Ingredion Inc (INGR) 2010 Q1 法說會逐字稿

Good morning, everyone and welcome to the Corn Products 2010 first quarter earnings call. Today's call is being recorded. At this time I will turn the call over to today's speakers. Please go ahead

Thank you, Alan. And good morning to everyone. Welcome to Corn Products International's conference call to discuss the 2010 first quarter financial results that were announced earlier today. I'm John Barry, Vice President for Investor Relations for Corn Products International. 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 web at www.cornproducts.com. The charts for our presentation this morning can be viewed and are downloadable from our website and are always available 60 minutes before our conference calls. Those of you using the website broadcast mode for this conference call are on listen-only mode. Ilene Gordon and Cheryl Beebe will deliver this morning's presentations.

Moving on to the agenda, Ilene will provide 2010 first quarter overview. Cheryl will present the financials for the first quarter with appropriate analysis and flavor. Ilene will provide an overview of the business outlook and our guidance for 2010. Following that, we'll move on to your questions.

As a reminder, our comments within this morning's presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties. Actual results could differ materially from those predicted in the forward-looking statements and Corn Products International is under no obligation to update them in the future as or if circumstances change. Additional information that concerning factors that could cause actual results to differ materially from those discussed in today's conference call or this morning's press release can be found in the Company's most recently filed annual report Form 10-K and subsequent reports in Form 10-Q and 8-K. I am now pleased to turn the conference call over to Ilene.

Thank you, John. Before Cheryl goes over our first quarter results, I just wanted say that I'm very policed with the performance of the business in the first quarter of 2010. We are seeing good economic recovery in many of our international markets. Even in the US, we are seeing some positive signs. For example, the corrugated box industry has reported two consecutive months of improved shipments.

During the quarter, our business enjoyed double-digit volume growth in each of our regions. The volumes not only helped drive top line growth, they allowed our plants to operate efficiently. We continued our focus on cost, and saw gross profit margins improve from 11.2% in first quarter 2009 to 15.2% in first quarter 2010. I will now turn the call over to Cheryl for a review of the financial results for the first quarter.

Thank you, Ilene. As Ilene noted, we are very pleased with the first quarter results. We had double digit volume growth in all of our regions, led by our international businesses. In North America, volume grew in all countries, led by strong gains in Mexico. In South America, volume growth was led by Brazil, Colombia and Argentina. And in Asia, we saw strong volumes out of South Korea and Thailand. Our net sales growth reflected the improved volumes and stronger foreign currencies, partially offset by lower price mix, reflecting the normal relationship of pricing in North America to lower corn costs. And profitability improved driven by the higher volumes that resulted in improved plant utilization rates and by favorable foreign currency translations.

Moving on to the income statement highlights, first quarter 2010 net sales increased 13% over the same period last year to $937 million on improved volumes and favorable currency translation. Operating income jumped 84% to $72 million from $39 million last year. Our raw material costs declined and we had better plant utilization rates, resulting in a 54% improvement in gross profits. And diluted earnings per share for the quarter increased 159% to $0.57 versus $0.22 in the same period last year on the improved operating income and lower financing costs.

Looking at net sales by region, we see North America's net sales increased about 2%. South America increased 30%, and Asia/Africa increased 39% for a total company increase of 13% or $106 million. The strength of our international businesses is reflected in the growth of South America and Asia/Africa's net sales. South America grew from 26% of company net sales in 2009 to 29% in 2010 while Asia/Africa's sales grew from 10% total company in 2009 to 13% in 2010.

The change in regional sales mix is reflected in our net sales bridge by region. We can see that relative to Q1 2009, North America's net sales grew by $9 million, South America grew by $63 million, and Asia/Africa grew by $34 million. Of the $106 million increase in Q1 2010 net sales, relative to Q1 2009, improved volumes added $120 million or 14.4%. Volumes improved in almost all countries and almost all product categories. Stronger foreign currencies added $66 million or 8%, with the biggest positive impacts coming from Brazil, Canada, Colombia and South Korea. Partially off setting the positive impact on net sales from volume and currencies was a negative $80 million, or 9.6%, of price mix. As we will see in a second, the lower price mix was principally in North America and reflected the normal relationship of lower corn costs to lower pricing.

