Ingredion Incorporated Price & Performance (INGR)

Good morning, and welcome to Ingredion's 4th quarter and full year 2024 earnings call. I'm Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, our President and CEO and Jim Gray, our Executive Vice President and CFO. The press release we issued today as well as the presentation will be we will reference for our Q4 and full year results can be found on our website Ingredion, 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 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 ks and Subsequent reports on Form 10 Q and 8 ks.

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 including 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. I am pleased to announce that Ingredion achieved significant double digit adjusted EPS growth for the 4th quarter. This performance was driven by continued strong sales volume growth in texture and healthful solutions as well as exceptional performance from each of our Food and Industrial Ingredion segments. Our 2024 reorganization and new segment structure positioned our teams well against our targeted markets and customer opportunities establishing a solid foundation for the future. Our Food and Industrial Ingredients U. S. Canada business benefited from the renewal of multiyear contracts that enabled us to recapture inflationary impacts and recover margins resulting in significant operating income growth for the 4th quarter. For Food and Industrial Ingredients LATAM, the Mexico and Andean businesses delivered strong results despite softer sweetener demand. The strength and agility of our business model in the region enabled us to manage pricing in the face of changing corn costs, and currency fluctuations.

These factors collectively led to a year over year increase of 5% in operating income [indiscernible] an increase of 8% when adjusting for the sale of the South Korea business, Turning to a summary of our net sales volume growth for the quarter. Ingredion continued to drive organic growth with a 4% increase compared to last year when adjusted for the sale of our South Korea business Beginning with texture, [indiscernible] We experienced a double digit sales volume increase for the 2nd consecutive quarter, Food and beverage categories in the U. S. Such as yogurt, [indiscernible] and Batters and Breadings were key contributors to this growth. Despite ongoing food inflation, impacting Western European markets, the categories most relevant to Ingredion in that region have consistently outperformed the overall market throughout 2024. Especially in the latter half of the year. Sectors such as dressings, ready to eat and frozen meals and dairy products continue to demonstrate recovery as consumers traveled and returned to more in office work routines and placed an increased emphasis on value. As mentioned during our texture innovation day, we are continuing to drive volume growth with our most differentiated products and solutions which generally offer higher profitability.

In the Food and Industrial Ingredients LatAm segment, net sales volumes were down 4% in the quarter mainly due to soft sweetener sales to the Mexican beverage market Ingredion to sales to the Andean confectionery category also experienced softer demand. Lastly, in Food and Industrial U. S. Canada, strong demand from papermaking and packaging customers was partially offset by weaker sweetener shipments. For the full year 2024, gross profit dollars and margins reached record levels of $1,800,000,000 with a corresponding margin of 24% up 270 basis points compared to 2023. Our operations and procurement teams have played a pivotal role in driving operational excellence across the organization. Their focus on optimizing capacity utilization streamlining supply chain processes and implementing procurement led cost saving measures have increased efficiency and reduced costs. Let me now update you on our progress against our 3 strategic pillars. Beginning with business growth, In the quarter, our Texture and Helpful Solutions segment demonstrated robust performance with strong sales volume growth and expanding operating income margins. We continue to progress our solutions selling approach focused on demonstrating the impact of textural solutions to improve taste, and overall liking. Underpinning our solutions capabilities we have invested in strengthening formulation expertise and improving the quality of customer briefs.

We are focused on solving unique customer challenges by providing tailored solutions for health and wellness clean label and affordability. We are continuing to invest in future innovation and revenue growth. Our Food and Industrial Ingredients U. S. Can segment demonstrated significant operating income growth. We successfully adjusted multiyear contracts to recapture prior year's inflationary impacts and enable margin recovery. Further supporting this segment's performance, with strong demand for the papermaking and packaging industries. Turning to the second strategic pillar, cost competitiveness through operational excellence. Are pleased to report that at the end of the 1st year, of our cost to compete program, we exceeded our year 1 run rate cost savings target of 18,000,000 dollars by more than 30%. We will meet or exceed our run rate target of $50,000,000 by the end of 2025 and we'll provide an update to the program outlook later this year. A significant portion of the targeted cost of goods sold savings in 2025 will come from strategic network sourcing moves that enabled us to further optimize our asset footprint. And close 3, of our smaller facilities 1 each [indiscernible] Brazil, and Canada. It is also noteworthy to mention that this morning, we announced $100,000,000 of investments to expand Ingredion's capabilities for delivering texture innovations to growing end markets while bolstering the economic viability and sustainability Furthermore, by upgrading Indianapolis' energy infrastructure, Ingredion will improve operational efficiency, and reliability while reducing greenhouse gas emissions.

