Ingredion Inc (INGR) 2007 Q1 法說會逐字稿

Good day, everyone. Good morning, everyone, and welcome to the Corn Products 2007 first quarter earnings call. This call is being recorded. At this time, I will turn the call over to the Director of Investor Relations, Mr. David Prichard. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to Corn Products International's conference call to discuss our 2007 first quarter financial results released earlier today. I'm Dave Prichard, Director of Investor Relations for Corn Products International. Joining me today to lead the call are Sam Scott, our Chairman, President and CEO, and Cheryl Beebe, our VP and CFO.

This is an open conference call, simultaneously broadcast on our website at www.cornproducts.com. The charts for our presentation this morning can be viewed and downloaded from our website, and they're always available about 60 minutes ahead of our conference calls. Those of you using the website broadcast mode for this conference call are in listen-only mode. Sam Scott and Cheryl Beebe will deliver this morning's presentations, and they will indicate as they move from chart to chart so that those of you using our slides from the website can easily follow along through the presentations.

Now, I have just shifted to chart two, which is our agenda. Cheryl Beebe will present the financials for the first quarter with appropriate analysis and flavor. Following that, Sam Scott will comment on our company's overall performance and recent key developments and then discuss our 2007 earnings guidance and outlook before we move to your questions.

I've now shifted to chart three, which is our forward-looking statement. Our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those predicted in those forward-looking statements, and Corn Products International is under 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 earning press release can be found in the company's most recently filed annual report on Form 10-K and reports on forms 10-Q and 8-K.

Finally, statistical and financial information and reconciliations of non-GAAP numbers from this presentation are also available on our website, at www.cornproducts.com, and, as you will see, are included as an appendix to our slide presentation.

With that, I'm now pleased to turn the conference call over to our VP and CFO, Cheryl Beebe. Cheryl?

Thank you, Dave. Good morning, everyone. First, let me say this has been an outstanding quarter. In fact, the best we've ever had. The key contributors were strong pricing throughout the North American and South American businesses and a strong volume performance from the South American businesses. Taking into account this exceptional quarter, we have revised our annual guidance up. The new range is $2.10 to $2.30 from the previous range of $1.84 to $2.01. With this updated range, the year-over-year EPS performance is expected to be in the range of 29 to 41%.

Now, before anybody pulls their calculators and multiplies the first quarter by four, let me say that we are not expecting the rest of the year to set the same kinds of records. We are expecting solid performance in the remaining nine months of this year versus last year. We expect gross and net corn costs to continue to rise as the year progresses.

Before I start the income statement review, I would like to highlight a few year-over-year differences. We have a lower tax rate this quarter versus last year's first quarter, due in part to the earnings mix. We have revised our estimated annual effective tax rate to 34% versus 36%, which is what we used in the first guidance numbers in January.

Financing costs are higher, mainly due to lower capitalized interest expense, as we completed the Argo boiler in the fourth quarter of last year, and an increase in subsidiary interest expense, primarily South America, due to the acquisitions of Getec and DEMSA. We completed the acquisition of SPI's food business in the U.S. and the remaining ownership in Getec in Brazil in the first quarter. We also have, in the South American results, the acquisition of DEMSA in Peru, which was completed in the fourth quarter of 2006. We are integrating the acquisitions into the businesses. The sales and operating impacts are favorable but small.

Looking at chart five, the summary income statement for the quarter ended March 31st, 2007. We see net sales grew 24% over last year. Cost of goods sold increased by 18%. Net corn costs increased over the prior year, and energy costs in total were down year-over-year. Gross profit for the quarter increased 58% versus last year, and margins expanded 410 bps, to 19.2%, from 15.1% last year.

Operating expenses increased 21%, or roughly $10 million. Operating expenses as a percent of net sales were 7.6%, compared to 7.8% last year. The increase in operating expenses is primarily attributable to acquisitions, followed by stronger foreign currencies and higher compensation expenses. The tax rate is 34%, versus last year's 38.9%. Again, we are estimating an effective annual tax rate of 34% for the year.

Net income for the quarter is $50 million, versus $23 million last year, for an increase of 114%. Diluted weighted average shares outstanding in the quarter are 76.2 million, versus 75.4 million last year. We bought back 215,000 shares during the quarter.

Turning to chart six, net sales by geographic segment. We can see the breakdown by regions. North America's net sales grew 24%, or $92 million. South America's net sales were up 33%, or $49 million, and Asia/Africa grew at 7%, or $6 million.