As we can see in the net sales variance by region chart, the improvement in North America's Q1 net sales resulted from 12% higher volumes and a stronger Canadian dollar which added 2.9% partially offset by a negative 13.2% price mix. North America volumes grew in all three NAFTA countries with the biggest increases coming from Mexico. Volumes improved across almost all product categories, with sweeteners led by HFCS for the beverage industry, which accounted for approximately 74% of the increase.

As I previously stated, the decline in North America's price mix reflected the normal relationship of pricing to lower corn costs. South America's 29.5% growth in Q1 net sales resulted from stronger currencies which added 19.2% and higher volumes for 16.1%. Price mix was a negative 5.8%. South America's volumes grew in all regions and across almost all products. Sweeteners led by high maltose syrups for the brewing industry accounted for about 50% of the volume increase.

Asia/Africa's net sales increased 39% with volumes accounting for 25.7%. Currencies added 10.8% and price mix contributed a positive 2.8%. The volume growth was driven by corn sweeteners in South Korea and starches in Southeast Asia.

Moving on to the operating income bridge by region, we can see the first quarter 2010 operating income improved by $33 million or 84% to $72 million versus $39 million last year. North America contributed $19 million, Asia/Africa $11 million and South America added $8 million. Corporate expenses were $5 million higher reflecting increased compensation and other costs. North America's operating income was $38 million or 89% above Q1 2009 and again was largely driven by the higher volumes and improved gross profit volumes. South America's operating income increased 30% to $36 million from $28 million in Q1 2009 reflecting the higher volumes, favorable foreign currency translations, and lower costs. Asia/Africa's operating income increased more than six-fold to $13 million from $2 million in the first quarter of 2009 and reflects the improvement in our South Korean business as well as higher profits in Pakistan and Southeast Asia.

Moving on to our estimated sources of diluted earnings per share, the $0.35 EPS improvement in the first quarter of 2010 resulted from solid performance from operations which added $0.28, lower financing cost that contributed $0.06, and $0.01 benefit from the change in the effective tax rate. Volumes contributed $0.12. Margin price mix added $0.11, while favorable currency translations added $0.07. Other income/expense was a negative $0.02.

Turning to the cash flow highlights for the first quarter of 2010, we generated $57 million from operations, reflecting the improvement in net income. We invested $27 million in higher working capital, driven by an increase in the margin accounts of $45 million related to corn futures contracts associated with 2010 firm price book of business. Excluding the margin account, other working capital decreased by $18 million. Our net investment in fixed assets was $21 million. Cash provided for financing activities reflect the $200 million, 10-year 5.62% bonds we issued in late March.

I will now turn the call over to Ilene for the 2010 outlook. Ilene?

Thank you, Cheryl. As we announced this morning, we are maintaining our 2010 diluted earnings per share guidance within the range of $2.25 to $2.60 per share. And we still expect to invest between $175 million and $200 million in capital projects in 2010. Approximately one-third of the 2010 investment will be in projects carried over from 2009, including our high intensity sweetener project and expansion projects in Pakistan and Argentina. Major new investments will include growth and cost savings projects.

We expect improved volumes in all three regions. We expect that North America volumes to be driven by increased sweetener sales in Mexico and modest volume improvement in the US and Canada. We expect South America growth to continue with the improvement in the region's economies. We expect to see continued strong sales to brewing, processed food and dairy customers, with the biggest demand growth coming from Brazil. We anticipate that corn sweetener prices will remain favorable compared with sugar and this will create opportunities within the confectionery and soft drink markets. And in Asia/Africa we expect to see continued improvement in our South Korean and Southeast Asian businesses. We expect South Korean growth to be driven by the favorable economics of corn sweeteners versus sugar and the relative competitiveness of locally produced ingredients versus Chinese imports. We expect southeast Asia to grow as regional economies rebound.

Cheryl and I will now be happy to take your questions.

(Operator Instructions). And we'll take our first question from David Driscoll from Citi Investment Research.

Thank you, good morning, everyone.

Good morning.

Good morning, David.

Congratulations to a good start to the year. A couple of questions. The first one is -- can you just tell us, given what you did print in the first quarter, how did the 1Q10 results compare to your own forecast?

