Ingredion Inc (INGR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Corn Products International 2009 first-quarter earnings conference call. Today's call is being recorded.

I would now like to turn the conference 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 2009 first-quarter financial results that were announced earlier today.

I am 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.

Now 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 are downloadable from our website, and they are always available about 60 minutes ahead of our conference calls. Those of you using the website broadcast mode for this conference call are in listen-only mode.

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

Now, I have 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 review our 2009 outlook and guidance before we move to your questions.

I have now shifted to chart 3, our forward-looking statements. 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 website at www.cornproducts.com. And as you will see, are included as an appendix to this morning's slide presentation.

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. Good morning, everyone. Thanks for joining our first-quarter call. As you have seen from the press release, the numbers are down considerably from a year ago. The primary factors affecting our performance were in line with those noted in our year-end call in February -- lower coproduct prices, foreign exchange devaluations, uncertainty around volume performance and pricing strength.

The impact of these factors in the first quarter was worse than expected. The change from our estimates was in volume and operating margins. The effect of the global recession, combined with the supply chain destocking, was more severe than we anticipated. We estimate that the impact on our first quarter was about $0.25, the majority of which was volume related.

We have factored into the revised guidance the change from first-quarter results, as well as lower volumes in North America and pricing constraints in Brazil for the remaining nine months. While we do not give quarterly guidance, we expect that the first-half results will be weaker than the second half of 2009, with the improvement in the second half being largely related to lower corn costs.

The first half will reflect the significantly higher-priced corn inventories carried in the United States, Mexico and South Korea. The upside of the guidance range would be based on achieving better volumes.

I will now run through the quarterly results. Turning to page 5, the summary income statement for the quarter ended March 31, 2009, we see net sales at $831 million declined 11% or $100 million from a year ago. The decline in net sales came from South America's $57 million decline, $37 million from Asia/Africa and a decline of $6 million from North America. The impact of lower volumes on net sales was about $65 million.

The currency impact was a negative $103 million, and price mix was favorable at $68 million. Gross profit at $93 million dropped 46%, or $80 million, on significantly higher gross and net corn costs. Again, the net corn costs were impacted by the lower coproduct returns from corn oil, corn gluten feed and meal. Also contributing to the gross profit decline were lower utilization rates. The gross profit margin declined to 11.2% from 18.6%.

Operating expenses at $55 million were down $13 million from last year, or 19%, on lower spending and from currency translation. Operating income at $39 million was down 63%, or $68 million. Net financing costs were up $4 million, $2 million from lower investment rates and $2 million from foreign exchange losses.

The impact from the higher average debt outstanding in the quarter versus last year was mostly offset by lower interest rates. The effective tax rate was slightly higher at 33.8% than the 33.5% last year. Net income was $17 million, down $47 million from last year. The average shares outstanding in the quarter remained basically unchanged at 75.4 million shares. We bought back roughly 158,000 shares in the quarter.

Turning to the net sales by geographic segment, we see North America's net sales declined about 1%, or $6 million, while South America declined 21%, or $57 million, and Asia/Africa declined 30%, or $37 million, for a total Company decline of 11%, or $100 million.

Moving to chart 7, the net sales variance, we see North America's drop of 1% is coming from volume decline of about 5.8%, or $31 million, a positive price/product mix of 8.6%, or $46 million, and a negative 3.8% from a weaker Canadian dollar for about a negative $21 million.

South America's decline of $57 million was mainly from currencies. The exchange rate impact was a negative $56 million. Volume declined 3.6%, or about $10 million. Price mix was positive at 3.1%, or $9 million.

Asia/Africa's net sales variance was distributed between a negative exchange rate impact of about $26 million, or 21.3%, followed by a volume decline of 19.3%, or $24 million. Price mix was favorable at 10.6%, or $13 million.

Chart 8, operating income by geographic segment, shows the biggest decline coming from the North American operations, which declined 73%, or $55 million. The biggest impact on North America's operating income was the increase in net corn costs, reflecting the significantly lower benefit this quarter from corn oil, corn gluten feed and meal prices versus last year. The gross corn costs were also up, reflecting how the business was booked and the corn allocated.

South America's operating income, while down 14%, or $4 million, weathered the significance swings in currencies rather well and benefited from lower corn costs versus last year.

Asia/Africa's operating income dropped 86%, or $11 million. The results continue to be impacted by the South Korean business, which had higher corn costs and a 48% currency devaluation versus last year. We anticipate some improvement from the first quarter as they work through their higher-priced corn. Corporate expenses declined 22%, or $2 million, on lower spending.

Moving to chart 9, estimated sources of the EPS change, we can see the impact on the margins was a negative $0.49 and foreign currencies was a negative $0.10. The $0.49 can be broken down into a negative $0.07 from volume, $0.28 from coproducts and roughly $0.14 from price mix, which was also impacted by the volume. Non-operating changes were a negative $0.04 from the change in net financing costs.

The cash flow highlights, chart 10, shows positive cash flow from operations at $78 million versus last year's $116 million. We saw a positive swing in our working capital numbers as we recovered about $82 million from the margin account. As anticipated, we fulfilled the business contracts for firm price business, and we recovered the cash spent in the latter part of 2008. The increase in other trade working capital primarily relates to reductions in accounts payables and accrued expenses, partially offset by a decrease in inventories.

We invested $36 million in fixed assets. Cash used for financing activities reflects a $41 million decrease in debt, $12 million in dividend payments and $3 million for the repurchase of common stock.

