Q4 2023 Ingredion Inc Earnings Call

Okay.

Speaker Change: Good day, and thank you for standing by welcome to the ingredient incorporated fourth quarter 2023 earnings call.

Operator: Good day, and thank you for standing by. Welcome to Ingredion Incorporated's fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone you.

Operator: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Noah Weiss, Vice President of Investor Relations. Please go ahead.

Speaker Change: You will then hear an automated message advising your hands raised.

Speaker Change: To withdraw your question. Please press star one one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to your host today Nobody's Vice President of Investor Relations. Please go ahead.

Speaker Change: Good morning, and welcome to ingredients fourth quarter and full year 2023 earnings call I'm No wife's vice President of Investor Relations. Joining me today on today's call are Jim <unk>, Vice President and CEO.

Noah Weiss: Good morning, and welcome to Ingredion's fourth quarter and full year 2023 earnings. I'm Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, Vice President and CEO, and Jim Gray, our Executive Vice President and CFO. Ingredients The presentation we will reference for our fourth quarter and full year results can be found on our website, Ingredion.com, in the Investors section. As a reminder, our comments within the presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial results. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredion assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today' Adjusted Operating Income and Adjusted Effective Tax Rate, which are reconciled to U.S. GAAP measures in Note 2, non-GAAP information included in our press release and in today's presentation. With that, I will turn the call over to you. Thank you, Noah, and good morning, everyone.

Speaker Change: Gray, our executive Vice President and CFO.

Speaker Change: Release, we issued today as well as the presentation, we will reference for our fourth quarter and full year results can be found on our website ingredient dot com in the investors section.

Speaker Change: As a reminder, our comments within the presentation may contain forward looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial performance actual results could differ materially from these from those estimated in the forward looking statements and ingredient and assumes no obligation to us.

Speaker Change: To date them in the future as or if circumstances change.

Speaker Change: Information concerning factors that could cause actual results to differ materially from those discussed during today's call or in this morning's press release can be found in the company's most recently filed annual report on Form 10-K, and subsequent reports on Form 10-Q and 8-K.

Speaker Change: During this call. We will also refer to certain non-GAAP financial measures, including adjusted earnings per share adjusted operating income and adjusted effective tax rate, which are reconciled to U S. GAAP measures and note to non-GAAP information included in our press release and in today's presentations appendix.

Speaker Change: With that I will turn the call over to Jim Sally.

Jim Sally: Thank you Noah and good morning, everyone our.

James P. Zallie: Our business performed exceptionally well in 2023, surpassing several key financial records, with solid net sales, very strong profitability, and robust cash flow, as well as outstanding company performance across safety, environmental, and importantly, service delivery. For the full year, we increased our net sales by 3% and our adjusted operating income by 23% as we managed raw material volatility and took pricing actions and proactive cost-saving measures. As we look ahead to 2024, we are well positioned to deliver further financial growth on top of 2023's remarkably strong results and are confident that our new segmentation will better align our resources and capabilities with customers' needs to realize further growth opportunities. Let me update you now on progress against our four strategic pillars. Beginning with specialty ingredients,

Jim Sally: Our business performed exceptionally well in 2023, surpassing several key financial records with solid net sales very strong profitability and robust cash flow as well as outstanding company performance across safety, environmental and importantly service delivery.

Jim Sally: For the full year, we increased our net sales, 3% and our adjusted operating income by 23% as we manage raw material volatility and took pricing actions and proactive cost saving measures.

Jim Sally: As we look ahead to 2024, we are well positioned to deliver further financial growth on top of 2020 Three's remarkably strong results and are confident that our new segmentation will better align our resources and capabilities with customers' needs to realize further growth on.

Jim Sally: Opportunities.

Jim Sally: Now let me update you now on progress against our four strategic pillars.

Jim Sally: Beginning with specialty ingredients.

James P. Zallie: Full-year net sales grew by 4%, and specialty growth contributed to gross margin expansion. At the end of 2023, specialty ingredients will represent 34% of consolidated net sales. Performance highlights included food systems, driven by strong private label demand, and pharma and personal care, driven by continued wellness trends, each demonstrating strong top line growth for 2023. Now, turning to commercial excellence. Throughout the year, our technical service teams engage regularly with customers to co-create and provide the best ingredient solutions for their applications.

Jim Sally: Full year net sales grew by 4% and specialty growth contributed to gross margin expansion.

Jim Sally: At the end of 2023 specialty ingredients represented 34% of consolidated net sales.

Performance highlights included food systems, driven by strong private label demand and pharma and personal care driven by continued wellness trends each demonstrating strong top line growth for 2023.

Jim Sally: Turning to commercial excellence.

Jim Sally: Without the year, our technical service teams engaged regularly with customers to co create and provide the best ingredient solutions for their application.

James P. Zallie: We were pleased to see a 26% increase in customer engagements, both in person at our idea labs and virtually through our digital connect studios. We believe this demonstrates a recognition by our customers, not only of our capabilities but also their need to innovate to drive volume growth. We also advanced our go-to-market capabilities through global training in consultative selling with a focus on consumer trends that continually drive our business, including protein and fiber fortification, clean labeling, and sugar reduction. By giving our teams the tools and information they need to help customers innovate around these trends in real-time, we have been able to improve our Net Promoter Scores, something that we regularly track.

Jim Sally: We were pleased to see a 26% increase in customer engagements both in person at our idea labs and virtually through our digital connect studios. We believe this demonstrates our recognition by our customers not only of our capabilities, but also their need to innovate to drive volume growth.

Jim Sally: We also advanced our go to market capabilities through global training and consultative selling with a focus on consumer trends that continually drive our business, including protein and fiber fortification clean labeling and sugar reduction.

Jim Sally: By giving our teams the tools and information they need to help customers innovate around these trends in real time, we have been able to improve our net promoter scores something that we regularly track adding to this our investment in supply chain systems have improved on time delivery each quarter as we.

James P. Zallie: Added to this, our investment in supply chain systems has improved on-time delivery each quarter as we progressed through 2023, giving our customers confidence that our supply chain can support just-in-time demand. In the area of cost competitiveness, we invested in our procurement capabilities, completed a redesign of the team, and have provided training globally in category management. The team has done an outstanding job of leveraging Ingredion scale and implementing best practices. We are beginning to see significant value creation through real year-over-year savings, risk reduction, and improved supplier collaborations. I also want to emphasize the outstanding work that our operations team has done to ensure the safety of our employees and contractors this year. Ingredion has always been a leader in safety performance, but this year, we have achieved a notable improvement in reducing the number of recordable and lost time incidents.

Jim Sally: Through 2023, giving our customers confidence that our supply chain can support just in time demand.

Jim Sally: In the area of cost competitiveness, we invested in our procurement capabilities completed a redesign of the team and have provided globe training globally and category management.

Jim Sally: <unk> has done an outstanding job of leveraging ingredients scale and implementing best practices. We are beginning to see significant value creation through real year over year savings risk reduction and improved supplier collaborations.

Jim Sally: I also want to emphasize the outstanding work that our operations team has done to ensure the safety of our employees and contractors this year.

Ingredients has always been a leader in safety performance, but this year, we have achieved a notable improvement in reducing the number of recordable and lost time incidents.

James P. Zallie: As 2023 developed, we experienced softer customer demand. Our supply chain and operations teams responded quickly by adjusting production schedules, which enabled us to end the year with a well-balanced inventory level. As we absorb greater fixed costs in 2023, we feel that we are well positioned in 2024 as volumes recover to obtain leverage from our operations and lower manufacturing costs. Finally, acknowledging our purpose-driven and people-centric growth culture, I'm proud to report that we earned a perfect score in the Human Rights Campaign Foundation's Corporate Equality Index for 2023.

Jim Sally: As 2023 developed we experienced softer customer demand our supply chain and operations teams responded quickly by adjusting production schedules, which enabled us to end the year with a well balanced inventory level.

Jim Sally: As we absorbed greater fixed costs in 2023, we feel that we are well positioned in 2024 as volumes recover to obtain leverage from our operations and lower manufacturing costs.

Jim Sally: Finally, acknowledging our purpose driven and people centric growth culture I'm proud to report that we earned a perfect score in the human rights campaign Foundation's corporate equality index for 2023.

James P. Zallie: We are also happy to announce that we are once again recognized on Fortune's Most Admired Companies list, ranking in the top five of the food production category. Regarding progress on our sustainability agenda, in 2023, we reached a new milestone with 66% of our five priority crops being sustainably sourced. We're on track to meet our 2025 commitment of 100% sustainable sourcing. Additionally, we continue to expand our regenerative agriculture program with customers, resulting in an 85% year-over-year increase in acreage. Regenerative agriculture is currently seen as one of the most promising mechanisms for on-farm carbon reductions to help all companies in the food supply chain to reduce their Scope 3 footprint.

Jim Sally: We are also happy to announce that we were once again recognized on fortune's most admired companies list.

Jim Sally: <unk> in the top five of the food production category.

Jim Sally: Regarding progress against our sustainability agenda in 2023, we reached a new milestone with 66% of our five priority crops being sustainably sourced were.

Jim Sally: We are on track to meet our 2025 commitment.

Jim Sally: Of 100% sustainable sourcing.

Jim Sally: Also we continue to expand our regenerative agriculture program with customers, resulting in an 85% year over year increase in acreage.

Jim Sally: Regenerative agriculture is currently seen as one of the most promising mechanisms for on farm carbon reductions to help all companies in the food supply chain to reduce their scope three footprint.

James P. Zallie: Turning now to gross margins. During 2023, we improved gross profit margins by 260 basis points to 21.4%, which demonstrates that our pricing actions and proactive cost savings initiatives have absorbed the inflation of the last three years. The gross profit margin improvement was achieved despite declining customer demand and necessary actions by our operations teams to slow production, resulting in higher fixed costs.

Jim Sally: Turning now to gross margins.

Jim Sally: During 2023, we improved gross profit margins by 260 basis points to 21, 4%, which demonstrates that our pricing actions and proactive cost savings initiatives have absorbed the inflation of the last three years.

Jim Sally: The gross profit margin improvement was achieved despite declining customer demand and necessary actions by our operations teams to slow production, resulting in higher fixed costs.

James P. Zallie: It's worth noting that this is the sixth consecutive quarter of gross margin growth. And I'd like to highlight that 2023 has been a record year for the company across a number of important financial metrics. We increased our sales to $8.2 billion, which is an all-time high. We delivered $969 million of operating income, up 23%, which is also a record high.

Jim Sally: It's worth noting that this is the sixth consecutive quarter of gross margin growth.

And I'd like to highlight that 2023.

Jim Sally: Has been a record year for the company across a number of important financial metrics.

We have increased our sales to $8 2 billion.

Jim Sally: Which is an all time high we delivered $969 million of operating income up 23%, which is also a record high and adjusted EPS grew to $9 42.

James P. Zallie: And adjusted EPS grew to $9.42, which is the most ever and... 26% higher than last year. As changes in working capital investments turn favorable, we deliver cash from operations of over 1 billion dollars. These combined results... delivered a positive return for shareholders with a 15% total shareholder return. Now, I will hand it over to Jim Gray for the financial review and 2024 outlook.

Jim Sally: Which is the most ever and <unk>.

Jim Sally: 26% higher.

Jim Sally: Then last year.

Jim Sally: As changes in working capital investments turned favorable we delivered cash from operations.

Jim Sally: Of over $1 billion.

These combined results.

Jim Sally: Delivered a positive return for shareholders with 15% total shareholder return.

Jim Sally: Now I will hand, it over to Jim Greg for the financial review and 2024 outlook Jim.

James D. Gray: Thank you, Jim and good morning to everyone.

James D. Gray: Thank you, Jim, and good morning to everyone. Moving to our income statement, while net sales of approximately $2 billion were down 3% for the quarter versus the prior year, gross profit dollars grew 14 percent, with gross margins greater than 20% again this quarter. Reported and Adjusted Operating Income were $202 and $203 million, respectively.

James D. Gray: Moving to our income statement.

James D. Gray: While net sales of approximately $2 billion were down 3% for the quarter versus prior year.

James D. Gray: Gross profit dollars grew 14%.

