Ingredion: Not An Ingredient In My Portfolio

Aug. 05, 2022 3:05 AM ETIngredion Incorporated (INGR)ADM, BG10 Comments
Kempano Investor profile picture
Kempano Investor
244 Followers

Summary

  • Ingredion produces ingredients for industries such as the food, paper, beverage, and personal-care industries.
  • While Ingredion has a reasonable footprint in the attractive food ingredients market, its financial performance is below the performance of some other players in the food ingredient market.
  • I believe that this is mostly caused by lower amount of resources as well as a lack of vertical integrated operations chain unlike its competitors.

Spoon with dripping sirup or honey close-up

stockcam/E+ via Getty Images

Investment Thesis

Due its financial underperformance, I don't see a reason for buying Ingredion (NYSE:INGR) for a price that isn't heavily discounted compared to the competitors.

Introducing Ingredion

Ingredion produces ingredients for industries such as the food, paper, beverage, and personal-care industries.

Sweeteners such as syrups, maltodextrins, dextrose, and polyols make up roughly 35% of sales; starches for food and industrial use make up 45%, and co-products make up the rest. About one-third of sales are made up of specialty, value-added ingredients, with the remainder coming from commodity-grade ingredients.

Ingredion, a multinational company with a strong presence in emerging markets like Latin America and Asia-Pacific, has the majority of its sales outside of the United States.

Ingredion Business

Ingredion Business (2022 Investor Day Presentation)

Industry Outlook

Ingredion is part of the food ingredients market.

The food ingredients market consists of sales of food ingredients by businesses that create food ingredients used to adjust the flavor, appearance, and texture of food. Food additives are compounds added to food to achieve certain objectives during manufacture, packaging, or storage. These ingredients are added to food to retain its nutritional content as well as enhance its safety and freshness.

A primary trend in the food ingredients market is the introduction of cutting-edge technological solutions. Large food ingredient companies are focusing on creating novel food ingredient solutions to supply the global food industry with next-generation alternative proteins and other ingredients that are desired.

The market for food ingredients is anticipated to be driven by rising health consciousness among consumers and rising fitness awareness among individuals. In order to preserve their health, consumers are adding bioactive food components like omega-3 fatty acids, antioxidants, probiotics, soy protein, and beta-carotene to their meals.

A Research And Markets report expects that the market for food ingredients is anticipated to increase at a compounded annual growth rate of 8.7%, reaching a value of $59.83 billion in 2025.

Competition

The food ingredients industry is fairly competitive, especially in the U.S. I believe that the competition competes mostly on product functionality, quality, and price.

Most of the products sold by Ingredion are looked at as basic ingredients that compete with fairly identical products offered by competitors. This increases the competitive pressure.

Some of the competitors are Archer-Daniels-Midland (ADM), Cargill, Tate & Lyle Ingredients Americas (OTCQX:TATYF), Bunge (BG) and Roquette . There are also smaller local-based corn processors.

Company

Business Description

Market Cap

Last Year's Revenue Growth

Ingredion (INGR)

Ingredion produces ingredients for industries such as the food, paper, beverage, and personal-care industries.

6.01B

15.15%

Archer-Daniels-Midland (ADM)

Archer-Daniels Midland is a large company processing agricultural commodities such as corn, and wheat. Furthermore, the firm runs an extensive network of logistical assets.

46.41B

32.47%

Bunge (BG)

Bunge was founded in 1818 and is an agribusiness and food company with global operations in the farm-to-consumer food chain. About two thirds of earnings are produced by the agricultural industry, which also has the world's greatest capacity for processing oilseeds.

14.12B

42.86%

Source: Morningstar and Seeking Alpha

Competitive Position

Ingredion has a reasonable footprint in the global food ingredients market. They have customers in over 120 countries and over 7 billion USD in revenue, underlining the trust of its customers. Furthermore, they operate a large R&D department and its own "Ingredion Idea Labs" which are created to stimulate innovation, for instance a new flavor. This is especially helpful in capturing emerging consumer trend opportunities.

Statistics

Statistics (2022 Investor Day Presentation)

Overall, I believe that these are reasonable competitive strengths.

However, some competitors have much more vertically integrated operations (for instance, Archer-Daniels-Midland). There are some huge advantages to this, such as larger control over its supply chain, more efficiencies, and reduced costs.

Moreover, companies such as Archer-Daniels-Midland and Bunge have much more resources to its use, as they are significantly larger in size than Ingredion.

Financial performance

Performance over the years

Performance over the years (Seeking Alpha, graph by author)

Its revenue growth was almost non-existent and even negative before 2021. While it's nice that the company grew its sales a lot in 2021, this was mainly caused by acquisitions and by passing through higher cost of materials, according to its most recent annual report. Due to the rise in material prices (especially corn), its gross margin actually dropped. The operating expenses of Ingredion increased over the years, decreasing the operating income of the company gradually.

Valuation and Financial Performance Comparison

Basic statistics comparison:

index

Forward P/E

Gross Margin

3Y sales growth

3Y EPS growth

Ingredion

12.5

18%

3.11%

-34.55%%

Archer-Daniels-Midland

13.87

7%

9.83%

14.51%

Bunge

8.2

5%

8.95%

102.61%

Source: Seeking Alpha

It's noticeable how Ingredion has a rough EPS decrease over the years, and very mild revenue growth rate compared to the other players in the food ingredient market. We saw in the previous bar chart the decreasing income was the harshest in 2021 due to the company's heavy dependence on corn prices. However, decreasing income was already noticeable before 2021. On the other hand, the other competitors realized very nice EPS growth rates. Furthermore, Ingredion is much high priced than Bunge and only priced a bit lower than Archer-Daniels-Midland.

Final Take

While Ingredion has a reasonable footprint in the attractive food ingredients market, its financial performance is below the performance of some other players in the food ingredient market. I believe that this is mostly caused by lower amount of resources available compared to the other companies, as well as a lack of vertical integrated operations chain unlike its competitors. Furthermore, the corn inflation hit Ingredion hard especially in the last year. Right now I don't see a reason buying this stock for a price that isn't heavily discounted compared to the competitors.

This article was written by

Kempano Investor profile picture
244 Followers
I believe that the goal of investment analysis is to basically assess the risk/return ratio and conclude whether an investment is under, over, or correctly valued. I do this by first categorizing the specific investment (value/growth/other), following by an extensive analysis that would fit that category. Such an extensive analysis would consist of as many as possible relevant qualitative and quantitative aspects that might impact the return and or risk of a specific investment. I especially like writing about undercovered high-growth tech stocks. It fascinates me to unravel the mystery and potential of such a stock. However, I also enjoy switching it up, learning as much as possible about all types of investments, types of risks, types of returns for all types of investors. The markets have too many interesting investment opportunities, that it would be a waste to just focus on a small part of it.  My goal is to fairly, extensively, and accurately analyze investments and present them to my reader in such a way as well.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (10)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.