Chart 11 shows our key metrics. Debt to capitalization was 35.3%, up from 23.6% last year, and reflects the increase in debt incurred in 2008 to support the working capital investment, along with the decline in the equity account from comprehensive loss changes related to foreign currency translation and the FASB 133 for the mark to market on our derivative positions for corn futures related to firm price business and natural gas hedges.

The debt to EBITDA on a trailing 12-month basis was 1.6 times and remains quite strong. Operating working capital as a percent of net sales was 11.2%, or on a dollar basis, $431 million, and shows the improvement in the first quarter versus last year. Net debt was $730 million versus $414 million last year and $758 million at year-end. We expect to continue to pay down debt as we generate cash flow.

That concludes my financial remarks for the quarter. I am turning the call over to Sam for a few more color comments on the business. Before I do that, though, I would like to say it has been an honor and a pleasure to work with Sam over the years. He is an outstanding business leader and a wonderful human being.

So, Sam, on behalf of the entire organization, we thank you for your leadership, guidance and friendship, and wish you all the best. Sam.

Thank you, Cheryl. That makes it kind of tough to deliver the call, but we will do that anyway. I plan to review an outlook for the rest of the year before moving on to your questions.

As Cheryl indicated, our first-quarter results were worse than we had anticipated. The issues that we outlined to you during our 2008 year-end call in early February certainly affected our first-quarter results and in some cases were more adverse than we expected.

Turning to chart 12, due to our lower results in the quarter, as well as the change in our outlook for the North American and Brazilian businesses for the rest of the year, we have reduced our 2009 diluted earnings per share guidance to a range of $1.70 to $2.10 from the previous range of $2.10 to $2.60, or down $0.50 on the top end and $0.40 at the low end. This means we are looking for $1.48 to $1.88 per share during the last nine months of the year, which we believe we can deliver.

In North America, for the rest of 2009, we do see lower volumes than originally forecast, as the recession is impacting customer demand, inventory destocking is evident, and the weakness in our industrial segment is [full on].

In South America, specifically Brazil, we see price constraints impacting our ability to work through the sharp currency devaluation of the real, a situation which is made more challenging by the lack of volume growth at the same time in Brazil and a lack of exports by our customers. We are managing our way through this difficult set of concurrent pressures, and I want to underscore the fact that our Brazilian business is strong and nonetheless doing well in this unprecedented environment.

Elsewhere in South America, we expect to see better performance in 2009 in both the Southern Cone and the Andean region. The factors that are expected to continue to adversely impact our full-year results remain those we highlighted on our year-end call that affected our first quarter. They include a major negative swing in coproduct pricing versus 2008, primarily in North America, and largely from corn oil; significant double-digit currency devaluation in virtually all of our international businesses -- for example, as Cheryl mentioned, the Korean won is down 48% year-over-year; and generally lower demand of the global economic recession that so many companies are grappling with.

Turning to chart 13, while 2009 is indeed a tough year, I want to emphasize that our business models are still working remarkably well in a worldwide environment that perhaps has no parallel in history. We are positioned very well to take full advantage of improvements in the economic conditions as they materialize in the months ahead, and as we noted, we are demonstrating success in pricing actions for our [head] products across all three regions.

In addition, while the global economy is weighing on our earnings performance this year, we continue to have a very important and significant strategic advantage in this difficult environment that bears repeating, and that is our very healthy balance sheet and the solid liquidity we have. We are operating from a position of strength and flexibility in a contra-distinction of so many other companies, whose balance sheets are stressed and strained in the current climate.

Our continuing expectations of significant cash flow from operations of $425 million to $525 million in 2009 should give us ample options and maneuverability as we work through and adjust for the global recession. And we have adjusted for the current environment in another way, as well. We expect to hold our capital expenditures between $125 million and $150 million in 2009, with $36 million spent in the first quarter.

Much of the capital spending this year represents projects continued from 2008. I would note that our maintenance CapEx is about $50 million, so we have ample flexibility with our spend. We are being prudent at this time, and we will monitor international growth rates carefully to see if and when we can and should accelerate our growth initiatives in a number of our countries in the months ahead.

I believe the key to our performance this year and for positioning the Company for 2010 fall into four general areas. First, staying very close to our broad customer base around the world, especially given the lack of visibility on volume and customer demand, and keeping a watchful eye on our cost structure. And to that end, we have taken and will continue to take strong steps in controlling our operating and administrative expenses across the entire Company; maintaining our healthy balance sheet and the solid liquidity which we have a strong track record of doing in the past in both good and not so good times; and lastly, executing flawlessly.

While no one is ever happy about lowering results and having to reduce turning guidance, we remain confident that Corn Products International is well-positioned, with the right strategy, markets and products, and a very talented and dedicated workforce and a deep, experienced management team in place to perform well in the years ahead.

Our business model is working, although in this volume-stressed environment, it will likely take longer than normal to recoup the profit hits. As the global economy improves, customer inventories come more into balance and demand increases, we believe the utilization rates in North America will return to pre-2009 levels, and our market positions around the rest of the world should allow Corn Products to price to recover devaluations, as we have in the past. I am proud of what the Company and our people have accomplished over the past 11 years and remain excited about our long-term prospects.

In closing, I've lost track of how many times I have said goodbye to you, but this time it is real. This is my last Corn Products investor call. It has truly been enjoyable working with you for the years, and I wish you all the very best. And with that, I would be more than happy to take your questions.

(Operator Instructions) David Driscoll, Citi Investment Research.

Thanks a lot. Good morning, everyone. Sam, this is certainly not the final report that I thought you were going to give us. But I do want to say thank you for all of the times that you have provided such excellent insight into the industry and for your stewardship.