Additionally, these investments will enable the Indianapolis plant to lead in supplying the highest quality and most innovative specialty starch based texturizers for global customers. Moving to our last pillar, our people centric performance growth culture In December, we were honored to be recognized for the first time ever by The Wall Street Journal as one of the 250 best managed companies. This recognition demonstrated Ingredion's achievements customer satisfaction, employee engagement, innovation and financial strength. In addition, our dedication to fostering an inclusive work environment was further highlighted by Ingredion Brazil being designated as a great place to work for 2025. And finally, Ingredion was named top employer in Singapore and Thailand for the 5th consecutive year while achieving that status In China, Germany, Malaysia, and the United Kingdom for 3 consecutive years. There are also a number of notable achievements to highlight after the 1st year of our global reorganization business re segmentation, and cost to compete program. We advanced a customer centric approach to optimizing and derisking our supply chain by making selective investments and taking restructuring actions to enhance service, and improve perfect order delivery. Re segmentation also increased business performance and visibility providing a clearer view of segment demand drivers.

Global Operations standardized roles and processes leveraging their global scale which is just beginning to lead. To better execution and improved efficiencies. Lastly, we made strategic investments for growth. Progressing texture and helpful solutions capacity expansions in Thailand the U. S. Germany. Now, I am pleased to hand it over to Jim Gray, for the financial review. Jim? Thank you, Jim, and good morning, everyone. Moving to our income statement. Net sales for the Q4 were $1,800,000,000 down 6% versus prior year. Gross profit dollars grew 12% with corresponding margins up 4 20 basis points to 25%. Reported and adjusted operating income were 162,000,000 dollars $248,000,000 respectively, with adjusted operating income up 22% versus the prior year driven by lower raw material costs, greater sales volume and fixed cost absorption, partially offset by pricemix. Turning to our Q4 net sales bridge. The 6% decrease was driven by $92,000,000 in lower price mix, and $33,000,000 of foreign exchange impacts. Partially offset by positive sales volume growth of 77,000,000 dollars Furthermore, the exit from South Korea Turning to the next slide, we highlight net sales drivers for the 4th quarter. For the total company, net sales were down 6%, and excluding the impact of South Korea sales from results, net sales were down 2%.

Extra and Healthful Solutions net sales were up 1% driven by sales volume growth of positive 10%. Price mix declined 10% for the quarter primarily reflecting the pass through of lower corn costs, as well as lapping last year's higher pricing due to double digit inflation experienced in specialty corn and energy costs. Food and Industrial Ingredients LatAm net sales were down 9%. In Food and Industrial Ingredion, U. S. Can net sales were down 2%. Both results impacted primarily from the pass through of lower corn costs. The trajectory of our Textur and Healthful Solutions business is demonstrating a full recovery from the demand impacts of industry destocking experienced in 2023. The operating income has steadily returned to more consistent levels throughout 2024 particularly in the latter half of the year, recognizing that Textures Solutions is not significantly impacted by This stable trend is expected to continue into 2025. Turning to our earnings bridge. On the top half, you can see the reconciliation from reported to adjusted earnings per share. Operationally, we saw an increase of $0.52 per share for the quarter. The increase was driven primarily by an operating margin increase of $0.67 partially offset by other income of minus $0.10 per share.

Moving to the change in nonoperational items, We had an increase of $0.14 per share primarily driven by lower financing costs of $0.19 per share partially offset by a higher tax rate. Equivalent to minus $0.06 per share. Shifting to our year to date income statement, [indiscernible] Net sales for the full year were approximately $7,400,000,000 down 9% versus the prior year due mainly to lower corn costs. Gross profit dollars increased 2% and gross margin was up 2 70 basis points to 24.1%. Reported and adjusted operating income were 883 $1,016,000,000 dollars respectively with adjusted operating income up 5% from last year. Turning to our full year net sales bridge. The 9% decrease was driven by $622,000,000 in lower price mix and $52,000,000 of foreign exchange impacts. Partially offset by positive sales volume growth 227,000,000 dollars Furthermore, the exit from South Korea had a $283,000,000 [indiscernible] volume dollar impact. Turning to the next slide, we highlight net sales drivers for the full year. For the For the total company, net sales were down 9%. However, excluding the impact of South Korea sales from results, net sales were down 6%. Texture and helpful Solutions net sales were down 4% pricemix was down 10%, and sales volume was up 7% for the full year.

