Q1 2025 Ingredion Inc Earnings Call
Spelman School of Music
Speaker Change: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ingredience its first quarter, 2025, Ernie Scott, for its call.
Speaker Change: At this time, all participants are not listening only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you would need to press star 11 on your telephone keypad.
Speaker Change: As a reminder, this conference call is being recorded. At this time I would like to turn the conference over to Mr. Noah Weiss, Vice President of Investor Relations. Sir, please go ahead.
Speaker Change: Good morning, and welcome to Ingredion's first quarter, 2025 earnings call. I'm Noah Weiss, Vice President of Vest Relations. Joining me on today's call are James Zallie, our President, CEO , and Jim Gray, our Executive Vice President, and CFO . The press release we issued today, as well as the presentation legal reference, where our first quarter results can be found on our website, ingredient.com . . . . . .
Com in the answer section. [inaudible]
Speaker Change: As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties to include expectations and assumptions regarding the company's future operations and financial performance.
Speaker Change: Act 4 Results could differ materially from those estimated in the forward-looking statement and agree to unassume to no obligation to update them in the future as or if circumstances change.
Speaker Change: Additionally, information concerning factors that could cause actual results differently from those discussing today's conference call or in this morning's conference release can be found in the company's most recently filed annual report on Form 10K and subsequent reports on Form 10Q and AK.
Speaker Change: During this call, we will also refer to certain non-gab financial measures, including adjusted earnings for share, adjusted operating income, and adjusted effective tax rate, which are reconciled to USGab measures in note-to-non-gab information included in our press release and in today's presentation of Pentex.
Speaker Change: With that, I will turn the callover to James Zallie. I will turn the callover to James Zallie.
Thank you Noah, and good morning everyone.
James Zallie: In the first quarter, ingredient achieves significant double digit adjusted EPS and operating income growth driven by continued strong sales volume growth in texture and helpful solutions as well as excellent operational execution
James Zallie: Our texture and helpful solution segment delivered a robust 34% increase in operating income, driven by strong sales volume across all geographies, as well as solutions for clean label and affordable formulations.
James Zallie: For our food and industrial ingredient businesses, both the Latin and US Canada segments delivered impressive results.
James Zallie: Food and industrial ingredients, lettames, double-digit operating income growth was driven by the stability of the Argentine peso, favorable market mix and lower costs, with Mexico delivering another record quarter.
James Zallie: In addition, the food and industrial ingredients, US Canada segment, a business that has delivered very strong profit and margin growth over the last three years.
James Zallie: Demonstrated its resilience and exceeded expectations due to favorable product mix, efficient cost management, and excellent market execution.
James Zallie: These factors, among others, contribute to a 26% year-over-year increase in operating income and a 29% year-over-year increase excluding the impact of foreign exchange.
James Zallie: To turning to a summary of our net sales volume growth for the quarter, Ingredion continued to drive organic growth with a 3% increase compared to last year when adjusted for the sale of our South Korea business.
James Zallie: Starting with texture and helpful solutions, sales volume increased by 7% with growth observed across all geographies.
James Zallie: Food and beverage categories that experienced growth in the quarter include it, savory, dairy, and beverages with soups and yogurts specifically contributing to the respective increases in volume.
James Zallie: Batters and breadings continue to be a significant contributor to our sales into the U.S. Quick Service Restorant Market.
James Zallie: Additionally, demand for our clean label and affordable formulating solutions also increase significantly during the quarter, showing double digit growth.
James Zallie: As we highlight it last quarter, across our texture and helpful solutions product offerings, we are continuing to see greater adoption of our most differentiated products and solutions which sell for a higher price per ton and generate higher margins.
James Zallie: In the food and industrial ingredients, let's ham segment, net sales volumes were down 2% of the quarter mainly due to soft volumes into brewing.
James Zallie: Partially offsetting this weakness was a recovery in the confectionery and bakery markets with notable strengths in the Andean region.
Lastly, in Food and Industrial U.S.-Canada,
James Zallie: Strong volumes, especially ingredients for brewing, were offset by soft sales of specialty starches for paper making and packaging.
Turning to the next slide, showing our gross margin performance.
James Zallie: It is important to highlight that coming off of a record year in 2024, especially in our food and industrial ingredients businesses.
James Zallie: We navigated contracting successfully once again and are maintaining a new level level of higher profitability as evidenced by the steady expansion in our gross margins over the last three years.
James Zallie: Over this period, our US Canada food and industrial ingredients business demonstrated remarkable gross margin expansion, delivering almost 200 million in gross profit growth as we recaptured inflation cost impacts.
