Ingredion Incorporated

Good morning, ladies and gentlemen, and welcome to Ingredient Third Quarter 2021 Earnings Conference Call. At this time, all participants are on the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press the star, then the one key on your touchtone telephone. Please be advised that today's conference is being recorded. If you recall operating systems, please press star, then zero. I would now like to turn the conference over to your speaker host today, Mrs. Jason Pan, Vice President of Corporate Finance and Interim Vice President of Investor Relations.

Thank you. Good morning and welcome to Ingredion's third quarter 2021 earnings call. I'm Jason Pan, Vice President of Corporate Finance and Interim Vice President of Investor Relations. On today's call are Jim Zally, our President and CEO, and Jim Gray, our Executive Vice President and Chief Financial Officer. We issued our results today in a press release that can be found on our website, ingredient.com, in the Investors section. The slides accompanying this presentation can also be found on the website and were posted today for your convenience. 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. including the impact of the COVID-19 pandemic. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredion assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today'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 Forms 10-Q and 8-K. 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, which are reconciled to U.S. GAAP measures in Note 2, Non-GAAP Information, included in our press release and in today's presentation's appendix. Now, I'm pleased to turn the call over to Jim Zally.

Thank you, Jason, and good morning, everyone. We delivered outstanding third quarter top line performance of 17% net sales growth. This reflected well-managed sales execution to meet strong customer demand. In every region, we achieved double-digit sales growth by managing price mix and partnering with customers to meet changing demand requirements as a result of global supply chain constraints. In a challenging environment and against previously anticipated high double-digit corn cost inflation, we kept pace with higher input costs to deliver adjusted operating income down 9%. As you recall, in the first half of this year, we delivered significant year-over-year EPS growth, absorbing higher gross corn costs while benefiting from higher coproduct values. Taken together, as we balance first half favorability with higher net corn costs in the second half, we are still on track to deliver significant operating income growth for the full year. Now, I'd like to highlight a few of our sales achievements. As mentioned, we grew net sales by double digits across all regions. driven by strong specialty demand and actively managing the terms of our customer contracts, including the pass-through of higher margin corn and freight costs. EMEA led our growth this quarter with strong specialty demand in Europe and the positive impact of the KTEC acquisition. Asia Pacific also performed exceptionally well, driven by contributions from Pure Circle and strong overall specialty demand. South America and North America benefited from strong customer demand and the pass-through of higher corn and freight costs. Now, I'd like to comment on the current supply chain environment that we're all reading about. As everyone knows, supply chains globally are currently constrained by demand. ocean container availability, rail congestion, labor shortages, and continuing impacts of the pandemic. In addition, as economies continue to open, strong international consumer demand has made the current supply situation very challenging. To put the impact of the supply chain challenges into perspective on our business, as a reminder, the majority of our volume is sourced locally and delivered locally. locally within region. However, for a portion of our specialty food starch business, we have an inter-regional supply chain. For example, about 5% of our U.S. sales are imported from Asia Pacific, of which most are specialty food starches. Therefore, in the first half of this year, we resourced our global supply chain center of excellence to actively manage interregional sourcing and work closely with customers to identify opportunities to best service their needs. In some special circumstances, we've had to exercise agility to meet customer demand for tapioca and rice-based starches by air freighting product to meet new product launches or assist with product reformulations. We anticipate the supply chain to remain constrained through the end of this year. Now moving on to our strategic pillars. We continue to make solid progress against each of our strategic pillars throughout the quarter, executing on key initiatives to advance our strategy. Our specialty ingredients platforms continue to be a catalyst for significant growth, achieving high teens net sales growth for the quarter and exceeding the company's net sales growth. Among the highlights, our sugar reduction and specialty sweeteners growth platform contributed the most sales dollar growth in the quarter. Additionally, consumers' heightened focus on nutrition and wellness underpin the robust demand in Q3 for our clean and simple texture and plant-based protein solutions. Moving to commercial excellence, Our sales teams around the world responded early in the quarter to the challenge of increasing input costs through pricing actions and by managing commercial terms, which helped us mitigate inflationary impacts to our business. While margins were pressured, on a dollar basis, we recovered nearly all of the cost inflation that we faced in the quarter. CostSmart continues to deliver benefits and have a transformational effect across our company as we continue to find ways to reinvent how we work and deliver increased efficiencies and savings. This quarter, we extended our shared service capabilities, implementing a major change management program within our global human resources function that will provide better and more cost-efficient HR services. Overall, we remain on track to deliver against our three-year cost smart savings program of $170 million, which we've increased twice since it was introduced in 2018. All of this progress is underpinned by our purpose and values-driven people-centric culture. As I'll speak about in more detail shortly, this quarter we are particularly proud to have released our first diversity, equity, and inclusion report, where we shared our DEI progress to date and our commitments for the future. Before discussing this, let me first provide some important updates on the progress we're making in our specialties portfolio. First, turning to sugar reduction. Pure Circle continues to be a catalyst for growth in our sugar reduction and specialty sweeteners platform. During the quarter, Pure Circle net sales were up more than 200% year over year, and operating losses decreased by 60%, with both metrics well ahead of our integration plan. Additionally, I'm happy to share that the acquisition is now cash accretive. With a number of recent customer wins and a robust new project pipeline, Our sugar reduction and specialty sweeteners team is energized about future growth prospects. Now, moving on to plant-based proteins. We continue to see strong demand for plant-based protein innovation from both existing and new customers. And albeit off a small base, our net sales doubled for the second consecutive quarter, and our project pipeline remains robust. We are intensively focused on increasing supply and ramping up our facilities in South Sioux City, Nebraska and Vanscoy, Canada. Our dry milling production in Vanscoy has reached new monthly production records, and we've just commissioned our specialty concentrates production line in September, which will increase our available supply of these differentiated products by year end. In South Sioux City, our startup continues to make steady progress with production advancing and increases in batch size and consistency. We estimate we are two-thirds through commissioning and process stabilization and are targeting a steady state process that is able to meet a ramp-up in customer demand early next year. We are laser-focused on beginning to load this facility and absorbing the costs associated with a new plant startup Our team is also actively managing yellow pea costs and availability as the drought in Canada has negatively impacted crop size and prices. We are confident we have secured our yellow pea requirements for next year and are assessing the impact of increased raw material costs on next year's financial projections. Before I hand it over to Jim, I want to spend a moment discussing our diversity, equity, and inclusion agenda. We view our purpose and values-driven, people-centric culture as an important growth enabler. At the heart of this is a deep commitment to diversity, equity, and inclusion. Our inaugural report, entitled Everyone Belongs, in recognition of one of our five values, not only celebrates the accomplishments we've made on our DEI journey thus far, but sets new goals, like achieving 100% on HRC's Corporate Equality Index, reaching industry benchmarks for inclusion and belonging, improving representation of women in management positions to 50% by 2030, and improving representation of black, indigenous, and people of color at the management level. With these goals, We are intensifying our commitment to creating an environment where diversity is celebrated and inclusion is embraced. We know how important this is for us to attract the most talented employees and foster an inclusive and innovative culture that delivers sustainable growth for shareholders. We've included a link in our earnings presentation where you can download our new DEI report, and it is also available on our website. Now, let me hand it off to Jim Gray, who will provide a financial review of the quarter.