Ingredion Incorporated (INGR) Earnings

Management highlights

### Strategic Progress & M&A - The pending acquisition of Tate & Lyle received shareholder approval from Tate & Lyle, clearing a key milestone in the regulatory approval process. The transaction is expected to add $2.7 billion in complementary revenue, deliver $130 million in run-rate synergies by 2030, deliver over 15% adjusted EPS accretion in the first full post-close year, and achieve net leverage below 2.5x within 18 months of closing. Post-acquisition, over half of Ingredion's revenue will come from the high-growth Texture and Healthful Solutions segment, accelerating the company's shift to higher-value, higher-margin solutions. - A strategic partnership was announced with Sanstar to expand Ingredion's pharmaceutical excipient capabilities in India, adding access to large-scale manufacturing in the high-growth Indian food and pharmaceutical ingredient market, with opportunities to collaborate on specialty food ingredients. - The acquisition of Benicaros, a clinically supported immune health prebiotic, strengthened the healthful solutions portfolio at the intersection of fast-growing consumer trends including digestive health, immune support, and clean label formulation. ### Operational Updates - The Argo facility sequentially improved operational reliability throughout Q2, and exited June operating at normal production rates across all major units after addressing grinding, downstream refinery, and germ processing unit issues. Targeted capital investments and procedural/management changes have been implemented to sustain long-term reliability. - Texture and Healthful Solutions delivered its ninth consecutive quarter of net sales volume growth, with broad-based gains across clean label ingredients and solutions, driven by ongoing customer reformulation activity for health and wellness, protein/fiber fortification, and clean label trends. ### Innovation & Sustainable Growth - Launched Ask Ingredion, an AI-powered formulation platform that helps customers identify ingredients and solve formulation challenges to accelerate new product time-to-market. - Advanced higher-value sustainable industrial applications, including plant-based alternatives to PFAS-containing grease barriers for food packaging (improving recyclability and regulatory compliance) and high-performance bio-based adhesives for corrugated packaging that improve productivity, reduce waste, and enhance board performance. These differentiated applications deliver higher margins than commoditized industrial products. - Ingredion was named to the Forbes Net Zero Leaders list for the second consecutive year, recognized for measurable progress on greenhouse gas emissions reduction targets. ### Capital Allocation - Maintained disciplined balanced capital allocation: year-to-date operating cash flow was $123 million, $210 million was invested in capital expenditures, $105 million was returned to shareholders via dividends, and $14 million was returned via share repurchases. The company reaffirmed its full-year commitment to $100 million in share repurchases and its track record of dividend growth.

Guidance

- Full-year 2026 net sales are expected to be flat to up low single digits, unchanged from prior guidance. Adjusted operating income is now expected to be down mid-single digits (revised to reflect the sale of the majority stake in the Pakistan business in Q2). - Full-year 2026 adjusted EPS guidance is reaffirmed at a range of $10.30 to $10.90, after accounting for the Pakistan business sale. Guidance assumes 63 million to 64 million diluted shares outstanding, including completion of the full $100 million planned share repurchase program. - Full-year 2026 operating cash flow is now expected to be $700 million to $800 million, downward revised due to the Pakistan business sale. Capital expenditures are now expected to be $450 million to $490 million, with additional spending allocated to the Argo facility. - Segment guidance updates: Texture and Healthful Solutions full-year net sales expected up mid-single digits, operating income expected up mid-to-high single digits; Food and Industrial Ingredients LATAM net sales expected up low single digits, operating income expected down low single digits; Food and Industrial Ingredients U.S.-Canada net sales expected down low single digits, operating income expected down 20% to 25%; All Other net sales expected down 20% to 25%, operating loss ~$15 million post-Pakistan sale. - Q3 2026 net sales are expected to be up low single digits, adjusted operating income expected down mid-single digits, reflecting the Pakistan business sale. Sequentially higher Q3 corporate costs are expected, as Q2 benefited from transitory timing adjustments and a $2 million mark-to-market gain on the Sunstar equity investment that is not expected to repeat in Q3. All guidance reflects current tariff levels as of the end of July 2026, and excludes any acquisition-related integration, restructuring, or impairment costs.

