Unless the context indicates otherwise, references to "we," "us," "our," the
"Company" and "Ingredion" mean Ingredion Incorporated and its consolidated
subsidiaries.
Overview
Ingredion is a leading global ingredients solutions provider that transforms
corn, tapioca, potatoes, plant-based stevia, grains, fruits, gums and vegetables
into value-added ingredients and biomaterials for the food, beverage, brewing
and other industries. Our Purpose is to bring the potential of people, nature
and technology together to make life better. As of June 30, 2022, we have 45
manufacturing facilities located in North America, South America, Asia-Pacific
and Europe, the Middle East and Africa ("EMEA"), and we manage and operate our
businesses at a regional level. We believe this approach provides us with a
unique understanding of the cultures and product requirements in each of the
geographic markets in which we operate, bringing added value to our customers.
Ingredion has been navigating evolving global conditions that have varying
impacts on our customers, suppliers, employees, operations and, ultimately, our
profitability and cash flows. During the three months ended June 30, 2022, we
continued to achieve strong price mix and higher volumes, which included
increased prices for our products to manage the effects of increasing corn and
freight costs. Although a portion of our revenues and costs are established with
fixed-rate contracts, our ability to respond to changing customer demands,
increasing inflation, fluctuating foreign exchange rates, and shifting supply
chain channels were affected by a variety of factors, including the ongoing,
global pandemic with new variants of the coronavirus disease 2019 ("COVID-19")
and the conflict between Russia and Ukraine.
Our results for the current period benefited from strong price mix and volume
growth, which more than offset higher raw material input costs. Our net sales of
$2,044 million for the second quarter of 2022 were over 16 percent higher than
our net sales of $1,762 million for the second quarter of 2021 primarily due to
higher volumes and stronger price mix, including the pass-through of higher corn
costs. The net sales increase contributed to $23 million of higher gross profit
during the current period when compared to the second quarter of 2021. Our
operating income of $213 million for the second quarter of 2022 declined from
operating income of $222 million for the second quarter of 2021. Excluding a
one-time benefit of $15 million recorded during the second quarter of 2021 in
other operating (income) related to Brazil indirect taxes, operating income
increased during the current period. Net income attributable to Ingredion for
the second quarter of 2022 was $142 million, or $2.12 diluted earnings per
share, which was a decrease from $178 million, or $2.62 diluted earnings per
share for the second quarter of 2021. Excluding the reversal of tax liabilities
related to certain unremitted earnings from foreign subsidiaries during the
second quarter of 2021 and the Brazil indirect taxes, our results for the
current period reflected higher net income attributable to Ingredion as well as
a higher diluted earnings per share.
Results of Operations
We have significant operations in four reporting segments: North America, South
America, Asia-Pacific and EMEA. Fluctuations in foreign currency exchange rates
affect the U.S. dollar amounts of our foreign subsidiaries' revenues and
expenses. For most of our foreign subsidiaries, the local foreign currency is
the functional currency. Accordingly, revenues and expenses denominated in the
functional currencies of these subsidiaries are translated into U.S. dollars at
the applicable average exchange rates for the period.
We acquired KaTech on April 1, 2021, and the results of the acquired business
are included in our consolidated financial results beginning on the acquisition
date, which inclusion affects the comparability of results between years. In
addition, we entered into the Argentina joint venture on February 12, 2021,
which closed on August 2, 2021, and the Amyris joint venture on June 1, 2021.
Our share of results in joint ventures is classified as other operating (income)
and comparability between years and between financial statement line items is
affected by the timing of and consideration provided to the investments. While
we identify fluctuations due to the acquisitions in our discussion below, we
also address results of operations excluding the impact of our acquisitions and
investments, where appropriate, to provide a more comparable and meaningful
analysis.
23
Table of Contents
For the Three Months Ended June 30, 2022
With Comparatives for the Three Months Ended June 30, 2021
Net sales. Net sales increased 16 percent to $2,044 million for the three months
ended June 30, 2022, compared to $1,762 million for the three months ended June
30, 2021. The increase in net sales was primarily driven by strong price mix,
including the pass-through of higher corn and input costs.
