Ingredion Inc (INGR) 2009 Q2 法說會逐字稿

Good morning, everyone, and welcome to the Corn Products 2009 second-quarter earnings conference call. This call is being recorded. At this time, I would like to turn the call over to Mr. John Barry, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Erin, and good morning to everyone. Welcome to Corn Products International's conference call to discuss our second-quarter 2009 financial results that were announced earlier today. I am John Barry, Vice President of Investor Relations for Corn Products. Joining me today to lead the call are Ilene Gordon, our Chairman, President and Chief Executive Officer, and Cheryl Beebe, our Chief Financial Officer.

This is an open conference call, simultaneously broadcast on our website at www.cornproducts.com. The charts for our presentation this morning can be viewed and 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.

Ilene Gordon 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 with the presentation.

I've just shifted to Chart 2, which is our agenda. Cheryl Beebe will present the financials for the second quarter with the appropriate analysis and flavor. Following that, Ilene Gordon will review our 2009 outlook and guidance, before we move on to your questions.

I've now shifted to Chart 3, our forward-looking statements. Our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties. Actual results could differ materially from those predicted in those forward-looking statements. 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 release can be found in the Company's most recent filed annual report on Form 10-K and on reports 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 Chief Financial Officer, Cheryl Beebe. Cheryl?

Thanks, John. Good morning, everyone, and thank you for joining the second-quarter earnings call for Corn Products International.

Turning to Chart 4, I will begin with a review of the impairment and restructuring charges. This quarter, we have impairment and restructuring charges on a pretax basis of $125 million, $110 million net of tax and on an EPS basis $1.47. The single largest piece is the write-off, in its entirety, of the goodwill associated with the Company's South Korean business. This amounted to a pretax charge of $119 million and an after-tax charge of $106 million.

We have been discussing for the past two years the fact that our South Korean business has faced a number of challenges -- higher input costs related to corn and freight expenses, a devaluing currency which makes buying corn more expensive in local terms, a preference for non-GMO products, a lowering of tariffs for imported products which when combined with the input pressures created an uncompetitive position for the business.

At the end of the second quarter, we determined that we would not fully recover sales to the carbonated beverage industry. The fair value of the business after updating the projections did not support the value of the goodwill, hence the write-off.

The balance of the charges, $6 million, relates to a small asset write-off in the US and restructuring charges related to our Thai and Chilean businesses. We expect that the impairment and restructuring charges will push our full-year effective annual tax rate up to 67%. Excluding the impairment and restructuring charges, we would have expected an effective annual tax rate to be in the range of 34%.

Moving on to Chart 5, I will now review the second-quarter numbers. While are numbers are down from the same period last year, excluding the impact of the impairment and restructuring charges, they showed sequential improvement from the first quarter. In general, volumes are still challenging, especially in North America, net corn costs are significantly higher than last year largely due to low corn oil prices, and foreign currencies, while a bit stronger than the last quarter, are still significantly devalued from last year.

Turning to Chart 6, our summary income statement for the quarter ended June 30, 2009, net sales at $912 million are down 11% or $117 million from last year. 62% of the net sales decline is attributable to lower co-product values. The impact of co-products can be seen in the gross profit line, which declined 40% to $112 million from $187 million last year. Gross corn costs per ton were up 5% from the same quarter last year while net corn costs per ton increased 41%. Gross profit margins were 12.2%, down from 18.1% last year but subsequently improved from 11.2% in the first quarter of 2009.

Operating expenses for the quarter were $61 million, down 17% or $12 million from the same period last year. Included in last year's operating expenses were $4 million in expenses related to the subsequently terminated proposed merger with Bunge. Excluding last year's merger-related costs, operating expenses declined $8 million, equally divided between a lower spend and the impact of the currency devaluation.

The operating loss for the quarter was $73 million compared to an operating profit of $116 million last year. Excluding the impact of three impairment and restructuring costs, operating income for the quarter was $52 million.

Net financing costs were up $11 million -- were $11 million, up $4 million from last year due to $1 million higher net interest expense and a $3 million unfavorable foreign currency swing.

The second-quarter effective tax rate of 1.1% was down from 34.9% last year, reflecting the impact of the Korean goodwill impairment charge. Excluding this, the estimated annual effective tax rate would have been around 34%.

The net loss for the quarter was $85 million, or $1.13 per share, compared to $68 million net income or $0.90 a share last year. Excluding the after-tax impact of the impairment and restructuring charges, net income on an EPS basis was $0.34 a share.

