Ingredion Incorporated

Good day and thank you for standing by. Welcome to the Ingredion second quarter of 2023 earnings 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. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Noah Weiss, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Ingredient's second quarter 2023 earnings call. I'm Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zally, our President and CEO, and Jim Gray, our Executive Vice President and CFO. The press release we issued today, as well as the presentation we will reference on our second quarter results, can both be found on our website, ingredient.com, in the Investors section. As a reminder, our comments within the 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. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredient 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 Form 10-Q and 8-K. During the call, we will also reference 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. With that, I will turn the call over to Jim Zally.

Thank you, Noah, and good morning, everyone. As we enter the second half of the year, I am pleased to report that sales and profitability remain strong, with net sales up 4% for the second quarter absent foreign exchange impacts, driven by solid price and customer mix management across all regions. Adjusted operating income was up 17% due to pricing and mix improvements, which helped us overcome inflationary input cost pressures that have been a headwind over the last two years. Additionally, gross margins have recovered nicely, due to effective customer contracting and disciplined operational execution. And this quarter's performance is the fourth consecutive quarter of gross margin expansion. Our performance this quarter demonstrates the value of a diversified portfolio, where North America's strength in core ingredients and EMEA's strength in specialties contributed to record second quarter net sales and operating income. These results are particularly noteworthy given the strength of last year's second quarter performance and demonstrate that we maintain our ability to price and pass through significant raw material inflation. Our results also demonstrate our ability to be responsive to shifting market dynamics and deliver continued profit growth. Turning now to our specialty ingredients growth highlights. During the quarter, specialty ingredients net sales grew 3% due to better price mix, even as continued inventory rebalancing throughout the entire supply chain led to softer volumes. Increased collaborations with customers seeking to improve the affordability of recipes helped drive new business momentum throughout the quarter. Historically, in times of higher commodity cost inflation, our customers look to Ingredion to leverage the functionality of our solutions capabilities to reduce their formulation and production costs. Our teams are actively engaged with customers to co-create new food products, leveraging our proprietary Atlas product simulator, which accelerates innovation using digital prototyping, helping our customers reduce their R&D expense, and increase their own new product development efficiency. Recently, our team also created and launched our Snacking Center of Expertise, which seeks to capture additional growth opportunities for Ingredion in the global snacking category, which has been growing 3% to 5% year over year for the last five years. The snacking category presents an excellent opportunity to leverage our complete solutions capability across specialty starches, plant-based proteins, and sweeteners. Our snacking experts have deep technical proficiency that allow them to engage with customers in new ways, providing proprietary insights and market-ready prototypes across a variety of snack applications. This collaboration has helped us develop more projects with larger snack companies globally and has created a multi-million dollar pipeline tapping into the snacking category's high growth potential. Lastly, our Stevia solutions continue to gain momentum and subsequent to the close of the quarter, we increased our overall ownership of Pure Circle to 88%. Taking a closer look at specialty ingredient net sales growth over the past 12 months, South America and EMEA specialty ingredient sales have increased as a percentage of their total net sales, while North America and Asia-Pac held steady. On a consolidated basis, specialty ingredients now make up 34% of overall company sales and continue to comprise an increasing proportion of company profits. It is important to note that core ingredients net sales growth over the past few quarters has been significantly higher than historical averages, which is indicative of strong industry fundamentals. Turning now to our sugar reduction and specialty sweeteners portfolio, Ingredion is the global leader in natural high-intensity sweeteners for sugar reduction, an estimated $5 billion market, which is growing at 6% compounded annual growth rate. Our growth in this market is attributable to our acquisition of Pure Circle three years ago. Pure Circle's advanced technology in stevia leaf breeding and enzyme chemistry is bringing natural sweetener solutions to the market for companies like Coca-Cola, Danone, Nestle, and others who are actively looking to reduce the sugar content in their products. Since acquiring Pure Circle, we have leveraged Ingredion's global go-to-market capabilities to add approximately 185 new customers for high intensity natural sweeteners. We are proud to say that these advancements have helped consumers remove an estimated 3.3 trillion calories from their diets since 2020. We are very pleased with our strategic investments in sugar reduction and continue to focus on expanding our pipeline of projects and new solutions. As an example, over the next few months, we will be ramping up a significant expansion of our stevia bioconversion facility in Kuala Lumpur. Now turning to our strategic pillars. Our teams continue to do an outstanding job executing against our four strategic growth pillars, beginning with specialty ingredients. Year to date, net sales growth once again grew double digits on a constant currency basis. It is worth noting that these year-over-year increases are being achieved while lapping a strong level of net sales growth in the first half of last year. Additionally, more than half of our specialty ingredients growth platforms increased their net sales by double digits on a year-to-date basis. Turning to commercial excellence, our value-based pricing and approach to product and customer mix management continues to drive profit growth and positively impact margins. Our teams around the world leverage our regional pricing centers of excellence to continuously assess the value that our ingredients bring to a recipe and price accordingly. Additionally, the investments we have made to increase the visibility of order tracking for customers and improve warehousing logistics is being reflected in increased net promoter and customer satisfaction scores across all regions. We are also actively tracking consumer purchasing channel movements that could impact our customer channel demand so we can respond to changes in buying behavior to maximize volume opportunities. Against our cost competitiveness strategic pillar, Our operations team continues to do a superb job mitigating the impact of fixed cost absorption by tightly managing fluctuations in production schedules and ensuring we meet service delivery requirements of customers. While input cost inflation continued in the second quarter, the rate of increase has started to moderate. This positive development, combined with Ingredion's productivity initiatives, will continue to to support margin growth. Additionally, our global operations team is in the early stages of driving a connected factory strategy to increase productivity. As an example, our team in Hamburg is leveraging artificial intelligence capabilities to optimize batch cycle times. These efforts are delivering up to a 5% increase in asset utilization, and over time, this capability will be expanded to other facilities. Finally, acknowledging our purpose-driven and people-centric growth culture. We are pleased to have been named as one of the 2023-2024 Best Companies to Work For by U.S. News and World Report. And we were named to USA Today's inaugural Climate Leaders List, which aims to recognize companies that have reduced emissions intensity over the last few years. Now, let me turn it over to Jim Gray for the financial review. Jim? Thank you, Jim, and good morning to everyone.