Cost of sales. Cost of sales increased by 19 percent to $1,654 million for the
three months ended June 30, 2022, compared to cost of sales of $1,395 million
for the three months ended June 30, 2021. The increase in cost of sales
primarily reflected higher net corn costs. Our gross profit margin of 19 percent
for the three months ended June 30, 2022, decreased from 21 percent for the
three months ended June 30, 2021. The decrease in gross margin was primarily
driven by higher corn and input costs.
Operating expenses. Operating expenses increased 7 percent to $179 million for
the three months ended June 30, 2022, compared to $167 million for the three
months ended June 30, 2021, primarily due to higher inflationary costs.
Operating expenses as a percentage of net sales was 9 percent for both the three
months ended June 30, 2022, and the three months ended June 30, 2021.
Other operating (income). Other operating (income) decreased to $(4) million for
the three months ended June 30, 2022, compared to $(26) million for the three
months ended June 30, 2021. During the three months ended June 30, 2021, we
recorded $(15) million of Other operating (income) related to Brazil indirect
tax credits and an $(8) million net gain as part of the formation of the Amyris
joint venture.
Restructuring and impairment charges. Restructuring and impairment charges were
$2 million for the three months ended June 30, 2022, compared to $4 million for
the three months ended June 30, 2021. These charges decreased due to the
wind-down of our Cost Smart restructuring program.
Financing costs. Financing costs decreased 11 percent to $17 million for the
three months ended June 30, 2022, compared to $19 million for the three months
ended June 30, 2021. The decrease was primarily due to higher foreign exchange
losses in the prior year compared to foreign exchange losses in the current
year.
Provision for income taxes. Our effective income tax rates for the three months
ended June 30, 2022 increased to 26.0 percent from 11.7 percent during the three
months ended June 30, 2021. The increase in the effective income tax rate was
primarily driven by a discrete tax benefit of $30 million during the three
months ended June 30, 2021, due to the reversal of an accrual for withholding
tax on the unremitted earnings of a foreign subsidiary.
Net income attributable to non-controlling interests. Net income attributable to
non-controlling interests were $3 million for both the three months ended June
30, 2022, and the three months ended June 30, 2021.
Net income attributable to Ingredion. Net income attributable to Ingredion for
the three months ended June 30, 2022, was $142 million compared to a net income
of $178 million for the three months ended June 30, 2021. During the three
months ended June 30, 2021, we recorded several non-recurring items including:
the $30 million discrete tax benefit, $15 million of income related to Brazil
indirect tax credits and the $8 million net gain from the formation of the
Amyris joint venture. Excluding these items, net income increased due to strong
price mix, offset in part by higher corn and input costs.
Segment Results
North America
Net sales. North America's net sales increased 20 percent to $1,284 million for
the three months ended June 30, 2022, compared to $1,068 million for the three
months ended June 30, 2021. The increase was primarily driven by a 19 percent
improvement in price mix and a 1 percent increase in volume.
Operating income. North America's operating income was $161 million for the
three months ended June 30, 2022, compared to $149 million for the three months
ended June 30, 2021. The increase was primarily due to favorable price mix and
higher volumes that more than offset higher corn and input costs.
24
Table of Contents
South America
Net sales. South America's net sales increased 8 percent to $290 million for the
three months ended June 30, 2022, from $268 million for the three months ended
June 30, 2021. Excluding the effects of revenues from operations we contributed
to the Argentina joint venture, net sales were 42 percent higher than in the
same period last year. The increase reflected a 23 percent higher price mix
across South America, a 15 percent increase in volume and a 4 percent favorable
foreign exchange impact.
Operating income. South America's operating income increased 18 percent to $39
million for the three months ended June 30, 2022, compared to $33 million for
the three months ended June 30, 2021. The increase was primarily driven by
favorable price mix which more than offset higher corn and input costs.
Asia-Pacific
Net sales. Asia-Pacific's net sales increased 11 percent to $275 million for the
three months ended June 30, 2022, compared to $248 million for the three months
ended June 30, 2021. The increase was driven by a 15 percent higher price mix
and a 4 percent increase in volume, the effects of which were partially offset
by unfavorable foreign exchange impacts of 8 percent.
