Ingredion Inc (INGR) 2008 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Corn Products 2008 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 to everyone. Welcome to Corn Products International's conference call to discuss our 2008 first-quarter financial results which were issued earlier today. I'm Dave Prichard, Vice President 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 Web site at www.cornproducts.com. The charts for our presentation this morning can be viewed and downloaded from our Web site, and they are always available about 60 minutes ahead of our conference calls. Those of you using the Web site broadcast mode for this conference call are in listen-only mode.

Sam Scott and Cheryl Beebe it will deliver this morning's presentations, and they will indicate as they move from chart to chart, so those of you who are using our slides from the Web site can easily follow along through the presentations.

Now, I just shifted to Chart 2, 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 2008 earnings guidance and outlook before we move to your questions.

I've now gone to Chart 3, 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 this presentation are also available on our Web site at www.cornproducts.com. As you will see, they are also included as an appendix to our slide presentation this morning.

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

Thanks, Dave, and good morning to everyone. It's great to be able to report our best-ever quarterly results. Our business model performed well, enabling us, through pricing actions and risk management policies, to more than offset a large increase in corn costs in the quarter. The key contributors were strong pricing actions and improved product mix in our North and South American businesses, along with favorable currency translations. Given this excellent quarter, we have raised our annual EPS guidance which Sam will discuss during his remarks.

Looking at Chart 5, the summary income statement for the quarter ended March 31, 2008, we see that net sales increased 22% over last year to a record $931 million. This is the ninth consecutive quarter of net sales growth. Gross profit dollars rose 18% or $27 million to $173 million, driven by the strong pricing actions and, again, better product mix in North and South America. Corn costs rose significantly across the businesses. Energy costs are also up essentially in South America. The gross profit margin of 18.6% was down only slightly from 19.2% last year.

Operating expenses increased 17% or about $10 million, reflecting higher compensation-related costs and the impact of stronger foreign currencies. However, operating expenses as a percent of net sales was 7.3%, lower than 7.6% a year ago.

Operating income increased 22% or about $19 million to a record quarterly level of $107 million versus $88 million in 2007. The operating margin of 11.5% in the quarter was essentially unchanged from last year.

Net financing costs for the quarter were $7 million, down $2.6 million from last year due to a $1.2 million foreign exchange gain, increased capitalized interest costs of $800,000, and higher interest income of $0.5 million. The tax rate was 33.5% compared with 34% last year.

Net income and diluted earnings per share each increased 29% in the first quarter to record levels of $64 million and $0.85 respectively versus last year. Weighted average diluted common shares of outstanding stock of 75.6 were down slightly from last year's 76.2.

Turning to Chart 6, net sales by geographic segment, we can see all three regions contributed double-digit growth, led by South America with a 36% increase, or $72 million; Asia/Africa was up 30% or $28 million, and North America and 15% or $69 million.

Looking now at Chart 7, the net sales variance, we see the strong pricing and favorable product mix in North and South America, along with positive currency translations, drove the Company's net sales growth. Price/product mix accounted for about 88% of the net sales increase in the quarter or $148 million. The net sales increase from the translation of our foreign operations contributed about $48 million or 28% of the net sales increase, while volume decline of 3.6% had a negative impact of $27 million on sales.

Regionally, North America's 15% sales growth consisted of a 16% increase in price/product mix, a 3% favorable swing in the exchange rate, offset in part by a 4% volume drop across the region due primarily to poor weather conditions and the economic softness which impacted customer take-away.

South America's growth of 36% included a 22% improvement in price/product mix, along with an 18% improvement from stronger currencies. However, volumes also declined about 4%, primarily from reduced take-away in the Brazilian brewery segment.

Asia/Africa's net sales growth of 30% came from a 30% increase from the stronger pricing actions. Volume growth and unfavorable currency translations were slight offsets.

Moving to Chart 8, operating income by geographic segment, North America was up 23% or $14 million to a $75 million, for an operating margin of 14% versus 13.1% last year. In South America's operating income rose 29% or $7 million for an operating margin of 11.8% versus 12.5% last year. Brazil and the Southern Cone had strong performances. The Andean region's performance was negatively impacted by expenses related to the startup of an infant food program in Colombia that should become a more positive contributor later in the year.

Finally, Asia/Africa's operating income of $13 million fell 10%. Pakistan, Thailand, China and Kenya all posted higher operating income. However, this was more than offset by the decline in South Korea's operating income.

Consistent with what we said on our February 5 earnings call, South Korea's challenges are continuing in 2008. Their results in the quarter were significantly impacted by higher corn and ocean freight costs, as well as lower volumes. Pricing actions were not enough to overcome these pressures. However, excluding the South Korean shortfall, the division operating income was up a strong 40%.

The next chart, number 9, is the estimated source of changes in the diluted EPS for the quarter. Changes from operations are the driver for the record quarter. Margin improvement accounted for about 10% -- $0.10 or 53% of the $0.19 change, followed by foreign currency values at $0.06 or 32%. Nonoperating changes amounted to $0.03, primarily related to the lower financing costs.

Moving to Chart 10, the cash flow highlights for the quarter, cash provided by operating activities doubled to $116 million from last year. The net income increase contributed $14 million with a positive swing in working capital, about $40 million. Investments in the business of $48 million came entirely from capital expenditures, which were up from $32 million last year. The higher use of cash for financing activities came primarily from a decrease in debt of $47 million.