Chart seven, net sales variance, explains where the growth in net sales is coming from. Of the $147 million in sales growth, approximately $123 million came from price and mix, or 84%. Volume contributed $18 million, and the balance of $6 million came from stronger foreign currencies in Brazil, Korea and Thailand.

North America's net sales growth of $92 million is comprised of $96 million from price and mix offsetting a slight decline in the volume of $3 million and a weaker Canadian dollar of $1 million. Volumes for HFCS-42 and --55 in the U.S. were down versus last year. South America's net sales growth of 33%, or $49 million, is from price mix, which amounted to $25 million, a volume of $20 million, approximately half of which is from the recent acquisitions, and $4 million from stronger currencies. We continue to see the recovery in Brazil and strength from across the region in price and product mix as well as volume.

Asia/Africa's net sales growth of 7%, or $6 million, is made up of $3 million from stronger regional currencies, primarily the South Korean won and the Thai baht, followed by volume growth of about $2 million and price mix of $1 million. Pakistan and Thailand led the performance during the quarter. The South Korean business continues to have volume and price pressures.

Moving on to operating income by geographic segments, chart eight. Clearly, the story is in North America, where operating income increased 150%, or $37 million. Net corn costs were up, and energy costs declined. South America's operating income grew 27%, or $5 million. Net corn costs increased, as well as energy costs. Asia/Africa's operating income grew 10%, or about $1 million. Net corn costs were down slightly, while energy costs were up.

The next chart, number nine, is the estimated source of changes in the diluted earnings per share for the quarter. Changes from operations are the driver for the quarter. Margin improvement accounts for approximately 88% of the $0.34 change, followed by volume and foreign currencies. Net operating changes amounted to $0.01, with the change in the effective tax rate contributing a positive $0.05. Higher financing costs, minority interest contribution and shares outstanding amounted to a $-0.04.

Moving on to chart 10, the cash flow highlights for the quarter. Cash provided by operations increased by $53 million from last year. Net income improvements amounted to $27 million, the swing in working capital another $24 million, and higher depreciation contributed $3 million. Investments in the business amounted to $91 million -- $59 million for acquisitions and capital expenditures of $32 million. Dividends for the quarter amounted to $8 million, and change in common stock amounted to about $5 million.

The last financial chart, number 11, is the key metrics for the period ended March 31st. Debt to total capital is still very solid at 26.3%, as is to the debt to EBITDA of 1.5 times. Operating working capital is 11.1%, reflecting the higher receivables from the increase in net sales. Total debt at the end of the quarter was $558 million, versus $538 million last year, and cash is $87 million, versus $90 million last year.

That concludes the financial presentation, and now I will turn the call over to Sam for additional color.

Thanks, Cheryl, and good morning to everyone. Let me just go through our revised 2007 outlook and comment on our growth initiatives before taking your questions.

Turning to chart 12, our 2007 first quarter. Clearly, our first quarter performance, the best in our history with new sales, earnings and margin records, is quite good. Results improved across the board, especially in our North American region. It's taken a number of years for this region to recover, so it's particularly pleasing to see these kinds of numbers.

The strong margins we generated were a combined result of price increases in our North American business, our ability to pass through higher corn costs in our international markets more quickly than we previously expected, and stronger co-product values. We do anticipate that the first quarter corn costs should be the lowest of the year.

Now, on to chart 13, our 2007 outlook. In view of the first quarter and our increased confidence in the rest of the year, we're pleased to be able to raise our expectations for earnings per share growth in 2007 to 29 to 41%, or $2.10 to $2.30 per share, versus a record year in 2006 of $1.63 per share. Our prior 2007 guidance given earlier than usual, during our year-end earnings release on January 30th, was 13 to 23% increase in earnings per share, between $1.84 and $2.01 per share.

Our improved outlook is a result of the very strong first quarter performance by our North American region, which achieved a 150% increase in operating income. We also believe this higher guidance takes into account both the key upside factors and downside risks that remain in 2007 in our domestic and international businesses. We expect solid earnings per share growth for the last nine months of the year, in the range of $1.44 to $1.64 based on the revised guidance and versus the actual of $1.32 per share in the last three quarters of 2006, which included a previous earnings per share record of $0.49 in the third quarter.

In short, we think our business models in North America and internationally continue to work well, even in today's environment of higher, and likely more volatile, corn prices. We are working hard to manage the risks of global corn prices and believe that our business model should continue to allow us to successfully navigate through this environment.