Food and Industrial Ingredients LatAm net sales were down [indiscernible] and Food and Industrial Ingredients U. S. Canada net sales were down 8% for the full year results impacted by the pass through of lower corn costs. Let me turn to a full year summary of each segment's [indiscernible] now that we have completed our 1st year reporting under new segmentation. For 2024, Texture and Healthful Solutions net sales were down 4% compared to the prior year and down 3% on a constant currency basis. Although Texture and Healthful Solutions operating income was down 11% it is important to note the sequential profit improvement through each quarter in 2024 as we fully lap the impacts of industry destocking. In Food and Industrial Ingredients LatAm, net sales were down 7% versus last year and down 6% on a constant currency basis. Operating income improved to $483,000,000 resulting in 7% year over year growth. Off income margin of 19.7 percent was driven by strong results overall in Mexico and an improving year over year input cost structure in Brazil as our transition to biomass energy was completed. Moving to Food and Industrial Ingredients U. S. Canada, full year net sales were down 8%.

Operating income was 7 [indiscernible] up 25%. With operating income margin improving to 17.3%. The exceptional increase in operating income was driven primarily by renewal of multiyear customer contracts, which reflect catch ups from prior year's higher inflation. The full year results also benefited from lower raw material costs, though partially offset by lower price mix.

For all other, net sales decrease was driven by the overlap of South Korea's net sales included in the prior year. All other operating loss of minus $22,000,000 was driven primarily by the sale of our South Korea business which had contributed $30,000,000 to the prior year's results. Turning to our year to date earnings bridge. The company delivered an increase of $1.23 per share. Operationally, saw an increase of 52 dollars per share The increase was driven primarily by an operating margin increase of 1.09 partially offset volume of minus $0.47 per share. Moving to the change in our nonoperational items, we had an increase of $0.71 per share. Primarily driven by lower financing costs of $0.85 per share partially offset by a higher tax rate equivalent to $0.24 to a negative $0.24 Moving to cash flow, 2024 cash generated from operations was $1,400,000,000 Cash from operations benefited from consistent net income growth and an exceptional contribution from working capital change which is typical when we experience lower corn costs throughout the year. We highlight here the change in working capital balances contributed almost 400,000,000 dollars to our cash from operations. As we look forward to 2025, we anticipate flight to flat to slightly higher corn costs and are expecting to invest in working capital.

Full year 2024 capital expenditures net of disposals came in at $295,000,000 As announced earlier, we will continue to invest in growth initiatives and have begun several one time but significant cost savings and infrastructure projects that will be completed by 2026. In the full year 2024, we repurchased over 200,000,000 of outstanding common shares more than doubling our initial goal for share repurchases set at the beginning of the year.

Our capital allocation priorities can primarily focused on higher return growth opportunities. And secondarily, being mindful of total return to shareholders, through our dividend and share repurchases. We actively look at M and A to accelerate our strategic priorities and believe that we have a strong balance sheet to consider the best options for shareholder value creation. As outlined in our 2025 guidance, we will be raising our capital expenditures to an investment level of $400,000,000 to $450,000,000 for 20 5. This represents a one time step up from our historical capital investment range of $300,000,000 to 350,000,000 dollars One significant driver of this higher investment level is the opportunity to leverage incentives granted in the Inflation Reduction Act that will enhance our cost position and enable us to capture future efficiencies at our Indi plant. Now let me turn to our outlook for 2025. For the full year of 2025, anticipate continued sales volume growth, and op income improvement. We expect net sales for Ingredion to be up low single digits. Reflecting greater volume demand partially offset by price mix and foreign exchange. We anticipate that adjusted operating income will be up mid single digits.

Our 2025 financing cost estimate is in the range of $50,000,000 to 70,000,000 dollars to align with the reduction of overall debt levels, and the anticipation of a stronger U. S. Dollar, in our current foreign exchange outlook. For the full year 20 20 25, we expect reported and adjusted effective tax rates of 26% to 27.5%.

For the full year, reported and adjusted EPS are expected to be in the range of $10.75 to $11.55 This guidance does not anticipate extraordinary changes in current tax rates, tariffs or trade, or food regulations. Furthermore, our expectation excludes acquisition related as well as any potential impairment costs. We expect diluted weighted average shares out $66,500,000 shares. We are once again establishing a share repurchase objective of at least $100,000,000 for 2025. We anticipate our 2025 cash from operations to be in the range of $800,000,000 to 950,000,000 dollars Corporate costs are now expected to be up mid single digits the high single digits year over year, reflecting compensation increases and center led investments in R and D, and Digital IT capabilities. Turning to the segment detail. For our 2025 outlook, For texture and healthful solutions, we expect net sales to be up mid single digits. And operating income to be up mid single digits to high single digits driven by sales volume growth. For Food and Industrial LatAm, we expect net sales to be flat and expect operating income to be up mid single digits. For Food and Industrial U. S. Canada, expect net sales to be down low single digits and operating income to be flat to down low single digits.

