Q4 2024 Ingredion Inc Earnings Call
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Speaker Change: Good day and thank you for standing by. Welcome to the Ingredients...
Speaker Change: Fourth Quarter and Full Year 2024 Earnings Conference 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 will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to Noah Weiss, Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning and welcome to Ingridown's fourth quarter and full year 2024 earnings call. I'm Noah Weiss, Vice President of Investor Relations.
Speaker Change: Joining me on today's call are Jim Zallie, our President and CEO, and Jim Gray, our Executive Vice President and CFO. The press release we issue today, as well as 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.
Speaker Change: As a reminder, our comments within this 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.
Speaker Change: 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.
Speaker Change: Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference 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 also refer to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted effective tax rate.
Speaker Change: which are reconciled to U.S. gap measures in Note 2 non-gap information included in our press release and in today's presentation appendix.
Speaker Change: With that, I will turn the call over to James Zallie.
James Zallie: Thank you, Noah, and good morning, everyone. I am pleased to announce that Ingredion achieved significant double-digit adjusted EPS growth for the fourth quarter.
James Zallie: This performance was driven by continued strong sales volume growth in texture and healthful solutions, as well as exceptional performance from each of our food and industrial ingredient segments.
James Zallie: Our 2024 reorganization and new segment structure positioned our teams well against our targeted markets and customer opportunities, establishing a solid foundation for the future.
James Zallie: Our food and industrial ingredients U.S.-Canada business benefited from the renewal of multi-year contracts that enabled us to recapture inflationary impacts and recover margins, resulting in significant operating income growth for the fourth quarter.
James Zallie: for Food and Industrial Ingredients, LATAM, the Mexico and Andean businesses delivered strong results despite softer sweetener demand.
James Zallie: The strength and agility of our business model in the region enabled us to manage pricing in the face of changing corn costs and currency fluctuations.
James Zallie: These factors collectively led to a year-over-year increase of 5% in operating income or an increase of 8% when adjusting for the sale of the South Korea business.
James Zallie: Turning to a summary of our net sales volume growth for the quarter, Ingredion continued to drive organic growth with a 4% increase compared to last year when adjusted for the sale of our South Korea business.
James Zallie: We experienced a double-digit sales volume increase for the second consecutive quarter.
James Zallie: Food and beverage categories in the U.S. such as yogurt, beverages, and batters and breadings were key contributors to this growth.
James Zallie: Despite ongoing food inflation impacting Western European markets, the categories most relevant to Ingredion in that region have consistently outperformed the overall market throughout 2024, especially in the latter half of the year.
James Zallie: Sectors such as dressings, ready-to-eat and frozen meals, and dairy products continue to demonstrate recovery as consumers traveled and returned to more in-office work routines and placed an increased emphasis on value.
As mentioned during our Texture Innovation Day.
James Zallie: We are continuing to drive volume growth with our most differentiated products and solutions which generally offer higher profitability.
in the Food and Industrial Ingredients LATAM segment.
James Zallie: Net sales volumes were down 4% in the quarter, mainly due to soft sweetener sales to the Mexican beverage market. In addition to sales...
to the Andean Confectionery category also experienced softer demand.
James Zallie: Lastly, in food and industrial U.S. Canada, strong demand from papermaking and packaging customers was partially offset by weaker sweetener shipments.
James Zallie: For the full year 2024, gross profit dollars and margins reached record levels of $1.8 billion.
James Zallie: Our operations and procurement teams have played a pivotal role in driving operational excellence across the organization.
James Zallie: Their focus on optimizing capacity utilization, streamlining supply chain processes, and implementing procurement-led cost-saving measures have increased efficiency and reduced costs.
Thank you for watching!
James Zallie: Let me now update you on our progress against our three strategic pillars.
Beginning with business growth.
James Zallie: In the quarter, our Texture and Healthful Solutions segment demonstrated robust performance with strong sales volume growth and expanding operating income margins.
James Zallie: We continue to progress our solutions selling approach, focused on demonstrating the impact of textural solutions to improve taste and overall liking.
James Zallie: Underpinning our solutions capabilities, we have invested in strengthening formulation expertise and improving the quality of customer briefs.
James Zallie: We are focused on solving unique customer challenges by providing tailored solutions for health and wellness, clean label, and affordability.
We are continuing to...
Investing Cape future innovation and revenue growth
James Zallie: Our Food and Industrial Ingredients U.S. CAN segment demonstrated significant operating income growth.
James Zallie: We successfully adjusted multi-year contracts to recapture prior year's inflationary impacts and enable margin recovery.
James Zallie: Further supporting this segment's performance was strong demand from the papermaking and packaging industries.
James Zallie: Turning to the second strategic pillar, cost competitiveness through operational excellence.
James Zallie: We are pleased to report that at the end of the first year of our Costa Compete program...
James Zallie: We exceeded our year one run rate cost savings target of $18 million by more than 30%.
James Zallie: We will meet or exceed our run rate target of $50 million by the end of 2025, and we'll provide an update to the program outlook later this year.
A significant portion of the targeted
James Zallie: Cost of Goods Sold savings in 2025 will come from strategic network sourcing moves that enabled us to further optimize our asset footprint.
