Ingredion Incorporated — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Ingredion produces starches, sweeteners, specialty ingredients and biomaterials, operating across North America, South America, Asia-Pacific and EMEA. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $2,044 | $1,762 | $3,936 | $3,376 |
| Gross profit | $390 | $367 | $769 | $718 |
| Gross margin | 19% | 21% | 20% | 21% |
| Operating income | $213 | $222 | $423 | $52 |
| Net income (loss) attributable to Ingredion | $142 | $178 | $272 | $(68) |
| Diluted EPS | $2.12 | $2.62 | $4.04 | $(1.01) |
| Financing costs | $17 | $19 | $41 | $38 |
Q2 sales rose 16%, mainly from stronger price mix, including pass-through of higher corn and input costs, and higher volumes. Cost of sales rose 19%; higher input costs reduced gross margin by two percentage points. Operating income was below the prior-year reported result, which included a $15 million Brazil indirect-tax credit; management said current-period operating income increased excluding that benefit. Q2 net income also compares against prior-year benefits including a $30 million discrete tax benefit and an $8 million Amyris joint-venture gain. Management said net income and diluted EPS were higher excluding those items and the Brazil credit.
For the first half, sales rose 17% and gross profit increased, while the prior-year operating result and loss included a $360 million impairment related to assets contributed to the Argentina joint venture. The 2022 six-month effective tax rate was 27.4%, versus 464.7% in 2021, primarily because the prior-year impairment did not receive a corresponding tax benefit.
Segment results
| Q2 2022 segment | Sales | Operating income | Notable comparison |
|---|---|---|---|
| North America | $1,284; +20% | $161; +8% | Price mix and volume gains more than offset higher input costs. |
| South America | $290; +8% | $39; +18% | Price mix, volume and favorable currency supported results; sales comparison is affected by Argentina operations contributed to the joint venture. |
| Asia-Pacific | $275; +11% | $21; −13% | Input costs in Korea, COVID-19 disruptions in China and currency headwinds weighed on income. |
| EMEA | $195; +10% | $29; −9% | Price mix and volume growth were partly offset by adverse currency effects and weaker Pakistan results. |
Cash flow, liquidity and debt
- First-half operating cash flow was a use of $4 million, versus $129 million provided in 2021. Management attributed the change mainly to working-capital investment, including increases in receivables and inventories as prices and raw-material costs rose.
- Investing cash outflow was $136 million, including $144 million of capital expenditures and mechanical-stores purchases. Management anticipates full-year 2022 capital investments of $290 million to $320 million.
- Financing activities provided $145 million, including $308 million of net commercial-paper borrowings. Cash decreased $10 million to $318 million.
- At June 30, total debt was $2.391 billion, including $652 million of short-term borrowings and $1.739 billion of long-term debt. Commercial paper outstanding was $558 million; senior notes do not require principal repayment until 2026 through 2050.
- Reported available liquidity was approximately $1.484 billion: $452 million domestic and $1.032 billion international, including cash, short-term investments and unused borrowing capacity. The company said existing cash, future operating cash flow and borrowing access should fund anticipated needs for at least 12 months.
- Common-stock repurchases totaled $83 million in the first half; dividends paid, including to non-controlling interests, were $90 million. The quarterly dividend declared was $0.65 per share.
Outlook, risks and unusual items
No full-year earnings or sales guidance is stated in the provided filing text. Management highlighted strong price mix and higher volumes, but noted inflation, corn and freight costs, supply-chain shifts, foreign-exchange movements, COVID-19 and the Russia-Ukraine conflict. The filing identifies risks around input and energy availability and costs, the ability to pass costs through, customer demand, currency and political conditions, and access to financing. The U.S. Treasury’s final foreign-tax-credit regulations prompted a provisional tax liability in Q1 2022; the company said it would continue assessing the impact, without providing a clear amount here.
Other notable items include the $360 million 2021 Argentina-related impairment, the Q2 2021 Brazil tax-credit and Amyris gains, and Ingredion’s Q2 2022 purchase of additional PureCircle shares for $27 million, increasing ownership from 75% to 82%. The company disclosed ongoing discussions with the U.S. Department of Justice concerning environmental matters at its Indianapolis facility; it said the allegations are not material, but noted that future outcomes of legal matters cannot be assured. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether pricing and volume gains continue to offset corn, freight and other input-cost inflation, and how that affects gross margin.
- Working-capital conversion and operating cash flow, given the first-half cash use and higher receivables and inventories.
- Commercial-paper balances, short-term borrowing costs and liquidity availability as borrowing rates and needs change.
- The eventual tax impact of foreign-tax-credit regulations and the comparability of results excluding prior-year unusual items.
- Regional operating trends, particularly Asia-Pacific and EMEA, and the effects of currency, COVID-19 disruptions and geopolitical conditions.
- Progress on planned capital spending, the environmental matter referred to DOJ, and any material developments in other contingencies.