Severe weather cripples Ingredion income

by Eric Schroeder
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WESTCHESTER, ILL. — The extent and severity of the extreme winter weather dragged down first-quarter operating income and sales in the North America segment of Ingredion, Inc., in the period ended March 31, pulling total company profit and sales down 34% and 14%, respectively, during the quarter.

Net income in the quarter ended March 31 was $72.6 million, equal to 97c per share on the common stock, down from $110.8 million, or $1.43 per share, in the same period a year ago. Net sales totaled $1,357.2 million, down from $1.583.8 million.

In North America, operating income plunged 39% to $65.2 million from $107.7 million while net sales fell 19% to $736.9 million from $909.8 million.

“In North America, we knew that the year-over-year layout of our corn costs for our fixed-price contracts would result in year-over-year-end unfavorability in the first quarter but improve later in the year,” said Ilene Gordon, chairman, president and chief executive officer, in an April 30 conference call with analysts. “This played out precisely as expected. As a reminder, in the first quarter of 2013 our corn costs for fixed-price contracts were the lowest for that year, while the first quarter of 2014 will likely be the highest cost we experience this year. Taken together, this factor contributed to a decline in operating income as we expected.”

Looking ahead to the rest of fiscal 2014, Jack Fortnum, executive vice-president and chief financial officer, told analysts that Ingredion expects sales in North America “to continue to decline significantly” because of lower corn prices passed on to customers.

“Volume for the region should be down slightly as pressure in Mexico from low sugar prices and the tax on sweetened beverage hurts volumes in the short term,” Mr. Fortnum said. “This negative impact should be offset by volume increases in the U.S. and Canada as lower prices stimulate consumer demand. We still expect operating income to increase modestly in North America, driven by our ability to slightly expand our dollar margin as well as the mix benefit of selling more specialty products. We also continue to effectively leverage the free trade opportunities across all three NAFTA countries.”

In the United States, Ms. Gordon said Ingredion continues to work with its customers to develop new products or reformulate old products. For example, she pointed to the introduction of specialty starch that makes yogurt palatable and healthy.

“There are formulations going on even in baked goods to have lower calorie and again a more healthy makeup,” she added. “But that has been factored into our guidance. But that continues to perform well.

“And when you read about the different consumer product companies, especially in the U.S. and North America, you see that they are looking for every way to capture the hearts and minds and dollars of the consumer, who really wants everything from non-G.M.O. to low-calorie to very good-tasting food. And we’re one of those top companies able to be positioned to supply, whether it is G.M.O. or non-G.M.O., whether it is specialty starch or it is a regular calorie count. We have products that supply all those different products.”
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