Operating income. Asia-Pacific's operating income decreased 13 percent to $21
million for the three months ended June 30, 2022, compared to $24 million for
the three months ended June 30, 2021. The decrease was driven by higher corn and
input costs in Korea, COVID-19 disruptions in China and foreign currency
headwinds.
EMEA
Net sales. EMEA's net sales increased by 10 percent to $195 million for the
three months ended June 30, 2022, compared to $178 million for the three months
ended June 30, 2021. Despite unfavorable foreign exchange impacts of 14 percent,
the increase was driven by a 20 percent higher price mix and a volume increase
of 4 percent.
Operating income. EMEA's operating income decreased 9 percent to $29 million for
the three months ended June 30, 2022, compared to $32 million for the three
months ended June 30, 2021. Favorability in Europe was more than offset by
unfavorable Pakistan results and foreign exchange headwinds across the region.
For the Six Months Ended June 30, 2022
With Comparatives for the Six Months Ended June 30, 2021
Net sales. Net sales increased 17 percent to $3,936 million for the six months
ended June 30, 2022, compared to $3,376 million for the six months ended June
30, 2021. The increase in net sales was driven by strong price mix, including
the pass through of higher corn and input costs.
Cost of sales. Cost of sales increased by 19 percent to $3,167 million for the
six months ended June 30, 2022, compared to cost of sales of $2,658 million for
the six months ended June 30, 2021. The increase in cost of sales primarily
reflected higher net corn costs. Our gross profit margin of 20 percent for the
six months ended June 30, 2022 decreased from 21 percent for the six months
ended June 30, 2021. The decrease in gross margin was primarily driven by higher
corn and input costs.
Operating expenses. Operating expenses increased 9 percent to $348 million for
the six months ended June 30, 2022, compared to $320 million for the six months
ended June 30, 2021, primarily due to higher inflationary costs. Operating
expenses as a percentage of net sales were approximately 9 percent for both the
six months ended June 30, 2022, and the six months ended June 30, 2021.
Other operating (income). Other operating (income) decreased to $(6) million for
the six months ended June 30, 2022, compared to $(28) million for the six months
ended June 30, 2021. During the six months ended June 30, 2021, we recorded
$(15) million of Other operating (income) related to Brazil indirect tax credits
and an $(8) million net gain from the formation of the Amyris joint venture.
25
Table of Contents
Restructuring and impairment charges. Restructuring and impairment charges were
$4 million for the six months ended June 30, 2022, compared to $374 million for
the six months ended June 30, 2021. The charges we incurred for the six months
ended June 30, 2021 were primarily driven by an impairment charge of $360
million for net assets from our Argentina business we contributed to the
Argentina joint venture, of which $311 million was related to the write-off of
the cumulative translation losses associated with the contributed net assets and
$49 million was related to the write-down of the contributed net assets to fair
value.
Financing costs. Financing costs increased 8 percent to $41 million for the six
months ended June 30, 2022, compared to $38 million for the six months ended
June 30, 2021. The increase was primarily due to higher foreign exchange losses
in the current year compared to the prior year. Third party financing costs were
flat due to a higher average debt balance and lower weighted average interest
rate during the six months ended June 30, 2022, compared to the six months ended
June 30, 2021.
Provision for income taxes. The effective tax rate for the six months ended June
30, 2022, decreased to 27.4 percent from 464.7 percent for the six months ended
June 30, 2021. The primary cause of the decrease in the effective tax rate was
the $360 million impairment charge related to net assets contributed to the
Argentina joint venture during the three months ended March 31, 2021, that did
not have a corresponding income tax benefit. The effect of this charge was
partially offset by a discrete tax benefit of $30 million during the three
months ended June 30, 2021, due to the reversal of an accrual for withholding
tax on the unremitted earnings of a foreign subsidiary.
Net income attributable to non-controlling interests. Net income attributable to
non-controlling interests was $6 million for both the six months ended June 30,
2022, and the six months ended June 30, 2021.