With that, I've got some tough questions here to go over. Can we start off with, Cheryl, you made some comments here, but Sam, can we just talk a little bit about what changed from the last call to this call? Because when I look at it, you took the midpoints -- or the low end of the range to the low end of the range, but if I say the $2.60 number all the way down to $1.70, there is an enormous change from the previous top end to now the newly-established low end. Again, let's just start off here, and I'm going to have a number of questions here to follow up on this.

David, I think certainly in the first quarter, Cheryl -- I'm sorry. Excuse me for that feedback; I don't know where it's coming from. Let's hope it's good now.

As Cheryl mentioned, as we looked at what the beginning of the year looked like for us and looked at the first quarter, we knew when we went into it we had higher corn costs going into the first quarter, coming in from the inventory of corn we had in certain locations around the world, as well as some of the anticipatory hedges that we've rolled into the first half of the year, as opposed to moving them throughout the entire year. So we knew our numbers in the first quarter were probably going to be down a little bit more than perhaps the forecasted numbers on the street were.

Having said that, when we saw the inventory adjustments that took place, volume hits, it was significant to the quarter. And in talking with customers around the world, we have heard that there has been at least a two-, perhaps even as much as a three-week adjustment in inventories that took place between December and March. And that is a pretty substantial hit; it rolled through the business and impacted the business in the first quarter.

As we go forward, we are seeing volumes start to pick up, but the conditions of both weather, the recession that has lingered perhaps longer than some thought -- I can't say for sure that's the case, but certainly it's out there, we reduced our guidance. You've taken the top end to the bottom end; we look at it more from midpoint to midpoint as being about a $0.40 drop, some of which has been reflected in the first quarter because it is worse than we thought it was going to be, and the rest of it is going forward saying that we believe volumes could still be hit. We don't know that for sure, and obviously, if they come back, we have better upside. Same thing is applicable with coproduct credits; we are seeing corn lingering at reasonably low levels right now. We have not seen the coproducts take off. They could go back up, depending. But that is where we came in, David, with the numbers and where we believe it will be.

And David, I would just add a little color to Sam's comment. As I mentioned on the prepared text, we are off about $0.25 from what we had estimated for the first quarter, and most of it is volume related, and most of that comes from the North American business.

We saw January as an okay month. There was no indication in January that we were not on track to hit our higher internal number. February is always the weakest month out of the year. And March, the volumes, the expectations, beginning the month of March were for volumes to pick up. And as the month progressed, they just continually got worse.

And that was primarily destocking of inventories, and the weather impact certainly had some bearing on it as well, David.

We were not off on the coproducts, which is $0.28 for the quarter, and I think is fairly clear that it is driven by the corn oil. Volume was not a major issue in the coproducts. In the scheme of things, it was the [head] product volume. And currencies, actually we were $0.01 better than what we had been estimating. And then obviously with the lower volume, you have the utilization issue, so you don't absorb as much of your fixed cost. And that is really where the miss is.

And as we go forward through 2009, I think we are being appropriately balanced with that volume forecast. And as I said in the prepared text, if we get better volumes, we will be at the higher end of that guidance. If the volumes continue to be weak throughout the year, then we will be at the lower end of the guidance.

And we've adjusted them down in the guidance.

Can you be specific -- when you say if the volumes are better, better than what? Better than minus 6 for North America or better than, say, zero? I'm not sure what the baseline is.

The baseline that -- for the original guidance, the baseline was basically flat for North America.

David, the minus 6 in the first quarter, if in fact you look at the CRA data that came out for the quarter, the CRA reflected an overall US-only drop of about 5.8%. In total, as a result, if you included the Mexican volumes that did not go to Mexico, it was down a little over 8% in the quarter.

Our guess is that about 5% or 6% of that could be attributed to the destocking, based on what I said earlier, if in fact you were to look at the amount of destocking that took place during the first quarter. So as we are going forward, we are looking at numbers that would be better than those kinds of numbers for the rest of the year, but not necessarily as flat as we thought they were going to be as we came into this year.

And we will have to see how that rolls out. We are forecasting -- we did forecast going into the year they would be flat. Right now, they are not. And we are starting to see volumes pick up, but we can't forecast if they are going to be flat yet. So we don't know if they will be down a bit or where they will come in exactly.

But let me be clear. Within our guidance range, we are forecasting that North America will be down versus last year.

Yes. They started out that way, and they will stay -- we certainly aren't going to pick it up going forward.

All right. That color is extremely helpful.

This is somewhat of a random question here. Has the new CEO seen and endorsed the numbers? I'm not sure when she actually starts. Has she kind of put her stamp of approval on guidance?

She has seen them. She starts on the 4th of May. But we've reviewed this with her, she is aware of it and she understands where we are.

Okay, one last final point here, is when you look at the numbers in the quarter, I think what is extremely important for us to understand and for you guys to explain to us, what is permanent and what is transitory. So with coproducts that are down $0.28 and the price and margin impact of $0.14 to the earnings numbers year-over-year, how much of this would one naturally expect to recover in a subsequent year, 2010, for instance, when you renew the corn position? So i.e., you all of a sudden get the coproduct values back to a 50% relationship to corn, as it historically has been, but certainly will not be in '09. Sam, do you understand my question?

Yes, I do. And David, I think we are expecting over time -- and over time meaning '10 -- we will probably go back to historic relationships between coproducts and corn. And your number of 50, it ranges from 45 to 50ish or something in that range, but I think that's a fair assumption going forward. Which would say that we would recoup, in one way or another -- either corn coming down or coproducts coming up -- the balance that you are looking to have me say. So going forward, we expect that to be the case.