For all other, while not a segment per se, is made up of various businesses with distinct business drivers. We expect net sales combined for the sum of these businesses to be up high single digits and operating income anticipated to approach breakeven profitability. Lastly, for the Q1 of 2025, we expect net sales to be down low single digits for the entire company and operating income to be up high single digits. That concludes my comments and I'll turn it back over to Jeff. Thanks, Jim.

Our record performance in 2024 provides momentum heading into 2025. In addition to solid volume growth in texture and healthful solutions, and operational execution across our entire business, we also exceeded our 1st year cost to compete run rate savings target. Our exceptionally strong cash flow from operations bolstered by short term working capital benefits has enabled us to step up organic investments in 2025.

Additionally, We returned $426,000,000 to shareholders in 2024 demonstrating our commitment to shareholder value. We anticipate further strengthening of customer collaborations to drive growth and continued cost to compete savings from the 2nd year of initiatives to position us well to navigate a dynamic business environment, in 2025. We will continue to allocate capital that prioritizes organic investment to drive future profit growth while returning capital through dividends and share repurchases, to deliver shareholder value. Now let's open the call for questions. Operator?

Our first question will be coming from the line Christian Owen of Oppenheimer. Your line is open. [indiscernible] Good morning. Thank you for taking the question and congratulations on the nice results. [indiscernible] thanks, Jim. Understanding that you guys did come in ahead of expectations in 2024. But I'll say I was a little bit surprised by the 2025 EPS guidance. The low end implies just about a percentage of gross high end 8.5%. So pretty wide range of expectations there. Can you help us understand the swing factors? What would put the low end in play? And And what needs to happen to achieve the high end?

Yes. Let me have Jim take that question.

Yes. Kristen, normally when I think we're beginning of the year, we're going to look at a range that's relatively wide. I think early on, there's also always going to be like, well, which way is maybe the spring crop in the U. S. Going to kind of play out as well as right now I think this year looking really at FX rate. So I think on the low side of our earnings estimate, probably greater currency weakness could play into facts in Brazil [indiscernible] say there's probably some offsets maybe in the weakness in the Thai baht, which is generally a benefit from us. We're watching kind of softer co product values in Europe. We want to see how the French corn crop comes in. And then just generally slightly higher corn costs potentially always can be just a slight headwind even though we extensively hedge. Our upsides are really driven by kind of greater than expected volume. I still believe that there's potentially even more volume, Unibon growth out there in a very low and inflationary environment in food and beverage, right? So that tends to be pretty positive for ingredients suppliers. I think there's also kind of increased wins as we look at customer reformulations.

Particularly maybe given some of the dynamics in the U. S, And then there's always some spot pricing opportunities. And so so those are some of the flavor of the potential downsides, but also the upsides. In our guidance range.

Yes. I think just to complement that, I think just at this point early in the year, some of the dynamic elements that are in play And I think you called out foreign exchange is one of the ones that we're watching.

Closely. That all being said, we do do a pretty good job managing that and have historically But that's the reason at this point in the year, early in the year, for a wider range But obviously, we looked at what that conveys from a center cut standpoint and what we feel would be line with say, the long term profit outlook for the business?

Yes.

Appreciate that color. And then if I could ask on the $100,000,000 CapEx investment in Indiana, you noted the step up in the free cash flow that enabled that to happen. But just how this fits into your capital allocation strategy as you're thinking [indiscernible] Would this impact your willingness to look at acquisition targets How are you viewing the pipeline at this stage? And thoughts on the pace of of share repurchases? I think you mentioned $100,000,000 on the call. So just any context around that. Thank you.

Yes.

Well, Kristen, I think when you finish a year like we just did in 'twenty four where we didn't have to invest in working capital and just to remind you, we put a lot of investment into working capital in 20 [indiscernible] that has now really come back. [indiscernible] because we've managed cash well, I think we have a really strong balance sheet. So when you sit back and you say, well, what are the best opportunities to go create shareholder value? And the team thought thought very broadly about this. Jim challenged us all, not just in our segments, but also in our operations. And we said, well, wait a minute, there's some very investment opportunities for us and it wants continuing to invest in organic growth where we have capacity where we need it generally in other places around the world But when we looked at Indy, there was an opportunity to really to really upgrade some of what we do as well as put in a cogeneration plant there. And so that's flagship plant for us when we think about Global Textures Solutions. And so it just made sense to invest in Andy. That project has already started in 2024, continues in 2025, it will wrap up in 2016.

And so so I think as we noted, we're going to call this out for investors as what we call cost savings and We're going to call it in its own bucket. And we'll talk a little bit more about the expected returns, but we believe this is kind of at least to 10% to mid teens IRR type of opportunity for us to deploy capital.