Dave, we actually saw our volumes more favorable than we were expecting across all three regions. This was a really strong quarter for the volume growth which is a positive. The FX was a little bit more favorable, and obviously the volume improvement helps on the utilization rates. And last but not least, the coproducts were slightly favorable, nothing major. So it was really driven by volume and FX.

And I would add that I do think that the volume really came in stronger than we thought it would be and certainly in North America.

Two follow-ups. The first question would be the guidance range, in my opinion, was pretty wide three months ago at the beginning of the year. If the year has gotten off to a good start, I am surprised that you didn't narrow it to an extent. You mentioned this in your prepared comments, Ilene. But could you talk further, we are already getting a number of questions on this now, why so wide on the range? Why not narrow the bottom end given the good start to the year?

That's a good question. I think first of all one quarter doesn't make a year, so we're certainly happy to come out of the chute with some good strength in some of the volumes. But I think as we look ahead to the year, I think there is still not clarity on the continued rate of improvement around the world and certainly in North America in volume. And we read the same reports that you do on our customers and beverage volume and food volume and I think that there's still some cautiousness about the second half of the year. So we felt that at this point we didn't want to narrow it but certainly we'll keep abreast of that during the year. Cheryl, did you want to add anything to that?

David, our typical, we tend to be cautiously optimistic and on the conservative side. As Ilene said, one quarter doesn't make the year and it is more appropriate that once we are through the first half, that we then revise the range. We can do the math together, we know that you take the last three quarters plus the first quarter and gives us a strong right in the middle slightly moving up towards the top or higher end of the range. Again first quarter doesn't make it and we've just seen a lot of volatility. In this case, volatility is positive, that volume is stronger, but we'd like to see it actually continue for another quarter before we make any revisions.

You mentioned a moment ago that coproducts were favorable in the quarter. Given the fact that corn prices declined January 12 upon that USDA report, it's an interesting comment. Can you develop this a little bit? Because I would have thought prudent to when you hedged your firm price business that decline in corn prices would have been an unfavorable variance. Maybe a timing issue. Maybe one first quarter was already said and done, but would we then expect to see weaker coproduct prices representative to your corn hedges as the year progresses?

I think, David, that you hit it on the head, that it is timing. We're not talking big numbers if we put it in context. First of all first quarter 2010 versus first quarter 2009 basically you have slightly stronger pricing domestically. You have slightly weaker pricing internationally, primarily Brazil, because of the soy bean crops. So you've got corn seed versus soy and those are down a bit so it's not a major movement. And we were just a little bit more pessimistic relative to how quickly coproducts would decline. So that's why it's favorable slightly versus what our forecast was for the first quarter. No, I don't expect we'll see improvements as we continue through the rest of the year. Which I think is really what you were after.

It is. Thank you for the comments. Let me pass it on. Thank you.

You're welcome.

We'll take our next question from Heather Jones from BB&T Capital Markets.

Good morning, Heather.

Good morning. Good quarter.

Thank you.

A couple of questions -- to your comments about you want to get this first half behind you and the volumes have been volatile, et cetera. I was just wondering sugar pricing is obviously still very strong on a year-on-year basis, but has come down sequentially and just wondering what you are seeing in Mexico and South Korea specifically with regards to HFCS use. Is it still very strong given how much sugar is up year on year or some weakening sequentially given that sugar has come down some?

This is Ilene. I would say there's still enough of a differential between sugar and high fructose that the volume in both South Korea and Mexico continues to be strong, the demand for high fructose. Even though sugar has come down, we are still seeing significant difference in those begins between the two. Right now we expect that to continue.

Okay. In your guidance, in your outlook, given how much sugar is up year-on-year, you are expecting strong HFCS volumes into those two regions specifically for the remainder of the year?

Yes, we are. Of course, you know, if sugar came down significantly, that's where we could be below the middle of the range but we're not expecting that at the moment.

Okay. And then following up on David's question on coproducts, your comment about pessimism was interesting. When you gave guidance since coproduct values declined which is typical for this time of year but gluten seed seems to have weakened more than is normal, and so -- I just wondered if you could comment on that and if you believe that you will be able to recover that in local pricing or if you could comment on that trajectory.

