Ingredion Incorporated

Thank you for standing by, and welcome to Ingredient's third quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question at that time, please press star 11 on your telephone. Please be advised that today's call is being recorded. I will now turn the conference over to your host, Mr. Noah Weiss, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Ingredient's third 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 releases issued today, as well as the presentation we will be referencing for our third quarter results, can both be found on our website, ingredient.com, in the Investors section. 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. Actual results could differ materially from those estimated in our 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 Form 10-Q and 8-K. During this call, we will 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. With that, I will turn the call over to Jim Zalley.

Thank you, Noah, and good morning, everyone. As we enter the last part of the year, I am pleased to report positive sales growth and strong profitability in the third quarter, driven by solid price mix, partially offset by volumes, which are recovering sequentially across all regions. Adjusted operating income was up 15% as we were able to mitigate the impact of cost increases through multiple levers, including pricing and mix improvements, operational excellence, and productivity initiatives. Our business is stronger and more profitable today as a result of the continued execution against our strategic roadmap for growth. Let me update you now on the progress against each of our strategic pillars. Beginning with specialty ingredients, year-to-date net sales have grown 6% along with continued gross margin expansion. Additionally, starch-based texturizers, pharma and personal care, and food systems all experienced double-digit growth year-to-date against strong performance in the prior year. Turning to commercial excellence, our sales teams secured multi-year contracts with some of our larger global customers. These contracts, which provide a sizable base load of volume, should support margin expansion in 2024. Additionally, the work we completed to enhance our logistics systems and overall supply chain fulfillment capabilities has been rewarded with higher net promoter scores and positive customer feedback. Looking to quarter four, we are excited by the opportunity to further improve our warehouse operations and reduce customer pickup times and freight costs. An increasingly important part of the commercial excellence agenda we have with our customers is dedicated to shared value creation from sustainability initiatives. The regenerative agricultural projects we continue to collaborate on with our customers include is generating incremental value across the supply chain for farmers, ourselves, and our customers. We are also engaging to develop a regenerative agricultural framework for the food and beverage industry as a proud founding member of SAI Platform's program. In the area of cost competitiveness, we have done a very good job of balancing production against changing customer demand. Our supply chain team has worked closely all year with both the commercial organization and operations to ensure our customer demand is met while maintaining sufficient, yet not excessive, finished goods inventory. Our operations team continues to do a fantastic job managing production inputs to help offset inflation and absorb fixed costs. It is worth noting that year to date, our teams have faced more than $50 million of higher allocated fixed costs due to lower volumes and have largely offset these cost challenges through their productivity efforts. Additionally, I'd like to recognize the tremendous job of our operations team that they have done driving employee and contractor safety performance this year. Ingredion has historically operated at world-class levels of safety performance, but this year, is particularly notable given a step change reduction in recordable and lost time case rates. Finally, acknowledging our purpose-driven and people-centric growth culture. For the ninth consecutive year, Ingredion Mexico received an Awards for Ethics and Values in the Industry from the Mexican Confederation of Industrial Chambers, and in South America, we were pleased to be awarded Great Place to Work certifications for the second year in a row in Brazil, Colombia, and Peru. Turning to volume trends in the quarter, we show here a volume index based upon our 2019 quarterly shipment averages, excluding high fructose corn syrup and adjusting for changes in our portfolio since 2019. During our Q2 conference call, we introduced this graph to illustrate how exaggerated demand in 2021 and 2022 produced a buildup of inventory throughout the supply chain that required rebalancing. It appears customer destocking has decelerated as we experienced sequential improvement month on month throughout the third quarter. We believe this quarter's performance also demonstrated the diversity of our product portfolio, markets exposure, and the strength of our business model. Both our core and specialties ingredients continue to be well positioned to address large and growing end markets in the geographies where we operate. From a specialty ingredients perspective, we experienced growth in our largest specialty category, texture solutions. Our food systems platform has outperformed expectations as we worked closely with customers to reformulate recipes to drive affordability primarily in the European private label market. In sugar reduction, we also continue to experience strong volume growth and expanded pure circle margins. Our core ingredients also showed resilience with one of our largest markets, Mexico, delivering record third quarter operating profit driven by volume growth across a range of food and beverage categories where a robust economy is driving growing middle-class demand. In the U.S., we were also pleased to see solid demand for glucose, as our production facilities ran at full capacity in the quarter, partially in response to higher sugar prices. Lastly, our industrial ingredients, which serve the papermaking and corrugating industries, saw a steady pickup in demand as shipment volumes recovered broadly across the U.S., As you can see, the diversity inherent in our business allows us to continue to deliver shareholder value even in challenging environments. As we have continued to invest in growth and improved risk management, our business has shown consistency as we deliver record-setting results. Now, let me turn it over to Jim Gray for the financial review.