Turning to Chart 7, net sales by geographic segment, we see North America's net sales declined about 4% or $24 million while South America declined 23% or $70 million. Asia/Africa declined 19% or $23 million, a total company decline again of 11% or $117 million.

Moving to Chart 8, the net sales variance, we see North America's drop of 4% is coming from a volume decline of about 5.7%, or $35 million, a positive price mix of 4.2% or $26 million, and a negative 2.6% from a weaker Canadian dollar for a negative $16 million. South America's decline of $70 million was mainly from currency. Volume declined 3% or about $9 million; price mix was a negative 2.3%, or $7 million as stronger starch and sweetener pricing did not overcome an $11 million decline in co-product prices. The exchange rate impact was a negative 18% or $54 million. Asia/Africa's net sales variance was primarily due to the exchange rate impact of 17.2%, or about $21 million. A volume decline, 5.4%, translates to $7 million, was largely offset by 4% or $5 million in better price mix.

I am now moving on is to Chart 9, operating income/loss by geographic segment. We can see that North America's operating income declined 61% or $53 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 was down 28% or $10 million, largely due to weaker currencies and lower volumes. Asia/Africa's operating income dropped 56% or $7 million, largely due to weaker Korean business.

Corporate expenses declined 28%, or $6 million. Excluding the 2008 merger costs, corporate expenses were down $2 million.

Excluding the impact of the impairment and restructuring charges, operating income shows sequential improvement from last year's first quarter, up 33% -- excuse me, from this year's first quarter up 33%. We anticipate seeing continued improvements for the balance of the year, as we have worked through the high-priced corn.

I am now on Chart 10, estimated sources of diluted earnings-per-share. Again, excluding the after-tax impact of the impairment and restructuring charges, we can see the impact of improved price margins of $0.08 was more than offset by a negative $0.47 from lower co-product prices. The impact of exchange rates was a negative $0.09, and volume was a negative $0.07.

Nonoperating charges totaled $0.01, a negative $0.03 from financing costs and a positive $0.01 each for changes in the non-controlling interest, previously referred to as minority interest, and the effect of tax rate. The after-tax impact from the impairment and restructuring charges was a negative $1.47.

Chart 11 shows the income statement for the first six months of 2009. Net sales declined 11% to $1.7 billion from just under $2 billion last year, reflecting the impact of currency devaluations, lower volume partially offset by improved price/mix.

Gross profit fell 43% to $204 million. Gross profit margins declined to 11.7% from 18.4% last year, reflecting the impact of higher net corn costs from lower co-product prices, principally corn oil, and lower volumes. Operating expenses declined 18% or $25 million. Excluding the previously mentioned $4 million in merger-related expenses incurred in 2008, the decline in operating expenses was split evenly between lower spend and the impact of currency devaluations.

The operating loss for the first six months of 2009 was $34 million. Excluding the impact of the impairment and restructuring charges, operating income was $91 million compared to $223 million last year. Net financing costs increased 55% to $22 million from $14 million last year, $5 million due to unfavorable currency swings and $3 million due to higher net interest expense.

The effective tax rate for the six months was 15.1% versus 34.2% last year. Again, excluding the impact of the impairment and restructuring charges, the effective annual tax rate would have been around 34%. The net loss for the first six months of 2009 was $68 million or $0.91 per diluted share. Excluding the after-tax impact of the impairment and restructuring charges of $110 million, net income was $42 million or $0.56 on an EPS basis.

The cash flow highlights for the first half of 2009, Chart 12 shows positive cash flow from operations at $211 million. The net loss of $68 million for the period was offset by the non-cash nature of the $124 million write-off of impaired assets.

We saw a positive swing in our working capital numbers of $96 million. We fulfilled the business contracts for firm-price business, and we recovered some of the cash spent in the latter part of 2008.

We invested $66 million in fixed assets. Cash used for financing activities reflected a $50 million decrease in debt and $23 million in dividend payments.

Chart 13 shows our key metrics. Debt to cap was 34.7%, up from 23.4% 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 currency devaluations and FAS 133.

The debt to EBITDA on a trailing 12-month basis was 2 times versus 1.2 times last year. Operating working capital as a percent of net sales was 11%, on a dollar basis $411 million, and shows the improvement versus last year. Net debt was $645 million versus $344 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 ever to Ilene for a few more comments on the business. Ilene?