James D. Gray: With gross margins greater than 20% again this quarter.

James D. Gray: Reported and adjusted operating income were 202 and $203 million respectively.

James D. Gray: The increases were driven by lower input costs and favorable price mix, partially offset by lower volumes.

James D. Gray: For the fourth quarter. It is worth noting that South America growth was driven primarily by favorable foreign exchange impacts and strong performance in our Argentina JV.

James D. Gray: The increases were driven by lower input costs and favorable price mix partially offset by lower volume. For the fourth quarter, it is worth noting that South America growth was driven primarily by favorable foreign exchange impacts and strong performance in our Argentina JV. That said, our Q4 JV results lag one month in financial reporting, so the devaluation of the PESO will impact our Q1 2024 outlook, which I will comment on later. Our fourth-quarter reported and adjusted earnings per share were $1.97 for the period, each up more than 15% from the prior year. Turning to our Q4 Net Sales Bridge. The 3% decrease in net sales was driven by $148 million in lower volumes, partially offset by price mix of $63 million, along with a positive foreign exchange impact of $19 million.

Speaker Change: That said, our Q4 JV results lag one months in financial reporting so the devaluation of the peso will impact our quarter, one 2024 outlook, which I will comment on later.

Speaker Change: Our fourth quarter reported and adjusted earnings per share or $1 97 for the period, each up more than 15% from the prior year.

Speaker Change: Turning to our Q4 net sales bridge.

Speaker Change: With a 3% decrease in net sales was driven by $148 million and lower volumes.

Speaker Change: Partially offset by price mix of $63 million, along with a positive foreign exchange impact of $19 million.

Speaker Change: I would like to comment on volume trends in the quarter.

Speaker Change: Here, we show a volume index based upon our 2019 quarterly shipment averages, which excludes high fructose corn syrup and adjust for changes in the portfolio since 2019.

James D. Gray: I would like to comment on volume trends in the quarter. Here we show a volume index based upon our 2019 quarterly shipment averages, which excludes high fructose corn syrup and adjusts for changes in the portfolio since 2019. This graph illustrates the extraordinary volume demand in 2021 and 2022 in reaction to constrained supply chains globally. In the middle quarters of 2023, we experienced a drop in orders as customers drew down inventories, primarily in our texture. We have seen a gradual increase in order volumes through November. In December, order volumes slowed, representing two-thirds of the fourth quarter's sales volume decline, as customers anticipated lower prices in their contracts beginning in January.

Speaker Change: This graph illustrates the extraordinary volume demand in 2021, and 2022 and reaction to constrained supply chains globally.

Speaker Change: In the middle quarters of 2023.

Speaker Change: We experienced a drop in orders as customers drew down inventories primarily in our texture products.

Speaker Change: We have seen a gradual increase in order volumes through November.

Speaker Change: In December order volumes slowed representing two thirds of the fourth quarter's sales volume decline.

Speaker Change: As customers anticipated lower prices and their contracts beginning in January.

Speaker Change: We anticipate a gradual improvement in volumes this year and have already seen strong demand in January deliveries.

Speaker Change: Turning to the next slide we highlight net sales drivers for the fourth quarter.

Speaker Change: Foreign exchange was a 1% tailwind again this quarter as South America saw a strengthening of the Brazilian.

James D. Gray: We anticipate a gradual improvement in volumes this year and have already seen strong demand for January delivery. Turning to the next slide, we highlight Net Sales Drivers for the fourth quarter. Foreign exchange was a 1% tailwind again this quarter, as South America saw strengthening of the Brazilian Riyadh and Colombian Peso, partially offsetting the FX-related impact in EMEA, mainly in Pakistan.

Speaker Change: In Colombian peso, partially offsetting the FX related impact in EMEA, mainly in Pakistan.

Speaker Change: Sales volume was down 7%.

Speaker Change: But again sequentially better than the third quarter as customers finished working through the destocking of inventory.

Speaker Change: As I highlighted previously.

Speaker Change: Fourth quarter sales volume headwinds were most evident in EMEA and North America.

Speaker Change: Both regions experiencing in December pause in orders as new contracts and lower pricing levels became effective in January.

James D. Gray: Sales volume was down 7%, but again, sequentially, better than the third quarter as customers finished working through the destocking of inventory. As I highlighted previously, the fourth quarter sales volume headwinds were most evident in EMEA and North America, both regions experiencing a December pause in orders as new contracts and lower pricing levels became effective in January. Price mix was up 3% due to price and customer mix optimization compared to the fourth quarter of 2022. The decrease of 18% for South America was driven by lower corn prices resulting from Brazil's larger harvest.

Speaker Change: Price mix was up 3% due to price and customer mix optimization.

Speaker Change: Compared to the fourth quarter of 2022.

Speaker Change: The decrease of 18% for South America was driven by lower corn prices, resulting from Brazil's larger harvest.

Speaker Change: Turning to our earnings bridge slide on the left side you can see the reconciliation from reported to adjusted earnings per share.

Speaker Change: On the right side operationally, we saw an increase of 41 per share for the quarter.

Speaker Change: The increase was driven primarily by an operating margin increase of 94.

Speaker Change: Partially offset by unfavorable volume of minus <unk> 76 per share.

James D. Gray: Turning to our earnings bridge slide, on the left side, you can see the reconciliation from reported to adjusted earnings per share. On the right side, operationally, we saw an increase of 41 cents per share for the quarter. The increase was driven primarily by an operating margin increase of $0.94, although partially offset by unfavorable volume of minus 76 cents per share. Moving to our non-operating items, we had a decrease of 9 cents per share in the quarter, which was primarily driven by a lapping of lower tax rates from Q4 2022. Full year net sales of $8.2 billion were up 3% versus prior year. Gross profit margin was 21.4%, up 260 basis points. Full year reported operating income was $957 million, and adjusted operating income was $969 million. Reported operating income was lower than adjusted operating income, primarily due to impairments of minority equity or venture investment.

Speaker Change: Moving to our non operational items, we had a decrease of <unk> <unk> per share in the quarter.

Speaker Change: Which was primarily driven by a lap of lower tax rates from Q4 2022.

Speaker Change: Full year net sales of $8 2 billion were up 3% versus prior year.

Speaker Change: Gross profit margin was 21, 4% up 260 basis points.

Speaker Change: Full year reported operating income was $957 million and adjusted operating income was $969 million.

Speaker Change: Reported operating income was lower than adjusted operating income primarily due to impairments of minority equity our venture investments.

Speaker Change: Our full year reported earnings per share was $9 60.

Speaker Change: And adjusted earnings per share was $9 42.

Speaker Change: Reported EPS was higher than adjusted EPS, primarily due to the tax benefits from the evaluation of the Mexican peso against the us dollar.

Speaker Change: Turning to our full year net sales bridge, the 3% increase in net sales was driven by $943 million of price mix.

Speaker Change: Partially offset by lower sales volumes of $648 million, along with a negative foreign exchange impact of $81 million.

Speaker Change: Turning to the next slide we highlight net sales drivers for the full year.

Speaker Change: Foreign exchange was a minus 1% headwind for the full year is the impact in EMEA, mainly in Pakistan and various currencies in Asia Pacific were only partially offset by South America.

James D. Gray: Boom! Our full year reported earnings per share was $9.60. An adjusted earnings per share was $9.42. Reported EPS was higher than adjusted EPS, primarily due to the tax benefits from the valuation of the Mexican peso against the U.S. dollar. Turning to our full-year net sales bridge, the 3% increase in net sales was driven by $943 million of price mix, partially offset by lower sales volumes of $648 million, along with a negative foreign exchange impact of $81 million. Turning to the next slide, we highlight Net Sales Drivers for the full year. Foreign exchange was a minus 1% headwind for the full year, as the impact in EMEA, mainly in Pakistan, and various currencies in Asia Pacific were only partially offset by South America.

Speaker Change: Sales volume was down 8% as order volume was slower as customers destock inventories built up over the last several years.

Speaker Change: Price mix was up 12% due to price and customer mix optimization compared to the full year of 2022.

Speaker Change: Turning to our full year earnings bridge on the left side of the page you can see the reconciliation from reported to adjusted on the right side operationally, we saw an increase of $1 99 per share for the full year.

Speaker Change: The increase was driven by margin improvement of $3 78, offset primarily by lower volumes of $1 65 and.

Speaker Change: And foreign exchange of 16%.

Speaker Change: <unk> 16 per share.

Speaker Change: Moving to our non operational items, we saw a decrease of <unk> <unk> per share for the full year due to higher financing costs of <unk> 21 per share and other nonoperating income of minus <unk> 10 per share partially offset by a 28 per share tax benefit.

James D. Gray: Sales volume was down 8% as order volume was slower as customers' destocked inventories built up over the last several years. However, price mix was up 12% due to price and customer mix optimization compared to the full year of 2022. Turning to our full year earnings bridge, on the left side of the page, you can see the reconciliation from reported to adjusted. On the right side, operationally, we saw an increase of $1.99 per share for the full year. The increase was driven by a margin improvement of $3.78, offset primarily by lower volumes of $1.65, and foreign exchange of 16%. $0.16 per share.

Speaker Change: As a follow on note on February one we completed the sale of our South Korea business for $294 million.

Speaker Change: Korea business results contributed 47.

And 45.

Speaker Change: Reported and adjusted EPS, respectively.

Speaker Change: We have adjusted our 2024 outlook considering this impact.

Speaker Change: Moving to cash flow.

Speaker Change: Year to date cash from operations was just over $1 billion.

Speaker Change: As we progress through 2023 raw material cost peaked and started to decline with a clear understanding of the size of the U S crop.

Speaker Change: Declining input costs eventually roll through to our pricing.

Speaker Change: Which will drive lower inventory values and lower accounts receivable balances.

This net change impacted our ending balance sheet favorably, resulting in a recovery of working capital, which contributed positively to our cash from operations.

James D. Gray: Moving to our non-operating items, we saw a decrease of $0.02 per share for the full year due to higher financing costs of $0.21 per share and other non-operating income of minus $0.10 per share, partially offset by a $0.28 per share tax benefit. As a follow-on note, on February 1st, we completed the sale of our South Korea business for $294 million. Korea Business Results contributed $0.47 and 45 cents to reported and adjusted EPS, respectively.

Speaker Change: Net capital expenditures were $314 million and in line with our full year expectations.

Speaker Change: We continue to prioritize return of capital to shareholders and our capital allocation choices.

Speaker Change: During 2023, we increased the per share dividend for the ninth consecutive year.

Speaker Change: And we repurchased $101 million of outstanding common shares.

Speaker Change: As we look forward our capital allocation priorities continue to be first organic growth and reliability investments into our global manufacturing network.

Speaker Change: I returned to shareholders through our dividend.

Speaker Change: And third strategic deployment of cash in the M&A to accelerate our ingredient solutions strategy.

James D. Gray: We have adjusted our 2024 outlook considering this impact. Moving to cash flow, year-to-date cash from operations was just over $1 billion.

Speaker Change: Or opportunistically repurchase shares.

Speaker Change: Let me turn to our outlook for 2024.

Speaker Change: It might be helpful to note three drivers of our financial performance before I speak specifically to our 2020 for outlook.

James D. Gray: As we progress through 2023, raw material costs peaked and started to decline with a clearer understanding of the size of the U.S. crop. Declining input costs eventually will roll through to our pricing, which will drive lower inventory values and lower accounts receivable balances. This net change impacted our ending balance sheet favorably, resulting in a recovery of working capital, which contributed positively to our cash from operations. Net capital expenditures were $314 million and were in line with our full year expectations.

Speaker Change: First our pricing is anticipatory of raw material cost lay out in the coming year.

Speaker Change: In 2023, we anticipated rising costs, and we're catching up with the prior year's inflation in energy and other areas. So we carried strong price mix into 2023.

Speaker Change: During 2023, we witnessed a shift in the corn cost layout, which implies that we will see some lower price mix through 2024, as we pass along lower raw material costs to a more fee based customers. This is a normal expectation for our business model.

Speaker Change: Second the change in the cost of corn and co product values impacts, how we begin each year with hedge values.

Speaker Change: Going into 2023.