Yes. I think strength of the balance sheet and the cash generation over the last couple of years gives us confidence to make these kind of investments in the business [indiscernible] are confident [indiscernible] right in line with our strategy given importance that that Indianapolis plant, for example, plays. But as evidenced by the share repurchases coming in more than 2 times what we originally targeted, balance sheet flexibility to also pursue M and A, which obviously we have a pipeline that we're always continuing to assess. So it doesn't in any way preclude us from pursuing organic investments as well.

Thank you so much.

Thank you. One moment for the next question. And our next question will be coming from the line of Josh Spector of UBS.

Yes. Hi, good morning. I wanted to ask just on the guidance framework. It seems to be if you go through the negative pricing and FX that you're assuming that volumes are up maybe mid single digit percent at your midpoint of expectations. And my reaction is pretty a healthy target if that's a right interpretation. So you give us some context about what gives you confidence in that? Is that new wins? Are there specific markets? Really what's driving that overall? [indiscernible] clarify, Josh, I mean, I would say that our sales volume expectation for Textron and Healthful Solutions is in that mid single digits And I would probably say that the F and I businesses have a a lower sales volume target than that. We are seeing though significantly less price mix. So maybe I'm catching in your assumption that there's still some significant you may have in your assumptions or how you work through it kind of [indiscernible] a greater price mix headwind. We see that dampening and much less 2025 versus what we've experienced in 2024.

Yes.

I guess let me step back and try that again I thought at an overall level, you're guiding towards low single digit revenue growth. Net of pricing, that's net of negative FX. If I say each of those are a point, mean, maybe I'm differentiating between 5 versus 3, Can you clarify that point for me?

Yes. And that's yes. So I would say there's still again we're looking at probably total company low single digit to between low single digit and mid single digit volume slight pricemix and foreign exchange is maybe not as much as you assume. When we look at the total revenue mix. Right now.

Okay. Understood. Let me move on to another one quickly to ask just on the contract structure of what you have in place. With the multiyear contracts. I think you said earlier you'll give maybe some more detail of the union on where we stand now in terms of how many of the contracts are on a multiyear basis how much we need to think about coming off over the next couple of years and your visibility to being able to address some of that effectively? Yes.

Let me just take a question in totality from standpoint of, I guess, how do we feel coming out of contract? I would say that in general, we're pleased with the results of contracting [indiscernible] we expect operating income margins for texture and healthful solutions food and industrial ingredients lifetime and our businesses that are in the other category to demonstrate margin [indiscernible] The margin expansion going to be supported by price management and our corn procurement and hedging practices as we move through 2025's dynamic environment. For the Food and Industrial Ingredients U. S. Canada business, we are expecting to hold operating income margin for this segment as we have achieved significant operating margin expansion over the last 2 years The ring of steps, so just holding that margin we think is a great achievement. And the segment operating improvements will be part of his remarks by an increase in corporate costs as we invest in some digital transformation investments as well as R and D. And for the company, we anticipate operating income margin improvement to be in the range of 30 to 70 basis points that's inclusive of those investments in operating incomes, operating income corporate costs, I should say.

The issue around multiyear contracts, I think the majority of those adjustments took place last year. So there's not any significant multiyear adjustments heading into 2025 will be one or 2 here and there, but not of the order of magnitude because typically when these contracts renew, they're multi year contracts. So again, being able in the U. S./Canada Food and Industrial Ingredients business to be able to hold that 700 to 800 basis points increase over the last year or 2, is quite a significant achievement that I think highlights the strength of the business model in that business.

The contracting is complete. And the way that manifests in our business, Josh, is that we take all of those contracts and as we put them into the system, we come up with kind of that weighted average change relative to when we locked in the underlying raw material with the customer for their volume commitment for 2025 run that and then what you get from us is a perspective, which Jim highlighted on our operating income margin expansion or stability. Yes.

And just to put a finer point to make sure there's no confusion. So there really is nothing materially out outstanding in relationship to contracting. Contracting is complete and that is the case in the U. S. And that is the case in Europe and pretty much around the world.

Got it. Thank you very much.

Thank you. Thanks, Josh.

And our next question will be coming from the line of Andrew Stieczek of BMO Capital Markets. Your line is open.

Hey, good morning. Thanks for taking the questions. My first one, I wanted to go back to the texture and helpful solutions. Guidance. I mean, the recent Innovation Day, I think you gave a profit growth outlook that was at 8% to 10%. And recognizing you're giving a range for the guidance for this year, the low end of that obviously leaves room for some shortfall relative to that algo. So I know you talked about FX. Is there anything else on the downside on the lower end of that that that could be pressuring that below the outlook? And then I guess the follow on to that would be as we get beyond 25, are you assuming then that you grow kind of towards the higher end of that outlook and what drives that reacceleration.

