Business Overview Ingredion Incorporated (INGR) is a leading global provider of ingredient solutions for the food, beverage, animal nutrition, brewing, and industrial markets. With a rich history spanning over a century, the company has established itself as a trusted partner, delivering innovative and high-quality products to a diverse customer base worldwide.
Ingredion was founded in 1906 as Corn Products Refining Company, initially serving as a regional corn refiner for local food and industrial customers. Over the decades, the company has undergone a remarkable transformation, expanding its operations globally and diversifying its product portfolio beyond corn-based ingredients. A significant milestone in the company's history was the acquisition of National Starch in 2010, which substantially expanded Ingredion's specialty ingredient portfolio and global footprint. This strategic move allowed the company to offer a broader range of innovative, on-trend ingredient solutions to its customers.
In 2012, the company rebranded to Ingredion Incorporated, reflecting its evolution from a commodity-focused corn refiner to a solutions-oriented specialty ingredients provider. This name change signaled the company's commitment to innovation and its focus on addressing evolving consumer preferences.
Throughout its history, Ingredion has faced various challenges, including volatility in key raw material costs such as corn and energy prices in the early 2010s. The company responded by implementing aggressive cost-savings programs and optimizing its manufacturing footprint to improve operational efficiency. Additionally, Ingredion has had to navigate the complexities of operating in multiple international markets, managing currency fluctuations, and adapting to varying regulatory environments.
Despite these challenges, Ingredion has consistently demonstrated its ability to innovate and adapt to changing market dynamics. The company has invested heavily in research and development to create a robust pipeline of specialty ingredients that address evolving consumer preferences for clean label, plant-based, and sustainable products. Ingredion has also focused on expanding its capabilities in growth areas like texturizers, sugar reduction, and plant-based proteins through both organic initiatives and strategic acquisitions.
Today, Ingredion operates through three reportable segments: Texture & Healthful Solutions (THS), Food & Industrial Ingredients - Latin America (FII-LATAM), and Food & Industrial Ingredients - U.S./Canada (FII-U.S./Canada). The THS segment focuses on developing innovative texturizing solutions, while the FII-LATAM and FII-U.S./Canada segments cater to the food, beverage, and industrial markets in their respective regions.
Ingredion's global footprint spans 47 manufacturing facilities across 32 countries, allowing the company to serve a wide range of customers worldwide. The company's extensive ingredient portfolio includes starches, sweeteners, texturizers, nutritional ingredients, and specialty ingredients, catering to the evolving preferences and demands of consumers.
Financial Performance Ingredion's financial performance has demonstrated resilience amidst the dynamic market environment. In fiscal year 2023, the company reported net sales of $8.16 billion, a 2.7% increase from the previous year. Net income attributable to Ingredion for the same period stood at $643 million, with diluted earnings per share of $9.60.
For the most recent quarter (Q3 2024), Ingredion reported net sales of $1.87 billion, representing a decrease of 8% compared to the same quarter in the previous year. This decline was primarily due to lower price/mix from the pass-through of lower raw material costs to customers, as well as lost sales volume from the sale of the South Korea business. Despite the decrease in net sales, the company's net income for the quarter was $188 million.
Operating cash flow (OCF) for the most recent fiscal year was $1.06 billion, with free cash flow (FCF) of $741 million. In the most recent quarter, OCF was $479 million, and FCF was $429 million.
The company's gross profit margin increased 490 basis points to 25.6% in Q3 2024, driven by lower raw material costs, higher sales volumes, and better fixed cost absorption.
Liquidity Ingredion's balance sheet remains strong, with a debt-to-equity ratio of 0.46 as of September 30, 2024. The company's liquidity position is robust, with $877 million in cash and cash equivalents. Additionally, Ingredion has a $1 billion commercial paper program, which was undrawn as of September 30, 2024, and a five-year $1 billion revolving credit facility, which was also undrawn at the same date.
The company's current ratio stands at 2.67, while its quick ratio is 1.69, indicating a strong ability to meet short-term obligations.
Operational Highlights Ingredion has consistently focused on operational excellence and cost efficiency to drive profitability. The company's Cost to Compete program, launched in 2024, aims to deliver $50 million in run-rate savings by the end of 2025 through various cost optimization initiatives.
The company's global operating model and recent business segment reorganization have enhanced its customer-centric approach, enabling dedicated focus on key markets and improved operational efficiency. Ingredion has also invested in expanding its Texture & Healthful Solutions capabilities, leveraging its expertise in texturizing solutions to cater to the growing demand for clean-label and functional ingredients.
