Ingredion Inc (INGR) 2007 Q3 法說會逐字稿

Welcome to Corn Products' 2007 third-quarter earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Director of Investor Relations, Mr. David Prichard.

Thank you, Operator, and good morning to everyone. Welcome to Corn Products International's conference call to discuss our 2007 third-quarter financial results released earlier today.

I am Dave Prichard, Director of Investor Relations for Corn Products International. Joining me today to lead the call are Sam Scott, our Chairman, President and Chief Executive Officer, and Cheryl Beebe, our Vice President and Chief Financial Officer.

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 are always available about 60 minutes ahead of our conference call. Those of you who are using the Web site 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 those of you using our slides for 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 third quarter and nine months with appropriate analysis and flavor. Following that, Sam Scott will discuss our outlook for the balance of 2007 and our Pathway Strategy growth initiatives before we move to take your questions.

I have 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 earnings 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 our presentation are also available on our website, www.CornProducts.com, and as you will see, they are included as an appendix to our slide presentation.

With that, I am now pleased to turn the conference call over to our Vice President and Chief Financial Officer, Cheryl Beebe.

Thank you, Dave. Good morning, everyone.

We're pleased to report another solid quarter of earnings growth. The diluted earnings per share for the quarter is $0.66 versus $0.49 cents last year, for a 35% improvement.

The $0.66 includes $0.05 for the gain on the Company's investment in the Chicago Mercantile Exchange. If I exclude the $0.05 from the quarterly results, we would be at $0.61 versus $0.49, or up approximately 24.5%. For a bit of history, Corn Products has held a seat at the Board of Trade for many, many years.

Guidance remains at the $2.35 to $2.55 range for the year, including the $0.05 mentioned above. Assuming volumes and net corn costs perform to expectations, we would expect to deliver full-year results at the higher end of the guidance range.

I am starting with chart five, the summary income statement for the quarter ended September 30, 2007. Net sales reached $877 million, up 30%, or $203 million versus the same period last year. This is the seventh consecutive quarter of net sales growth. As we will see on the next chart, all three regional businesses contributed to the increase. About $29 million of the net sales growth is from acquisitions.

Gross profit dollars are up 26%, or $30 million versus last year. Gross profit margins are 16.2% versus 16.6% last year. Strong pricing action across the three regions offset the significant increase in net corn costs and the smaller increase in total energy costs versus the same period last year.

As previously discussed in the first and second quarter calls, we expected to see margins ease off in the second half of the year with higher net corn costs. Again, this quarter we see continued margin recovery in North and South America.

Operating expenses increased 24%, or about $12 million. The increase includes higher variable performance compensation, operating expenses related to the acquisitions and the impact from stronger foreign currencies.

Operating expenses as percent of net sales for this quarter was approximately 7%, which is down from last year's 7.4% and down from the first half of 7.6%. We are right in line with the forecast a $60 million to $65 million per quarter we made in the second-quarter earnings call.

Other income of $8 million includes the $6 million pretax gain on the CME shares. Operating income grew 36%, reaching $88 million versus $64.5 million last year. The operating income margin for the quarter was 10% versus 9.6% last year.

Net financing costs for the quarter were $10 million versus $7 million last year. The $3 million change in net financing costs is attributable primarily to a $2 million reduction in capitalized interest and a $1 million swing in foreign exchange. Financing costs for the remainder of the year should slightly lower than the current rate.

The tax rate for the quarter is 33.1% versus 34.5% last year and reflects primarily a change in the earnings mix. Net income grew 38%, reaching $51 million versus $37 million last year.

Weighted average diluted common shares in the quarter were 77 million versus 75.5 million last year. 75,000 shares were repurchased during the quarter at a cost of approximately $3 million.

Turning to chart six, we can see much of the net sales growth is coming for North America. North America's net sales grew 32%, or $131 million, representing about 65% of the Company's net sales growth in the quarter. South America's net sales grew 36%, or $61 million, and represents about 30% of the quarter's net sales increase. Asia/Africa's net sales growth was about 12%, or $11 million.

Chart seven is the net sales variance analysis. Total company net sales were driven by strong pricing actions. Price/product mix accounts for about 83% of the net sales increase in the quarter. In dollar terms, this represents about $169 million. The increase in net sales from translation of our foreign operations contributed about $32 million, or about 16%, of the net sales increase in the quarter. The volume contribution for the quarter was about $2 million.

On a regional basis, North America's net sales growth of 32% consisted of a 29% increase in price/product mix, followed by a slightly favorable change in exchange rates and volume. South America's growth is predominantly coming from price/product mix, followed by stronger currencies and slight volume growth. Asia/Africa's net sales growth was led by a 15% increase in price/product mix, favorable currencies, and offsetting the partial decline in volume of 6%.

The results in Asia were lower than what we forecasted in the second quarter. We experienced weaker-than-expected volumes in South Korea and China as well as weaker pricing actions in these countries, along with Thailand.