Thank you, Cheryl. Before I get started on the outlook for the rest of the year, I would like to make some general comments on the business.

Over the past 10 to 12 weeks, I've had a chance to visit many of our operations, including Brazil and Korea, and I've been very impressed with what I've seen. This is a great company with impressive market positions, important ingredients, and a first-rate team of employees. Over the years, we've done a superb job of creating value for our customers and our shareholders.

People are critical to our success, and it's important to maintain a safe workplace. I am very gratified to see that this company has created an outstanding safety record that reflects a careful global safety process and a strong concern for employee welfare. Safety will continue to be a corporate priority.

I've also been impressed by the depth of talent within the organization. We will build on that base.

During this rather short time with the Company, I have also had the opportunity to review and assess many of our businesses, and we are taking steps towards addressing our future profitability and growth. We have begun the process to layout our accelerated growth strategy and to allocate capital so as to maximize long-term shareholder value creation. I look forward to updating you on our strategy early next year.

I will now move onto the outlook for the rest of the year, before taking your questions. Turning to Chart 14, we are maintaining 2009 diluted earnings per guidance, excluding the after-tax impact of the impairment and restructuring charges, to a range of $1.70 to $2.10. This means we are looking for $1.14 to $1.54 per share during the last half of the year.

In North America for the rest of 2009, we expect continued soft demand and anticipate second-half volumes to be down 4% from last year.

In South America, specifically Brazil, we expect continued price constraints. Nevertheless, our Brazilian business is strong and doing well in this difficult environment. Elsewhere in South America, we expect to see continued strong performance of our businesses.

In Asia/Africa, we anticipate some signs of improvement in our Korean operation as we have worked through the highest corn costs.

The factors that are expected to continue to adversely impact our full-year results versus last year remain those that affected our first half. They include a major negative swing in coke product pricing versus 2008, currency devaluation in virtually all of our international businesses, and generally lower demand due to the global economic recession.

While 2009 remains a tough year, I want to emphasize that our business models are still working well. In addition, while the global economy is weighing on our earnings performance this year, we continue to have an important and strategic advantage in this difficult environment. That is our healthy balance sheet and liquidity.

Our continuing expectation of significant cash flow from operations of $425 million or $525 million in 2009 should give us ample options and maneuverability as we work through the global recession. We have taken and will continue to take steps aimed at controlling our operating and administrative expenses across the entire Company. We expect to keep our capital expenditures between $125 million and $150 million in 2009 with $66 million spent in the first half. As we've said before, much of the capital spending this year represents projects continued from 2008. Our emphasis remains on creating shareholder value over the long term.

Before Cheryl and I will take your questions, I would just like to say that I look forward to meeting each of you in the weeks ahead.

John?

Okay. With that, now we'll open it up to questions.

(Operator Instructions). David Driscoll, Citi Investment 'Research'.

Thank you and good morning. Ilene, welcome aboard, and it's certainly an amazing company and volatile, but certainly I think you are going to enjoy your time there. I am looking forward to get to know you better.

I would like to pick up from the brief comments that you made and just get -- you know, I know you are probably not fully ready to share your view on this. But so far, would you characterize your vision of the growth strategy of the Company as significantly different versus the path that they've been on? I am just trying to get a sense here on how much you think about geographic diversification or really expansion and/or product expansion, and that would be really the ingredient strategy.

Well, as you said, I've only been here a short while and we've begun to look at all the different data and where we make our money and where we don't, and even the competitive landscape. I would say that I see our growth strategy won't be radically different from what we've done in the past, but perhaps we will put more emphasis on one geography versus another.

I think the opportunities are both in organic growth and in acquisition, so that I see a lot of possibilities and what's important for us is to select the highest value-creating options rather than just shooting in a lot of different areas. So I think what you'll see will be slightly different will be that we will prioritize how we will go forward in terms of our growth strategy.

All right, I look forward to the color on that next year and the detail.

Two more quick questions -- the first one, it relates to the quarter and the guidance range. So, certainly Corn Products does not provide quarterly guidance. Can you talk to us about how second-quarter results performed relative to your internal forecasts? Then the second but related question would be why you didn't narrow the guidance range?

Dave, I think I'll answer that for you.

Relative to our internal projections, as you would expect, we did a little bit better on the FX as the currencies, primarily the Brazilian Reais, strengthened relative to what we talked about at the end of the first-quarter call.