Segment Performance Texture & Healthful Solutions (THS) Segment: In Q3 2024, THS net sales remained relatively flat at $600 million compared to $599 million in the prior-year quarter. The segment experienced an 11% increase in volume, offset by an 11% unfavorable price mix. Operating income for THS increased 12% to $96 million, driven by lower input costs and recovering volumes.
Food & Industrial Ingredients - Latin America (FII-LATAM) Segment: FII-LATAM net sales decreased 6% to $620 million in Q3 2024, primarily due to a 4% unfavorable price mix and a 3% unfavorable foreign exchange impact. Operating income for FII-LATAM increased 26% to $131 million, driven by lower input costs and catch-up pricing on multi-year contracts.
Food & Industrial Ingredients - U.S./Canada (FII-U.S./Canada) Segment: FII-U.S./Canada net sales decreased 9% to $548 million in Q3 2024, primarily due to a 9% unfavorable price mix. Operating income for FII-U.S./Canada increased 25% to $99 million, driven by lower raw material and input costs.
All Other Segment: All Other net sales decreased 42% to $102 million in Q3 2024, primarily due to the sale of the company's South Korea business. Excluding the South Korea divestiture, net sales in All Other increased 8%.
Market Dynamics and Outlook Ingredion operates in a dynamic and competitive food ingredient landscape, facing challenges from shifting consumer preferences, supply chain disruptions, and inflationary pressures. The company has demonstrated its ability to navigate these challenges by executing strategic pricing actions, optimizing its procurement and hedging strategies, and strengthening its customer relationships.
Looking ahead, Ingredion remains focused on accelerating its growth in the Texture & Healthful Solutions segment, leveraging its innovation capabilities and expanding its solutions portfolio to meet the evolving needs of its customers. The company also aims to drive profitability in its Food & Industrial Ingredients segments through continued contract renewals and operational efficiencies.
In the third quarter of 2024, Ingredion reported a 29% year-over-year increase in adjusted operating income, highlighting the company's resilience and ability to adapt to market conditions. This marked their best third quarter performance ever, with all three segments delivering double-digit operating income growth.
For the full year 2024, Ingredion expects: - Net sales to be down mid-single digits, reflecting the reduction in price mix as they pass through lower raw material costs, partially offset by improving volume demand. - Adjusted operating income to be up high single digits due to lower input costs and better operational efficiencies. - Financing costs in the range of $40 million to $50 million. - Reported effective tax rate of 28% to 29% and an adjusted effective tax rate of 26.5% to 27.5%. - Reported EPS to be in the range of $10.60 to $10.90, which includes the gain from the sale of the South Korea business as well as restructuring and impairment charges. - Adjusted EPS to be in the range of $10.35 to $10.65. - Diluted weighted average shares outstanding to be between 66 million and 67 million shares. - Cash from operations to be in the range of $1.1 billion to $1.25 billion. - Capital expenditures to be between $310 million and $330 million. - Corporate costs to be flat year-over-year.
Risks and Challenges Ingredion faces several risks and challenges, including volatile commodity prices, supply chain disruptions, and increasing competition from alternative ingredients. The company's global footprint also exposes it to currency fluctuations and geopolitical uncertainties.
Additionally, the company's success is closely tied to the performance of its key end markets, such as the food, beverage, and industrial sectors. Shifts in consumer preferences or a downturn in these industries could potentially impact Ingredion's financial results.
Conclusion Ingredion Incorporated has demonstrated its resilience and adaptability in navigating the evolving food ingredient market. With its diversified product portfolio, global manufacturing footprint, and unwavering focus on operational excellence, the company is well-positioned to capitalize on the growing demand for innovative and sustainable ingredient solutions. The company's strong performance in Q3 2024, despite challenging market conditions, underscores its ability to execute its strategic priorities effectively.
Ingredion's focus on its "Driving Growth" strategy, which encompasses business growth, cost competitiveness through operational excellence, and supporting its purpose-driven and people-centric growth culture, continues to yield positive results. The company's investments in texture, sugar reduction, and protein fortification capabilities align well with growing customer demand for healthy and sustainable ingredients.
As Ingredion continues to execute its strategic priorities and navigate the dynamic market environment, investors will closely monitor the company's ability to drive profitable growth, maintain its competitive edge, and deliver value to shareholders in the years to come.