Moving on to operating income by geographic segment, chart eight, again we see North America driving the operating income performance. North America's operating income increased 55%, or $20 million. The operating income margin was 10.8% versus 9.1% last year.

South America's operating income was up 20%, or $4 million. The operating income margin last year in South America was approximately 12.9% versus this year's 11.4%.

Asia/Africa's operating income dropped 33%, or $5 million. Excluding the South Korean business, the division's operating income would have been basically flat. Versus last year's third quarter, the South Korean results were impacted by significantly higher corn and ocean freight costs, as well as lower volumes. This will continue into the fourth quarter.

Turning to chart nine, the estimated source of diluted earnings per share, we see that changes from operations contributed $0.20 -- $0.17 from margins and $0.03 from currencies. Non-operating changes accounted for a negative $0.03. Financing costs were a negative $0.03, while the lower effective tax rate was a positive $0.01, offsetting a negative $0.01 from the increase in shares outstanding.

Moving on to the nine months results, chart 10, net sales are roughly $2.5 billion, up 29% from last year's $1.9 billion. Gross profit dollars increased 43% to reach $443 million, an increase of $133 million. Gross profit margins are 17.8% versus 16% last year.

Operating expenses are up 25%, or $37 million, again, from higher variable performance compensation, operating expenses from acquisitions and stronger foreign currencies. Operating expenses as a percent of net sales declined from 7.6% last year to 7.4% this year.

Net financing costs were $33 million, up 58% from last year, or $12 million. The tax rate for the nine months was 33.3% versus 36.5% last year. Net income is up 67%, or $61 million.

Earnings per share increased 65% to $1.98, or $0.78 higher than last year. Diluted weighted average shares outstanding for the nine months was 76.7 million, up 1.3 million shares from last year.

Chart 11 is the cash flow highlights for the quarter. Contributing to the positive cash flow from operations was the strong growth in net income along with a positive contribution from working capital, primarily relating to the reduction of accounts receivable.

We invested approximately $35 million in fixed assets in the quarter. Cash used for financing activities was $286 million, primarily reflecting the repayment of the July 2007 bonds.

The last financial chart, slide 12, is the key metrics as of September 30, 2007. Debt to total cap is 26.7% versus 26.1% last year. Debt to EBITDA, on a trailing 12-month basis, is 1.4 times versus last year's 1.6 times. Operating working capital as a percent of net sales was 10.3% versus 9.4% last year and reflects investments made to support the business growth. It is also down from last quarter's 11.3%. Net debt is $463 million versus $450 million last year.

In summary, we had a solid quarter with strong sales and good margins. The business generated solid cash flows and the balance sheet is in great shape from a working capital and debt perspective.

This wraps up the financial reviews, so I will pass the baton over to Sam for the outlook.

Thank you, Cheryl, and good morning to everybody.

Our third-quarter results, excluding the $0.05 gain from the CME Group shares, exceeded our expectations due to even better performance from both our North American and South American regions. However, as you have heard from Cheryl, our Asia/Africa results were disappointing and weaker than our earlier outlook due to volume and cost pressures in South Korea.

Now turning to chart over 13, the outlook, because of our better-than-expected third-quarter results, we remain right on target to deliver an outstanding record year in 2007. We believe our 2007 full-year diluted earnings per share will be in the upper range of our guidance of $2.35 to $2.55, which compares to our prior record year of $1.63 in 2006.

The performance we expect this year continues to create value for our shareholders and in 2007 we expect to exceed our long-term ROCE, or return on capital employed, target of 8.5% as well as our annual net sales goal of at least $3 billion, the objectives we set four years ago to accomplish by the end of 2008, next year.

Moving to chart number 14, our 2007 outlook by region, it is clear that North America is providing most of the momentum for earnings and margin growth in 2007, just as it did in 2006. All three country businesses in North America are contributing strongly.

The operating income rebound we're seeing in South American this year is also a key reason for our strong 2007 performance. This has been led by a very solid recovery in Brazil that really began in the second half of 2006. The Andean region is also delivering another strong performance, led by the Colombian business, and we're pleased with the results to date of our acquisition of DEMSA in Peru in December of 2005. The Southern Cone continues to wrestle with high corn and energy costs and is doing a good job in working through these raw material pressures, with some improved pricing and other operating actions.

Finally, we now expect our Asia/Africa region to post a double-digit decline in the operating income in 2007, which is a revision from our generally flat outlook we had discussed with you in our July call. While net sales continue to grow a healthy double-digit rate, the lower profitability is predominantly the result of a significant decline in operating income in South Korea. This is due to low volumes from the ongoing stagnant domestic economy, along with competitive pressures from China.

As long as corn costs and ocean freights continue to increase, we will pursue pricing actions in market. With the new management team we installed in South Korea earlier this year, we're working on a number of fronts to improve the performance of our South Korean business for the long-term.

On the positive side, we're pleased with continuing sales and profit growth in Pakistan, which remains one of our best performing countries as far as business goes year in and year out.