James Zallie: and CLOSE, three of our smaller facilities, one each in the UK, Brazil and Canada.
It is also noteworthy to mention that this morning
James Zallie: we announced $100 million of investments to expand Ingredion's capabilities for delivering texture innovations to growing end markets while bolstering the economic viability and sustainability of the Indianapolis plant.
James Zallie: Furthermore, by upgrading Indianapolis's energy infrastructure, Ingredion will improve operational efficiency and reliability while reducing greenhouse gas emissions.
Moving to our last pillar, our people-centric performance growth culture.
James Zallie: In December we were honored to be recognized for the first time ever by the Wall Street Journal as one of the 250 best managed companies.
James Zallie: This recognition demonstrated Ingredion's achievements in customer satisfaction, employee engagement, innovation, and financial strength.
James Zallie: In addition, our dedication to fostering an inclusive work environment was further highlighted by Ingredion Brazil being designated as a great place to work for 2025.
Thank you for watching!
James Zallie: There are also a number of notable achievements to highlight after the first year of our Global Reorganization, Business Resegmentation, and Cost to Compete program.
James Zallie: We advanced a customer-centric approach to optimizing and de-risking our supply chain by making selective investments and taking restructuring actions to enhance service and improve perfect order delivery.
James Zallie: Resegmentation also increased business performance visibility, providing a clearer view of segment demand drivers.
James Zallie: Global operations, standardized roles, and processes leveraging their global scale, which is just beginning to lead to better execution.
and improved efficiencies.
James Zallie: Lastly, we made strategic investments for growth, progressing texture and healthful solutions capacity expansions in Thailand, the U.S., and Germany.
James Zallie: Now, I am pleased to hand it over to Jim Gray for the financial review. Jim?
Thank you, Jim, and good morning, everyone.
Jim Gray: Moving to our income statement, net sales for the fourth quarter were $1.8 billion, down 6% versus prior year.
Jim Gray: Gross profit dollars grew 12% with corresponding margins up 420 basis points to 25%.
Jim Gray: Reported and adjusted operating income were $162 million and $248 million respectively, with adjusted operating income of 22% versus the prior year driven by lower raw material costs, greater sales volume and fixed cost absorption,
Turning to our Q4 net sales bridge.
Jim Gray: The 6% decrease was driven by $92 million in lower price mix and $33 million of foreign exchange impacts.
partially offset by positive sales volume growth of 77 million.
Jim Gray: Furthermore, the exit from South Korea had a $73 million impact on sales volume.
Thank you.
Jim Gray: Turning to the next slide, we highlight Net Sales Drivers for the fourth quarter.
For the total company, net sales were down 6%.
Jim Gray: Texture and Healthful Solutions net sales were up 1%, driven by sales volume growth of positive 10%.
Jim Gray: Price mix declined 10% for the quarter, primarily reflecting the pass-through of lower corn costs.
Jim Gray: as well as lapping last year's higher pricing due to double-digit inflation experienced in specialty corn and energy costs.
Food and Industrial Ingredients, LATAM. Net sales were down 9%.
Jim Gray: and Food and Industrial Ingredients, U.S. Can, net sales were down 2%.
Jim Gray: Both results impacted primarily from the pass-through of lower corn costs.
Thank you for watching!
Jim Gray: The operating income has steadily returned to more consistent levels throughout 2024, particularly in the latter half of the year, recognizing that texture solutions is not significantly impacted by seasonality.
This stable trend is expected to continue into 2025.
Jim Gray: Turning to our earnings bridge, on the top half you can see the reconciliation from reported to adjusted earnings per share.
Jim Gray: Operationally, we saw an increase of 52 cents per share for the quarter.
Jim Gray: Partially offset by other income of minus 10 cents per share.
Jim Gray: Moving to the change in non-operational items, we had an increase of $0.14 per share, primarily driven by lower financing costs of $0.19 per share, partially offset by a higher tax rate equivalent to minus $0.06 per share.
Thank you for watching!
Jim Gray: Shifting to our year-to-date income statement highlights, net sales for the full year were approximately 7.4 billion dollars, down 9 percent versus the prior year, due mainly to lower corn costs.
Jim Gray: Gross profit dollars increased 2% and gross margin was up 270 basis points to 24.1%.
Reported and Adjusted Operating Income were $883 and $1,016,000,000.
Jim Gray: dollars respectively with adjusted operating income up 5% from last year.
Thank you.
Jim Gray: Turning to our full-year net sales bridge, the 9% decrease was driven by $622 million in lower price mix and $52 million of foreign exchange impacts.
partially offset by positive sales volume growth of $227 million.
Jim Gray: Furthermore, the exit from South Korea had a $283 million sales volume dollar impact.
Thank you for watching!
Turning to the next slide, we highlight
For the total company, net sales were down 9%.
Jim Gray: However, excluding the impact of South Korea's sales from results, net sales were down 6%.
Texture and Healthful Solutions net sales were down 4%.
Jim Gray: price mix was down 10% and sales volume was up 7% for the full year.
Food and Industrial Ingredients, LATAM, net sales were down 7%.
