Ingredion Incorporated, a leading global provider of ingredient solutions to diversified industries, reported results for the fourth quarter 2013.
"We concluded 2013 on a positive note as we delivered a quarter largely in-line with our expectations," said Ilene Gordon, chairman, president and chief executive officer. "Notably, Asia Pacific achieved volume and operating income growth in the quarter and record operating income for the full year, and South American volumes in the quarter were positive for the first time this year. These positives were offset by continuing cost pressures and foreign exchange headwinds in South America, particularly Argentina, as well as volume softness in North America that led to unfavorable fixed cost absorption.
"At the same time, we repurchased 2.5 million shares, bringing our total buyback in 2013 to 3.4 million shares. We also raised our dividend by more than 60 percent in 2013. We plan to continue to appropriately return capital to shareholders while also maintaining a strong balance sheet that leaves us well positioned for future growth.
"As we look ahead to 2014, we expect to return to earnings per share growth. In 2014, the primary drivers of the bottom line growth should be improved performance in all four regions. We will also benefit from the accretion derived from our significant share repurchase late in 2013," Gordon added.
Financial Highlights
- At December 31, 2013, total debt and cash and cash equivalents were $1.81 billion and $574 million, respectively, versus $1.80 billion and $609 million, respectively, at December 31, 2012.
- During the fourth quarter of 2013, net financing costs were $15 million, flat with the year-ago period.
- The fourth quarter effective tax rate was 27.4 percent compared to 33.7 percent in the year-ago period. For the full year 2013, the effective tax rate was 26.3 percent compared to 27.8 percent in the full year 2012. The tax rates associated with the adjusted EPS in the fourth quarter 2012 and full year 2012 were 32.2 percent and 30.4 percent, respectively.
- In the full year 2013, cash flow provided by operations was $619 million, compared to $732 million in 2012.
- Capital expenditures, net of disposals, were $295 million in the full year 2013 and $304 million in 2012.
- During the quarter, the Company repurchased 2.5 million shares for approximately $172 million. For the full year, the Company repurchased 3.4 million shares for approximately $227 million.
Sales in the fourth quarter 2013 were down 9 percent as a result of currency devaluations, volume declines and negative price/mix which was a result of lower raw material costs. Operating income was $161 million. This was a 13 percent decrease compared to $185 million of reported operating income in the fourth quarter of 2012. The decline was primarily due to continued weakness in South America, particularly Argentina, and soft results in North America. Strength in Asia Pacific and favorable corporate expense helped offset the decline.
For the full year 2013, sales were down 3 percent as volume declines and currency devaluations more than offset price/mix improvements. Operating income was $613 million. This was down 8 percent compared to reported operating income in 2012 of $668 million and a 13 percent decrease compared to the $701 million of adjusted operating income in the year-ago period. The decrease was primarily due to higher costs and weaker volumes. Notably $82 million of the $88 million decline in adjusted operating income was attributable to South America.
North America fourth quarter 2013 sales declined 12 percent as a result of negative volume, unfavorable price/mix due to lower raw material costs, and currency headwinds. Volumes were soft as a result of general economic weakness, particularly in Mexico, and some inventory adjustments in the retail supply chain late in the quarter.
Operating income was down 14 percent from a record $108 million to $93 million primarily due to the impact of lower volumes on fixed cost absorption.
For the full year 2013, ales fell 3 percent as positive price/mix was more than offset by negative volume and slight currency headwinds. Operating income was down 2 percent, or $7 million, from a record $408 million to $401 million as favorable price/mix, continued focus on cost savings initiatives from manufacturing efficiencies, and the ability to hold dollar margins helped offset volume weakness.
In South America, sales were down largely due to currency devaluations in Brazil and Argentina. Brazilian volumes rose and more than offset declines in Argentina. Operating income in the quarter was $37 million, down 37 percent, or $22 million as a result of higher input costs, and currency devaluations that could not be immediately passed through during the quarter. Approximately three-quarters of the operating income decline was attributable to Argentina.
For full year 2013, sales were down largely due to currency devaluations in Brazil and Argentina along with volume declines resulting from weak economic conditions. Operating income was $116 million, down 41 percent, or about $82 million. Positive price/mix was offset by higher raw material, energy and labor costs, currency devaluations and lower volumes. Almost three-quarters of the operating income decline was attributable to Argentina.
Asia Pacific fourth quarter 2013 sales increased 1 percent as a result of favorable price/mix and volume growth partially offset by foreign exchange headwinds. The year-ago quarter included $4 million of sales related to a Chinese joint venture which was sold in 2012. Absent that impact, sales would have increased 3 percent. Operating income rose 17 percent from $23 million to $27 million. The results were particularly good in Thailand and China.
Full year 2013 sales were down slightly as a result of lower volumes and foreign exchange headwinds partially offset by favorable price/mix. The year-ago period included $23 million of sales related to a Chinese joint venture which was sold in 2012. Absent that impact, sales would have been up 2 percent. Operating income increased 2 percent from $95 million to $97 million, largely due to improved price/mix.
Europe, Middle East, Africa (EMEA) fourth quarter 2013 sales rose by 5 percent due to price/mix improvement partially offset by currency devaluations and slight volume decline. Volume was negatively impacted by $1 million due to the 2012 closure of the Company's plant in Kenya and a change to its distribution model in that country. Absent that impact, sales would have been up about 6 percent. Operating income was $20 million, down $1 million, a decrease of 5 percent largely due to higher imported specialty grain costs.
Full year 2013 sales rose by 6 percent due to price/mix improvement and volume growth partially offset by currency devaluations. Volume was negatively impacted by $11 million due to the 2012 closure of the Company's plant in Kenya and a change to its distribution model in that country. Absent that impact, sales would have been up about 8 percent.
- Operating income was $74 million, down $5 million, a decrease of 6 percent.
2014 EPS is expected to be in a range of $5.35 to $5.75 compared to $5.05 in 2013. The guidance anticipates ongoing cost pressures and currency headwinds in Argentina; a challenging environment as sugar prices remain low; and, an effective tax rate of 27 - 28 percent. All four regions are expected to deliver increased operating income. However, as a result of lower input costs, sales are expected to drop significantly for the total Company.
Cash generated by operations is expected to be approximately $700 - 750 million in 2014.
Capital expenditures in 2014 are anticipated to be approximately $300 - $350 million. These investments will support growth and cost reduction actions across the organization.