The last financial chart, number 11, presents the key metrics for the quarter ended March 31. Debt-to-total capital remains very solid at 23.6%, along with debt-to-EBITDA of 1.2 times.

Operating working capital as a percentage of sales was 13.8%, reflecting higher receivables and inventory. Net debt, or total debt less cash, stood at $414 million at March 31, compared with $471 million a year ago and $474 million at year-end. The Company continues to enjoy a strong balance sheet with solid cash flow generation.

In summary, we are off to a strong start in 2008. Thanks for your attention. I will now turn the call over to Sam.

Thank you, Cheryl, and good morning to all. I will briefly comment on our strong 2008 outlook before moving to your questions. I'm now moving to Chart 12, our 2008 outlook.

Given our strong first quarter, the best ever, and more visibility for the rest of our year, we raised our 2008 EPS expectation from $2.65 -- from a range of $2.65 to $2.85 to a new range of $2.90 to $3.15, a 12% to 22% increase versus a record $2.59 in 2007, which included a $0.05 gain from our company's holding in the CME Group. Our new earnings per share range translates to a five-year compounded earnings growth rate of 22% to 24% from the years 2003 through 2008. We expect solid EPS growth for the last three quarters of the year, in the range of $2.05 to $2.30, based on our revised guidance and versus an actual of last year of $1.93 per share in 2007, which also included a $0.05 gain from the Company's holding in the CME Group. We see a stronger first half than second half due to anticipated higher raw material costs.

Our return on capital employed, a key performance measure for our company, should comfortably exceed our 8.5% minimum target for the second consecutive year. We now believe our net sales should reach $4 billion in 2008 versus $3.4 billion in 2007.

We think our business models in North America and internationally are working well in today's unprecedented environment of higher and more volatile costs for corn and other commodities. Our success at navigating through high worldwide corn prices continues to be a business model that allows us to pass through rising corn and other costs in a reasonable period of time and a continuation of tight corn refining utilizations in North America. Challenges and opportunities remain in 2008, namely volume and supply chain costs.

All in all, our increase in 2000 guidance incorporates the major upside factors and downside risks that remain in the domestic and international businesses this year.

I'm now moving to Chart 13, our 2008 outlook by region. North and South America will continue to drive our higher earnings and net sales for the balance of 2008, as they did last year. Our low double-digit price increases for our U.S. and Canadian book of business, including all types of contracts, is the key contributing factor and better co-product returns should also help our results. South America should continue on a positive trajectory with record results again this year, including revenues likely to surpass $1 billion for the first time. This growth should be led by a very strong performance in Brazil, along with improvements in the Southern Cone.

Finally, as we told you in our last call, profitability in the Asia/Africa region is expected to fall in 2008. This is due entirely to lower operating incomes in South Korea, a trend that began the second half of '07 and that we said would continue throughout '08. South Korea's lower performance, however, should not obscure the growth we saw in the first quarter and expect to see for the rest of year in the other countries in the region, namely Pakistan, Thailand, China and Kenya.

We are and have been raising prices in South Korea to cover corn cost escalation. We expect this will have a negative impact on our volumes in that country.

In addition, we're taking steps to try to lessen the impact of rising corn and freight costs. As some of you have read, the Corn Refining Association has decided to import its first bulk shipments of GMO corn into South Korea. As expected, there has been some customer pushback on that issue.

Chinese imports have recently eased, in large part due to the country's apparent security concerns about its own corn and corn-derived food supply. We are also watching this closely. However, it's very early to issue definitive report cards for the region, but we're very focused on fixing our South Korean business. It is a testimony to our company's geographic and product diversification that we are able to deliver strong results to our shareholders while dealing at the same time with individual country challenges.

Let's move to Chart 14, our pathway strategy for longer-term growth. Our 2008 capital spending budget of about $200 million includes attractive based business growth projects designed to bring incremental sales and earnings in the year ahead -- years ahead as they are completed and started out. Fortunately, we can direct more resources at these promising opportunities because we have a very healthy balance sheet, strong cash flow and significant investment capacity. Our three strategic focus areas are, first, growing the base corn refining business in faster-growing international markets that have higher GDP and per-capita income growth rates. Grind and/or finishing channel expansions are in progress, as we've said before, in Argentina, Brazil, Colombia, Mexico, Pakistan and Thailand while the new modified starch capacity is being added in Mexico.

Second, we're looking to expand continually into new geographies; third, developing a larger business in the higher-margin, (inaudible) based ingredient category through internal development, joint ventures and alliances and selected acquisitions that we can leverage throughout our worldwide marketing capabilities. For example, we are currently expanding our specialty polyols capacity in the U.S., Mexico and in Brazil.

Turning to our final chart, Chart 15, as you saw in our other press release this morning as the newest example of our ingredient strategy, we are broadening our global sweetener platform with the addition of a high-intensity, low-calorie and naturally occurring sweetener derived from the stevia plant. This ingredient, which will be marketed under the brand name Enliten, results from a long-term agreement we've entered into with Morita Kagaku Kogyo of Japan for an exclusive license of their patented stevia strain, their manufacturing technology and stevia production, along with a global marketing and distribution right. We think Enliten fits consumers' desires for a new, low-calorie sweetener that tastes good.