Net Income attributable to Ingredion. Net income attributable to Ingredion for
the six months ended June 30, 2022, was $272 million compared to a net loss of
$(68) million for the six months ended June 30, 2021. The net loss in the prior
year period was largely attributable to the $360 million impairment charge for
the Argentina assets contributed to the Argentina joint venture that we recorded
in the six months ended June 30, 2021.
Segment Results
North America
Net sales. North America's net sales increased 22 percent to $2,458 million for
the six months ended June 30, 2022, compared to $2,013 million for the six
months ended June 30, 2021. The increase was primarily driven by a 20 percent
improvement in price mix and a 2 percent increase in volume.
Operating income. North America's operating income was $317 million for the six
months ended June 30, 2022, compared to $283 million for the six months ended
June 30, 2021. The increase was driven by favorable price mix and higher volumes
that more than offset higher corn and input costs.
South America
Net sales. South America's net sales increased by $1 million to $542 million for
the six months ended June 30, 2022, from $541 million for the six months ended
June 30, 2021. Excluding the effects of revenues from operations we contributed
to the Argentina joint venture, net sales were 32 percent higher than in the
same period last year. The increase reflected 24 percent higher price mix across
South America, a 6 percent increase in volume and a 2 percent favorable foreign
exchange impact.
Operating income. South America's operating income increased 5 percent to $77
million for the six months ended June 30, 2022, compared to $73 million for the
six months ended June 30, 2021. The increase was primarily driven by favorable
price mix which more than offset higher corn and input costs.
26
Table of Contents
Asia-Pacific
Net sales. Asia-Pacific's net sales increased 13 percent to $547 million for the
six months ended June 30, 2022, compared to $483 million for the six months
ended June 30, 2021. The increase was driven by an 11 percent higher price mix
and an increase in volume of 8 percent, partially offset by unfavorable foreign
exchange impacts of 6 percent.
Operating income. Asia-Pacific's operating income decreased 12 percent to $43
million for the six months ended June 30, 2022, compared to $49 million for the
six months ended June 30, 2021. The decrease was driven by higher corn and input
costs in Korea, COVID-19 disruptions in China and foreign currency headwinds.
EMEA
Net sales. EMEA's net sales increased by 15 percent to $389 million for the six
months ended June 30, 2022, compared to $339 million for the six months ended
June 30, 2021. Despite unfavorable foreign exchange impacts of 11 percent, the
increase was driven by a 19 percent higher price mix and an increase in volume
of 7 percent, partially due to the purchase of KaTech on April 1, 2021.
Operating income. EMEA's operating income decreased 5 percent to $60 million for
the six months ended June 30, 2022, compared to $63 million for the six months
ended June 30, 2022. Favorability in Europe was more than offset by unfavorable
Pakistan results and foreign exchange headwinds across the region.
Liquidity and Capital Resources
As of June 30, 2022, we had total available liquidity of approximately $1,484
million. Domestic liquidity of $452 million consisted of $10 million in cash and
cash equivalents and $442 million of short-term borrowing availability through
our $1 billion commercial paper program, under which $558 million of borrowings
were outstanding as of June 30, 2022. The commercial paper program, which we
initiated on July 27, 2021, is backed by $1 billion of borrowing availability
under a five-year revolving credit agreement that we entered into on June 30,
2021.
We had international liquidity as of June 30, 2022 of approximately $1,032
million, consisting of $308 million of cash and cash equivalents and $4 million
of short-term investments held by our operations outside the U.S., as well as
$720 million of unused operating lines of credit in the various foreign
countries in which we operate. As the parent company, we guarantee certain
obligations of our consolidated subsidiaries, which totaled $66 million as of
June 30, 2022. We believe that such consolidated subsidiaries will be able to
meet their financial obligations as they become due.
As of June 30, 2022, we had total debt outstanding of approximately $2.4
billion, or $1.7 billion excluding the outstanding commercial paper and other
short-term borrowings. Of our outstanding debt, $1.7 billion consists of senior
notes that do not require principal repayment until 2026 through 2050. See Note
8 of the Notes to the Condensed Consolidated Financial Statements included in
this report for additional information about our debt.
