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MarketScreener Homepage  >  Equities  >  Nyse  >  Ingredion Incorporated    INGR

INGREDION INCORPORATED

(INGR)
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Ingredion Incorporated : 3Q 2020 Earnings Transcript

11/03/2020 | 12:40pm EST

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

INGR.N - Q3 2020 Ingredion Inc Earnings Call

EVENT DATE/TIME: NOVEMBER 02, 2020 / 2:00PM GMT

OVERVIEW:

Co. reported 3Q20 net sales of $1.574b, reported operating income of $153m and reported EPS of $1.36.

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NOVEMBER 02, 2020 / 2:00PM, INGR.N - Q3 2020 Ingredion Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

James D. Gray Ingredion Incorporated - Executive VP & CFO

James P. Zallie Ingredion Incorporated - President, CEO & Director

Tiffany Willis Ingredion Incorporated - VP of IR & Corporate Communications Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Adam L. Samuelson Goldman Sachs Group, Inc., Research Division - Equity Analyst

Benjamin Shelton Bienvenu Stephens Inc., Research Division - MD

Kenneth Bryan Zaslow BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst

Robert Bain Moskow Crédit Suisse AG, Research Division - Research Analyst

P R E S E N T A T I O N

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Ingredion Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded.

I'd now like to hand the conference over to your host today, Ms. Tiffany Willis, Vice President, Investor Relations and Corporate Communications Officer. Please go ahead.

Tiffany Willis - Ingredion Incorporated - VP of IR & Corporate Communications Officer

Thank you, Liz. Good morning, everyone, and welcome to Ingredion's Third Quarter 2020 Earnings Call. I'm Tiffany Willis, Vice President of Investor Relations and Corporate Communications Officer. On today's call are Jim Zallie, our President and CEO; and Jim Gray, our Executive Vice President and Chief Financial Officer.

We issued our results yesterday in a press release that can be found on our website, ingredion.com, in the Investors section. The slides accompanying this presentation can also be found on the website and were posted yesterday for your convenience.

As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including the impact of the COVID-19 pandemic. Actual results could differ materially from those predicted in the forward-looking statements, and Ingredion assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in yesterday's presentation -- press release can be found in the company's most recently filed annual report on Form 10-K and subsequent reports on Form 10-Q and 8-K.

During this call, we also refer to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating income and adjusted effective tax rate, which are reconciled to U.S. GAAP measures in Note 2 non-GAAP information included in our press release and in today's presentation appendix.

Now I am pleased to turn the call over to Jim Zallie.

2

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NOVEMBER 02, 2020 / 2:00PM, INGR.N - Q3 2020 Ingredion Inc Earnings Call

James P. Zallie - Ingredion Incorporated - President, CEO & Director

Thank you, Tiffany, and good morning, everyone. As societies around the world enter new phases of the pandemic and continue to grapple with its impact, we, at Ingredion, remain guided by our values and 3 priorities that we established at the beginning of the crisis. As part of our Care First value, our employees' safety, health and overall wellness remains our top priority. We've taken measures and applied learnings throughout the year to keep our employees safe. And as a result, I'm pleased to say that to date, we've had no Covid case-related interruptions to any of our operations around the world.

We have also been supporting our employees' needs to balance their personal and professional obligations, which has allowed us to productively progress both our operational and strategic agendas.

Our second priority has been to support the communities in which we operate. And I'm proud to say that our employees have really leaned in. Consistent with our value of Everyone Belongs, our employees around the world have shown tremendous support for racial justice as we've elevated our commitment to diversity, equity and inclusion. As a company, we have enhanced our internal programs, clarified what we expect from our leaders and supported social justice causes with both community involvement and financial contributions. As an integral part of the food supply chain, we're also working to do our part to address the growing problem of food insecurity in the communities in which we operate. And again, I'm proud of our company's and employees' efforts to give back through charitable donations and volunteerism. All of this is in alignment with our purpose to Make Life Better.

Lastly, we've maintained an intense focus on business continuity on behalf of our customers, which has served them, and in turn served us well. We're aligning our supply chain operations with our customers' efforts to optimize brands, product lines and SKUsand this has allowed us to get even closer to them during periods of swings in consumer demand. We understand the critical role we play in the food supply chain for our customers, and we strive to deliver on their behalf with each shipment we make. One example we'd like to highlight during the quarter is from our customer, Mondelez, who was recognized for its sustainable supply chain. We are proud to be a trusted, sustainable supplier who played an important role in enabling their success. We have also quickly pivoted to accommodate our changing customers' innovation needs by leveraging digital capabilities to collaborate and co-create in real time. This has afforded us the ability to quickly and economically deliver on new concept and reformulation requests. As shown by our work for Cheddies, a low-sugar,all-natural cheddar cracker, where we helped improve their margins by leveraging our technical expertise on reformulation.

Now turning our attention to the third quarter, we were pleased with our operational execution and financial results in the face of a challenging global environment. For the quarter, our global net sales were down 5% compared to the year ago period. Absent foreign exchange impacts of $38 million dollars, net sales were down 2% versus prior year. Quarter 3 results were sequentially better than the second quarter's 13% year-over-year decline in net sales. Adjusted operating income for the quarter was down 7% year-over-year and down 4% absent foreign exchange translation impacts.

James D. Gray - Ingredion Incorporated - Executive VP & CFO

Jim, let me just pardon you, I think we just need to try and dial back in because the polycom is breaking up. Sorry, just one minute we'll pause.