Beyond our access to Morita's Japanese production, we have committed about $20 million to construct a dedicated stevia plant in Brazil to meet expected growth in customer demand. We will market Enliten in select Latin American and Asian countries where we already -- where it's already approved, and plan to file regulatory clearance in the U.S. This initiative fits well with our value-added ingredient strategy and expansion of our sweeteners platform. Last year, for example, we acquired a family of sugar (inaudible) reduced calorie polyol sweeteners in the U.S. and in Brazil. We have more work to do but we're excited about the long-term commercialization prospects for Enliten and look forward to keeping you informed of our progress.

Thank you. Now, we're ready to take your questions.

Thank you. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). David Driscoll, Citi Investment Research.

Good morning, everyone. First off, congratulations. Sam, this just couldn't seem to be a better ending to conclude a great career. What a fantastic result in the quarter.

Some specific questions -- on the guidance, you indicated that you expect the back-half 2008 EPS to be weaker than the front half. Can you give us a bit more definition as to why -- where will it been weaker? Is it a U.S.-specific issue, or is it a South America issue?

It's more of a North American issue, David, primarily due to the fact that, as you know, we have locked our corn; the corn prices increased the course of the year. So basically, we expect higher corn costs in the second half than the first. Certainly that's the major driver, but as a normal rule, we see corn cost even increasing in South America as we go into the second half of year as well. So it's primarily those issues.

Okay. Then my second question is, when I look at sugar prices or tapioca, do you believe that these prices, relative to that of your competing products from the corn refining, are causing -- is there any switching that's happening away from corn-refined products to sugar or tapioca-based products?

A little bit, depending upon where you are, David, and not substantial amounts any place. Not tapioca right now, but depending upon where we are competing with sugar, there may be some instances where it's looked at favorably, but not significant.

So you would not call that out as an issue with why the volumes were down in South America and in North America?

No, our volumes were down in North America primarily due to weather, which was horrendous in the first quarter around the world. As we talked to our customers, we found that was impacting their business.

But secondly, the second environment has definitely had an impact on the industrial side of the business. When the economy is soft as it is, paper and corrugating generally is a precursor to going to into the fall and generally a precursor coming out of it. And we certainly have felt that, as our customers have. We talk to them regularly.

In South America, what we've seen as the primary impacting factor is the pricing. As we push pricing through, we've seen our customers slow down in their take-away, and we've elected to go more for the price than the volume side of the equation, and it's worked out to our benefit, we think.

The second thing is, as you know and we talked about it for years, is when the currency strengthens, it impacts the export capabilities that both we and our customers in South America have, and that tends to hit volumes as well. But those have been the major impacting factors on the volume shortfalls that we talked about.

If I could just follow-up on that, there is a related question here that with $6 corn out there, is $6 corn being fully passed on within your prices in your international markets, or do you still have to raise prices in order to bring it up to where the spot market would have corn?

The guidance that we gave takes into account what we feel, but let me be more specific to the question. Obviously, the $6 corn numbers are relatively high numbers, but we have to pass that through almost immediately in the international businesses. Now, that can be a lag of a month or two on it, but it's not going to be a lag of six months or else we could not give you the kind of guidance we gave you. So we are looking at passing it through.

The one place that we've said we're pushing it is Korea. That we will continue to work on throughout the course of the year. But the other international businesses, we have the strength to be able to get it through in generally in relatively fast order.

Okay, but if I'm hearing you correctly, what you're saying is that you have not -- in South America, specifically Brazil and Argentina, you have not yet fully priced your products commensurate with $6 corn, but you expect to. Is that an accurate statement?

I think what I said, David, is we are passing it through with whatever corn we are buying at the time. So if we're buying $6 corn at the moment, then we will pass it through within the short-term, but certainly we've been buying $6 corn for a while or high $5 corn, so the price increase that has been put into the marketplace would generally reflect pretty close to where we are today.

Well, that's fantastic. Great answers! Thanks a lot, Sam. Thanks, Cheryl.

Heather Jones, BB&T Capital Markets.

Good morning. Great quarter. A couple of questions -- going back to the North American volume issue, I understand the weather comments, but we've been reading about weakness in soft drink demand in the foodservice segment. I was wondering, have you all seen that or do you not feel like it's that big a factor?

We've seen it, certainly, Heather. That's part of the comment on the weather with the soft drink companies. We think the weather conditions have impacted all of our customers, but certainly the kind of weather we've seen, particularly in the Midwest. We felt like we were up in Alaska here, and I mean that definitely is going to have an impact on soft drinks or any beverages other than hot beverages really and (multiple speakers) seen that. We are starting to, with the little bit warmer weather we are seeing, we are starting to see an improvement now.

Okay, so you wouldn't take it simply as increased consumer preference for non-carbonated soft drinks? You think it's more of a weather issue?

It could be a combination of both, but I think certainly the weather has had an impacting factor. As we've said right along that these (inaudible) sweet and soft drink marketplace is relatively flat, and we think it's flat to up or down a little bit. The up I'd like to see, the down may be more realistic, but it's a small down. The big factor I think that has been the case has been the weather.

Okay. As far as South America, the weakness in the brewing segment, do you expect that to continue, given that prices are likely to remain high? Do you expect that to continue through the year?

