Q1 2020 Earnings Call
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Where we are well positioned to emerge stronger.
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Ingredion has always been a company.
Yes.
That is fully.
And the.
The.
Eric Onest value.
increased personal hygiene and sanitation and provided the necessary personal protective equipment to employees
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Class levels when it comes to minimizing injuries in the workplace.
I am proud of the coordinated efforts of everyone in our organization to adjust and adapt to safe new ways of working to enable us to maintain a secure supply of ingredients off to our customers.
Has enabled us in this case to readily adopt protocols and take measures to protect employees health.
We rapidly followed guidelines of public health authorities for physical distancing.
Our second priority has been to be a responsible corporate citizen. Not only following local governmental guidelines to protect local Health Systems, but proudly supporting and giving back to the communities would operate.
Increased personal hygiene, and Sanitization and provided the necessary personal protective equipment to employees.
I am proud of the coordinated efforts of everyone in our organization to adjust and adapt to safe new ways of working to enable us to maintain a secure supply of ingredients.
Ingredion teams around the world are supporting charitable organizations, and we are actively supporting the global food banking network with two corporate donations, which thus far will provide 1.2 million meals to people in need.
To our customers.
Our second priority has been to be a responsible corporate citizen.
Our third priority has been to maintain business continuity to serve our customers without interruption. We are focused on ensuring the safety and quality of our food and beverage ingredients as well as the availability of products into the supply chains of our customers, and I'm pleased to say that thus far we've been able to do an excellent job in that regard and we have received notes and comments of appreciation from a range of customers big and small acknowledging a support for our efforts on their behalf.
Not only following local governmental guidelines to protect local health systems, but proudly supporting and giving back to the communities in which we operate.
Ingredion teams around the world are supporting charitable organizations and we are actively supporting the global food banking network with two corporate donations, which thus far.
We'll provide 1.2 million meals to people in need.
Our third priority has been to maintain business continuity to serve our customers without interruption.
We continue to monitor this rapidly evolving situation and are working closely with our customers building on our strengths sharing respective best practices and focusing on recovery plan.
We are focused on ensuring the safety and quality of our food and beverage ingredients as well as the availability of products into the supply chains of our customers.
And I'm pleased to say that thus far we've been able to do an excellent job in that regard and we have received notes and comments of appreciation from a range of customers.
Now let me transition to our first quarter. We are pleased with our results for the quarter amid macroeconomic disruptions. We delivered solid operational and financial results. This was driven by healthy demand for our products continued growth of our specialty portfolio and further progress to streamline or organization.
Big and small acknowledging the support for our efforts on their behalf.
We continue to monitor this rapidly evolving situation and are working closely with our customers.
Building on our strengths sharing respective best practices.
Where the quarter our global net sales were flat compared to Prior year.
And focusing on recovery planning.
Now, let me transition to our first quarter.
Absent forty million dollars of negative foreign exchange impacts net sales were up 3% versus the prior-year.
We're pleased with our results for the quarter.
Amid macroeconomic disruptions, we delivered solid operational and financial results.
Net sales absent foreign-exchange were up in three or four regions.
This was driven by healthy demand for our products.
Adjusted operating income for the quarter was up 1% year-over-year and up 4% absent foreign exchange translation impacts.
Continued growth of our specialty portfolio and further progress to streamline our organization.
For the quarter, our global net sales were flat compared to prior year.
Adjusted operating income was either up or flat in all four regions.
Absent $40 million of negative foreign exchange impacts net sales were up 3% versus the prior year.
Now, let's discuss the highlights of each Region's performance during the first quarter.
Net sales absent foreign exchange, we're up in three of four regions.
In North America sales were up slightly for the quarter versus prior year with favorable price mix offsetting volume decline.
Adjusted operating income for the quarter was up 1% year over year.
Operating income was $100.
And up 4% absent foreign exchange translation impacts.
Proof price mix and favorable freight costs were partially offset by higher net court costs due to the timing of corn hedge mark-to-market impacts.
Adjusted operating income was either up or flat in all four regions.
Now, let's discuss the highlights of each regions performance during the first quarter.
The South America region experienced 4% sales growth versus prior year despite significant foreign exchange headwinds.
In North America sales were up slightly for the quarter versus prior year with favorable price mix offsetting volume decline.
Absen, foreign-exchange sales were up 15% driven by strong pricing actions and volume growth.
Operating income was $125 million flat year over year.
Operating income was $20 up 44% versus prior year due to favorable pricing and higher volumes are South America bank has consistently been able to demonstrate an ability to drive necessary pricing actions successfully despite a variety of Market challenges.
Improved price mix and favorable freight costs were partially offset by higher net corn costs due to the timing of corn hedge mark to market impacts.
The South America region experienced 4% sales growth versus prior year, despite significant foreign exchange headwinds.
Moving to Asia Pacific Sales were down 7% compared to Prior year due to volume decline foreign currency and unfavorable price mix with the bulb on setup covid-19 in China and Korea volumes in those countries were impacted by stay-at-home orders throughout the quarter operating income at twenty million dollars was from a prior year impacted by weaker volumes offset by favorable tapioca margins.
Absent foreign exchange sales were up 15% driven by strong pricing actions and volume growth.
Operating income was $26 million up 44% versus prior year due to favorable pricing and higher volumes.
Our South America team has consistently been able to demonstrate an ability to drive necessary pricing actions successfully.
Despite a variety of market challenges.
Moving to Asia Pacific sales were down 7% compared to prior year due to volume decline foreign currency and unfavorable price mix.
Moving to a Mia our sales were flat for the quarter excluding foreign exchange. Our sales were up 6% driven by favorable price mix and volume growth operating income at $27 was up 13% driven by favorable price max volume growth and lower cost of goods sold as a result of cost savings actions.
With the early onset of Cobot 19 in China, and Korea volumes in those countries were impacted by stay at home orders throughout the quarter.
Operating income at $20 million was flat versus prior year impacted by weaker volumes offset by favorable tapioca margins.
Now, let me turn it over to Jim Gray who will review the financial results in more detail Jim. Thank you. Jim net sales of 1543000000 dollars were flat for the bulb or versus prior year gross profit. Margin was up. Thirty basis points reported and adjusted operating incomes were $153 and $167 respectively.
Moving to EMEA, our sales were flat for the quarter, excluding foreign exchange, our sales were up 6% driven by favorable price mix and volume growth.
Operating income at $27 million was up 13% driven by favorable price mix volume growth and lower cost of goods sold as a result of cost Mark savings actions.
Reported operating income was lower than adjusted operating income due to acid closures and restructuring costs related cost-mart are reported and adjusted earnings per share were $1.11 and $1.59 respectively.
Now, let me turn it over to Jim Gray, who will review the financial results in more detail Jim.
Thank you Jim.
Net sales of $1 billion $543 million were flat for the quarter versus prior year.
First-quarter net sales of 1543000000 dollars were flat versus prior year, we experienced unfavorable foreign currency impacts of forty million dollars. Although volume was flat wage price mix contributed $43 to the net sales increase offsetting currency weakness.
Gross profit margin was up 30 basis points.
Reported and adjusted operating incomes were $153 million and $167 million respectively.
Reported operating income was lower than adjusted operating income due to asset closures and restructuring costs related cost Mark.
