Executive Summary / Key Takeaways

• Ingredion is executing a strategic pivot towards higher-value Texture and Healthful Solutions, complementing its stable Food and Industrial Ingredients business, driving margin expansion and offsetting commodity price volatility.
• Recent financial performance, particularly the 34% operating income growth in the Texture and Healthful Solutions segment and overall gross margin expansion to 26% in Q1 2025, demonstrates the early success of the 2024 resegmentation and focus on differentiated ingredients.
• The company's robust balance sheet and strong cash flow generation, including $1.4 billion in cash from operations in 2024 and a projected $825 million to $950 million in 2025, provide significant capital allocation flexibility for organic growth investments, strategic M&A, dividends, and share repurchases.
• Management's updated 2025 adjusted EPS guidance range of $10.90 to $11.60 signals confidence in continued operating income improvement, supported by volume growth, cost management initiatives like the Cost2Compete program, and more favorable financing costs.
• Key risks include potential impacts from evolving tariffs and trade policies, currency fluctuations, and the macroeconomic environment, though the company's local-for-local production model and hedging strategies offer considerable resilience.

Ingredion's Transformation: Crafting a Higher-Value Future

Ingredion Incorporated stands as a significant player in the global ingredients market, transforming agricultural raw materials like corn, fruits, and vegetables into a diverse portfolio of starches, sweeteners, and value-added ingredient solutions. Its business model, historically rooted in large-scale commodity processing, has undergone a significant strategic evolution, particularly following an enterprise-wide strategy refresh completed in 2023. This led to a global reorganization and resegmentation effective January 1, 2024, designed to sharpen focus and align the cost structure with a refined strategic vision: to become the go-to provider for Texture and Healthful Solutions that make healthy taste better.

This strategic pivot is not merely an organizational chart change; it represents a deliberate shift towards higher-margin, differentiated ingredients that cater to evolving consumer demands for clean label, healthier, and more affordable food and beverage options. The company's history, marked by navigating commodity price cycles and industry destocking events like the one experienced in 2023, underscores the importance of building resilience and capturing value beyond basic processing. Recent portfolio adjustments, such as the divestiture of the South Korea business and obtaining exclusive access to fermented Reb M technology through the wind-down of the RealSweet joint venture, further highlight this focus on optimizing the business mix towards strategic growth areas like sugar reduction.

A cornerstone of Ingredion's competitive positioning lies in its technological capabilities, particularly in starch science and plant-based ingredient processing. The company leverages proprietary technology to transform raw materials into functional ingredients. While specific, quantifiable metrics for all technologies are not uniformly disclosed, the benefits are tangible. Differentiated products, often developed through the company's Idea Labs innovation centers and in collaboration with customers on specific briefs, command higher prices per ton and contribute to a higher gross profit margin profile compared to commodity ingredients. Investments like the $50 million expansion at the Cedar Rapids facility aim to enhance specialty industrial starch capacity and support innovation in bio-based solutions for sustainable packaging, indicating a focus on applying technology to address market needs beyond traditional food applications. Similarly, the $100 million investment at the Indianapolis plant, leveraging Inflation Reduction Act incentives, is targeted at expanding capabilities for texture innovations and modernizing infrastructure, with an expected IRR of at least 10% to mid-teens. This investment in cogeneration also promises quantifiable environmental benefits, such as reduced greenhouse gas emissions, appealing to sustainability-focused customers. The pursuit of technologies like fermented Reb M and sweet proteins (through partnerships like Oobli) demonstrates a commitment to expanding the portfolio in high-growth, health-focused areas. These technological efforts collectively contribute to Ingredion's competitive moat by enabling product differentiation, improving operational efficiency (e.g., through debottlenecking in LATAM or new forecast accuracy tools combining machine learning), and addressing customer needs for innovation, affordability, and sustainability.

In the competitive landscape, Ingredion operates alongside global agricultural processing giants like Archer-Daniels-Midland (ADM) and Bunge Limited (BG), as well as more specialty-focused players like Tate & Lyle (TATEY). While ADM and Bunge often benefit from vast scale and vertical integration, which can translate to lower operating costs per unit and stronger cash flow generation, Ingredion differentiates itself through its specialized ingredient portfolio and customer-centric solutions approach, particularly within the Texture and Healthful Solutions segment. Ingredion's gross margins (25.83% TTM) currently appear stronger than ADM's (7% TTM) and Bunge's (6% TTM), suggesting effective pricing and cost management, especially in its specialty areas. However, ADM and Tate & Lyle may demonstrate faster revenue growth rates and potentially higher returns on invested capital (ROIC) and equity (ROE), indicating greater efficiency in capital deployment or faster market capture in certain areas. Tate & Lyle, in particular, is strong in health-focused innovations. Ingredion's investment in expanding specialty capacity and its Cost2Compete program are strategic responses aimed at enhancing its competitive position by improving cost competitiveness and expanding its differentiated offerings. The company's local-for-local production model, with over 80% of manufactured goods remaining local internationally and significant operations shielded by USMCA in North America, provides a degree of resilience against global trade disruptions, a potential vulnerability for competitors with more complex international supply chains. Customer collaborations, particularly in reformulating for affordability and clean label, are key to maintaining relevance and driving volume growth against competitive pressures.

Performance Reflecting Strategic Momentum

The early results under the new segment structure underscore the impact of Ingredion's strategic focus and operational execution. In the first quarter of 2025, the company reported net sales of $1.81 billion, a 4% decrease year-over-year, primarily due to lower raw material costs passed through to customers and unfavorable foreign exchange impacts, partially offset by volume increases. However, profitability saw significant improvement. Gross profit grew, with the gross profit margin expanding notably to 26% from 22% in Q1 2024, driven primarily by lower raw material and input costs and improved operational efficiencies.