We don't expect to see any further erosion. What we've done is to price it at a level that we feel balances what we need for the overall profitability of the business. As a result, we've priced it so that we have lost some intentionally. If we wanted to get it back, we could move our pricing down, but we are holding it where it is because we think that's the appropriate thing to do to deliver the results we've given as guidance.

Okay. A couple more questions -- this stevia, am I pronouncing that correctly?

That's correct.

Is that the same product that Cargill is working on in the U.S.? with Coke I believe?

It's the same name; it's a different product. We feel this product is a more refined product that Morita has been working on for 30 years. It has less bitter aftertaste than the other stevias in the marketplace. We've contracted growing for it in South America, already have hectares planted. As we said, we've commissioned the plant to be built in Brazil, but it's the same name, a slightly different product.

So, and I apologize if I should know this, but is there any limitation to you working on stevia in North America? I mean, does Cargill have a proprietary right to it or --?

Absolutely none, no.

Okay. Then finally, I was wondering if you could update us or if there is any update regarding this lawsuit against Mexico and potential damages, if you could just update us on that.

The damages claims are $288 million, Heather. We continue to go through the judgment phase as we disclosed in the K. We won the liability side of it, and the judgment phase will be heard later on in the year.

Later on second half or when?

It could be second half or third.

The second half, yes, speakers) third (inaudible) we don't have a third half, but (LAUGHTER) yes, we try to extend this year as long as we can, but it's third or fourth quarter, yes.

All right, thank you and congratulations again.

(OPERATOR INSTRUCTIONS). Christine McCracken, Cleveland Research.

Good morning. Just the new sweetener plant, did you happen to give volumes for that in terms of what you're expecting this to turn out?

No, we didn't, Christine. We specifically did not give it because it's in the early phases. We're putting a reasonably -- not a small but a decent-sized plant in Brazil to introduce product into that market. We currently have product available through Morita that we are sampling and working with customers on development work throughout the world, but right now, the product is still going -- it is not approved in the U.S.. We will file for FDA approval as we move forward. We can sell it in other parts of the world. So we have product available through the Morita operation in Japan. They're currently selling this exact product in Japan.

We did not comment on the volumes, but it is competing with other high-intensity sweeteners, except this one is a little different in that it is considered by many from a naturally made ingredient. We think that, over time, as we see and get more resonance in the marketplace, we can look at expanding beyond what we've announced today.

Relative to that, is it fair to assume that the margins in that product will be well above kind of your traditional high-fructose, given kind of where margins for other high intensity sweeteners are?

We don't have the pricing yet in the marketplace for that product, Christine. However, as we've said in our ingredients strategy, our aim is to obviously surpass the numbers that we have seen in our commodity-based businesses. But we are introducing the product. The sampling is going well; the customers are very interested. But we have yet to price it into the marketplace, but we hope to have pretty good numbers as we go forward with it.

Now, this debate around natural and high-fructose has com up this quarter. I'm wondering. Is this in response to that in any way, or is it that you see it as a nice complement to your existing portfolio?

This has no -- we've been working on this for a long time, Christine. This is not something that just came out of the box this quarter. We've been working with Morita and have planted, have been taking the seedlings, growing them in Brazil for over a year right now and have quite a few that we're ready to plant. We've leased land for this, so the operation has nothing to do at all with the comments you just made.

Then just on natural gas, it's seen a pretty big increase here lately.

Yes.

You have, I believe, less exposure obviously than you've had historically. Are you at all exposed to that, or do you have some protection that will limit your exposure?

We've always said we hedge our natural gas requirements before the end of the year, whenever we have fixed-price business, and that is the case this year. But let me correct one thing you said. We are not less exposed to it in the past, because the boiler at Argo is a natural gas boiler and we had natural gas boilers before. So, except for the fact that this one is a bit more efficient, we still have natural gas requirements very similar to what we've had in the past.

But that will come up for renewal though at the end of the year, just like corn?

I didn't hear what you said. I'm sorry.

Sorry. It will come up for basically renewal again at the end of the year when you go to --?

Christine, you're absolutely right. We are basically annual hedgers, so when you run through the hedge portfolio that you have, you then go to market.

But we always look forward as to what we can do. In the natural gas hedge we have a little bit more time that we go forward if we need to. Obviously, we monitor that on a constant basis going forward, Christine.

Just a final question, then on inventories, you were able to keep those obviously in really good shape, which I was surprised, given the increases you've seen in corn prices and the like. I'm just wondering. Have you changed anything in how you manage that, or maybe you can talk to that?

Christine, we have kept a very tight rein on the working capital, given the very volatile grain and energy market that we're seeing. Frankly, the operating teams have done an excellent job of managing the working capital. As you can see, we generated positive cash flow. We're sitting on a slightly higher cash balance than what we would normally. That's because we were expecting to see more volatility and more use going into the working capital area.

I think, over the last year, Christine, the last couple of years, you can see the changes that have been made in this organization in how we run to make sure that we are managing all of the variables as well as you possibly can manage them and making the business model work to our advantage every place around the world that we can. It's been reflected in some of the numbers you're seeing both in the balance sheet and the number you are seeing coming from the operating income of the business.

Again, congratulations on the good quarter.

Pablo Zuanic, JPMorgan.

Good morning, everyone. A couple of questions -- on the volume front. What I'm trying to understand -- is it lower volumes when you say reacting to higher prices -- is it because those customers are seeing their sales drop because they're having to pass on the higher sweetener price (inaudible) prices, or is it that those customers of yours are switching to others types of sweeteners?

