Ingredion Inc (INGR) 2010 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Corn Products 2010 fourth quarter earnings call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Aaron Hoffman. Please go ahead, sir.

Thank you, Lisa.

Good morning, and welcome to Corn Products fourth quarter and year-end call earnings call. I'm Aaron Hoffman. I am Vice President of Investor Relations. Joining me on the call this morning are Ilene Gordon, our Chairman and CEO, and Cheryl Beebe, our Chief Financial Officer.

Our results were issued this morning in a press release that can be found on our website, cornproducts.com. The slides accompanying this presentation can also be found on the website and were posted about an hour ago for your convenience.

As a reminder, 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, 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 press release, can be found in the Company's most recently filed annual report on Form 10-K and subsequent reports on Form 10-Q and 8-K.

With that out of the way, let me turn the call over to Ilene.

Thanks, Aaron, and let me add my welcome to everyone joining us today. We appreciate your time and interest.

To get started, I would like to offer some thoughts about the full year and the fourth quarter. Overall, we feel very good about where we are at right now. 2010 was a strong year for our operations, with sales up 19% and adjusted EPS, excluding the benefits of owning National Starch, up 50%. Looking back about 12 months, you will recall that we began the year with lower input costs and potentially lower pricing, with the possibility of spread degradation. The lower input costs also had the potential to hurt co-product values, and there was concern that volumes would soften. So, how did that play out?

As you know, demand was strong as the global economy saw some recovery. And food and beverage companies continued to focus on convenience, health and nutrition trends, where Corn Products provides valuable ingredients. These demand trends were fairly widespread across our business, as sales and income increased in every region, and Cheryl will show you more detail in a few moments.

Right now, I would like to quickly highlight our South American business, which demonstrates the strength of our regional business model. South America represented about 26% of our fourth quarter sale. For the year, sales increased 23%, of which 12% came from organic volume growth. We sell a broad range of starches and sweeteners, some of which are modified and carry a value added proposition for our customers. This results in relevance to the customer, higher margins, and a sustainable growth trajectory. We recently announced our plans to invest $75 million to $100 million to support growth in Brazil, particularly for the food, beverage, and industrial sectors.

Turning back to the results for the year, better than expected demand in North America helped drive strong utilization rates, which we estimate were up a couple of percent for the industry. We did well, too. And along the way, we acquired National Starch, which is really a transformational event in Corn Product's history. We were able to add a truly strategic asset at an attractive price. And National Starch's operations are doing quite well, and 2010 was a record year for them. In fact, we estimate National Starch contributed $0.23 of EPS in the quarter, making it immediately accretive. With the majority of National Starch's sales to for the food industry, we continue to benefit from the consumer trends I mentioned before, convenience, health and nutrition. Food companies realized improved performance, driven by rebounding consumer spending last year. National Starch benefited from strong demand, particularly in North America. The bottom line was also helped by improved items, which led to better utilization rates, and the benefits of a variety of cost reduction initiatives. Clearly, it was a good year and we see no reason that we can't drive future growth off of the this base.

Our integration efforts are well underway and progressing on plan, allowing us to confirm our previous commitment to deliver more than $50 million in synergies. We continue to expect to achieve an annualized run rate of $20 million by the end of 2011, with the benefits being relatively back-end loaded. And by the end of 2012, we expect to reach the full $50 million annualized run rate. The integration should be complete in the next 18 to 24 months, and is a very large undertaking, as you can imagine, in a combination of this size. I can assure you that we will be thoughtful and deliberate as we move forward, always remaining focused on achieving the best outcome for the Company, while avoiding setbacks.

As I mentioned, we view this acquisition as strategic and an important part of our long-term growth. There are two areas where National Starch contributes to our business the most, product portfolio and geographic footprint. Let me start with the portfolio. National Starch primarily sells to three broad industries, food and beverage, paper making, and bio materials. As you can see here, food and beverage is a significant majority of sales. With a broad array of essentially starch-based products, National Starch works closely with customers to engineer solutions. National Starch is a recognized innovator in specialized starches for food products, which is a priority market for Corn Products, as well. Underpinning this reputation is a core competency of research and development. Part of what we acquired is a sizable R& D facility in New Jersey to complement our existing product application centers, creating a robust network of solutions developments. This capability allows us to develop a variety of unique, value-added products. As an example, we have applications for yogurt, soups, and sauces that provide specific textures. We also produce solutions that can reduce fat levels in a product like mayonnaise.