Turning to slide number 15, we have set our capital spending for 2007 in the range of $175 million to $200 million. All of the growth projects I outlined last quarter for Polyol investments in the Americas and new modified starch capacity in Mexico to a new plant investment in Pakistan are still planned. In addition, we're moving forward with a product channel expansion described earlier this year in Argentina, Columbia, Pakistan, Mexico and Thailand as we invest to stay ahead of the GDP growth rate and resulting higher demand for our starch and sweetener products in our various countries.

So as we look to deliver another strong year, improvements in earnings, sales, margin and return on capital in 2007, we're investing heavily for our future growth in our base business in many countries of our world. At the same time, we are continuing to explore a number of opportunities for geographic expansion in Asia and building our value-added product portfolio with new ingredients.

Thank you, and now we would be more than happy to take your questions.

(OPERATOR INSTRUCTIONS) David Driscoll, Citi Investment Research.

The stock does appear like it will be off a little bit this morning here. Nonetheless, congratulations on the quarter and on the year-to-date performance. Just a couple of questions on the guidance. Does the guidance include one-time gains?

Yes. The $0.05 from the CME, yes, it does.

But both ways it is true, David. With and without that, we still expect to be in the upper end of the range.

I do not understand that, Sam. What are you try to tell me?

Well, the upper end of the range is the middle of the range and up and I'm saying with the extra $0.05 and without it, we still expect to be in the upper end of that range.

Okay. Can you give us a couple of comments here on '08? I know you have not provided any formal guidance, but obviously everybody is keenly interested in just hearing your thoughts on how strong the pricing environment is in North America. Even if you cannot give us some specific numbers, but can you tell us about the strength of the outlook for '08?

Well, I can tell you that North America, David, as we -- you all know and you've heard it, that there are price increases out there on the table right now. I cannot comment on where they are, but the announced increases are in the range of 15 to 20%, depending upon the existing price this year.

Obviously we are in contracting right now and I never comment on where it is when we're in the contracting mode. I have said before -- I think you have said it, as well -- that we expect volumes to -- the supply/demand balance to remain in balance as we go into 2008. It appears that the Mexican border will continue to open up. I have said I expected managed trade. It looks like I might have been wrong on that. So that will improve the overall demand pull of the product and, again, there is in North America -- for the most part, around the world, with the exception of our expansion -- there is nothing really that is going forward with respect to the expansion in the business.

We also said that we had booked a fair amount of our business next year, or going forward on multi-year contracts and [rain-delayed] contracts, so certainly that piece of it is out of the mix of contracting for next year. That is a little bit of color on it, without giving specificity around what we expect to see, but certainly that is the North American color.

When do you think that you'll conclude your negotiations? Do you have a guess?

I'm hoping it will be by year-end. I expect it will probably be by year-end, but I'm not -- I cannot guarantee that, but certainly the last couple of years we've been able to finish it up before the end of the year.

Back to what you said in your comments on the quarter, so I think you said in your prepared remarks and in the press release that the quarter exceeded your expectations.

That is correct.

You did not raise the full-year numbers and that number now seems to include a one-time gain. Can you just say to us why, if the third quarter exceeded expectations, why the full-year guidance would not have actually improved?

The issue is Asia/Africa, David. We're experiencing volume shortfalls there, as we said. We are experiencing unbelievable freight increases by the day and we are seeing that the premium on non-GMO corn in Asia/Africa is going up on top of the increases in corn that are going up on a regular basis. So we are just being cautious with what we're giving you as far as an estimate goes, because that can be an issue that we have to -- not can be, we are going to fight our way through it and we're working on fixing it, as I said, but certainly those are the issues that are there.

What are the constraining factors to raising prices in South Korea? I think you said in your remarks pressure from China, but I was not sure if you were referring to your Chinese business or pressure on the South Korean market from Chinese competition.

Pressure on the South Korean market from Chinese competition. The strength of the Korean won with their capabilities, our customers' capabilities of not being able to export as well because of the strength of the won are the primary areas, as well as in Korea, for some of our businesses we have -- Korea has a sugar price cap and we're up against that cap now, so part of it is that. The other part of it is Korea is a more competitive market than some of the other markets in which we operate, so it's not quite as easy, although everybody is feeling the same pressures we are.

Just one final question, on the Mexican outlook for 2008, did you say -- you just made a comment there, but could you just reiterate to me what your expectation is for increased trade with the United States in 2008? Do you have a volume number that you might willing to guess for us?

I do not have a volume number specific, David, I think I said earlier was that it looks like the border will open and the capability that the Mexican customers have of being able to shift to fructose will probably be exercised in 2008. We have said right along that this year we expected about 400,000 tons to go in and I think I said next year that number could be as much as doubled if, in fact, customers can convert that quickly. And we believe that that is a possibility, but it will be on an incremental basis as we go through the year.

Super, thanks a lot. I will pass it on from here. Thank you.

Kenneth Zaslow, BMO Capital Markets.

