not state a clear amount for this provisional liability.
- Ingredion reported $41 million of remaining Brazilian indirect-tax credits. An environmental matter involving its Indianapolis facility was under discussion with the U.S. Department of Justice; the company said the allegations were not material. It stated that currently known legal proceedings and inquiries were not expected to be material, while noting outcomes are uncertain.
- Other risks include commodity and currency fluctuations, customer demand and collection, raw-material availability, climate and regulatory matters, manufacturing disruptions, and the ability to pass cost increases to customers.
Important facts for investors to verify
- Whether pricing and mix continue to offset corn, freight, energy and other inflationary costs, and whether gross margin recovers.
- Whether working-capital investment eases and operating cash flow improves after the Q1 cash use.
- Commercial-paper balances, short-term borrowing needs and the availability of reported liquidity as market conditions change.
- The amount and financial impact of the provisional tax liability under the foreign-tax-credit regulations.
- Progress on planned capital investment of $300 million to $335 million and the potential effects of the Russia-Ukraine conflict on supply and costs.
- Comparability of reported year-over-year earnings, given the $360 million prior-year impairment, Arcor-related changes and the KaTech acquisition.