Sure. If we look at the seed and really narrow this down to the US and to Brazil. In the US you have the issue around the culling of the herds and that's not going to come back up within the next three to six months. So there is the normal what I'm going to say pessimism around the declining feed prices. You also have more dried distiller grains available in the marketplace. So you have pricing pressure on corn gluten feed. If you look at meal, meal is positive and so it will go the opposite direction. And corn oil seems to have found a reasonable level. Now we move to Brazil, the issue in Brazil is around the very strong soy bean crop and competitive pressure on pricing or the corn gluten feed. I hope that gives you the color, Heather, that you were looking for.

No, no, that's perfect. I was wondering. So in your outlook, you're not assuming because to your point about the DDGs, et cetera and then the big soy bean crops, you're not assuming much recovery in seed prices.

No. That's correct.

Okay. Thank you. .

You're welcome.

(Operator Instructions). We'll take our next question from Christina McGlone from Deutsche Bank.

Good morning.

Good morning.

Very good quarter. I wanted to just understand North America. Cheryl, I think you said that volumes grew in all countries

That's correct.

And that fructose drove the bulk of the increase. Did fructose volumes grow in the US and Canada as well?

Down in the US, up in Canada, and it's significantly up in Mexico. We did have positive total portfolio, total positive volume in the US which is the first time we've seen that for quite a few quarters.

That was across all product areas including food and beverage overall.

And if fructose was down, is there a particular product that drove it? Was it industrial starch, was it dextrose, what drove it, then, in the US?

Drove the positive volume? All the rest of the sweeteners. The glucose syrups, it's the dextrose, it's the starches.

Okay. And the question on south Korea. To what -- where does sugar need to fall? Ilene, you said unless it dropped significantly. Before it's not competitive just to give us an idea. It's fallen so much, you would have thought the gap would have closed but sounds like there's still room, or that fructose is still competitive.

It would need to fall another 20% to 30% for the crossover to happen and we don't see that at the moment. So that's why the demand for high fructose in South Korea is very strong. Not only the population drinking soft drinks but the use of the high fructose in the product continues to be strong there.

Okay. That's great. And one thing I was confused on. South America talking about favorable corn sweetener prices relative to sugar, do you mean in places other than Brazil?

Yes, talking about Argentina also, where we sell fructose for the soft drink industry.

Okay. All right. And I guess, Cheryl, I was wondering if you can give us an interest expense idea. Now it sounds like you issued new bonds in March and lower than we thought. Does it move up again or how does that work?

It will be a significant improvement versus last year. If we look at the first quarter last year, our average debt outstanding was $850 million versus this year we're more like the $550 million. Plus we have lower, even with the issuance of the $200 million, there is a significant drop in the interest rate. Because what we replaced in the %200 million last year was 845 and this is done at 562. So you're probably looking at in terms of quarter to quarter or total year, I'll say $28 million would be a reasonable guess.

Okay. And I'm sorry, one more question. It sounds like Thailand and Pakistan are recovering. Is that the right assessment?

I think in the case of Thailand, Southeast Asia, yes. Good volume growth. Pakistan is holding its own. We're still not seeing light at the end of the tunnel with regards to energy. We had hoped it would be resolved, or start to improve by end of the second quarter and we are continuing as are our customers to see brown outs to the tune of four hours per day. So are adjusting our production along with our customers. We are holding our own. We are doing okay.

Okay. Thank you very much.

You're welcome.

And we'll take our next question from Christine McCracken at Cleveland Research.

Good morning.

Good morning. Just wanted to follow on the corn cost outlook. We had a very favorable planning progress report yesterday well ahead of what some people had expected for sure. I'm just curious, it's really early in the season. A lot of things can happen. Have you factored in maybe this strong of a report or outlook and maybe you could comment just on your overall outlook?

Let me -- I'll have Ilene comment on crop but I'll comment on how we factored in the current environment into our guidance. What's different this year versus last year, normally we wind up with difference in the first half versus the second half on the corn costs. In our guidance this year, we're a lot more consistent among the four quarters. And if the corn crops remain strong, and you pointed out there's a lot that can happen between now and the second half of the year, but we are pretty confident that there's not going to be a huge change in the current pricing. There is a little bit of opportunity if corn prices stay low for us to offset some of the corn costs in the fourth quarter.