James Zallie: The work done to strengthen our business model reflects a commitment to reduce earnings volatility through expanded hedging practices and operational excellence to adapt to changing market conditions.
James Zallie: It is also important to remember that the texture and helpful solutions
James Zallie: Carrie, a higher price pretend, and a higher gross profit margin profile, which also provides momentum for gross profit dollar and margin growth as net sales for this segment grow mid single digits into the future.
Thank you.
Speaker Change: Now, let me update you on progress against our three strategic pillars.
Speaker Change: Beginning with business growth. In the quarter, our texture and helpful solution segment demonstrated robust performance with strong sales volume growth and expanding operating income margins across all geographies.
Speaker Change: Within these results, our clean label solutions stood out as they continued to appeal to customers seeking simpler and cleaner ingredients.
In our food and industrial ingredients, U.S. Canada segment,
Speaker Change: We announced a $50M investment in our Cedar Rapids Iowa facility.
Speaker Change: to expand our specialty industrial starch capacity and strengthens our preferred supplier position across the paper making and packaging industry and to support
Speaker Change: Our future innovation focus on developing new bio-based solutions for more sustainable food packaging.
Speaker Change: Finally, with respect to enabling growth, our food and industrial ingredients Lattam segment has been debottle-necking and optimizing our assets.
to create capacity for new product lines.
Speaker Change: These efforts will continue to support our grind and product diversification towards higher value, higher margin products.
Turning to our second pillar, close competitiveness through operational excellence.
Speaker Change: We are on track to meet or exceed our close to compete program target of 50 million dollars in run rate savings by the end of 2025 and we will provide a more detailed update on the program's progress later this year.
Thank you.
Speaker Change: Value-creating network optimization and simplification projects are actively continuing. In the quarter
Speaker Change: We ceased operations at two smaller plants and are continuing our engineering and construction upgrades at two of our largest and most important plants to pursue a more profitable mix of demand from our customers.
Moving to our last pillar [inaudible]
Our People Centric Performance-Based Growth Culture [inaudible]
Speaker Change: I'm proud to share several significant recognitions our company received throughout quarter one.
Speaker Change: For the 15th time, we were named to fortunes, worlds, most admired companies list. This prestigious recognition underscores our unwavering commitment to excellence and the respect we have earned from peers and stakeholders.
Speaker Change: Additionally, ethics fear named us as one of the world's most ethical companies for the eleventh year, reflecting our global team's deep commitment to leading with integrity and prioritizing ethics across our organization.
Thank you for watching!
Speaker Change: Furthermore, Barons recognized us for the second time on its 100 most sustainable companies in the US list, highlighting our ongoing dedication to sustainability and our efforts to create a positive impact on the environment.
Speaker Change: These achievements are a direct result of the hard work and dedication of our global teams who continuously strive to live our values and advance our purpose.
Speaker Change: The current tariffs announced and effective as of the end of April had little impact in the first quarter.
Speaker Change: and are expected to have minimal impact on our business for the balance of the year.
Speaker Change: We are reassured by the fact that the vast majority of our products are made locally and sold locally.
Speaker Change: Our teams are actively monitoring all aspects of the evolving US and global trade environment and we will continue to provide updates during future earnings calls. Now, I'm pleased to hand off to Jim Gray for the Financial Review. Jim?
Thank you, Jim, and good morning, everyone.
Speaker Change: Moving to our income statement, net sales for the first quarter were 1.8 billion down 4% versus prior year.
Speaker Change: Gross Profit Dollars, Group 12, 12% with corresponding margins up 350 basis points to 25.7%
Speaker Change: Reported and Adjusted Operating Income, 276 and $273 million respectively, with Adjusted Operating Income Up 26% versus the prior year, driven by lower raw material costs.
Speaker Change: Greater Sales Volume with Corresponding Fixed Cost Absorption, Only Partially Offset by Price Mix
Speaker Change: Turning to our Q1 net sales bridge, the 4% decrease was driven by $48 million in lower price mix and 40 million of foreign exchange impact, partially offset by positive sales volume growth of $43 million.
Speaker Change: Furthermore, the exit from South Korea had a $24 million impact on sales volume.
Speaker Change: Texturing helpful solutions net sales were up 1% driven by sales volume growth of up 7%
Speaker Change: Food and Industrial and Green and Flat Tam, that sales were down 7%, and food and industrial and green in the US can, that sales were down 4%, both results impacted primarily from the pass-through of lower corn costs.
Thank you for watching!
Speaker Change: Now let's tune into a summary of first quarter results by segment.