Jim Gray: food and industrial ingredients, US Canada net sales were down 8% for the full year. Both results impacted by the pass-through of lower corn costs.
Thank you.
Jim Gray: Let me turn to a full year summary of each segment's performance now that we have completed our first year reporting under new segmentation.
Jim Gray: For 2024, Texture and Healthful Solutions net sales were down 4% compared to the prior year and down 3% on a constant currency basis.
Jim Gray: Although Texture and Healthful Solutions operating income was down 11% from prior year, it is important to note the sequential profit improvement through each quarter in 2024 as we fully lap the impacts of industry destocking.
Jim Gray: In food and industrial ingredients, LATAM, net sales were down 7% versus last year, and down 6% on a constant currency basis.
Jim Gray: Operating income improved to $483 million, resulting in 7% year-over-year growth.
Jim Gray: Off-income margin of 19.7% was driven by strong results overall in Mexico and an improving year-over-year input cost structure in Brazil as our transition to biomass energy was completed.
Thank you.
Jim Gray: Moving to food and industrial ingredients, U.S. Canada, full-year net sales were down 8 percent.
Operating income was $373 million, excuse me, up 25%.
with operating income margin improving to 17.3%.
Jim Gray: The exceptional increase in operating income was driven primarily by renewal of multi-year customer contracts.
which reflect catch-ups from prior years' higher inflation.
Jim Gray: The Foyer results also benefited from lower raw material costs, though partially offset by lower price mix.
Thank you for watching!
Jim Gray: For all other the net sales decrease was driven by the overlap of South Korea's net sales included in the prior year
Jim Gray: All other operating loss of minus $22 million was driven primarily by the sale of our South Korea business, which had contributed $30 million to the prior year's results.
Thank you for watching!
Jim Gray: Turning to our year-to-date earnings bridge, the company delivered an increase of $1.23 per share.
Jim Gray: The increase was driven primarily by an operating margin increase of $1.09, partially offset
By volume of minus 47 cents per share
Thank you for watching!
Jim Gray: Moving to the change in our non-operational items, we had an increase of 71 cents per share, primarily driven by lower financing costs of 85 cents per share, partially offset by a higher tax rate equivalent to 24 cents.
to a negative 24 cents.
Jim Gray: Moving to cash flow, 2024 cash generated from operations was 1.4 billion dollars.
Jim Gray: Cash from operations benefited from consistent net income growth and an exceptional contribution from working capital change, which is typical when we experience lower corn costs throughout the year.
Jim Gray: We highlight here that change in working capital balances contributed almost $400 million to our cash from operations.
Jim Gray: As we look forward to 2025, we anticipate flat to slightly higher corn costs and are expecting to invest in working capital.
Thank you.
Jim Gray: In the full year 2024, we repurchased over $200 million of outstanding common shares, more than doubling our initial goal for share repurchases set at the beginning of the year.
Jim Gray: Our capital allocation priorities continue to be organic investment into our business.
primarily focused on higher return growth opportunities.
and secondarily, being mindful of total return to shareholders.
through our dividend and share repurchases.
We actively look at M&A to accelerate our strategic priorities.
Jim Gray: and believe that we have a strong balance sheet to consider the best options for shareholder value creation.
As outlined in our 2025 guidance,
Jim Gray: We will be raising our capital expenditures to an investment level of $400 million to $450 million for 2025.
Jim Gray: This represents a one-time step up from our historical capital investment range of $300 million to $350 million.
Jim Gray: One significant driver of this higher investment level is the opportunity to leverage incentives granted in the Inflation Reduction Act that will enhance our cost position and enable us to capture future efficiencies at our Indy plant.
Now let me turn to our Outlook for 2025.
Jim Gray: For the full year of 2025, we anticipate continued sales volume growth and op income improvement.
Thanks for watching!
Jim Gray: We expect net sales for Ingredion to be up low single digits, reflecting greater volume demand, partially offset by price mix and foreign exchange.
Jim Gray: We anticipate that adjusted operating income will be up mid-single digits.
Jim Gray: Our 2025 financing cost estimate is in the range of $50 to $70 million.
Jim Gray: to align with the reduction of overall debt levels and the anticipation of a stronger U.S. dollar.
In our current
Foreign Exchange Outlook
Jim Gray: For the full year 2025, we expect reported and adjusted effective tax rates of 26% to 27.5%.
Jim Gray: For the full year, reported and adjusted EPS are expected to be in the range of $10.75 to $11.55.
Jim Gray: This guidance does not anticipate extraordinary changes in current tax rates.
Tariffs or Trade
or food regulations.
Jim Gray: Furthermore, our expectation excludes acquisition-related integration and restructuring costs, as well as any potential impairment costs.
Jim Gray: We expect diluted weighted average shares outstanding to be between 65.5 and 66.5 million shares.
Jim Gray: We are once again establishing a share repurchase objective of at least $100 million for 2025.
Thanks for watching!
Jim Gray: We anticipate our 2025 cash from operations to be in the range of $800 to $950 million.
Thank you. Thank you. Thank you.
Jim Gray: Corporate costs are now expected to be up in single digits to high single digits year-over-year, reflecting compensation increases and center-led investments in R&D and digital IT capabilities.
