Ingredion’s North America Segment Fed Its 1Q16 Performance
Ingredion’s 1Q16 Results Reflect Another Good Quarter
How much do segments contribute?
As we mentioned in the previous part, the North America segment accounts for around 60%–65% of Ingredion’s total revenue every quarter. In 1Q16, the North America segment’s revenue grew by 11% YoY (year-over-year). It contributed 62% to the total revenue and 74% to the total operating profit. The adjusted operating profit for the quarter grew by 28% to $201 million—compared to 1Q15. Acquisition-related volume growth, reduced costs from Ingredion’s global optimization efforts, a better price or product mix in both the specialty and core ingredients, and cost synergies in North America related to the Penford acquisition drove the increase.
Segment contribution to operating income
The various factors that contributed to the strong results for this segment are:
-
acquisition-related volumes
-
favorable price product mix in Ingredion’s specialty and core ingredients
-
lower operating costs aided by the timing of both Penford and Port Colborne cost savings
-
a milder winter compared to 2015
-
lower energy rates
-
logistics savings
The operating income for Asia-Pacific also rose by $2 million. It was led by margin expansion. It offset the impact of the strong US dollar. The Europe, the Middle East and Africa segment also showed an increase in profit of $4 million. The volume and margin expansion offset foreign exchange headwinds.
The South America operating income declined by $7 million. Factors that affected it were currency headwinds, lower volume led by the macroeconomic environment in Brazil and Argentina, and higher input costs.
Peers’ performance
Ingredion’s main competitors in the industry include McCormick & Company (MKC), Pinnacle Foods (PF), and Cal-Maine Foods (CALM). They reported operating margins of 12.5%, 10.6%, and 19.1%, respectively, for their last reported quarters. The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) and the PowerShares S&P 500 High-Quality Portfolio (SPHQ) invest 2.5% and 1.3% of their holdings, respectively, in McCormick.
Browse this series on Market Realist: