Ingredion(INGR) - 2024 Q4 - Annual Report

Part I Business Overview Ingredion is a global ingredient solutions provider, transforming plant-based materials into value-added ingredients for diverse markets, operating through three main segments - Ingredion is a global ingredient solutions provider that converts grains, fruits, and vegetables into value-added ingredients for various markets, including food, beverage, animal nutrition, and industrial sectors[19] - The company's primary products are starches and sweeteners, derived mainly from corn and other starch-based materials. Starches accounted for approximately 49% of net sales in 2024, while sweeteners accounted for 35%[21][22][23] - As of December 31, 2024, the company operated a global network of 46 manufacturing facilities to support its product lines[42] Business Segments This section outlines Ingredion's three new reportable segments effective January 1, 2024, and their net sales contributions by industry - Effective January 1, 2024, Ingredion realigned its operations into three new reportable segments: Texture & Healthful Solutions (T&HS), Food & Industrial Ingredients - Latin America (F&II - LATAM), and Food & Industrial Ingredients - U.S./Canada (F&II - U.S./Canada)[26] Net Sales by Industry and Segment (2024) | Industries Served | Total Ingredion | T&HS | F&II - LATAM | F&II - U.S./Canada | All Other | | :--- | :--- | :--- | :--- | :--- | :--- | | Food | 56 % | 81 % | 46 % | 41 % | 55 % | | Beverage | 10 % | 4 % | 10 % | 16 % | 10 % | | Brewing | 7 % | 1 % | 18 % | 4 % | 1 % | | Food and Beverage Ingredients | 73 % | 86 % | 74 % | 61 % | 66 % | | Animal Nutrition | 8 % | 2 % | 13 % | 8 % | 12 % | | Other | 19 % | 12 % | 13 % | 31 % | 22 % | | Total Net Sales | 100 % | 100 % | 100 % | 100 % | 100 % | - No single customer accounted for 10% or more of the company's net sales in 2022, 2023, or 2024[26] Raw Materials and Operations This section details Ingredion's primary raw materials, their price volatility, and the company's hedging strategies - The primary raw material is corn (yellow dent), supplemented by tapioca, potato, rice, pulses, and sugar. The company also uses specialty grains like waxy and high amylose corn, which require planning cycles of up to three years[44][47] - Corn prices are volatile and influenced by factors such as weather, government policies (including ethanol production), and global grain supply. The company uses derivative hedging contracts to manage price risk for its firm-priced business[46][49] Human Capital and Governance This section provides an overview of Ingredion's workforce, regulatory compliance, and executive leadership - As of December 31, 2024, Ingredion employed approximately 11,200 people, with 3,200 in the U.S. and Canada. About 33% of the U.S. and Canadian workforce is unionized[59] - The company is subject to extensive government regulation, including from the FDA, and environmental laws. In 2024, it spent $49 million on environmental control and wastewater treatment equipment, with a planned investment of approximately $66 million for 2025[63][64] - The company's executive team is led by James P. Zallie, President and CEO, and James D. Gray, EVP and CFO[68] Risk Factors Ingredion faces diverse business, industry, regulatory, financial, and operational risks, including shifts in consumer demand, volatile input costs, and cybersecurity threats - Business & Industry Risks: Demand is affected by changing consumer preferences (e.g., avoiding high fructose corn syrup, GMOs) and the rise of weight-loss medications. The company is heavily reliant on the food (56%), beverage (10%), and brewing (7%) industries[70][76] - Input Cost & Competition Risks: Raw material costs (40-60% of finished product costs) and energy costs (~8% of finished product costs) are volatile. The company faces intense competition from ADM, Cargill, Tate & Lyle, and Primient, which can make it difficult to pass on cost increases[79][81][83] - Operational & Strategic Risks: The business is exposed to operating difficulties at its capital-intensive facilities, product safety issues, and risks associated with climate change. Failure to successfully execute acquisitions, divestitures, or manage joint ventures could also adversely affect results[87][90][94] - Financial & IT Risks: The company is exposed to foreign currency fluctuations, changes in tax laws (including OECD's Pillar Two), and rising interest rates. IT systems are vulnerable to increasingly sophisticated cybersecurity