If you're talking North America, it's primarily the fact that the volumes are dropping because the customers are seeing their volumes drop off a little bit, but it's primarily the weather issue and the economic environment we are seeing, we believe, that is causing that drop in North America.

In South America, we are seeing some switching and we've elected not to meet it. In some instances, in the brewing industry, they can switch to grits, which is a starch kind of product that we have elected not to go after that volume and chase it based on pricing. We have lost a little bit to some of our competitors, again, that we've elected not to meet the pricing environment that they put in place to keep our prices in place. But as a result of the model and the strength we have in the regions and particularly in the countries in South America that we talked to, the customers work with us, stay with us, and we can push through knowing that we're going to lose a little bit of volume doing so.

That's helpful. Just in North America, let's wait for the fall of 2008, right, and then you start negotiating contracts for '09. We are looking at a forward (inaudible) of $6 plus on corn. Then you have to have a price increase, I guess a double-digit price increase for a third year in a row. When do you start getting close to sugar? I mean, I understand what has happened with Imperial Sugar in terms of the refinery. But how far are you right now? At what point -- how far are we from users in the U.S. maybe being able to switch to other sweeteners because (inaudible) gets too high?

We've seen sugar prices in the U.S. go up, and they are moving higher as we speak. Certainly, we believe -- I've said this before -- that as the commodity sector moves up, I think the overall sugar sector will be part of that because it will be fighting for acreage, particularly in the U.S. Where wheat can be grown, sugar beet won't, so we expect that to support it.

You're right with respect to the fact that in order to get a $6 number passed through, we have to get substantial price increases in the marketplace. We've told you in the past that we have shifted some of our business, a fair amount of our business to multi-year and grain-related, so in those instances, that is effectively done.

In the marketplace where we have annual contracting to be done in today's environment, we think we can get that through as long as utilizations stay relatively tight.

That's helpful. Just to follow up, on the capacity front, I mean the argument is that other companies that can switch up (inaudible) capacity or (inaudible) production process, it can change some of it to ethanol. If the ethanol market were to weaken over the next two years, is there a way to calculate how much of that capacity could come back to sweeteners? I understand that it's more for the wet millers and obviously -- it's only for the wet millers, that's an issue. But is there a way to calculate that in terms of what could be the capacity effect on the sweetener industry side?

I can't answer how to calculate that. We don't have that swing capacity. ADM does and Cargill has a little, so it might be better to ask them that question. But I think what I've said in the past is the only people that can do it would be the corn wet millers, and the corn wet millers are also in the high-fructose business, so they would be damaging two businesses as opposed to one. So it doesn't make good business sense to make the swing back. There was a concern about that at the beginning of this year when prices on ethanol were low and it didn't happen at all.

We did see, as the border opened up, I think there were comments made by some of our competitors that they might swing a little bit back to fructose to be able to accommodate the Mexican market, and I believe they did. But they certainly didn't swing back enough to impact the North American market in its entirety and they said they wouldn't, so I don't know how to calculate it but I think certainly it is something that they could perhaps help you with.

Yes, that's very hopeful. One last one -- regarding Mexico, would it be fair to say that, because you already have capacity there and probably obviously distribution in place, that you have an advantage over the other companies that are trying to ship from the U.S. now that the market is growing there, or not necessarily, it really doesn't make a big difference on the marketing front?

We very much like our position in Mexico. It's a very strong position, and we believe that it provides us a very, very good model. This is, Mexico is a representative of our business model that we say works very well for us, so we very much like the position we have there.

Okay, thank you, Sam.

(OPERATOR INSTRUCTIONS). Ann Gurkin, Davenport.

Good morning. Continuing on with Mexico, can you tell us what your share is now in Mexico?

We never comment on market share, Ann. We talk about share capacity in-country, and the share of capacity is probably 55-ish%, maybe a little bit more than that, 60%. We've said that our volumes are stronger in Mexico than ever before, but we never talk about what the actual share of market is.

My general counsel doesn't like me to use the word "market share" ever.

Fair enough. In your presentation, you talked about expanding into new geographies. Is that through acquisitions, joint ventures? Can you comment on that a little bit?

All of the above. We are looking at opportunities. As you know pretty much from our model if you've tracked us, it generally ends up starting as a venture, a joint venture, with a local operator, so that we can -- and we spend a lot of time selecting the right person to partner with. But we generally pick a culture that fits with us and someone that's knowledgeable of the marketplace we're getting into. But as a normal rule, we have a formula to buy that party out in a three to five-year time frame. So we generally do it that way but we have also done acquisitions that we would look at as well in certain areas, depending upon the situation.

Okay. Some companies are commenting that it's difficult to access freight to move product. Are you having any issues with freight access or inventory build?

No, not now. We've not seen it and don't expect it, but it is getting tough. I mean, you hear on the radio every day to fill up an 18-wheeler is over $1000, but we have not had issues at all yet.

Okay. Then can I get an update on CapEx spending for '08 and the tax rate for '08?

Cheryl (multiple speakers)

We're still looking at $200 million. We will update the guidance on CapEx as we go through the year, as we see the results.

In the second, on the tax rate, it is dependent upon the mix. We are currently at 33.5%. I would expect us to be between that and, say, 35%, barring any major changes.