Co-products gave us about $0.01. They were a little bit more favorable. Price/mix was favorable by a couple of pennies, and we actually were a little bit weaker on the volume. So the reason not to change the range, even though we are halfway through the year, is that there still is a degree of uncertainty around what is going to happen with volume. Obviously, over the last week, the Brazilian Real has strengthened even further, so that's a positive for us. So we are very comfortable in that range of $1.70 to $2.10.

To add a little bit more color, to get down to the lower end of the range, volumes would have to be weaker than what we are forecasting. Ilene, in her comments, gave the view for the second half of the year. We expect volumes both for North America, South America and Asia/Africa to improve. Obviously, the amount is significantly different between the regions. But again, North America is the one that is the swing here.

On the positive side, if volume is better, if we are being too pessimistic, then we will be at the upside, closer to the upside of the range.

I hope that answers your question.

Yes it does, very well. Thank you, Cheryl.

Ann Gurkin, Davenport Investments.

Just to continue on the volume discussion, the comment you referenced, if you can give a little more detail on your confidence that volumes will pick up outside of North America as we move through the year?

Well, when we look at -- let's start with Asia/Africa, which has the biggest volume increase in the second half, versus what the volume was first half and last year. That really is, as we've seen corn costs come down, freight costs come down, sugar prices go up. We have an expectation that we will see some level of sales increase, both in the paper and the beverage industry, obviously not sufficient enough to have gotten us through the impairment test on the goodwill for Korea. But it really is driven by Korea's resumption, if you will, of sales across a number of industries.

If we look at South America, it is -- obviously they go into their summer season as we come into the second half of the year. We are seeing a little bit of light at the end of the tunnel. We are expecting brewing to pick up. Starch has been a little bit light, but from what the corrugators are saying in the public arena, there may be some, again, light at the end of the tunnel relative to the corrugating.

All right, that helps. Then if you could review -- are there any changes to priority use of cash flow?

No, as we've talked about in previous calls, we have the $150 million long-term bond due in August. Our intention is to repay that. So we've seen very nice progress with regards to the cash flow for the year. We've generated $211 million cash flow from ops. We saw a nice return of the margin accounts, which is what drove the change in the net debt up by almost $250 million when you take into account the change in debt and cash versus a year ago on an average basis. So we are making all the right progress but obviously corn has declined, which bodes well for 2010, but it delays some of the cash flow coming back relative to the fulfillment of those contracts.

We are right where we should be. Things look positive and so the cache allocation -- first priority, pay down debt. Then hopefully we will find some acquisitions.

Great. Then last, should we expect any additional restructuring charges as we move through the year, as you maybe rebalance some of your businesses?

At this stage of the game, no, I think we are very, very comfortable with the write-off that we have taken in Korea. As I said in the prepared text, we took the goodwill in its entirety, so what's left is the fixed assets and the working capital. Based upon the forward-looking projections for that business, we are comfortable that it supports that asset base. I would not expect an additional write-off related to Korea.

The rest of the operations are well-run. The US runoff of $5 million was relative to a small plant. We had producing oats, nothing major. Relative to restructuring charges, at this stage of the game, there is nothing that's on the horizon. (multiple speakers)

Thank you.

Vincent Andrews, Morgan Stanley.

Maybe you could just discuss quickly, in the quarter when volume came below your expectations, what drove that. How much of it was from a demand perspective. How much was from an inventory perspective, and was any of it from a weather perspective?

Well, I would say that, in North America, some of the weakness that we saw was on the food side in terms of some of the high food costs going into food companies that purchase and send food to restaurants, sell food to restaurants. As you know, the demand for eating in restaurants has been a little bit weak. Of course, the fast food restaurants have done better than the mid-tier restaurants. So we saw a decline in the demand of products that go into food service. So I would not say that that is weather-related. In fact, if you look at some of the high fructose numbers to the beverage, they were actually firming up, so that is going pretty well.

You know, you may have noticed that -- I know that Pepsi talked about some -- the Gatorade being a little bit weak. When you look at that type of category of beverage, there is some trading down. In other words, people are looking, as you know, to spend less on products, and so they may go to a water or they may go to a more private-label type drink. So we did see some shifts there, but again, it was more related to the economy. I think that's more North America-based.

In south America, again, I think it's, again, demand related. The Brewers demand for our products was down a little bit in that we did see some switching to some of their own internal production because they didn't need as much volume.

Now, you could say that maybe volume are weather-related and that there were fewer outside events, but I think it is much more the economy-related to that.