Thank you.
Turning to the segment detail for our 2025 Outlook.
Jim Gray: For texture and helpful solutions, we expect net sales to be up mid-single digits.
Jim Gray: and operating income to be up mid-single digits to high single digits driven by sales volume growth.
Thank you for watching!
Jim Gray: For food and industrial LATAM, we expect net sales to be flat and expect operating income to be up mid-single digits.
Jim Gray: For Food and Industrial U.S. Canada, we expect net sales to be down, low single digits.
Jim Gray: and operating income to be flat to down low single digits.
Jim Gray: We expect net sales combined for the sum of these businesses to be up high single digits and operating income is anticipated to approach break-even profitability.
Lastly, for the first quarter of 2025,
Jim Gray: We expect net sales to be down low single digits for the entire company and operating income to be up high single digits.
Thank you for watching!
Jim Gray: That concludes my comments, and I'll turn it back over to Jim. Thanks, Jim.
Our record performance in 2024 provides momentum heading into 2025.
Jim Gray: In addition to solid volume growth in Texture and Healthful Solutions and operational execution across our entire business,
Jim Gray: We also exceeded our first-year cost-to-compete run rate savings target. Our exceptionally strong cash flow from operations, bolstered by short-term working capital benefits, has enabled us to step up organic investments in 2025.
Jim Gray: Additionally, we returned four hundred and twenty six million dollars to shareholders in 2024, demonstrating our commitment to shareholder value.
Jim Gray: We anticipate further strengthening of customer collaborations to drive growth and continue to cost to compete savings from the second year of initiatives to position us well to navigate a dynamic business environment in 2025.
Jim Gray: We will continue to allocate capital that prioritizes organic investment to drive future profit growth while returning capital through dividends and share repurchases to deliver shareholder value.
Now, let's open the call for questions.
Jim Gray: Thank you. As a reminder, if you would like to ask a question, please press star 1 1 on your telephone. You'll then hear the automated message your hand is raised. If you would like to withdraw your question, please press star 1 1 again.
Jim Gray: We also ask that you wait for your name and company to be announced before proceeding with your question. One moment for the first question.
Thank you for watching!
Jim Gray: Our first question will be coming from the line of Christian Owen of Oppenheimer. Your line is open.
Christian Owen: Good morning, thank you for taking the question and congratulations on the nice results.
Christian Owen: But I'll say I was a little bit surprised by the 2025 EPS guidance. The low end implies just about a percentage of growth, high end 8.5%, so pretty wide range of expectations there.
Christian Owen: Can you help us understand the swing factors, what would put the low end in play, and what needs to happen to achieve the high end?
James Zallie: Yeah, let me have Jim take that question. Yeah, Kristen, you know, normally when I think we're beginning of the year, we're going to look at a range that's relatively wide. I think, you know, early on,
James Zallie: There's also always going to be like well Which way is maybe the the spring crop and the US going to kind of kind of play out? As well as right now. I think this year looking really at FX rates So I think you know on the low side of our earnings estimate
James Zallie: You know, probably greater currency weakness, you know, could play into facts, you know, Brazil, Colombia, Europe, maybe China. I'd say there's probably some offsets maybe in the weakness in the Thai baht, which is generally a benefit from us.
James Zallie: We're watching kind of softer co-product values in Europe. We want to see how the French corn crop comes in. And then, you know, just generally slightly higher corn costs potentially always can be just a slight, you know, headwind even though we extensively hatch.
James Zallie: You know our upsides are really driven by a kind of greater than expected volume. I still believe that there's
James Zallie: potentially even more volume, unit volume growth out there in a very low inflationary environment in food and beverage, right? So that tends to be pretty positive for ingredients suppliers.
James Zallie: I think there's, you know, also kind of increased wins as we look at customer reformulations, particularly maybe given some of the dynamics in the U.S., and then there's always some spot pricing opportunities. And so, you know, those are some of the flavor of the potential downsides, but also the upsides.
James Zallie: I think just to compliment that, I think just at this point early in the year, with
James Zallie: Some of the dynamic elements that are in play, and I think you called out foreign exchange as one of the ones that we're watching closely. That all being said...
James Zallie: We do a pretty good job managing that and have historically. But that's the reason at this point in the year, early in the year, for a wider range. But obviously, we looked at what that conveys from a center-cut standpoint.
James Zallie: and what we feel would be in line with say the long-term profit outlook for the business.
Speaker Change: I appreciate that color. And then if I could ask on the $100 million CapEx investment in Indiana, you noted the step-up and the free cash flow that enabled that to happen, but just how this fits into your capital allocation strategy as you're thinking specifically for 2025 and 2026?
Speaker Change: With this impact, you know, your willingness to look at acquisition targets, how are you viewing the pipeline at this stage, and thoughts on the pace of share repurchases. I think you mentioned $100 million on the call, so just any context around that. Thank you.
Speaker Change: Well, you know, Kristen, I think when you when you finish a year like we just did in 24, where we didn't have to invest in working capital. And just to remind you, we put a lot of investment into working capital in 2022.