Speaker Change: For Q1 2025, Texturing and Healthful Solutions in that sales were up 1% compared to the prior year with operating income up 34% with a margin of 16.4% up 400 basis points from the prior year's quarter.
Speaker Change: This result was driven primarily by lower input costs, lower carry-in of inventory value, and greater volumes, partially offset by unfavorable price mix.
Speaker Change: In food and industrial ingredients Latam, net sales were down 7% versus last year, and down 2% on a constant currency basis.
Speaker Change: Operating income improved to $127 million, resulting in 26% year-over-year growth for the quarter.
Speaker Change: Op-Income margin increase benefited from the lapping of our Argentina JV's results, which were negatively impacted by the devaluation of the Argentine peso last year.
Speaker Change: Apart from the JB's results, segment operating income increased, driven by lower raw material costs, partially offset by lower volumes.
Moving to food and industrial ingredients U.S. can. [inaudible]
First quarter net sales were down 4%
Speaker Change: Operating income was $92 million, up 6%, an operating income margin improved to 17.7%, driven mainly by lower raw material costs and improved mix.
Speaker Change: For all other, net sales decreased was driven by the overlap of South Korea's net sales, included in the prior year.
Speaker Change: Adjusting for the South Korea's portion, all other net sales increased 13% in the first quarter due to growth across all three businesses in this group.
Speaker Change: Turning to our earnings bridge. On the top half you can see the reconciliation from reported to adjusted earnings per share.
Speaker Change: Operationally, we saw an increase of 89 cents per share for the quarter
Speaker Change: The increase was driven primarily by an operating margin increase of 60 cents and other income of 17 cents.
Partially offset by volume of minus 11 cents per share.
Thank you for watching!
Speaker Change: Moving to the change in non-operational items, we had an increase of 28 cents per share.
Speaker Change: Primarily driven by lower financing costs of 10 cents per share and a lower tax rate equivalent of 13 cents per share.
Thank you for watching!
Speaker Change: Moving to cash flow, cash generator from operations was $77 million, driven by investment and working capital due to an increase in accounts receivable.
Thank you for watching!
Speaker Change: First quarter capital expenditures, net of disposal, came in at 92 million Weiss, Adam Samuelson, Ed Sheerl, Ed Sheerl,
Speaker Change: We will continue to invest in organic growth initiatives and have several significant cost saving and reliability projects underway, which will largely be completed in 2026.
Thanks for watching!
Speaker Change: Finally, so far this year, we have repurchased $55 million about standing common chairs and has paid out $52 million in dividends.
[inaudible]
Now, let me turn to our updated Outlook for 20-25
Speaker Change: For the full year 2025, we continue to anticipate sales volume growth and operating income improvement.
Speaker Change: The majority of guidance for this year remains in place, however we take into consideration the minimal impacts of tariffs currently enacted by the end of April 2025.
Speaker Change: For brevity, I will just touch quickly on the items we have adjusted [inaudible]
Thank you.
Speaker Change: We anticipate financing costs to be $40 to $60 million per year, aligning with our first quarter of run rate and more favorable than our initial estimate.
James Zallie,
Speaker Change: Additionally, we have adjusted the diluted weighted average shares outstanding to be in the range of 65 to 66 million shares
A Share Repurchase Subjective is $100 million by year end . .
Speaker Change: Cash from Operations for 2025 is now expected to be in the range of 825 million to 950 million, which reflects an update to expected investment and working capital balances.
Thank you.
Speaker Change: The incremental outperformance of our first quarter results combined with lower financing costs and share count improves our new adjusted EPS range to be $10.90 to $11.60.
Speaker Change: Please note that this guidance reflects only current tariff levels and effect at the end of April 2025.
Speaker Change: Unknown future changes in tariffs and their impacts are not considered
Thanks for watching!
Speaker Change: In addition, this guidance excludes any act, was this in related integration and restructuring costs as well as any potential impairment costs.
Thank you for watching!
Speaker Change: Turning to our four-year outlook for each segment. We're holding to our guidance for each segment.
Thanks for watching!
Speaker Change: For the second quarter of 2025, we expect net sales to be flat to up those single digits for the company.
Speaker Change: We anticipate operating income to be flat to download single digits, as we are laughing in particularly strong quarter from last year.
Speaker Change: We're some of the delayed cold weather, sales volume in Q1 of last year.
was made up for in the second quarter of 2024 in the second quarter of 2024.
Thank you for watching!
Turning to Terrace
Speaker Change: As a company with a strong global supply chain and flexible production sourcing footprint.
based on the tariffs currently in place
We Do Not Anticipate Significant Financial Impact for the Year.