We read the same reports you do about the crop. Right now the planting looks good. Of course, there's a lot of weather to happen between now and the harvesting and certainly contracting. So in terms of the impact for the rest of the year, certainly it will have impact as we go into contracting. And, of course, we don't see huge increases in corn costs and the impact on the coproducts right now for the rest of the year. We'll have to wait and see how it goes. We've seen the same reports.

And just on that corn oil outlook. The veg oil markets generally have been fairly volatile as of late, I think, in some respects with a lot of different things going on globally that could impact the relative value of corn oil vis a vis palm and soy given the large supplement and crop. Just wondering anything unique about the outlook in corn oil that might give it further upside or increased competitive pressure?

If corn oil prices increase above where they are currently trading over the last couple of months, then that would give us upside. The business model still holds that if the value of oil, seed and meal changes positively we get a little bit of margin enhancement primarily on North American business. The same holds true on the other side if it declines then we typically get a little bit of a margin squeeze. The thing that's unusual this year is really the pricing pressure on feed in Brazil.

Okay. And then just in your comments in the press release you talked about the costs, corn costs in Asia/Africa being down 10% versus last year. Anything unique how you source corn over there?

No, if you go back to last year, what was unusual in the first and second quarter of 2009 is that we had the higher priced corn that we had bought in 2008. And so the comparative to the year-over-year will look a little bit unusual relative to if you're taking first quarter market price for 2010 versus 2009.

All right. I'll leave it there. Thanks.

(Operator Instructions) We'll take our next question from Ken Zaslow from BMO Capital Markets.

Good morning, everyone.

Hi, Ken.

A couple of quick follow-ups. What did you change to change the distribution of the corn costs? What did you do?

Just the way that the customers contracted. And the second is where you sit on the gross to net ratio from a hedging perspective.

Is that something to think about going forward that you'll do, a new kind of norm for 2011 and beyond?

Just the way that it laid out from the contracting season. Remember that 2008-2009 are somewhat of an anomaly because we had higher than normal number of bushels hedged based upon the way our customers contracted.

Okay. Can you quantify the opportunity created from utilization rates?

No, I don't have a number off the top of my head.

Okay. Is the change in South Korea structural or a product of the environment? For example have you changed enough that we can now believe this is a recovered business and this is the ongoing rate? Or is this temporal?

What I would say is certainly back to a better mix of shipping high fructose to the beverage producers, and at the same time we've embarked on a strategy in South Korea to try to grow in other areas, that is, ingredient supplier to the food companies. So it's not -- I think it's just been the natural coming back of what was more normal for South Korea and I feel like we are in balance at the moment. As we talked a little earlier, because sugar prices are where they are, we still are susceptible to sugar coming down and losing some of that high fructose volume so the beverage companies have the ability to switch and to blend. So we are happy with the balance now but at the same time we need to grow in other areas.

Okay. Is the increase in volume to Mexico internal or from exports or both?

It's a combination. In other words, the exports from the US to Mexico are to satisfy the Mexican volume, which is internal to Mexico, but the volume, the capability obviously we had the capability to ship from the US into Mexico and that's new this year, and that, of course, is driven by the relationship between high fructose and sugar.

When you say volumes in the US of high fructose corn syrup was down, is that the total US volumes included that that is shipped to Mexico or is that just?

No, Ken, it's third party volume shipped from the US. What we ship from the US to Mexico gets sold through the Mexican volume number because that's where the third party is.

Okay. That's helpful. And the last question is and I don't know I kind of made a mistake in my model, maybe i was led to believe or something -- did you lower your tax rate?

The tax rate --

I had 35%. You said 33.

33%. It is driven by mix and in some regards currency. The impact of currency on our Mexican subsidiary is a big issue.

So when I think about your tax rate after this year, does it go back to 35 or a new level or did I miss something? Just house keeping. I didn't understand it because it's 10 cents.

Ken, I would love to say I can be that precise on a tax rate.

Oh, you're precise. You know your tax rate.

Thank you for the compliment but it's not quite that easy. I would say based upon the ways that we are looking for 2010 to lay out and the work that we're doing, we should be between 33% and 35%. And that's barring any one-time discrete items in the quarter or the fact that countries change their tax rates. And I would hesitate to say that tax rate is going to just drift lower given the environment we are in in Washington.