Your answer to your latter question is yes. And I think just on the range, protection and helpful solutions is just being cautious a little bit about the strength of the dollar. Kind of strength of some of the countries economies where we primarily are really growing Textron Healthful. So So Southeast Asia looking at China, and in looking at parts of Europe and as well as the Middle East, We're still very optimistic, I think, about the strength of this business. And just want to make sure that we still play through kind of how the how the strength of the dollar looks relative to some currencies. Got it. Okay. Okay. And I know that the guidance doesn't really contemplate some of the outside potential factors around tariffs and trade and food ingredient regulations. I guess I'm just curious from your perspective how you weigh those risks and the positioning of the portfolio particularly as it relates to scrutiny for the helpfulness of the food supply chain and where you might be positioned? Like do you think about Demand shifts within your portfolio where that could be a net benefit? Do you see those as potential headwinds? I guess when you think about these things in their totality, should they come to pass, how you [indiscernible] Yes.

Let Jim and I tag team on this one. So first of all, as mentioned, I think during our prepared remarks, the 2025 outlook does not consider extraordinary changes to current tax rates, to tariffs or trade or food regulations. Ingredion of course, we're monitoring any new announcements by the administration, or any of the trading partners with the U. S. To assess any potential impacts of say tariffs. With respect to the U. S, Mexico and Canada trade relationships, I think it is important though to highlight something that we've talked about in the past about our business and that is that we have local manufacturing. In each country. So for example, we're the only corn wet miller In Canada, [indiscernible] 2 manufacturing facilities and in Mexico with 3 manufacturing facilities that supply predominantly a local customer base. We source corn locally in each country, although We do rely on corn imports, from the U. S. Into Mexico So that's one of the things that obviously we'll be watching And this is a very dynamic situation right now and we're committed to sharing any relevant updates to the full year outlook as we gain more clarity [indiscernible] once we have some certainty around the impact on scope and timing of any potential tariffs.

At the same time, we're doing scenario planning. As you would expect. To review our regional supply chain operations in throughout LatAm, the U. S. And Canada to look at alternative sourcing paths should they arise. As you would expect, Jim, do you want to add to this? No. And just Andrew, I think that everybody listening, right, Timing always helps, right? If it's clear that there is going to be an amount of a tariff and when just supply chains like to move and they like to have time to be able to move It allows us to think about our input costs. It thinks about where we are going to manufacture how we approach customers in terms of to pass through on pricing as well as what's the impact of our customers business to tariffs. So just it allows us all to kind of think through each one of those in lockstep and then come to, I think, a pretty good assessment in terms of whether there's opportunities or risks to the business. Great.

Thank you very much. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Param Shama of Stephens. Your line is open.

Thanks and congrats on the quarter.

Thank you. Thanks, Poonan. Welcome.

Just wanted to ask about the cost to compete program I know you achieved a good run rate thus far, but was just wondering if you could provide a little bit more granularity in terms of specific cost levers that you thought had the most impact so far And I believe you mentioned this, but if you could just talk about the biggest opportunities that you see in 2025 for cost to compete, Sure. So just a reminder that had set a target for the 1st year of the program typically when you're ramping up activities along along such a program that is enterprise wide, we had set a target. We delivered more than $23,000,000 which was greater than 30% of what we had originally target in the year. So we built momentum throughout. But one of the levers that obviously was pulled was consistent with our play to win strategy refresh and [indiscernible] reorganization and re segmentation and that obviously afforded us an opportunity to look across the entire organization and what winning skills and differentiating capabilities we needed to have to execute the strategy And so a number of people within our organization were reassigned to different roles and then at the same time, that led to opportunities to streamline the organization.

And so What was great about the program coming up on the heels of completing a 2023 to align our cost structure to our strategy and with people being on the right seat. Right.

Into the 2nd year, what we're very excited about and what we mentioned in the [indiscernible] remarks, our network and looked at [indiscernible] product flows and capacity utilizations across our network most efficiently and that led to the decision to shutter 3 facilities. Now there are smaller facilities but some involve some investment in other plans to compensate. But from a standpoint of driving efficiency, modernization and overall maximizing capital maximizing capacity utilization that's where the 2nd year for the most part of cost of compete savings are going to come from.

Yes. Well, and I just say that, look, the work led by our Senior VP and Chief Supply Chain Officer, Eric Seit, and what Jim mentioned is looking at all of our [indiscernible] Several years now, we have a different perspective. We've built a different set of capabilities So we really can anticipate demand where it's going to show up in the world and then work towards what's the best way to really optimize our cost of production and our cost to move product The only other thing I'd add is that, look, cost to compete is around expenses. But as Jim mentioned, as we get into these changes in manufacturing network, it also helps us achieve higher ROIC and a better return on our invested capital. [indiscernible] And that's obviously as an asset intensive company, that's what we're always sort of striving to do.

