Ingredion has released its results for the second quarter of this year, highlighting how it has managed to pivot its business with virtual solutions to adjust to fluctuations in consumer demand due to COVID-19. Q2 and year-to-date net sales were down from the year-ago period, primarily driven by sales volume declines in North and South America.
In South America, the company’s reported and adjusted operating income for the quarter were US$113 million and US$127 million, respectively, decreases of 33 percent and 29 percent, respectively, compared to last year’s period. The decreases were largely attributable to North and South America. Excluding foreign exchange impacts, reported and adjusted operating income were down 29 percent and 25 percent, respectively, from the same period last year.
“As an essential business in the food supply chain, we quickly adapted to meet the changing needs of our customers due to fluctuations in consumer demand resulting from COVID-19 lockdowns and restrictions around the globe,” says Jim Zallie, President and CEO at Ingredion.
“During the quarter, we experienced the significant decline in away-from-home consumption that impacted global demand for ingredients, primarily in April and May. Since then, we have seen sequential improvement in June and July as the restrictions ease and consumer mobility increases.”
“We remain focused on optimizing for the new reality, working virtually with customers to co-create, and taking advantage of opportunities to drive simplification and efficiency in our business. As a result, we raised our Cost Smart savings target from US$150 million to US$170 million by 2021. We also strengthened our balance sheet and lowered our future financing costs through a US$1 billion senior notes offering,” he continues.
The company cites its completion of the acquisition of stevia producer PureCircle as key in its growth ambitions. In addition, the company commenced a US$85 million expansion investment in China, one of the largest and fastest growing starch markets, to further grow its starch-based texturizer platform.
“We will continue to pursue M&A opportunities while remaining disciplined in our capital allocation approach,” notes Zallie.
The company also anticipates continued adverse impacts from COVID-19 on net sales across its operating segments during H2, with recovery in sales generally correlated with easing of restrictions and increased consumer mobility.
“With prevailing pandemic case rates across many countries, we expect away-from-home consumption to continue to be suppressed, reducing volumes for ingredients that are formulated for food and beverages consumed away-from-home. We anticipate demand for food consumed in home to remain elevated, increasing volumes for ingredients that are part of the recipes for these meals,” Ingredion says in a statement.
Regional second quarter performance
In North America, the company’s second quarter operating income was US$101 million, a decrease of US$38 million from the year-ago period. Meanwhile, year-to-date operating income was US$226 million, a decrease of US$38 million from the year-ago period. For both the quarter and year-to-date, the decrease was driven by significantly lower away-from-home consumption in the US and Canada and the shutdown of breweries in Mexico.
In South America, operating income was US$13 million, a decrease of US$3 million from the year-ago period. The decrease was largely attributable to unfavorable foreign currency impacts and stay-at-home orders negatively impacting sales volume, partially offset by favorable price/mix. Excluding foreign exchange impacts, segment operating income was up 6 percent.
For the Asia-Pacific region, second quarter operating income was US$22 million, down US$1 million from the year-ago period and year-to-date operating income was US$42 million, a decrease of US$1 million from the year-ago period. For both the quarter and year-to-date, the decrease was largely attributable to the impact of stay-at-home orders on sales volume, partially offset by improved tapioca margins and lower operating expenses. Excluding foreign currency impacts, segment operating income was flat for both the quarter and year-to-date.
In Europe, Middle East and Africa (EMEA), operating income was US$21 million, down US$2 million from the year-ago period. The decrease was largely attributable to stay-at-home orders impacting production and sales in Pakistan, partially offset by strong pricing actions and strong EMEA specialty sales volume. Excluding foreign currency impacts, segment operating income was flat.
