Ingredion(INGR)2024-02-21 15:11Financial Performance - Net sales increased 3% to $8.2 billion in 2023 from $7.9 billion in 2022, driven by price and customer mix, partially offset by lower volumes and unfavorable foreign exchange impacts[167][169] - Operating income rose 26% to $957 million in 2023 from $762 million in 2022, primarily due to favorable price mix and a more favorable effective tax rate[167] - Net income attributable to Ingredion increased 31% to $643 million in 2023 from $492 million in 2022, driven by price mix and a lower effective tax rate[167][176] - Gross profit margin improved to 21% in 2023 from 19% in 2022, supported by higher net sales and a 1% decrease in cost of sales[170] - Net income for 2023 was $651 million, up from $502 million in 2022[204] - Adjusted operating income, net of tax, increased to $728 million in 2023 from $575 million in 2022[204] - Adjusted EBITDA increased to $1.189 billion in 2023 from $1.002 billion in 2022[212] - Net sales for 2023 were $8,160 million, compared to $7,946 million in 2022 and $6,894 million in 2021[257] - Net income attributable to Ingredion for 2023 was $643 million, compared to $492 million in 2022 and $117 million in 2021[257] - Total Equity increased from $3,957 million in 2020 to $4,654 million in 2023, reflecting a growth of 17.6% over three years[265] - Net income attributable to Ingredion grew from $117 million in 2020 to $643 million in 2023, a significant increase of 449.6%[265] - Cash provided by operating activities surged from $392 million in 2021 to $1,057 million in 2023, marking a 169.6% increase[267] - Total income before income taxes increased from $668 million in 2022 to $839 million in 2023, with foreign income contributing $595 million in 2023 compared to $557 million in 2022[349] Regional Performance - North America's net sales grew 5% to $5.188 billion in 2023, with operating income increasing 27% to $718 million, driven by favorable price mix[177] - South America's net sales decreased 6% to $1.062 billion in 2023, with operating income declining 16% to $142 million due to lower volumes and higher energy costs[178][179] - Asia-Pacific's net sales decreased 2% to $1.089 billion in 2023, but operating income increased 35% to $126 million, driven by lower input costs[181] - EMEA's net sales increased 5% to $821 million in 2023, with operating income rising 42% to $156 million, primarily due to favorable price mix[182] Liquidity and Capital Allocation - Total available liquidity as of December 31, 2023, was $1.7 billion, including $705 million in domestic liquidity and $1.0 billion in international liquidity[185][186] - Capital investment commitments for 2024 are anticipated to be approximately $340 million, up from $316 million in 2023[193] - Dividends paid increased by 7% to $194 million in 2023 from $181 million in 2022, driven by an increase in the quarterly dividend rate per share[195] - The company repurchased 1.0 million outstanding shares of common stock in 2023 at a net cost of $101 million[195] - Adjusted Return on Invested Capital (ROIC) improved to 13.3% in 2023 from 11.0% in 2022, exceeding the long-term objective of 10.0%[209] - Net Debt to Adjusted EBITDA ratio improved to 1.5 in 2023 from 2.2 in 2022, below the long-term target of 2.5 or less[213] - Total net debt decreased to $1.779 billion in 2023 from $2.244 billion in 2022[204] - Capital expenditures and mechanical stores purchases remained stable at approximately $300 million annually from 2021 to 2023[267] - Repurchases of common stock totaled $101 million in 2023, compared to $68 million in 2021, showing a 48.5% increase[267] - Dividends paid, including to non-controlling interests, increased from $184 million in 2021 to $194 million in 2023, a 5.4% rise[267] - Cash and cash equivalents grew from $328 million in 2021 to $401 million in 2023, reflecting a 22.3% increase[267] Tax and Interest Rates - The effective income tax rate was 24.9% in 2023, down from 27.0% in 2022[208] - The effective tax rate decreased from 24.9% in 2022 to 22.4% in 2023, influenced by foreign-derived intangible income (FDII) and Brazil's tax incentives[353] - Total provision for income taxes increased from $166 million in 2022 to $188 million in 2023, with current tax expense rising from $169 million to $194 million[349] - Net deferred tax liabilities decreased from $132 million in 2022 to $101 million in 2023, with deferred tax assets increasing from $227 million to $249 million[350] - Unrecognized tax benefits increased slightly