Ingredion Incorporated

Good day and thank you for standing by. Welcome to the second quarter 2024 Ingredient Incorporated Earnings Conference 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 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Noah Weiss, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Ingredion's second quarter 2024 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 issue today, as well as the presentation we will reference for our second quarter results, can be found on our website, Ingredion.com, in the investor 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 the forward-looking statements, and a gradient 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 appendix. With that, I will turn the call over to Jim Zelle.

Thank you, Noah, and good morning, everyone. Ingredion's results for the second quarter exceeded our expectations with a strong recovery in volumes across the portfolio and strong growth in profitability with adjusted operating income up 8 percent and gross margins up 240 basis points. Profit growth was supported by improving volume, lower input costs, and greater fixed cost absorption. Sales were down 9 percent due to the pass-through of lower raw material costs, as well as the lap of South Korea's 2023 net sales. This record second quarter for operating income is noteworthy, as it is against the backdrop of value-seeking consumers facing historically high prices in many markets. We believe our success is due to the breadth and affordability of our ingredient portfolio and the diversity of our customer and geographic mix. Our strong results were also supported by our cost control measures and productivity initiatives. Going forward, we will continue to derive strength from our newly segmented business model by optimizing pricing strategies and leveraging our scale in raw material procurement to deliver customer value and improve our financial performance. Turning to a summary of our volume growth across segments this quarter, I would like to take a few moments to walk you through the segment specific volume drivers behind the quarter two results. We delivered strong across the board volume growth for the first time since destocking began early last year. Volumes were up 1% in the quarter. However, if we adjust for the volumes that went with the sale of the South Korea business, volumes were actually up 5%. Our most significant year-over-year increase came from texture and healthful solution segment, with net sales volumes increasing 8%. As packaged food shipments gradually improved, our distributors have begun replenishing inventories in anticipation of continued demand, particularly in the U.S. and Canada, where grocery retailers are witnessing growth in center store sales. From a food category perspective, we have seen positive trends in some of our savory categories, like dressings and sauces, where volumes have started to turn positive year over year. Although quick service restaurants and food away from home has slowed in the second quarter, we are seeing stronger demand for batters and breadings for frozen chicken and French fries prepared at home. Additionally, for texture and healthful solutions, demand in the Middle East and Africa has been particularly strong, recovering to pre-pandemic levels driven by distributory stocking and sales of our innovative solutions for dairy and dairy alternatives. We have also seen nice growth in new customer acquisition throughout Asia, supported by our investment two years ago in China, coupled with continued strong performance from our tapioca franchise. Turning to food and industrial ingredients, LATAM. Dry weather and correspondingly high prices for sugar in Mexico led to increased demand for sweeteners from beverage customers in Brazil, brewery continue to recover, and I'm pleased to report that in line with full-year volume commitments, our sales into nutritional supplements in Columbia commenced, representing a solid in-year restart for this business. Lastly, for food and industrial ingredients, U.S.-Canada, we have seen seasonal summer demand pick up. Additionally, Our industrial business and volumes to paper and packaging customers continue to recover. Let me now update you on progress against our three strategic pillars. Starting with our business growth pillar, we set a record for second quarter profitability thanks to strong volume in all segments. Texture and healthful solutions saw 8% volume growth. project-related customer engagement continued to see strong momentum with a 26% increase in the first half versus the same period last year, which we view as a positive leading indicator of future growth for this segment. Furthermore, customer feedback regarding our service and solutions has reflected the highest levels of trust and collaboration since we began tracking these metrics. Our sugar reduction business had a strong quarter with net sales up 10%, reflecting strong volume growth. During the quarter, aligned with our strategy, we increased our investment and ownership of Pure Circle by $40 million, taking our equity stake to 98%. In 2024, we renewed several multi-year agreements with a few significant customers, which allowed us to recoup inflation on our input costs over the last two years. These adjustments have contributed to higher profits. Lastly, we have seen continued strong demand for industrial starches in papermaking and packaging in North America. Turning to our second pillar, cost competitiveness through operational excellence. Last quarter, we launched a multi-year cost savings program called Cost to Compete with a target to deliver 50 million of run rate savings by the end of 2025. During the first half, as part of our global reorganization, we have identified and initiated $18 million in annual run rate savings, mostly in SG&A. As we are seeing lower corn costs, not just in the United States in the first half of 2024, our global ag procurement teams have responded to lower market prices, which has resulted in a greater than expected reduction in raw material costs. This benefit was evident primarily in our food and industrial ingredients segments. From an operational excellence standpoint, our global supply chain team has been building new forecast accuracy tools. These capabilities, which are a combination of machine learning and people expertise, are improving our production scheduling effectiveness which will result in lower production costs and inventory levels over time. Regarding our purpose-driven and people-centric growth culture pillar, despite a period of significant change, our employee engagement remained in the top quartile of Glint's global benchmarks. As recognition of our progress, I'm proud to say that our global technical headquarters in Bridgewater, New Jersey, won a regional Top Workplaces Award. Our commitment to sustaining high employee engagement further was advanced through the refreshment of our employee value proposition with the aspiration for everyone to have the opportunity to create the future with people who care. Turning now to gross profit margins. On a year-over-year basis, we improved gross margin by 240 basis points to 23.7%, driven by strong volume recovery, better absorption of fixed costs, the adjustment of multi-year contracts, and supply chain optimization and resiliency in managing volatility. We recently published our 2023 sustainability report, and I would like to call out some highlights. Most notably, we've achieved a 22% absolute reduction in global Scope 1 and 2 emissions, marking a substantial milestone toward our 2030 environmental goals. We've also increased our global purchase of renewable electricity to 25%, reinforcing our commitment to increasing sources of green energy. We've reached another significant milestone, achieving 67% sustainable sourcing for our Tier 1 priority crops. I'm proud to say that we now sustainably source 100% of our global waxy corn and stevia supply. Furthermore, we reached 74,000 acres grown under regenerative agricultural practices. Lastly, Ingredient has expanded its relationship with Howgood, a leading sustainability research platform for food ingredients. This partnership enables our customers to access the carbon footprint data for our entire ingredient portfolio as they innovate with sustainability considerations in mind. Now, I will hand over to Jim Gray for the financial review.