In North America net sales were up slightly versus prior year price mix was up 2% offset by lower volumes.
Our reported and adjusted earnings per share were $1.11 cents and $1.59 cents respectively.
South America net sales were up 4% with price mix up 9% and volume up 6% more than offsetting foreign currency weakness.
First quarter net sales of $1.543 billion were flat versus prior year.
We experienced unfavorable foreign currency impacts of $40 million.
In a pack net sales were down 7% due to the early impact of covid-19 in the quarter which impacted volume price mix was lower due to pass through of lower. Tapioca of raw material costs money. Give me a net sales were flat as a favorable price mix and volume growth were offset by Foreign Exchange.
Although volume was flat.
Operable price mix contributed $43 million to the net sales increase offsetting currency weakness.
In North America, net sales were up slightly versus prior year.
Nice mix was up 2% offset by lower volumes.
For the quarter reported operating income decreased eight million dollars while adjusted operating income increased by 1 million. The decrease of reported operating income was driven by acid closures and restructuring related the cost Mart.
South American net sales were up 4% with price mix up 9% and volume up 6%.
More than offsetting foreign currency weakness.
In APAC net sales were down 7% due to their early impact of Covre 19 in the quarter, which impacted volume.
Region operating income growth was offset by corporate costs which increased by $10 due to higher legal in IT project costs and continued Investments and drive Innovation and streamlined Global processes.
Price mix was lower due to pass through of lower tapioca raw material costs.
EMEA net sales were flat as favorable price mix and volume growth.
Were offset by foreign exchange.
Turning to our earnings bridge on the left side of the page. You can see the reconciliation of firm reported to adjusted.
For the quarter reported operating income decreased $8 million, while adjusted operating income increased by 1 million.
On the right side operationally, we saw an increase of $0.03 per share for the quarter driven by favorable margins of $0.11 per share and offset by unfavorable foreign exchange volume off income of - $0.05 - $0.02 and minus a penny per share respectively.
The decrease in reported operating income was driven by asset closures and restructuring costs related to cost Mark.
Region operating income growth was offset by corporate costs, which increased by $10 million due to higher legal and IC project costs and continued investments to drive innovation and streamline global processes.
Moving to our non-operational items. We saw an increase of $0.03 per share for the quarter driven by favorable financing costs.
Turning to our earnings bridge on the left side of the page you can see the reconciliation from reported to adjusted.
Moving to cash flow first quarter cash provided by operations with $65 million Capital expenditures were ninety-eight billion up $18 from the prior-year to the timing of payment or a plant-based protein growth projects.
On the Rightside operationally, we saw an increase of three cents per share for the quarter driven by favorable margin of 11 cents per share.
And offset by unfavorable foreign exchange volume and other income of minus five cents minus two cents and minus a penny per share respectively.
Before providing highlights to our 2020 Outlook. I would like to characterize how stay-at-home restrictions and continued concerns for the viruses effect on public health or impacting consumer behavior and habits in the market place to begin. We have seen and continue to expect the pantry stocking will occur for many Center of store packaged Foods.
Moving to our non operational items, we saw an increase of three cents per share for the quarter driven by favorable financing costs.
Moving to cash flow first quarter.
Cash provided by operations was 65 million.
Capital expenditures were $98 million up $18 million from the prior year due to the timing of payments for our plant based protein growth projects.
As examples demand for Soups Frozen entrees has increased.
In other areas in the grocery store, for example fresh categories have seen mixed demand yogurt sales have not seen the same spikes perhaps because consumers have limited Refrigeration space off.
Before providing highlights to our 2020 outlook I would like to characterize how stay at home restrictions and continue concerns for the viruses effect on public health are impacting consumer behavior in the habits in the marketplace.
In a way from home Channel such as Quick Serve restaurants or pubs and bars demand has dropped significantly.
To begin we have seen and continue to expect that pantry stocking will occur for many center of store packaged foods.
Fewer french fries and Fountain drinks are being consumed in fruits and food service.
As examples demand for soups frozen entrees has increased.
Finally in an only one instance that we know of temporary government mandates have halted production in a food or beverage segment, which is brewing in Mexico.
In other areas in the grocery store for example, fresh categories have seen mixed demand.
The organic sales have not seen the same spikes.
Do the uncertainty created by the pandemic our previous full-year guidance of 2020 EPS cash from operations and net sales Outlet is no longer applicable. We have moderate visibility into quarter to but cannot fully predict how consumer Behavior will evolve in response to infection rates in different locations for the remainder of the year.
Perhaps because consumers have limits in refrigeration space.
And away from home channels, such as quick serve restaurants are pubs and bars demand has dropped significantly.
Fewer French fries and fountain drinks are being consumed in fruits in foodservice.
Finally, and in only one instance that we know of temporary government mandates have halted production in a food or beverage segment, which is brewing in Mexico.
We anticipate that net sales will be down versus prior year in each reporting segment.
In North America net sales and operating income are anticipated to be down to the due to the decline and Brewery sales within Mexico related to covid-19 government mandates.
Due to the uncertainty created by the pandemic.
Our previous full year guidance of 22000 EPS.
Cash from operations and net sales outlook is no longer applicable.
We anticipate ingredient volume into food service to be down with volumes returning as we move into Q3.
We have moderate visibility into quarter two.
But cannot fully predict how consumer behavior will evolve in response to infection rates and different locations for the remainder of the year.
In South America depends emack is an earlier stage.
The sudden halt of consumer traffic into restaurants and bars as well as Mom and Pop stores will reduce sales of beer carbonated soft drinks and impulse foods such as confectionery.
In quarter, two we anticipate the net sales will be down versus prior year in each reporting segment.
In North America, net sales and operating income are anticipated to be down to the due to the decline in brewery sales within Mexico related to covert 19 government mandates.
The sudden decline in demand will negatively impact our ingredient volume sales into these segments.
Give me a net sales and operating income are expected to be down or Pakistan business has greater volume exposure to text to the textiles industry, which is not operating due to covid-19.
We anticipate ingredient volume.
End of foodservice to be down with volumes returning as we move into Q3.
In South America, the pandemic as an earlier stage.
The sudden hall of consumer traffic into restaurants, and bars as well as mom and pop stores will reduce sales of beer carbonated soft drinks and impulse foods such as confectionary.
Asia-pacific operating income is expected to be down primarily due to currency weakness.
As we look forward we're focused on maintaining our strong cash position in this uncertain environment. We are monitoring working capital accounts closely our balance sheet remains strong.
This sudden decline in demand will negatively impact our ingredient volume sales into these segments.
EMEA net sales and operating income are expected to be down.
We will continue to be disciplined and are taking steps to ensure that we have the capital or operate our business and support our strategy for the long term.
Our Pakistan business has greater volume exposure to tech to the textile industry.
Anticipate stable cash flow and line with changes to operating income.
Which is not operating due to cover 19 restrictions.
Asia Pacific operating income is expected to be down primarily due to currency weakness.
Committed Capital Investments are anticipated to be between $285 billion to $300 billion, assuming the equipment orders access to our sites and contractor safety can be maintained.
As we look forward.
We are focused on maintaining our strong cash position in this uncertain environment.
Are reported effective annual tax rate is expected to be between 28.5 and 32% and our adjusted effective annual tax rate continues to be between 26 and 27%
We are monitoring working capital accounts closely.