A key to handling the [inaudible] worldwide corn prices is a business model that allows us to pass through rising corn and other costs in a reasonable period of time. A continuation of tight corn refining utilization rates in North America is very important, along with the benefits of our strong market positions internationally. As always, however, we have risks related to co-product values and the corn basis and any possible moves, either up or down, in corn prices during the rest of the year.

The rest of the story, of course, is seeing the volumes materialize as we expect so our plans runs smoothly and efficiently. We also are seeing some moderation in our overall energy costs versus the double-digit increases in each of the past two years. Our expected earnings per share improvement this year will keep us on track to achieve our target of a compounded earnings per share growth in the low double digits over the five-year period of 2003 through 2008.

We also expect to increase our return on capital employed, a key measure for our company, and make further progress in reaching and exceeding our cost to capital of 8 to 8.5% by the end of 2008. Given our net sales of $762 million in the first quarter, we are closing in on our goal to achieve annual revenues of more than $3 billion, also by the end of 2008 or perhaps sooner.

Moving to chart 14, a quick 2007 outlook by region. North America is expected to provide much of the firepower for our strong sales and earnings growth in 2007, just as it did in 2006. All three country businesses are contributing. As was the case in the first quarter, pricing should continue to be the primary catalyst for the improvement.

We continue to expect higher results in 2007 for South America, primarily with a continuing recovery in Brazil that got under way in the second half of 2006, as well as another strong performance from our Andean region. South America's performance should get a boost from our acquisition in December of '06 of DEMSA, Peru's only corn refiner, and our purchase in February of the remaining 50% of the Brazilian polyols business venture, Getec. We are pleased with the progress to date on integrating these acquisitions into the South American business. As it was in 2006, however, the Southern Cone remains a challenge as we work to offset higher corn costs and energy costs through pricing and volume growth.

Finally, we see modest growth in our Asia/African region this year. This should come primarily from continuing strength in Pakistan, a business performance we are very pleased with, and improvements in Thailand. The ongoing stagnation of the domestic economy along with higher corn costs are factors affecting our South Korean results. However, South Korea remains a solid business with good margins and strong cash flow. We will continue to work on passing through the higher corn costs in the South Korean market.

Turning to slide 15, I'll conclude with a few comments on our growth initiatives. As I mentioned in the last call, we are selectively investing in our base business in 2007, including high return project channel expansions in such countries as Argentina, Mexico, Colombia, Pakistan and Thailand. We already have solid positions in these markets.

In Brazil, we're expanding our sorbitol capacity following our Getec polyols acquisition, and by the end of 2007, we expect to complete a near doubling of the growing capacity at our [Bosanova] plant, our specialty ingredient plant in Brazil.

More recently, as you know, we started up three new modified starch channels in Brazil, which we've talked to in the past. These new products are in the process of being approved by our customers around the world. These new facilities will allow us to sell more value-added specialty products to both our food and industrial customers.

In addition, we are currently evaluating a number of other opportunities around the world that appear to be excellent fits with one or more of our pathway strategy steps, including growing the base business, expanding the product portfolio through JVs and acquisitions, growing geographically and developing components of our overall business in the higher margin ingredient category. These new investments, along with the new opportunities we see in both the base business and the ingredients base, set the stage for continued growth into 2008 and beyond.

In closing, we're excited about our prospects for delivering in 2007 another year of exceptional earnings growth. Thank you, and let me now take your questions.

Thank you. The Q&A session will be conducted electronically. [Operator instructions] And we will take our first question from David Driscoll with Citigroup.

Good morning, everybody.

Hey, David. How are you doing?

Morning, David.

Well, first off, you certainly deserve a congratulations here. This is a long time in the making and a fantastic quarter.

Thank you.

So, a couple of questions. The first one: Sam, give us the big picture here. With such an improvement in the North American operations -- I mean, I think profits were up 150%, I think you said?

Correct.

That's just a fantastic number. I calculate the operating margin at just over 13%.

Correct.

Where do you see the full-year operating margins going over the course of time? What is the maximum level? I do remember a certain comment that you made in the past regarding the 1994/93 period, but, I mean, is that what we should be thinking right now?

Well, David, I think we've said before that we thought we could get to low double-digit, low teen kinds of margins in North America over time, and with the number in the first quarter, as Cheryl alluded to in her presentation, we don't expect that it will stay at that level throughout the year, because, obviously, corn costs are going up and co-products are probably going to go down somewhat. But we do expect that over time, we will get to what we've said, and obviously, this is a pretty good start this year to getting there.

I agree. Second question would be on energy costs. Cheryl, could you quantify the differential, the variant in energy costs the first quarter of this year versus first quarter of last year?