As we look at -- and the big hit or the big positive is going to be as we get back into volumes. And as I said in my prepared remarks, we think certainly that, number one, the recession will, as it comes back, we will see volumes pick up. As we see the destocking stop, we will see those volumes start to come back in on top of where we are. And we expect to see the Mexican business pick up. That volume in Mexico that is off right now is a combination of weaker sugar prices, the Mexican sugar prices coming up, and an extremely weak peso. And we believe over time that peso will come back. So those volumes will kick back in, as well.

And when we see the volumes kick back in, we will be able to see the throughput at the plants and we have contribution from the operations and absorption of fixed costs, as well as the profitability going forward. As I said, I believe we are going to see utilizations come back to pre-'09 levels as we go through this, and I think we will be there sometime in '10.

Okay. But just to be crystal clear on this one, because again, sometimes economic forecasting is very hard to say when volumes pick back up, but what is not as hard is to say when a corn hedge rolls off and I put a new corn hedge on. The coproduct part in the price margin, in this quarter alone they were negative $0.42 a share year-on-year variance. What you are saying -- again, just to be crystal clear on this -- is that in '10, if we simply rolled off our corn hedges and reestablished new ones, you would expect one way or another that the bulk of that number is recovered.

It would be improved significantly, yes.

Thank you.

Ann Gurkin, Davenport.

Good morning. I just wanted to continue with a discussion about North America. Just you touched on a little bit, Sam, about the weaker industrial -- results for the industrial segment. What else was a surprise? What came in weaker than expected --?

The destocking, Ann. That was the only (multiple speakers). We had expected everything else. That destocking number, I think everybody thought at the end of the year, as we went into last year -- or the end of last year, we were going to see numbers that were off a bit because of inventory adjusts for year-end.

We were not thinking as we got into the year -- and as I talked to customers, they weren't expecting it either. This is not just us. No one that we talked to expected the destocking that took place, and that was a major, major factor.

But you're right, the industrial segment -- paper corrugating is under an awful lot of pressure right now. As we talk to those customers, they seem to feel they are bouncing along hopefully what they believe to be the bottom. I've talked to a number of them over the last couple of weeks. If in fact that is the case, corrugating generally leads us out of this thing by about six months, so will monitor that carefully to see if in fact they do start picking up. But we've seen that bottoming, we hope, around the world. Because it is not only the US where the corrugating sector is off; it is around the world, and every place is seeing that bottoming effect right now.

Great. And then what do you now have in your outlook for North America for HFCS volume, both for the industry and for you all?

The data for the CRA on HFCS was a little bit better than we thought it was going to be, to be honest with you. It was down -- for the first quarter, HFCS on 55 was off by about 1.5%, maybe 2%; and on 42, it was off just a little over 4%. And that is inclusive of the destocking that we saw.

So going forward, we are not seeing an awful lot of impact on it, other than the Mexican shipments that -- obviously, that is an impact that is hitting us. And from a utilization point of view, with the Cargill plant shutting down in Decatur, that pretty much offsets the Mexican volume. Those are almost equal to each other. And that is why I made the comment, going forward, I think utilizations will be more in line. Because certainly if the Mexican volumes come back, and at some point in time they will, and I think it will be sooner rather than later, those volumes will help add to utilization levels.

And can you give us utilization levels in the quarter and then expectations for the year?

Ann, in the quarter, they are off. I can't say exactly what they are, but with the volumes where they were, they are down from what we have historically seen, as you might expect with volumes being off that much.

Going forward for this year, they are going to be -- on average for the year, they will be lower than they have been historically. But again, with the plant that Cargill has going out, I believe it is this month or next month. Tate has shut down a facility for a period of six weeks to eight weeks or maybe longer. They will start picking up as we get into the summer months, because we have the seasonality impact, and we are expecting to see that help. But going forward beyond this year, I think what I said will be the case.

And Cheryl, can you just again review your priority uses of cash flow?

Sure. Basically, we have -- we did pay some of the 2009 bond down in the first quarter, so we have $150 million remaining on it. We still have the flexibility either to refinance it. We have access to the capital markets that -- it is higher than what we would like to pay. And we could use that cash to pay down the debt. We can use it for acquisitions. We can use it to buy back stock.

That is pretty much where we are going with it.

Great. Best of luck, Sam. Thank you.

Ken Zaslow, BMO Capital Markets.

Who is going to call you Kenny after this?

I was going to call Sam Sammy for the first time, but I figured I'd lay off that (multiple speakers).

(Multiple speakers) work, and only a few people do it, and there aren't many around, so go for it.

Obviously, Sam, we do wish you very well in your retirement. And as you said, we've said it probably now three, maybe four, times, so --.

At least.

So I guess my question is -- kind of going to the first question is -- to what extent do you think that 2009 at all rebases your 2010 numbers?

Ken, something beeped in the back and I didn't hear all that question. Could you repeat that? I'm sorry.

Yes. To what extent do you think the 2009 numbers rebase 2010 numbers?

I don't know if I would do it that way, Ken. I think 2009, we are just working to get through. It is a year that has so many unusual things in it. I mean, even to David's question, with respect to the relationship between coproducts. Obviously, we are out of the norm here. And I believe that 2010 will be a start again, with hopefully reasonable relationships in the coproduct credits -- in net corn, let's put it that way.

We thought 2008 was unusual on the upside; I think 2009 is unusual on the low side. But I think this year should be the bottom, and next year we expect to see it move. I can't forecast next year this early in the year, but all things being equal, we should be coming out of this year and pretty strong going into '10.

I guess what I'm trying to get at, do you think your business model grows off '09 and because that is a base number, or do you think that -- I guess my view on agricultural companies -- sometimes you guys separate from that a little bit -- is that every year or every quarter is almost like an isolated event.