Cheryl made comments before in terms of Korea, where there has been higher demand for sugar in beverage because of the economics and high fructose, but we see that switching back now.

Cheryl, do you want to add anything?

No, that's well said.

Maybe could you give us an update on Mexico and where sugar prices are related to the US, and what, if anything, has changed in terms of the amount of product flowing into Mexico sequentially?

The demand in Mexico for HFCS has been impacted in the first half of the year by really two components. One was the differential between sugar and corn, and the second was the devaluation of the peso, since sugar is priced in pesos and fructose is priced in dollars.

We are seeing those two items change around as we go into the second half of the year. Sugar has gone up; corn prices are coming down; and the peso has actually revalued from where it was at the end of the year and the end of the first quarter. So I think the second half, we believe the second half will show us stronger volumes in Mexico than what we had in the first half.

Okay. Then maybe lastly I will just ask you, Cheryl, I mean you're going to repay this bond.

Yes?

What is the thinking driving that, relative to refinancing, especially if you're looking to do acquisitions?

Well, at this point in time, the carrying costs, if we actually refinance it versus having that acquisition in hand, is pretty expensive. So as mentioned earlier on the first-quarter call, we've maintained access to the capital markets. So, we are less concerned with our access. At this stage of the game, until we have a bird in hand, it is more prudent from a shareholder wealth standpoint to actually pay that down.

Okay, thanks so much. I will pass it along.

Christine McCracken, Cleveland Research.

I just wanted to delve I guess a little bit into the high fructose pricing outlook. You know, you talk about lower corn costs, obviously a lower energy cost, and then you anticipate kind of the upcoming high fructose pricing season.

Do you anticipate having to give back any of the pricing that you've been able to get here over the last couple of years, kind of resetting that bar, given albeit at slightly higher than historic (inaudible) (technical difficulty) but still obviously significantly lower? Maybe you could characterize how you anticipate going into the pricing season.

Well, I really think it's too early in the year to make any comments on that in that there is so many different dynamics occurring and you've seen that the corn crop looks good, volume is starting to come back. But will demand increase from here? So at this point, we see it's too early to make any predictions or comments on the pricing.

There's no indication that you, similar to last year, start out a little bit earlier in the fall, given that corn prices are actually headed lower. There is no reason to believe that that would start earlier this year?

No. I mean we haven't seen anything to show that.

All right. Then just on industrial starches, or maybe more specifically in South America, the pricing was a little lower than I had expected just given where we've been I guess the last couple of quarters. Have you lost your ability, I guess, to kind of price through in South America at all, or could you provide any more color around that?

Christine, it is Cheryl. The 2009 environment is challenging to get the pricing through. We broke out, I think in my text, that the co-product values in South America were down $11 million, which means, if you do the math, the price mix was equal to $7 million -- that the sweetener and starching prices were $4 million.

So we still have some level of pricing power because, as we've discussed, the South American business model is -- really drives our gross corn on a much more spot 30-day, 60-day basis as opposed to the annual contracting in the US. So the fact that we have not had to -- or we have not given back the reduction in corn cost says that the South American business model still has pricing power. It is just not as strong as it was a year ago.

That makes sense. The lower corn I guess, just maybe you could characterize. Is there any kind of demand weakness? Have you seen any rebounds? I mean you talk a little bit obviously about brewing, and --

The demand weakness, as Ilene said, was in the brewing sector and also in the corrugating. We are seeing a little bit of life come back, but 2009 is going to be a challenge for Brazil given the still-significant -- even though it has improved dramatically since the end of the year -- the change in the Reais which again creates some internal challenges for them as a country because some of our customers are exporters. So as the currency strengthens, that gives them a bit more of a challenge in exporting. But the first-half volume weakness -- beverage and corrugating; the second half, we expect to see improvement.

Thanks for that.

Christina McGlone, Deutsche Bank.

I wanted to just make sure. When you had talked about -- to Vincent's question about Mexico getting better in the second half, is that incorporated in your 4% volume assumed decline for the second half?

Yes, it is.

Okay. Then could you talk about what you're seeing on the industrial front in terms of industrial starches in North America? Because commentary coming out of paper and corrugated has improved markedly, so I'm curious if it has trickled to you yet or what you are seeing and what you expect to see there.

I believe the market commentary was that they saw improvement as they went through May and June. Is that correct?

Right.