Speaker Change: The vast majority of our sales are products made locally and sold locally.
Thank you.
Speaker Change: for the small portion of our volumes that may be exposed to cross-border shimmings.
Speaker Change: Much as US NCA compliant and therefore not exposed to tariffs at this time
Speaker Change: While we anticipate current tariffs in place to have minimal impact, we have set up a tariff response hub to actively monitor our fluid business environment so that we can work with customers to navigate this complexity in the most effective and least disruptive manner.
Speaker Change: We are collaborating with customers on reformulation efforts to support them in their country if impacted by higher tariffs.
Thank you for watching!
Speaker Change: By focusing on our customers and continuing to leverage our agile manufacturing network, we believe we are well positioned to remain a preferred, resilient supplier in these uncertain times [inaudible]
Speaker Change: That concludes my comments, and I'll turn it back to Jim [inaudible]
Speaker Change: Thank you, Jim. Following our strong start to the year, we remain cautiously optimistic about the remainder of 2025.
Speaker Change: Customer collaborations are driving volume growth in texture and helpful solutions, improving product mix as we help customers reformulate recipes and optimize costs.
Speaker Change: We are actively monitoring the evolving trade landscape and have implemented a comprehensive plan as Jim just described Thank you very much.
Speaker Change: I am reassured by the fact that our team has extensive experience responding to external forces and successfully managing through macroeconomic uncertainty.
Speaker Change: We are heartened by the fact that we supply a diversified ingredient portfolio.
Speaker Change: that addresses the needs of different customers, such as private label manufacturers, food service providers, and quick service restaurants, as well as large multinationals, and leading local national customers.
Speaker Change: We will closely monitor indications of broad economic weakening but we feel that low unemployment
Speaker Change: And moderating food inflation will be key positive indicators for the value we bring to customers through our ingredients and solutions.
Speaker Change: As we navigate this complex business environment with agility, we remain committed to sustainable growth and discipline cost management.
Speaker Change: This, combined with our strong balance sheet, provides opportunities and opportunity to create future value for shareholders.
Now, let's open the call for questions.
Speaker Change: Ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone keypad.
Speaker Change: If your question has been answered or you wish to remove yourself from the queue, simply press the pound key [inaudible]
Speaker Change: Again, if you have a question or comment at this time, please press star 1-1 on your telephone TV.
Please stand by while we compile the Q&A roster.
Thanks for watching!
Speaker Change: Our first question of comment comes from the line of pooran Sharma from Stevens. Your line is now open.
[inaudible]
Speaker Change: Thanks for the question. Just wanted to get on and ask about Panady updated guidance. I think you gave us a little bit on your prepared comments.
with the share count, with the interest cost.
Speaker Change: But wanted to kind of hone in on 2Q as well and see if you could provide any sort of colorist as to the segments, the puts and takes as to which ones are going to be driving.
Speaker Change: Strength, and which ones you expect to see kind of year over year weakness in? [inaudible]
Speaker Change: Yeah, pooran, this is Jim Gray. Hey, I'll take this question. Yeah, I think one is a reminder. So our Q2 guidance is against a record year last year for the company, which really included strong Q2 2024 performance in our FNI U.S. Can business.
Speaker Change: So, maybe let me start there. So, you know, that F and I US can't segment last year. It was strong because what we had was we had a cold weather impact in Q1.
Speaker Change: They probably impacted us about $10 million, and as we were grabbing that volume and moving that into Q2, that it kind of created a little bit of an extraordinary performance in Q2 for F and I, U.S. Can segment.
Thank you for watching.
Speaker Change: If I think if I move to Lattam, Lattam will be fine. It's just not a really strong quarter Q2 because it's generally seasonally a little bit weaker with weather being their fall winter.
Speaker Change: And then for texture and helpful, we really think that's still in line with our full year guidance run rate. So, you know, looking for solid, solid volume performance. And that helps us with cost leverage. And so we think texture and helpful is going to be kind of in line with our Q2.
Alright, with our four-year guidance
Thank you for watching!
Great, I appreciate that color. Just as a follow-up.
on your unhaged kind of foreign cost.
Speaker Change: I just want to get your thoughts on the recent perspective planning. We got 95 million acres. I think that was ahead of some people's expectations.
Speaker Change: and with the fine of the weather we've been hearing of lately seems to both favorably for your unhed net corn toss so just wanted to get your thoughts on that dynamic. Thanks.