Just a quick question on the operating margins in North America. They did sequentially decline probably a little bit more than we expected, particularly given the byproduct sequential improvement. Can you give a little color around why that would happen? Was it the basis or just help us out a little bit.

What we said earlier was -- at the beginning of the year, we said that we had hedged our corn throughout the year and the prices were expected to increase quarter by quarter as we went through the year. I think some people have forgotten we said that. As that happens, obviously our cost is going up.

The other thing is as you look at the credits we're getting from co-products, and as I mentioned in the comment to David, we have a significant piece of our business that is booked on grain-related and much as we have passed the risk of the corn cost to our customers, we have also passed the benefits of co-product credits to those customers.

So the co-products are not across our entire business mix. It is for the business that we do not have under grain-related contracting. So those are the things that I think, perhaps, are being missed as you look at the business right now. We're very pleased with the results this quarter. We think we had a damn good quarter -- pardon my language. The numbers exceeded my expectations in my largest two regions and we have a problem in Korea right now.

What are the prospects for corn gluten meal in the EU? I know Herculex got accepted, but the new crop coming out probably has new technology. Is there any fear that that would change the prospects of corn gluten meal or are we fine with corn gluten meal into Europe now?

First off, it is corn gluten feed.

I'm sorry, you're right.

I do not want anybody confused around that. We are only shipping corn gluten feed into Europe and you're right, the acceptance was for 2007 crop -- 2006 crop, not 2007 crop. I expect that it will probably close back down shortly, however the Europeans are working very hard, they say, to correct or get approval of some of the newer crops that are coming out in 2007. As you know, they had a drought. They have major problems on feed supply over they need the corn gluten feed coming in. I cannot comment on if and when, but I do know they are working to try to fix the issue right now.

You mentioned that for 2008 the pricing environment for high fructose corn syrup is up -- is expected -- or contracting out maybe 15 to 20%. What is the pricing that is required to cover the corn cost at this current point, including the net corn costs? That should cover it by more than enough, or --?

That covers it by more than enough, yes.

Then my last question is what would it take for you guys to be able to turn around the South Korean operation? What are you looking for for things to change? Is there an environmental? Is there a management issue? What are the factors that we should see that would start to show an inflection point in South Korea?

Kenny, I have a note down here that says Ken Zaslow is going to ask me what is it going to take to turn around South Korea. I knew that would come out.

At least I am consistent.

I appreciate the question. There are number of things. Number one, as I said, ocean freight is going crazy on us, but it's bulk ocean freight. So we have to look at are there things we can do to moderate the freight costs? I do not mean can we build ships, but certainly there are other ways of getting the product there that we are exploring. We have had a little bit of success. We have to have more success on that.

Secondly, as I mentioned earlier, the premium on non-GMO corn has been escalating at a very, very rapid pace and we have to work with the government and with our customers there to find out whether or not they can accept, in some instances, GMO. I mean, the industrialized businesses have no requirement to not be able to accept GMO. We have two plants. We can change the grind if we have to.

The position China has taken recently, stating they are not going to allow ethanol, they're not going to really a allow much new grind to come on in the country, and they're looking cutback on exports -- in fact, they said they were going to stop exports -- we have not seen that yet, but that is the position the government has taken officially, so that is another piece of it.

The pricing situation, where we can we're going to look to move pricing and move it as well as we possibly can. Even the export environment is something we're looking at right now, because even though our corn costs are very high and our costs are high, there are some countries in the region that can accept our products better than they can accept their own and produce in their own countries.

Then lastly, with all of that, we have said we have changed the management team over there. We have work to do internally. We have some issues we have to deal with and I won't comment on what they are, but we're working on those right now.

When will I not need to ask that question anymore?

I am not going to give you answer on that one right now, Ken. It's a work in progress. I will keep you informed, though, as to the progress we're making.

Great, thank you.

Heather Jones, BB&T Capital Markets.

I had a question on Mexico. I wanted to confirm did you say that you thought in '08 it could double if the end customer could switch quick enough?

Yes, I said that this year we're looking at about 400,000 tons going in and it could be another 400,000ish next year if the customers can switchover and most of them can.

So given, I guess, the same flattish to maybe slight declines here in the U.S., what do you think that could do for pricing in Mexico?

Pricing in Mexico?

For HFCS, domestic pricing for HFCS there.

I think the pricing in Mexico could be impacted slightly. We've said before when the border opened that we thought it would be beneficial for corn products across the board in North America, but certainly if we had competition in Mexico, it could mean something. I won't comment specifically on where it is going, but I think certainly with more volume coming in and people coming into the marketplace, we will be very diligent on our pricing philosophy in Mexico.

I may be misunderstanding. Who is coming into the market? Are you talking about some people coming into the market with additional HFCS capacity?

Yes, the U.S. suppliers are coming into the marketplace now. Obviously they were in to some extent already with the 400,000 tons, but with an incremental 400, there's more U.S. suppliers coming to the marketplace and going to different customers.

Just shifting capacity out of the U.S. into Mexico?

Correct, and that's part of the support for the pricing in the U.S. right now. We've said right along that when Mexico opened up, it would benefit all of North America in its totality.

I am sure you have probably read about this ad nauseum, but what is your stance on ADM's switch capacity? It seems like they have publicly intimated that they may be willing to switch that over and I believe they have referred to when and if Mexico opened. But wondering what your opinion is on that. Would they do it only if Mexico opened fully or if you have any stance on that?

Heather, I would love to comment on what ADM is doing, but I really can't -- I cannot do that honestly with any kind of confidence or any kind of specificity around it.

I will comment that I think that they will protect their business the way any good, solid businessperson will do that. And for the amount of volume you're talking about moving into Mexico, it is not significant enough at all for ADM to risk the rest of their high fructose volume in North America to price it lower. So I think what they would -- I think, and all I can say is I think, that what they were talking about was freeing up some of that volume, if they needed to, to be able to supply the Mexican marketplace.

Okay. And finally, I just want to make sure an understanding exactly what is going on in South Korea. So I understand the corn cost issue and freight, but the volume weakness is basically you just have excessive competition from Chinese competitors and they are driving down price there or am I understanding that correctly?

Well, we have had a slow environment in South Korea for a number of years. The economy just -- the domestic economy has not done well. They've been exporting technical, electronics, cars, refrigerators, but the domestic economy -- and you heard back a couple years ago when the credit crunch and then credit cards in South Korea, so we've not seen growth in that market that we thought we would've seen.

On top of that, China, as they started produce products in China, our products, our corn refined products, they have started bringing some of their products around the world, but the closest place for them to ship to is Korea. It is right across the China Sea, so they have gone into some of the markets in paper and corrugated, and even in some of the food applications with some of the products there and the volume has shifted down somewhat.

My comment about the Chinese government suggestion, ruling, I don't know exactly what it was -- we're still trying to interpret what it is -- is that that they've said they're going to cut back on alloying exports out of the country because they're concerned with being able to feed their own population. Sounds good to me. Whether or not they do it is their call. Certainly we're going to monitor it very carefully and we will use it as a marketing situation in South Korea.

All right, I appreciate it.

(OPERATOR INSTRUCTIONS) Vincent Andrews, Morgan Stanley.

Maybe you could just help me or help us better understand the customers in Mexico, there is some perception -- and tell me if it is correct or incorrect -- that the customers in Mexico are largely the same customers as in the U.S., in other words, it is really just a derivative of Coke and Pepsi down there and therefore, the opening of the Mexican border is not really that much of a boon to the U.S. from a pricing perspective. In other words, if the argument is when you see pricing this year in the U.S., your opportunity is also if you do not get what you like in the U.S., you can shift that capacity down to Mexico and that, therefore, implies that the utilizations are actually tighter than they are in the U.S. How should we be thinking about that?

Let me answer it and I hope I answer the right question. Basically you are right. The larger customers in Mexico are the major beverage customers in the U.S. That is certainly not all of the customers in Mexico. When there was a limited amount of fructose being sold in Mexico, there was a limited amount of product to go to all of the customers that were out there and the big customers, the Coke and Pepsi's, were the ones that, in many instances, got the lion's share of what we were able to produce for the years that we were the only supplier and also the lion's share of what was going in, because people only had a limited amount. So they were not trying to find every mom-and-pop customer in Mexico.

Today, when it opens up, some of that volume will go to increase the amount of volume of Coke and Pepsi use, but it will also start seeking out both from our competitors and ourselves supplying the entire market in Mexico. The next phase of this thing is that Coke and Pepsi in Mexico, the major bottlers in Mexico, have only approved fructose at the 50% level. In the U.S. and Canada is going at 100%. So I think over time -- and I cannot tell you what that timeframe is, but over some period of time -- the probability is that they will approve fructose at a higher level anyway and at that point in time, there will be even further demand for fructose in the Mexican market.

But the point of the overall tightening of the marketplace is saying that if high fructose sales in the U.S. had been flat or down slightly, which has been plus or minus one or 2% over the last couple of years, if Mexico were not to come on come on, then there could be pressure on the supply/demand balance in the U.S. With Mexico coming on right now, we've taken that supply/demand balance [inequation] off the table. You had balance, in fact, this year, even if, in fact, demand were off -- and I am not saying it is -- but it were off by 1% or 1.5%, it would be more than offset by what is going into Mexico right now.

So you've got a balanced situation here, which is positive for the pricing environment in the U.S. As I said, it could have a little impact on us in Mexico, but we have said for the last eight years that we are in favor of the border opening up so that the balance for North America is what we want to see it as.

Sam, you've got each point of my multi-part question. I am very impressed.

I am too. Thank you.

Can I just follow up and ask what -- if you can tell me what the split of volume that is Coke and Pepsi in Mexico and what is the mom-and-pops or the other people down there? Do you have any idea of what that is?

We have not commented on percentages, but, as you might guess, on the 55 side of the equation, they are the lion's share of the market.

Then my other question was going to be -- well, I have forgotten it, so let me just shift to how come you didn't buy back more of your stock in August when the market melted down and your stock had that really -- probably for you a very terrifying day where I think it looked at like $35?

Well, it did not get quite that low, but it got to $38 or $39. And we did buy. But as you know, the next day it bounced up almost $7, so we had mixed feelings. We could have bought back more if it had gone further down, but guess what? I was not rooting for that, so I did not expect it to bounce back the way it did, but when it got back into the range of -- and it went up the next day so fast that there was not even a chance to buy. We just let it sit.

Okay, that leads me to -- just from a capital structure -- Cheryl, you noted that your debt to EBITDA is now down to 1.4 times and I know you're looking to do acquisitions and you're not going to comment on the progress of those, but any kind of generic thoughts on the capital structure that are any different from what you have commented on in the past?

No, they're still basically the same -- that the quality of the balance sheet, the strength of the cash flows are all positioned for us to continue to grow the business. In the event that we cannot find the right opportunities, then there is no question that we will use that excess cash to buy back some of our shares.

We are focused on creating shareholder wealth. For the long-term, we believe the best way of doing that is to find businesses or technologies or new products to add to the portfolio, and we are still very confident that we can find those.

Vincent, if I could add one comment, as Cheryl reminds me every day as we get closer to bonus time, as we look at what we did with our balance sheet going into refinancing of the bonds, if we had not strengthened our balance sheet and kept or it where it was up to and through the middle of this year, we would not have been able to go after ten-year or thirty-year money at the levels we did.

Oh, clearly, yes.

We were very, very intent on making sure that we maintained what we needed to maintain to get what it is that we got. And as a result of that, through June at least, we were not going to do anything anyhow. During that period of time, we were looking at and investigating opportunities for growth. We still are. We have increased the capital spend.

The other thing is that during the course of this year, we've thrown off a significant amount of cash. You notice our net debt is about the same as it was last year with the kind of spending we talked about and the acquisitions we made, so big problem. We've got to figure out how to spend it faster.

I would add one more comment, Vince. As everybody is well aware, when there's market turmoil, the ability for a non-investment-grade company to get access to capital and the price of that capital goes through the roof. Given the fact that we have stated we are looking for growth opportunities, it really is in the best interest of the shareholder for us to maintain that investment-grade rating.

So I just wanted to add that, because as I said, I do get reminded of it every now and then.

All right. Well, thank you very much and I'll pass it along.

Christina McGlone, Deutsche Bank.

Sam, I just wanted to revisit Ken's question about North American margins. I think most of us were modeling a sequential decline because, as you had said, the corn costs would increase as the year progressed. But I think it is the magnitude that at least surprised me, and I guess as Ken had said. And you had not really talked about your grain-related products impacting the co-product benefit in the prior two quarters. So I am just curious why is it such an impact this quarter, or is there something else there, maybe an incremental cost, or did basis go against what you were thinking?

No, I think everyone modeled in. Because you saw oil prices going up and co-product prices going up more dramatically this quarter, I think folks modeled in the entire impact. What we have said for the last three quarters, Christina, is that we expected our corn numbers to increase quarter by quarter because we booked it last year and the carrying costs were going out, and we knew that. We said that we have more grain-related and multiyear contracts than ever before, which removed the risk from us of the escalated corn.

I assume that everybody realized that that tied in with the co-products associated with it. I did not state it before today, but I did read some of the write-ups that were looking at where the margins were, and I wanted to make sure it was clear in case somebody did miss it that that goes to the customers' benefit, not to our benefit on the pieces that are grain-related.

I have stated constantly that as our numbers go up on sales dollars, when we have significant increases like we have right now, the margin will not remain the same. We're looking at and trying to increase our overall operating income, but the margins on the sales, if we could keep them at that level and we just had escalating corn costs the way we have had it, our numbers would be over the top. So it is certainly not that kind of a situation.

The same thing applies to South America. We have had escalating corn costs that are really going up big-time. We've been able to improve our overall operating incomes, as you've seen. They've gone up 20%. The growth has been in the various businesses. The margins can be and will be impacted, and I've said the same thing about Asia/Africa over time, that because we're going into new countries where the pricing and the cost of capital will be lower, our margins there may come down over time but our earnings growth will continue. And that is what we're focusing on and that's what we've been able to deliver up to this point.

Okay, thank you. I guess the other thing when you were talking about pricing for next year, you talked about announced pricing, but then you said that you have a significant amount of multiyear and [tolling], so it would not -- it kind of seemed like you wouldn't necessarily benefit maybe the way we would perceive. Can you tell us what percent is multiyear versus not?

No. I don't mean to be blunt, but we have never done that, nor can I today. We've said right along that we have increased the amount that we have had that was both multiyear and grain-related. And I have also said that we are not the only player in this marketplace that does that. Our customers, our larger customers, many of them like to have multi-year grain-related contracts that roll out to protect them both from a supply side as well as a pricing side. In many instances, they have very sophisticated grain models that they use. They feel they can buy differently and perhaps, in their minds, better than we do.

So we have said right along that there is a fair amount the goes out that way and, again, wanted to make sure that as we clarified or we talked about this issue, that as models were being put together, people do realize that we do have grain-related and multi-years that we will not -- we will not get the positive impact across the entire breadth of our business that may be modeled into some of the models.

Okay and then I guess last question, in the press release you talked about opportunities for expansion Asia. Just curious, I mean South Korea is weak. China has limited industrial use of corn. Now I think that tapioca is losing its competitive advantage because of Thailand's ethanol program. Where would you expect to grow in Asia?

Well, first off, I do not see the Thailand situation being the case at all. China, as I said, we have to figure out what it is China is doing, what we have looked at before, what we can deal with with respect opportunities in China, because certainly there are companies there that we can buy as opposed to having to build greenfield. I do not think we've ever suggested we would build a greenfield China, not necessarily anyhow.

We bought the Polyols business that we are looking to grow and I mentioned that in the press release as well as I think in my prepared remarks, maybe not the press release, that we were looking to grow that in Asia. They're opportunities there. I think I mentioned in one of the calls that I had been to India. We're looking at opportunities there. Indonesia is a big marketplace. Vietnam exists and is very close to Thailand, so we have some synergies in that. It is a big area and it represents two-thirds of the world's population. We still see opportunities to grow it.

So Thailand is not being impacted by a step up in the ethanol program?

We have not felt it yet. We have felt some impact in Thailand just on crop results. We've seen either it rains too much and you can't get the roots out or it rains too little and the roots are a little too try, but that has been a variable that has always been in that business. We're not seeing the lack of availability for roots because of ethanol.

Okay, thank you.

Christine McCracken, Cleveland Research.

Just on Argentina, you mentioned, I think, in your remarks that you're kind of managing through what seems to be a fairly difficult environment for processing. Looking at the energy situation, specifically, I guess if you could update us on what you're seeing there and if that is normalized?

Well, it is not normalized. It will probably continue on an upward slope for a period of time. As you remember, when the government took over six years ago, they put a freeze on -- and Argentina probably had the most inexpensive energy in the world by far and it has been escalating on a fairly regular basis during the last six years and I expect that continue. We have, as a result of that, been doing things in the expectation of higher energy cost to reduce our use of energy and to reduce our overall cost situation from the energy point of view.

My comment was that we are continuing to see that. We're continue to work through it, so we have some almost cost increases that be coming at us in Argentina and we expect and we're planning for those over the next couple of years on the energy front.

And then just on the corn crop in South America, there has been somewhat difficult weather thus far and now they're calling for a freeze. Is there any update on what you're expecting or if you have exposure to any disappointment in South America?

No, the most recent -- the last crop, as you know, was a major record. I mean, that was a huge crop. I mean it was almost 25% above the prior record crop. This crop, the expectation we have at this point in time will be about -- this is very early and obviously we are planning -- it is about the same size, maybe down a little bit, but still close to a record and an awful lot of product.

I think the issue on the situation in South America, primarily Brazil, is Brazil is one of the countries in the world that does have GMO-free production and as a result, the premium on the corn in Brazil to ship it to any place that wants GMO-free is going up, so we're experiencing that issue in South America and particularly in Brazil. Obviously our results are still pretty good, so we are able to manage our way through that. That is part of the issue with respect to being able to price in the environment because of the strength we have in the environment. But the crop itself, I have not heard any inklings of problems yet and certainly when we do, we will have to adjust for that.

All right. And then when you talk about alternatives to dry bulk freight, I'm just wondering what are you referring to there? What is your alternatives, aside from --

In shipping corn to Korea?

Yes.

There's a couple of things that are out there we're looking at, Christine. I do not necessarily want to comment specifically on them because if I do, all of a sudden they close down. I do not want that happening, so certainly they are just things that we are looking at that we believe we can get some sort of an advantage from, maybe in the short-term, perhaps in the long-term, but they are there. I just don't want to comment on them right now.

Then just one final question. When you talk about, again, a huge double-digit increase in high fructose pricing this year coming after a couple years of big increases, I would assume that your customers are not too happy, but relatively accepting, I guess, given the commodity environment. I am seeing a lot more lately, a lot I guess high-fructose-free products, a lot of resistance in the trade press at least. I am wondering, are you seeing any ground swell of resistance to high fructose or is there any kind of I guess push back given the pricing now? Or is it still favorable enough that they are not pushing back too hard?

They are still favorable enough, Christine. There is certainly no ground swell against high fructose. There are some people that are using a marketing campaign that are saying whatever they want to say about it. It is not that significant at all. I do think as the commodity space goes up, sugar is going to go back up as well. I mean, you look at this country. You look at the price of wheat and you look at where we grow beet sugar and certainly wheat could take it over and I would be willing to bet you some of those beet sugar farmers are going to be planting wheat next year and capitalizing on the overall pricing.