James D. Gray: We continue to prioritize return of capital to shareholders in our capital allocation choices. During 2023, we increased the per share dividend rate for the ninth consecutive year, and we repurchased $101 million of outstanding common shares. As we look forward, our capital allocation priorities continue to be, first, organic growth and reliability investments in our global manufacturing network, and second, a return to shareholders through our dividend. And third, strategic deployment of cash into M&A to accelerate our ingredient solution strategy or opportunistically repurchase shares. Now, let me turn to our outlook for 2024. It might be helpful to note three drivers of our financial performance before I speak specifically to our 2024 outlook. First, our pricing is anticipatory of raw material cost developments in the coming year. In 2023, we anticipated rising costs and were catching up with the prior year's inflation in energy and other areas.

Speaker Change: The hedge value that we carried into quarter, one was approximately $11 million of realized hedge value gains.

Speaker Change: This year, we are seeing a swing was approximately $20 million of realized hedge value losses carrying into the first quarter of 2024.

Speaker Change: This expectation follows from declining corn costs and our hedging practices.

Speaker Change: Third our volume expectation impacts our plant utilization and ultimately our manufacturing costs.

Speaker Change: For 2024, we expect greater volume demand and improvement in manufacturing cost per ton.

Speaker Change: In total for the year. Our goal is to continue to grow our gross profit dollars by way of managing higher gross profit dollars per ton.

Speaker Change: The layout for margin change across 2024 will be highlighted by lower margin in the first quarter.

Speaker Change: As we have set prices and <unk> in anticipation of full year corn cost lay out.

Speaker Change: In our carrying into quarter, one higher corn value as realized hedges worked through Cogs.

Speaker Change: We anticipate as lower corn costs work through Q2 through Q4 that net margins will continue to improve.

Speaker Change: Excluding the impact of the Korea divestiture from our outlook we.

Speaker Change: We expect net sales to be flat to up low single digits.

Speaker Change: Reflecting improved volume demand, partially offset by a decline in price mix driven by lower raw material prices.

James D. Gray: So we carried a strong price mix into 2023. During 2023, we witnessed a shift in the corn cost layout, which implies that we will see some lower price mix through 2024 as we pass along lower raw material costs to our more fee-based customers. This is a normal expectation for a business model. Second, the change in the cost of corn and co-product values impacts how we begin each year with a hedge value. Going into 2023, the hedge value that we carried into quarter one was approximately $11 million of realized hedge value gain.

Speaker Change: We anticipate that adjusted operating income will be up mid single digits with year over year growth in Q2 through Q4.

Speaker Change: For the full year 2024, we expect our reported and adjusted effective tax rate of 24% to 26% and 25, 5% to 26, 5% respectively.

Speaker Change: The company expects its full year reported EPS to be in the range of $10 20.

Speaker Change: To $11 15.

Speaker Change: Including the anticipated net gain from the sale of the Korea business.

James D. Gray: This year, we are seeing a swing with approximately 20 million of realized hedge value losses carrying into the first quarter of 2024. This expectation follows from declining corn costs and our hedge practice. Third, our volume expectation impacts our plant utilization and ultimately our manufacturing cost. For 2024, we expect greater volume demand and an improvement in manufacturing cost per ton. In total for the year, our goal is to continue to grow our gross profit dollars by way of managing higher gross profit dollars per ton. The layout for margin change across 2024 will be highlighted by lower margin in the first quarter, as we have set prices in anticipation of full year corn cost layout and are carrying into quarter one higher corn values as realized hedges work through COGS.

Speaker Change: For the full year, we expect adjusted EPS to be in the range of $9 15 to.

Speaker Change: To $9 85.

Speaker Change: Excluding the effects of the Korea divestiture.

Speaker Change: We expect the diluted weighted average shares outstanding to be between 66 and 67 million shares.

Speaker Change: 2020 for cash from operations is expected to be in the range of $750 million to $900 million.

Speaker Change: And capital expenditures for the same period are expected to be approximately $340 million.

Speaker Change: Corporate costs are expected to be up low single digits.

Speaker Change: For the first quarter of 2024, we expect net sales to be down modestly with a mid single digit decline versus the first quarter of 2023.

Speaker Change: Which reflects lower pricing as corn costs are pass through as well as a relatively challenging lap from the prior year in EMEA due to extraordinary pricing to catch up with energy and input cost inflation.

Speaker Change: For adjusted operating income, we anticipate a double digit decline of minus 25% to minus 35% driven by three factors.

James D. Gray: We anticipate, as lower corn costs work through Q2 through Q4, that net margins will continue to improve, excluding the impact of the Korea divestiture from our outlets. We expect net sales to be flat to up in the low single digits, reflecting improved volume demand, partially offset by a decline in price mix driven by lower raw material prices. We anticipate that adjusted operating income will be up mid-single digits with year-over-year growth in Q2 through Q4. For the full year 2024, we expect a reported and adjusted effective tax rate of 24 to 26 percent and 25.5 to 26.5 percent, respectively.

Speaker Change: First we are running with less volume in production than first quarter last year.

Speaker Change: We expect volume demand to improve in Q2 and beyond.

Speaker Change: Second the carry in.

Speaker Change: Of corn costs and hedge values presents a $30 million swing in profit margin quarter over quarter.

Speaker Change: The layout of corn will present, lower corn costs through the year and support margin expansion for the balance of the year.

Speaker Change: And third the devaluation of the official Argentina peso exchange rate will have a $15 million hyperinflation impact in January.

Speaker Change: As you can see from this page our expectation for quarter, one profit will be relatively in line with the historic trend excluding the very unique set of circumstances in Q1 2023.

Speaker Change: That concludes my comments and I'll hand back to Jim.

Jim: Thanks, Jim.

Jim: We delivered a record year in 2023 with strong profit growth and year over year gross margin expansion and we generated record cash from operations of over $1 billion, and we invested prudently and our strategic priorities. We believe that the customer inventory correction that started back in the first quarter of 2012.

James D. Gray: The company expects its full-year reported EPS to be in the range of $10.20 to $11.15, including the anticipated net gain from the sale of the Korea business. For the full year, we expect adjusted EPS to be in the range of $9.15 to $9.85, excluding the effects of the Korea divestiture. We expect the diluted weighted average shares outstanding to be between 66 and 67 million shares.

Jim: <unk> three has largely run its course, and we are well positioned to capture incremental volume opportunities as they arise in 2020 for.

Jim: It is with this backdrop that we enter 2024 with a view to continued profit growth, reflecting greater volume demand along with a focus on cost savings and operational excellence, we remain confident in our long term growth targets and our ability to create value for shareholders.

James D. Gray: In 2024, cash from operations is expected to be in the range of $750 million to $900 million, and capital expenditures for the same period are expected to be approximately $340 million. Corporate costs are expected to be up low single digits, https://www.youtube.com.uk. For the first quarter of 2024, we expect net sales to be down modestly, with a mid single-digit decline versus the first quarter of 2023, which reflects lower pricing as corn costs are passed through as well as a relatively challenging lap from the prior year in EMEA due to extraordinary pricing to catch up with energy and input cost inflation.

Jim: Before closing, let me take a moment to highlight the transformational journey that ingredient has been on.

Jim: As you May know ingredient has been providing customers with ingredients and solutions for more than a century and we have successfully adapted to changing market conditions throughout our history, and we continually position ourselves for long term success as market conditions and consumer trends change.

Jim: At this time is no different.

As a natural outgrowth to our transformation, we announced last November plans to reorganize our business operations, which will result in a change to our reportable business segments.

Jim: Texture and helpful solutions, we will have a global mandate, while our food and industrial ingredients businesses will have a regional and local focus the new structure creates greater transparency into our product capabilities aligns our commercial teams to serve customers better and provides greater insight to shareholders.

James D. Gray: First, we are running with less volume in production than in the first quarter of last year. We expect volume demand to improve in Q2 and beyond. Second, the carry-in of Corn Costs and Hedge Values presents a $30 million swing in profit margin quarter over quarter. The layout of corn will present lower corn costs through the year and support margin expansion for the balance of the economy. And third, the devaluation of the official Argentina peso exchange rate will have a $15 million hyperinflation impact in January.

Jim: We believe this move is the next logical step and a long history of adapting to changing market conditions.

Jim: In the pursuit of long term growth now lets open the call for questions.

Speaker Change: Just a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone and wait for your name to be announced.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Our first question will come from the line of Ben Bienvenu with Stephens.

Ben Bienvenu: Hey, good morning, everybody.

Ben Bienvenu: Good morning, Ben.

As it relates to the <unk>.

Ben Bienvenu: South Korea business divestiture.

Ben Bienvenu: Any thoughts you can provide on potential use of proceeds that doesn't seem to be considered in the guidance for this year. So obviously, we're capturing the dilution, but not the potential returns associated with putting that.

James P. Zallie: As you can see from this page, our expectation for quarter one profit would be relatively in line with the historic trend, excluding the very unique set of circumstances in Q1 2023. That concludes my comments, and I'll hand it back to Jim. Thanks, Jim. We delivered a record year in 2023 with strong profit growth and year over year gross margin expansion. We generated record cash from operations of over $1 billion, and we invested prudently in our strategic priorities. We believe that the customer inventory correction that started back in the first quarter of 2023 has largely run its course, and we are well positioned to capture incremental volume opportunities as they arise in 2024. It is with this backdrop that we enter 2024 with a view to continued profit growth reflecting greater volume demand along with a focus on cost savings and operational excellence.

Ben Bienvenu: Sale proceeds to work in the business.

Speaker Change: So maybe any.

Speaker Change: Framing around that that you can offer would be helpful.

Speaker Change: Sure Hey, Ben This is Jim Gray.

James D. Gray: First obviously, we always look at.

James D. Gray: Where that where our shares are valued and we always have and at least the middle of our mind, if not the back of our mind share repurchase.

James D. Gray: And with a forward view of what we believe our intrinsic value is for the company I would also say though.

James D. Gray: Highlights that the M&A landscape has been one where it's been I think a little bit challenging in the last 2023, maybe part of 2022 for at least for private equity is risk free rates rose.

James D. Gray: Theres also been.

James D. Gray: Kind of globally. When you look at some ingredients companies flavor and fragrance company is multiples have come down.

James D. Gray: And as a strategic buyer.

Speaker Change: Following our refresh strategy, we are continuing to look at where are there opportunities, where we can look at M&A and deploy money as prudently, but do so in a way that accelerates our strategy in ingredient solutions and so.

Speaker Change: We are still you can never guarantee that a deal is going to get done.

James P. Zallie: We remain confident in our long-term growth targets and our ability to create value for shareholders. Before closing, let me take a moment to highlight the transformational journey that Ingredion has been on. As you may know, Ingredion has been providing customers with ingredients and solutions for more than a century, and we have successfully adapted to changing market conditions throughout our history, and we continually position ourselves for long-term success as market conditions and consumer trends change. This time is no different.

Speaker Change: But we have a pipeline that we continue to pursue.

I mean, our first priority always is with capital to invest inorganic capital for growth.

Speaker Change: And obviously maintain our plant assets, so they run with reliability and efficiently.

Speaker Change: As Jim talked about in a second to that would be our dividend the focus on our dividend and third would be the use for M&A to grow our texture and helpful solutions businesses and we have a very as we always do active <unk>.

Speaker Change: M&A pipeline, but ingredient overtime has always remained disciplined and for those acquisitions. We have made we've integrated them very well.

James P. Zallie: As a natural outgrowth of our transformation, we announced last November plans to reorganize our business operations, which will result in a change to our reportable business segment. Texture and Healthful Solutions will have a global mandate, while our food and industrial ingredients businesses will have a regional and local focus. The new structure creates greater transparency into our product capabilities, aligns our commercial teams to serve customers better, and provides greater insight to shareholders. We believe this move is the next logical step in a long history of adapting to changing market conditions in the pursuit of long-term growth. Now, we're opening the call for questions. Just a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 1 one again.

Speaker Change: And delivered on the business case.

Speaker Change: So and also its noteworthy that the price that we got for the Korea business, which is primarily a core business.

Speaker Change: Jim I think about a third of that volume was dedicated to high fructose corn syrup.

Speaker Change: Was above our trading multiple from a PPE standpoint, so we feel very good about it.