No, I think we grow off of '09. I think what we (multiple speakers).

Grow off of '09. You don't reestablish a new number for '10?

Well, let me put it this way. I think it will be a growth off of an '09 number. I don't know that we would -- we will do a '10 goal and the number will be established, based on the fundamentals of '10. So it's not going to be we just take '09 and say we are going to grow it by 8% or 25%. We will do a complete new evaluation. But I guess what I'm trying to say is that I think '10 will be up from '09, just based on the fundamentals of what we talked about already.

Okay. Does the high fructose corn syrup pricing in North America offset gross corn costs?

Not completely, and certainly it didn't for the first quarter, as we said, because we had high inventory of corn rolling in. But --.

The gross side, not the net.

Yes, the gross side.

Yes, the gross side. But I think realistically, it probably did not offset -- it may have offset the gross. It didn't offset the net.

No, I'm asking about the gross.

Yes, it did offset the gross.

So it offset the gross, and you expect it to offset the full year of the gross?

I think that is a fair statement. It will be relatively close.

We looked at it; it was close. And I think that is going to be -- as Cheryl said, this is basically going to be where we expect it to be again.

Okay. And then I guess -- because I think last quarter you said that the coproducts would be off $0.80, and this quarter, I am assuming you are using the $0.28 as a percentage of the $0.80. Is that a fair number? Has the $0.80 gone up or down? Could you give us some guidelines on that?

Sure, Ken. I actually didn't say $0.80; I said more than $0.80. I believe one of the analysts threw out $0.40, and I said more than double that. It came back as a $0.80, and I said more.

If you look at the way that coproducts performed last year, we don't hit the high on corn oil prices really until we hit the third quarter. So my expectations are that we will see very tough comps as we get into the second and third quarter, and then it will start to balance out in the fourth. So if you do four times the $0.28, let's call it roughly $1.30, we are clearly at that level, if not slightly higher, as the change from the 2008 numbers. It is a significant number.

Okay. So that $0.80 is not really true. It's closer to $1.25 to $1.40 or something like that?

That's correct.

Yes, you could annualized the 28, Ken.

That's what I wanted to figure out. Okay.

(Multiple speakers) $1.15 to that.

If again I put in order of priority, explaining the change from the $3.50 down to the new range, we haven't seen and we are not -- the forecast on the coproduct values is still relatively in the ballpark of what we just talked about. The currencies, I believe we said around $0.30 to $0.40 in the year-end call. I don't see a change, unless we have a significant movement with the dollar devaluing as we go through the second and third quarter. And it is really -- it goes to the volume and the pricing constraints in Brazil.

What are the pricing constraints in Brazil? Help me understand that. You guys have 60% plus market share, but we're not exactly sure how much. That is kind of like the utilization off type of measure. But I'm assuming you have more than 60% market share there.

We still have significant market share in Brazil. The issue in Brazil, and our expectations going into the year, was that we were taking the dramatic hit from the movement in the currency, but as corn costs came down, they would be able to hold the pricing that they had. They would not have to give back any of that pricing as corn costs declined, or they would give it back a lot slower.

What we saw in the first quarter was pricing pressure on high-maltose corn syrup and our industrial starches. So it is in the brewing sector and the paper corrugating. Which is not surprising, as we've seen the quarter unfolding, with all the commentary about the industrial sector on paper and corrugating and the volumes that are down, and then just the pressure in the brewing segment.

Ken, if you were to look at our Brazilian business in real, it is doing fine. And what we've said to you before is that we can price through to accommodate the de-evaluations. And we've always said three to six months; we generally do it in less than three. And this year, because the volumes are okay but not great, because our customers can't export -- which they normally do, because even though the real is weak, everything is weak around the world, so nobody is exporting anything; there is no demand for it -- as they see our corn numbers going down, we are having to take it down.

We are keeping our margins in real and probably improving them somewhat. But we are not able to get it back in the dollar thing yet. So what we are saying is over time, as the economies improve, we will go back to our normal model. But it is not -- we've not been able to do it in the first quarter or are not forecasting being able to do it right away or as quickly as we normally would have.

And my last question -- I hate to ask this question because of the fear out there, but I have to ask it. Is any anecdotal evidence of anything going on in Mexico outside the typical business operations?

No, nothing -- obviously, this new thing with the swine flu is all over the newspapers right now. We are not seeing anything on it or any effect of it there. We don't know where it is going to go, like no one else does. But nothing else -- none of the other issues are causing problems either.

Great. Thank you very much and best of luck.

Vincent Andrews, Morgan Stanley.

Thank you, and congratulations, Sam on your retirement. I guess what I would just -- a couple things I would be curious about. When you are talking about the destocking, how much of it would you characterize as deferral of demand and how much of it would you characterize as demand destruction? I guess, in other words, if I'm not going to have a carbonated soft drink today, I am not going to make that up tomorrow. But how much of it is related to the industrial business and how much of it is related to more consumer-oriented businesses?

What we've heard from most of the customers is that the consumers are still buying. They are not seeing a significant shift there, and the destocking was taking stuff off the shelves in the supermarket so that it was rolling back to our customers and then in turn rolling back to us. I don't know if that is going to last, but that is what we've said.

Some of our customers are saying that they are seeing -- on the beverage side, they are seeing the convenience stores. Where a 16-ounce bottle of soda is going for $1.50, people just aren't buying there, but they have volumes that are up substantially in the large Wal-Marts, Sam's Clubs, Costcos.

So the volume side of the equation to the consumer, although perhaps off slightly, is not off nearly as much as the destocking is taking it. So given that, if we roll out of the first quarter into better weather, the stimulus package, the tax reforms and all of that hit, we may see a continuation of volumes as perhaps normal as you would see in a recession. And we said going into this year that we consider ourselves somewhat recession proof because people still do eat and drink.

