Ingredion Earnings: Profits Grow as Volume Decline Starts to Normalize

Ingredion’s INGR third-quarter earnings were in line with our view for the cadence of the year. While volumes declined 8% versus the prior-year quarter, price increases over cost inflation drove a 15% growth in adjusted operating income. Volume declines were lower than in the second quarter, and we expect further improvement in the fourth quarter as customer inventory destocking largely winds down. Having updated our model to incorporate Ingredion’s third-quarter earnings, we maintain our $120 per share fair value estimate. Our narrow-moat rating is also unchanged.

Ingredion shares were up nearly 6% at the time of writing as the market reacted favorably to the profit growth and management’s guidance increase for 2023 profits. At current prices, we view Ingredion shares as undervalued with the stock trading in 4-star territory and a little over 15% below our fair value estimate. In the coming years, we expect Ingredion’s gradual shift toward its specialty ingredients will generate steady long-term profit growth. For income-focused investors, the company offers a current dividend yield of a little over 3%, with a dividend that is likely to grow over time.

In 2024, with lower corn prices, we expect Ingredion will likely see companywide prices fall, as corn makes up around 80% of the company’s input costs. Given the company’s cost-plus nature of many of its commodity ingredient sales, we expect Ingredion will be able to generate profit growth as its contracts reset at a sales level but allow the company to maintain its profits.

In specialty ingredients, Ingredion reported 6% higher sales throughout the first three quarters of 2023 versus 2022. As the company completes an expansion of its Stevia natural sweeteners capacity, we expect another year of solid specialties growth in 2024, supporting profit growth for the year.