Ingredion slides to two-year lows following FY18 earnings cut, cost savings program (INGR)

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Last Update: 13-Jul-18 10:14 ET

Ingredion (INGR 99.90, -10.86, -9.81%) trades to two-year lows after announcing a cost savings program, second quarter and full year 2018 earnings guidance which disappointed investors.

For those who may not be familiar, Ingredion is a suburban-Chicago based food processor and manufacturer that creates value-added ingredients and biomaterial solutions for the food, beverage, paper and corrugating, brewing, and other industries.

First announced during the first quarter earnings release on May 3, Ingredion’s cost savings initiatives are being dubbed “Cost Smart”. The program establishes a $125 mln target by year-end 2021 through reduction of Cost of Sales and SG&A expenses.

Management is setting forth Cost Smart targets to include an anticipated $75 mln Cost of Sales savings, including global network optimization and $50 mln in anticipated SG&A savings by year-end 2021. Ingredion expects restructuring costs to be incurred earlier in the program and expects savings to be realized beginning in 2018 and building momentum toward the targets through 2021.

As part of the announcement, Ingredion will cease wet-milling operations at its Stockton, California facility and establish a shipping distribution station by year-end 2018. After the transition, the company will begin using the facility to distribute finished products to customers in the Western United States, in particular California. Currently, the facility produces high fructose corn syrup and industrial starch.

Specifically, Ingredion plans to optimize the North America network through the cessation of wet- milling at its Stockton facility. These actions are expected to save $6-9 mln and will reduce the company’s fixed cost footprint.

Following the cost savings plan announcement, Ingredion gave disappointing second quarter earnings guidance. The company sees second quarter adjusted earnings of $1.63-1.68 per share. In North America, the company experienced lower than expected sweetener volumes sold into beverages and higher than expected manufacturing costs. Ingredion’s expectation for adjusted cash flow is $800-850 mln, excluding one-time tax benefits. Going forward, the company remains on target to grow its specialty portfolio business to $2 bln in annual sales by 2022, comprising 32-35% of net revenue.

Lastly, for the full-year, the company anticipates adjusted EPS of $7.50-7.80 in 2018, versus the previously anticipated $7.90-8.20.