Our balance sheet remains strong.
We will continue to be disciplined and are taking steps to ensure that we have the capital under operator business and support our strategy for the long term.
We anticipate stable cash flow in line with changes to operating income.
with regard to our customer Savings Program. We are tracked to deliver the cumulative 20/20 run rate savings Target of 90 to 100 million by your end.
Committed capital investments are anticipated to be between 285 million to $2 million to $305 million, assuming the equipment orders access to our sites and contractor safety can be maintained.
And with much of our teams working remotely we were saving on discretionary expenses finding opportunities to improve our productivity. I mean now let me turn it back to Jim Daly.
Our reported effective annual tax rate.
Thanks, Jim before closing. I would like to spend a few minutes talking about how our strategy and our driving growth roadmap are serving us. Well during these turbulent times. Our strategy is built upon four pillars number one a purpose and performance-driven culture with an emphasis on people to commercial Excellence with a commitment to our customers.
Expected to be between 28.5 and 32%.
And our adjusted effective annual tax rate.
Continues to be between 26 and 27%.
With regard to our cost more savings program. We are on track to deliver the cumulative 2020 run rate savings target of 90 to 100 million by year end.
And with much of our teams working remotely.
We are saving on discretionary expenses for finding opportunities to improve our productivity.
Now, let me turn it back to Jim Valley.
Three three cost smart with a focus on cash.
Thanks, Jim.
And for driving Specialties growth with an alignment to markets and Trends aren't Tire organization is being Guided by these four pillars are committed to executing the key elements of are driving growth roadmap to create value for all stakeholders. As you know, the centerpiece of our roadmap is R5 specialty growth platforms, which are well positioned to drive net sales growth.
Before closing I would like to spend a few minutes talking about how our strategy and our driving growth roadmap or serving us well during these turbulent times.
Our strategy is built upon four pillars.
Number one.
A purpose and performance driven culture with an emphasis on people.
Two commercial excellence.
With a commitment to our customers.
Three.
Cost smart with a focus on cash.
As evidence of our companies agility and commitment to execute our strategy despite the challenges. I'm pleased that even during the pandemic. We reached an agreement on a strategic acquisition of pure Circle.
And for driving specialties growth with an alignment to markets and trends.
Our into tire organization is being guided by these four pillars.
To circle is an industry recognized leader and innovator with a proven track record for producing great-tasting naturally based Stevia ingredients.
And we are committed to executing the key elements of our driving growth roadmap.
To create value for all stakeholders.
As you know the centerpiece of our roadmap is our five.
Depending acquisition of pure Circle allows us to strengthen our business model aligning with one of the most important food and beverage Trends shaping the industry sugar reduction off by leveraging ingredients Global footprint and customer lists. We will be able to bring great-tasting high-quality. Non-GMO Stevie ingredients to a more diverse and broader customer base in addition to the commercial benefits the acquisition presents opportunities for increased operating efficiency. We continue to progress the deal through applicable Regulatory and Chef until closing which is anticipated in the third quarter.
Specialty growth platforms, which are well positioned to drive net sales growth.
As evidence of our Companys agility and commitment to execute our strategy. Despite the challenges I'm pleased that even during the pandemic. We reached an agreement on the strategic acquisition appear circle.
Pure circle is an industry recognized leader and innovator with a proven track record for producing great tasting naturally based stevia ingredients.
The pending acquisition appear circle allows us to strengthen our business model aligning with one of the most important food and beverage trends shaping the industry.
We look forward to working with the purecircle team and updating you on the exciting prospects for this acquisition and future calls.
Sugar reduction.
By leveraging ingredients global footprint and customer list, we will be able to bring great tasting high quality non GMO stevia ingredients to a more diverse and broader customer base.
We're also proud that at a time when making a positive difference for the world is more important than ever. We Advanced our vision for sustainability on Earth Day. We launched our ninth sustainability report putting forward 20 30 sustainability goals aligned with the sustainable development goals and established the Bold commitment to sustainably Source one hundred percent of our five leading raw material crops.
In addition to the commercial benefits the acquisition presents opportunities for increased operating efficiency.
We continue to progress the deal through applicable regulatory and shareholder approvals until closing, which is anticipated in the third quarter.
We look forward to working with the pure circle team and updating you on the exciting prospects for this acquisition in future calls.
corn tapioca peas and Stevia by 2025
We're also proud that at a time when making a positive difference for the world is more important than ever we advanced our vision for sustainability.
with a clear strategy a roadmap for growth and a strong adaptable business model that has endured many tough as well as benign Cycles combined with a focus on a team. I am confident in our future and our ability to create lasting value for our stakeholders. Thanks for your attention. And now let's open the call for questions. Later.
On Earth day, we launched our ninth annual sustainability report.
Putting forward 2030 sustainability goals aligned with the EU ends sustainable development goals and establish the bold commitments to sustainably source, 100% of our five leading raw material crops.
Thank you. As a reminder to ask a question. You will need to press * then 1 on your touchtone telephone to withdraw your question from the queue, please press the pound key. Please stand by while we compiled the Q&A Raja.
Corn, tapioca peas, and stevia by 2025.
With a clear strategy.
Our roadmap for growth and a strong adaptable business model.
Our first question comes from Heather Jones with Heather Jones research your line is now open.
That has endured many tough as well as benign cycles combined with a focused and committed team.
Good morning.
Hey Heather.
Hi, so what is just a quick clarification? I didn't catch all the Outlook language for the different regions. Did you say that ebit for South America you expected to be down in Q2?
Im confident in our future and our ability to create lasting value for our stakeholders.
Thanks for your attention and now let's open the call for questions operator.
Thank you as a reminder to ask a question you will need to press Star then one on your Touchstone telephone to withdraw your question from the Q. Please press the pound key.
Yeah, so let me take that first and and just talk about how we view Q2. So we when we look at the forecast for Thursday, we're taking into account at what phase each region has been impacted and is being impacted by the rate of infection and how that is impacting consumer behavior and also government mandates for stay-at-home restrictions. And so what I would say is that page three of the four regions excluding South America were taking a conservative view 2/4 to that will be down in ebitda in the low to leave it. I'm sick in the low to mid-teens asia-pacific might actually do better than that based on how April is coming in where we've been pleasantly surprised.
Please standby well, we compile the Q1 day roster.
Our first question comes from Heather Jones with Heather Jones Research. Your line is now open.
Good morning, Thank you taking the question.
Hey, Heather.
Hi.
So just a quick clarification.
I Didnt catch all the outlook language for the different region did you see that EBIT for South America, you expected to be down in Q2.
Yes, So let me take that first and just talk about how we view Q2 so.
We when we look at.
The forecast for quarter two.
We're taking into account at what phase.
Each region.
Has been impacted and is being impacted by the rate of infection and how that is.
In South America operating income is likely to be down much more significantly based on the fact that that region is being hit hardest now, they are equally in the Southern Hemisphere and entering flu season right now and the number of cases there continues to increase we have seen the food service sector in South America off getting hit very hard starting in the third week the last week in March throughout April, but we're seeing a recovery in May and the recovery is actually even stronger than we had anticipated just a few days ago. So it's it's somewhat hard to predict wage. We predict we we anticipate that South America will be impacted worse than the other three regions and quarter to
Impacting consumer behavior, and also government mandates for stay at home restrictions and so.