Great, that's all I have. Thank you.

Christina McGlone, Deutsche Bank.

Thank you. Sam, you talked about the volume (inaudible) in North America hurt by the weather and I guess the economy, but last quarter, we saw volumes drop as well. It looks like high-fructose production has been down for the last six months, maybe in the order of 2.5% to 3%. So is there something besides the weather? Going back to Heather's question, is there any sort of demand issue there?

As I said before, Christina, we have seen volumes in the beverage sector go up and down over the last couple of years, so certainly we have seen numbers that have been relatively flat to off a little bit. You've commented on it before as have we, that we don't expect that to be a growth segment of our business.

During the first quarter, my comments were specific to that. They were primarily driven by the issue that I talked about.

Last year, our volumes, as compared to the prior year, were about the same. We were close to flat. I don't have the numbers in front of me right now, but if I remember correctly, they were basically a flat kind of number going in for the better part of the year last year. I can't comment on whether customers are specific, and certainly our numbers are not necessarily reflective of the entire marketplace because we have accounts that are different, we have locations that are different. But reflecting what our numbers would say, it's pretty much what I just told you.

Do you think your volume performance is in line with the industry?

I see no reason for it not to be, other than what I just said. I mean, you know, we would have 100% of a given plant. If the plant happens to be in a place that is horrible weather conditions, we might be a little off than somebody else, but on average, I would expect they would be reflective of the industry, yes.

Okay, so I guess, over the past six months, we have a 3% to 4% volume decline, and going -- and ADM you were saying is swinging to meet Mexico. Is utilization still tight or have we seen any slackening there?

Certainly if in fact we saw a 4% volume decline in the first quarter, that would reflect a little bit of softness in the first quarter, but certainly the issues as you go forward -- I think I've already said that we are seeing volumes pick up. We're talking about an annual volume base, not a quarterly volume base.

I would not also say that if we were 4% over in the second quarter, that would reflect anything else either. There is a seasonality in the business. We do expect to see volume get stronger in the second quarter and then stronger again in the third quarter. We have to run the cycle. We will see how it shakes out, but I don't see, nor have we felt anything in the marketplace that would reflect any reduction in utilization that would cause more competitiveness there.

Okay, just because your volume fell 3.7% in the fourth quarter too, that's why I'm asking, because it's two quarters in a row. So, that's where the question is coming from.

It depends upon what we're talking about as the way of product lines, Christina. We report total volumes, and as I said, as I said in this call and I think I said that time, the industrial side of the business really gets impacted when you have a recession or a slowdown or whatever. It's a precursor to everything. Since I've been in this business, the industrial side is a precursor to the slowdown. So our industrial business here and around the world has felt the impact of the slowdown. We've seen volume shortfalls in those areas, as well as the fact that, in the back end of last year, we did slow the volumes down and we had inventory management both on our part and our customers' part. So some of our volume is reflected in coproducts. If our grind was not as high as it had been for managing inventory, you would see a volume hit there as well.

So it's not a high-fructose situation in only; we are not a high-fructose company only. As you look at our volumes around the world, we've said a number of times fructose represents about 25% of our total, 27% of our total volume. That would have to be -- in order for that to impact by itself the entire swing of volume, they would be a major, major situation.

Okay. Well, given the starch stream and the optimization is so important, I'm just curious if there's slack anywhere. It doesn't have to be fructose but industrial starches and we are seeing these volume declines, just in terms of utilization and going back to Pablo's question about your pricing power in '09, given the delta in corn. So you don't see this kind of volume weakness anywhere in the starch stream impacting your ability to price in '09 to recover corn? Then I don't think you answered Pablo's question about the delta versus sugar for next year.

I think I did answer his question, saying that we thought there was enough room for us to move the price required to get -- to cover $6 corn. I said that.

Okay.

Going back to the other piece of the equation, I'm not going to tell you how we think we will be able to do in going into '09, but based on your numbers we were able to do it going into '08. So if we had the shortfall on volumes you talked about, which were reflective of a softer marketplace, I would say that the price increases we got going from '07 to '08 reflected that. I think what I'm saying is that we believe, given the marketplace we see right now, that we would be able to pass it through going into '09 if it gets -- if corn stays where it is and the situation stays as it is today.

But back to the volume numbers, we have to see what the volume does throughout the rest of the year, because the first quarter is not indicative of a year.

Okay, and then last question on the stevia product -- it seems like you've been working on it for a while, because you talked in the press release about contracting for about a year ago with Brazilian growers.

Yes.

Has it just been researched this whole time? Is there any reason why now you decided to build a plant, or it's just that this is the time to do it? I'm just curious what made you take it to the next level right now.

Well, it has to happen at a point in time, and this was the right time. I mean, we've gone through the research we needed; we've gone through the testing we needed to do; we've gone through the business plan that we needed. We have patented or trademarked the name. We are growing the plants in South America today. We are sampling customers in the marketplace and have been for the last few months. We've been working with them on formulations for the last few months and we felt that -- what's today's date? April 23 was the appropriate time to tell the world -- 22nd -- the appropriate time to tell world that we were doing that.

Okay, I'm sorry, one more -- can you talk about that infant feeding business that you mentioned?

