Yahoo Finance Ingredion Inc (INGR) (Q1 2024) Earnings Call Transcript Highlights: Navigating Challenges and ...
Net Sales: $1.9 billion, down 12% year-over-year.
Gross Margin: Over 22%, slightly down compared to Q1 last year.
Operating Income: Reported at $213 million; adjusted at $216 million.
Net Income: Consistent, supporting strong cash flow from operations.
Earnings Per Share: Decrease of $0.86 per share operationally.
Free Cash Flow: Cash from operations was $209 million.
Dividends: Paid out $51 million in dividends.
Capital Expenditures: Net capital expenditures were $65 million.
Cost Savings: Cost2Compete program targeting $50 million savings by end of 2025.
Share Repurchases: Began repurchasing outstanding common shares.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Ingredion Inc (NYSE:INGR) exceeded first quarter expectations with strong performance compared to last year's record first quarter.
The company successfully completed the reorganization of its business, resulting in new reportable segments aimed at enhancing strategic focus.
Ingredion Inc (NYSE:INGR) has seen a strong demand recovery for industrial starch from paper making and packaging customers in North America.
The company launched a multiyear cost savings program, Cost2Compete, targeting $50 million in savings by the end of 2025.
Ingredion Inc (NYSE:INGR) was recognized as one of the 2024 World's Most Ethical Companies by Ethisphere, marking its 10th recognition.
Negative Points
Net sales for the first quarter were down 12% versus the prior year, primarily driven by lower price/mix and volume.
The extreme cold weather in the U.S. negatively impacted shipments, estimated to have a financial impact of at least $10 million.
The carryforward of higher cost inventory into the quarter negatively affected the gross profit dollars, decreasing by 14%.
The divestiture of the South Korea business resulted in a $51 million impact on sales volume.
Operational challenges, including hyperinflation in Argentina, contributed to the decrease in operating income.
Q & A Highlights
Q: Could you clarify the impact of the $10 million from weather conditions in Q1? Does this impact get deferred into Q2 or later in the year, or is it considered lost sales? A: James P. Zallie, President and CEO of Ingredion, explained that the $10 million impact from extreme weather conditions in Q1 included two-thirds from idle fixed cost under-absorption and one-third from lost sales. He noted that while some of the fixed cost impact might be mitigated in Q2 and Q3 as production ramps up to rebuild inventory, the lost sales portion is unlikely to be recovered.
Q: How are the new segment classifications expected to reflect the long-term strategy and performance of your various segments? A: James P. Zallie discussed the rationale behind the new segment classifications, emphasizing alignment with global trends and customer bases, particularly in texture and healthful solutions. He highlighted the strategic focus on these areas due to their growth potential and global relevance, explaining that the reclassification aims to better reflect the company's strategic priorities and market dynamics.
Q: What are the expectations for the margins in the new Texture Health segment compared to the Food and Industrial segment, and how does SG&A allocation affect this? A: James Derek Gray, CFO, noted that the Texture and Healthful Solutions segment carries higher gross margins but also a higher proportion of SG&A costs due to the need for specialized capabilities like food scientists and technologists. He indicated that as the segment grows, they expect to achieve better leverage on these expenses, improving the segment's profitability over time.
Q: Can you provide more details on the cost savings plan and its expected impact over the next two years? A: James P. Zallie outlined the Cost2Compete program, aiming for $50 million in savings by 2025, with a focus on SG&A and COGS. He explained that savings are expected to ramp up, with more significant impacts in 2025. Zallie also mentioned that while some savings will be reinvested in strategic capabilities, the program is designed to improve overall profitability and support the company's long-term financial goals.
Q: How does the guidance for Q2 and the full year take into account the divestiture of the South Korea business and other factors? A: James Derek Gray clarified that the guidance for Q2 and the full year excludes the impact of the South Korea business, which contributed significantly to revenue and operating income in the previous year. He provided specific figures to help analysts adjust their models accordingly and discussed factors influencing the guidance, including volume recovery and cost management.
Q: What is the expected progression of free cash flow throughout the year, especially considering the strong performance in Q1? A: James Derek Gray addressed the free cash flow expectations, noting that Q1 benefited from lower-than-expected investment in working capital. He anticipates some timing shifts in cash flow contributions from Q2 and Q3 as inventory levels are rebuilt, and highlighted factors that might influence working capital management throughout the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