from $30 million in 2022 to $31 million in 2023, with $20 million potentially affecting future effective tax rates[357] - The company accrued $5 million in interest and penalties related to unrecognized tax benefits as of December 31, 2023[359] - A hypothetical 1 percentage point increase in the weighted average floating interest rate would increase annual interest expense by approximately $4 million[237] Assets and Liabilities - The carrying values of Property, Plant and Equipment (PP&E) and definite-lived intangible assets were $2.4 billion and $242 million, respectively, as of December 31, 2023[217] - The carrying value of indefinite-lived intangible assets and goodwill at December 31, 2023 was $143 million and $918 million, respectively, compared to $143 million and $900 million at December 31, 2022[221] - Goodwill balance at December 31, 2023, was $918 million, with $19 million added from acquisitions and no impairments recorded[316] - Total investments as of December 31, 2023, were $143 million, including $27 million in equity investments and $112 million in equity method investments[320] - The company had total debt outstanding of $2.2 billion as of December 31, 2023, down from $2.5 billion in 2022[343] - Total long-term debt decreased from $1.94 billion in 2022 to $1.74 billion in 2023, with a fair value of $1.59 billion in 2023 compared to $1.73 billion in 2022[345] - Total short-term borrowings decreased from $543 million in 2022 to $448 million in 2023, with commercial paper decreasing from $390 million to $327 million[345] - Lease expense increased from $89 million in 2022 to $92 million in 2023, with operating lease expense rising from $59 million to $63 million[346] - Present value of future lease payments is $213 million, with non-current operating lease liabilities at $157 million and operating lease assets at $208 million as of December 31, 2023[347] Pension and Postretirement Benefits - Net periodic pension and postretirement benefit cost for all plans was $12 million in 2023 and $6 million in 2022[226] - The weighted average discount rate used to determine obligations under U.S. pension plans as of December 31, 2023 and 2022 was 5.00% and 5.19%, respectively[227] - The expected long-term rate of return on assets for U.S. pension plans was assumed to be 5.50% and approximately 4.66% for Canadian plans in 2023[229] - The company's pension benefit obligations totaled $505 million as of December 31, 2023[251] Hedging and Derivatives - A hypothetical 10% decline in market prices applied to the fair value of commodity hedge instruments at December 31, 2023 would result in a charge to other comprehensive loss of approximately $48 million, net of income tax benefit of $18 million[235] - As of December 31, 2023, the company had outstanding futures and option contracts hedging the forecasted purchase of approximately 109 million bushels of corn and 28 million mmbtus of natural gas[235] - The company hedged approximately 109 million bushels of corn as of December 31, 2023, compared to 120 million bushels in 2022[331] - The company hedged approximately 28 million mmbtus of natural gas as of December 31, 2023, compared to 31 million mmbtus in 2022[331] - The notional value of foreign currency derivatives for hedging assets was $694 million in 2023, up from $405 million in 2022[333] - The notional value of foreign currency cash flow hedging instruments for assets was $449 million in 2023, down from $668 million in 2022[334] - The notional value of foreign currency cash flow hedging instruments for liabilities was $621 million in 2023, down from $840 million in 2022[334] - The company recorded a net loss of $46 million on commodities-related derivative instruments as of December 31, 2023[337] - The fair value of derivative assets was $26 million in 2023, down from $60 million in 2022[342] - The fair value of derivative liabilities was $76 million in 2023, up from $64 million in 2022[342] Acquisitions and Divestitures - Ingredion increased its ownership in PureCircle to 88% as of December 31, 2023, from 87% in 2022 and 75% in 2021, with purchases of $2 million in 2023 and $46 million in 2022[308] - The company acquired a 65% controlling interest in Mannitab Pharma Specialties for $22 million, with $19 million of goodwill and $9 million of intangible assets recorded[309] - Ingredion acquired 100% of Amishi Drugs and Chemicals for $7 million, adding $3 million of goodwill and intangible assets[310] - The acquisition of KaTech in 2021 added $26 million of