Speaker Change: And we think it's the right thing to do for our portfolio and we'll use the proceeds wisely.

Speaker Change: Okay.

Jim: Okay very good my second question is on the cost outlay for this year and in particular raw material costs.

Jim: Corn.

Speaker Change: I'm wondering.

Speaker Change: Are you hedged this year on your gross corn similar to how you were in 2023 should we expect a uniform outlay of hedge exposure throughout the year.

Speaker Change: Then on the co products are you hedged similar this year as you were last year help us understand the framework around your cost hedging for 2024.

Speaker Change: Sure sure yes.

Speaker Change: Yes, we are following the same discipline with regard to our U S, Canada business and that hedging upwards of 80% or more of our gross corn.

Operator: Please stand by while we compile the Q&A raw. Our first question will come from the line of Ben Bienvenu with... Hey. Good morning, everybody. Good morning, Ben. As it relates to the South Korean business divestiture... I'm curious about any thoughts you can provide on potential use of proceeds that doesn't seem to be considered in the guidance for this year. So obviously, we're capturing the dilution, but not the potential returns associated with putting that sale proceeds to work in the business. So maybe any framing around that that you can offer. Sure. Hey Ben, this is Jim Gray.

Speaker Change: Purchase expectation and hedging almost towards 50% of our co product values that we expect.

From the sale of our co products.

Speaker Change: I'd, just say that when you look at the layout of corn.

Speaker Change: Had a declining corn futures market in 2023, so any hedges that were replacing towards the end of the year.

Speaker Change: We're obviously going to be reflecting a little bit less in terms of the cost of corn as you now look forward into 2024, you still have somewhat of a decline.

James D. Gray: You know, first, obviously, we always look at where our shares are valued. And we always have, you know, at least in the middle of our minds, if not the back of our minds, share repurchase. And, you know, with a forward view of what we believe our intrinsic value is for the company. But, I'd also say, though, and just, you know, highlight that, you know, the M&A landscape has been one where it's been, I think, a little bit challenging in the last, you know, 2023, maybe part of 2022, at least for private equity, as risk-free rates rose. There's also been, you know, kind of globally, when you look at some ingredients companies, flavor and fragrance companies, their multiples have come down.

Speaker Change: The quarter over quarter comparison, so so that lower corn cost, even though its hedged as long with the co product values is going to show up more so in Q1 versus Q4 of 2023 in Q2 of 2024 will be slightly better than Q1 of 2024 et cetera, so that kind of.

Speaker Change: Goes to my comment on the layout of the corn should see.

Speaker Change: Corn cost corn deflation, helping us with margins, we are helping us with Cogs as we get into Q2 Q3 Q4.

Speaker Change: Okay. Thanks, so much.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Andrew <unk> with BMO capital markets.

Andrew: Hey, good morning, Thanks for taking the question.

Andrew: I would say Andrew can you maybe elaborate.

Andrew: Hi, I was hoping you could elaborate a little bit on.

Andrew: Some of the volume dynamics that you talked about the shift out.

Andrew: Is there a way to kind of frame that or quantify that and are you seeing that.

James D. Gray: You know, and as a strategic buyer, following our refresh strategy, we are continuing to look at opportunities where we can, you know, look at M&A and deploy monies prudently, but do so in a way that accelerates our strategy in ingredient solutions. And so, you know, we're still, you can never kind of guarantee that a deal is going to get done.

Andrew: Jan has been stronger than you would have anticipated or are you just kind of back to where you thought you would be and I guess more broadly if you could kind of walk through what you're seeing across your end markets from a volume perspective.

Andrew: Yes.

Speaker Change: I do appreciate the question, it's a little bit of a nuance for everyone listening.

Speaker Change: I would say that in Q3, when I was asked about what did I see as some of the potential risk to the end of the year I always said well.

James D. Gray: But we have, you know, a pipeline that we continue to pursue. I mean, our first priority is always capital to invest in organic capital for growth and, obviously, maintain our plant assets so they run with reliability and efficiency. As Jim talked about, you know, second to that would be our dividend, the focus on our dividend, and third would be the use of M&A to grow our texture and healthful solutions businesses. And we have a very, as we always do, active M&A pipeline. But Ingredion has, over time, always remained disciplined, and for those acquisitions we have made, we've integrated them very well and delivered on the business case. So, and also it's noteworthy that the price that we got for the Korea business, which is primarily a core business, where Jim thinks about a third of that volume was dedicated to high fructose corn syrup, was above our trading multiple from a PE standpoint, so we feel very good about it, and we think it's the right thing to do for our portfolio, and we'll use the proceeds wisely. Very well. My second question is about the cost outlay for this year, and in particular raw material costs. I'm wondering.

Speaker Change: Our brand company Cfos are smart folks they are probably going to be managing inventories at the end of the year because it contributes to the operating cash flow and if you are in procurement you are looking at a lower corn cost in 2024, you're negotiating for your price of your star to your sweetener.

Speaker Change: And you would probably came out with a slightly better price in January for 2024, then what you're carrying in 2023 for us and so what we just saw was as some of the volume pause I'm going to call. It pause on orders because I think that's smart to do if you are in procurement.

Speaker Change: That impact is really Europe, and so that shows up in the EMEA sales volume number for Q4 impact in North America and that shows up in the sales volume number so pretty natural play of things as the year ends we are seeing January volumes strong so.

Speaker Change: I would say that its I don't know if it's necessarily changing our guidance, but we are very confident that that December pause theres still an underlying customer order volume demand.

Speaker Change: And that's coming through in January I think it played out exactly as we had indicated in the last earnings call.

James D. Gray: Are you hedged this year on your gross corn similar to how you were in 2023? Should we expect a uniform outlay of hedge exposure throughout the year? And then on the co-products, are you hedged similar this year as you were last year? Help us understand the framework around your cost. Sure, sure.

And we thought it was a very rational behavior on the part of customers to certainly adjust working capital down but also wait for some of the price decreases.

Speaker Change: That they were anticipating that would be affected with contracted contracts starting in January but we do want to emphasize that the customer inventory correction that started a year ago has largely run its course, and we don't see that as a factor as we head into this new year.

James D. Gray: Yes, we are following the same discipline with regard to, you know, our U.S. and Canada business in that, you know, hedging upwards of kind of 80% or more of our gross corn purchase expectation and hedging, you know, almost towards, you know, 50% of our co-product values that we expect from the sale of our co-products. I would just say that when you look at the layout of corn, you know, you have a declining corn futures market in 2023. So, any, you know, hedges that we're replacing towards the end of the year, we're obviously going to be reflecting a little bit less in terms of the cost of corn.

Speaker Change: Andrew.

Andrew: Maybe just if I can just to carryforward, because we had a net sales guidance.

Andrew: Kind of up low single digits, but it has two parts to it and so I think one part is is what's the underlying volume demand and then that's partially offset by some anticipated price mix due to lower corn as we pass through but maybe ask Jim to just comment on what we see for volume demand in 2024.

Jim: Yes, I think with respect to packaged food volume demand, we expect an increase in unit volumes as brand and private label lap the very high unit prices that occurred I guess.

James D. Gray: As you now look forward into 2024, you still have somewhat of a decline in the quarter over quarter comparison. So, that lower corn cost, even though it's hedged along with the co-product values, is going to show up more so in Q1 versus Q4 of 2023; Q2 of 2024 will be slightly better than Q1 of 2024, etc. So that kind of goes to my comment on the layout of the corn should see corn costs, corn deflation, helping us with margins, helping us with COGS as we get into Q2, Q3, Q4. Okay, thanks so much.

Jim: Over the last two years, so we anticipate that grocery retailers will want to support consumers to bring them back to the stores and I think we're going to see more promotions to support traffic.

Jim: We also highlighted the increasing customer interactions we're seeing many more.

Jim: Engagements for innovation related projects.

Jim: Projects that we think is a leading indicator for the need for brand innovation to drive also volume growth within the CPG space.

Jim: So we're anticipating a mid single digit uptick in sales volume demand for 2024.

Jim: And that growth.

Jim: Should become evident in all geographies through 2024, except perhaps as Jim said in Europe for the first quarter.

Jim: And overall as we guided net sales will be flat to up low single digits as we expect some price mix headwinds.

James D. Gray: Thank you. Our next question comes from Andrew Strelzick with BMO Capital Markets.,...... Hey, good morning.

Jim: With lower corn costs.

Jim: Pass through on a variable pricing contracts.

Speaker Change: Great. That's super helpful color I appreciate that and then.

James P. Zallie: Thanks for taking the question. I was wondering if you could maybe allow, I was hoping you could elaborate a little bit on some of the volume dynamics that you talked about, the shift out of December. Is there a way to kind of frame that or quantify that? And are you seeing that Jan is then stronger than you would have anticipated, or are you just kind of back to where you thought you would be?

Speaker Change: If I could just ask you about.

Speaker Change: M&A and buybacks and kind of how you think about.

Speaker Change: The capital deployment to whether its the south Korea proceeds or otherwise.

Speaker Change: Is there a point at which if the deal does not materialize.

Speaker Change: On the M&A side that you would pivot to buybacks is there a timeline element to this or I know these the timing of these things can be very unpredictable. So I guess I'm just curious how you think about.

James P. Zallie: And I guess more broadly, if you could kind of walk through what you're seeing across your own markets from a... Yeah, well, you know, Andrew, I do appreciate the question. And, you know, it's a little bit of a nuance for everyone listening. I would say that in Q3, when I was asked about, you know, what I saw as some of the potential risk to the end of the year, I always said, well, you know, our brand company CFOs are smart folks; they're probably going to be managing inventories at the end of the year because it contributes to their operating cash flow. And if you're in procurement, you're looking at, you know, a lower corn cost and, in 2024, you're negotiating for your price of your starch or your sweetener.

Speaker Change: Pivoting between the two at some point if needed.

Speaker Change: Yes, I'll, let Jim make a comment and I'll make a comment I think for Andrew and for everybody I don't think it is an either or right. So right now given our balance sheet, given our cash position.

Speaker Change: If we believe the shares are absolutely a value then we can be executing on share repurchase and that's not going to give us pause on what we're doing on M&A.

Jim: Yes, I mean, we will always remain disciplined of course and look at every deal prospect critically.

Speaker Change: For the synergies, but now what.

Speaker Change: Has happened this past year as we went through a full year lengthy.

Speaker Change: Strategy refresh using <unk>.

Speaker Change: Some of you may know the play to win framework and so we're very clear about our winning aspiration, we're very clear about where to play and how to win.

Speaker Change: And we will be supporting.

Supporting the strategy with M&A and organic investments as well and we do have I will say, we do have some pretty big organic investments that we're excited about that we want to pursue as well.

James P. Zallie: And, you know, you probably came out with a slightly better price in January for 2024 than what you were carrying in 2023 for us. And so, you know, what we just saw was, you know, some of the volume pause, I'm going to call it a pause on orders, because I think that's smart to do if you're in procurement, that really impacted Europe.

Speaker Change: Okay that makes perfect sense. Thank you very much.

Thank you.

Speaker Change: Our next question will come from the line of.

Barclays: <unk> with Barclays.

Barclays: Hi, Yes, good morning, Jim and Jim. Thank you very much for taking my question.

James P. Zallie: And so that shows up in the EMEA sales volume number for Q4 to impact North America. And that shows up in the sales volume number. So pretty natural play of things as the year ends; we are seeing January volumes strong.

Barclays: Wanted to ask about the new operating structure and the reorganization of that benefit.

Speaker Change: Benefits as you play this out.

Barclays: Can you share maybe a few examples of how this is going to help you with your customers globally.

James P. Zallie: So I would say that it's, I don't know if it's necessarily changing our guidance, but we are very confident that that December pause, there's still an underlying customer order volume demand, and that's coming through in January.

Barclays: <unk> Health solutions segment that you pointed out it's going to be managed on a global way in order to.

Barclays: <unk> drive volume or profitability.

James P. Zallie: Yeah, I think it played out exactly as we had indicated in the last earnings call. And we thought it was very rational behavior on the part of customers to certainly adjust working capital down but also wait for some of the price decreases that they were anticipating that would be affected with contracted contracts starting in January. But we do want to emphasize that the customer inventory correction that started a year ago has largely run its course, and we don't see that as a factor as we head into this new year.