What I would say is that in three of the four regions. Excluding South America, we're taking a conservative view to quarter to that will be down in EBITDA in the low to mid EBIT I'm, sorry, EBIT in the low to mid.
Teens.
Asia Pacific might actually do better than that based on how April is coming in where we've been pleasantly surprised in South America operating income is likely to be down much more significantly based on the fact that that region is being hit hardest now they are.
Our equally in the southern hemisphere, and entering flu season, right now and the number of cases there continues to increase.
Okay, okay, but it sounds like it's very much in Rapid flux. Is that a fair characterization? It it very much is except for I would say Asia where the bounce back has been stronger than we had anticipated especially in China. And April results for us in Asia have branches above our expectations. And that's why I would say that we're cautiously optimistic that we won't be down in ebit in the low to mid-teens in Asia. We might actually outperform that but in North America and anemia due to the impact anemia, for example of Pakistan and the shutdowns there and the impacts on the textile industry. That's what we're that's how we're calling right now.
We have seen the food service sector in South America.
Getting hit very hard starting in the third week the last week in.
March throughout April, but we're seeing a recovery in may and the recovery is actually even stronger than we had anticipated just a few days ago. So it's.
It's somewhat.
Hard to predict.
But we predict we anticipate that South America will be impacted worse than the other three regions in quarter two.
[music].
Okay, Okay, but it sounds like it's very much and rapid flux is that a fair characterization. It very much as except for I would say Asia, where the bounced back has been stronger than we had anticipated, especially in China.
Okay.
Encouraging to hear corporate expense you mentioned that the stay-at-home guidelines et cetera are trimming expenses. So I think I think previous guidance have been for that to be up to 20% year-on-year. How are you guys seeing that now cuz it came in higher than I would have expected but you want
And April results for Us in Asia.
Have been above our expectations and Thats why I would say that.
We're cautiously optimistic that we won't be down and EBIT in the low to mid teens in Asia, we might actually outperformed that but in North America and in EMEA.
Sure, you know so, you know part of corporate expense though is also having to do with some of the the longer-term compensation package, which is um held at Raquel the corporate, you know, we reset from prior-year and so we just encounter that but we're also seeing is that we had some you know, some legal expenses off, you know, we were going through the the purecircle transaction which are impacting q1. So that's really timing but generally we should see discretionary expenses like TNT much much lower and we should also see some of the kind of third-party expenses much lower as as we're just the entire company from an administrative and from a a managerial side is working remotely.
Due to the impact in EMEA for example of Pakistan in the shutdowns, there and the impacts on the textile industry.
Thats what were that's how we're calling it right now.
Hey, this encouraging to hear.
Corporate expense you mentioned that.
The stay at home guidelines et cetera, trimming expenses. So I think I think previous guidance had been for that to be up 15% to 20% year on year.
How are you guys see on that now because it came in higher than I was expecting for Q1.
Sure on that please.
Part of corporate expense, though is also having to do with.
Some of the the longer term compensation, which is.
Held it held a core Brett we reset from prior year and so we just we encounter that but what we're also seeing is is that we had some some legal expenses as.
so, so you would think consolidate corporate expenses going to be up less than the 15 to 20% you originally anticipated
yes
We were going through the the pure circle transaction, which are impacting Q1, so thats really timing, but generally we should see.
okay thank you and my final question is wondering and I I get the complexity of your different end markets and all this wondering if you could give us a part of like in Broad strokes and a sense of how your sales roughly breakdown by Food Service versus retail month specifically North America and South America given the size of those regions if you can give us a sense of that yeah it it varies by region and it varies by Country Club and in North America I would say it's in the 20 to 25% range is into food service and in South America off depends on how you define Food Service relative to the size of the Brewing business that we have but Brewing is how we categorize mainly and
Discretionary expenses like T any much much lower.
And we should also see.
Some of the kind of third party expenses much lower.
As as were up.
The entire company.
From an administrative and from a managerial side is working remotely.
Okay. So you would think consolidated corporate expenses will be up less than the 15% to 20% you originally anticipated.
Yes.
Okay.
Thank you and my final question is.
Wondering.
And I.
Given the complexity of your different end markets and all those wondering if you could give us sort of like abroad.
Stroke since assen.
How youre sales roughly break down by foodservice versus retail.
South America specifically in Brazil and Colombia the exposure to Food Service, but I would say it's it's it's a little bit it's a higher proportion in South America just different breweries is just your beauty Brewing.
Specifically North American South America, given the size of those regions. If you can you give us sense of that.
Yes, it it varies by region it varies by country.
And.
In.
Okay, that's very helpful. Thank you so much. Okay.
North America.
I would say its into 20% to 25% range is into foodservice and in South America depends on how you define foodservice.
Thank you. And our next question comes from Robert Moscow with Credit Suisse your line is now open.
Hi, the plant-based Investments that you're making. Do you see any risk to your sales Outlook because of that end markets exposure to Food Service. Like I would imagine that that that restaurant sales of plant-based Burgers will be negatively negatively impacted and and then one clarification off your your Brewery business in Mexico in North America about how big is that as a percentage of your North American Sales. Thanks.
Relative to the size of the growing business that we have.
But.
Brewing is how we categorize mainly in South America, specifically in Brazil, and Colombia, the exposure to foodservice.
But I would say, it's it's a little bit it's a higher proportion in South America, just as a group, which is just due to do brewing.
Okay. That's very helpful. Thank you so much.
Okay.
Thank you and our next question comes from Robert Moskow with Credit Suisse. Your line is now open.
yeah, I'm going to
Jim Gray get to that question. Let me take the plant-based protein question first and then I'll turn it over to Jim to talk about Mexico and Brewing the plant-based protein investment in South Sioux City continues to move ahead schedule for completion. Now in quarter three as it relates to the outlook for faith-based Foods. We're still very bullish on it the the sales of the market leader in this particular case beyond meat. I believe has 50% off point of their sales that go to Food Service 50% at retail food service is obviously being impacted right now hard but retail sales office for their products in the first three months were up. I think three hundred percent so and I believe they're they have their earnings today. So we'll see how they're dead.
Hi.
Hi, there.
Plant based investments that you're making.
You see any risk to your sales outlook.
Because of that end markets exposure to foodservice like I would imagine that that restaurant sales of plant based burgers will be negatively negatively impacted.
And then one clarification.
Sure brewery business in Mexico in North America.
About how big is that as a percentage of your north American sales. Thanks.
Yes, I'm going to let Jim Gray get to that.
Question, Let me take the plant based protein question first and then I'll turn it over to Jim to talk about Mexico and brewing.
The plant based protein investment in South Sioux City continues to move ahead.
Scheduled for completion now in quarter three.
As it relates to the outlook for plant based foods were still very bullish on it.
Breaking that out, but I don't know if that's going to more than compensate for the the the down the decline in food service, but we anticipate the same sort of trends that quick service restaurants where a lot of those products are sold will be picking up once the stay-at-home orders are relaxed. But also what we're seeing in relationship to Food Service is different sub-segments of food service getting impacted differentially. So quick service restaurants that are already set up for drive-throughs are going to ask whether this better than others and already have implemented contactless pickups. When you pick up your food from a drive-through it's being presented to you on a trade-off example and not being touched. So we anticipate food service and Quick Service restaurants where a lot of those products are being sold to come back more quickly and and Retail to actually continue strong.