threats, which could disrupt operations and cause reputational damage[97][108][110] Cybersecurity The company maintains a cybersecurity risk management program, aligned with the NIST framework and overseen by the Board, with no material breaches reported to date - The Board of Directors, through its Audit Committee, oversees the company's cybersecurity risk management program[126] - The company's incident and crisis management plans are aligned with the National Institute of Standards and Technology (NIST) framework and include regular tabletop exercises, vulnerability assessments, and employee training[127][128] - The Chief Digital and Information Officer, with over 30 years of experience, is responsible for the global IT and digital strategy, including cybersecurity[132][133] - To date, cybersecurity breaches have not materially affected the company[134] Properties As of February 20, 2025, Ingredion operated 46 global manufacturing facilities, with plans to close specific sites in the UK, Brazil, and Canada - The company operates 46 manufacturing facilities, which are owned or leased. The breakdown by segment is: T&HS (23), F&II - LATAM (10), F&II - U.S./Canada (6), and All Other (7)[135][136] - Ingredion has announced the closure or intent to close its facilities in Goole, UK; Alcantara, Brazil; and Vanscoy, Canada[137] Legal Proceedings Ingredion is in discussions with the Illinois EPA regarding a 2023 emissions violation at its Bedford Park facility, with no currently known legal proceedings expected to have a material impact - On February 8, 2023, the Illinois EPA issued a Notice of Violation to the company regarding emissions at its Bedford Park, Illinois facility that exceeded permit limits. The company is in discussions with the agency regarding this matter[138] - The company does not believe that currently known legal proceedings, including the Illinois EPA matter and other ordinary course claims, will be material to its financial condition or results of operations[139] Part II Market for Common Equity and Share Repurchases Ingredion's common stock trades on the NYSE, and the company repurchased 891,000 shares in Q4 2024 under an ongoing program with 3.3 million shares remaining - The company's common stock is listed on the New York Stock Exchange under the symbol "INGR". As of February 14, 2025, there were 2,801 holders of record[142] Issuer Purchases of Equity Securities (Q4 2024) | Period (shares in thousands) | Total Number of Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Program | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | :--- | | October 1 – October 31, 2024 | — | — | — | 4,238 | | November 1 – November 30, 2024 | 271 | $144.93 | 271 | 3,967 | | December 1 – December 31, 2024 | 620 | $143.30 | 620 | 3,347 | | Total | 891 | $143.83 | 891 | | - A stock repurchase program authorizing the purchase of up to 6.0 million shares is in effect until December 31, 2025. As of year-end 2024, 3.3 million shares were available for repurchase[144] Management's Discussion and Analysis (MD&A) Ingredion's 2024 financial performance saw a decline in net sales and operating income, primarily due to divestitures and price mix, while net income slightly increased, supported by strong liquidity and reduced leverage Financial Performance Summary (2024 vs. 2023) | Metric | 2024 | 2023 | Change | Key Drivers | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $7.4B | $8.2B | -9% | Unfavorable price mix, lower corn costs, South Korea divestiture | | Operating Income | $883M | $957M | -8% | Impairment charges from facility closures | | Net Income (to Ingredion) | $647M | $643M | +1% | Lower financing costs, gain on sale of business, offset by higher tax rate | | Diluted EPS | $9.71 | $9.60 | +1% | Driven by higher net income | - The gross profit margin increased to 24% in 2024 from 21% in 2023, driven by favorable raw material and lower input costs[154] - The company recorded restructuring and impairment charges of $127 million in 2024, primarily related to the cessation of operations at facilities in Vanscoy (Canada), Goole (UK), and Alcantara (Brazil)[156] - The effective tax rate increased to 29.8% in 2024 from 22.4% in 2023, driven by the impact of the Mexican peso, an unfavorable legal judgment, and the elimination of certain tax incentives in Brazil[158] Segment Performance This section details the operating income performance and key drivers for Ingredion's three new reportable segments in 2024 Segment Operating Income (2024 