Ingredion Inc Q3 FY2024 earnings call

• Ingredion achieved a 29% increase in adjusted operating income in Q3 2024, with all three segments delivering double-digit operating income growth. Sales volume growth of 4% net sales volume growth compared to last year when adjusted for the sale of the South Korea business.
• For Texture and Healthful Solutions, double-digit sales volume increase in U.S. (savory, packaged meals, frozen prepared meals) and Europe (driven by commuting and convenient meal/snacking options). Highly differentiated products offer higher profitability. Anticipate strong second-half organic volume growth.
• Food and Industrial Ingredients LatAm: Volume growth from Brazil's brewing category recovery and improved sales for nutritional meal supplements in Colombia. Anticipate continued growth through year-end.
• Food and Industrial U.S. Canada: Continued strong demand from papermaking and packaging customers, partially offset by softer sweetener shipments to food service.
• Progress against strategic pillars: Business growth - customer engagement on innovation projects rose 27%, Texture and Healthful Solutions saw strong sequential net sales and profit growth; Cost competitiveness through operational excellence - Cost to Compete program slightly ahead of savings target, executing network optimization projects; Supporting people-centric growth culture - Named finalist for National Safety Council's Green Cross for Safety Awards, internship program top 100 in U.S. for third time, recognized as innovative in Brazil, employee engagement scores at highest levels.
• Ahead of Texture Innovation Day on Nov 14, investing in solutions capabilities (texture, sugar reduction, protein and fiber fortification) to drive volume growth.

Texture and Healthful Solutions

• Net sales were flat compared to prior year, down 1% on a constant currency basis.
• Operating income was $96 million, up 12% from prior year. Op income margin improved to 16%, driven by lower input costs and higher sales volumes partially offset by unfavorable price/mix. Anticipated OI margins for full year between 13% and 15%.

Food and Industrial Ingredients LatAm

• Net sales were down 6% versus last year and down 2% on a constant currency basis.
• Operating income improved to $131 million, resulting in 26% year-over-year growth. Op income margin of 21.1% was driven by lower input costs and lapping last year's transition costs to a more sustainable biomass energy source in Brazil. Also, favorable transactional FX impacts from the weakening Mexican peso contributed approximately $3 million upside in the quarter. Now expect OI margins for full year to be between 18% and 20%.

Food and Industrial Ingredients U.S./Can

• Net sales were down 9% for the quarter.
• Operating income was $99 million, with an OI margin of approximately 18%. The improvement year-over-year was driven by reduced raw material costs and the renewal of long-term customer contracts. Expect full year OI margins for this segment to be between 16% and 18%.

• For full year 2024, expect net sales to be down mid-single digits excluding the impact of the sale of South Korea, reflecting the reduction in price mix as we pass through lower raw material costs, partially offset by improving volume demand.
• Anticipate adjusted operating income will be up high single digits due to lower input costs and better operational efficiencies.
• Decrease financing cost estimate to range of $40 million to $50 million.
• Expect full-year reported EPS to be in the range of $10.60 to $10.90, including gain from sale of South Korea business and restructuring/impairment charges. Adjusted EPS expected to be in range of $10.35 to $10.65.
• Anticipate cash from operations estimate to be in range of $1.1 billion to $1.25 billion. Capital expenditure investment expected to be between $310 million and $330 million. Corporate costs expected to be flat year-over-year.

• Input and wage cost inflation could impact margins if not managed effectively.
• Execution risk in contract pricing with customers may affect margin recovery.
• Currency fluctuations could impact financial results, especially in international segments.
• Intense competition in the food, beverage, and ingredient sectors could pressure market share and pricing.
• Risk of not successfully integrating potential M&A activities, which could impact growth and financial performance.

Q: Ben Theurer asked about the volume growth and price/mix in Texture and Healthful Solutions and capital allocation.

A: Jim Zallie said they have pricing centers of excellence, invested in consumer/customer insights, and are well-positioned in growth categories. Jim Gray highlighted differentiated solutions driving gross profit growth and price mix due to corn price decrease. On capital allocation, Jim Gray said they look at organic investments, dividend, and share repurchases, with cash flow surplus due to favorable working capital but will invest wisely.

Q: Kristen Owen asked about European consumer behavior, channel inventories, and COGS improvement.

A: Jim Zallie said they are lapping softer prior year quarter, European consumer more mobile and spending on convenience items. Jim Gray said restocking not driving sales volume growth, just steady demand pickup. Jim Zallie added no robust pipeline refilling/restocking, demand steady. Jim Zallie also said improved volume backdrop, renegotiated contracts, and fixed cost absorption are driving COGS improvement.

Q: Unidentified Analyst asked about 2025 sweetener contracting and M&A.

A: Jim Zallie said contracting moving slower than last year, 50% of North America revenue from monthly reprice contracts with corn inputs, anticipate pass-through of lower corn costs if market outlook continues. Jim Gray noted industry capacity utilization lifted. On M&A, Jim Gray said consider M&A broadly to accelerate capabilities/market position, disciplined approach, looking to buy revenue, profit, talent/capabilities complementing strategy. Jim Zallie added strategic direction is to be go-to provider for Texture and Helpful Solutions, actively working M&A pipeline.

Q: Josh Spector asked about structural earnings improvement.

A: Jim Zallie said benefit from resegmentation, laser-like focus on segments, global operating model maturity, shared services evolution. Jim Gray added cadence in Food and Industrial Ingredients businesses, structural improvements in Texture and Helpful Solutions still in early innings.

Q: Heather Jones asked about financing costs and protein fortification business.

A: Jim Gray said financing costs affected by FX gain and lower working capital investment. Jim Zallie said protein fortification business has turnaround plan, expecting significant year-over-year improvement in 2025, comments based on entire protein fortification operating segment and P-protein isolate business carrying improvements.