Yeah, I mean obviously if
Speaker Change: There's some portion in US can that's unhatched and that will be a lower raw material cost for the corn
Speaker Change: But it also probably means that some of the co-products will be a little bit less value. Thank you.
Probably at this point maybe? [inaudible]
of all of our needs. So if there is going to be a little upside, it might be in Q4.
Speaker Change: for that and we probably look at our phasing where you know Q2 we've got a strong lab Q3 we have relatively strong lab from last year Q4 is probably where we'll make it up
Speaker Change: A little bit more as we see the second half, but generally we're feeling relatively positive about the hedging I think that by selling futures and buying the corn
Speaker Change: We've really taken a lot of volatility out of any particular year relative to our firm prices, which actually lets us be kind of much more predictable in our pricing to customers
Thanks for watching!
I appreciate the color and the thin grass on the corner [inaudible]
Thanks, thank you for your time.
Speaker Change: Thank you. Our next question of comment comes from the line of Andrew Strelzik from BMO Capital Markets, your line is opposite.
Andrew Strelzyk: Take good morning. Thanks for taking the questions. My first one is just also on the guide and some trying to reconcile the stronger than expected first quarter and then not passing that through fully to the balance of the year. Thank you very much.
Andrew Strelzyk: So it definitely sounds like the tariff impact or that material in terms of the outlook. So was there pull forward into one cue or how do I bridge kind of the rest of of not passing that through?
Thanks for watching!
Andrew Strelzyk: No, I don't think we saw much pull through or pull forward into Q1. I think what we're trying to be is just cautiously thinking about the world in terms of how it's going to potentially change.
Andrew Strelzyk: If we think about what's in our guidance now, there's definitely going to be some supply chain disruption. There's going to be incremental costs related to trade dislocations. We're kind of thinking, well, we still have liberation day tariffs.
Andrew Strelzyk: that have a 90-day suspension that comes off in July .
Andrew Strelzyk: 7th, 8th, 9th, 10th and so while we anticipate there will be some negotiations I think the uncertainty is adding costs necessarily to some supply chains and so we're trying to take that into account whether that be in Q2, Q3 or the balance of the year.
Thank you for watching!
Speaker Change: Okay, that makes sense. And then maybe, maybe relatively, I'm just curious how you're thinking about volumes for the rest of the year, especially with some of the kind of consumer uncertainty that's out there in the market. Your volumes were up. Thank you very much.
Speaker Change: 3% in the quarter of the comparisons get tougher across the segments for the rest of the year, so just trying to think about what's embedded in your ally from a volume perspective and kind of the cadence of that. Thanks.
Yeah.
Speaker Change: And maybe I'll just comment high level on texture and helpful outlook. I mean, we still are.
Speaker Change: Still seeing that in the mid-single digits from a sales volume perspective.
Speaker Change: Um, actually consistently throughout the year, um, we'll have some, some pluses or minuses and when we look at either the lat U.S. can F.I. and I
or Lattam segments, but necessarily we're generally still…
Looking and holding to our foyer
Speaker Change: All right, hopefully your sales outlook items. Yeah, I would just compliment what Jim said and say that, you know, quarter one of 2025 represented a fourth consecutive quarter of net sales volume growth for texture and helpful solutions. And again, in quarter one sales volume increased by seven percent.
Speaker Change: with growth across all geographies. And, you know, a number of food and beverage categories were growing. And again, a lot of this is driven by the ingredients we supply, assist with affordable formulating.
which is a high priority for customers right now.
Speaker Change: to get products on the shelf for consumers that are economizing.
Speaker Change: And when households start to economize, they typically eat at home more often, and that benefits both branded consumer product as well as private label and our products obviously benefit from that.
Speaker Change: So, you know, we anticipate a benefit from a positive share trend in the current year, and then also, we
Speaker Change: We felt that we fared well through contracting with customers that have products that consumers need. So, from that vantage point,
We're feeling good about the volume outlook, however.
We're monitoring, you know, a couple key economic indicators.
Speaker Change: One would be unemployment and the other would be moderating food inflation and we think if those two
Indicators, Stay Stay.
Benine, or Favourable
That will also help support things on the flipside.
The longer the uncertainty goes on.
Speaker Change: In our guidance, we feel we're being appropriately cautious with what we don't know in relationship to the macroeconomic backdrop. So hopefully that provides a little bit more context as it relates to the guidance.
Speaker Change: Both in our sugar reduction and our protein fortification businesses. Those two operating segments were very strong and while we grew them into all other we are seeing some some really nice sales growth there and see that continuing through the year.
Right, yeah, that's super hopeful color. I appreciate it.
Thank you for watching!