I think certainly the issue here is going to be one of, in the case of fructose specifically, our customers are now and perhaps over the last couple of months have been pushing through their price increases. As I mentioned earlier, I think many of them said that they expect a volume hit for a shorter period of time, but people will go back to buying. It is just a matter of adjusting to the new price on a package of gum or a can of soft drink or whatever it is, so we will deal with that.

At the moment, the price increases, everybody understands when they look at wheat at the numbers they are and corn at the numbers they are and soybeans the numbers they are, they recognize that we have to do something with it. And supply/demand is in balance, so they are paying it. Not everybody, and obviously we have negotiations that are a little bit harder, but we have been dealing with these people for years and years and years and you sit down, you just discuss what the world is and you get through it.

Thanks.

(OPERATOR INSTRUCTIONS) Ann Gurkin, Davenport.

Just a couple of things. Is it still possible to reach high-teens operating margin in South America? Is that still a realistic target looking out a couple of years?

Yes, I think so. That being said, we cannot have corn at $7 a bushel and do it, because we will probably have lower margins just based on the sales numbers, but I mean -- God bless you, Cheryl -- based on reasonable corn over the long-term, I think we can get those margins. In addition to that, remember, the thing that we have said is I have not talked about the ingredient strategy movement. Some of these ingredients we're looking to will have -- better have -- higher margins for us. They're not big. Certainly they are not big today, hopefully they will grow, but that will become a larger piece of the overall mix that we have in South America, North America and Asia.

All right, that leads me into Polyols. How is that going?

The integration is going very well. As you know, it rolled in February, I guess, of this year. We had -- the Getec business was fully integrated into Brazil by May I think it was, May or June. The sales numbers Cheryl reported and I think we got $29 million in Brazil and North America is probably the same thing as far as sales go. The North American team has done what it has to do. The plants that we are working on are moving per our desire scheme and plan. We have been able to put some price increases through in the marketplace on Polyols also, which has helped us out a lot.

Is it still supposed to be accretive to earnings this year?

This year, yes, and next year, even more so. After you take out the restructuring this year, yes. I'm sorry, Cheryl corrected me on that one, but we had said that also, I think, in our release, that it would have to have the restructuring out. Next year it will be positive and also we're looking, as I said earlier, at Polyols in other parts of our world.

That's great. That's all I have. Thank you.

Lance [Ettes], [Morter Rock] Capital.

I think somebody before tried to go into this a little bit, but I know you can't comment directly on the pricing that you talk about in negotiations, but are people, as far as the push back, are people you're negotiating with using the threat, at least, of going to sugar? I think we have seen at least with Pepsi they're switching their Sobe Life Water to sucrose-based instead of high-fructose-based. Are they saying that, well, if you're going to price it this high, why don't I just switch to sugar? I can switch to sugar?

Well, the thing that you have to remember is sugar is still higher than fructose, so I mean the switch to sugar is not going to do anything except to raise the cost. It does not given a better product. Fructose, in general, is a cleaner product across the board, so we are not hearing that. Obviously people are investigating what they want to do, what they think they can do in all areas, but nutritively-sweetened soft drinks are a big market. The other markets that we sell fructose and corn syrup in are big markets and people are working with us to work through this thing.

The comment that I always make is this is a commodity business and I think what goes up in the commodity space generally comes back down. I cannot say it's going to be next year or the year after, but eventually the pricing will come back into the realm of what we've seen in the past or somewhere in that range.

But if it does not and commodities continue to skyrocket, sugar is part of that complex. Sugar prices are going to go up because it is going to compete for land just like everything else does. So we may be looking at a new plateau for all of these products at a higher level or we see the commodity space go up and come back down to a new level. But in all instances, I think we're okay.

Operator, I think we're closing in on the bottom of the hour and so we will take one more question, if there is one, before we close it down.

Vincent Andrews.

Thanks for taking the follow-up. I just -- the question I forgot before was if you could just comment on what the price gap is in Mexico between sugar and high fructose corn syrup to the extent that you can.

The price in sugar -- the price of sugar in Mexico, Vincent, has come down somewhat. There is still an advantage, but it is not as big as it was before. In Mexico, we tend to price very close to the sugar pricing.

Okay, that's good. Thanks a lot.

Thank you. Thank you all for your questions. They were good.

I think, as a result, we do like to end this after 60 minutes. We know you have other calls and earnings reports to deal with, so with that, we will conclude our conference call and webcast this morning.

I do want to remind you that we have a replay of the webcast. This is through www.CornProducts.com and we also have a replay of the audio conference call. That is available to you through Friday, November 16 and you can call 719-457-0820 and use pass code 4291276. (OPERATOR INSTRUCTIONS) for an audio conference call replay.

On behalf of Sam Scott and Cheryl Beebe, I want a thank you all for participating in our call this morning and we look forward to talking with you again early in the new year, probably late January or so, with our 2007 fourth-quarter and full-year results. Have a good day.

This concludes today's conference call. We thank you for your participation. You may now disconnect.