Barclays: What is it what you hope from the new operational.

Barclays: Operational structure that would be my first question.

Speaker Change: Yes, I think.

Speaker Change: Than that.

Speaker Change: The.

The pivot towards a more global focus on texture and healthful solutions first of all we.

Speaker Change: <unk>.

Speaker Change: I believe that there is an exciting opportunity ahead for ingredient to work with customers.

Speaker Change: To influence.

Speaker Change: Their understanding and our collective understanding of how texture impacts overall liking and consumer preference.

James P. Zallie: Hey, Andrew, can you just carry forward because we had a net sales guidance of kind of a low single digit, but it has two parts to it. And so I think one part is, what's the underlying volume demand? And then that's partially offset by some anticipated price mix due to lower corn as we pass through.

Speaker Change: Analogous to flavors and we've been saying that for a while but we really believe that so we've invested in consumer insights and sensory capabilities and also now.

Speaker Change: Texture measurement science capabilities, so that we can correlate that on the healthful solution side, our focus is very clear.

Speaker Change: It is on sugar reduction, which has a large total addressable market.

James P. Zallie: But maybe, you know, ask Jim to just comment on what we see for volume demand in 2024. Yeah, I think with respect to package food volume demand, we expect an increase in unit volumes, as you know, brand and private label brands lap the very high unit prices that occurred, I guess, over the last two years. So we anticipate that grocery retailers will want to support consumers to bring them back to the stores.

Speaker Change: Protein and fiber fortification those are.

Speaker Change: Platforms for Healthful solutions and it is with that focus.

Speaker Change: Which are driven by global trends.

Speaker Change: And have.

Speaker Change: Universal.

Speaker Change: <unk> value.

Value propositions for all customers globally, we think that just lends itself to a global.

Speaker Change: <unk>.

Speaker Change: Ingredient for the longest time has been very regionally organized.

Speaker Change: And that has <unk>.

James P. Zallie: And I think we're going to see more promotions to support traffic. We also highlighted the increasing customer interactions. We're seeing many more engagements for innovation-related projects, which we think is a leading indicator for the need for brand innovation to drive volume growth within the CPG space. So we're anticipating a mid-single-digit uptick in sales volume demand for 2024, and that growth should become evident in all geographies through 2024, you know, except perhaps, as Jim said, in Europe for the first quarter. And overall, as we guide it, net sales will be flat to up-low single digits, as we expect some price mix headwinds, with lower corn costs being passed through on our variable pricing contracts. That's a super helpful color.

Speaker Change: Served us very well from a standpoint of.

Speaker Change: Regional.

Speaker Change: Regional accountability for P&L and delivering results, we believe that what we have done in the last say five years, where we have for efficiency purposes for.

Speaker Change: Effectiveness purposes.

Speaker Change: Stood up a global business services organization for example shared services with finance.

Speaker Change: Are some of our marketing functions and HR functions are now globalized in support of more of a global business model. We couldnt have done what we're about to embark on five years ago, because we had to build the capabilities, but we've built those muscles from a standpoint of back office shared service global business operations in <unk>.

Speaker Change: By the way the most important.

Speaker Change: Move that we made was globalizing operations.

Speaker Change: And I can tell you and what Youre seeing in our results are the benefits of moving to that global operations model. Some of the things we talked about in relationship to our net promoter scores the service enhancements the benefits and procurement that we're getting.

James P. Zallie: I appreciate that. And then, you know, if I could just ask about M&A and buybacks and kind of how you think about The Capital Deployment to the two, whether it's the South Korean proceeds or otherwise. Is there a point at which, if a deal does not materialize on the M&A side, you would pivot to buybacks? Is there a timeline element to this? Or I know the timing of these things can be very unpredictable. So I guess I'm just...

Speaker Change: The safety results that operational excellence focus on a global basis with benchmarking best practice is serving us very well so.

Speaker Change: It allows for the commercial organization.

Speaker Change: In texture and helpful solutions to focus much more time and be much more intimate with customers too.

Speaker Change: To really understand their brands and what they need from us as a co creation partner so.

James P. Zallie: Curious how you think about tipping between the two at some point if needed. I'll let you make a comment, and I'll make a comment. Go ahead, Jim. I think for Andrew and for everybody, I don't think it is an either or, right?

Speaker Change: We are looking at adjusting kpis and incentive schemes to drive the kind of global behavior.

Speaker Change: To align with global key customers, but also.

Speaker Change: Sure very actively.

Speaker Change: Where consumer buying behavior is going to change there is a lot of.

Speaker Change: Questions about how consumer buying behaviors likely to change with a lot of things that are going on in the food industry right now and we think being organized the way we are moving.

James P. Zallie: So right now, given our balance sheet, given our cash position, you know, if we believe that the shares are absolutely a good value, then we can be executing on share repurchase. And that's not going to, you know, give us pause on what we're doing in M&A. Yeah, I mean, we will always remain disciplined, of course, and look at every deal prospect critically for synergies. But what has happened this past year is we went through a full year of a strategy refresh using, some of you may know, the play to win framework, and so we're very clear about our winning aspiration; we're very clear about where to play and how to win, and we will be, you know, supporting the Okay, that makes perfect sense. Thank you very much.

Speaker Change: We will serve us very well to be much more intimate with customers.

Thank you very much Jim and then just one question related to the guidance. If you could maybe help us understand and frame a little bit.

Speaker Change: Impact of the Korea divestiture.

Speaker Change: Kind of from top to bottom, we got obviously the impact on the operating income side than on EPS, but could you potentially quantify what the impact is more or less on top line as well. It's just if we could we can frame that better in our modeling exercises. Thank you.

Speaker Change: Yes, yes sure.

Speaker Change: For the full year 2023.

Speaker Change: South Korea delivered about $325 million of net sales so unaudited, but.

About the range and then if you were looking at kind of an approximation for the adjusted Op income.

Speaker Change: The effective net of the effective tax rate.

Speaker Change: It was probably more in the teens.

Speaker Change: So if you take EPS times, our shares outstanding and Youre trying to get to an adjusted op income I'd say that adjusted Op income range was.

Speaker Change: And the kind of the low thirties.

James P. Zallie: Thank you. Our next question will come from the line of Ben Theurer with Barks. Yeah, good morning, Jim and Jim.

Speaker Change: In terms of what.

Speaker Change: To look at in terms of 2023 contributions.

Speaker Change: Okay perfect. Thank you Raj.

Speaker Change: Got it.

Speaker Change: Our next question comes from the line of Kristen Owen with Oppenheimer.

James P. Zallie: Thank you very much for taking my question. I wanted to ask about the new operating structure and the reorganization of it and the benefits as you carry this out. Can you share maybe a few examples of how this is going to help you with your customers globally, particularly in the texture and health solutions segment that you've pointed out is going to be managed in a global way in order to potentially drive volume or profitability? What is it that you hope from the new operational structure that that would be? Yes, I think, Ben, that...

Speaker Change: Okay.

Kristen Owen: Christian Your line is now open.

Kristen Owen: Hey, there good morning, sorry about that guys.

Kristen Owen: Wanted.

Kristen Owen: I wanted to follow up also with a modeling question to start.

First just on the revaluation of the paper.

Kristen Owen: So.

Kristen Owen: The hyperinflation adjustment.

Kristen Owen: Help us understand the mechanics there.

Kristen Owen: A one time true up for all of 2023.

Kristen Owen: Right.

Kristen Owen: Starting now.

Kristen Owen: What the assumption is for 2024, and how the mechanics of that network.

Kristen Owen: Yes.

James P. Zallie: The pivot towards a more global focus on texture and healthful solutions. First of all, we believe that there is an exciting opportunity ahead for Ingredion to work with customers to influence their understanding and our collective understanding of how texture impacts overall liking and consumer preference, analogous to flavors.

Kristen Owen: So.

When we look at whatever the balance sheet items are on our hardcore JV.

Kristen Owen: Translate that into dollars whenever you have an official change in the exchange rate, we have to take a one time.

Hit to those values and so then that $15 million.

Kristen Owen: Is that just the balance sheet impact due to the kind of the hyperinflation.

James P. Zallie: And we've been saying that for a while, but we really believe it. So we've invested in consumer insights and sensory capabilities, and also now, Texture Measurement Science Capabilities, so that we can correlate that. On the healthful solution side, our focus is very clear. It is on sugar reduction, which has a large total addressable market, and Protein and Fiber Fortification.

Kristen Owen: Treatment under GAAP that we'll be recognizing in the first quarter.

Kristen Owen: So that says so then now you look forward at 2024.

Kristen Owen: Still a great fundamentals in the Argentina market sugar prices are high corn is relatively cheap the attractiveness of high fructose syrup to beverage makers is very very good. So the Argentina JV should probably continue to perform well in 2024. So we will have good underlying oi, what we just.

James P. Zallie: Those are our platforms for healthy solutions, and it is with that focus that we are driven by global trends and have, Universal. You know, value propositions for all customers globally. We think that just lends itself to a global approach. Ingredion, for the longest time, has been very regionally organized.

Need to watch as is with the new government how do they look at the official rate of the peso.

Kristen Owen: But you probably won't see something like what we witnessed in December where you have a peso official peso rate that was in the three hundreds go to 800. So so it will be unlikely that youll have an additional onetime hyper.

James P. Zallie: And that has served us very well from a standpoint of regional, regional accountability for P&Ls and delivering results. We believe that what we have done in the last five years, where we have, for efficiency purposes, for effectiveness purposes, set up a global business services organization, for example, shared services with finance, some of our marketing functions, and HR functions are now globalized in support of more of a global business model. We couldn't have done what we're about to embark on five years ago because we had to build the capabilities.

Kristen Owen: Hyperinflation impact for 2024, there may be some but it's unlikely the degree of magnitude that we're witnessing here that we have to take in January.

Speaker Change: Okay, that's super helpful. Jim.

Kristen Owen: So taking that into account and just thinking through all the moving pieces 23 to 24, then 24 to 25, yeah. When we look at the guide in 2020 for the outlook for mid single digit growth in operating income coming off a very strong 2023 resolved I'm just wondering how we should think about the guide in the context.

Kristen Owen: You are 5% to 7% operating income CAGR growth framework that you outlined for 2025.

James P. Zallie: But we've built those muscles from a standpoint of back office, shared service, and global business operations. And by the way, the most important move that we made was globalizing operations. And I can tell you, and what you're seeing in our results, are the benefits of moving to that global operations model. Some of the things we talked about in relationship to our net promoter scores, the service enhancements, the benefits in procurement that we're getting, the safety results. That operational excellence focus on a global basis with benchmarking best practice is serving us very well. So it allows for the commercial organization in Texture and Healthful Solutions to spend much more time and be much more intimate with customers to really understand their brands and what they need from us as a co-creation partner. So,

Yeah sure if I can take a crack at that.

Speaker Change: And obviously, we're not kind of necessarily out here kind of reissuing a kind of a four year outlook, we're still working within our full year outlook.

Speaker Change: Within 2024 look there are some risks.

Speaker Change: To the year.

Speaker Change: Obviously, there is an election year, we mean changes to the impact on taxes.

Speaker Change: I think we're a little bit concerned maybe on risks around starboard food inflation.

Speaker Change: And what's the impact on consumer demand the shape of the grocery store basket.

Speaker Change: But on the other hand some of your peers are talking about wall will brand companies have to use promotions.

Speaker Change: Or be enticed by grocers or other retailers to bring some promotions and to excite the consumer.

To fill those grocery baskets back up.

James P. Zallie: We are looking at adjusting KPIs and incentive schemes to drive the kind of global behavior, to align with global key customers, but also, you know, share very actively where consumer buying behavior is gonna change. There are a lot of questions about how consumer buying behavior is likely to change with a lot of things that are going on in the food industry right now. And we think being organized the way we are moving will serve us very well to be much more intimate with customers. Thank you very much, Jim.

Speaker Change: Maintain branded market share on shelf.

Speaker Change: If that stimulus happens that's an opportunity for us that's always good for our unit volumes of our customers and we supply ingredients that support those unit volume sales.

Speaker Change: I would note that.

Speaker Change: Just on one thing that is within our.