Speaker Change: Thank you. Our next question in the comment comes from the line of Ben Therer from Barclays. Mr. Therer, your line is open.
Speaker Change: Hey, this is Ryan Zallie and for Ben today guys, congrats on the strong crop is in the quarter so two quick ones we just talked about volumes in regards to consumer uncertainty. But the follow up question there on my end is what does sales next look like from there in the event of more consumer uncertainty potential potential trade downs.
Speaker Change: And how would that potentially affect margins? And then also you're a little more than halfway towards your $100 million objective in share buybacks. Do you see yourselves going over that now this year? Or are you still sticking to that $100 million? Thanks.
Thank you for watching!
James Zallie: Well, let me tell Jim S. Jim, I should say to take the second question and then I'll come back to the first question. Yeah, Ryan, so right now I think we're comfortable and targeting $100 million of share repurchase and obviously I think what we really step back and look at is, where's the price of the company trading?
James Zallie: And to what extent we look at that versus our future view, and are always taking into consideration shareholder return. And this is, share repurchases a part of how we deliver total shareholder return.
James Zallie: So, maybe on the... And Ryan, if you could just clarify again that first part of the question...
Ryan: Yeah, that sounds horrible. So, yeah, yeah, so we just talked a little bit about volumes in the event of consumer uncertainty, but how does it look on a salesman's perspective? Do you see trade downs because we've seen a little bit of discussion trade down with a consumer level, or do your customers really buy the same goods no matter what?
Yeah, for us.
Ryan: We supply to those customers those co-packers that produce the private label products as well as the multinational customers there isn't a trade down that would impact say our product mix
Ryan: and our margin structure for the products that we produce. And one thing that's actually notable which we did highlight is our clean label solutions which sell for a higher average selling price as well as have higher margins.
We're very strong. So, I think you have... Um...
Ryan: Appealing to just the overall taste of the product but also the healthier profile and our ingredients at both ends of an affordability spectrum are actually we're seeing benefitting from
Consumers trading between...
Ryan: Brandy Goods, as well as Private Label, and then across of course Food Service as well.
That's perfect, thanks for the collar, and congrats again.
Thank you.
Speaker Change: Thank you. Our next question of comment comes from the line of Kristen Owen from Oppenheimer, his Owen Your Line is open.
Speaker Change: Great. Thank you for taking the question. Um, so, Jim, I wanted to ask you about your performance in Lantam. I think that that was surprising, um, to the positive for for many of us on the call, um, particularly on the operating income side.
Speaker Change: Thinking your prepared remarks, he noted some lower volumes in beverage. Can you remind us some of the intentional portfolio shifts that you're going through there and how we should think about that portfolio shift impacting your operating income and this segment going forward. Thank you very much.
Thanks for watching!
James Zallie: Yeah, okay, Jim, do you want to take it? Yeah, so Kristen, just to remind everybody on the call right than that.
James Zallie: Last Q1 2024 in LATAM, we had a pretty significant hit from the way that hyperinflation impacted the results of our R-Core JV.
James Zallie: And so that now has we move forward a whole year.
James Zallie: And actually the Argentina pace, it was actually much stabler. If I can make that statement and inflation has come down to...
James Zallie: More reasonable standards based upon his Argentineous history. So we're actually getting solid performance in Q1 2025 out of the JV. So the swing
James Zallie: And that up-income contribution to our LATTAMP segment was the strongest.
James Zallie: Apart from that though, the rest of the business actually still had positive up-income growth.
James Zallie: And what we were trying to comment on there is that when you look at some of the mix of the business in Brazil as an example, you know, Indian and Mexico, we do sell quite a bit of volume into as an adjunct into brewing.
James Zallie: And there's just ways where we can take our grind and our downstream production and move incrementally some of that volume into higher uses and so that's really what you see in the team effect.
Thank you for watching!
Speaker Change: Right, that, that, that was the piece I was trying to get after, is that, that margin uplift.
Speaker Change: So then we need to follow up as well. You did not mention in your in your prepare remarks that the Pakistan affiliate. Can you just help put some guardrails around the size of that business is that you know, should we be thinking you about that is similar in size to like the SK business.
Speaker Change: And, you know, with any potential fail that could occur there, how you would think about the use of those proceeds. Thank you.
Speaker Change: Yeah, I think that's a fair comparator. It is similar in size to the...
Speaker Change: to the South Korea business and right now we're just early, very early in the process on that.
Speaker Change: You know, part of our disclosure was just because we are a Roth on May's business in Pakistan had to make a disclosure to their SEC.
