WESTCHESTER, ILL. — Three power outages at Argo, the company’s largest sweetener plant and based in Bedford Park, Ill., dragged down earnings in the third quarter for Ingredion, Inc., and that was not the only troublesome issue.
“We are disappointed with the third-quarter's results,” said James P. Zallie, president and chief executive officer, in a Nov. 1 earnings call. “Specifically, in the latter half of the quarter, our results were impacted by unexpected events. We experienced the effects of rapidly changing foreign currencies, primarily in Argentina, Brazil and Pakistan, and we responded to unplanned power outages at our largest manufacturing facility in North America.
“We are addressing these challenges by aggressively driving operational improvements, structurally reducing costs and taking necessary pricing actions while ensuring we deliver on our customer experience commitments. To accelerate operational execution, we have restructured the North America supply chain leadership, bringing intense focus to freight cost optimization and reducing complexity.”
Net income of $98 million, or $1.33 per share on the common stock, in the quarter ended Sept. 30 was down 42% from $169 million, or $2.31 per share, in the previous year’s third quarter. Sales of $1,450 million were down 2% from $1,485 million as changes in foreign currency exchange rates more than offset favorable price/mix.
In North America, operating income of $138 million was down 22% from $177 million in the previous year’s third quarter. Sales of $889 million were down 2% from $903 million.
“North America operating income decreased $39 million due to higher production costs, driven primarily by several unexpected power outages at our largest sweetener facility, continued starch inventory rebalancing, lower sweetener volumes, and higher freight and manufacturing input inflation,” said James D. Gray, executive vice-president and chief financial officer for Westchester-based Ingredion.
Ingredion experienced three power failures at Argo over a three-week period, Mr. Zallie said. He said Ingredion expects the impact of the power outages to be $10 million, the majority of which hit in the third quarter.
“The outages, basically they shut down our boilers, and a plant of Argo’s size takes 7 to 10 days to stabilize production per incident,” he said. “We believe complete utility outages of this magnitude in three weeks are extraordinary and something we’ve not experienced in the last three decades at Argo.”
Mr. Zallie estimated the lower sweetener volumes, and the associated impact on fixed cost absorption, to have an impact of $20 million. Restructuring charges associated with closing a Stockton, Calif., facility were about $31 million.
“To better align our manufacturing cost structure to future sweetener demand, we have progressed the transition of Stockton customer volume and service to other plants in our network,” Mr. Zallie said.
Starch rebalancing is estimated to have an impact of $20 million.
“We see the (starch) situation steadily improving throughout 2019,” he said.
In South America, operating income of $22 million was down 15% from $26 million. Foreign exchange headwinds in Brazil and Argentina were offset partially by improved operational efficiencies. Sales decreased 11% to of $228 million from $257 million.
In Asia Pacific, operating income of $25 million was down 17% from $30 million. A lag in the pass through of higher tapioca costs and layout of corn costs more than offset specialty volume growth. Sales of $197 million were up 4% from $189 million.
“During the quarter, we announced $60 million of planned specialty investments in Asia Pacific,” Mr. Zallie said. “These investments will further expand our capacity in modified waxy corn food starches in China and tapioca and rice specialty starches in Thailand to meet growing global demand.”
In Europe, Middle East and Africa, operating income of $26 million was even with last year’s third quarter, and sales of $136 million also were even with last year.
Net income in the first nine months of the year for Ingredion companywide was $357 million, or $4.86 per share on the common stock, down 17% from $429 million, or $5.83 per share, in the same time of the previous year. Nine-month sales were $4,415 million, up slightly from $4,395 million.
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