So this could be just one year we should use after this going back to the 35% tax rate is probably the right answer, is that fair? No? Maybe?

Yes.

Cool, thank you. .

You're welcome.

(Operator Instructions) We'll take our next question from Vincent Andrews at Morgan Stanley.

Thank you and good morning, everybody.

Morning.

A couple of follow-ups here. The first is on sugar demand as it relates to Mexico. There was discussion about the sugar price coming down but that the price is above a threshold to make HFCS into Mexico attractive. Have you seen any change in the cadence of orders or the level of demand between the beginning of the year and now as that price has come down? My question is should we just assume if the current sugar price/HFCS relationship were to stay flat that you would see the same level of volume to Mexico next year all else equal?

Yes, this is Ilene. We did not see a change in the intensity of the demand as it came down because of the differential. We don't expect a change between now and the end of the year and goes into next year. If it came down significantly, obviously, that would be a different story. But at the rate it's at now, we feel like the demand is going to continue.

Okay, so no change at all. My next question which I look at 1Q10, 1Q09 was a funny time for everybody in the world. So when I look back at1Q08, your sales were back to the same level and your operating income was pretty much back to the same level everywhere but North America. I know some of that has to do with where coproducts were favorable if I'm remembering this correctly from 1Q08, but as we think about the recovery you guys are talking about in the business, is it sensible to try and say here's where we are today relative to where we were in 2008, this time in 2008? Or what would be another way of looking at it if that's not right?

I don't think it's necessarily the 2008, more I believe what we said in the past is that we would be back more towards the 2007 levels. If you look at the first quarter of 2008 while the net sales are relatively close, the cost of sales is still up and the difference in cost of sales is really the difference in the gross profit margin and almost $30 million. And so the gross profit looks more like the first quarter of 2007 where we were at $146 million of GP versus, say, the $143 million.

If I look at operating in North America 1Q07 it was $61 million, 1Q08 it was $75 million, 1Q09, it was $20 million, and now we're back to $38 million. What needs to happen for you to get back to 61? 1Q 07 you weren't setting this level of product in Mexico. Is there a difference on the margin to Mexico relative to the US? Or the same or what does it take to get back to 61 in North America?

Well, you have different margins on different products. What you need in order to get back to the higher level in North America is you need more firm pricing or higher pricing relative to your corn costs because what you saw in 2009 and 2010 is spread compression. What we said in February is that spreads, selling prices minus your corn costs, are down. So what you need is that balance, supply/demand balance so that you have spread improvement.

Okay. And then if I'm remembering this correct, you still have room left in a share repurchase authorization. Is that right?

That's right. We have several million shares with can repurchase.

Nothing took place in the first quarter.

That's minor. As you can see, the weighted average shares outstanding increased by almost 1 million shares, that's a combination of --

Why not buy back the dilution in the quarter?

Well, let's see, because most of quarter we would have been in blackout until we actually released our earnings, and so basically until the Q is filed, excuse me, the K is filed, we tend not to buy back and then wind up in the first quarter, the blackout starts really by the time you're entering March. The first quarter is not a good indication. Don't disagree. We have tended to buy back the dilution.

All right. That's what we wanted to know. Thanks a lot.

You're welcome.

Our next question from Ann Gurkin at Davenport.

Good morning.

Good morning.

Good morning. You ended the morning with a nice amount of cash. Can you understand what you might use that cash for? Are you close to making any acquisition investments? Any update there?

We are looking obviously at a number of different opportunities out there and I think that's pretty exciting. And at the same time we are continuing to fund some growth projects that are internal that support our organic growth. We want to continue to fund those. We are looking at acquisitions and at this point we have no announcement on anything but continuing to do our work and supporting our meeting that we had in March. We continue to be excited about the opportunities and options out there.

Okay. And secondly operating expenses were higher than we were looking for in the first quarter. Is that a number we should use for the full year?

Yes. I think we are back at a more normalized levels, and so $70 million as a run rate I think is a reasonable expectation.

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

Thanks.

The next question from Ian Horowitz from Rafferty Capital Markets.

Good morning.

Good morning.

In previous quarters you spoke about the weakness especially in the US to sell into the institutional food markets. Have you seen somewhat of a rebound there or does it continue to remain weak?