Speaker Change: And so we're just noting that. So I'll hold on any comments in terms of use of proceeds because I just want to get to a next stage of the transaction that's a bit more firmer.
Thank you for watching!
Speaker Change: Okay, and just if I could just ask one clarifying question, your outlook is not as soon as any impact of that till being completed. Thank you very much.
Speaker Change: No, that is, yeah, it does not, yeah. It assumes that the big prop on maize businesses with us through the year, yes.
Perfect. Thank you.
Speaker Change: Thank you. Our next question of comment comes from the line of Josh Spector from UBS, Mr. Spector, your line is open
Speaker Change: Hey guys, this is James Cannon on for Josh. I just wanted to add on the price mix. I just wanted to ask about price mix. You guys are printing in THS. It seems like that's been negative basically since you since you started reporting that way.
[inaudible]
Speaker Change: As I think about the 1% 1-quarter sales growth and getting the mid-signal digit guidance, like, what are you guys assuming for that price mix there?
Thank you for watching!
Speaker Change: Yeah, so we should see price mix start to dampen, you know, if you look at price mix all through 2024 and you kind of look at it by quarter, it was probably in the high single digits.
Speaker Change: And that's literally just the year over year some of the lower corn values are passing through some of those firm contracts and we have a few contracts that adjust on rate.
Speaker Change: And so there now if you look at Q1 print and probably the balance of the year the price mix impact will be very diminimous And what you'll see shining through will be the great volume growth in that segment.
Speaker Change: Yeah, and I think it's obviously helpful to say that in 2022 and 2023 there was very strong price mix growth in that business. And then as we entered obviously 2024, we strategically assessed.
Speaker Change: Looking towards a balance of price and share and we feel we navigated that well so you're right from a standpoint of when we first reported the new segments it was at a point in time coming off of two years of very robust price mixed growth.
Speaker Change: But then the destocking was taking place, the need to balance, the need to balance share as well as pricing But I think what Jim's saying is we're now seeing robust volume growth and price stability and at the same time
We are investing heavily in our solutions capability
Speaker Change: which we believe for that business the texture and helpful solutions business will provide opportunity for margin uplift because they sell at higher average selling prices and have higher inherent margins.
Thank you for watching!
Okay.
And then, just ...
Speaker Change: It sounds like you had pretty strong, well you had strong volumes there but just what you're seeing so far in the second quarter from a reformulation perspective.
Are those conversations continuing to reflect strong?
Thank you.
Strong Demand Pull.
David
Speaker Change: Yeah, sorry. I mean, I don't think we can comment on the second quarter, you know, while we're in it.
You know, I think in our...
Remarks, what we highlighted was just that. [inaudible]
Speaker Change: Customers will reach out to us whenever countries and they may be in and...
Speaker Change: You know, whether or not if specifically they're looking at a recipe design where they're trying to get more affordable?
Speaker Change: We can help on reformulations, but we can also look on where we source from, like so which plant in what country?
Speaker Change: Sometimes customers may just be qualifying a different plant of ours to change the shipping source.
Speaker Change: And so we're just, I think more broadly, we're working with customers right now .
Speaker Change: As they may encounter supply chain shocks and their costs, we want to be able to be very flexible with them in terms of how we think about reconfiguring whatever sourcing of the ingredients or solutions they may need. The thing that I would say is that as part of our winning aspiration, it's to provide. .
Speaker Change: Texture Solutions That Make Healthy Taste Great. And there's an overarching need in...
The food industry right now for companies to innovate.
Speaker Change: Winning products that are going to drive volume growth, profitable volume growth, and that we're partnering with those customers getting briefs that are designed to
Speaker Change: You know, help introduce products with novel textures, products with healthier profiles, and also products that are going to help those products be more affordable.
Speaker Change: Hopefully in expecting those to continue, but at the same time we're monitoring those two KPIs again around unemployment and moderating food inflation because we think those are two key things that can provide
Support for continued sales volume growth.
Thanks for watching!
Great. Thank you.
Thank you for watching!
Speaker Change: Thank you. Our next question to comment comes from a line of Heather Jones from Heather Jones Research. Your line is open.
Speaker Change: Good morning. Thanks for the question. I want to start really quickly on the Latin side, Argentina, and I want to remember correctly that you guys.
Speaker Change: Book Price in Q1 of 24 to offset the FX hit.
Speaker Change: And so are we going to have fully, have we now fully lapped that or is there going to be some additional benefit into Q2 of this year?
Thank you for watching!
Speaker Change: Well, Heather, so just to remind everybody that we are a minority interest in the joint venture.