So we should begin to see that as we get into the third quarter. It wouldn't be as -- it is not a one-for-one change between the two industries. It depends upon how much is going into paper versus how much is going into corrugating.

But we are seeing -- we have spots, depending upon where we are in North America. The Canadian starch industry is doing a heck of a lot better -- paper/corrugating -- than what we necessarily see in the US.

I would just add that the decline in products going to the corrugating, it seems to be diminishing the decline. So if that would reflect the corrugated numbers for that industry, saying that the June was similar to June of the year before, not down as much as it has been year-to-date. So I would say that it is starting to look a little bit better, but as Cheryl said, we haven't seen any large impact in that change yet.

Okay. Cheryl, I think at a recent industry conference, you talked about how your corn hedges work throughout the year. So I think because your firm priced business is heavier in the first half or maybe the first three quarters, you have more of a co-product influence than the second half. Can you go over that and clarify that a bit?

Sure. The corn hedging is -- there's two components to it. One is the co-products, and that is related to when the customer books. So last year, we saw an increase in the third quarter of customer bookings and we saw the higher co-product credit so that, as we came into 2009 with the decline in the corn market, then obviously that swing in the co-product credit is a negative for us. That's one piece of it.

The second piece is the layout of how the corn futures roll through 2009. So what we have in 2009, really it is mostly the first half. There's a bit of it in the third quarter. Less so in the fourth quarter is the higher-priced futures contracts were laid in the first and second quarter of 2009 related to that firm price business.

So are you more on the market for corn in the fourth quarter? Is that what that means?

I understand what you mean. We have, again, because we've got the 67% to 100% net-to-gross ratio that we hedge on, we will get some benefit of the lower corn costs in the fourth quarter.

Okay. Then last question -- for the debt paydown, do you have to pay a fee on that?

No.

Is there some sort of -- I thought I was reading there was some sort of --

If you repay it early, you have any make-whole.

Okay.

There is no make-whole because we will pay it when it is due.

Ken Zaslow, BMO Capital markets.

Good morning, everyone. A couple of quick questions -- one is, if I look at the co-products since last quarter, I think, Cheryl, you said that it was going to be roughly $0.28 on 4. This quarter came in at a loss of -- you know, it hurt them by $0.47. But you said that was better than you expected by $0.01?

Yes.

Can you help me out? Does that mean that the back half of the year, are you still looking for $1.30 to $1.40 in terms of net penalty on co-products? Or is it better than you expected? Just give us a framework to think about that.

Within the $1.70 to $2.10 earnings guidance range, the expectations are that we are still down year-over-year between $1.20 and $1.40 on the co-product value. So obviously, with oil having firmed up by about $0.06 from the first quarter, that would say that we would be on the lower end of that range as opposed to the higher end of the range.

And what about -- I thought cornmeal would be strengthened (multiple speakers).

You have some favorability versus meal and feed, all right, but you still have a pretty ugly comparative to the 2008 on the corn oil pricing.

Okay, okay.

If you look at $0.28 and $0.47, that is $0.75. So that would say that, in the remaining half of the year, we have another $0.45 if we are at the lower end of the range. If we are at the higher end of that range, it is $0.65 in the second half.

So you did expect the peak to be this quarter in terms of the penalty? You expected the peak of the penalty of co-products to be this quarter rather than being relatively evenly spread out through the year? That's what you're telling us?

That is correct, and the third quarter is not going to look that much better relative to where the swing occurred. Co-product credits started to fall apart in the fourth quarter of 2008, so really it is weighted between the second and third quarter, Ken.

Okay, that is very helpful. Thank you.

Ilene, at a conference in May, you kind of gave the impression that you would be able to come out with a plan within a three to six-month period. I am not saying that January or February is a little bit late, but it is a little later than I think you gave as a first impression. Is there something that you're finding that is taking you longer to go through this, or is this just something else I should think about?

No. In fact, we are going through a very detailed process looking at where we make our money and where we don't and what are our value-creating opportunities. We are just taking the time to do it right and be very thoughtful.

We also want to of course not only include all of our leadership and managers. In fact, we are having an off-site meeting this week with our top commercial and marketing people, but we also want to get in with our board in the fall. So my expectation is certainly to be ready and have support from our leadership and our board to have a plan going forward but to be well ready before the end of the year, and then as we go into our annual planning process, we want to make sure that everything is consistent and we have the go-forward plan in January. So we are just trying to do this thoughtfully and sequentially, but there is no delay.