The.
The sales of the market leader in this particular case beyond me I believe has 50% to your point of their sales that go to foodservice, 50% at retail foodservice is obviously being impacted right now.
Hard, but retail sales for their products in the first three months we're up.
I think 300% so.
And I believe there do they have their earnings today, So we'll see how they're breaking that out but I.
I don't know thats going to more than compensate for the.
The the down the decline in foodservice, but we anticipate.
The same sort of trends that quick service restaurants, where a lot of those products are sold.
We'll be picking up once the stay at home orders are relaxed, but also what we're seeing in relationship to foodservice is different sub segments of foodservice getting impacted differentially. So quick service restaurants that are already set up for drive throughs are going to whether this.
But overall this trend towards plant-based eating especially when you look at some of the concerns around the meat Supply right now. I think it's only going to bring heightened focus on plant-based diet. So we're very bullish on the long-term in relationship to this and comfortable with the fact that when our investment does commission and we qualify product for food grade sales rep takes a couple of few months that by that time will be in a much more steady state where Food Service will have recovered to a large degree and food at retail will continue to benefit from the fact that people who eat plant-based diets have actually
It's better than.
Others and already have implemented contact was pickups when you pick up your food from a drive through its been presented to you want to trade for example.
And not being touched so we anticipate foodservice and quick service restaurants, where a lot of those products are being sold to come back more quickly and and retail to actually continue strong but overall this trend towards plant based eating, especially when you look at some of the concerns around the meat supply right now I think it's only going to bring.
Depending upon them for the ride home consumption. And so again, we're we're very optimistic in relationship to the plant-based Trend that how that will continue through this pandemic General in Mexico. Yeah, you know rob, you know, most of the Brewing manufacturing sites and Mexico have been ordered closed by the government. So significantly limiting and a production and and and Page Supply, you know, so as a result the demand for adjuncts will likely be lower until that production resumes. We kind of in later in the second quarter. We anticipate that kind of late May early June sale of our brewing adjuncts in Mexico. So it's approximately 3% of our company net sales. I think you asked about North America, so it'd be about 6% of North America and just as you know, one final thoughts a beer remains available on store shelves and you know convenience and grocery channels. It's just that the inventories are being depleted South
Heightened focus on plant based diet. So we're very bullish on the long term in relationship to this and comfortable with the fact that when our investment does commission and we qualify product for food grade sales, which takes a couple few months that by that time will be in a much more steady state.
Service will have recovered to a large degree and crude at retail will continue to benefit from the fact that people who each client base diets have actually.
Depended upon them.
For their at home consumption and so again, we're we're very optimistic in relationship to the plant based trend and how that will continue through this pandemic Jim on Mexico.
Rob most of the brewing manufacturing sites in Mexico had been ordered close by the government so significantly limiting.
And a production and re supply.
to restock
Those shelves want the the government allows domestic brewing and domestic resupply.
As a result, the demand for our adjuncts will likely be lower until that production resumes, we kind of and later in the second quarter, we anticipate that kind of late May early June.
Okay, great. Thank you.
Thank you. And our next question comes from Ken's with Bank of Montreal your line is now open. Hey, good morning, everyone.
The sale of our brewing adjuncts in Mexico, So it's approximately 3% of our company net sales I.
I think you asked about North America, so it'd be about 6% of North America.
Impact on your business will be when you come out of this. Do you think they'll be anything structurally that you'll need to change or that will either be a positive or negative?
And just as one final thoughts of beer remains available on store shelves and convenience and grocery channels is it that the inventories are being depleted. So there will be a run to restock those shelves once the government allows us domestic brewing and domestic resupply.
Well, I think one of the first lasting impacts is going to be the way we work internally. First of all as an organization. We have been maintaining very close contact with our employees. We have implemented to pulse surveys since the pandemic started. We're we're soliciting feedback and learning and understanding the wage working for example, and I'll just give you one example, obviously most businesses us included 90% probably of our office workers are working remotely glow off basis throughout this pandemic as this is unfolded and what we've learned is that a very large percentage of them can be very productive working remotely. We had already implemented flexible remote work policy where people could work remotely with supervisor approval one or two days a week prior to this. So we we moved into this pretty seamlessly wage.
Okay.
Great. Thank you.
Thanks, Rob.
Thank you and our next question comes from Ken Zaslow with Bank of Montreal. Your line is now open.
Hey, good morning, everyone.
Okay.
So a couple of questions. What is what do you think the lasting impacts on your business will be when you come back out of if you think there will be anything structurally that you'll need to change or that will either be about positive or negative.
Well I think.
One of the first lasting impacts is going to be the way. We work internally first of all as an organization we have been maintaining very close contact with our employees. We have implemented two pulse surveys since the pandemic started where were soliciting feedback and.
Learning and understanding.
When we went to full-time remote, but an example would be customer service. We have metrics in relationship to how we measure customer close out responses and those have actually increased and the quality of those have actually increased and the feedback we've gotten from our customer service people that have been equipped to work remotely, is is that the fact that they're uninterrupted and they're just totally focused. They can actually be that much more productive and efficient. So that's something that's unique that's going to come out of this month. I think the way that we have we're going to be organized in the workplace and more mindful of the way things were walk-in open seated office Harriet's for example will maybe go back to a little bit more of cubicles and and some barriers to give people some privacy and some phone number.
The ways of working for example, and I'll just give you. One example, obviously.
Most businesses us included.
90% probably of our office workers are working remotely glow on a global basis throughout this pandemic as this has unfolded and what we've learned is that a very large percentage of them can be very productive working remotely we had already implemented.
Flexible remote work policy, where people could work remotely with supervisor approval, one or two days a week.
Prior to this so we.
We moved into this pretty seamlessly when we went to full time remote but.
An example would be customer service, we have metrics in relationship to how we measure.
Customer close out responses.
And those have actually increased and the quality of those have actually increased and the feedback we've gotten from our customer service people that have been equipped to work remotely.
And saying that makes them feel comfortable and certainly we've implemented that in our in our factories. And also I think you're going to see the use of Technology continuing to allow us to help protect the health and safety of our employees as as things go forward and and then jump in relationship to business in general. I think that there's going to be certain trends that are going to endure through this that will be consumer trends that will need to pick up towards and some of these are already manifesting themselves right now, and we're going to be following those very very closely and they'll create opportunities for us as well Jim. And can I Dad that, you know not all of your customers are equally prepared, you know for this type of disruption and so you you find that you can share best practices.
Is.
Is that the fact that their uninterrupted and they're just totally focused they can actually be that much more productive and efficient. So that's something that's unique that's going to come out of this I think the way that we have.
We're going to be.
Organized in the workplace.
And more mindful of the way.
Things were prior to in open ceded office areas for example.
Well, maybe go back to a little bit more of cubicles and some barriers to give people some privacy and some physical distancing that makes them feel comfortable and certainly we have implemented that in our.
In our factories and also I think youre going to see.
The use of technology continuing to allow us to.
Help protect the health and safety of our employees as as things go forward and.
With those customers that are are there extreme.
And then just in relationship to business in General I think that there's going to be certain trends that are going to endure through this that will be consumer trends that will lead to pivot towards and some of these are already manifesting themselves right now and we're going to be following those very very closely and will keep.