Okay. So the issue is then in the channel and similar to what we are hearing in broader packaged food. And you wouldn't characterize what is happening at that level is sustainable if that is what the retailer wants. There is nothing -- the issue -- you were saying that the issue isn't that demand has slowed down to the extent that inventory levels are being cut to match that. This appears to be more, from your perspective, to be a working capital issue. Is that a fair characterization?

That is what we are being told, but obviously, we are going based on what we are hearing from our customers, and we believe that to be the case, yes.

Okay. And then from an industrial perspective, just help me understand where you think we are there, and how does -- when that gets better, is it a snap back or is it something that just normalizes over time?

It normalizes over time. I mean, obviously, the industrial side, corrugating in particular, is being impacted by that destocking, as well. And that destocking is across the whole broad range of all products, not only food products. It's everything -- televisions, you name it, car parts, the whole thing. Because they are all going out in boxes, and they are feeling it even more so than the food industry is feeling the destocking.

As I said, what we've heard -- and we are hoping that is in fact right -- is they are bouncing across the bottom -- or what they hope to be the bottom right now, and they will start coming back up as people start buying again. And I think as we go forward, there should be a gradual improvement on the corrugating side, as well.

Okay. And then it sounds like it -- and please correct me if I'm wrong -- that you from a coproduct perspective are just assuming current run rate.

Correct.

Basically, yes.

Okay. And what in your opinion is it going to take to improve corn oil values?

Well, if you go back and you look at corn oil historically, we are a pretty good levels right now. I mean, historically, corn oil ranged from the high teens to mid to upper 20s, and we are sitting in the low to mid 30s today. So it is a good number today, but it's not good as compared to last year, when it was up in the 80s. So we are taking a comparative hit that is hurting us, but over the long haul -- back to David's question -- if we got corn at current prices, this corn oil return would not be all that bad.

All right. I get it. And then from an M&A perspective now -- and I think, Cheryl, you mentioned this in the use of cash discussion -- how does the transition to the new CEO impact decisions you might make on M&A now? I would imagine there might be some assets out there that could be interesting valuations today.

I don't think the change in the CEO impacts the decision-making. The team has consistently looked at properties, and we totally agree with you that there should be opportunities given the environment and the fact that we do generate cash and have access to the capital markets. So I don't think we are going to see a change there. I would hope that the environment would induce some of the sellers to come to the table quicker.

Eileen and I have spent a fair amount of time, Andrew, going through everything, as you might guess. And as you saw from the press release, I will be consulting going forward the rest of this year, as long as she wants. And so we will be able to talk about things like that. But we've gone through everything that is on the table with her already, and we will see where it goes. I think she knows what we've got and she's interested in what we are looking at.

Okay. And then maybe lastly, you mentioned that Cargill has shut a plant and Tate & Lyle shut a plant. What is it that you are not -- is it the size of your plants -- why aren't you participating in capacity reductions?

Well, we are doing rolling shutdowns as we need to in the first quarter, as well, and we will continue to look at that. The Tate plant shutdown was on a six-week to eight-week period of time, and we don't know all the details around that, but there are some things they've said that we don't fully understand as to what they were doing. But they had a reason for it.

The Cargill plant shutdown, they had talked about this for a number of years. And if you remember, when they bought Cerestar, they shut down the Dimmitt plant within a couple years, Dimmitt, Texas. And they talked about shutting down Decatur. And in their announcement, they just said they could not get the raw material there at a price that made it efficient to run that plant.

So I think they've taken it out partially for utilization purposes and partially because it was just not a plant that they felt that they wanted to keep in their family of plants.

Okay, all right. I'll pass it along. Thanks so much.

Christine McCracken, Cleveland Research.

Good morning. Sam, again, have a good retirement.

I'm going to try. Thank you.

You are leaving maybe at a good time. Things could get perhaps even worse.

Let's hope not. I think it is -- it would be a fun time to be around to take it on back up, Christine.

There you go. That's the attitude. Just a few housekeeping questions. What is it about corn oil relative to palm and soy that I guess keeps it maybe from seeing the same types of improvement we've seen in those veg oil markets?

The trans fat issue is one that has been a big issue with respect to both corn and soy flour, soybean, and actually the palm oil and the rest of it. Last year, we believe corn oil ran up the way it did because of the scarcity of palm oil that was out there, and the psychological impact of corn being at $8.00. That certainly is going to drive corn oil prices up.

The palm oil has come back on. Soybean oil is back on. Sunflower oil is another one that was out there. And all of those oils, obviously, when oil prices went that high, people just really pushed to get new capacity onstream. But the palm oil thing takes a little bit longer and they did that a year and a half before.

So as we look at it now, as I said, I think we are in a range where oil prices, based on historic norms, are not bad. But in a commodity space like we are in today, where we might see commodity prices a bit higher, it could go higher. But it is just off from where it was before, Christine.

So when your competitors -- or I guess somewhat competitors -- talk about very tight global oil stocks, is that something that you are starting to see? We've obviously seen a bounce now in corn oil from the bottom. But you don't see it maybe having the same type of impact on corn oil going forward?

I don't know if it will have -- I don't expect it to have the -- well, we never expected it last year to do what it did, and I can't say we expect it to do it again this year. But we are seeing it strengthen. But I don't know if -- I don't expect to see it strengthen to the levels that we saw, or even close to that, last year. These numbers are -- when you get up into the 30s and 40s on corn oil, you've got a pretty good price for oil.

Right, and last year, the second quarter average was almost $0.86.