It's down. Let me expand a little bit. In the total company, the energy costs -- and we classify energy as all encompassing. It is not only natural gas; it's our coal, it's our wood chips, it's electricity, and there's the wastewater in there as well. The biggest driver this quarter versus last year was in North America, where energy costs are down versus South America and Africa, where they are up. So part of that is due to the Argo coal boiler being in service.

Can you put a dollar figure on it?

We tend not to break out those particular components. What I can tell you is our natural gas costs are down versus last year, and that's a contributing factor, but the biggest difference is coming from the switch from natural gas to coal.

The usage is also down, David, and that combination is taking it down a reasonable -- it's a reasonable amount of money. We haven't said exactly what it ever has been before, but it's a meaningful amount of money.

Okay. Then maybe one last question on that topic. Would we expect that this first quarter had the biggest positive variance in energy costs and that the second quarter would continue to see a benefit, but then it's really going to go to a much smaller figure in the back half of calendar '07?

That's fair, because typically your energy costs are the highest in the first quarter because your natural gas costs are there, so the delta is going to be more significant. You're right. Your assumptions are correct.

Then just a last question. Sam, I'm very curious about your thoughts about the international pricing opportunity. You made some comments in your prepared remarks, but could you go back over the key geographies for the company and just discuss how difficult it's been to get the appropriate price increase given the corn environment?

Well, the business model that we've talked to for years, David, has allowed us to pass through increases if, in fact -- be they corn or other costs or other situations that have taken place in our marketplace, and this year we were able to do it again, particularly where we have exceptionally strong market positions. We were able to do it a little faster than we thought. That's why the number is a bit different than what it was in the first -- in January, when we gave the guidance before, because we were able to get the numbers through sooner than before. But we have said right along that we believe we can pass our costs through in markets where we have higher market shares. I alluded in the prepared comments to the fact that in South Korea, where the share is not quite that high, it's taking a little longer to get the price through, so I think that model obviously -- not "I think;" the model obviously works in the U.S. and Canada, where we had fixed-price business. We told you what those kinds of numbers were going to be at the end of the first quarter. But throughout the rest of the world, we did see the organization pass prices through faster than we had originally thought.

And then, when I'm looking at your Asian/African business, with price mix up just 1.4%, that is predominantly -- the South Korean business, the Pakistan and Thailand business did in fact get the price increases necessary?

That is correct, yes.

Okay, very good. Well, hey, guys, great quarter. Congratulations.

Thank you very much.

Thank you.

Our next question comes from John McMillin with Prudential Equity.

Maybe corn should have gone to $8.

Or maybe we should have produced ethanol, John. I don't know.

Is that Sam admitting it?

That's me, yes.

Well, this was the first year that I can remember where you gave earnings guidance in January.

Correct.

And I guess you didn't do a very good job of it, but you're a conservative guy, and I guess I understand that. I'm just trying to understand, since the quarter was driven so much by North America, what's changed since January 30th or whenever you gave guidance? Just if you can kind of -- I mean, the tax rate maybe is $0.06 for the year or something like that?

That's approximately correct, John.

That's part of it, but I think, John -- we give annual guidance, and the annual guidance is something that's year-over-year, not quarter-over-quarter, and we never commented on what the first quarter was going to be. What has changed, as I said, we were able to get prices through in the areas where we did not have fixed price business faster than we thought. We had stronger co-product credits than we thought because, as you said, our price of corn was up at almost $4.50 for a period of time in the quarter. It's since come back down, and I expect, and I think I've said already, that we may not see the same kind of co-product credits that we saw in the first quarter, but we do not expect those numbers to stay at that level for the full quarter. So those are the differentials that we see, and the guidance we've given has taken into account the fact that we have seen a stronger volume business in Brazil up to this point in the year, and we do have the acquisitions that have come on stream, which we knew about then, but they're integrating well into the business.

So if you had to break down the increased guidance of, whatever it is, about $0.26 --

Right.

$0.06 from tax rates, currency maybe an extra $0.01 or $0.02.

Probably something like that.

And then --

The rest of it is going to be price and co-products.

That you did not anticipate.

Exactly. Well, the pricing was sooner than we anticipated. I think we've always said we thought we could get the prices through, but we got them through earlier in the first quarter than we originally thought, because we expected a delay before we got them through, and that passed through right to the bottom line.

Okay, so that's good. Now, there has been some speculation -- you know how analysts are -- about Coke and Pepsi looking at other sweetener technologies. I guess Pepsi admitted so much in the fall, even though it was unclear whether this was a replacement to HFCS or if it was something on the diet side. What are you hearing about kind of the legs of HFCS and whether or not others will follow kind of the dome soda model?

