Investing.com -- Moody’s Ratings today affirmed the Baa1 senior unsecured notes rating and Prime-2 commercial paper rating of Ingredion (NYSE: INGR ) Incorporated, a leading producer of starches and sweeteners. The rating agency also shifted the company’s outlook from stable to positive.
The positive outlook is a reflection of Ingredion’s continued operational improvements, seen in the steady growth of its EBITDA over the past five years. The company’s focus on its higher margin specialty ingredients segment, along with trends for convenience, healthier food options, and the growth in urbanization of the consumer, has led to a nearly 40% total improvement in EBITDA in Fiscal 2024 compared to Fiscal 2020.
Despite lower sales due to reduced corn prices, Ingredion’s Moody’s adjusted debt to EBITDA has declined from 2.7x at the end of Fiscal 2020 and from 2.0x at the end of Fiscal 2023 to 1.6x at the end Fiscal 2024. The agency expects this leverage to further decrease to around 1.5x, well below the upgrade factor of below 2.0x, assuming flat debt levels in the next 12 to 18 months and continued EBITDA growth.
Moody’s also anticipates that Ingredion will maintain its conservative financial policy, with earnings and cash flow expected to remain healthy over the next 12 to 18 months. The ratings affirmation is based on the expectation that Ingredion will continue to generate stable earnings and solid free cash flow, providing flexibility for growth investments and debt repayment.
The Baa1 senior unsecured ratings reflect Ingredion’s stable earnings and operating cash flow, driven by a good market position and a diversified geographic and end market portfolio. The company’s credit profile also benefits from conservative financial policies, excellent liquidity, and modest financial leverage.
However, these factors are balanced against the company’s exposure to price fluctuations of co-products, competition from larger corporations, high capital intensity, and declining U.S. high fructose corn syrup consumption, which now represents less than 10% of revenues.
Ingredion’s free cash flow in the LTM period ended December 31, 2024, was $925 million. The company is projected to generate approximately $250 million in free cash flow in the next 12 months. This projection is lower than fiscal 2023 free cash flow mainly due to forecasted changes in working capital.
Ingredion is focused on growing the specialty ingredients portion of its business, with the goal of this segment’s revenue approximating 40% of its total sales by 2025 from 34% in 2023. Since fiscal 2020, the company has spent over $300 million in acquisitions and capital investments to expand its organic growth in specialty ingredients.
The company has excellent liquidity, supported by an undrawn $1.0 billion revolving credit facility expiring in June 2026, good operating cash flows, and $997 million in cash as of December 31, 2024. The company has a $1.0 billion commercial paper program that is backstopped by the $1.0 billion revolving credit facility.
Ingredion’s ratings could be upgraded if the company continues to increase scale and product diversity, reduces earnings and cashflow volatility, and if debt to EBITDA is sustained at or below 2.0x. However, ratings could be downgraded if operating performance deteriorates, if it adopts a more aggressive financial policy, if debt to EBITDA is sustained above 2.5x, or if liquidity weakens.
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