Okay. Cheryl, opportunistic hedges -- thoughts?

No.

No, you don't want to think about it? No, you thought about it and you don't want to tell me? (laughter)

It's three of the above, Ken! I think, again, in terms of the anticipatory hedge, it is normally done in conjunction with when pricing is going out, and there is not much pricing necessarily going on in the market.

Why would you -- I mean --

In the Q, you won't see a huge difference in our corn position.

Okay. It just seems like corn is at a nice level that companies would think about opportunistically taking some position just to lock in some margins for next year. It just seemed like a good theory at the time.

Well, generally speaking, I would agree with you, but again, going back to the prudence of the policy is we match up with how the commercial goes so that we don't find ourselves 50% you're on the right side, 50% you're on the wrong side.

Okay. My last question is actually for John. Do you have a phone number that we could use?

Yes. You can reach me at our Investor Relations number at 708-551-2592.

That's not your direct line?

Yes.

Heather Jones, BB&T Capital Markets.

Good morning. I don't want to belabor the North American volume question, but I'm going to. (laughter). I'm just wondering. Again, given some of the public commentary from some of the corrugated guys -- Tate and Lyle's commentary -- I am just wondering if you can give us some color as to how volumes progress through the quarter. Clearly, judging by your commentary, you expect the second half to be better than the first half, but I'm just wondering. And you may have said this and I just misunderstood. But I'm wondering if you actually saw a meaningful improvement in May/June as compared to April.

Heather, I just don't have the number in front of me. Let me just put it in context.

The corrugating and paper combined don't add up to 10% of our total business. So while it's an important piece of the business, it is not a significant piece of the business.

Okay. What about the food-service commentary, beverage, etc.? I saw some commentary from one of the big producers that implied there has been improved demand, and then there was other commentary that C-store demand hasn't improved at all. Just so what are you seeing on the beverage side?

Well, we in fact have seen a little bit of improvement in terms of the general supermarket, the can side of the business. Also, the fountain side of the business in the fast food restaurants I think has also improved. But there are -- where we are not seeing the improvement is in some of the food purchases and, as I said, in the restaurant side. The mid-tier restaurants is still been -- demand in the products going in there had been slow.

So I would say that beverage, it seems to be coming back but high fructose going into food is still a little bit slow. That's where we are seeing the lag and where we expect some pickup going forward.

So you haven't seen any pickup there, but you are expecting to see a pickup?

Yes.

Okay. Then as far as -- I wanted to talk about utilization, and I believe a plan a plant in Decatur, I want to say Alabama, was closed. But I see all of these headlines about different producers moving away from HFCS and it seems like it is pretty miniscule amounts, but I'm just wondering if you have an estimate of the overall volume impact to HFCS demand and where utilizations are, and if more closures are needed and just if you could talk to that.

Yes. High being new to the industry I've read a lot of articles and tracked some of the trends, and we don't see any major impact yet. I mean, there is a lot of publicity that it is caused by some of the companies in terms of when they make announcements that we are looking to get away from a certain product. Our CRA, the Corn Refiners Association, that we all work with are very active in terms of making sure that all of the claims are accurate and that there isn't misconception in the marketplace in terms of the efficacy and the quality and in terms of high-fructose ingredients versus the sugar.

So I think that, at this point, sure there is pressure on calories and people looking for healthful drinks, but at the same time it is a slow pressure, a slow decline. Today, people want to drink and eat what they want to drink and they are driven more by economics than they are by health concerns right now though there is a tendency to go to water and to go to lower-priced private-label beverages.

So I think it is something certainly to be watched, but it is nothing that we see as a fast or major trend. But of course, as we go forward and looking at our strategy, we have to be cognizant of those trends. At the same time, we look at other products that are ingredients that would utilize our capacity and that are growing to end users and our demand for convenience in other types of beverages and food products.

So how would you qualify utilization at this point? Is it still relatively tight or industrywide?

Yes, I don't have the utilization number. I think it has been okay and it's not high and it's not low. I know our plants are pretty busy.

Okay. All right. Thank you.

(Operator Instructions). David Driscoll, Citi Investment Research.

So, as I understand it, the first half of the year, we were looking at volumes that you guys reported down almost 6% in North America, volumes in the second quarter here down 4%, back half down 4%. So the back half gets better than the front half, but bigger picture -- and this is back to the prior question on utilization rates. We have seen and expect a significant pickup from Mexico, specifically it would probably not be you guys, it would probably be some of your competitors shipping more fructose down there.