Right. I appreciate the color. Just on my follow-up, wanted to see if you could help me understand kind of how to frame up net corn cost for the year. I know you do hedge a good chunk of your corn and your co product values. But just thinking about the unhedged portion, we've seen some recent crop price rallies Some drought concerns out of South America. Does that concern you at all? And how should we be thinking about net corn costs for the year? Yes.

I'll Let me take a late on this, Sun.

So So Pooneran, when we are going through kind of each specific customers contracting in the fall of last year, even up through December, when that customer is calling us and saying, yes, I want to set the volume expectation and the price We're taking kind of at that moment corn futures and or our co product futures layout looks like for the next year and that's being incorporated into the price. So I really look at 2025 and even though we've had some movement both in corn upward as well as soy, I think our more extensive hedging practices in the U. S. Particularly against our firm or what we call our flat rate price contracts is just significantly reduced value at risk. So right now what we just watch is, let's look at this spring crop and plantings on time and what the health of the spring crop looks like. And how that develops whether it's here in the U. S. Or in Brazil or Argentina, It's going to probably impact the global cost of corn Elsewhere in the world, we contract out relatively short in terms of a period. And so if there are changes in the cost of the corn, the teams are very agile and quick to catch up.

On what that changed raw material cost might look like.

Ann, in prep for this call, we did look at some of the noise coming out of Argentina specifically about what you read about the drought down there. However, we've been reassured of is the area where we source the corn from is not being impacted to the degree that you're reading about So we feel pretty good for that particular country But the other thing, Jim, that we have done is to mitigate earnings volatility is is hedge and sell forward our co products, which has really helped us in recent years and we've done the same. And that's why from a standpoint of the outlook, for the next 6 months, we feel We feel very good about the visibility that we have on co product returns as well.

Great. I appreciate the color Congrats on the quarter again. I'll pass it on.

Thank you, Puran.

Thank you. One moment for the next question.

And our next question will be coming from the line of Ben Zuo of Barclays. Your line is open.

Yeah, good morning and thanks for squeezing me in. Jim, Jim, just wanted To follow-up a little bit on your expectations maybe more on the first half, particularly as it as it relates to LatAm and the currencies there and what that impact is?

Obviously, first half of twenty twenty four, both BRL and Mexican peso were relatively strong and we're seeing a much weaker level here. But at the same time, we're seeing a little bit of signs of like maybe a little bit of a consumer softness in some in terms of like just the feeling around the trade noise. So as you think about the cadence throughout the year and I appreciate you already gave the guidance that net sales expected to be down low single digit. But what are like the risks in that region in particular as it relates to volume And then on top of that, the FX that is obviously at war compared to what the first half was?

Yes. So first of all, just wanted to make sure for for Food Industrial LatAm for 2025, we expect really net sales to be flat [indiscernible] And then so we do see a little bit of current currency headwind just year over year for the full year. I think right now, if you look at the reais as well as the peso, relative to the dollar. We're taking both of those into account and kind of when we're looking at how we're setting 2024 2025 guidance, excuse me, To the extent that there's weakness in in the rye and the value of corn adjusts to maybe a global value of corn expressed in dollars, So what we have always typically done is priced that local price we're adjusting relative to to the value of the U. S. Corn. [indiscernible] [indiscernible] can export. And so the local market adjusts. That's a pretty ingrained expectation, I think, within customers and our our sales teams. Mexico is slightly different because we are dollar denominated in reporting our business in Mexico. But we do look at hedging the peso where we have local exposure. [indiscernible] generally if the peso weakens, we're going to see a little bit of upside because our costs will be less.

Right.

We'll see upside in Mexico, with a weaker Okay.

Got it. And it's more of a headwind on the Brazilian rei if it weakens.

Okay, understood. And then just as it relates to like the capital allocation in general and appreciate the details you gave during the prepared remarks and some of the Q and A already on the CapEx for this year of Indianapolis. Expansion project. So obviously, the ticks up a little bit your CapEx for this year. As we move beyond 2025 or that project in particular, [indiscernible] to run also into 2026? And how do you think about just like other facilities or other areas of potential Ingredion CapEx just given that you're having still a fairly strong operating cash flow outlook for 2025? Yes.

No, I think we really want to I really want to make sure we're clear, right, and that right now, this is this the cost savings and the infrastructure bet while it takes us about 2 years to get this all done, we really see this as kind of one time ad hoc. We want to make sure that I think longer run that we want to come back on our cash flow that we're investing in the business is going to be our reliability capital and then usually between $80,000,000 to $100,000,000 in growth. Organic growth.