Speaker Change: 2023 results we.

Speaker Change: We are still absorbing a loss on plant based proteins.

Speaker Change: And so that operating loss was just over $40 million.

James D. Gray: And then just one question related to the guidance, if you could maybe help us understand and frame a little bit the impact of the Korea divestiture, kind of from top to bottom. We've obviously got the impact on the operating income side and on EPS, but could you potentially quantify what the impact is more or less on the top line as well? frame that better in our modeling efforts. Yeah, yeah, sure. You know, for the full year 2023, South Korea delivered about $325 million in net sales, but unaudited, but about that range. And then, you know, if you were looking at, you know, kind of an approximation for the adjusted operating income, you know, the effective, the net of the effective tax rate, you know, it was, you know, probably more in the teens.

Speaker Change: In addition, as the plant based protein market had slowed down we did recognize upper.

Speaker Change: <unk> of about $15 million of Mark to market on inventory value for our plant based proteins. So thats in our numbers for 2023, so as we look to 2024, we're going to improve upon that.

Speaker Change: And we will improve upon that in 2025.

Speaker Change: Further in 2024.

Speaker Change: Good solid year for sugar reduction and as we go forward into 2025, we will still have the opportunity to take advantage of the additional capacity that we put into our Kuala Lumpur facility.

Speaker Change: And drive growth there. So I think there are some things that organically doing that we continue to work.

Speaker Change: That are going to be builders, and our and our operating income as we go forward.

James D. Gray: You know, so if you take EPS times our shares outstanding and you're trying to get to an adjusted operating income, I'd say that adjusted operating income range was, you know, in the kind of the low 30s, in terms of what to look at in terms of 2023 contributions. Perfect. Thank you. Our next question comes from the line of Kristin Owen with Op-Ed. The first in your line is now open.

Speaker Change: I do think Jim It was helpful that you clarified about the protein fortification.

Speaker Change: Loss operating loss and inventory adjustment.

Speaker Change: That $55 million total.

Speaker Change: As in the.

Speaker Change: The 23% increase in operating income last year, and we believe that.

Speaker Change: <unk>.

Speaker Change: Has.

Speaker Change: And taken to a.

Speaker Change: Low point, where we're seeing.

Speaker Change: Improvements heading into this year.

Speaker Change: So that's something that we.

James D. Gray: Hey, there. Good morning. Sorry about that, guys.

Speaker Change: We're encouraged about as well.

Speaker Change: We really appreciate the color I'll take the rest of my questions offline. Thank you so much.

James D. Gray: I wanted to follow up also with a modeling question. First, on the revaluation of the peso, the hyperinflation adjustment, can you just help us understand the mechanics there? Is this sort of a one-time true-up for all of 2023? Starting there with what the assumption is for 2024 and how the mechanics of that adjust. Yeah, so, just when we look at whatever the balance sheet items are on our Harcourt JV, translate that into dollars. Whenever we have an official change in the exchange rate, we have to take a one-time hit on those values.

Speaker Change: Okay, great. Thank you Kristen.

Speaker Change: As a reminder, that is star one one to ask a question.

Speaker Change: Our next question will come from the line of Josh Spector with UBS.

Josh Spector: Yes, hi, good morning.

Josh Spector: A quick clarification, one on the guide and maybe a question to follow just around the operating income side you.

Josh Spector: You made the point on sales, excluding South Korea at the operating income guide up mid single digits.

Josh Spector: Excluding the South Korea impact in 'twenty, three or is that off the base reported number.

Speaker Change: No it excludes it.

Speaker Change: Okay.

James D. Gray: And so then that $15 million is just the balance sheet impact due to the hyperinflation treatment under GAAP that we'll be recognizing in the first quarter. So that said, now you look forward to 2024, still great fundamentals in the Argentinan market. Sugar prices are high, and corn is relatively cheap.

Speaker Change: I guess organically then you are talking about more of a high single digit ish.

Speaker Change: Operating income growth relative to volumes up low single. So can you kind of bridge, maybe the pieces of that that EBIT.

Speaker Change: That level. So how much is volume leverage and just the movement in price cost between first quarter and the rest of the year is that a good or bad guy for the year and is there anything else, we should be thinking about.

James D. Gray: The attractiveness of high fructose syrup to beverage makers is very, very good. So the Argentina JV should probably continue to perform well in 2024. So we'll have good underlying OI. What we just need to watch is with the new government. How do they look at the official rate of the peso?

Speaker Change: Yeah.

Well, Josh maybe and maybe pull apart the pieces because I don't know.

Speaker Change: Maybe we've interpreted in our guide the way that you might be reading it.

Speaker Change: We looked at 2023, and that's a complete year.

Josh Spector: We've effectively sold Korea early in 2024, so we look at well what did Korea contribute to 2023 that contribution won't be there in 2024, so thats kind of our new baseline and then we issued our outlook our guidance off of that baseline.

James D. Gray: But you probably won't see something like what we witnessed in December, where you had an official peso rate that was in the 300s go up to 800. So it'll be unlikely that you'll have an additional one-time hyperinflation impact in 2024. There may be some, but it's unlikely the degree of magnitude that we're witnessing here that we have to take in January. Okay, that's super helpful, Jim. So, taking that into account and just thinking through all the moving pieces, 23 to 24, then 24 to 25.

Josh Spector: And so when we see adjusted operating income up in the mid single digits.

Josh Spector: Essentially what we're counting on is.

Josh Spector: Our return on actual volume is going to be offset by a little bit of price pass through due to the lower raw materials, but we're seeing dramatically lower corn costs and some input costs and so the lower Cogs is helping us the additional volume will help us on our on our manufacturing costs.

James D. Gray: You know, when we look at the guide in 2024, the outlook for mid-single-digit growth and operating income. Coming off a very strong 2023 result, I'm just wondering how we should think about the guide in the context of your 5% to 7% operating income CAGR, that growth framework that you outlined for 2020. Yeah, sure, you know, if I could take a crack at that, obviously, we're not kind of necessarily out here kind of reissuing kind of a four-year outlook. We're still working within our four-year outlook. But you know, within 2024, look, there are some risks, you know, to the year. You know, obviously, there's, you know, it's an election year; we may see changes to the impact on taxes.

Josh Spector: And all of those come to contribute to a fairly all pretty healthy.

Josh Spector: No change in our gross profit.

Josh Spector: We're going to manage our opex tightly.

Josh Spector: And that provides us leverage to op income.

Speaker Change: Okay understood and I guess I did that math interpretation around so understand what youre, saying now.

Speaker Change: I was wondering if you could also comment on any trends youre seeing in customer re formulation considering that business, maybe it's a leading indicator around new mix of products coming out is there anything there to get it any optimism about maybe more new product introduction, helping you guys gave.

Speaker Change: Share any insights that kind of on trends you can share in that regard.

James D. Gray: You know, I think we're a little bit concerned, maybe about risks around stubborn food inflation and what's the impact on consumer demand. You know, the shape of the grocery store basket, you know, but on the other hand, you know, some of your peers are talking about, will brand companies have to use promotions to, you know, or be enticed by grocers or other retailers to bring some promotions in to excite the consumer to fill those grocery baskets back up, you know, or to maintain branded market share on the shelf? If that stimulus happens, that's an opportunity for us. That's always good for unit volumes for our customers, and we supply ingredients that support those unit volume sales. I would note that just on one thing, which is within our 2023 results, we're still absorbing a loss on plant-based proteins. And so that operating loss was just over $40 million. In addition, as the plant-based protein market has slowed down, we did recognize upwards of about $15 million of mark-to-market on inventory value for our plant-based proteins.

Speaker Change: I think we see.

Speaker Change: A lot of focus on.

A lot of focus on foodservice innovation, because youre seeing still strong consumer spending.

Speaker Change: And.

The pardon me I was just.

Speaker Change: Yes.

Speaker Change: Take it away.

Speaker Change: I'll grab one piece right. So the trend obviously since 2022 2023 carrying a little bit into 2024 still has always been around affordability right with obviously with.

Speaker Change: The cost of ingredients going off our customers have looked at and said hey, where can we actually design and affordability.

Speaker Change: So that we can now going into 2024, that's even more of a focus for some of our brand customers.

Speaker Change: And then I think what Youre also seeing is is like <unk> I think with a soft landing consumers feeling.

Not so dire about maybe the economic outcome and maybe that's just speaking from a U S perspective, but that some of the support behind wellness trends and some of their choices that we see in <unk>.

Speaker Change: On front of pack I think that's going to start to emerge back in 2024, I think continued focus on helpful.

James D. Gray: So that's in our numbers for 2023. So as we look to 2024, we're going to improve upon that, and we'll improve upon that in 2025. Furthermore, in 2024, a good, solid year for sugar reduction.

Speaker Change: Solutions.

Speaker Change: Lot of focus on.

Speaker Change: Dynamic consumer relate it to <unk>.

Speaker Change: Continued spending for experiences and mobility.

Speaker Change: And.

Speaker Change: An increasing focus on.

James D. Gray: And as we go forward into 2025, we'll still have the opportunity to take advantage of the additional capacity that we put into our Kuala Lumpur facility and drive growth there. So I think there are some things that we're organically doing that we continue to work on that are going to be builders in our operating income as we go forward. I do think, Jim, it was helpful that you clarified the protein fortification and the operating loss and inventory adjustment.

Speaker Change: Return to office lunch trade.

Speaker Change: Again, those foodservice type offerings, where we're very connected into the quick service restaurant.

Speaker Change: <unk>, we're seeing a lot of activity from a standpoint of ideation and innovation there and.

Speaker Change: Jim emphasized just.

Speaker Change: Naturally youre going to see a lot of focus continually on affordability.

Speaker Change: Related to consumer debt that may be increasing and just overall affordability I don't think youre going to see much more shrink <unk> I think thats run its course and theres been backlash, but I do think overall recipe.

James P. Zallie: That $55 million total... is in. The 23% increase in operating income last year, and we believe that that has been taken to a low point where we're seeing, you know, improvements heading into this year. So that's something that we are encouraged about as well. Really appreciate the color.

Speaker Change: Formulation is what we're seeing a lot of the.

Speaker Change: The briefs that we're working with customers on Josh I'd always say look theres, an under current Theres always a theme with consumers in today's world with blogs and the Internet.

Speaker Change: Think about authenticity and the ingredients and always to move towards natural.

James P. Zallie: I'll take the rest of my questions offline. Thank you. All right, great. Thank you. As a reminder, that is Star 1-1 to ask a question. Our next question will come from the line of Josh Spector with UBS. Yeah, hi, good morning.

Speaker Change: And so some of I would say is when we work on our stevia business just the underlying appeal to customers has always been around.

Speaker Change: From nature ingredients in everything that we make is from plants.

Speaker Change: And so I think that is over an overall trend that still supports us and thats, a mega trend and that's a long term trend for sure for sure. The high intensity natural sweetener space is something that we're seeing a lot of.

James D. Gray: A quick clarification one on the guide. © The Bulletproof Executive 2013, You made the point on sales that it's excluding South Korea, is the Operating Income Guide https://www.larryweaver.com No, that excludes, Okay, so then I guess organically, then you're talking about more of a high single digit, Operating Income Growth relative to volumes up low single, so can you kind of bridge maybe the pieces of that EBIT that gets you to that level, so how much is volume leverage and just the movement in price cost between first quarter and the rest of the year, is that a good or bad guy for the year and is there anything else we should be thinking about? Yeah, well, Josh, maybe maybe pull apart the pieces because I don't know.

Attention based on a lot of the news that came out.

Speaker Change: In the middle and towards the end of last year with some of the studies about the high intensity artificially as well.

Speaker Change: Thank you I appreciate the thoughts.

Speaker Change: Sure thing.

Speaker Change: Our next question will come from the line of Adam Samuelson with Goldman Sachs.

Adam Samuelson: Yes, Thank you and good morning, everyone.

Adam Samuelson: Hi, Adam Adam.

Adam Samuelson: So I guess versus I think about the bridge to 'twenty four and you guys have given some very helpful color, but I'm just trying to make sure I'm thinking about kind of fixed cost absorption.

Adam Samuelson: The impact of volumes what Ned.

