Ingredion Q3 Profits Down 23%, Cites Argentina Woes

31 Oct 2013 --- Ingredion has reported that third-quarter profit fell 23% as sluggish demand and currency impacts weighed on revenue growth. "This was a disappointing quarter as many of the headwinds we faced in the second quarter persisted and in some cases accelerated. These challenges included volume softness, currency headwinds and higher costs," said Ilene Gordon, chairman, president and chief executive officer.

"Notably, two-thirds of the decline in operating income in the quarter was a result of the challenges in South America, particularly Argentina. Conditions remain very challenging in Argentina as political and economic actions have significantly increased costs while our ability to price through higher costs continues to be constrained."

“In the face of economic challenges, volume softness and the impact of last summer's drought in the U.S., our total business has held up well. And, looking longer-term, our early outlook for 2014 remains positive as we expect relief on raw material prices, improved volume performance, and sales and operating income from key capital investments," Gordon added.

First nine months EPS was down 9 percent to $3.71 compared to $4.06 in the first nine months of last year. The first nine months of 2012 included $0.18 of restructuring/impairment charges and $0.03 of business integration costs, which were substantially offset by a $0.16 benefit from the reversal of a tax valuation allowance in South Korea. Excluding these items, reported 2013 EPS decreased 10 percent to $3.71 in the first nine months compared to $4.11 of adjusted EPS in the year-ago period. The estimated drivers of the decrease in the first nine months 2013 EPS versus the 2012 adjusted EPS were $0.30 from margin, $0.15 due to lower volumes and $0.12 of foreign currency devaluation partially offset by $0.01 of other income. A lower tax rate provided a $0.19 benefit and lower financing costs contributed $0.02. These positive factors were partially offset by a $0.04 negative impact from an increase in share count and negative $0.01 from non-controlling interest.

During the third quarter of 2013, net financing costs were $18 million versus $16 million in the year-ago period. The increase primarily reflected an increase in foreign currency transaction losses, partially offset by lower interest expense.

The third quarter effective tax rate was 25.8 percent compared to 25.5 percent in the year-ago period. For the first nine months of 2013, the effective tax rate was 25.9 percent compared to 25.5 percent in the first nine months of 2012. The tax rates associated with the adjusted EPS in the third quarter 2012 and year-to-date 2012 were 26.8 percent and 29.7 percent, respectively.

At September 30, 2013, total debt and cash and cash equivalents were $1.77 billion and $618 million, respectively, versus $1.80 billion and $609 million, respectively, at December 31, 2012.
In the first nine months of 2013, cash flow generated by operations was $362 million, up $250 million from the end of the second quarter of 2013.

Capital expenditures, net of disposals, were $202 million in the first nine months of 2013 and 2012.

During the quarter, the Company repurchased 880,000 shares for approximately $56 million.

Third quarter 2013 sales were down 4 percent as volume declines and currency devaluations more than offset price/mix improvements.

Operating income was $137 million. This was a 19 percent decrease compared to $169 million of reported operating income in the third quarter of 2012 and a 24 percent decrease, or $42 million, compared to the $179 million of adjusted operating income in the year-ago quarter. The decline was primarily due to a $28 million decline in operating income in South America, largely a result of higher costs and weaker volumes.

For the first nine months 2013, sales were down 1 percent as volume declines and currency devaluations more than offset price/mix improvements.

Operating income was $452 million. This was down 6 percent compared to reported operating income in the first nine months of 2012 of $483 million and a 12 percent decrease compared to the $514 million of adjusted operating income in the year-ago period. The decrease was primarily due to higher costs and weaker volumes. Notably $60 million of the $62 million decline in operating income was attributable to South America.

Third quarter 2013 sales declined against a strong year-ago comparison (3Q12 volume was +4 percent) as positive price/mix was more than offset by negative volume across our end markets and slight currency headwinds. Operating income was down 6 percent, or $6 million, from $103 million to $97 million primarily due to the impact of lower volumes on fixed cost absorption.

2013 EPS is expected to be in a range of $5.00 to $5.15 compared to adjusted EPS in 2012 of $5.57 and prior guidance of $5.10 to $5.40. (2012 reported EPS was $5.47.) The updated guidance is based on the expectation that EPS for the fourth quarter 2013 will be $1.29 to $1.44. The updated guidance anticipates ongoing cost pressures in Argentina; a generally soft consumer environment leading to volume softness across all regions; currency headwinds, primarily in Argentina and Brazil; and, an effective tax rate of approximately 27 percent.