Ingredion Reports “Disappointing” Q2, Outlook Lowered

1 Aug 2013 --- Ingredion Incorporated has reported results for the second quarter 2013. Q2 sales were flat as price/mix improvements were offset by volume declines and currency devaluations. Operating income was $140 million.

This is an 8 percent decrease compared to $153 million of reported operating income in the second quarter of 2012 and a 17 percent decrease compared to the $168 million of adjusted operating income in the year-ago quarter. The change was primarily due to higher costs and weaker volumes, notably a $30 million decline in operating income in South America.

First half 2013 sales were flat as price/mix improvements were offset by volume declines and currency devaluations. Operating income was $315 million. This was flat compared to reported operating income in the first half of 2012 and a 6 percent decrease compared to the $335 million of adjusted operating income in the year-ago period. The decrease was primarily due to higher costs and weaker volumes, notably a $32 million decline in operating income in South America.

"After delivering very strong results on a consistent basis over many years, our second quarter was disappointing as we saw EPS fall and, as we previously announced, we brought down the outlook for our full year," said Ilene Gordon, chairman, president and chief executive officer. "The shortfall and lowered outlook is the result of a challenging macro environment, particularly in South America where Argentina has seen a sharp acceleration of economic headwinds."

“In spite of this situation, our business model continues to position us for near-in success in North America, Asia Pacific and EMEA while our South American team diligently works through the short-term issues. We believe our current annual EPS guidance for 2013 of $5.10 to $5.40 represents our best estimate on a variety of risk factors in our markets. Looking longer-term, our early outlook for 2014 is positive as we expect relief on raw material prices, improved volume performance, and sales and operating income from key capital investments," Gordon added.

Second quarter diluted EPS declined 14 percent to $1.20 compared to $1.40 last year. The second quarter of 2012 included $0.08 of restructuring/impairment charges and $0.01 of business integration costs, which were more than 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 $1.20 in the quarter compared to $1.33 of adjusted EPS in the year-ago quarter. The estimated drivers of the decrease in the second quarter 2013 EPS versus the 2012 adjusted EPS were $0.19 from margin, $0.04 due to lower volumes and $0.02 of foreign currency devaluation. A lower tax rate provided a $0.13 benefit and lower net financing costs contributed $0.01, partially offset by an increase in share count, which resulted in a negative impact of $0.02.

First half diluted EPS was flat at $2.61 compared to the first half of last year. The first half of 2012 included $0.11 of restructuring/impairment charges and $0.03 of business integration costs, which were more than offset by a $0.16 benefit from the reversal of a tax valuation allowance in South Korea. Excluding these items, reported 2013 EPS increased 1 percent to $2.61 in the first half compared to $2.59 of adjusted EPS in the year-ago first half. The estimated drivers of the increase in the first half of 2013 EPS versus the first half 2012 adjusted EPS were a lower tax rate which provided a $0.19 benefit and $0.03 from lower net financing costs. These benefits were partially offset by an increase in share count, which resulted in a negative impact of $0.03. The non-operational benefit was largely offset by the negative impact of operational items including $0.07 of foreign currency devaluation, $0.07 due to lower volumes and $0.03 from lower margins.

During the second quarter of 2013, net financing costs were $16 million versus $17 million in the year-ago period. The decrease primarily reflects a combination of reduced borrowings and lower interest rates.

The second quarter effective tax rate was 21.9 percent compared to 18.4 percent in the year-ago period. For the first half of 2013, the effective tax rate was 26.0 percent compared to 25.6 percent in the first half of 2012. The tax rate associated with the adjusted EPS in the second quarter 2012 and year-to-date 2012 was 30.2 percent and 31.3 percent, respectively.

At June 30, 2013, total debt and cash and cash equivalents were $1.8 billion and $569 million, respectively, versus $1.8 billion and $609 million, respectively, at December 31, 2012.

In the first half of 2013, cash flow generated by operations was $112 million, which includes a working capital increase of $262 million. The impact of higher raw material costs was reflected in higher receivables and inventory balances.

Capital expenditures, net of disposals, were $132 million in the first half of 2013 compared to $128 million in the year-ago period.