vs. 2023) | Segment | 2024 Operating Income | 2023 Operating Income | Change | Key Drivers | | :--- | :--- | :--- | :--- | :--- | | T&HS | $350M | $394M | -11% | Unfavorable price mix and higher-cost inventory carry-forward | | F&II - LATAM | $483M | $452M | +7% | Lower input costs in Mexico and Brazil | | F&II - U.S./Canada | $373M | $298M | +25% | Favorable catch-up pricing under multi-year contracts and lower raw material costs | | All Other | ($22M) | ($2M) | N/A | Increased loss driven by the sale of the South Korea business | Liquidity and Capital Resources This section outlines Ingredion's financial liquidity, debt position, and cash flow activities for 2024, including future capital expenditure plans - As of December 31, 2024, total available liquidity was $2.6 billion, comprising $1.5 billion in domestic liquidity (including a $1.0 billion commercial paper program) and $1.1 billion in international liquidity[168][169] - Total debt outstanding was $1.8 billion as of December 31, 2024. The company was in compliance with all financial covenants under its revolving credit agreement[170][172] Cash Flow Summary (2024 vs. 2023) | Cash Flow Activity (in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Cash from Operating Activities | $1,436 | $1,057 | | Cash used for Investing Activities | ($47) | ($329) | | Cash used for Financing Activities | ($765) | ($569) | - Capital expenditures for 2025 are anticipated to be approximately $450 million[176] Key Financial Performance Metrics (Non-GAAP) This section discusses Ingredion's use of non-GAAP financial metrics, including Adjusted ROIC and Net Debt to Adjusted EBITDA, to assess profitability and leverage - The company uses non-GAAP metrics, Adjusted Return on Invested Capital (Adjusted ROIC) and Net Debt to Adjusted EBITDA, to monitor profitability and financial leverage[179] - Adjusted ROIC was 14.8% in 2024, compared to 13.3% in 2023, exceeding the long-term objective of 10.0%[185][187] - The Net Debt to Adjusted EBITDA ratio was 0.7 as of December 31, 2024, down from 1.5 in 2023, and well below the long-term target of 2.5 or less[190][192] Critical Accounting Policies and Estimates This section describes Ingredion's critical accounting policies and estimates, particularly those involving significant management judgment for assets and retirement benefits - Key critical accounting policies involve significant management judgment and estimates regarding Property, Plant & Equipment (PP&E), definite-lived intangible assets, indefinite-lived intangible assets and goodwill, and retirement benefits[194][195][199] - The company assesses goodwill and indefinite-lived intangible assets for impairment annually on July 1 or more frequently if indicators arise. The 2024 assessments, including one following a segment reorganization, found no impairments[200][201][202] - Accounting for retirement benefits requires significant assumptions about discount rates, expected returns on assets, and mortality rates. A one-percentage-point decrease in the discount rate would increase the projected benefit obligation for U.S. and non-U.S. pension plans by $27 million and $20 million, respectively[203][205] Market Risk Disclosures Ingredion manages market risks from commodity prices, foreign currency, and interest rates through derivative instruments, with potential impacts from hypothetical market fluctuations disclosed - The company actively manages market risks from commodity prices, foreign currency rates, and interest rates using derivative instruments like futures, options, and swaps[211] - As of Dec 31, 2024, the company had hedges for approximately 105 million bushels of corn and 24 million mmbtus of natural gas. A hypothetical 10% decline in market prices would result in a charge to OCL of approximately $40 million, net of tax[214] - Approximately 95% of the company's total debt is fixed-rate. A hypothetical 1 percentage point increase in the weighted average floating interest rate would increase annual interest expense by approximately $1 million[216] - Due to global operations, the company is exposed to foreign currency risk. A hypothetical 10% decline in the U.S. dollar's value would result in a transactional foreign exchange gain of approximately $33 million and reduce the cumulative translation loss in equity by about $200 million[220] Financial Statements and Supplementary Data The consolidated financial statements for 2024, audited by KPMG LLP with an unqualified opinion, present the company's financial