goodwill and intangible assets, and $14 million of tangible assets, with a total cash payment of $40 million[311] - Ingredion divested its South Korea business for 384.0 billion South Korean won ($294 million), with an expected gain of $283 million in Q1 2024[313] - The South Korea business generated operating profits of $30 million in 2023, $14 million in 2022, and $27 million in 2021[313] Foreign Exchange and Currency Impact - The company estimates a hypothetical 10% decline in the value of the U.S. dollar would result in a transactional foreign exchange loss of approximately $21 million[241] - The cumulative translation loss in the AOCL account was approximately $1.0 billion as of December 31, 2023[241] - The aggregate net assets of foreign subsidiaries with local currency as the functional currency approximated $2.2 billion at December 31, 2023[241] - A hypothetical 10% decline in the U.S. dollar value relative to foreign currencies would result in a reduction to cumulative translation loss and a credit to OCL of approximately $250 million[241] - The company had foreign currency forward sales contracts with an aggregate notional amount of $694 million and purchase contracts of $182 million not designated as hedging instruments as of December 31, 2023[241] - The company had foreign currency forward sales contracts with an aggregate notional amount of $449 million and purchase contracts of $621 million classified as cash flow hedges as of December 31, 2023[241] - The company expects $1 million of net losses to be reclassified to earnings over the next 12 months[241] Energy and Commodity Costs - Energy costs represent approximately 8% of the company's cost of sales, with natural gas, electricity, coal, fuel oil, wood and other biomass sources used to generate energy[234] - The health care cost trend rate assumptions for 2024 were 7.80% for U.S. plans, 5.04% for Canadian plans, and 8.94% for Brazilian plans[230] Accounting Policies and Valuation - Accounts receivable are carried at approximate fair value, net of an allowance for credit losses, which is adjusted based on historical experience and future economic forecasts[277] - Inventories are stated at the lower of cost or net realizable value, with costs predominantly determined using the weighted average method[278] - Marketable securities are carried at fair value, with changes in fair value recorded in operating or non-operating income depending on their use[279] - Equity investments without readily determinable fair values are carried at cost, less impairments, and adjusted for observable price changes[280] - Lease assets and liabilities are recognized at the lease commencement date based on the present value of future lease payments, with an incremental borrowing rate used for most leases[282] - Property, plant, and equipment are depreciated on a straight-line basis over estimated useful lives ranging from 2 to 50 years[284] - Long-lived assets classified as held for sale are measured at the lower of carrying value or fair value less costs to sell, with depreciation and amortization ceased[285] - Goodwill and indefinite-lived intangible assets are assessed for impairment annually, with qualitative factors considered before quantitative analysis[286][287] - Derivative financial instruments are used for hedging, with effectiveness assessed at inception and on an ongoing basis[291] - Share-based compensation is recognized on a straight-line basis over the requisite service period, with forfeiture rates estimated and updated[299] Depreciation and Amortization - Depreciation and amortization expenses remained consistent at around $220 million annually from 2021 to 2023[267] - Amortization expense for intangible assets was $26 million annually from 2021 to 2023, with estimated future amortization of $26 million per year through 2028[318][319] Non-Controlling Interests and Share-Based Compensation - Net income attributable to non-controlling interests decreased from $11 million in 2020 to $7 million in 2023, a 36.4% decline[265] - Share-based compensation, net of issuance, increased from $8 million in 2020 to $7 million in 2023, showing a slight decrease of 12.5%[265] Impairments and Joint Ventures - The Argentina joint venture resulted in a $340 million impairment charge, with a 49% ownership stake and a devaluation impact not reflected in 2023 results[324][326] Commercial Paper and Borrowings - The average amount of commercial paper outstanding in 2023 was $397 million with an average interest rate of 5.30%[344]