There's no figures that you have on this? You can't peg a number here, like mid 80s or something like that for industry utilization rates kind of as a run rate-basis? I don't think the first half is that relevant because of the economic situation, but the back half of the year I think is highly relevant because it plays into the pricing discussion. Is there anything we could see (inaudible) here, especially taking into account Mexico?

Yes, I think that, when you're talking about low to mid 80s, that would be a fair number. But you know, we also look to the Mexico market. It's an opportunity for everyone in the industry to ship either within Mexico or into Mexico. As sugar prices are higher there, there is an opportunity for US producers to ship to Mexico. So, we participate in that.

Okay. Two more questions -- Cheryl, can you tell us what the balance of the margin account is and what's your expectations for interest expense in the back half of the year?

I think interest expense will probably track the first half, give or take a couple of million bucks. Dave. When we look at the average interest rate on the debt, it has come down year-over-year by a couple of percentage points, but the average debt outstanding has increased. Interest income, the cash balances are down versus a year ago and about the same thing, about 2% down on the interest income rate -- I don't think a surprise to anybody.

I don't have the number of bushels in front of me. We will publish the 10-Q next Thursday, and in the disclosure is the amount of bushels.

Relative to the timing, I think we've seen a bet] maybe a little bit slower because of the slowness in the volume take-away. The amount of cash coming back I think on the cash flow in the quarter, it shows the recovery six months, year-to-date on the margin account, $127 million. So that says we have about the same amount to recover in the second half of the year.

Great. That's what I was looking for. Thank you very much.

Okay. We are running out of time here, so we will take one more question.

Ken Zaslow.

Just another quick question. Ilene, I know we asked this question the last conference call but I kind of would like your view on this. 2010 -- how does that play out in terms of is it a growth year? Is it a makeup year? How do you think about that? How do you plan for 2010? Is it something -- does it get rebased? How do you think about 2010?

Well, in terms of the rebase, I really see that 2010 will be a continuation and the growth will be off of 2009. So that I see that 2010 should be better than 2009, and we will see the volume coming back. We will certainly see a better net corn cost. So that I see it is a continuation of 2009, and I know that there was questions about it is a reset from 2008 or '07? We're really looking at 2009 as the base and growing from there. Then we are looking at 2010, we are looking to 2011 and 2012, and it's really -- this is where we are at today. We have certain utilization; we have opportunities globally in what's the opportunity to make progress in 2010 and 2011? What are the investments that we should be making today that will help us benefit from that -- will create enough shareholder value in 2010 and '11?

So I am looking at 2009 as we know what it looks like and then how do we go from here. If you think about those utilization rates and the question that we just had, the CRA I think is in the mid 80s and we see next year as a better year for that. That will create demand, and it's how do we use that capacity? What are the right end products to be focusing on in 2010 and '11? How do we drive our ingredients to higher value-added products so that we can create more shareholder value over the long term?

So if I think about the number within whatever you do this year, I should think of almost a historical growth level of 10%, 15%, 20% or something like that -- which you can grow in 2010 not (technical difficulty) thinking about hey, this is going to be a year like 2007 or 2008 or something like that? That's not how to think about it? That's fair?

Ken, are you trying to get our new CEO to give you a 2010 forecast?

Then I will drop it there. (laughter) I was just trying to see how you are framing it, and it sounds like you are framing it as you said. It's a big year, and I guess it is little different than I would've thought about it. That's why I was just trying to get a little bit more color into that. But that's fair. I mean, as the new CEO, I think you have more right to do whatever you would like to do with the outlook. So I appreciate it.

Yes, I mean I would just say that I am excited about our options and opportunities out there, and I think we have many choices and with a solid balance sheet, and good, solid businesses around the world, it is really a matter of making choices where we can create the most shareholder value, have a strong competitive position, and create value for our customers. That's what we're choosing between the different options because we want to carefully grow and create value in a very steady, succinct way and be successful -- continue to be successful. So I'm excited about the many options that we have.

Great, I appreciate it. Thank you very much.

Okay, thank you. As we are out of time, we're going to close down the conference call and our webcast this morning. As a reminder, there is a replay of the webcast at www.cornproducts.com, and also an audio conference call replay is available through Friday, August 7. The phone number for the audio replay is 719-457-0820, and you'll need a passcode of 21364445.

Thank you for your participation this morning. Bye.

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