Corn Products earnings soar 38% in '06; outlook for 2007 just as bright

by Eric Schroeder
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WESTCHESTER, ILL. — Earnings at Corn Products International, Inc. rose 38% in fiscal 2006 behind an 11% gain in net sales. Net income in the year ended Dec. 31, 2006, was $123.5 million, equal to $1.67 per share on the common stock, up from $89.6 million, or $1.20 per share, in fiscal 2005. Net sales were $2,620.6 million in fiscal 2006, up from $2,360.4 million.

Net income in the fourth quarter ended Dec. 31 was $32.9 million, or 44c per share, up 40% from $23.5 million, or 32c per share, in the same quarter a year ago.

Net sales in the fourth quarter improved 17% to $686.7 million, a fourth- quarter record, versus $585.6 million in the prior year driven by favorable price/product mix, volumes and currency translations.

Operating income of $224.5 million in the full year was up 23% from $183.2 million, while fourth-quarter operating profit also rose, climbing 29% to $56.7 million.

"It is particularly gratifying to achieve a record performance in 2006, when we celebrated our 100th anniversary year," said Sam Scott, chairman, president and chief executive officer. "Importantly, our return on capital employment, or R.O.C.E., improved to 7.5% in 2006 from 6% in 2005, moving us closer to our stated target of 8.5% by the end of 2008. During the year, given our strong earnings growth, we also announced two increases to our quarterly dividend rate, or a combined increase of 29%."

In North America, 2006 net sales of $1,587.7 million were up 12% from $1,422.2 million in the prior year behind improved price/product mix and favorable volumes. Operating income of $130.2 million soared 121%. All three country businesses — U.S., Canada and Mexico — reported solid increases in net sales and operating income, with the latter two posting record operating income, Corn Products said.

Corn Products said its South America division posted a solid second-half performance, particularly in Brazil, but it was not enough to overcome a tough first half. Corn Products posted full-year operating income of $83.6 million on sales of $670.1 million, which compared with $101.1 million and $603.2 million, in fiscal 2005.

Operating income in the Asia/Africa division, at $53.2 million, was unchanged from a year ago. Sales, though, moved up 8% to $362.8 million, as a result of higher volumes as well as currency appreciation.

Looking ahead, Corn Products said 2007 earnings per share should increase 13% to 23%, to between $1.84 to $2.01 per share.

"This increase would mean another record performance and keep us on track to meet our stated goal of low double-digit e.p.s growth during the five-year period of 2003-08," Mr. Scott said. "Just as important, we also expect to reach our return on capital employed target."

Mr. Scott said expectations for another strong performance from the North America region should be the major driver for the company’s 2007 outlook. He added that all three geographic regions are expected to contribute to the improvement.

"Our U.S. and Canadian businesses have again achieved significantly higher contract pricing in 2007 across their starch and sweeteners book of business," he said. "This represents a high-teens percentage increase for our entire U.S. and Canadian businesses. Our firm-price and fee-based book of business in both the U.S. and Canada is appropriately hedged, consistent with our stated policy. Open risks relate to co-product values and the corn basis."

Mr. Scott said South America should deliver improved results in 2007 as Brazil continues to recover. The acquisition of Peruvian corn refiner DEMSA and the pending purchase of the remaining 50% of the Getec Brazilian joint venture should help the region’s performance, he added.

Stronger results in Pakistan and improvement in Thailand and China are expected to key growth in the Asia/Africa region during 2007, Mr. Scott said.

"With respect to the corn risk in our international operations," Mr. Scott said, "we believe our business model should enable us to pass through increasing corn prices as the year progresses.

"We see continuing progress on our company’s five-step Pathway Strategy in 2007, the fourth year of our global growth and value creation initiative, as we pursue our mission to be the premier regional provider of refined, agriculturally based products and ingredients worldwide."

Mr. Scott also pointed to the company’s recent announcement of a definitive agreement to acquire the food business of SPI Polyols, which includes the remaining 50% share of the Getec Brazilian joint venture. The combined annual sales from this transaction should be nearly $100 million. The acquisition, which is expected to be accretive to earnings per share in the first year, should strengthen the company’s sweeteners platform and reinforce elements of the Pathway Strategy to expand the value-added ingredients portfolio in growth markets.

"We see 2007 as a year with much promise as well as a number of key challenges, including the management of global corn price risks and the integration of acquisitions," Mr. Scott said. "All in all, we are optimistic about our prospects for further growth and expansion in the year ahead."

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