Yes.

Per pound.

I mean, that was just a shortage. And again, last year in the second quarter you saw corn going up to numbers where they didn't even know -- we didn't know if we would -- we knew we would have corn. But people were talking about and the scare was will there even be corn around. So the oil prices really escalated.

And then you had mentioned in your comments also on high fructose that your shipments were down to Mexico there or at least the industry shipments were down to Mexico. Is that your expectation for the balance of the year, given where sugar prices are, for that to continue? Or can you talk about how that might be impacting your Mexican high fructose business?

Well, the Mexican plants are running okay in Mexico; it is just the shipments out of the US that have been impacted, for the most part. But we have seen Mexican sugar prices come up. As those prices come up, that will be more of an opportunity for fructose to come in from the US.

The other combining factor, though, as I've said, is the peso is devalued so significantly, and they are selling sugar in pesos. So it is going to be a combination of those two things, Christine, that open up that door again. We expect it will happen. How fast it will happen, we don't know, but it probably will be gradual. And it should be gradual during the course of this year, as well.

And then just one final question, just on Asia/Africa, the big drop in volumes there. You know, you've struggled there for a while, I guess, with South Korea. Can you give us an update on kind of how you look at that market?

The Asian market, we look at favorably. The Korean market, we've struggled with, as you said. As Cheryl mentioned, the won has hurt us. It is devalued 48%. Volumes in South Korea are off significantly. We will look at that business and do the appropriate thing with the business.

All right. I guess I will leave it there.

Thank you, Christine.

Christina McGlone, Deutsche Bank.

Sam and Cheryl, I just wanted to understand North American volume outlook and little better because, Sam, you listed some things like better weather and stimulus plan tax refunds. We should see some good promotions on CSDs in the summer. So I'm curious, part of the reduction in guidance was a weaker volume outlook in North America. Is that mostly Mexico, or am I being too optimistic about the US? And is there further destocking to go, or are inventory in terms of weeks adequate at retailer levels now?

We think they are okay. We believe they've come pretty much back in line, but obviously some of what you just talked to is the normal seasonality we see, and what we are looking at is that it may not be as strong because of the recession as the normal seasonality input. We believe we will see people advertising CSD, and as I said, the volumes were not off that significantly. But we have to see where it is.

And Christina, the volume decline is across all three countries. It is the US, it's Canada, and it's Mexico.

Okay, so hearing kind of anecdotally that CSDs seem to be bottoming -- that's not -- and we might have even more aggressive promotions this summer, more than seasonality typically suggests that you don't see any boost at this point from that?

First off, I don't know that we are going to see that promotion. If we do, it may be a boost that we see that we haven't forecast. But we are looking at the normal seasonal factors that go in as we put our forecasting together. And if something is done by the customers that stimulates demand even greater, which could be the case, then obviously we will be a beneficiary of that.

Okay, and then just to follow up on Ken's question, so in terms of any sort of Mexican demand hit from what is going on and also co-product hit from this flu, that wouldn't be in guidance, I guess, because it occurred so soon or so close to when you gave -- you formulated your guidance?

That's correct. We have not factored in if there is a significant downturn because of the swine flu or a drop in demand for poultry or pork.

Certainly with respect to the political environment down in Mexico, we know what that is, and we were aware of that. But the swine flu situation now is something that is new, and we don't know what impact it is going to have, if any. Listening to the radio today, people -- the tourists are still going down there. So we just don't know what it will come out to be.

Okay. And then my last question, Sam, we talked about this starting two years ago, but now that we are seeing product reformulations into sugar and alternative sweeteners, even though it can't be on a wide-scale basis, at the margin, how do you think it impacts the long-term pricing power of the industry?

I think the industry has shown -- and I won't talk for the industry -- I'll talk for us. But certainly, we've seen Cargill shut a plant down and Tate shut a plant down. I think we will look at monitoring the utilization of our plants to maintain the middle level that we are able to price through for sufficient profitability in the business.

Certainly, you saw for a couple of years the impact of the negative press on sugar. The Corn Refining Association now has come back to the plate with a campaign of its own. It is taking hold. We've been able to challenge some of the misstatements that have been made about the product. And we see that tapering off to some extent. The marketing campaigns are not as big as they used to be. David brought up in the last call and asked me about the Snapple situation. Obviously there have been things in the work for a while that have not stopped, but we are seeing positive impact from our campaign through the CRA to address the high fructose issue.

Okay. And just for clarification, the Tate plant that was closed temporarily, does it make fructose or was it mostly ethanol and specialty starches? What was the product coming out of the plant?

It was a little bit of everything. This was their Loudon plant. They produced all of the products at Loudon. The other plants that they -- the new plant, they've just deferred the startup on. So we don't know when that will take place. And the Loudon plant, they said it would be down six to eight weeks. We don't know what the timeframe will be on it, but that was the call.

And the Fort Dodge facility, the deferred startup, that definitely is not fructose. That is just ethanol and specialty?

All in starch, yes.

Okay. Thank you.

Operator, we are nearing the bottom of the hour. I think we have time for maybe one more question, and then we will wrap it up -- if there is another question.

Heather Jones, BB&T Capital Markets.

Good morning. Sam, we'll miss working with you and hope you enjoy your retirement.

Thank you very much, Heather.

Just a few questions. One -- and I just don't know if I missed you answer this. But going back to the baseline, the new guidance, was wondering what your baseline volume assumptions are for North America. I got the impression you don't expect them to be as weak as they were in Q1, but I missed what you are assuming for the rest of the year.

We said basically not as weak as Q1, slightly off from last year, but we don't know what.

Okay, so down 1% to 2% for 2Q through Q4?