As a result of this value-added approach, the National Starch portfolio generally carries a higher gross profit margin than what Corn Products has historically reported. We will continue to invest in these opportunities and are doing so now. We recently added her proprietary manufacturing capability to support the growth of what we refer to as "wholesome products". These are products that support our food and beverage customers' efforts to provide healthier alternatives to consumers. And I will remind you that we have a good innovation pipeline from Corn Products, as well. In fact, this quarter we will open a new facility in Brazil to produce Enliten, our stevia-based, high-intensity sweetener. We continue to build our book-of-business around this product, and see good future opportunity to warrant the investment.

The other opportunity is geographic expansion and depth. Europe is the obvious addition for us, as you can see on this chart. We had virtually no European sales prior to the acquisition, and now we are at about 5%. However, we also gained some important positions in Asia. National Starch has businesses in South Africa, Singapore, the Philippines , Indonesia, Japan, Australia and New Zealand, where we didn't have a presence . Corn Products will leverage this infrastructure to continue to build much stronger and larger Asian and African businesses. In addition to that, we gained greater scale in markets where our sales overlap, particularly in the US, Mexico, and Brazil.

In summary, we are very pleased with the acquisition of National Starch and the incremental growth opportunities that come with it . We also feel good about our performance in 2010 and the fourth quarter that we just reported.

Now, I will turn the time over to Cheryl to take you through some of our financial results, starting with

Thanks, Ilene. Let me add my welcome to everyone on the call and webcast this morning.

Before we get into the fourth quarter financials, let me give you a short overview to set the stage. You will see that we had strong volumes across the business and benefited from favorable currency translations. We saw corn at its highest point during the year in the fourth quarter, which was challenging from a pricing standpoint. However, we are quite pleased with the ability of our businesses, particularly North and South America, to pass through the pricing, as appropriate. The higher corn costs provided a nice lift in co-product values that helped offset the higher gross corn cost this quarter. And, as we discussed, we closed the National Starch transaction and have begun the integration.

This chart provides a good summary of the strong fourth quarter performance Ilene mentioned. We will come back to take a similar look at the full year in a moment. First, you will notice that we have a couple of lines that show adjusted figures. Our definition of adjusted is very straightforward, as it only excludes items that we view as non-operational. By looking at operating income and EPS without these items, we believe you gain a clearer view of the underlying performance of our business. The items being excluded for the quarter are charges related to integration and the acquisition of National Starch. You will also see that the last line on the chart gives you a view of both, how the legacy Corn Products business performed and how much National Starch contributed on an EPS basis. As Ilene noted, our integration is progressing nicely. However, as we continue to fully merge the two entities, it will become more challenging to provide this level of detail. We will make every effort going forward to help you understand the impact of the acquisition.

With that said, let's take a look at the results, starting with a 47% increase in net sales for the quarter. This bridge provides a good look at the drivers of that increase. I will start with the largest figure on the page and point out that National Starch contributed $351 million, or about 78% of the growth. Outside of that, foreign exchange was fairly small, as was price mix. The major operational change was an incremental $65 million of volume driven by higher demand. We will take a look at that on the next slide.

From a product perspective, we saw strong food and beverage sales along with good results to the brewing and industrial sectors. This broad-based improvement is a positive sign reflecting the overall strength of the business. As you can see, sales and volume grew in our three largest regions, North America, South America, and Asia Africa. For the first time, we are showing you a line for Europe. This region is entirely new as part of the National Starch acquisition. The conclusion on this page is that we are seeing strength across our business and it's being driven by good volumes.

Now, moving down our highlights page, I've got operating income highlighted here. But I will quickly point out a nice increase in gross profit as a result of National Starch, higher volumes, strong utilization rates, and cost savings initiatives. About 75% of the improvement in gross profit dollars came from National Starch. So, let's dive into the operating income, which was up $4 million on a reported basis but increased almost $50 million on an adjusted basis, reflecting the exclusion of $45 million of integration and acquisition related costs. Looking at regional contributions to the operating income, you can see that we had growth in all four regions, the saw total corporate costs decline as well. The jump in Asia Africa's income stands out. Two thirds of the growth is from National Starch and the other third from improvement in Corn Products Asian business.

And now, let's wrap up the discussion of the quarter with earnings per share. Admittedly, this is a busy chart but it gives us a good snapshot of where our EPS improvement came from. We have broken out the operational and non-operational factors that drove the growth from fourth quarter 2009 EPS to 2010 adjusted EPS, excluding National Starch which was $0.82 per share. The net $0.05 per share from operations was a little FX and $0.09 from volume, offset by a decline from price mix. They key non-operating contributor was a lower tax rate of 33.4%, compared to 38.4% last year. This was slightly offset by higher financing costs, as a result of the acquisition, and a few more shares outstanding. That gets us to $0.82 per share, which is the number that is directly comparable to the $0.74 we earned in the year ago quarter. If we add in the estimated $0.23 per share from National Starch, it takes us to the $1.05 of adjusted EPS, and then there are a total of $0.38 worth of charges that we add back to get to the reported EPS of $0.67.

