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    Ingredion Inc (INGR)

    Business Description

    Ingredion Incorporated is a global ingredient solutions provider that transforms grains, fruits, vegetables, and other plant-based materials into value-added ingredients and biomaterials. The company serves diverse industries, including food, beverage, animal nutrition, brewing, pharmaceutical, and industrial markets. Ingredion's product portfolio includes starches, sweeteners, co-products, and specialty ingredients designed to meet customer demands for healthful, sustainable, and innovative solutions.

    1. Starch Products - Produces food-grade and industrial starches, modified and specialty starches, biomaterials, and starch-based pharmaceutical excipients.
    2. Sweetener Products - Offers glucose syrups, high maltose syrups, high fructose corn syrup, dextrose, polyols, maltodextrins, and syrup solids.
    3. Co-products and Others - Includes animal feed products, edible corn oil, stevia sweeteners, caramel color, protein fortification ingredients, gum acacia, pea protein, and fruit and vegetable concentrates.

    Q3 2024 Summary

    Initial Price$114.24July 1, 2024
    Final Price$136.03October 1, 2024
    Price Change$21.79
    % Change+19.07%

    What went well

    • Ingredion's Texture and Healthful Solutions segment experienced strong volume growth, with an 11% increase this quarter following 8% last quarter, driven by demand in categories like savory, prepared meals, bakery, snacks, and dairy. The company anticipates this strength to continue through the end of the year.
    • Structural improvements in the operating model and resegmentation have led to higher operating income margins and better performance across multiple levels. The focus on dedicated leadership and clarified segments is contributing to sustained earnings power.
    • The protein fortification business is showing significant year-over-year improvement in operating income, with expectations of similar proportional improvement next year. The company is actively working on a turnaround plan for this previously loss-making segment.

    What went wrong

    • The protein fortification business remains loss-making and is expected to take 1 to 3 years to turn around, which could continue to weigh on overall profitability.
    • Contracting for 2025 is moving slower than last year, indicating potential challenges in securing favorable pricing, which may impact future margins.
    • Despite strong volume growth in the Texture and Healthful Solutions segment, lower corn prices are leading to unfavorable price/mix adjustments, potentially pressuring revenues despite higher volumes.

    Q&A Summary

    1. Capital Allocation and Excess Cash
      Q: What will you do with excess cash?
      A: The company plans to allocate excess cash by investing in organic growth opportunities, maintaining disciplined dividends—increasing it for the 10th year in a row—and committing to or exceeding its share repurchase goal. They are also considering timing for both organic investments and potential M&A opportunities, emphasizing a disciplined approach to enhance shareholder value.

    2. M&A Prospects and Transformative Acquisitions
      Q: Will you consider larger acquisitions?
      A: With a healthy cash balance, the company is open to acquisitions that accelerate capabilities and market position, including both bolt-on and larger opportunities. They are actively managing a pipeline of M&A prospects, focusing on buying revenue, profit, and talent that align with their strategy to be the go-to provider for Texture and Healthful Solutions, aiming to enhance growth and shareholder returns.

    3. Structural Nature of Earnings Improvement
      Q: Are earnings improvements structural?
      A: Management attributes the earnings improvement to structural factors such as the new segment structure and benefits from their global operating model. They highlight the focus and clarity from resegmentation, improved fixed-cost absorption, and ongoing structural cost savings, suggesting these improvements are sustainable and the company is in the early innings of realizing full benefits.

    4. 2025 Sweetener Contracting Outlook
      Q: Could pricing be up modestly in 2025?
      A: Contracting for 2025 is moving slower than last year. About 50% of U.S./Canada revenue comes from fee contracts that reprice monthly with corn costs. They anticipate some pass-through of lower corn costs if markets remain similar, but note that industry capacity utilization has increased, potentially tightening supply and affecting pricing positively.

