WESTCHESTER, ILL. — Ingredion, Inc. will take a series of pricing actions after income in the first quarter ended March 31 dropped 29%.
Global foreign exchange in the quarter negatively impacted the company’s net sales by about $100 million and its earnings by 19c per share, said James P. Zallie, president and chief executive officer for Ingredion, in a May 2 earnings call. North America faced a challenging raw materials market, and other geographic regions experienced the negative effects of foreign currency devaluations and higher net corn costs.
“In response, we are taking a series of pricing actions,” Mr. Zallie said. “We are also accelerating our $125 million cost mark savings program, which is expected to exceed our 2019 year-end cumulative run rate savings target of $24 million to $34 million.”
Net income of $100 million, or $1.50 per share on the common stock, compared with $140 million, or $1.94 per share, in the previous year’s first quarter. Net sales of $1,420 million were down 3% from $1,469 million in the previous year’s first quarter. Unfavorable foreign currency impacts and lower core volumes drove the sales decrease, which was offset partially by favorable price/mix.
Ingredion’s stock on the New York Stock Exchange was trading at $86.77 per share on the New York Stock Exchange in the afternoon of May 2, which compared with a May 1 close of $92.19 per share.
Within North America in the first quarter, net sales of $860 million were down 2% from $874 million. Transitioning a corn wet milling plant in Stockton, Calif., into a shipping distribution station in 2018 was a factor in the sales decrease, Mr. Zallie said. Operating income fell 13% to $125 million from $143 million due to higher inventory and production costs, higher net corn costs, and a modest impact from the extreme weather in the United States and Canada.
Ingredion is building a facility in San Juan del Rio, Mexico, that will produce allulose, a rare sugar. The Food and Drug Administration on April 17 ruled allulose will not count as sugar, including added sugar, on the Nutrition Facts Label, which should expand its use as an ingredient to reduce sugar in foods and beverages.
“We anticipate sales starting in early 2020,” Mr. Zallie said. “We are excited about the F.D.A.’s recent initial guidance that allulose will not need to be declared as an added sugar on the label of U.S. food products, which now follows its approved labeling in Mexico. Allulose will be a great complement to our existing portfolio of specialty sweeteners.”
Operating income dropped in all of Ingredion’s geographic areas in the first quarter. In South America, it decreased 31% to $18 million from $26 million while first-quarter sales slipped 12% to $218 million from $249 million.
“We are experiencing lower volumes related to the economic recession in Argentina along with negative foreign exchange impacts given the continued devaluation of the peso,” Mr. Zallie said. “Given the severity of the situation, we are exploring every measure to improve Argentina’s business performance.”
In Asia-Pacific, operating income dropped 13% to $20 million from $23 million, and sales were unchanged at $194 million. Price/mix increases across the region offset foreign currency devaluations and higher regional corn costs.
In Europe, Middle East and Africa, operating income dropped 23% to $24 million from $31 million, and sales decreased 3% to $148 million from $152 million. Currency devaluations in Pakistan and Europe impacted the E.M.E.A. region negatively.
Ingredion now expects adjusted e.p.s. for the fiscal year to be in a range of $6.80 to $7.20, which compared to a previous expected range of $6.80 to $7.50. Adjusted e.p.s. in fiscal year 2018 was $6.92.
Ingredion expects a negative currency impact of 40c to 50c per share over the course of the fiscal year, said James D. Gray, executive vice-president and chief financial officer.
“We are lowering the top end of our adjusted e.p.s. guidance range to reflect an anticipated deeper and more prolonged recession in Argentina, continued higher-than-historical North America production costs as we continue to optimize our starch network and anticipated incremental FX impacts in E.M.E.A. and Asia-Pac,” he said.