Our Joint Venture Partner
Speaker Change: At the end of 23 was anticipating...
Speaker Change: He continued pretty high inflation and had been pricing appropriately what you had when you had the new government come in was a different approach to stabilizing the Argentine peso that impacted us.
Speaker Change: A little bit favorably right at the end of 23, but then we had to take...
War of the evaluation, devaluation impact in January of 2024 .
Speaker Change: So but generally what you see is because the inflation rate in Argentina is still high double digits.
Our partner is always going to be pricing. [inaudible]
Speaker Change: a head of that inflation understanding that they're going to have to pay underline wages and wage increases as well as they're always kind of balancing the value of corn.
Speaker Change: within the country and the value of corn relative to sugar. But yeah they were pricing and so that was positive for honestly the first half of 2024 but you're still taking pricing in 2025 just given the really high.
Rate of inflation within the country.
Speaker Change: Okay. Okay. And then I'm assuming my math is right, but just I did click on back at the only math of so you're you're full your guidance based on the really strong Q1 results and applies a Q2 through Q4, cumulative EPS of
Thank you for watching!
Speaker Change: Let me take the upside and I'll hand it over to Jim for the lower end of the guidance possibilities. I'd say for the upper end of the guidance.
Jim: Obviously a quicker resolution to tariff on certainty and corresponding improvements in consumer sentiment.
Jim: You know stronger than assume volumes that may result from that, a lack of necessity to reroute supply chains that would avoid incremental costs that are factored into our guidance.
Jim: I'll pick up the economic activity related to, again, more trade certainty that would improve packaging shipments, driving our industrial starts demand.
Jim: You know a robust corn crop in both South America and the US, you know as per one of the questions and then lastly
Jim: Lift. Now, at the same time, we are being appropriately cautious and I'm going to let you take the lower end items. And maybe what we've stepped back and we've looked at.
Jim: Three, relatively significant and broad, you know, tariff announcements from the current administration.
Part of those are enacted, part of those are suspended. They are suspended.
Jim: Nonetheless, what we see is that business leaders need to react and anticipate.
Jim: And so this is creating movement. Obviously one is creating really productive conversations with customers but it is creating movement.
Jim: And sourcing. And so we do anticipate that we'll probably be holding some inventories more that will be reconfiguring or moving around some supply chain routes.
Jim: And whenever you rebuild those, you're going to have incremental costs. And so we just are anticipating that that activity is going to be impacting us.
Jim: Q2, Q3, Q4, maybe less so on Q4, but we just really need some clarity as hopefully we get through some country-specific negotiations and we get evidence of what that model might look like.
and hopefully we're not going towards something where...
Jim: You know, the Liberation Day tariffs that there's really kind of no renegotiation of all of those going to a fact
Jim: That would be really at the low end of our guidance, I think, where we would be absorbing various tariffs imposed on Southeast nations, Europe , etc. Come the middle of July .
Yeah, so I think also Jim.
Speaker Change: What we would be cautiously or appropriately cautious about would be a shallow US recession Yeah, so we're we're thinking that I didn't want to just kind of make a comment just in relationship to the lower end of the guidance as it relates to how we're viewing we're we're we're we're we're we're we're
Speaker Change: You know the terror situation, the vast majority of what we make is produced and sold locally.
across each of our segments.
Speaker Change: With our international footprint, more than 80% of our manufactured goods remain local.
Speaker Change: and of the portion that is shipped out of country, nearly half is cross-border between US Canada and Mexico, and that's shielded by USMCA compliance.
Speaker Change: A very small percentage of our total sales are shipped out of or into the U.S.
for sales to customers and the view we're taking.
Speaker Change: is that we don't believe the tariffs, as proposed on April 2nd. [inaudible]
across all countries
Speaker Change: We'll be implemented at levels that were proposed You know in fact we're listening to the administration and they've indicated that that was a starting point for negotiations so assuming that is the case
Speaker Change: We believe that the incremental impact will be manageable within the guidance that we have provided. So, hopefully that...
He helps provide some additional context.
It's very helpful. Thank you so much.
Thank you.
Thank you for watching!
Speaker Change: Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star 11 on your telephone keypad.
Andrew Strelzik,
[inaudible]
Speaker Change: I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. James Zallie for any closing remarks.
James Zallie: Well, I just wanted to thank everyone for joining us this morning. We look forward to seeing many of you at our upcoming investor events with the next engagement being the BMO Global Farm to Market Conference in Mid-May. At this time, I want to thank everyone for your continued interest in Egregion. Thank you very much.
Pup.
James Zallie: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.
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