Ingredion Incorporated (INGR)

INGR 
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Ingredion Inc. (INGR)

Q4 2012 Earnings Call

February 7, 2013 9:00 AM ET

Executives

Aaron Hoffman – VP, IR and Corporate Communications

Ilene Gordon – Chairman, President and CEO

Cheryl Beebe – EVP and CFO

Analysts

Ken Zaslow – Bank of Montreal

Heather Jones – BB&T Capital Markets

Tim Ramey – D.A. Davidson

Farha Aslam – Stephens Inc.

David Driscoll – Citigroup

Presentation

Operator

Good morning and welcome to the Ingredion Incorporated Fourth Quarter 2012 Earnings Conference Call. All participants will be on a listen-only mode until the question-and-answer session of today’s call. This call is being recorded. If you have any objections please disconnect at this time.

I’d now like to turn the call over to Mr. Aaron Hoffman, Vice President of Investor Relations and Corporate Communications for Ingredion Incorporated. Sir, you may begin.

Aaron Hoffman

Okay. Thanks, Sue, and good morning and welcome to Ingredion’s fourth quarter 2012 earnings call. Joining me on the call this morning are Ilene Gordon, our Chairman and CEO; and Cheryl Beebe, our Chief Financial Officer. Our results were issued this morning in a press release that can be found on our website ingredion.com. The slides accompanying this presentation can also be found on the website and were posted about an hour ago for your convenience.

As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties. Actual results could differ materially from those predicted in the forward-looking statements and Ingredion is under no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today’s conference call or in this morning’s press release can be found in the company’s most recently filed annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.

Now, I’m pleased to turn the call over to Ilene.

Ilene Gordon

Thanks Aaron, and let me add my welcome to everyone joining us today. We appreciate your time and interest. Ingredion concluded 2012 with another very good quarter, capping an outstanding year. I’m particularly pleased with our performance in the face of headwinds that included rising corn costs, foreign exchange devaluations, and challenging macroeconomic conditions in a number of markets. As we stress on previous calls and recently, at our Analyst Day, the Ingredion business model provides for significant resiliency to these disruptions.

Over the past two years, we’ve realized about $1.2 billion in pricing to account for the rapid rise of our input cost. In 2013, we anticipate the need to achieve an additional $500 million in pricing.

With North American contracting essentially complete, we now had visibility on pricing in our largest region. We believe that these actions appropriately reflect the increase in raw materials that we’ve seen. At the same time, as a result of operating efficiencies and mix improvements, we expect our dollar spread to increase.

Turning back to the business model, I’ll remind you that our products are largely used in key consumer markets like food, beverage, brewing and even in personal care and pharmaceuticals. Said another way, we sell to industries that are generally stable or growing and are important to consumers.

In addition to serving these staple markets, we thoughtfully mitigate risk at the same time. Those risks include foreign exchange fluctuations and input cost volatility. As our results and our outlook indicate today, we have managed through these headwinds admirably.

From an operational perspective, we saw particularly strong results in North America and Asia Pacific in the quarter and the full year, which combined represent about two-thirds of our total business.

In South America this year, we held our ground in the face of a weaker Brazilian economy and a meaningful currency headwind. While we are never entirely satisfied with being relatively flat in the region, I can tell you that the business and local management did an exceptional job and performed as we would expect in light of the challenges.

And in EMEA, as we have communicated to you since the beginning of the year, results were generally down for the year though we saw some positive signs in the fourth quarter.

Let’s now take a quick look at each of the regions and their performance in the quarter. Starting with North America, continuing the trend of strong performance we saw in the first nine months, this region delivered another good quarter highlighted by further volume growth a variety of industries including beverage and brewing. Importantly, we covered escalating import cost in 2012 and expect to do so again in 2013.

Operating income grew by 46% as a result of a good volume trends, improved product mix and operational efficiencies carry to the bottom line. It’s worth noting that our business in Mexico continues to show good performance as we are well positioned to participate in the economic and population growth there.

Our South American business continued to face some challenges in the face of slower economic activity, rising cost and currencies devaluing, we continued to price and adjust volume accordingly. In spite of these challenges, we effectively managed the volatility. For the fourth quarter sequentially or quarter over quarter, the operating income trend improved, giving us confidence as we enter 2013.

Turning to Asia Pacific, we delivered further volume and grew operating income by 31% in the quarter. The results were driven by increased revenues, the food and beverage industries, as well as volume growth, incremental pricing and lower raw material cost. We remain well situated to participate in the expected growth in this large diverse region.

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