James P. Zallie - Ingredion Incorporated - President, CEO & Director

Okay. We're going to get started again. We had a little technical difficulty. So I'm starting with Slide 7, and I'm going to start with the third quarter. So turning our attention to the third quarter, we were pleased with our operational execution and financial results in the face of a challenging global environment. For the quarter, our global net sales were down 5% compared to the year ago period. Absent foreign exchange impacts of $38 million, net sales were down 2% versus prior year. Quarter 3 results were sequentially better than the second quarter's 13% year-over-year decline in net sales. Adjusted operating income for the quarter was down 7% year-over-year and down 4% absent foreign exchange translation impacts versus the second quarter's 29% decline in operating income, quarter 3's results demonstrated improved volume demand and better fixed cost absorption.

3

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NOVEMBER 02, 2020 / 2:00PM, INGR.N - Q3 2020 Ingredion Inc Earnings Call

Moving to our third quarter regional results. Let me begin with South America. South America sales were down 9% versus prior year. However, absent foreign exchange, sales were up 7% as favorable price/mix more than offset a modest volume decline. Operating income was $29 million, up 7% versus prior year as favorable price/mix more than offset foreign exchange impacts. Excluding foreign exchange impacts, adjusted operating income was up 30%, driven by strong price/mix.

To further highlight South America, we have seen a sequential improvement in volume demand. Consumer activity is returning to informal channels, albeit not to 2019 levels. We have seen a strong recovery in sales for brewing ingredients and steadily improving sweetener sales. In addition, the team has managed pricing actions very well given changing customer demand patterns as well as fluctuations in costs and foreign exchange.

Shifting to EMEA, our sales were up 2% for the quarter. The increase was largely attributable to favorable volume and price/mix in Pakistan. Operating income was $25 million, up 4% for the quarter. The increase was driven by favorable price/mix and volume in Pakistan and lower operating expenses in Europe.

Moving to Asia Pacific, net sales were up 1% compared to prior year, which includes the addition of PureCircle. Removing PureCircle, Asia Pacific net sales were down 3%, which reflects the pass-through of lower tapioca costs to customers. Operating income was $18 million, down 18% versus prior year, which includes a $5 million operating loss for PureCircle. Excluding PureCircle, third quarter operating income was $23 million, up $1 million from the year ago period, driven by lower input costs and favorable operating expenses.

Transitioning to North America. Net sales were down 6% for the quarter versus prior year. Volume demand continued to be weaker than prior year, although it improved versus the second quarter, as away-from-home consumption increased quarter-on-quarter. Operating income was $132 million, down 9% versus the prior year. The decrease was driven by unfavorable customer price/mix, lower sweetener volume and unfavorable fixed cost absorption in the U.S. and Canada.

Returning to a view that we shared in our last earnings call, we wanted to highlight the pace of recovery of net sales in both U.S., Canada and Mexico. In U.S., Canada, net sales were down mid-single digits for the quarter with sweetener syrup volumes improving from the second quarter, although still down high single digits versus prior year. In Mexico, net sales were down high single digits for the quarter, demonstrating a significant improvement from the quarter's steep decline due to a government shutdown of the brewing industry. In the third quarter, sales of brewing ingredients recovered significantly.

Now let me turn it over to Jim Gray, who will round out the financial review.

James D. Gray - Ingredion Incorporated - Executive VP & CFO

Thank you, Jim. Net sales of $1.574 billion were down 5% for the quarter versus prior year. Gross profit margin was 21.7%, down 15 basis points. Reported and adjusted operating incomes were $153 million and [$179 million] (corrected by company after the call), respectively. Reported operating income was lower than adjusted operating income due to asset closures and restructuring costs related to Cost Smart, acquisition and integration costs related to PureCircle and the impact of the severe derecho weather was swept through Iowa in the month of August.

Our reported and adjusted earnings per share were $1.36 and $1.77, respectively. Third quarter net sales of $1.574 billion were down 5% versus prior year. We experienced negative foreign exchange impacts of $38 million. Sales volume decline of $28 million was driven primarily by COVID-19 impacts around the world on volume demand. Unfavorable price/mix had a small impact of $6 million largely due to lower raw material costs in some geographies and related price-through to customers.

In North America, net sales were down 6% versus prior year due to sales volume decline of 3% and price/mix decline of 3%, driven primarily by the pass-through of lower corn costs to customers with variable pricing contracts. South America net sales were down 9%, driven by a negative 16% impact from foreign exchange weakness. 3% sales volume decline was more than offset by strong price/mix delivering 10 percentage points of favorability.

4

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Disclaimer

Ingredion Incorporated published this content on 02 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 November 2020 17:39:05 UTC


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Financials (USD)
Sales 2020 5 955 M - -
Net income 2020 335 M - -
Net Debt 2020 1 735 M - -
P/E ratio 2020 16,0x
Yield 2020 3,29%
Capitalization 5 300 M 5 300 M -
EV / Sales 2020 1,18x
EV / Sales 2021 1,10x
Nbr of Employees 11 000
Free-Float 85,6%
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Mean consensus OUTPERFORM
Number of Analysts 6
Average target price 92,50 $
Last Close Price 79,11 $
Spread / Highest target 51,7%
Spread / Average Target 16,9%
Spread / Lowest Target -2,67%
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Managers and Directors
NameTitle
James P. Zallie President, Chief Executive Officer & Director
Gregory B. Kenny Executive Chairman
James Derek Gray Chief Financial Officer & Executive Vice President
Robert J. Stefansic Chief Supply Chain Officer
Robert O. Border Chief Information Officer
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