And that organic growth capital has generally returned definitely in the high teens, if not even 20s, plus percent type of IRRs is where we target.

That all being said, I think that the way you have to continue to think about the CapEx investments that we have made already and we've talked about these many times in previous Investor Days and updates, we've invested strongly in our previously what we call specialties and now more so texture and healthful solutions with headroom to grow, example, in China for China and in Mexico for our Texture and Healthful Solutions business in Thailand, And those investments still have headrooms for enabling of growth. So We've invested significant growth capital in say the last 3, 4 years and those investments haven't fully matured from a standpoint of the revenue and profit potential that they can continue to generate for the company. This particular Indianapolis investment again, Jim called it our flagship facility for for Textura Healthful Solutions Specialty Starches and produce some of our most differentiated products. And this investment significantly modernizes the facility significantly streamlines product flows between a very large plant across a very large plant as well as just how people traverse the plant And then on top of it, we get the cost competitiveness and the environmental benefits from the cogeneration investment that we're making.

So hopefully, that puts kind of CapEx [indiscernible] the implications on enabling future growth as well as investing also in the kind of the reliability and cost competitive side of it.

Okay. Perfect. You very much. Okay. Thanks, Ben.

Thank you. One moment for the next question.

And our next question will be coming from the line of Heather Jones of Heather Jones Research. Your line is open.

Thank you for the question. Good morning. Congratulations on the quarter.

I want to start hey, good morning. I wanted to start out with the all other business. And that's a pretty sizable improvement y'all are looking for in 25 versus 24. I'm assuming most of it is from the Saskatchewan plant just wondering if you could help us understand, flesh that out a little bit.

Yes. Thank you so much for the question. So as a reminder, the other category is comprised of our Pakistan business. Which is profitable and will have year on year growth Our sugar reduction business, which is profitable and will have year on year growth and our protein fortification business, which is steadily improving but still is loss making. And as mentioned, the decision to close the Vanskoi plant we'll have a net positive profit improvement impact of about $10,000,000 in 2025. So you have the Pakistan business with a great market position and it will grow year on year. Sugar reduction based on all of the market trends we anticipate some solid growth from that business unit as well or segment within a segment. And the protein fortification business is really hitting its stride. I would say it had a very strong year on year performance. From the production out of our South Sioux City plant for the higher value or highest value pea protein isolate [indiscernible] the contracting went very well as well as we head into 2025. So we are pretty confident in the year on year improvements we expect to see as that business works its way over the next couple of years towards profit breakeven.

That's the target for that business. But in the meantime, the other businesses are doing well.

Thank you for that. And then on Latin America, so just curious, I think just looking at the slide slide and you all are expecting EBIT to be up mid single digits. And so my understanding was that '24 was the 2nd record year for Mexico I think you had a pretty good year in Argentina. So just wondering if you could give us Help us to know what's driving that outlook.

Yes. Well, I mean, obviously, look, I think that there's still plenty of room to run-in Brazil.

In our business.

We mentioned that we're closing one of the smaller facilities there, but it allows us to rebalance some of our product, make some investment and just continue to look at that that product mix within Brazil and there's plenty of ways to upgrade that out of some what I would call probably higher volume, lower margin business into stuff that's much more differentiated and product lines that we can really service well And then we always are quite positive on the Endy and subregion as well in terms of its its opportunities not just with corn, but also with tapioca.

I mean, if you remember, the Q1 of this year, if I should say, 2024, there was a little softness from one of the nutritional supplement segments that we had in in the Andean business in Colombia but we indicated that we felt confident that was going to come back and that's did and it finished actually very strongly and has momentum as it heads into 2025. But really the name of the game in LatAm that we feel we have within our control [indiscernible] network optimization and efficiencies that we continue to drive And as Jim talked about it, [indiscernible] See a big opportunity for mix upgrade across different segments and that's a strategic project that our teams are executing over multi years. And so that's kind of what we'll we feel will give us the additional lift in LatAm after really 2 very, very strong years again, these last two years in LatAm.

Okay, perfect. Thank you so much.

Thank you.

Thank you. At this time, no more questions in the queue and I would like to go ahead and turn the call back over [indiscernible] All right. Thank you, operator. And I want to thank all of you for joining us this morning. We look forward to seeing many of you at our upcoming investor events with the next significant engagement being CAGNY, on February 18. And at this time, I just want to thank everyone for your continued interest in IngriVion.

Thank you all for participating in today's conference call. This does conclude today's meeting. You may all disconnect. [indiscernible]