Speaker Change: that has now really come back. And because we've managed cash well, I think we have a really strong balance sheet. So when you sit back and you say, well, what are the best opportunities to go create shareholder value?
Speaker Change: And we said, well, wait a minute, there's some very good investment opportunities for us.
Speaker Change: and one, continuing to invest in organic growth where we have capacity where we need it, generally in other places around the world.
Speaker Change: But when we looked at Indy, there was an opportunity to really...
to really upgrade.
Speaker Change: Some of what we do as well is put in a cogeneration plant there.
Speaker Change: I think as we noted, we're going to call this out for investors as what we call cost savings in infrastructure. We're going to call it in its own bucket.
Speaker Change: and we'll talk a little bit more about the expected returns, but we believe that this is kind of at least a 10 to mid-teens IRR type of opportunity.
for us to deploy capital.
that we're confident
Speaker Change: are right in line with our strategy, given the importance that that Indianapolis plant, for example, plays. But, as evidenced by...
inorganic investments as well.
Thank you so much.
Thank you.
Thank you. One moment for the next question.
Speaker Change: And our next question will be coming from the line of Josh Spector of UBS. Your line is open.
Yeah, hi, good morning.
Speaker Change: I wanted to ask just on the guidance framework, it seems to be if you go through the negative pricing and FX that you're assuming that volumes are up maybe mid-single-digit percent.
Speaker Change: at your midpoint of expectations. And my reaction is pretty a healthy target if that's a right interpretation. So can you give us some context about what gives you confidence in that? Is that new wins, are there specific markets? Really, what's driving that overall?
Thank you for watching!
Speaker Change: Yeah, maybe to clarify Josh, I mean I would say that our sales volume expectation for texture and healthful solutions...
Speaker Change: is in that mid-single digits, and I would probably say that the F&I businesses have a lower sales volume target than that. We are seeing, though, significantly less price mix.
Speaker Change: You may have in your assumptions, or how you work through it, kind of a greater price mix headwind. We see that dampening, you know, and much less in 2025 versus what we've experienced in 24.
Thank you for watching!
Speaker Change: Yeah, I guess let me step back and try that again. I thought at an overall level you're guiding towards low single-digit revenue growth.
Speaker Change: That's net of pricing. That's net of negative FX. If I say each of those are a point
Speaker Change: I mean maybe I'm differentiating between five versus three. Can you clarify that point for me?
Speaker Change: Yeah and I that's that's yeah so I would say that still again we're looking at you know probably total company low single-digit to between low single-digit and mid single-digit volume slight price mix and foreign exchange is maybe not as much as you assume when we look at the total revenue mix.
right now.
Thank you.
Speaker Change: Okay, understood. Let me move on to another one quickly to ask just on the contract structure of what you have in place with the multi-year contracts.
Speaker Change: How many of the contracts are on a multi-year basis? How much we need to think about coming off over the next couple of years and your visibility to being able to address some of that effectively.
Thank you for watching!
Speaker Change: Yeah let me just take a question in totality from a standpoint of I guess how do we feel
Speaker Change: you know, coming out of contracting, I would say that in general we're pleased with the results of contracting.
Speaker Change: You know, and we expect operating income margins for texture and healthful solutions, food and industrial ingredients lifetime.
Speaker Change: and our businesses that are in the other category to demonstrate margin expansion.
Speaker Change: you know, dynamic environment. For the food and industrial ingredients US Canada business, we are expecting to hold operating income margin for this segment
Speaker Change: as we have achieved significant operating margin expansion over the last two years, you know, in the range of seven, so just holding that margin.
Speaker Change: We think this is a great achievement and you know the segment operating improvements
Speaker Change: will be parted in his remarks by an increase in corporate costs as we invest.
Speaker Change: in some digital transformation investments as well as R&D. And for the company, we anticipate operating income margin improvement to be in the range of 30 to 70 basis points.
that's inclusive of those investments in
Operating Income
corporate costs, I should say.
Speaker Change: The issue around multi-year contracts, I think the majority of those adjustments took place last year. So there's not...
any
significant multi-year adjustments.
Speaker Change: Heading into 2025, there will be one or two here and there, but not of the order of magnitude because typically when these contracts renew, they're multi-year contracts.
Speaker Change: So, again, being able in the U.S.-Canada food and industrial ingredients business to be able to hold that 700 to 800 basis points increase over the last...
Speaker Change: year or two is quite a significant achievement that I think
Speaker Change: you know, highlights the strength of the business model in that business.
Speaker Change: But contracting is complete and the way that manifests in our business, Josh, is that we take all of those contracts and
Speaker Change: As we put them into the system, we come up with kind of that weighted average change relative to when we locked in.
Speaker Change: the underlying raw material with the customer for their volume commitment for 2025.
Speaker Change: run that, and then what you get from us is a perspective, which Jim highlighted, on our operating income margin.
Speaker Change: expansion or stability. Yeah, and just to put a finer point to make sure there's no confusion. So there really is nothing materially outstanding in relationship to contracting. Contracting is complete and that is the case in the US and that is the case in Europe and pretty much around the world.
Thank you for watching!
Thank you very much.
