Acquisitions, specialty ingredients pump up Ingredion results

by Jeff Gelski
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Ingredion
Ingredion posted net income of $496.1 million in the fiscal year ended Dec. 31, 2016.

WESTCHESTER, ILL. — Recent acquisitions involving specialty ingredients gave Ingredion, Inc. a boost in sales and earnings in fiscal-year 2016, and they should continue to do so in 2017 due to the recent purchase of TIC Gums, Inc. South American results, however, had a negative impact.

Ingredion posted net income of $496.1 million, equal to $6.70 per share on the common stock, in the fiscal year ended Dec. 31, 2016, which was up 21% from $411.7 million, or $5.62 per share on the common stock, in the previous fiscal year. Net sales of $5,703.6 million were up 1% from $5,620.5 million.

Ilene Gordon, Ingredion
Ilene Gordon, chairman, president and c.e.o. of Ingredion

“Our higher value specialty ingredient sales mix grew one percentage point to 26% of revenues, and our continuous improvement efforts in global footprint optimization lowered our cost structure and contributed to our margin expansion,” said Ilene Gordon, chairman, president and chief executive officer of Westchester-based Ingredion, in a Feb. 2 earnings call. “Acquisition and specialty ingredient growth were offset (by) the sale of our Port Colborne (Ont.) facility and lower volumes in South America due to macroeconomic headwinds. As a result, volumes were flat overall, and price mix finished strong for the year, up 6%.”

In 2017, Ingredion anticipates adjusted e.p.s. of $7.40 to $7.80, which would be up from an adjusted e.p.s. of $7.13 in 2016.

Ingredion completed the $400 million acquisition of TIC Gums on Jan. 3. Excluding one-time costs, the transaction is expected to be 4c to 5c accretive to adjusted e.p.s. in the first year.

TIC Gums protein powder
Ingredion completed the $400 million acquisition of TIC Gums on Jan. 3.

“I am especially excited about expanding our texture capabilities and leadership,” Ms. Gordon said. “TIC Gums expands our offerings with non-starch hydrocolloids and builds on our work in formulating solutions for natural, organic and clean label demands. Their higher value specialty products and systems expand our reach into small- and medium-sized customers. With these on-trend ingredient solutions and our global presence, we believe TIC has tremendous growth potential.”

In North America in the fiscal year, operating income rose 27% to $610.6 million from $479.1 million due to higher-acquisition related volumes, a better price/product mix in both specialty and core ingredients, cost synergies related to the 2015 acquisition of Penford Corp. (a specialty ingredients business), and operational efficiencies. Sales rose 3% to $3,447 million from $3,345.1 million.

Robert Moskow, a research analyst for Credit Suisse, asked how any potential sweetener trade actions between the United States and Mexico might affect Ingredion. Ms. Gordon pointed out Ingredion manufactures ingredients in 40 different countries and sells them in 100 countries.

“So while we benefit from free trade, we would probably be less impacted by changes in trade deals than some others,” she said.

Jack Fortnum, Ingredion’s executive vice-president and chief financial officer, pointed out the company has a presence in the United States, Mexico and Canada.

Jack Fortnum, Ingredion
Jack Fortnum, executive vice-president and c.f.o. of Ingredion

“So we are well-positioned from a North American perspective,” he said.

In South America, operating income dropped 12% to $88.7 million in the fiscal year from $100.7 million, largely the result of the negative effect of foreign exchange, lower volumes in Brazil and the Southern Cone driven by difficult macroeconomic conditions, and higher costs for corn and other inputs. Sales of $1,009.8 million were down slightly from $1,102.4 million.

“Brazil's economy continued to feel the effects of negative growth,” Ms. Gordon said. “Given the macroeconomic environment, our local leadership team continued (its) ongoing focus on specialty ingredient growth, price mix management and network optimizations. The Southern Cone economy remains challenging as economic measures lowered consumer disposable income and affected our volumes.

“We continue our focus on all executable activities of the business, including cost containment in a high wage inflationary environment. The Andean countries continue to perform well. In 2017, we expect South America to maintain a tight focus on cost and network optimization. In the longer term, we believe the underlying demographics are positive for the future and believe we are well-positioned to take advantage of an economic recovery when it materializes.”

In Asia Pacific, operating income increased 4% to $111.2 million from $107.3 million. Sales slipped 3% to $708.6 million from $732.9 million. In Europe, Middle East and Africa, operating income increased 13% to $106 million from $93.4 million. Sales rose 2% to $538.2 million from $530.1 million.

Ingredion companywide in the fourth quarter ended Dec. 31, 2016, posted net income of $96.6 million, or $1.29 per share on the common stock, which was down 10% from $107.2 million, or $1.45 per share, in the fourth quarter of the previous year. Fourth-quarter net sales of $1,399.2 million were down slightly from $1,404.7 million. 
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