Operating income surged by 30% to $276 million in Q1 2025. This was significantly influenced by the Texture and Healthful Solutions segment, which delivered a robust 34% increase in operating income to $99 million, propelled by strong sales volume growth (up 7%), lower input costs, and favorable mix. The Food and Industrial Ingredients - LATAM segment also saw a 26% increase in operating income to $127 million, benefiting from lower raw material costs and the lapping of the prior year's Argentine peso devaluation impact on the joint venture, with Mexico delivering a record quarter. The FII - U.S.Canada segment's operating income increased 6% to $92 million, driven by lower raw material costs and improved mix, demonstrating resilience after significant margin expansion in the prior years. The "All Other" category saw its operating loss improve to $0 million, largely due to improvements in the plant-based protein business, which is showing nice double-digit growth alongside the sugar reduction business.

This performance builds on a strong 2024, where the company achieved record gross profit dollars and margins, and saw significant operating income growth in its FII U.S./Canada (up 25%) and LATAM (up 7%) segments. The ability to recapture inflationary costs through contract adjustments and benefit from lower raw material prices while driving volume growth, particularly in THS, highlights the effectiveness of the company's pricing strategies, procurement practices (including extensive hedging), and operational excellence initiatives.

Ingredion's financial health is robust, supported by strong cash flow generation. Cash provided by operating activities was $77 million in Q1 2025, lower than Q1 2024 primarily due to a $223 million change in working capital driven by increased accounts receivable. However, for the full year 2024, cash from operations reached $1.4 billion, significantly benefiting from working capital changes related to lower raw material costs. The company ended Q1 2025 with total available liquidity of $3.8 billion ($1.5 billion domestic, $2.3 billion international). This strong liquidity position and balance sheet (debt-to-equity ratio of 0.44 TTM) provide substantial flexibility for capital allocation. In Q1 2025, the company used $92 million for capital expenditures and mechanical stores purchases and $154 million for financing activities, including $55 million for share repurchases and $52 million for dividends paid. The company has a stock repurchase program authorizing up to 6 million shares until December 31, 2025, with 2.9 million shares remaining as of March 31, 2025, and has set a share repurchase objective of at least $100 million for 2025.

Outlook and Risks on the Horizon

Looking ahead, Ingredion anticipates continued momentum. For the full year 2025, the company expects net sales to be up low-single-digits, driven by greater volume demand, partially offset by price/mix and foreign exchange impacts. Adjusted operating income is projected to be up mid-single-digits. The updated adjusted EPS guidance range for 2025 is $10.90 to $11.60, reflecting the strong Q1 outperformance, lower anticipated financing costs ($40 million to $60 million), and a reduced weighted average share count (65 million to 66 million shares). This guidance incorporates the minimal impacts of tariffs enacted by the end of April 2025 but excludes unknown future changes.

Segment-specific outlook for 2025 remains consistent with prior guidance: THS net sales are expected to be up mid-single-digits with operating income up mid-single-digits to high-single digits, driven by volume growth. FII LATAM net sales are projected to be flat, with operating income up mid-single-digits. FII U.S.Canada net sales are expected to be down low-single-digits, with operating income flat to down low-single-digits. The All Other category is anticipated to see net sales up high-single-digits and operating income approaching breakeven profitability, supported by improvements in the protein fortification business (including a projected $10 million positive impact from the Vanscoy plant closure) and growth in Pakistan and sugar reduction.

The company plans a one-time step-up in capital expenditures in 2025 to $400 million to $450 million, primarily driven by the Indianapolis plant investment leveraging IRA incentives, before returning to a historical range of $300 million to $350 million. Cash from operations for 2025 is estimated between $825 million and $950 million, reflecting expected investment in working capital. Corporate costs are expected to be up mid-single-digits to high-single-digits due to compensation increases and investments in R&D and digital IT.

Despite the positive outlook, several risks warrant investor attention. Evolving tariffs and trade policies, particularly the uncertainty surrounding potential "Liberation Day tariffs" in July, could lead to supply chain disruptions and incremental costs, potentially impacting the lower end of guidance. Currency weakness in key international markets (Brazil, Colombia, Europe, China) could also pose a headwind. While the company extensively hedges raw material costs (80%-85%), fluctuations in spot prices and co-product values can still introduce volatility. The macroeconomic environment, including potential economic weakening, could impact demand, although the company's diversified portfolio and focus on affordable/convenient solutions offer some insulation. Increased competitive pressure, particularly in the corn-refining industry, remains a factor. Management is actively monitoring these risks through a tariff response hub, collaborating with customers on reformulation, leveraging its agile manufacturing network, and employing hedging strategies.

Conclusion

Ingredion's first quarter 2025 results underscore the positive trajectory initiated by its strategic resegmentation and sharpened focus on Texture and Healthful Solutions. The significant operating income growth, particularly within the targeted THS segment, coupled with robust gross margin expansion, provides tangible evidence that the company's efforts to pivot towards higher-value, differentiated ingredients are yielding results. Supported by a strong balance sheet and healthy cash flow generation, Ingredion possesses the financial flexibility to invest in organic growth initiatives, pursue strategic M&A opportunities, and continue returning capital to shareholders. While external factors such as trade policy uncertainty and currency volatility present potential headwinds, the company's diversified business model, local-for-local production footprint, and proactive risk mitigation strategies offer a degree of resilience. The updated 2025 guidance reflects confidence in sustained operational improvement and profitability growth, positioning Ingredion as a compelling consideration for investors seeking exposure to a transforming ingredients provider leveraging technological capabilities to capture value in evolving global food and beverage markets.