We have a business in Colombia. The name of it is [Bias Thorena]. We've worked with the Colombian government for the last five years, contracted with them to run two facilities that they have. We run them in its entirety and supply the raw material to it, and the government provides the infants, undernourished and impoverished infants in Colombia with a nutritionally based sort of like a porridge kind of a product.

The contract expired at the end of last year. We renegotiated, and have gotten it again for the next I think it's five or six years. Over the transition, there was an adjustment of inventory that had to be dealt with, and we introduced a new formula and a new distribution system that impacted us in the first quarter a little bit, and we are shaking all of that out now. It should be back up and running appropriately -- the right way, much the same as it did last year, and we expect to see that business grow.

Okay, thank you.

Ken Zaslow, BMO Capital Markets.

I guess, starting from the beginning a little bit, is you know you revised guidance and you said that there is greater visibility to your outlook.

Yes.

What actually changed?

The first quarter is behind us.

Yes, but you beat consensus by $0.12 or so, or $0.15, and you raised guidance by more than that, so there seems to be something else maybe going in -- or no? Or maybe you just (multiple speakers) the analysts got it wrong?

No, no, no, no, no. What we're seeing right now is a situation where we have -- the pricing has settled out, we know where it is. We can get a better idea as to what's going with the coproducts. We have, even with the reduction in volume in the fourth quarter -- in the first quarter, I'm sorry -- we can see where volumes are going, what they're looking like going forward. We see the operations of our facilities running and the cost structures associated with that. Given all of that, we believe -- and some of the introduction of some of our capital programs that will be coming on later in the year are moving forward the right way. So given all of that, we feel it's appropriate to give the guidance that we gave today, because it reflects what we see in the business.

In terms of the coproduct outlook, can you give us what you're thinking on the coproduct outlook, and was that a major contribution to this quarter or was it any different than you expected?

It helped out. It was a little bit better than we expected in that the coproduct numbers stayed high. We expect, going forward, while we have higher-priced commodities in general, that coproducts will be very, very strong.

As we get into the growing season, we could see both the commodity, the corn, or the soybean numbers drop off if we have a good growing season, which would probably impact the coproducts to some extent, but we've taken all of that into account as best we can and in the forecast we've given you.

When you said the back half of the year is going to be less, you know, lower profitability, in other words it's going to be more front-end weighted, isn't that just a function of the forward-looking curve of corn?

Yes, that's (multiple speakers) we basically said almost every year.

Okay, so there's nothing to read through besides you buy corn at a forward curve and low and behold, corn is more expensive at the back half of the year?

Exactly. When we hedge our corn, you can look at it, you know it's going to be more expensive in the back half than the front half.

Okay. It sounds like, in terms of acquisitions, given your commentary as well as your debt level -- and I know acquisitions have been a part of CPO's growth over time -- is there a greater appetite for acquisitions of late?

I wouldn't say greater appetite. I think certainly it's part of our strategy and as we refine the strategy more and more and we identify more specific opportunities, we go after them.

I think that, given the credit markets that exist around the world, I think the strategic buyers have a much better chance of executing than perhaps some of the other buyers that were in the market over the last year or two.

That's a very positive point for us.

Okay, that -- I mean again, it sounds like you're moving towards maybe having more opportunities I guess is maybe a better way of saying it.

Ken, we think certainly the balance sheet is stronger than it has been for a long time, although it has been getting strong for awhile. The market opportunities seem to be there. The strategy is becoming more and more refined as to exactly where we want to place our bets. So we will still scrutinize things very carefully, but we will certainly look at opportunities around the world, both for geographic expansion and for expansion to upgrade the product portfolio more the higher valued ingredient space.

And two questions, two more questions. One is, Mexican high-fructose corn syrup or U.S. high-fructose corn syrup being shipped to Mexico -- can you give us a status on that? Does that seem like it's going on schedule as you expect? And more importantly, has there been any impact on your EPS, or earnings?

It's probably going pretty much as we expected, but all I can really comment on is our shipments to Mexico, are they on target? And they are. I think basically the competitors are shipping product down there; we know that's happening.

The other way of saying it is we did not lose --

Position.

-- position to our competitors.

But secondly, as to EPS, I mean, the numbers reflect what happened. We had a pretty good first quarter, so I think that the numbers speak for themselves.

So, again, you would say -- because you've kind of came out saying, hey, the border's reopening to Mexico should be a positive impact on our operating profit. Is that what's -- I mean, you could have other businesses that are offsetting that. I just want to make sure that that one isolated event is actually working in your favor. It sounds like it is.

I think what we said, Ken, was that it would impact the entire North American utilization, which would operate in our favor. Obviously, the numbers are reflecting that. Our North American numbers are up. You are right; it could be in some other product lines where we're seeing returns across the board in our North American business.

Great, I appreciate it.

David Driscoll. Citi Investments.

Thank you for taking the follow-up. Can you guys comment on whether or not you have hedged any of your corn requirement in the international markets? I know, Sam, that normally I don't think you do, but just given the extraordinary move in corn prices in a relatively short period, I am curious if any of the international markets had hedged their corn inputs.

Just where we have fixed prices, Dave. If we have a fixed-price contract for an extended period of time, we would normally hedge that contract, Mexico being a prime example of it. Obviously, Canada is part of the North American piece of it. The rest of the world, as we've said right along, is generally spot to quarterly to monthly kind of a business, and that we do not hedge.