Well, John, I'll give you our impression, but I can't speak for either Coke or Pepsi or any of the other beverage manufacturers. I mean, certainly, as we've said to you in the past, they tend to book the business anywhere from one year out to multiple-year contracts with people in the industry. We've not commented on where we stand with either of those two, nor will I, but certainly the conversations we've had have alluded to the fact that they are going to be continuing to use high fructose in the future. I just read an article this morning where Coca-Cola came out and said that they were disappointed with the North American results and were going to start posting banners all over the place to drive Coke Classic again because they want to get the volumes back up, and I think that certainly, as you look at the price of fructose where it is today, or even with a fairly substantial [inaudible] going beyond today, it's still substantially lower than sucrose pricing, so the issue has to be one of are they going to go completely to diets or with a lower-calorie beverage or are they going to stay with the basic brand products, and to this point, the conversations we've had with them do not lead me to believe that they're going to walk away from fructose.

Okay. Congratulations. Thank you.

Thank you very much.

Next, we'll hear from Ann Gurkin with Davenport.

Good morning.

Good morning, Ann. How are you?

Fine. I just wanted to go back to North America. Do you think for the full year, you can generate operating margin greater than your cost of capital?

I think we will be returning at least our cost of capital in North America, yes.

Great. Great. Secondly, growing capacity in North America. Is there any capacity coming on stream? Can you give me an update there?

What I can tell you is we're not putting any on for sure, and we're not aware of anything else, and I can't assure you that nothing else is coming on, but we do track that, and we've not -- other than the [inaudible] operation out in Iowa someplace that we have not heard much about in the last year, but that was going to be ethanol and specialty starches -- other than that, I've heard nothing, and that really has been exceptionally quiet, with no news at all on it.

Okay. And then in Mexico, can you give me an update as to capacity utilization in Mexico?

It's high.

Is there any capacity coming on stream in Mexico over the next 12 months?

Not that we're aware of, no.

Okay, great. And can I get an update on the prospect for the SPI polyols business? What's the demand for that product?

Well, it's growing. We bought the specialties piece of it because we didn't want the liquid polyols, which is pretty much more of a commodity than the things we currently have, but we did get the specialty part, which we're integrating right now. We bought it because we saw opportunities for growth in the low-calorie or dietetic candies, gums and things of that nature, which are not only growing here; they're growing around the world. And because of the position that SPI had in that business, and now we have in that business, we see opportunities for it to grow, and we saw significant synergies between it and our current business mix as we introduce or work with some of the customers that we had in common to introduce to them or provide them with a more full portfolio of products, so we see it as being good. In South America, Getec integrates right into our Brazilian business effectively, and it's the sole manufacturer in Brazil and the largest in South America, so we feel it's pretty good for us growing, and as I said, we're putting some expansion into crystalline sorbitol right now in Brazil because we believe we can continue to grow that business.

Demand for the product growth is, what, mid single digits, or what's the demand right now?

Probably somewhere around that range, I'd say, yeah. I think that it's going to be a matter of the world as opposed to the U.S. growing -- as the world economy picks up and the world starts using the non-caloric chewing gum and the non-caloric candies, so it just depends upon how fast that happens globally.

Great. Great. Thank you.

Thank you.

Our next question comes from Christine McCracken with Cleveland Research.

Morning.

Good morning, Christine.

Good morning, Christine.

I just wanted to follow up. One thing that struck me as somewhat odd is your ability to price through in South America, but [inaudible] even with backing out the acquisitions relative to volume growth. I'm wondering, is this something you expect to lag and you would see kind of weaker volumes going forward? Would that be the model, or is there something else driving that?

Well, the weather in South America has been pretty hot. I was down there a couple of weeks ago, and it was unusually warm for this time of year, which tends to drive some of the beverage segments to particularly growing segments. We managed to capitalize on that in the first quarter. Also, we do see the South American economy, Brazil in particular, starting to continue -- I should say starting to, but continue to grow, and I think it has gotten adjusted to the strong currency, and some of the customers down there are figuring out ways to continue to export and grow the domestic business. So parts of it I think will continue to grow; other parts are going to be dependent upon the weather. If we see a very warm winter going through, obviously, our brewing volumes are going to be stronger than we had originally anticipated.