    5. Financing Costs and Outlook for 2025
      Q: How to think about net financing costs for '25?
      A: Due to FX gains of about $9 to $10 million and lower working capital needs—turning working capital into a source of cash—the company has paid down short-term debt and is earning interest income on cash balances. This has lowered financing costs in 2024, and if conditions remain similar, this favorable impact might persist into 2025.

    6. Gross Margin Improvement Drivers
      Q: What's driving gross margin improvement?
      A: Gross margin improvements are driven by renegotiated contracts that recovered margins, reduction in raw material input costs shared with customers, and better fixed-cost absorption due to increased volumes, especially in Texture and Healthful Solutions. These factors collectively enhance the profit pool and support sustainable growth.

    7. Protein Fortification Business Improvement
      Q: Will losses reduce further in '25?
      A: The company expects to reduce losses in the protein fortification business by a similar amount as in 2024, projecting significant year-over-year improvement. The higher-value pea protein isolate segment is driving these improvements, and they have contracted business heading into next year to support this positive trajectory.

    8. European Consumer Demand and Inventories
      Q: What's driving volume growth in Europe?
      A: Volume growth in Europe is attributed to increased consumer mobility and spending on convenience offerings, rather than restocking. The company is lapping a softer prior-year quarter and observes steady demand pickup without significant inventory rebuilds, suggesting real improvement in the region's consumer behavior.

    9. Volume Growth and Price/Mix in Texture and Healthful Solutions
      Q: What's affecting price/mix in Texture and Healthful Solutions?
      A: Strong volume growth is accompanied by negative price/mix due to passing through lower corn prices to customers. While selling more high-functionality, clean-label ingredients at higher value per ton, the reduction in corn costs leads to lower pricing, affecting the price/mix figures despite healthy profit growth.

    10. Balance of Pricing with Volume Growth for Next Year
      Q: How do you see pricing vs. volume growth playing out?
      A: Management feels positive about their momentum but notes it's early to make firm predictions. They expect demand to remain steady, with improving GDPs in key countries and increasing industry utilization, which could impact the balance of pricing and volume growth in the coming year. Factors like fluctuating corn prices and global economic conditions will play a role.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Texture & Healthful Solutions-----597588600
    Food & Industrial Ingredients--------
    - LATAM-----616630620
    - U.S./Canada-----541555548
    All Other-----128105102
    North America-1,342--4,485---
    South America-257--980---
    Asia-Pacific-267--1,479---
    EMEA-203--698---
    Specialty Ingredients--------
    Food--------
    Beverage--------
    Animal Nutrition--------
    Paper and Corrugating--------
    Brewing--------
    Other--------
    Total Revenue2,1372,0692,0331,9218,1601,8821,8781,870
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Latin America----1,062616630620
    U.S./Canada----5,188541555548
    All Other-----128105102
    Asia-Pacific2772672722731,089---
    EMEA235203192191821---
    - United States----3,069---
    - Mexico----1,571---
    - Brazil----669---
    - Canada----548---
    - Germany----413---
    - Colombia----332---
    - South Korea----325---
    - Others----1,233---
    North America--------
    South America--------
    Total Revenue2,1372,0692,0331,9218,1601,8821,8781,870