Really well prepared but the the the the the bottom end of the of the performance chart you're actually able to work more with and helped a lot right and wrong support so that things like inventory is available and it can be shipped, you know, you know at moment's notice. And so I think that you know, the supply chain overall strengthens and then you know, Jim is talked about and we've talked about a while in terms of you know, the base of food service is probably going to change but orders that are going to be delivered to home or on-the-go where there's certain aspects of our functional ingredients that can help to innovate with regard to heat retention and and stability. Those are going to be more exciting opportunities for us as as we go forward and just lastly I do think you're going to see more of an emphasis on on one person's personal health and so for Thursday,
These for us as well Jim.
And can I'd add that.
Not all of your customers are equally prepared.
For this type of disruption and so you find that you can share best practices with those customers that are that are extremely well prepared but the the bottom end of the.
The performance chart, you are actually able to work more with.
And help along right and really support so that things like inventory is available and and can be shipped.
At moments notice and so I think that the supply chain overall strengthens and then Jim has talked about and we've talked about a while in terms of the face of Foodservices, probably going to change.
Everyone has heard the term comorbidity in relationship to covid-19 and being had a higher risk with diabetes and high blood pressure so health and wellness will I think take an even larger place in priorities of of consumers. So for for us the acquisition of pure Circle and sugar reduction offer to to cater to people that want to control their sugar intake which is a very very large percentage in North America. It was 85% of North Americans reduced. There should be over the last few years. So I think that bodes really well for us as we as were positioned now with your circle.
But orders that are going to be delivered to hall or on the goal where there are certain aspects of our functional ingredients that can help to innovate.
With regard to heat retention and stability.
Those are going to be even kind of more exciting opportunities for us as we go forward and just lastly, I do think youre going to see more of an emphasis on.
On a one person's personal health and so for example.
Everyone is heard the term co morbidity in relationship to covert 19 and.
Thank you. My second question is with the reduction of food service in the US. I'm assuming carbonated soft drinks have kind of come down. How is that either probably stressing the the supply chain on the corn processing or you know, the, you know, obviously led by the high fructose corn syrup. But how is that off, you know hurting the supply chain in corn processing? Is there going to be a backup? Can you get through the materials or you swinging capacity? How does that all play out. Is that kind of lead to 2021 and Beyond?
Being at a higher risk with diabetes and high blood pressure, so health and wellness will I think take uneven.
Larger place in priorities of consumers so for for US the acquisition of pure circle and sugar reduction.
Two.
To cater to.
People that want to control their sugar intake, which is a very very large percentage in North America was 85% of North Americans reduce their sugar and take over the last few years. So I think that bodes really well for us as we visit as were position now with your circle.
Thank you My second question is with the reduction of foodservice in the us I'm, assuming carbonated soft drinks intend to come down.
Yeah, I think for us right now. It's it's really I think too early to tell I think that again if the same kind of consumption patterns follow that we're seeing in Asia transition to Europe transition to North America and then South America and this is a six to eight-week decline in a slow steady recovery. I think that the you know that the industry will will be able to transition through this but we're monitoring it's very early days right now. We're off we're we're we're feeling that were not as exposed to Food Service on the sweetener side as much as maybe we had in in Prior years the way we've optimized our Network and so and and the customer base that we sell to so we feel that for us. It's just too early to predict exactly how this is going to play off.
How is that either pipe stressing the supply chain.
On.
The core processing.
Obviously led by the hypothesis was it but how is that we'll.
Hurting our the supply chain in it.
Corn processing is there going to be a backup can you get through the materials a swing capacity has at all play out in Hell is that kind of lead to 2021 and beyond.
Yes, I think for US right now, it's just really I think too early to tell I think that again if the.
Same kind of consumption patterns follow that we're seeing.
In Asia transition to Europe transition to North America, and in South America, and this is a six to eight week.
Decline and then as slow steady recovery I think that the.
Great. Thank you, Stacey.
Thank you. Thank you.
Thank you or next question comes from Adam Samuelson with Goldman Sachs. Your line is not open.
The industry will we'll be able to transition through this.
But we are monitoring its very early days right now.
Yes, thanks morning everyone. Good morning. So I was hoping to get a little bit more. I know you're not giving guidance per se but kind of like the the low-to-mid team the climate operating profit in the second quarter and I guess I'm really thinking about North America and just any framework you could provide on deconstructing that between a volume kind of mix under absorption and net corn costs. I'm just trying to think about the interplay of those understand a a very volatile environment and then I got a follow-up. Yep, Jim. Do you want to take that so, you know Adam I break the problem down first and just in terms of Mexico and bought a fact that with the shipment of a bad jumps into Brewing just stopping for for a period of time. That's a that's a c e
We're we're we're feeling that were not as exposed.
Two foodservice on the sweetener side.
As much as maybe we had in prior years the way we've optimized our network.
And so and the customer base that we sell too so.
We feel that for us it's just too early to predict exactly how this is going to play out.
Great. Thank you stay thank you. Thank you.
Thank you. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is now open.
Yes, thanks, good morning, everyone.
Adam.
So I was hoping Jim Jim to get a little bit more color I know, you're not giving guidance per se, but kind of the low to mid teens declining operating profit in the second quarter and I guess I'm really thinking about North America, and just any framework you could provide on deconstructing that between.
Connect you to one off impact to the business. And then what we're seeing is is a mixture within either the US Canada business or the Mexico business office between you know, fall off and Foodservice whether that be you know, Fountain carbonated soft drinks or you know, in terms of some of the month gredients that we would offer into kind of savory Solutions and and food service, but we also see the counterbalance really in terms of center of store packaged Foods may take up and so, you know, I I kind of say that the author is a bit of a a soft software in terms of syrup demand into beverages wage generally impacting us across both as well as Mexico. And then also just the the Brewing is probably the bigger one that we so Jim is it fair to say this that if you age
Volume may kind of Mick costs.
Under absorption.
Net corn costs I'm, just trying to think about the interplay those in understanding it's a very volatile.
Environment, and then I got a follow up.
Jim do you want to take that so Adam I am break the problem down first and just in terms of Mexico, and the fact that with the shipment.
A VAT jumps into burrowing just stopping.
For for a period of time, that's us that's a significant kind of Q2.
One off impact to the business and then what we're seeing is a mixture within either the U.S., Canada business or the Mexico business between.
Falloff in foodservice whether that be.
Alan carbonated soft drinks.
Or in terms of some of the ingredients that we would offer into kind of savory solutions in foodservice.
North America to your point the Brewing industry most Brewing manufacturers in Mexico have been ordered a closed by the government and are we're taking a conservative view that they will not come back on stream until the end of May to early June. So that's that's in that guidance that we provide us. So that's the view we have if they come up sooner that could change that Outlook in US Canada. The view is all the puts and takes the positives on the net corn side on the one the one of the recovery rates on corn as well as on the cost side with TD Etc team along with the reductions in volume that we're seeing who service etcetera are less impactful, but it's more Mexico being down and US Canada less down and and we provided you the perspective we have on when that recovery in Mexico Brewery will take place. That's fair to say, right.
We also see the counterbalance really in terms of center of store packaged foods and pickup.