And was the volume weakness in North America -- was that related to weather? I wouldn't think so, given the season --

Yes, it was. To some extent, we had volume issues, in particularly the U.S. and the Canadian business, with the weather you saw hit us in the Northeast, and throughout the country, for that matter. I mean, we had weather in the Midwest here in early February that was -15 degrees, with a wind chill of -30, and I wasn't drinking a whole lot of soft drinks then. But the biggest impact was when the operations in New York and the Northeast were physically shut down for a week with six feet of snow. That did have an impact on our volumes.

Okay. So we should see maybe a little shift there going through the balance of the year.

I hope we -- I mean, as cold as it's been in Chicago up until this last week, but you don't know. We're not going to see snow even -- or whatever. We have a seasonal trending that'll come in right now. We're starting to see that, yes.

And then just on the tax rate, we had read a little bit about some changes in tax policy kind of at the beginning of the year; is there anything specific by country that's changed, or is it really just a function of mix?

It's a function of mix, Christine. 1048 is not -- we've done the 1048, which impacts the first quarter. It's no impact on the rate.

And you don't expect any tax changes in Mexico?

At this point, no, I do not.

Okay.

The rate should hold based upon the estimate of the mix. The biggest driver was the strength of some of the foreign countries and the fact that they have lower tax rates than what we have in the U.S. So barring any tax audits or statutory tax rate changes at the local subsidiary rate, we're estimating the 34%.

Just on the co-product values, I think, Sam, you had mentioned that your expectation was that those would weaken through the year. Is that based on kind of the recent movements in corn, or is there something else behind it?

No, it's pretty much the recent movement in corn, Christine. Right now, we're looking at corn at lower levels than they were in the first quarter, and it's anyone's guess as to what it's going to be as we go through the growing season. There will be ups and downs in volatility, but I think most of what I'm reading now, most of what I'm hearing, and our estimate is going to be that it'll be lower than that $4 number on average going out the rest of the year, unless we have a major problem in the growing season. So given that, we expect to see the co-products not as strong as they were in the first quarter.

Right. And then just on your corn costs in other parts of the world, obviously, you have some ability to price that off of current markets, but I'm wondering, are you seeing any big changes in the costs of other kind of starch sources that you use as it relates to corn? So what I'm hearing, for example, is in some parts of the world, they're taking out the tapioca to plant other crops because of these shifts in crop values. Can you talk a little bit about that and how that might affect your costs going forward?

I think the starch-bearing crops in most cases are still being planted. With the numbers where they are right now, I think we're seeing a significant amount of acreage being allocated to either corn or tapioca or whatever, solely because of the fact that the prices are as high as they are. That applies to Brazil, which had a record crop, and to Argentina, which had a record crop. Pakistan is looking at a pretty decent crop right now. So we don't see any impact on our starch sourcing, raw material sourcing in any parts of the world at the moment that I would consider negative. In fact, obviously, as more starch products are grown, it should be positive to us going forward. But again, all of the products that we are using are dependent upon weather conditions and what happens with those crops, but I think right now we're okay and I think going forward. We've been okay for a long time. This is a new scenario with corn going up to where it has, but in general, we think we can go through this without too much of a hiccup.

Great. Thanks. I'll leave it there.

Thank you.

Thank you.

Next, we'll hear from Kenneth Zaslow with BMO Capital Markets.

Hey, good morning, everyone.

Good morning, Ken.

Good morning. How are you doing?

When I think about your new guidance range, I think of this now as a structural step-up in terms of your earnings, so going forward -- I know for the last five years you've said low double digits; is this a new base where we can think of low double-digits growth off of this?

Well, I think certainly, Ken, we said low double digits through '08, so that would take us through '08.

But you're already over -- unless you have a torturous '08, you're going to easily make that number, no?

Well, I think we're -- I'm not going to give you guidance out beyond '08, but I will say to you what I just said, what I put into my prepared text, that we're putting investments in to strengthen our business into '08, and the expansions we're putting in in Argentina and Thailand and Colombia and Brazil and the rest of the places, as well as some of the things we've bought and purchased and the new products we have coming out, most of that you're not going to see in '07. Some small piece of it you will, and certainly in DEMSA you will, but even the integration there will be more fully felt in '08, as will the full integration of Getec. I won't tell you what it'll be, but we're looking favorably at '08 right now.

And the next leg of the growth -- obviously, you're enjoying the North American business growth. Is it really -- the next leg, is it going to be from the international side? Is that really where the double digits will come from?

Well, we expect it to be a combination of the international side and the ingredients side. We've talked about some of the acquisitions we've made that are in the ingredients space. We've talked about looking at and investigating opportunities both in China and in Asia. And we do have opportunities still with further cost authorizations. We will not take our eyes off of that ball when there's money there to be made.