The principal source of our liquidity is our internally generated cash flow,
which we supplement as necessary with our ability to borrow under our credit
facilities and commercial paper program and to raise funds in the capital
markets. We currently expect that our available cash balances, future cash flow
from operations, access to debt markets and borrowing capacity under our
revolving credit facility and commercial paper program, will provide us with
sufficient liquidity to fund our anticipated capital expenditures, dividends and
other investing and financing activities for at least the next twelve months and
for the foreseeable future thereafter. Our future cash flow needs will depend on
many factors, including our rate of revenue growth, the timing and extent of our
expansion into new markets, the timing of introductions of and rate of success
for new products, potential acquisitions of complementary businesses and
technologies, continuing market acceptance of our new products and general
economic and market conditions. We may need to raise additional capital or incur
indebtedness to fund our needs for less predictable strategic initiatives, such
as acquisitions.
27
Table of Contents
Net Cash Flows
Our short-term borrowing increased $344 million, which we primarily used to
invest in capital expenditures and mechanical stores purchase, pay dividends,
repurchase shares of common stock and fund operating activities. Our cash used
by operating activities was $4 million during the first half of 2022 as compared
to cash provided by operating activities of $129 million during the first half
of 2021. This decrease was primarily due to changes in working capital of $459
million through the first half of 2022, which were primarily attributable to
increases in trade accounts receivable and inventory. Working capital for trade
accounts receivable increased due to higher pricing and higher freight costs for
products sold during the first half of 2022. Working capital for inventory
increased due primarily to higher input costs from raw materials during the
first half of 2022.
We used $144 million of cash for capital expenditures and mechanical stores
purchases to update, expand and improve our facilities in the first half of
2022, as compared to $117 million that we paid in the first half of 2021 for
capital expenditures and mechanical stores. Capital investments for full year
2022 are anticipated to be between $290 million and $320 million.
We declare and pay cash dividends to our common stockholders of record on a
quarterly basis. On May 20, 2022, our Board of Directors declared a quarterly
cash dividend of $0.65 per share of common stock. This dividend was paid on July
26, 2022, to stockholders of record at the close of business on July 1, 2022.
Dividends paid, including those to noncontrolling interests, were $90 million
for the first half of 2022, compared to $93 million for the first half of 2021.
During the three months ended June 30, 2022, we repurchased 502 thousand
outstanding shares of common stock in open market transactions at a net cost of
$44 million, as compared to repurchases of 107 thousand outstanding shares of
common stock at a net cost of $10 million in the three months ended June 30,
2021. For the six months ended June 30, 2022, we repurchased 957 thousand
outstanding shares of common stock in open market transactions at a net cost of
$83 million, as compared to repurchases of 265 thousand outstanding shares of
common stock at a net cost of $24 million for the six months ended June 30,
2021.
We have not provided foreign withholding taxes, state income taxes and federal
and state taxes on foreign currency gains/losses on accumulated undistributed
earnings of certain foreign subsidiaries because these earnings are considered
to be permanently reinvested. It is not practicable to determine the amount of
the unrecognized deferred tax liability related to the undistributed earnings.
We do not anticipate the need to repatriate funds to the U.S. to satisfy
domestic liquidity needs arising in the ordinary course of business, including
liquidity needs associated with our domestic debt service requirements.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in Management's
Discussion and Analysis of Financial Condition and Results of Operations in
our Annual Report on Form 10-K for the year ended December 31, 2021. There have
been no material changes to our critical accounting policies and estimates
during the first half of 2022.
New Accounting Pronouncements
The information called for by this section is incorporated herein by reference
to Note 2 of the Condensed Consolidated Financial Statements included in this
report.
28
Table of Contents
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains or may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Ingredion
intends these forward-looking statements to be covered by the safe harbor
provisions for such statements.
Forward-looking statements include, among others, any statements regarding
Ingredion's prospects and its future operations, financial condition, earnings,
net sales, tax rates, capital expenditures, cash flows, expenses or other
financial items, including management's plans or strategies and objectives for
any of the foregoing, and any assumptions, expectations or beliefs underlying
any of the foregoing.