That wraps up the quarter, so let's take a look at the full year. Here's the same chart we used for the quarter, but showing the full year 2010 compared to 2009. We will start at the top again with sales. Net sales were up almost $700 million, of which are $351 million came from National Starch volume. There was an additional $421 million of volume improvement from the Corn Products businesses, along with $161 million of foreign exchange benefit. This was partially offset by $238 million of price mix decline.

You will see a similar picture for sales by region as you saw in the quarter, with a significant amount of volume coming from National Starch and again, you will see strong organic volume in every region. The decline in price mix relates to the lower input costs.

Reported operating income rose by $187 million. Adjusted operating income increased $149 million, driven by lower input costs, higher volumes, favorable FX, and additional income from National Starch. If we break operating income down by contribution from each region, you will see that we had positive trends around the world.

Let's wrap up with a more detailed look at EPS. This is the same look at EPS that we had for the quarter. Operational improvement contributed $0.92 per share, largely as a result of better volumes, improved price mix, and foreign exchange. We also had a $0.09 improvement from non-operational factors, notably favorable financing costs and a lower tax rate. This takes us to $3.01, the comparable number to last year's $2.01 of adjusted EPS. If we then add in the same $0.23 of EPS from National Starch, we get to an adjusted EPS for 2010 of $3.24. There was $1.04 of charges in the year that get us back to the reported EPS.

We can conclude our look at 2010 with a view of the cash flow statement, as you can see on this side. I will point out a couple of items. First, we generated almost $400 million of cash from operations. We also raised about $1.2 billion of cash from a draw on our revolver and the issuance of debt, and you will see the corresponding outflow of about the same amount of cash to pay for National Starch.

Now, let's turn to the guidance for 2011. We expect 2011 EPS to be in the range of $3.60 to $3.90, and expect improved operating income in all four regions to drive this growth. It's important to note that our guidance includes approximately $15 million of synergies from the integration of the National Starch acquisition that will be offset by about $30 million of integration costs. We expect sales to reach about $6 billion in 2011, and the effective tax rate to be between 32% and 34% for the full year. And rounding out the P&L comments, interest expense should be between $85 million and $90 million. Finally, capital expenditures are expected to be between $280 million and $300 million to support growth initiatives, particularly in South America as we discussed earlier. Included in this range is $50 million of integration capital.

Now, I will turn the call back to Ilene to talk about the regional outlook.

Thanks, Cheryl.

Let's move on now to the outlook for our four regions, starting with North America. The first question on your mind, I'm sure, is how contracting went for 2011 . I'll preempt your questions by saying that we were able to cover higher corn costs. With volumes continuing to be strong, we expect good utilization rates. We also have a variety of cost reduction and cost avoidance initiatives. These items should have a positive impact on gross profit and operating income. We also expect to see further mix improvement from the innovation and specialty products from National Starch that I discussed earlier in our presentation. In fact, we will be fully integrated in Mexico in the second quarter.

In South America, as we've announced, we'll be making significant investments to support the growth. And in the first quarter, we expect to bring online our new high intensity sweetener plant that I referenced earlier. We will also be completing the integration of National Starch in Brazil in the second quarter. And in Europe and Asia we are leveraging the National Starch product line and investing behind our best growth opportunities.

We also want to call out that there are a couple of risks . The first is the ongoing issue with tapioca root availability in Thailand, due to some pest issues, and also energy issues in Pakistan. We will continue to monitor these closely and work to manage through any disruption.

I would like to briefly wrap up with our strategic blueprint. We unveiled the blueprint at our analyst day last spring, as you likely recall. This strategy guided us through 2010, as we made decisions about investing capital, purchasing National Starch, and many other strategic considerations. We will continue to focus on operating excellence that supports organic growth, combined with product portfolio and geographic expansion. And clearly, the acquisition of National Starch accelerates some of this growth as we expected, but the core Corn Products business provides an outstanding foundational building block for all of these strategies. With another year of anticipated growth, we are confident that our strategic blueprint is helping deliver shareholder value and will continue to do so in the future.

And now, we are glad to take

Thank you. (Operator Instructions)

We will take our first question from David Driscoll with Citi. Please go ahead, sir.

Good morning, everyone.

Good morning, Dave.

I said it on the last call, and I am going to say it again because it's well-deserved, this is an amazing acquisition and you guys really deserve as much praise as can be heaped on you. Fantastic job.