And so I kind of say that yeah, theres a bit of a soft.
Softer in terms of syrup demand into beverages, Csds was generally impacting us across both us tenant as well as Mexico.
And then also just the brewing is probably the bigger one that we were so so Jim is it fair to say that this that if you break out North America to your point.
The brewing industry, most brewing manufacturers in Mexico had been order to close by the government and our we're taking a conservative view that they will not come back on stream until the end of May two early June. So that's that's in that guidance that we provided so thats. The view, we have if they come up sooner.
That could change that outlook in us Canada.
That was helpful. And then just South America just want to so one just as you think about decline in the economy and uh and the issues little slower entry into into some of the slow downs from from a volume perspective. I mean, maybe any similar thoughts in terms of how you're thinking of shape of the demand curve and also just I noticed in Argentina you moved to hyperinflationary accounting and it was accounted for in US Dollars this quarter which isn't going to change first prior. I'm just making sure it was there any below the line adjustment there is an offset now that the segment was actually in US Dollars. Let me let me let me let you answer the question on Argentina and I just like to comment on the demand curve. Yeah, so our Argentina on the hyperinflationary we moved last year. And so that's not been what we're doing is we're just we're dead.
The view is all the puts and takes the positives on the net corn side on a calendar when the recovery rates on corn as well as on the cost side with TD et cetera.
Along with the reductions in volume that we're seeing foodservice et cetera are less impactful, but it's more Mexico being down and us Canada being less down.
And.
And we provided you the perspective, we have on when that recovery in Mexico Brewery will take place that's fair to say right yes.
Thanks, Adam.
That was helpful.
And then just.
Yes in South America, just want to.
So one just as you think about the declines in the economy and.
And the issued little slower entry into into summer slowdowns.
From a volume perspective, I mean, maybe any any similar thoughts in terms, how you're thinking at the shape of the demand curve and also just I noted in Argentina, you move to.
And clarifying the adjusted. Uh, what we're talking about adjusted income. The impact for hyperinflation is down in financing costs. Yeah, and then just we follow up with it now just on demand in South America and let me talk specifically about Brewing volumes in both Brazil and in Columbia, but from the end of March through April due to the stay-at-home orders approximately 70% There's been a 70% reduction in Brewing volumes in that period of time that five six week period of time and confectionery volumes as well being down very often. That's something that we also saw in Asia during the early parts of this crisis. A lot of those are impulse purchases made it small location certainly kiosks think about airports etcetera.
Hyper inflationary accounting and it was accounted for in US dollars this quarter, which seems to change Perspiring, just making sure. It was there any below the line adjustment there as an offset the now that the segment was actually in US dollars. Let me turn let me let me, let Jim answer the question on Argentina, and I'd, just like to comment on the demand curve, So our Argentina on.
The hyper inflationary we moved.
Last year.
And so thats not been what we're doing as we're just we're taking it out and clarify and the adjusted.
Well, we're talking about adjusted Op income the impact for hyper inflation is down in financing costs.
Okay, and then just one follow up with it.
Just on demand in South America, and let me talk specifically about.
So they have been down. What I will say is that we are seeing Brewing recovering strongly and we're cautiously optimistic again. It's it's started to ramp back up here in May very strongly which which indicates that there's a pent-up need to fill pipelines and the channels. So we're we're optimistic that things will continue through out the second quarter with that recovery. I think confectionery is going to be a little bit of a slower recovery just due to the nature of how those products are purchased.
Brewing volumes in both Brazil, and Colombia, but from the end of March through April due to the stay at home orders.
Approximately.
70% Theres been a 70% reduction in brewing volumes in that period of time that five six week period of time and confectionary volumes as well being down very similar that's something that we also saw in Asia. During the early parts of this crisis a lot of those are impulse purchases.
Made its small location certainly kiosks think about airports et cetera. So they have been down what I will say is that we are seeing brewing recovering strongly and we're cautiously optimistic again, it's started to ramp back up here in may very strongly which which indicates that there is a pent up.
Okay, great. That's helpful color office about things.
Thank you. And our next question comes with Ben Bienvenu with Stephens your line is now open.
Hey, thanks. Good morning, everyone.
To ask I want to ask on the the corn side. Obviously we've seen corn prices come down on that basis come down a lot. We've seen the Copa box corn oil in particular with with all the ethanol production capacity. Come out flying Cornell is a lot tighter and I'm curious you're starting now, I think get in getting into the. Where you might start to think about hedging out some of the rest of the year of rental planting season. Can you talk about what ability or window you have to lock in? Some of these lower net corn costs money and how you think that might contribute to potentially alleviating some of the operating profit pressure in the back half of the year at all.
Need to fill pipelines and the channels.
So we're we're optimistic that things will continue through out the second quarter.
With that recovery I think confectionary is going to be a little bit of a slower recovery just due to the nature of.
Now those products are per purchase.
Okay, Great and Thats helpful color I'll pass it on thanks.
Thank you and our next question comes a bend the M&A with Stephens. Your line is now open.
Hey, Thanks, good morning, everyone.
And then I'd ask.
I want to ask on the the corn side, obviously, we've seen.
Sure, I'll take that. So you been one of the
Corn prices come down on that basis has come down a lot.
That we highlighted in q1 performance for North America, you know was that the the segment operating income, you know was was relatively flat, you know, we actually did experience some significant, you know corn hedge mark-to-market in q1, that'll that'll come back to us the balance of the year, right? So as we're seeing lower corner of Futures and we played in some of those Futures relative to our production needs, you know, so we'll we'll benefit for for that for the the balance of the year plus also as we highlighted you're saying basically generally higher co-product values and it's a remind everybody that really benefits us more in in North America and the the second half and more of the fourth quarter, you know, if we look at our our lap versus prior year when we look when we look forward and we get more news about planting and acreage dead.
We've seen the co products corn oil in particular with with only ethanol production capacity coming offline corn oil as a lot tighter.
And I'm curious you are starting now I think it and getting into the period, where you might start to think about hedging out some of the rest of the year as we're into planning season can you talk about what ability or window you have to lock in front of these lower net corn costs.
And how you think that might contribute to potentially alleviating some of the operating profit pressure in the back half of the here at all.
Sure I'll take that so been one of the thing that we highlighted in Q1's performance for North America.
Was that the segment operating income was relatively flat.
We actually did experience.
Some significant.
Core and a hedge mark to market in Q1, that'll that'll come back to us the balance of the year right. So as we're seeing lower corn futures and weve laid in some of those futures relative to our production needs.
We would the lower rows corn cost. It's either delivered to us as we go through summer. And or as we're looking at the Futures 4th, 2021, you know, we have an ability to to go forward and insecure those Futures such that we can kind of meat, you know any type of of Revenue or Price expectations for our customers. So so we're kind of always looking at you know, what we have in front of us usually looking out probably two to three quarters in front of us off and then also then thinking about how as we roll that calendar forward how we're thinking about what the first half of 21 looks like.
So, we'll we'll benefit for through that for them to the balance of the year plus also as we highlighted you're seeing basically generally higher coproduct values.
[music].
And in the remind everybody that can really benefits us more in North America in the second half and more towards the fourth quarter, we looked at our lab versus prior year.
When we look when we look forward and we get more news about plantings and acreage and we look at the lower.