I'm not going to say what it was; we are just saying we expect it to be off a little bit from last year.

Okay. And going back to your utilization comments for North America, post the closure of Decatur, but not including Tate, since that sounds like that is temporary closure --.

Yes.

-- where do you think utilizations will be post Decatur closing?

I can't -- this year, I can't really give you an answer, Heather, because of the volume impact and the recession. But I think what I was trying to say is, all things being equal, and that is we come through this recession and Mexico has any kind of a bringback of the high fructose side, we're going back to pre-2009 utilization levels. The Decatur facility offsets the volume that was going to Mexico, and then the rest of the volume shortfall that would be associated with the North American business, much of that will come back.

And I think we've talked before about the diversion -- in our case, the diversion of grind from high fructose to other products that are more green in direction. We are continuing to do that. I believe the industry will continue to do that. I think the ethanol mandate, if it goes up, will take more away from it all the time. So we are looking at utilizations around -- I believe we will see utilizations go back to pre-2009 levels in the not-too-distant future.

And this may be difficult for you to answer, given that you are going to be leaving, but just --

It would be very easy for me to answer.

That's true, that's true. No accountability. Should volumes not improve, or they are worse than you expected for the industry, would CPO be willing to take a line down, close a plant -- or not close -- maybe close a whole plant -- but take a line down to help utilizations?

Jack and I have had that conversation, and we are prepared to do what is necessary to make money in this business. We have been through good times and bad times, and it's a lot more fun in good times.

So although it is difficult, the decisions of that nature, and I know it was not easy for Cargill, even though they had talked about it, for them to do what they did, we will look at what is appropriate for the business.

Okay. I just have two more questions. You mentioned that March volumes steadily deteriorated through the month. I was wondering what you saw in April.

I think you just said March volumes deteriorated. I think what I said was volumes for the quarter were off. I didn't say (multiple speakers).

Well, if they -- not you, Cheryl, said that February is typically weak, March, you anticipated some recovery, but volumes steadily worsened through March. And so I was wondering how April progressed.

We are not going to comment on April. I think, as I said, we are starting to see a seasonality swing. But we can't do a comparison year-over-year yet. And hopefully -- I don't know what the weather is where you are, but I know it is not great here, and we are going to be impacted by weather if it doesn't turn around pretty soon.

It's gorgeous here, by the way.

Well, it's not in Chicago, let me tell you.

Okay. My final question is going back to this corn -- the byproduct issue, I believe last year you had said it was a help of -- I want to say you said $0.45 roughly for the year.

It was $0.45, $0.47.

Right. But then the year-on-year impact for this year, I think you just said it would be closer to $1.20 to $1.25. My question is the $0.28 for Q1; Q2 Q3 should be meaningfully worse, given where byproduct values trended in '08. But is it fair to say that Q4 should hardly have any impact?

It should have a much lower impact. The first, second and third quarter will, based upon the current levels, should have the largest amount of the $1.20 to $1.40.

The average for the fourth quarter, Heather, obviously the beginning of the fourth quarter was higher -- the credits were higher than the end of the quarter. So it is just going to be an averaging out. But as Cheryl said, it will be much less of an impact. I think the $0.45 we talked about last year was above and beyond what we had thought it was going to be in the guidance that we had.

No, we said the change between the '07 and the '08 numbers. It is the fact that when you switch your book of business, how much is firm price, how much is grain-related, how much of the coproduct value came back vis-a-vis to the Company versus to the customer and the net corn costs.

So there's a bunch of different components in there. But the major driver here is the fact that the coproduct values, particularly oil -- oil is the key here -- just went through the roof as you hit the second quarter, which had the highest average -- I mean, it peaked in -- the high was $0.88, the low was $0.81 and the average was $0.85, [$0.59]. And the third quarter, the average is [$0.61, $0.79]. And the fourth-quarter average is $0.31. So if we stay where we are, then you're absolutely right -- the fourth quarter, there is very little impact on a total Company basis.

And I may be simply restating Dave's question. I apologize if I am. But so the delta between the $0.45 and let's call it $1.20, is that something you anticipate getting back?

It's a question of what is your net corn cost recovery. So next year, we would expect, all things being equal -- and it is the ultimate forward-looking forecast, because tell me where corn prices are going to be as we hit the fourth quarter, tell me what the demand for the coproducts are going to be -- but all things being equal, we should have a lower net corn cost next year.

And that is a combination of gross and coproducts, Heather. It is not only -- it is the relationship between the two. And I think what we are saying is that we expect the relationship to move back more to normal, whereas we did not have that before. Before, we had -- last year we had a higher coproduct credit to gross corn ratio, because number one, we had bought our corn early, if you remember. And then this year, we are having a lower coproduct ratio to gross corn because the coproducts just fell off a cliff, and we had some corn that we bought into last year that was relatively high.

If we go back to a more normalized situation, that ratio should go back to what we consider to be historic norms, which will allow us to make the monies that we are talking about here, with the question you asked.

All right. Thank you so much, and Sam, enjoy retirement.

Thank you very much. Appreciate it.

Okay, operator. With that, we are going to close down our conference call and our webcast this morning. As a reminder to all of you, there is a replay of the webcast at www.cornproducts.com, and also an audio conference call replay is available through Friday, May 8. That phone number is 719-457-0820, and you will need a pass code of 812-8547.

And so on behalf of Sam Scott for the last time (multiple speakers) --

I would like to thank all of you for putting up with our noise, or my noise in particular, and working with me the way you have. I thoroughly enjoyed it. And for Dave, I will say thank you and goodbye.

Once again, that does conclude our conference. Thank you all for joining us.