Thank you. Thanks, Josh.
Thank you. One moment for the next question.
Speaker Change: And our next question will be coming from the line of Andrew Stesek of BMO Capital Markets. Your line is open.
Andrew Stesek: Hey, good morning. Thanks for taking the questions. My first one, I wanted to go back to the texture and helpful solutions.
Speaker Change: guidance and at the the recent Innovation Day I think you gave
Speaker Change: a profit growth algo that was at 8 to 10% and recognizing you're giving a range for the guidance for this year, the low end of that obviously leaves room for some shortfall relative to that algo. So I know you...
talked about FX.
Speaker Change: Is there anything else on the downside, on the lower end of that, that could be pressuring that below the algo? And then I guess the follow-on to that would be, as we get beyond 25, are you assuming then that you grow kind of towards the higher end of that algo, and what drives that reacceleration?
Thanks for watching!
Speaker Change: Your answer to your latter question is yes, and I think just on the range for texture and helpful solutions is just being cautious a little bit.
Thanks for watching!
About the strength of the dollar
Speaker Change: kind of strength of some of the country's economies where we primarily are really growing texture and helpful, so
Speaker Change: So, Southeast Asia, looking at China, and looking at parts of Europe as well as the Middle East.
Speaker Change: We're still very optimistic, I think, about the strength of this business.
Speaker Change: And just want to make sure that we still play through kind of how the strength of the dollar looks relative to some currencies.
Got it. Okay. Okay.
Speaker Change: food ingredient regulations. I guess I'm just curious from your perspective
Speaker Change: how you weigh those risks and the positioning of the portfolio, particularly as it relates to kind of scrutiny for the healthfulness of the food supply chain and where you might be positioned. Like, do you think about
Speaker Change: Demand shifts within your portfolio, where that could be a net benefit. Do you see those as potential headwinds? I guess when you think about these things in their totality, should they come to pass, how you weigh the portfolio's positioning? Thanks.
Jim Gray: Yeah, let Jim and I tag team on this one. So, first of all, you know, as mentioned, I think, during our prepared remarks, the 2025 Outlook does not consider
Jim Gray: You know extraordinary changes to current tax rates to tariffs or trade or food regulations
Jim Gray: with respect to the U.S., Mexico, and Canada trade relationships. I think it is important, though, to highlight something that we've talked about in the past about our business, and that is that we have local manufacturing.
Jim Gray: in each country. So for example, we're the only corn wet miller in Canada with two manufacturing facilities.
Jim Gray: and in Mexico with three manufacturing facilities that supply predominantly a local customer base.
Jim Gray: We source corn locally in each country, although we do rely on corn imports from the U.S. into Mexico.
Jim Gray: This is a very dynamic situation right now, and we're committed to sharing any relevant updates to the full year outlook as we gain more clarity, and once we have
some certainty around
the impact on scope and timing of any potential
Jim Gray: At the same time, we're doing scenario planning, as you would expect, to review our regional supply chain operations throughout LATAM, the U.S. and Canada, to look at alternative sourcing paths should they arise.
Jim Gray: Just supply chains like to move, and they like to have time to be able to move. It allows us to think about our input costs. It thinks about where we are going to manufacture, how we approach customers in terms of
Jim Gray: What might be, you know, additional costs that we then have to pass through on pricing?
Thank you for watching!
Thank you very much.
Thank you for watching!
Thank you.
Thank you. One moment for the next question.
Thank you for watching!
Speaker Change: And our next question will be coming from the line of Param Shama of Stevens. Your line is open.
Speaker Change: Thanks and congrats on the on the quarter. Thank you. Thanks Puran. Welcome.
Speaker Change: Thank you. Just wanted to ask about the Cost to Compete program.
Speaker Change: I know you achieved a good run rate thus far, but I was just wondering if you could provide a little bit more granularity in terms of specific cost levers that you thought had the most impact so far.
I believe you mentioned this, but if you could just...
Speaker Change: Talk about the biggest opportunities that you see in 2025 for costs to compete.
along such a program that is enterprise-wide.
Speaker Change: We had set a target. We delivered more than $23 million, which was greater than 30% of what we had originally targeted in the year. So we built momentum throughout.
But one of the levers that obviously
was polled.
Speaker Change: was consistent with our play-to-win strategy refresh and the reorganization and re-segmentation. And that obviously afforded us an opportunity to look across the entire organization.
Speaker Change: and what winning skills and differentiating capabilities we needed to have to execute the strategy. And so a number of people within our organization
Speaker Change: were reassigned to different roles and then at the same time that led to opportunities to streamline the organization and so
to our strategy.
and with...
people being on the right seat, right?
mentioned in the
and the Remarks Network.
Speaker Change: capacity utilizations across our network most efficiently and that led to the decision to shutter three facilities. Now they're smaller facilities, but some involve some investment in other plants to compensate, but from a standpoint of
Driving efficiency, modernization, and overall maximizing capital, maximizing capacity utilization.
Speaker Change: That's where the second year, for the most part, of Cost to Compete Savings
are going to come from.