We've seen continued, we're seeing a little bit of growth in all different product areas whether condiments or institutionals. The reports I've read is some of the restaurants are coming back in terms of the demand but still not that strong yet. We looked across all of our products and as it relates to food, we saw growth in all different areas so even though it's small growth, it is growth. So we feel like it's starting to come back. Would you add anything?

No, you hit it right on the head. Volume has been positive across all of the various outlets whether it be packaged food, food service, industrial, etc.

And this is much more of a pull through from a macro stand point rather than a price shift, is that correct?

I think it's certainly customer demand in terms of what customers are trying to grow in terms of brand, in terms of service and value to their customers. So we are working with customers, but there is no one particular product that stands out in any way.

And then my next question is we continue to see the anti-HFCS process going on here in the US. Is there anything similar to that going on in any of your other markets?

No. You know it's interesting certainly we are see some opportunities for high intensity sweeteners, low calorie in south America where we are growing our new product, our stevia product called Enliten, but more demand in North America for that. But this issue in the competition in terms of the health side has not been any pushback in any of the other areas. But there's still interest in what I call healthy foods and probiotics and stevia products in other parts of the world.

Sure. But you don't see the switching going on from HFCS to other traditional caloric sweeteners that you do here?

No, we are not a large participant in Europe. I suspect there's obviously that trend in Europe but certainly in South America and in Asia we do not see that. Even in Mexico, certainly people want to eat healthy and exercise and have a balanced diet. We don't see the pushback in the other areas at the moment.

And with the strength, in the expected strength in the Mexican sugar crop, you expect to see that put pressure on the sales into that market?

Could you repeat that question?

People are expecting the Mexican sugar crop to be fairly strong going forward, and I'm just wondering if that volume of sugar will be putting pressure on HFCS sales into that market.

We're not expecting to see pressure in the Mexican market for the remainder 2010 and 2011.

There's enough of a differential we see demand for high fructose continuing.

And a last question and I'm not even sure if I'm the right one to ask this. Do you guys have any idea how hard on a process standpoint to switch between products, between something like HFCS and cane sugar.

From a beverage standpoint? Probably better off asking Coke or Pepsi that question.

I do know they need to make capital investments to do it so it's not to change what's in the tank. I know those investments were made, certainly they have capability in Mexico now because we are selling the product and I know that some investments were made in Korea, but there is an investment involved and of course that is always a challenge.

Okay. That's all I needed. Great. Thanks.

You're welcome.

And a follow-up question from Christine McGlone from Deutsche Bank.

Hi. Thanks for taking the follow-up. Just going back to the answer to Vincent's question about supply and demand balance and getting the spread higher, my question is how is that achieved? If you have a secular decline in truck to say and we don't have any ability to incrementally switch to ethanol, how do you get that balance up? Is there another avenue to switch to or will we see a plant closure?

First of all, Christine, I don't know how many times we have to say this is that there's more to our North American business or our total business than just HFCS and D5.

That's why I asked about the portfolio. Is there another product to shift into?

You've got syrups, you've got dextrose, you have the mono hydrate dextrose, the anhydrous dextrose which goes into the pharmaceutical industry, modified starches that goes both into food producing as well as corrugated and paper. We have made investments in our health and nutrition business, which is the FOS, along with different high intensity sweeteners, which is our investment for this market relative to broadening that product portfolio.

So over time those products will be big enough to pick up the slack? Tighten supply and demand and allow for a better spread? Is that how we should be thinking about it?

That would be our expectation.

And then I'll hide my frustration, or I'll try to with this, I wanted to ask about this bill, that this Assemblywoman from Queens introduced trying to criminalize all products with high fructose corn syrups in New York City. Is this movement that is taking away individual responsibility, is this something we should take seriously? Is this a threat to your business?

I don't think we're going to comment on one congresswoman who wants to criminalize a use of a very healthy product with no issues associated with it other than the beating it takes relative to sugar's attack against HFCS. Look what Indra Nooyi from Pepsi said a week ago -- that there is nothing wrong with this product. It is a perception issue. That's about as far as we're going comment.

Okay. Thank you.

And we'll take a follow-up question from Ken Zaslow at BMO Capital Markets.