In this quarter, was there any basis, unrealized or realized basis, gains from the hedging, or was there anything in the --? Because, again, it was a 13.1% or so North American margin; was there anything in this that may be one time in nature?

No.

And then the last thing is can you give us an update on South Korea?

Yes. I think I said it earlier: the South Korean marketplace is one that we have struggled with, and I'm sure you're tired of hearing us talk about the fact that the South Korean economy is not growing, the volumes aren't moving, and they're not. We're working to pass corn costs through. We have some price increases in the marketplace right now, but the corn numbers are still relatively high, and the freight getting it there is relatively high, so we're not seeing the same margins that we would like to see in that business. But we're working on fixing it. We've made a change in the general manager in South Korea, so that should help us. We're looking at some new product introductions into the South Korean market, and that should, hopefully, help us. And, as I made the comment in the prepared comments as well, it's still a very good, solid business, with good margins and good cash flow, and I don't want anyone to walk away thinking it's not that. It's just we've not been able to grow it, and it's the largest piece of business we've got in the Asian marketplace, so it has weighed down the growth that we've seen in the other parts of that particular market segment.

Great. Thank you very much.

Thank you.

You're welcome.

Next, we'll hear from Christine McGlone with Deutsche Bank.

Thanks for taking my question. Sam, sometimes you give us volume growth for 42 and 55 for the categories. Do you have that this time?

The CRA numbers right now, Christine, for the first quarter are down, which is not surprising to me, because last year's first quarter was abnormally high on the upside, so it's a comparison against last year's number, which was -- I don't know what caused it last year, but we said at the first quarter call, we thought it was an aberration with the kinds of numbers we saw up. So it's down first quarter to first quarter. That, and in addition to it, you have two other factors playing in. One was the weather situation that I mentioned earlier in the Northeast, but throughout the country, because it was an unusually bad extended period of time, with plants physically closing down. And then the last thing, I think there was some buy-in in the fourth quarter with the price increases that were expected, and in fact, accomplished, during the year of the contracting. So my guess is we're still looking at flat to down a percentage point or two on an ongoing basis, and that's for fructose usage in total. I'm not going to comment by specific area of carbonated or non-carbonated, because as I've said before, I think we're seeing fructose move into a number of distilled drinks and a number of other kinds of applications in the marketplace. But we're not seeing growth in the U.S. marketplace. We are, however, seeing volume improvement in Mexico.

Okay. And in the Q&A in the last quarter, you had talked about that you could make your annual guidance if corn stayed at $3.50 in terms of co-product contribution. So now, with corn lower, I'm wondering if you expect corn to move up or if you expect co-products to represent a higher percentage of corn or if just the first quarter was so much bigger than your forecast if the average for the year ends up being bigger than your forecast.

I think the first quarter was above where we thought it was going to be, and I won't comment on where it's going to go in the future, but I think if corn stays at $3.50, then our co-product numbers are going to drop somewhat. If it goes back up to $4, I think we'll have an improvement in the co-products than what we have in our guidance at the moment. But we've given the range on guidance the way we did to accommodate for the movements that we perceive there as well as the potential movements we see in volumes and holding the prices we currently have.

Okay. And then I'm not sure if you said this to Dave Driscoll's question, but what is preventing the pass through on the Southern Cone? And then, now that Argentina is allowing exports of corn, does that affect you in any way?

It will have an impact on us when they start exporting the corn numbers, but they have a benefit to export, so it'll hold our corn number at around the same level it is today. One of the issues in Argentina is that when they had the crisis, they put a freeze on energy costs, and they had been taking that off year by year, so that has been going up, and there's not a whole heck of a lot we can do about it because the energy in Argentina is a major problem for the country, so they're going to have to continue to improve and increase that, although our numbers are still, by world comparisons, pretty good, but it's been increasing. And we've not been able to pass the higher corn numbers through fully because Argentina has a cap on sugar.

And then my last question, back to Ann's question on SPI polyols. When you talk about global growth and demand, do you incorporate the fact that there is so much glycerin on the market, that that can compete with sorbitol?

Yes.

All right, thank you.

Okay. Thank you.

Next, we'll hear a follow-up question from David Driscoll with Citigroup.

All right, thanks a lot, everybody. Sam, just to go back to that co-product assumption, can we say that at $2.20, the midpoint of the new guidance range, that that incorporates foreign prices and co-product prices where they currently are today?

That would be correct, yeah, David. That would be about right.