Speaker Change: Jim, yeah. Well, and I just say that, you know, look, the work led by, you know, our senior VP and Chief Supply Chain Officer, Eric Seif, and what Jim mentioned, looking at all of our manufacturing sites, the team has been looking at these for several years now. We have a different perspective. We've built a different set of capabilities.
Speaker Change: So we really can anticipate demand, where it's going to show up in the world, and then work towards what's the best way to really optimize our cost of production and our cost to move product.
Speaker Change: The only other thing I'd add is that, look, cost to compete is around expenses.
Speaker Change: But as Jim mentioned, as we get into these changes in manufacturing network, it also helps us achieve higher ROIC and a better return on our invested capital. And that's obviously as an asset-intensive company, that's what we're always striving to do.
Thank you for watching!
Great, I appreciate the call there.
Speaker Change: Just on my follow up wanted to see if you could help me understand kind of how to frame up net corn costs for the year. I know you do hedge a good chunk of your, your corn and your, your, the co product values.
Speaker Change: But just thinking about the unhedged portion, we've seen some recent crop price rallies, some drought concerns out of South America. Does that concern you at all and and how should we be thinking about net corn costs for the year?
Speaker Change: When we are going through each specific customer's contracting in the fall of last year, even up through December, when that customer is calling us and saying, yeah, I want to set the volume expectation and the price.
Speaker Change: We're taking, you know, kind of at that moment what the
Speaker Change: Corn futures and or our co-product futures layout looks like for the next year and that's being Incorporated into the price. So I really look at 2025 and even though we've had some movement both in corn upward as well as soy
Speaker Change: I think our more extensive hedging practices in the U.S., particularly against our firm or what we call our flat rate price contracts, is just significantly reduced value at risk.
We'll see you next time. Bye-bye.
Speaker Change: So right now, what we just watched is, you know, let's look at the spring crop and, you know, plantings on time and what the health of the spring crop looks like and how that develops, whether it's here in the U.S. or, you know, in Brazil or Argentina. It's going to probably impact the global cost of corn.
Speaker Change: Elsewhere in the world, we contract out relatively short in terms of a period and so if there are changes in the cost of the corn
Speaker Change: The teams are very agile and quick to catch up on what that change in raw material costs might be.
Speaker Change: What we've been reassured of is the area where we source the corn from.
Speaker Change: is not being impacted to the degree that you're reading about. So we feel pretty good for that particular country. But the other thing, Jim, that we have done is to mitigate earnings volatility is...
Speaker Change: is hedge and sell forward our co-products, which has really helped us in recent years and we've done the same. That's why from a standpoint of the outlook for the next six months, we feel very good about the visibility that we have on co-product returns as well.
Thank you for watching!
Speaker Change: Right. I appreciate the color. Congrats on the quarter again. I'll pass it on.
Thank you, Porat.
Thank you. One moment for the next question.
Thank you for watching!
Speaker Change: And our next question will be coming from the line of Ben Thurow of Barclays. Your line is open.
Ben Thurow: Good morning and thanks for squeezing me in. Jim, I just wanted to follow up a little bit on your expectations, maybe more on the first half, particularly as it relates to LATAM and the currencies there and what that impact is.
Ben Thurow: Obviously, first half of 24, both BRL and Mexican PESA were relatively strong, and we're seeing a much weaker level here, but at the same time, we're seeing a little bit of signs of like maybe a little bit of a consumer softness in some in terms of like just...
the feeling around the trade noise.
as you think about the cadence.
Ben Thurow: But what are like the risks in that region in particular as it relates to volume and then on top of that the FX that is obviously at worse compared to what the first half was?
Thank you for watching!
Ben Thurow: Yeah, so first of all, just want to make sure, for food industrial, LATAM, for 2025, we expect really net sales to be flat.
Ben Thurow: Right So right and then so we do see a little bit of Currency and when just you're over here for the full year. I think right now, you know If you look at the the the rei as well as the peso
Ben Thurow: Relative to the dollar, you know, we're taking both of those into account, you know, kind of when we're looking at how we're setting 2024 2025 guidance, excuse me.
Ben Thurow: To the extent that there's weakness and the value of corn adjusts to maybe a global value of corn expressed in dollars.
So, what we have always typically done is priced.
Ben Thurow: You know, that local price we're adjusting relative to the value of the U.S. corn. Because Brazil can export, and so the local market adjusts. That's a pretty ingrained expectation, I think, within customers and our sales teams.
Ben Thurow: Mexico is just slightly different because we are dollar denominated in reporting our business in Mexico but we do look at at hedging the peso where we have local exposure.
Ben Thurow: So generally if the peso weakens, we're going to see a little bit of upside because our cost will be less, right? We'll see upside in Mexico with a weaker peso
Speaker Change: Okay, and it's more of a headwind on the Brazilian Rei if it weakens
Speaker Change: expansion project. So obviously that picks up a little bit your CapEx for this year. As we move beyond 2025 or that project in particular, is there something that you would expect to run also into 2026? And how do you think about just like other facilities or other areas of potential increased CapEx just given that you're having still a fairly strong operating cash flow outlook for 2025?
Thank you for watching!
Speaker Change: Yeah, no I think we really want to, I really want to make sure we're clear right, in that right now this is the cost savings and the infrastructure bet while it takes us about two years to get this all done.