Adam Samuelson: The negative impact that had in 2003 as you manage through Destocking and a high single digit decline in organic volumes.

James D. Gray: You know, maybe we've interpreted it in our guide the way that you might be reading it. We looked at 2023, and that's a whole year. We've effectively sold Korea early in 2024. So we look at, well, what Korea contributed to 2023, you know, that contribution won't be there in 2024. So that's kind of our new baseline. And then we issued our outlook, and our guidance off of that baseline. And so, you know, when we see adjusted operating income up in the mid-single digits, essentially, what we're counting on is, you know, a return on actual volume. It's going to be offset by a little bit of price pass-through due to lower raw materials, but we're seeing dramatically lower corn costs and some input costs. And so the lower cogs are helping us; the additional volume will help us on our manufacturing costs.

Adam Samuelson: We're talking about a low single digit increase in volumes in 'twenty four obviously that's.

Adam Samuelson: Still well off where you would have been a couple of years ago and I was just trying to make sure is there still a fixed cost absorption charges embedded in.

Adam Samuelson: And the 24 outlook.

Adam Samuelson: Or were you actually under shipping your own production last year. So you are planning to ship to production this year.

Adam Samuelson: Okay.

Adam Samuelson: Past the absorption in the right place.

Adam Samuelson: Yes.

Adam Samuelson: The ladder Adam so.

Adam Samuelson: Is that.

Speaker Change: Our our planning team did a really nice job looking at the decline in orders order volume shipped in 2023, we really tried to manage the finished goods inventory ending point.

Speaker Change: So as we look at 2024 and we see.

Speaker Change: That order volume and anticipate that order volume being up I think like you appropriately characterized it I think he nailed it which is like.

Speaker Change: This is not a huge bounce back this is a gradual improvement, but we do see an improvement in 2024 on order volume versus the lows. They think that we saw in 2023 and I think we are poised for our production to start absorbing fixed costs and fixed costs. Some fixed cost absorption as part of our guide for two.

James D. Gray: And all of those come to contribute to a freely, you know, pretty healthy change in our gross profit. We're going to manage our OPEX tightly, and that provides us leverage on operating income. Okay, no, understood.

Speaker Change: Thousand 24.

Speaker Change: Okay. That's helpful. And then just coming back to the to the question on capital and it ties in to kind of use of proceeds.

James P. Zallie: And yeah, I guess I did that math interpretation wrong. So I understand what you're saying now. I was wondering if you could also comment on any of your trends you're seeing in customer reformulation, considering, you know, that business, maybe is a leading indicator around new mix or products coming out. Is there anything there to give any optimism about? More new product introductions Helping you guys gain, share any insights kind of on trends you could share in that regard. I think we see a lot of focus on food service innovation because you're still seeing strong consumer spending, and the trend, obviously, since 2022, 2023, carrying a little bit into 2024 still, has always been around affordability. Obviously, with the cost of ingredients going up, our customers have looked at it and said, hey, where can we actually design in affordability so that we can now, going into 2024? That's even more of a focus for some of our brand customers.

Speaker Change: With with Korea.

Speaker Change: I guess I'm, just trying to make sense of.

Speaker Change: Why not at a minimum a placeholder to allocate.

Speaker Change: To allocate the cash for buyback at this juncture.

Speaker Change: It would seem like theres not much if any buyback really assumed in the plan. This year based on the average share count in.

Speaker Change: Is should we be thinking that hey, there might be M&A that youre kind of balancing.

Speaker Change: Balancing against or what would be the condition by which you wouldn't be deploying that excess cash flow and divestiture proceeds this year.

Speaker Change: Yes.

Speaker Change: Well, obviously we are.

Speaker Change: We are looking at and had worked on on a number of.

Speaker Change: Items that are in our M&A pipeline.

Speaker Change: As well as in as I mentioned kind of earlier, though.

Speaker Change: Thinking about.

Speaker Change: There is there is cash proceeds there is a healthy cash balance in terms of where we ended the year.

Speaker Change: And so as we look at the shares.

Speaker Change: And were there trade.

James P. Zallie: And then I think what you're also seeing is that, hey, I think with a soft landing, consumers feeling not so dire about maybe the economic outcome, and maybe that's just speaking from a U.S. perspective, but that some of the support behind wellness trends and some of their choices that we see in front of PAC, I think that's going to start to emerge back in 2024.

Speaker Change: That's absolutely something that's in our thinking I don't know if we necessarily committed to it because we don't always know when the windows are going to be open and when we're going to be able to execute on share repurchases.

Speaker Change: But we have proven over time in the last couple of years.

Speaker Change: That we will be opportunistic and we will be very meaningful in relationship to.

Speaker Change: Making share repurchases that will be accretive that's right.

James P. Zallie: Yeah, I think continued focus on helpful solutions, a lot of focus on a dynamic consumer related to continued spending for experiences and mobility, and an increasing focus on return to office, lunch trade. Again, those food service type offerings where we're very connected to the quick service restaurant trade. We're seeing a lot of activity from a standpoint of ideation and innovation there. And I think Jim emphasized just how naturally you're going to see a lot of focus continually on affordability related to consumer debt that may be increasing and just overall affordability. I don't think you're going to see much more shrinkflation. I think that's run its course, and there's been a backlash, but I do think overall recipe formulation is what we're seeing, a lot of the briefs that we're working with customers on. Hey, Josh, I'd always say, look, there's an undercurrent.

Speaker Change: And part of our overall capital return to shareholders. So I would say you should continue to.

Speaker Change: Follow what we've done in the past because I think we've been.

Speaker Change: Very purposeful and clear about our.

Capital allocation approach and we will continue to do so but.

Speaker Change: With the strategy refresh clearly.

Speaker Change: Would like to expand our toolbox of solutions capabilities for textural offerings and in those targeted areas for healthful solution. So it's always a balancing act.

Speaker Change: Adam, but I think the other thing just to emphasize as I said earlier is we will continue to be disciplined and be good stewards of capital.

Speaker Change: And it's not a necessarily a matter of either or right. It is I do look at it is both.

Speaker Change: And both are somewhat dependent upon opportunity and windows and to Jim Jim's point right.

James P. Zallie: There's always a theme with consumers in today's world, with blogs and the internet, to think about authenticity in the ingredients and always to move towards natural, right? And so some of, I would say, when we work on our Stevia business, just the underlying appeal to customers has always been around natural ingredients and everything that we make is from plants. And so I think that is an overall trend that still supports this. And that's a mega trend, and that's a long-term trend. For sure. For sure.

Speaker Change: On M&A and Thats focused on our ingredient solutions and expanding our strategy.

Speaker Change: We are disciplined in terms of getting after opportunities.

Speaker Change: You have to say that with between risk free rates and overall multiples that valuations are.

Speaker Change: Probably more attractive now than they have been and maybe the last five to seven years.

Speaker Change: And as a strategic buyer I think that we look at capabilities and assets that can really help us accelerate what we wanted to do and textures and unhelpful solutions.

Speaker Change: Okay I appreciate the I appreciate that color I'll pass it on thanks.

James P. Zallie: The high-intensity natural sweetener space is something that we're seeing a lot of attention based on a lot of the news that came out in the middle and towards the end of last year with some studies about high-intensity artificial sweeteners as well. Thank you. I appreciate the thoughts.

Speaker Change: Thanks, Adam.

Speaker Change: That concludes today's question and answer session I would like to turn the call back to Jim Daly for closing remarks.

James D. Gray: I want to thank everybody for joining us. This morning, we look forward to seeing many of you at our upcoming investor events with the next significant engagement being Cagny and.

James P. Zallie: Sure thing. Our next question will come from the line of Adam Samuelson with Goldman Sachs. Yes, thank you.

James D. Gray: Boca Raton on February 21, and I want to thank you for your continued interest in ingredient.

James D. Gray: Good morning, everyone. Hi Adam. Hey Adam.

James D. Gray: Okay.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

James P. Zallie: Hi. So I guess first is I think about the bridge to 24, and you guys have given some very helpful color, but I'm just trying to make sure I'm thinking about kind of fixed cost absorption and how the impact of volumes, what the negative impact that had in 20 Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com? We're talking about a low single- Thanks for watching!

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James D. Gray: In the 24 Outlook, or were you actually under-shipping your own production last year? The Bulletproof Executive 2013, Yeah, it's the latter, Adam. So, you know, I think our planning team did a really nice job looking at the decline in orders, and order volume shift in 2023; we really tried to manage the finished goods, and inventory ending point. So as we look at 2024, and we see that order volume and anticipate that order volume being up, and I think, like you appropriately characterized it, I think he nailed it, which is like, this is not a huge bounce back, And I think we are poised for our production to start absorbing fixed costs and fixed costs; some fixed cost absorption is part of our guide for 2024. Okay, that's helpful.

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James D. Gray: And then it just, coming back to the question on capital, and it ties into kind of the use of process, with I guess I'm just trying to make sense of why not, at a minimum, use a placeholder to allocate the cash for buyback at this juncture. It would seem like there's not. If any buyback, earliest..., plan this year based on the average share count, http://TheBusinessProfessor.com would be thinking that hey, there might be M&A that that is balancing against or what what would be the condition by which, Yeah. Well, obviously, you know, we are looking at and have worked on a number of items that are in our M&A pipeline. As well as in, as I mentioned kind of earlier, though, thinking about, there is, you know, there are cash proceeds; there is a healthy cash balance in terms of where we ended the year. And so as we look at the shares and where they trade, you know, that's absolutely something that's in our thinking. I don't know if we've necessarily committed to it because we don't always know when windows are going to be open.

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James D. Gray: And, you know, when we're going to be able to execute on share repurchases. But we have proven over time, in the last couple of years, that we will be opportunistic, and we will be very meaningful in relationship to making share repurchases that will be accretive. That's right, and it's part of our overall capital return to shareholders. Yeah, so I would say, you know, you should continue to follow what we've done in the past because I think we've been very purposeful and clear about our capital allocation approach.

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James P. Zallie: And we will continue to do so. But with the strategy refresh, clearly, we would like to expand our toolbox of solutions capabilities for textural offerings and in those targeted areas for healthful solutions. So it's always a balancing act, Adam. But you know, I think the other thing just to emphasize, as I said earlier, is that we will continue to be disciplined and be good stewards of capital. Yeah, I mean, it's not necessarily a matter of either or, right?

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James D. Gray: It is, I do look at it as both, and both are somewhat dependent upon opportunity and windows. And to Jim's point, right, on M&A that's focused on our ingredient solutions and expanding our strategy, we are disciplined in terms of getting after opportunities. You have to say that, between risk-free rates and overall multiples, valuations are probably more attractive now than they have been in maybe the last five to seven years. And as a strategic buyer, I think that we look at capabilities and assets that can really help us accelerate what we want to do in textures and in healthful solutions.

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James P. Zallie: I appreciate?? The Ultimate Parody Site! Thanks, Adam. That concludes today's question-and-answer session. I'd like to turn the call back to Jim Zallie for closing. I want to thank everybody for joining us this morning.

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James P. Zallie: We look forward to seeing many of you at our upcoming investor events, with the next significant engagement being Cagney in Boca Raton on February 21st. And I want to thank you for your continued interest in Ingredion. This concludes today's conference call. Thank you for participating. You may now disconnect.

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Operator: Copyright OSHO International Foundation www. OSHO.com copyright OSHO is a registered trademark of OSHO International Foundation. OSHO is a registered trademark of OSHO International Foundation. Welcome to the Ingredion Incorporated fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised.

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Speaker Change: Good day, and thank you for standing by welcome to the ingredient incorporated fourth quarter 2023 earnings call.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone.

Speaker Change: You will then hear an automated message advising your hands raised.

Noah Weiss: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Noah Weiss, Vice President of Investor Relations. Please go ahead.

Speaker Change: Withdraw your question. Please press star one one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to hand, the conference over to your host today No advice Vice President of Investor Relations. Please go ahead.

