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Ingredion: Waiting On Volumes To Recover
IngredionIngredion(US:INGR) Seeking Alphaยท2024-07-30 08:45

Core Viewpoint - Ingredion has shown a strong margin performance in Q1 2023, leading to an increase in full-year earnings guidance, while sales guidance was cut to around 10% growth, indicating potential challenges ahead [4]. Financial Performance - Full-year sales for Ingredion increased by 3% to $8.16 billion, primarily driven by price increases, which offset a $648 million decline in volume/mix [5]. - Operating earnings grew by 26% to $957 million, resulting in a 31% increase in GAAP earnings per share to $9.60, with adjusted earnings at $9.42 per share [5]. - Net debt was reduced to $1.8 billion, with EBITDA around $1 billion, leading to a leverage ratio below 2 times [5]. Market Position and Competitors - Ingredion operates in a global ingredients market exceeding $150 billion, offering over 1,000 products categorized under sweeteners, fruits and vegetable products, and starches [8]. - The company has faced stagnant sales around $6 billion from 2017 to the pandemic, with earnings declining from approximately $7 to $5 per share during that period [8]. - Competitor McCormick has experienced similar struggles but has not seen the same revenue uplift as Ingredion in recent years, despite commanding a premium valuation [4]. Recent Developments - In early 2023, Ingredion divested its South Korean business, contributing $325 million in sales, which accounted for about 4% of total sales [5]. - The company anticipates flat to low single-digit sales growth for the year, excluding the impact of the South Korean business, with confidence attributed to the resolution of de-stocking headwinds and innovation within its portfolio [6]. - The first quarter of 2023 saw reported sales decline by 12% to $1.88 billion, influenced by a $40 million volume decline and a $51 million headwind from the South Korean divestment [6]. Future Outlook - For 2024, capital spending is projected at $340 million, compared to a $219 million depreciation expense in 2023, indicating a focus on growth despite cash flow costs [6]. - The company maintains a full-year earnings guidance midpoint of $9.50 per share, suggesting stagnation at a higher performance level, with shares trading around 13 times adjusted earnings [6]. - A current dividend of $3.12 offers a 2.5% yield, supported by a low payout ratio and strong financial footing [6].