This was the first full quarter that the Penford results were added to Ingredion’s bottom line. The acquisiton was announced in October of last year but was only completed in the middle of March. Specialty products, which include the food ingredients business (Ingredion also has a big presence in industrial starches and other sectors), was an especially bright spot for the company.
“We ended the quarter with growth in our specialty volumes, operating income and earnings per share. Overall volumes were up 6%, driven by our Penford acquisition,” CEO Ilene Gordon told analysts in an earnings call that was posted in transcript form on seekingalpha.com.
“Operating income in North America was $127 million for the quarter, up $17 million from last year. Overall volumes were up 12%, primarily driven by the impacts of the Penford acquisition as well as strong demand for our specialty products,” Gordon said.
Growth in specialty ingredient sales volume driven by Penford was especially helpful as the company was exposed to significant currency headwinds. Ingredion sources many of its raw materials in North America which are then processed for sale internally and for export. The strong US dollar coupled with low corn prices served to depress overall net sales by $35 million in the quarter.
Moving up the value chain
But what Gordon termed “continuous improvement programs” have boosted the company’s bottom line even as net sales fell. The company’s second quarter reported earnings per share were $1.47, compared to $1.35 in the same period a year earlier.
Ingredion announced the completion of the acquisition of Kerr Concentrates, a producer of natural fruit and vegetable concentrates, purees and essences. Smaller than Penford and privately held, this acquisition proceeded swiftly and was completed in less than a month. The Penford and Kerr acquisitions taken together are part of a strategic plan to diversify the company’s offerings and move farther up the value chain, Gordon said.
“The Kerr acquisition is another step to broaden our portfolio of wholesome, clean-label ingredient solutions, which consumers are increasingly demanding. The Penford integration remains on track for at least $20 million in annualized cost synergies and the underlying business is performing well. Our expectation for adjusted EPS for the year, including accretion resulting from both transactions, is narrowed to $5.60-$5.90, excluding the associated acquisition-related costs,” she said.