These statements can sometimes be identified by the use of forward-looking words
such as "may," "will," "should," "anticipate," "assume," "believe," "plan,"
"project," "estimate," "expect," "intend," "continue," "pro forma," "forecast,"
"outlook," "propels," "opportunities," "potential," "provisional," or other
similar expressions or the negative thereof. All statements other than
statements of historical facts in this report or referred to in this report are
"forward-looking statements."
These statements are based on current circumstances or expectations, but are
subject to certain inherent risks and uncertainties, many of which are difficult
to predict and beyond our control. Although we believe our expectations
expressed or implied in these forward-looking statements are based on reasonable
assumptions, investors are cautioned that no assurance can be given that our
expectations will prove correct.
Actual results and developments may differ materially from the expectations
expressed in or implied by these statements, based on various risks and
uncertainties, including the impact of COVID-19 on the demand for our products
and our financial results; changing consumption preferences relating to high
fructose corn syrup and other products we make; the effects of global economic
conditions and the general political, economic, business, and market conditions
that affect customers and consumers in the various geographic regions and
countries in which we buy our raw materials or manufacture or sell our products,
including, particularly, economic, currency and political conditions in South
America and economic and political conditions in Europe, and the impact these
factors may have on our sales volumes, the pricing of our products and our
ability to collect our receivables from customers; future purchases of our
products by major industries which we serve and from which we derive a
significant portion of our sales, including, without limitation, the food,
beverage, animal nutrition, and brewing industries; the uncertainty of
acceptance of products developed through genetic modification and biotechnology;
our ability to develop or acquire new products and services at rates or of
qualities sufficient to gain market acceptance; increased competitive and/or
customer pressure in the corn-refining industry and related industries,
including with respect to the markets and prices for our primary products and
our co-products, particularly corn oil; the availability of raw materials,
including potato starch, tapioca, gum Arabic, and the specific varieties of corn
upon which some of our products are based, and our ability to pass along
potential increases in the cost of corn or other raw materials to customers;
energy costs and availability, including energy issues in Pakistan; our ability
to contain costs, achieve budgets and realize expected synergies, including with
respect to our ability to complete planned maintenance and investment projects
on time and on budget as well as with respect to freight and shipping costs; the
effects of climate change and legal, regulatory, and market measures to address
climate change; our ability to successfully identify and complete acquisitions
or strategic alliances on favorable terms as well as our ability to successfully
integrate acquired businesses or implement and maintain strategic alliances and
achieve anticipated synergies with respect to all of the foregoing; operating
difficulties at our manufacturing facilities; the behavior of financial and
capital markets, including with respect to foreign currency fluctuations,
fluctuations in interest and exchange rates and market volatility and the
associated risks of hedging against such fluctuations; effects of the conflict
between Russia and Ukraine, including impacts on the availability and prices of
raw materials and energy supplies and volatility in exchange and interest rates;
our ability to attract, develop, motivate, and maintain good relationships with
our workforce; the impact on our business of natural disasters, war, threats or
acts of terrorism, the outbreak or continuation of pandemics such as COVID-19,
or the occurrence of other significant events beyond our control; the impact of
impairment charges on our goodwill or long-lived assets; changes in government
policy, law, or regulation and costs of legal compliance, including compliance
with environmental regulation; changes in our tax rates or exposure to
additional income tax liability; increases in our borrowing costs that could
result from increased interest rates; our ability to raise funds at reasonable
rates and other factors affecting our access to sufficient funds for future
growth and expansion; security breaches with respect to information technology
systems, processes, and sites; volatility in the stock market and other factors
that could adversely affect our stock price; risks affecting the continuation of
our dividend policy; and our ability to maintain effective internal control over
financial reporting.
29
Table of Contents
Our forward-looking statements speak only as of the date on which they are made
and we do not undertake any obligation to update any forward-looking statement
to reflect events or circumstances after the date of the statement as a result
of new information or future events or developments. If we do update or correct
one or more of these statements, investors and others should not conclude that
we will make additional updates or corrections. For a further description of
these and other risks, see "Risk Factors" and other information included in our
Annual Report on Form 10-K for the year ended December 31, 2021, our Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2022 and our
subsequent reports on Form 10-Q and Form 8-K filed with the Securities and
Exchange Commission.
ITEM 3
© Edgar Online, source Glimpses