position and results, highlighting critical audit matters - The financial statements were audited by KPMG LLP, which provided an unqualified opinion on both the financial statements and the effectiveness of internal control over financial reporting[226][227] - KPMG identified two critical audit matters: (1) the evaluation of the fair value of certain reporting units for reassigning goodwill after the company's reorganization, and (2) the sufficiency of audit evidence over geographically dispersed inventory[232][236] Consolidated Balance Sheet Summary (as of Dec 31, 2024) | Account | Amount (in millions) | | :--- | :--- | | Total Current Assets | $3,355 | | Total Assets | $7,444 | | Total Current Liabilities | $1,281 | | Long-Term Debt | $1,787 | | Total Liabilities | $3,554 | | Total Ingredion Stockholders' Equity | $3,804 | Consolidated Statement of Cash Flows Summary (Year Ended Dec 31, 2024) | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Cash provided by operating activities | $1,436 | | Cash used for investing activities | ($47) | | Cash used for financing activities | ($765) | | Increase in cash and cash equivalents | $596 | Note 2: Acquisitions and Divestitures This note details Ingredion's significant acquisition and divestiture activities in 2024, including the sale of its South Korea business and increased ownership in PureCircle Limited - On February 1, 2024, the company completed the sale of its South Korea business to an affiliate of the Sajo Group. This resulted in a net pre-tax gain of $90 million in 2024[293] - During 2024, Ingredion purchased additional shares in PureCircle Limited for $40 million, increasing its ownership from 88% to 98%[296] Note 3: Intangible Assets This note provides details on Ingredion's goodwill and other intangible assets, including their reallocation following a segment reorganization and impairment assessments - As of December 31, 2024, the company had goodwill of $906 million and other net intangible assets of $358 million, including $143 million of indefinite-lived trademarks/tradenames[299][301] - Following a change in reportable segments on January 1, 2024, goodwill was reallocated to the new reporting units using a relative fair value approach. No impairments were identified during the January 1 or July 1, 2024 assessments[297][298][300] Note 12: Segment and Geographical Information This note outlines Ingredion's revised reportable segments effective January 1, 2024, and provides a breakdown of net sales by country of origin - Effective January 1, 2024, the company changed its reportable segments to T&HS, F&II - LATAM, and F&II - U.S./Canada, with other businesses in 'All Other'[389][390] Net Sales by Country of Origin (2024) | Country | Net Sales (in millions) | | :--- | :--- | | U.S. | $2,870 | | Mexico | $1,503 | | Brazil | $584 | | Canada | $527 | | Germany | $385 | | Others | $2,061 | | Total | $7,430 | Controls and Procedures Management concluded that Ingredion's disclosure controls and internal control over financial reporting were effective as of December 31, 2024, a conclusion affirmed by KPMG LLP's unqualified opinion - Management, including the CEO and CFO, concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective[416] - Based on an evaluation against the COSO framework (2013), management concluded that the company's internal control over financial reporting was effective as of December 31, 2024[419] - No changes occurred in the fourth quarter of 2024 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[420] Part III Directors, Executive Officers, Compensation, and Governance Information for directors, executive officers, compensation, and governance is incorporated by reference from the company's 2025 Annual Meeting of Stockholders Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive Proxy Statement for its 2025 Annual Meeting of Stockholders[8][432][434] Part IV Exhibits and Financial Statement Schedules This section lists exhibits filed with the Form 10-K, including corporate governance documents and material contracts, with financial statement schedules omitted as information is elsewhere - All financial statement schedules were omitted because the necessary information is included in the Consolidated Financial Statements and related notes[437] - The report includes a list of exhibits filed or incorporated by reference, such as the Certificate of Incorporation, bylaws, indentures, credit agreements, and various management compensation plans and agreements[438][439]