Segment performance

1. Texture and Healthful Solutions: Net sales grew 5% year-over-year, with 7% volume growth and 1% foreign exchange favorability partially offset by unfavorable price mix. Operating income also grew 5% year-over-year, marking the segment's second highest quarterly operating income on record. Growth was driven by volume gains and favorable FX, partially offset by higher tapioca costs and unfavorable price mix. It contributed the majority of the company's operating profit strength in the quarter. 2. Food and Industrial Ingredients LATAM: Net sales grew 3% year-over-year, driven by favorable foreign exchange, partially offset by lower volumes and weaker price mix. Operating income decreased 7% year-over-year to $118 million, with an operating margin of 19.3%. The decline was driven by transactional currency headwinds in Mexico and challenging macroeconomic demand conditions, partially offset by strength in South America, particularly Brazil's industrial and brewing markets. 3. Food and Industrial Ingredients U.S.-Canada: Net sales declined 7% year-over-year, driven by operational challenges at the Argo facility and softer overall food and beverage demand. Operating income was $58 million, significantly impacted by Argo production issues, lower volumes, and unfavorable price/mix. 4. All Other: Net sales increased 8% year-over-year, driven by over 40% net sales growth in protein fortification (particularly higher-value isolates and specialty protein applications). Operating income improved $7 million year-over-year, reflecting better mix and operating leverage. Post-sale of the majority stake in the Pakistan business, the segment is expected to post an operating loss of ~$15 million for full-year 2026.

Risks & headwinds

- Weather-related supply constraints have driven a 40% increase in tapioca root prices since the start of 2026, creating near-term margin pressure that will persist for 1 to 1.5 quarters until enacted price increases are fully realized. - Macroeconomic weakness and transactional foreign exchange headwinds in Mexico (where most operating costs are peso-denominated while revenue is U.S. dollar-denominated) continue to pressure operating income for the LATAM segment. - Ongoing operational hangover from Argo facility issues will create residual margin and cost headwinds in Q3 2026 as remaining elevated-cost inventory flows through the income statement. - The Middle East conflict has created incremental inflationary pressures for APAC and EMEA businesses, compounding tapioca cost increases, though management estimates the total net impact is manageable and already factored into guidance. - Proposed new 301 tariffs expected to take effect in mid-August 2026 and Canadian tariff changes create incremental cost uncertainty, though management believes network flexibility and ability to pass through costs will limit the net impact.

Analyst Q&A

• Q: What additional volume or mix headwinds are implied for Food and Industrial Ingredients U.S.-Canada in the second half, beyond what is already reflected in guidance, as Argo returns to normal operations? How will transitory inflationary costs like elevated tapioca prices impact full-year results? /

  A: Guidance for U.S.-Canada only changed to reflect the Pakistan business sale; underlying core expectations are unchanged. Argo production rates and yields improved sequentially through Q2 and exited June at normal rates. All rework costs from prior operational issues are now behind the company. The Q2 softness and expected Q3 sequential weakness stem from transitory items: corporate cost timing benefits in Q2, a $2 million one-time mark-to-market gain on Sunstar that will unwind in Q3, and a steep July Argentine peso decline. For tapioca and other Middle East-driven inflation, the company has a history of passing through these cost changes, which takes 1 to 1.5 quarters to fully flow through. The total net impact of non-tapioca Middle East inflation is only a few million dollars and is already fully factored into guidance.

• Q: What is the current margin level at Argo following Q2 improvements, and what operational changes and capital investments have been made to ensure long-term reliability going forward? /

  A: Argo margins improved meaningfully (over 400 basis points) quarter-over-quarter in Q2, in line with expectations for sequential improvement. Some residual elevated cost inventory will flow through Q3, but margins should return to historical normal levels by the end of 2026 as inventory is replenished at normal costs. In addition to targeted capital investments that add redundancies to key upstream processing tanks, the company completed extensive root cause analysis and implemented improvements across maintenance protocols, employee training, leadership structure, and operating procedures, including stronger standardization of management of change processes to prevent recurrence of prior issues.

• Q: How much of the U.S.-Canada Food and Industrial volume decline is driven by Argo operational issues versus underlying market demand weakness, particularly for sweeteners? /

  A: The vast majority of the year-to-date volume and operating income impact for the segment stems from Argo's operational issues, not broader end-market weakness. The company reallocated production across its network to meet customer demand during Argo's downtime, which incurred incremental costs, but volumes were still available to meet customer needs. There is only modest general market softness in the industrial segment, which management expects to improve in the second half of 2026 as macroeconomic conditions normalize.

• Q: When will sustainable packaging and other high-value new industrial applications become large enough to offset secular pressure on lower-margin commoditized industrial products? /

  A: The company has strategically repositioned its industrial portfolio away from secularly declining segments like uncoated free sheet paper, and focused investment on growing higher-margin, differentiated opportunities including corrugated packaging performance solutions and sustainable compliant food packaging materials. These products deliver margins near Texture and Healthful Solutions levels, far higher than less differentiated commodity industrial products. The products are already gaining customer traction and growing, and prior capacity investments at Cedar Rapids were specifically made to support this growth, with scale expected to increase over time.