uploads///Ingredions Operating Income and Margin

Ingredion Completed the Kerr Acquisition in Fiscal 3Q15


Jan. 21 2016, Updated 7:58 a.m. ET

Kerr acquisition completed in fiscal 3Q15

Ingredion (INGR) announced during 3Q15 that it successfully completed the acquisition of Kerr Concentrates on August 3, 2015, for ~$100 million. Kerr produces natural fruit and vegetable concentrates, purees, and essences. Ingredion plans of acquiring Kerr were to mainly expand its portfolio of clean label ingredients to help customers develop products that are trending and in demand.

The company believes that Kerr’s portfolio of value-added ingredients made from fruits and vegetables resonates with its consumers. The Penford acquisition completed earlier in fiscal 2015 also remains on track, and Ingredion is estimated to earn at least $20 million in annualized cost synergies from both deals.

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Strategies to reduce cost structure

During the third quarter, Ingredion announced that it plans to reduce its cost structure in South America by consolidating several plants in Brazil in 2016. The company expects the consolidation of the manufacturing network in Brazil to begin in early 2016, and to be complete by the end of the year. That’s estimated to result in annual cost savings of $6 million–$8 million starting in 2017. The company had anticipated total pre-tax restructuring-related charges of $13 million–$16 million in 3Q15 and incurred $12 million associated with the restructuring.

Ingredion also announced changes to the structure of the executive leadership team before the third quarter results, effective as of January 1, 2016. The company believes that the changes could improve its alignment, leverage opportunities across similar businesses and geographies, and streamline organizational reporting.

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Expansion project

Two weeks before the fiscal 4Q15 earnings release, Ingredion announced its expansion project plan in Mexico. It plans to invest ~$30 million in expanding capacity at its San Juan del Rio manufacturing facility.

Mexico is a profitable and growing market to Ingredion, with close to $1 billion in annual sales. The company’s management mentioned that since this facility has been raising production to support the growth demands of Ingredion’s core and specialty products over the last few years, this project would position the company better to address customer needs while enhancing shareholder value. The project is expected to be completed in the first quarter of 2017.

The company’s competitors in the industry include ConAgra Foods (CAG), Keurig Green Mountain (GMCR), and Kellogg (K). These companies reported net revenues of $2.7 billion, $969.5 million, and $3.5 billion, respectively, in their last reported quarters. The Guggenheim S&P Equal Weight Consumer Staples ETF (RHS) and the Guggenheim Defensive Equity ETF (DEF) invest 2.6% and 1.7%, respectively, of their portfolios in Keurig Green Mountain stock.


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