Ingredion profits to rise despite weak peso, sugar

Ingredion forecast a sharp recovery in earnings despite highlighting its vulnerability to depreciation in emerging market currencies, and to the low sugar prices which undermine the market for corn-based sweeteners.

Shares in the US-based corn processor soared 10% in early deals in New York, adding $450m to its market value.

Ingredion revealed a 7.0% decline to $402.8m in earnings for 2013, equivalent to $5.05 a share, undermined by factors including "economic weakness" in Mexico, a major buyer of high fructose corn syrup (HFCS), and weak currencies in many important markets.

This was particularly the case of South America, where the group suffered a $144m hit thanks to currency devaluations, largely of Brazil's real and Argentina's peso, which lost 25% against the dollar last year.

Operating profits from South America slumped 41% to $116.4m, with Argentina responsible for "almost three-quarters" of the decline, and economic weakness and "energy and labour costs" adding to the setback from currency depreciation, Ingredion said.

'Currency headwinds'

However, the group forecast a recovery in earnings per share to $5.35-5.75 for 2014, potentially setting a record high, despite the further jitters since surrounding emerging market currencies, and in particular the peso, which has lost a further 17% against the dollar so far this year.

"The guidance anticipates ongoing cost pressures and currency headwinds in Argentina," Ingredion said.

The forecast also factors in a "challenging environment, as sugar prices remain low", heightening competition in the sweeteners market against HFCS.

Nonetheless, the company said that all four of its regions – Asia Pacific, Europe, North America and South America, Europe – would deliver growth in operating profits, compared with only one, Asia Pacific, last year.

While failing to detail sources for profit rises, the group highlighted a $300m-500m investment programme for this year which "will support growth and cost reduction across the organisation".

'Pressure on pricing'

The caution over the weaker sweeteners market tallies with comments from Archer Daniels Midland, a rival manufacturer of HFCS, earlier this week on the annual round of pricing talks with major buyers of the product, which is popular in particular with soft drinks makers.

"Although we haven't closed every single negotiation… at this point in time we see stable volumes for North America and declining volumes from Mexico, "ADM chief operating officer Juan Luciano told investors.

"That is putting some pressure on pricing in this negotiating season."

Indeed, "pricing is a little bit weaker than we thought," although the impact of weaker prices "will be partially offset by lower corn cost and our management of our footprint and our product mix".

Mexican dynamics

Mr Luciano also highlighted the dent to Mexican demand from a tax on fizzy drinks, which "some of the experts are predicting that maybe is going to impact about 5% of volume", and of a "great sugar [cane] crop".

"That makes sugar prices very, very low there… That has driven prices in these early negotiations down versus what we expected."

In New York, Ingredion shares touched $64.68 in early deals before easing a little to $64.31 as of 10:15 local time (15:15 UK time), up 9.1% on the day.

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