Gross corn cost that's either delivered to us as we go through summer and or as we're looking at the futures for 2021, we have an ability to go forward and secure those futures.
Okay on the operational continuity side. What if any have you seen with additional expenses that might linger in June? Um allowing you all to have business operational continuity in facilities. Why don't you guys at these facilities don't have a ton of people in a but what incremental expenses are down there at all that could linger through the duration of this year and potentially in the next year and are they material? Yeah, I would say that the cost of incremental and e as well as the efforts for increase sanitization, those are costs that will likely continue. But for the most part they've been relatively modest our procurement team has done a great job of making sure that all of our sites around the world have the required and ample PPE so that's been coughing.
Such that we can kind of me any type of revenue or pricing expectations for our customers. So so we're kind of always looking at what we have in front of us usually looking out probably two to three quarters in front of us.
And then also than thinking about how it as we roll that calendar forward, how we're thinking about what the first half of 21 looks like.
Okay.
On the operational continuity side.
What if any have you seen with additional expenses that might linger and.
And allowing you all to add business operational continuity and facility level.
Exactly.
A ton of people on.
It again through this project management office that I talked about and that will be an incremental expense. But again, it's modest in the overall scheme of things. Maybe then I'd say the one unknown is you know to what degree wage, you know, each Community around our facilities as well as around our offices either have a return of a flash outbreaks and we need to do testing. So right now, you know, the frequency the internet is still kind of an unknown cost to us. Yeah, and we have that as a separate workstream that we're looking at as part of our project management office to determine whether and if God and how we would provide testing and that's something that we're working on. It's just too early to tell exactly how we're going to approach that but it is a separate workstream that we're looking at.
What incremental expenses are there at all that could linger.
Through the duration of this year and potentially into next year are they material.
Yes, I would say that.
The cost of incremental pp any as well as the efforts of for increased Sanitization. Those are costs that will likely continue but for the most part they have been relatively modest our procurement team has done a phenomenal job of making sure that all of our sites around the world.
We.
I have the required and ample pp so.
Thats been coordinated again through this project management office that I talked about and that will be an incremental expense, but again its modern modest in the overall scheme of things.
Okay. Thank you and good luck.
Maybe been I'd say, the one a known as to what degree.
Thank you. Thank you. And as a reminder to ask a question, you will need to press star them one on your touch-tone telephone question has been answered. Please hit the pound key or next question a follow-up from Heather Jones with that as drones research your line is now open.
Each community around our facilities as well as around our offices either.
Have a return of flash outbreaks and we need to do testing. So right now the frequency of testing center that is still kind of an unknown cost us and we have that as a separate work stream that we're looking at as part of our project management office.
Thank you for holding. The
you mentioned pipeline replenishment.
To determine.
Start brewing again in Mexico, but was wondering if you could give us a sense of like you had mentioned us are in North America has recovered fairly nicely and could you give us a sense of like what's the normal lag between their recovery pattern and when you would start to see it in your order patterns?
Weathering, if and how.
We would provide testing and thats something that we're working on its just too early to tell exactly how we're going to approach that but it is a separate work stream that we're looking at.
Okay. Thank you and good luck.
Thanks, Ben Thank you.
Thank you and as a reminder to ask question you will need to press Star then one when you touched on telephone.
Yeah, so let me go back and clarify what I did say in relationship to food service. And and the question is specifically talked about North America. So what I would say is that I'm in North America Food Service impacts to us start it to be felt more in the second half of April and they are continuing into into May the impact overall that we anticipate from food service will be varied depending on the sub segments of food service. And what I was trying to highlight is that I believe that quick service restaurants where we do sell projects either directly to our in directly to to other manufacturers that produce real quick service restaurants will be less impacted in comparison to casual dining certainly fine dining and so dead.
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Our next question as a follow up from Heather Jones with that as John's Research. Your line is now open.
Hi, Thank you.
Follow up just quick question.
You mentioned pipeline replenishment ones.
Dart brew and again in Mexico, but wondering if you could give us a sense of.
Like you had mentioned in QSR and North America has recovered fairly nicely and.
Could you give us a sense of like what's the normal lag between.
Their recovery pattern and when you would start to see it in your order pattern.
Yes, So let me go back and clarify what I did say in relationship to foodservice.
And the question is specifically.
Talk about North America, So what I would say is that.
In North America.
Yeah.
Foodservice.
Impacts to us started to be felt.
We see that recovering if it follows the same pattern as what happened in China in in probably four to six weeks is what date okay? Okay, that's very helpful. Thank you so much. Yep.
More in the second half of April and they are.
Continuing into into May.
The impact over all that we anticipate from foodservice.
We'll be.
Varied depending on the sub segment of foodservice and what I was trying to highlight is that I believe that quick service restaurants, where we do sell products either directly to or indirectly to other manufacturers that produce for quick service restaurants will be less impacted in comparison to casual dining certainly fine dining and so.
Thank you. When we have a follow-up from Robert Moscow with Credit Suisse Caroline is now open.
And just just want a Clarity thing your interest expense in the quarter being down or a year ago. But you're also including the hyperinflation impacts charge and peanut in that number. Can you quantify what that impact was? And um, so we could look at the true interest expense run rate.
Yeah.
We see that recovering.
If it follows the same pattern is what happened in China.
In.
In in probably four to six weeks is what we anticipate.
Yeah, I want to say that the hyperinflation included in that was about a two million dollar impact your over here.
Okay. Okay. That's very helpful. Thank you semis yep.
Thank you and we have a follow up from Robert Moskow with Credit Suisse. Your line is now open.
Okay, so that means your normal interest expense was about sixteen.
Just one clarity thing.
This expense in the quarter being down.
And then we have I have also some some games some.
For the year ago.
But you're also including the hyper inflation.
Legend gains losses in that as well right just from normal.
Impact in Argentina in that number.
Grab some good old and I'm shipping their little bit lower than 16 on it might interest costs. Yeah. All right. Thank you. Okay. Thanks.
Can you quantify what that impact was in.
So we could look at the true interest expense run rate.
Yeah.
I am.
I want to say that the hyper inflation included in that was about a 2 million dollar impact year over year.
Thank you, and I'm showing no further questions in the queue at this time. I'd like to turn the call back to Jim's Deli for any closing remarks. Okay, thank you everybody for your time and attention today. We look forward to age cussing or business further with you on May 13th, when we will participate in the BMO farm-to-market conference. In addition. We will also hold our annual meeting of stockholders virtually on Thursday, May 20th at 9 a.m. Central Time. Again, thank you for your time today and I hope everyone stays safe and healthy as we navigate this pandemic together.
Okay.
Yes.
Okay.
That means your normal interest expense was about 16.
And then we have identified also some some gain some.
Also the various hedging gains losses in that as well right just from normal.
We are adopting good old and I'm shipping there.
Okay all right.
Little bit lower than 16, optimizing nine net interest cost per quarter.
Got it alright, thank you.
Okay. Thanks.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Jim's Alley for any closing remarks.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
Okay.
Thank you everybody for your time and attention today, we look forward to discussing our business further with you on may 13th when we will participate in the BMO farm to market conference.
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In addition, we will also hold our annual meeting of stockholders virtually on May Twentyth at nine am central time.
Again, thank you for your time today, and I hope, everyone stay safe and healthy as we navigate this pandemic together.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.
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