Hey guys -- just a question, I know you don't talk a ton about this but is there a way you can think about telling us what you think about profit per volume. I know it's not exactly how you -- how you think of the business, not how you report it. Can you talk about the trend in profit per volume this quarter and the outlook relative to the last couple of years and put it in perspective? I think that's one of the shortfalls of how reporting doesn't really align with how the business is run.

This is Ilene, I'll start out that our strategy really is to grow as an ingredient supplier. Obviously what our goal is, is to sell more value, add more value to our customers selling a portfolio of ingredients and this has in-depth being very successful in South America, Asia, Africa and now starting to focus on that growth and volume added to customers in North America. We don't want to start to talk about per volume of weight but rather than we look at our profitability that we sell to different types of customers and how do we add more value.

And Ken, at the end of the day right given the fact you have choices to run different products through your facilities. It's not a meaningful comparison. And second of all, I don't think it's in the best interest of the shareholders to get down though that level of granularity and I don't know anybody who does get down to that level of granularity.

I was under the impression that you didn't want us to be thinking about profit per dollars, pricing going up and down, it doesn't matter as much. What would be the metric, what is the metric which you think about?

We think about gross profit. We look at gross profit rates for the total business.

I was under the impression you were trying to steer us away from that. Apparently I was mistaken.

Okay.

(Operator Instructions). We'll take a question from Robert Moskow from Credit Suisse.

Hi. Thanks for taking the question. How much switching to do you think you saw in terms of brands switching away from HFCS and to sugar? Did you quantify what percent of that impacted your volume? An then, as you look into this year, do you think that switching might just stop because of the economics favor corn syrup and frankly the science favors corn syrup as well?

Good question. We read the same things that you do, and we saw a couple of announcements in terms of switching. Whether it was Gatorade or a couple of small segments where customers are using it really in marketing and trying to reposition a brand. But the reality is that we saw some statistics that in a couple of occasions, the brand didn't grow even though there was switching going on. We haven't quantified what that impact is. And actually I do think that some of that switching may slow down because of the economics and certainly a 30% difference in costs for the brand owners and therefore, there has to be compelling marketing story to make that switch. And I just think that's going to slow down. Cheryl, would you add to that?

I think you put it very well.

It's probably at least the switching that you saw last year, you never saw like a major overhaul of a big brand switching to sugar? It was more like -- let's test this. Let's do a promotional thing. Let's have a natural version or so-called natural version of what we already have? Is that right?

The biggest one that you saw was the Gatorade. That was the relaunching of their product portfolio.

For the athletes.

Correct. But there has been no major, you have Pepsi throwback, Jones soda all which tends to be smaller product lines that have made the switch as Ilene said from a marketing standpoint. But the major Coke and Pepsi brands have not changed.

Right. And just seems if you can get the manufacturers to put that genie back in the bottle, might help to silence the negative press on it. Just a thought. Thank you very much.

Thank you. .

And our final question from Warren Ackerman at Evolution.

Hi, it's Warren Ackerman. I'm an equity food analyst in Europe. I work at Evolution. I just have a quick question. At the beginning of the conference call, you talked about the corrugated box market. And you were saying there were some improvements in the last two months. Just wondering whether you can put numbers around that, what's driving that improvement? Is it more GDP driven and how big an end market is that for you?

Okay. First of all the corrugated industry in the US published some statistics so what they published was that for March, shipments were up 6.8% from March a year ago and for the quarter it was 3.7%. Now you need to realize, though, that the first quarter 2009 was very weak for that industry. And so what we understand about that business is that it is GDP driven. It's demand for nondurables and some durables, but certainly versus a year ago, some activity going on. Certainly it's an important market for us. When we show our statistics, food processing and beverage more important, what we're happy to see that corrugated shipments are coming back because I do look at that as an overall health of the industry. You have to remember that a year ago it was from a very weak base. It's good to see the right movements in terms of recovery.

Okay. Very helpful Thank you.

And as that was our last question, we'll go ahead and terminate the conference call now. As a reminder, there will be a replay of this call. It will be available through Tuesday May 11. The number is 719-457-0820 and you need pass code 9904529. Thank you for your participation. Goodbye.

Thank you all

Thank you.

And that does conclude today's conference. We thank everyone for their participation.