Okay and my second question -- a couple of pieces on Mexico. I think actually, in one of your responses just a moment ago, you said that the volumes in your Mexican business are at their best level ever. So I think, in response to maybe a whole bunch of questions that have been going on here, if I heard you right on that, what you're really saying is that, despite an open border, you're selling everything that you can make down there. Is that true?

Yes, what we have made -- obviously, we're bringing product in from the U.S. and from Canada for that matter, so we certainly are selling everything we can make in Mexico.

What I think I said before is the volumes going in are reflective of what we thought they would be short of the fact that we had a little bit of a volume shortfall that we talked about in our numbers, but the volumes going into Mexico are where we want them to be right now.

One more question -- I've always had this impression that prices in Mexico were above that of U.S. prices and that, opening the border, we might see some pressure on prices in Mexico as some of your competitors maybe try to arbitrage the pricing differential in those markets. Is my base premise you're accurate, and is it happening right now?

The pricing in Mexico is pretty much annualized also for the larger accounts, obviously. I think what we have seen in Mexico is some impact on pricing, but we expected that, we talked about it before and what we're looking at, as we go forward, is a continuation of a new level of pricing in Mexico, which is reflected in the numbers that we have right now.

Okay, so then back to kind of the big picture is that you're seeing the benefits outweigh the negative in the entire North American geography?

I'm sorry, David. Could you repeat that?

You're seeing the benefits in North America, in its entirety, kind of U.S. and Canada outweigh the negatives that maybe some lower prices in Mexico because of the new competition. Is that a fair statement?

Dave, I would say that the competition is from ADM and Cargill, is list of an issue that versus the competition from sugar.

In Mexico.

In Mexico. And it's the pricing of sugar versus high-fructose 55 that becomes the issue.

But the answer, the specific answer to the question is North America in its entirety is covering any shortfall we have any place in North America, Mexico specifically, your answer to your question. But what we have seen his growth in the North American business that's reflected in the report that is across the entire gamut of our product lines in North America, yes.

One more big-picture question -- in the past, you've wanted to comment on this and I would love to hear your thoughts on the corn market right now. (LAUGHTER). I know this is a heck of a question here, but we do have all-time record prices in corn. You know, is your opinion here that this market has overshot? Do you expect this thing to weaken? I mean, the corn market got hit pretty bad yesterday.

David, I don't even know how to answer that question. I think, I think that -- I'm still of the mindset that, if in fact we get reasonable weather, that there will be more corn planted than has been stated, but I haven't been out there on that one and I think you've been out there on that one for a while. I don't know what it's going to do; I really don't. I mean, I think it's overbought right now; the numbers are higher than the need to be. All of the commodities are pushing for acreages at the moment. Obviously, soy got more in the report that came out on March 31.

There are a number of people that are saying that as a result of the higher corn numbers and that if we have decent weather in the growing area, we might see more corn planted than was originally forecast. If that happens, I think you're going to see a drop down in the corn number, but I mean I really don't know. I don't know if it's going to be $6, $5, $4 or $8. That sounds like a pretty stupid answer but it's the best I have right now.

The last question would be is there any update on the search process ongoing for your successor?

It's ongoing. The search is in fact going on right now, and stay tuned. We don't have anybody that we're ready to announce at the moment but the Board is working it. The search firm is working it, and it's in progress.

Great. Thanks a lot, everyone.

Operator, we have time for one more question if there is time, because we do want to shut this down at the half-hour.

[Megan Davis], Morgan Stanley.

Good morning, everyone. I work with Vincent Andrews.

One question -- just some more color on how the change in government policy in South Korea which now allows for the use of GMO corn in food, how has the affected the cost side of your business?

It hasn't gone through. The GMO is scheduled for the second quarter. It's not an impact in the first quarter.

Okay. Then also on coproduct pricing, where do we stand with the EU approval process in terms of taking new GMO corn strains, and any concern that you have, like an interruption that we had last year?

There's no change from where it's been over the last few months. We don't -- we're not forecasting anything like what happened last year, but we were aware of last year's possibility of it happening and that it did. There's nothing that I'm aware of right now on the horizon that would say the same thing would occur this year, but every year, we have issues with the EU, so I wouldn't put it past it. We just don't see it; it's not happening right now.

To Cheryl's comment with respect of the GMO corn, we had announced a while back that we were looking to that as one option to hopefully reduce our overall corn price, but it has not come into -- it's not a factor as yet because, as Cheryl said, it's not going to happen until later in the second quarter.

Okay, and then last question -- you bought a lot of stock back in the back half of last year. I'm just wondering why you didn't this quarter.

We were being prudent, waiting to see how the markets were going to react relative to energy and corn. We expected to actually use our cash flow for working capital as opposed to having a positive generation.

Okay, great. Thank you.

Okay, operator, with that, I think our time has expired. Because of that, we will go ahead now and conclude our conference call and our webcast. Thank you to Sam and Cheryl for leading this morning's call again.

As a reminder, there is a replay of this webcast, and that's through our Web site at www.cornproducts.com. You can also listen to a replay, audio-wise, and that's available through Friday, May 2. The number of that audio replay is 719-457-0820, and there's a passcode of 2471554.

With that, I would like to all thank you for participating in our first-quarter conference call this morning. We will talk to you again in late July with our 2008 second-quarter and first-half results. Have a good day.

That will conclude today's call. We thank you for your participation.