And then, we have some fairly infant changes happening in Mexico in terms of the shipments of U.S. fructose going to Mexico in the back half of the year. I'd really like to hear your thoughts on what's going to happen in 2008. We still don't have, I think, total clarity here by any means as to exactly what in the world is going to happen in terms of shipments. What's your current thesis on '08 regarding U.S. shipments of fructose to Mexico?

David, I have really not changed my opinion. The conversations still are an open border. My belief is it'll probably be a negotiated volume going down. I think the overall volume next year will be greater than this year, only because of the fact that this year has the limit of 250,000 tons for nine months of the year, the equivalent of it, and then another 250,000 in the last three months, so you can probably average that out to say it's going to range somewhere around 400,000 tons for the year, maybe a little more than that. I think the number will be that or slightly above into next year, but I still don't see an open border based on the conversations that we have been privy to or the lack of conversations that have been had.

And then just my final question. I wanted to go back to South America. Although we've had just tremendous -- almost 17% price mix improvements in the quarter, the operating margin for that business was still 12.5%. That's markedly down from where you were just a couple years back and for a long time.

Right.

Do you see that business getting back to those margins? Is there any structural reason why we won't see that?

David, I expect that they'll get back to the mid to slightly above mid teens kinds of margins. The reason for the reduction now, obviously, is the revenue has grown substantially. Our operating income is up a significant amount, but to hold the margins when you have costs going up the way they are and revenues going up, it's not going to happen. So I think we are looking more to grow operating income down there at good percentages and return the cost of capital, and that's the biggest concern, more so than the margin number, per se, although we certainly are always looking to keeping margins as high as we can.

Is the margin issue something that's -- we'll see margin percentage go up in one to two years from now over the cost of recovery, or is it more near-term?

I think it's going to be somewhat dependent upon corn and what our revenue numbers are. It's being driven by revenue, much as you saw working capital driven a little bit by revenue, because we have a higher receivable number sitting out there. The numbers now are going to be dependent upon that. I think certainly as we introduce some of our higher-valued products into the marketplace -- and that's going to take some time -- that will certainly help the margins all throughout the world.

Sorry, I lied. One more question. Capital structure. You've got a balance sheet that's very on leverage. Your business is truly doing quite well. What are your thoughts on share repurchase at this point?

Well, as Cheryl mentioned, we did repurchase some earlier in the quarter, but I think, again, in my prepared comments, I talked about a number of things we're looking at in the marketplace that are very attractive to us. Our capital budget this year is up above where it's been in the last couple of years, and we have opportunities beyond that. It's at $145 million, as we've stated already, so we see significant opportunities to continue growing the business, David. If we can't, if those things don't materialize, then we'll come back and reevaluate what it is we want to do. But right now, I, and we as a company, are certainly not at a loss in the way of opportunities to continue to spend this money. We're throwing off a fairly significant amount of cash, where we spent money over the last couple of years on capital as well as some relatively small acquisitions. Our game plan is the same thing, to continue looking at acquisitions that would be bolt-ons more than anything else, but we will look at what's available in the marketplace.

Super. Thanks a lot, Sam.

Thank you.

Our next question comes from John Evans with Wells Capital.

Can you just talk a little bit about your assumption for corn costs in the back half? I think you alluded to them that you thought they would be more expensive, and I guess I was a little confused with that, so can you help me understand that dynamic better, please?

Yeah. I don't think I said I expect them to be more expensive. I don't know where I said corn would be, because I really don't know. My forecast of corn earlier in the year would be that it would be coming out somewhere in the $3.50-ish range after the planning was done and the crop was grown, assuming all things being equal. If we have a good crop, I think it'll be below that. I think if we have a bad crop, it'll be above that. I think my comment was that I saw co-product credits going down, only because where corn is now as compared to where it was in the first quarter, we're seeing corn is off by about $0.50, maybe $.0.60 from the first quarter average.

I got you. Okay, great. Thank you so much.

Thank you.

And there are no further questions at this time.

Okay, operator, thank you. It appears, as you said, we don't have any more questions, so therefore, we'll go ahead and conclude our conference call and our webcast this morning. I do want to remind you that there is a replay of the webcast through www.cornproducts.com, and we also have a replay of the audio conference call only, and that's available through Friday, May 4th, and that phone number for you is (719) 457-0820, and you'll need the passcode of 5259684 for the audio conference call.

On behalf of Sam and Cheryl, we want to thank you for participating in our call this morning, and we'll talk to you again in late July with our 2007 second quarter and first half results. Have a good day.

That concludes today's conference. Thank you for your participation, and have a great afternoon.