Speaker Change: We really see this as kind of one-time ad hoc. We want to make sure that in a longer run that we want to come back on our cash flow that we're investing in the business is going to be our reliability capital and then usually between $80 to $100 million in growth.
Speaker Change: definitely in the high teens, if not even 20 plus percent type of IRRs is where we target. Now that all being said, that all being said, I think that the way you have to continue to think about
Speaker Change: The CapEx investments that we have made already and we've talked about these Many times in previous investor days and updates. We've invested strongly in our Previously what we call specialties and now more so texture and healthful solutions
Speaker Change: with Headroom to Grow, for example, in China and in Mexico for our Texture and Healthful Solutions business in Thailand, and those investments still have Headrooms
for Enabling of Growth.
Speaker Change: so we've invested significant growth capital in say the last three four years and those investments haven't fully matured from a standpoint of the
Speaker Change: revenue and profit potential that they can continue to generate for the company. This particular Indianapolis investment
Speaker Change: between a very large plant, across a very large plant, as well as just how people traverse the plant, and then on top of it, we get the cost competitiveness and the environmental benefits.
Speaker Change: from the co-generation investment that we're making. So hopefully, you know, that puts kind of CapEx and the implications on enabling future growth as well as investing also in kind of the reliability and cost competitive side of it.
Okay, perfect. Thank you very much.
Okay, thanks, Ben.
Thank you. One moment for the next question.
Thank you for watching!
Speaker Change: And our next question will be coming from the line of Heather Jones of Heather Jones Research. Your line is open.
Speaker Change: Thank you for the question. Good morning. Congratulations on the quarter.
Speaker Change: I want to start, hey good morning, I want to start out with the All Other Business.
Speaker Change: And that's a pretty sizable improvement y'all are looking for in 25 versus 24. I'm assuming most of it is from the Saskatchewan plant, but just wondering if you could help us understand, you know, flesh that out a little bit.
Speaker Change: Yeah, thank you so much for the question. So, as a reminder, you know, the other category is comprised of our Pakistan business, which is profitable, and we'll have year-on-year growth.
Speaker Change: Our sugar reduction business, which is profitable and will have year-on-year growth. And our protein fortification business, which is steadily improving, but still is loss-making. And, as mentioned, the decision to close the Vanscoy plant...
Speaker Change: will have a net positive profit improvement impact of about $10 million in 2025. So you have the Pakistan business with a great market position and it will...
grow year-on-year, sugar reduction based on all of the
market trends.
Speaker Change: We anticipate some solid growth from that business unit as well or segment within a segment
and the protein fortification business.
Speaker Change: is really hitting its stride. I would say it had a very strong year-on-year performance.
from the
Speaker Change: Production at our South Sioux City plant for the higher value or highest value p-protein isolate
Speaker Change: And the contracting went very well as well as we head into 2025. So we are pretty confident in the year-on-year improvements. We expect to see as that business works its way over the next couple of years.
Speaker Change: towards profit break-even. That's the target for that business, but in the meantime the other businesses are doing well.
Thank you for that. And then on Latin America, so
Speaker Change: Just curious, I think I'm just looking at the slide and y'all are expecting EBIT to be up a mid single digits
Speaker Change: And so my understanding was that 24 was the second record year for Mexico. I think you had a pretty good year in Argentina, so just wondering if you could give us, help us to know what's driving that outlook.
Speaker Change: Yeah well I mean obviously look I think that there's still plenty of room to run in Brazil in our business you know we mentioned that we're we're closing one of the
Speaker Change: smaller facilities there but it allows us to rebalance some of our product make some investment.
Speaker Change: and just continue to look at that product mix within Brazil and there's plenty of ways to upgrade that.
Speaker Change: out of, you know, some what I would call probably higher volume, lower margin business into
Speaker Change: stuff that's much more differentiated and product lines that we can really service well. And then we always are quite positive on the Andean subregion as well in terms of its
It's opportunities not just with corn, but also with tapioca.
Speaker Change: Yeah, I mean, if you remember the first quarter of this year of 2024, there was a little softness from one of the nutritional supplement segments that we had in the Andean business in Colombia.
Speaker Change: network optimization and efficiencies that we continue to drive and as Jim talked about it
Speaker Change: mix upgrade. We see a big opportunity for mix upgrade across different segments, and that's a strategic project that our teams are executing over multi-years. And so that's.
Speaker Change: kind of what we feel will give us the additional lift in LATAM after really two very, very strong years, again these last two years in LATAM.
Okay, perfect. Thank you so much.
Thank you.
Speaker Change: Thank you. If you would like to ask a question please press star 1 on your telephone.
Thank you very much.
Thank you. Bye bye. Bye bye.
Speaker Change: At this time, if there are no more questions in the Q&A, I would like to go ahead and turn the call back over.
Thank you.
Speaker Change: All right. Thank you, Operator. And I want to thank all of you for joining us this morning. We look forward to seeing many of you at our upcoming investor events with the next significant engagement being Cagney on February 18th. And at this time, I just want to thank everyone for your continued interest in Ingredient.
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