James P. Zallie: Good morning, and welcome to Ingredion's fourth quarter and full year 2023 earnings. I'm Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, Vice President and CEO, and Jim Gray, our Executive Vice President and CFO. Please see the complete disclaimer at https://sites.ingredient.com. As a reminder, our comments within the presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial results. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredion assumes no obligation to update them in the future as or if circumstances change. During this call, we will also refer to certain non-GAAP financial measures, including Adjusted Earnings, Adjusted Operating Income, and Adjusted Effective Tax Rate, which are reconciled to U.S. GAAP measures in Note 2, Non-GAAP Information, is included in our press release and in today's presentation. With that, I will turn the call over to you.

Speaker Change: Good morning, and welcome to ingredients fourth quarter and full year 2023 earnings call I'm No Weiss Vice President of Investor Relations. Joining me today on today's call are Jim Sally Vice President and CEO, and Jim Gray, our executive Vice President and CFO.

The press release, we issued today as well as the presentation, we will reference for our fourth quarter and full year results can be found on our website ingredient dot com in the investors section.

Speaker Change: As a reminder, our comments within the presentation may contain forward looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the company's future operations and financial performance actual results could differ materially from these from those estimated in the forward looking statements and ingredient and assumes no obligation to update.

Speaker Change: In the future as or if circumstances change additional information concerning factors that could cause actual results to differ materially from those discussed during today's call or in this morning's press release can be found in the company's most recently filed annual report on Form 10-K, and subsequent reports on Form 10-Q and a.

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Speaker Change: During this call. We will also refer to certain non-GAAP financial measures, including adjusted earnings per share adjusted operating income and adjusted effective tax rate, which are reconciled to U S. GAAP measures and note to non-GAAP information included in our press release and in today's presentation appendix.

Speaker Change: With that I will turn the call over to Jim Sally.

James P. Zallie: Thank you, Noah, and good morning, everyone. Our business performed exceptionally well in 2023, surpassing several key financial records, with solid net sales, very strong profitability, and robust cash flow, as well as outstanding company performance across safety, environmental, and importantly, service delivery. For the full year, we increased our net sales by 3% and our adjusted operating income by 23% as we managed raw material volatility and took pricing actions and proactive cost-saving measures. As we look ahead to 2024, we are well positioned to deliver further financial growth on top of 2023's remarkably strong results, and we are confident that our new segmentation will better align our resources and capabilities with customers' needs to realize further growth opportunities. Let me update you now on progress against our four strategic pillars, beginning with specialty ingredients.

Jim Sally: Thank you Noah and good morning, everyone. Our business performed exceptionally well in 2023, surpassing several key financial records with solid net sales very strong profitability and robust cash flow as well as outstanding company performance across safety.

Jim Sally: Environmental and importantly service delivery.

Jim Sally: For the full year, we increased our net sales, 3% and our adjusted operating income by 23% as we manage raw material volatility and took pricing actions and proactive cost saving measures.

Jim Sally: As we look ahead to 2024, we are well positioned to deliver further financial growth on top of 2020 Three's remarkably strong results and are confident that our new segmentation will better align our resources and capabilities with customers' needs to realize further growth.

Jim Sally: Opportunities.

Jim Sally: Now let me update you now on progress against our four strategic pillars.

Jim Sally: Beginning with specialty ingredients.

James P. Zallie: Full-year net sales grew by 4%, and specialty growth contributed to gross margin expansion. At the end of 2023, specialty ingredients will represent 34% of consolidated net sales. Performance highlights included food systems, driven by strong private label demand, and pharma and personal care, driven by continued wellness trends, each demonstrating strong top line growth for 2023. Now, turning to commercial excellence. Throughout the year, our technical service teams engage regularly with customers to co-create and provide the best ingredient solutions for their applications.

Jim Sally: Full year net sales grew by 4% and specialty growth contributed to gross margin expansion at.

Jim Sally: At the end of 2023 specialty ingredients represented 34% of consolidated net sales.

Jim Sally: Performance highlights included food systems, driven by strong private label demand and pharma and personal care driven by continued wellness trends each demonstrating strong top line growth for 2023.

Jim Sally: Turning to commercial excellence throughout the year, our technical service teams engaged regularly with customers to co create and provide the best ingredient solutions for their application.

James P. Zallie: We were pleased to see a 26% increase in customer engagements, both in person at our idea labs and virtually through our digital connect studios. We believe this demonstrates a recognition by our customers, not only of our capabilities but also their need to innovate to drive volume growth. We also advanced our go-to-market capabilities through global training in consultative selling with a focus on consumer trends that continually drive our business, including protein and fiber fortification, clean labeling, and sugar reduction.

Jim Sally: We were pleased to see a 26% increase in customer engagements both in person at our idea labs and virtually through our digital connect studios. We believe this demonstrates our recognition by our customers not only of our capabilities, but also their need to innovate to drive volume growth.

Jim Sally: We also advanced our go to market capabilities through global training and consultative selling with a focus on consumer trends that continually drive our business, including protein and fiber fortification clean labeling and sugar reduction.

Jim Sally: By giving our teams the tools and information they need to help customers innovate around these trends in real time, we have been able to improve our net promoter scores.

James P. Zallie: By giving our teams the tools and information they need to help customers innovate around these trends in real-time, we have been able to improve our Net Promoter Scores, something that we regularly track. Added to this, our investment in supply chain systems has improved on-time delivery each quarter as we progressed through 2023, giving our customers confidence that our supply chain can support just-in-time demand. In the area of cost competitiveness, we invested in our procurement capabilities, completed a redesign of the team, and have provided training globally in category management. The team has done an outstanding job of leveraging Ingredion scale and implementing best practices. We are beginning to see significant value creation through real year-over-year savings, risk reduction, and improved supplier collaborations. I also want to emphasize the outstanding work that our operations team has done to ensure the safety of our employees and contractors this year. Ingredion has always been a leader in safety performance, but this year we have achieved a notable improvement in reducing the number of recordable and lost time incidents.

Jim Sally: <unk> that we regularly track adding to this our investment in supply chain systems have improved on time delivery each quarter as we progressed through 2023, giving our customers confidence that our supply chain can support just in time demand.

Jim Sally: In the area of cost competitiveness, we invested in our procurement capabilities completed a redesign of the team and have provided globe training globally and category management.

Jim Sally: The team has done an outstanding job of leveraging ingredients scale and implementing best practices. We are beginning to see significant value creation through real year over year savings risk reduction and improved supplier collaborations.

Jim Sally: I also want to emphasize the outstanding work that our operations team has done to ensure the safety of our employees and contractors this year.

Jim Sally: Ingredient has always been a leader in safety performance, but this year, we have achieved a notable improvement in reducing the number of recordable and lost time incidents.

James P. Zallie: As 2023 developed, we experienced softer customer demand. Our supply chain and operations teams responded quickly by adjusting production schedules, which enabled us to end the year with a well-balanced inventory level. As we absorbed greater fixed costs in 2023, we feel that we are well positioned in 2024 as volumes recover to obtain leverage from our operations and lower manufacturing costs. Finally, acknowledging our purpose-driven and people-centric growth culture, I'm proud to report that we earned a perfect score in the Human Rights Campaign Foundation's Corporate Equality Index for 2023. We are also happy to announce that we are once again recognized on Fortune's Most Admired Companies list, ranking in the top five of the food production category. Regarding progress on our sustainability agenda, in 2023, we reached a new milestone with 66% of our five priority crops being sustainably sourced. We're on track to meet our 2025 commitment of 100% sustainable sourcing. Additionally, we continue to expand our regenerative agriculture program with customers, resulting in an 85% year-over-year increase in acreage. Regenerative agriculture is currently seen as one of the most promising mechanisms for on-farm carbon reductions to help all companies in the food supply chain to reduce their Scope 3 footprint.

Jim Sally: As 2023 developed we experienced softer customer demand our supply chain and operations teams responded quickly by adjusting production schedules, which enabled us to end the year with a well balanced inventory level.

Jim Sally: As we absorb greater fixed costs in 2023, we feel that we are well positioned in 2024 as volumes recover to obtain leverage from our operations and lower manufacturing costs.

Jim Sally: Finally, acknowledging our purpose driven and people centric growth culture I'm proud to report that we earned a perfect score in the human rights campaign Foundation's corporate equality index for 2023.

Jim Sally: We are also happy to announce that we were once again recognized on fortune's most admired companies list.

Jim Sally: <unk> in the top five of the food production category.

Jim Sally: Regarding progress against our sustainability agenda in 2023, we reached a new milestone with 66% of our five priority crops being sustainably sourced were.

Jim Sally: We are on track to meet our 2025 commitment.

Jim Sally: Of 100% sustainable sourcing.

Jim Sally: Also we continue to expand our regenerative agriculture program with customers, resulting in an 85% year over year increase in acreage.

Jim Sally: Regenerative agriculture is currently seen as one of the most promising mechanisms for on farm carbon reductions to help all companies in the food supply chain to reduce their scope three footprint.

James P. Zallie: Turning now to gross margins. During 2023, we improved gross profit margins by 260 basis points to 21.4%, which demonstrates that our pricing actions and proactive cost savings initiatives have absorbed the inflation of the last three years. The gross profit margin improvement was achieved despite declining customer demand and necessary actions by our operations teams to slow production, resulting in higher fixed costs.

Jim Sally: Turning now to gross margins.

Jim Sally: During 2023, we improved gross profit margins by 260 basis points to 21, 4%, which demonstrates that our pricing actions and proactive cost savings initiatives have absorbed the inflation.

Jim Sally: Over the last three years.

Jim Sally: The gross profit margin improvement was achieved despite declining customer demand and necessary actions by our operations teams to slow production, resulting in higher fixed costs.

James P. Zallie: It's worth noting that this is the sixth consecutive quarter of gross margin growth, and I'd like to highlight that 2023 has been a record year for the company across a number of important financial metrics. We have increased our sales to $8.2 billion, which is an all-time high. We delivered $969 million of operating income, up 23%, which is also a record high. And adjusted EPS grew to $9.42, which is the most ever and... 26% higher than last year. As changes in working capital investments turned favorable, we delivered cash from operations of over 1 billion dollars. These combined results... delivered a positive return for shareholders with a 15% total shareholder return. Now, I will hand it over to Jim Gray for the financial review and 2024 outlook. Jim. Thank you, Jim, and good morning to everyone.

Jim Sally: It's worth noting that this is the sixth consecutive quarter of gross margin growth.

Jim Sally: And I'd like to highlight that 2023.

Jim Sally: Has been a record year for the company across a number of important financial metrics.

Jim Sally: We have increased our sales to $8 $2 billion, which is an all time high.

Jim Sally: We delivered $969 million of operating income up 23%, which is also a record high and adjusted EPS grew to $9 42.

Jim Sally: Which is the most ever and.

Jim Sally: 26% higher than.

Jim Sally: And then last year.

Jim Sally: As changes in working capital investments turn favorable we delivered cash from operations.

Jim Sally: Of over $1 billion.

Jim Sally: These combined results.

Jim Sally: Delivered a positive return for shareholders with 15% total shareholder return.

Jim Sally: Now I will hand, it over to Jim Greg for the financial review and 2024 outlook Jim.

James D. Gray: Thank you, Jim and good morning to everyone.

James D. Gray: Moving to our income statement, while net sales of approximately $2 billion were down 3% for the quarter versus the prior year, gross profit dollars grew 14%, with gross margins greater than 20% again this quarter. Recorded and adjusted operating income were $202 and $203 million, respectively. The increases were driven by lower input costs and favorable price mix partially offset by lower volume. For the fourth quarter, it is worth noting that South America growth was driven primarily by favorable foreign exchange impact and strong performance in our Argentina JV. That said, our Q4 JV results lag one month in financial reporting. So the devaluation of the PESO will impact our

James D. Gray: Moving to our income statement.

James D. Gray: While net sales of approximately $2 billion were down 3% for the quarter versus prior year.

James D. Gray: Gross profit dollars grew 14%.

James D. Gray: With gross margins greater than 20% again this quarter.

James D. Gray: Reported and adjusted operating income were 202 and $203 million respectively.

James D. Gray: The increases were driven by lower input costs and favorable price mix, partially offset by lower volumes.

James D. Gray: For the fourth quarter. It is worth noting that South America growth was driven primarily by favorable foreign exchange impacts and strong performance in our Argentina JV.

James D. Gray: That said, our Q4 JV results lag one months in financial reporting so the devaluation of the peso will impact.