    Executive Team

    NamePositionStart DateShort Bio
    James P. ZalliePresident and Chief Executive OfficerJanuary 1, 2018James P. Zallie has been the President and CEO since January 1, 2018. He previously held various executive roles within the company and was CEO of National Starch LLC before its acquisition by Ingredion.
    Valdirene EvansSenior Vice President and President, Global Texture SolutionsJanuary 2024Valdirene Evans is the Senior Vice President and President, Global Texture Solutions as of January 2024. She previously served in leadership roles in Asia-Pacific and Global Head of Pharma, Home and Beauty.
    Larry FernandesSenior Vice President and Chief Commercial and Sustainability OfficerJuly 17, 2018Larry Fernandes has been in his current role since July 17, 2018. He joined Ingredion in May 1990 and has held various roles, including Senior Vice President and Chief Commercial Officer.
    Davida M. GableVice President, Corporate ControllerOctober 2021Davida M. Gable has been Vice President, Corporate Controller since October 2021. She previously worked at Wayfair Inc. and AK Steel Holdings Corporation.
    James D. GrayExecutive Vice President and Chief Financial OfficerMarch 2017James D. Gray has served as Executive Vice President and CFO since March 2017.
    Tanya Jaeger de ForasSenior Vice President, Chief Legal Officer, Corporate Secretary, and Chief Compliance OfficerNovember 2021Tanya Jaeger de Foras has been in her current role since November 2021. She was previously Deputy General Counsel and Chief Compliance Officer at Whirlpool Corporation.
    Michael O'RiordanSenior Vice President, Texture & Healthful Solutions, EMEA and Asia-PacificJanuary 2024Michael O'Riordan has been serving in his current role since January 2024. He previously held roles such as Regional President, EMEA, and Global Vice President, Marketing and Springboards.
    Rob RitchieSenior Vice President, Food & Industrial Ingredients, LATAM and U.S./CanadaJanuary 2024Rob Ritchie has been in his current role since January 2024. He previously held roles including Senior Vice President, Food & Industrial Ingredients, Americas, and Regional President, Mexico, U.S./Canada Sweetener Solutions.
    Eric SeipSenior Vice President, Global Operations and Chief Supply Chain OfficerJanuary 2021Eric Seip has served as Senior Vice President, Global Operations and Chief Supply Chain Officer since January 2021. He was previously Senior Vice President, Global Supply Chain at ChampionX Holding Inc..
    Nancy WolfeSenior Vice President and Chief Human Resources OfficerJanuary 2022Nancy Wolfe has been Senior Vice President and Chief Human Resources Officer since January 2022. She previously worked at Bayer Crop Science in various HR leadership roles.
    Jeremy XuSenior Vice President, Chief Innovation Officer and President, Global Healthful SolutionsOctober 2020Jeremy Xu has been serving in his current role since October 2020. He was previously President of Human Nutrition and Health at Royal DSM. He announced his resignation effective April 8, 2024.

    Questions to Ask Management

    1. The protein fortification business remains loss-making despite anticipated improvements; can you provide specific details on your turnaround plan over the next 1 to 3 years and the key milestones you expect to achieve to reach profitability?
    2. In the Texture and Healthful Solutions segment, while volume growth is strong, there's a notable decline in price/mix; are you lowering prices to drive volume, and how sustainable is this strategy for your margins in the long term?
    3. With 2025 sweetener contracting moving slower and corn prices fluctuating, how confident are you in maintaining or improving pricing, and what risks do you foresee that could impact your margins in this area?
    4. You've attributed earnings improvement to structural changes from your global operating model; can you quantify the savings realized so far and elaborate on how much additional improvement you expect in the coming years?
    5. Given your strong cash flow and balance sheet, are you considering larger, transformative acquisitions to accelerate growth in Texture and Healthful Solutions, and how do you reconcile this with your commitment to return cash to shareholders?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateSeptember 26, 2022
    End Date/DurationDecember 31, 2025
    Total Additional AmountUp to 6.0 million shares
    Remaining Authorization4.2 million shares (as of September 30, 2024)
    DetailsIntended to offset the dilutive impact of shares issued under the stock incentive plan over time

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024

    Guidance:

    1. Net Sales: Expected to be down mid-single digits, reflecting lower raw material costs partially offset by improving volume demand.
    2. Adjusted Operating Income: Anticipated to be up high single digits, driven by lower input costs and better operational efficiencies.
    3. Financing Costs: Expected to be $40 million to $50 million.
    4. Effective Tax Rates:
      • Reported: 28% to 29%
      • Adjusted: 26.5% to 27.5%.
    5. Earnings Per Share (EPS):
      • Reported: $10.60 to $10.90
      • Adjusted: $10.35 to $10.65.
    6. Diluted Weighted Average Shares Outstanding: 66 million to 67 million shares.
    7. Cash from Operations: $1.1 billion to $1.25 billion.
    8. Capital Expenditures: $310 million to $330 million.
    9. Corporate Costs: Expected to be flat year-over-year.
    10. Segment Operating Income Margins:
      • Texture & Healthful Solutions: 13% to 15%
      • Food and Industrial Ingredients LatAm: 18% to 20%
      • Food and Industrial Ingredients U.S./Canada: 16% to 18%.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024 and Q3 2024

    Guidance:

    1. Net Sales:
      • FY 2024: Expected to be down low single digits.
      • Q3 2024: Expected to be flat.
    2. Adjusted Operating Income:
      • FY 2024: Expected to be up mid-single digits.
      • Q3 2024: Expected to be up high double digits year-over-year.
    3. Financing Costs: $65 million to $85 million for FY 2024.
    4. Effective Tax Rates:
      • Reported: 27% to 28%
      • Adjusted: 26.5% to 27.5%.
    5. Earnings Per Share (EPS):
      • Reported: $10.20 to $10.70
      • Adjusted: $9.70 to $10.20.
    6. Diluted Weighted Average Shares Outstanding: 66 million to 67 million shares.
    7. Cash from Operations: $800 million to $950 million.
    8. Capital Expenditures: $340 million.
    9. Corporate Costs: Expected to be up low single digits.
    10. Segment Operating Income Margins:
      • Food and Industrial Ingredients U.S./Canada: 16% to 18%.
      • All Other Segment: Operating losses expected to be $20 million to $30 million.
      • Texture & Healthful Solutions: 13% to 15%
      • Food and Industrial Ingredients LatAm: 17% to 19%.
    11. Cost Savings Program (Cost2Compete): Targeting $50 million in run-rate savings by the end of 2025.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024

    Guidance:

    1. Net Sales:
      • FY 2024: Expected to be flat to up low single digits, excluding the South Korea divestiture.
      • Q2 2024: Expected to be flat to down low single digits.
    2. Adjusted Operating Income: Expected to be up mid-single digits for FY 2024.
    3. Financing Costs: $85 million to $105 million.
    4. Effective Tax Rates:
      • Reported: 24.5% to 25.5%
      • Adjusted: 26.5% to 27.5%.
    5. Earnings Per Share (EPS):
      • Reported: $10.35 to $11.00
      • Adjusted: $9.20 to $9.85.
    6. Diluted Weighted Average Shares Outstanding: 66 million to 67 million shares.
    7. Cash from Operations: $750 million to $900 million.
    8. Capital Expenditures: $340 million.
    9. Corporate Costs: Expected to be up mid-single digits.
    10. Segment Operating Income Margins:
      • Texture & Healthful Solutions: 13% to 16%
      • Food and Industrial Ingredients LATAM: 16% to 19%
      • Food and Industrial Ingredients U.S./Canada: 15% to 18%
      • All Other Segment: Operating loss reduction by 1/3.
    11. Cost Savings Program (Cost2Compete): Targeting $50 million in savings by the end of 2025.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024

    Guidance:

    1. Adjusted Operating Income: Expected to grow mid-single digits, excluding the South Korea divestiture.
    2. Volume Trends: Gradual improvement expected throughout FY 2024.
    3. Cost and Margin Drivers: Lower raw material costs, including corn, expected to improve gross profit.
    4. South Korea Divestiture Impact:
      • South Korea contributed $325 million in net sales and low $30 million range in adjusted operating income in 2023.
    5. Plant-Based Proteins: Expected improvement in the segment, which had a $40 million operating loss in 2023.
    6. Sugar Reduction: Growth expected with additional capacity in Kuala Lumpur.
    7. Foreign Exchange: Devaluation of the Argentine peso expected to impact Q1 2024 results.