Thank you.

I would start off with just a couple of questions.

Cheryl, on 2010 results, can you tell me what was the -- and I'm going to use this word, unusual benefit from co-products in 2010?And I think you understand what I mean by this. There is an expectation at the beginning of the year, when corn prices rallied so much, so co-products, because of the hedge position on your corn, will generate kind of a one-time benefit, if you will, in 2010. You've quantified it in the past. Can you tell us what that number was?

Sure. It's a little bit more difficult with the combination of National Starch, but again I would point out that for the first three quarters, we really didn't have a benefit vis-a-vis last year. The benefit in the fourth quarter we are going to estimate about $0.10.

So a year-over-year change is always hard. Is there any way you could just -- because always what I want to do is just get a clean number to say what is the right base from which one should think about it, when they think just 2010 versus 2011. $0.10 sounds too low to me. Wouldn't you want to add, I mean, because of the way that the corn price works, wouldn't it be more like $0.15, $0.20?

It depends upon where we were, Dave, in the gross to net ratio. Primarily in the North American business. And so, we were in probably about the mid-range. So we had the higher corn cost vis-a-vis last year, so we actually got the benefit because if you recall, we were kind of guiding down for the North American business in the fourth quarter of 2010. So, if I strip out that component , yes, I would probably say it's closer to

Okay, then.

National Starch, last quarter you guys gave that nice guidance about how much better National Starch as its own entity was doing versus the original expectations. What did it actually do in 2010? Is the $130 million of EBIT, is that where it ended? I don't know if I could do my math fast enough from this morning.

Dan, keeping in mind that we are trying to be comparable, but there are carve outs on that September slide, we said $130 million to $140 million of the OI, and the depreciation and amortization, about $75 million. We are at about $140 million of OI, and about $70 million of depreciation and amortization. So we are smack in the middle of the numbers that we gave out in the third quarter call.

And then in 2011, what is your expectation for National Starch? Is it to be roughly flattish year-on-year, or do you expect growth in this business?

We expected growth in the business. We are looking at a very nice, or robust recovery in the European market. The European market for National Starch, was challenged with the rising costs, and they have been able to recapture some of those costs through better pricing in 2011. And we are expecting the legacy CPO business to be up, as well.

So that would say that National Starch would grow off that 140 --

That's correct.

-- and it would grow something like high single digits, when you say robust, high single digits is a fair kind of quantification?

I think it's -- I don't know that I can break it out that clean, David. Let me think about if there is a way of doing that.

Last question for me is just, can you guys talk about how National Starch priced its products for 2011 and how they hedge their corn?

Sure.

Let's start with the hedging. To the extent that they have the same type of contracting that Corn Products does, which would be a firm price, then they must have a corn future or an option or physical corn to back that up. Where it diverges from the Corn Products model is in their specialty corn, and there are six or seven different varieties that are used and they have farmers programs, unlike what Corn Products North America has, so they actually contract for the growing. That's a little bit more of a challenge to have a perfect hedge on, because the farmers are able to price that. So that takes the commodity component, or the input side of it.

Now relative to their pricing, they are a more specialized product portfolio, so they tend not to move with the direction of corn, which is what you would expect in a more specialty, higher margin business. So it's -- the way of managing that is to make sure you have probably a little bit more robust inventory management than what you would typically see in the Corn Products arena.

And inventory management, what you're saying is you carry a lot greater inventories so that the flow through of the raw material cost is delayed? Would that be correct a good translation?

It would be both on the finished goods and on the raw materials side.

So we wouldn't expect National Starch as an entity to have the same kind of percentage price increase as the CPO legacy business in 2011. Is that a fair statement?

I think that's a fair statement

Okay. Great. Congratulations. Great job.

Thank you.

Our next question comes from Heather Jones with BB&T Capital Markets. Please go ahead.

Good morning.

Good morning.

Congratulations on the quarter, and great guidance.

Thank you.

Couple of quick questions.

First on the guidance front, I just want to clarify, because I believe you said this, but I just want to make sure that I am understanding this correctly. You are assuming that your guidance reflects the fact that you are able to cover your higher -- the higher corn cost in the legacy North American business but you are also assuming volume growth in National Starch as well as legacy CPO?

We are seeing volume growth in some regions and flat in others. So, we are between what I call the normal historical range on volume growth . If I look at where the guidance is being driven from, it's the improvement in both

Okay.

And that's a combination of having gotten prices up, the cost initiatives that are underway, as well as the synergies.

And, the regions that you are expecting less growth or, I guess it sounds like maybe declines, would that be more like Pakistan and Thailand, given the issues that you highlighted, and the cotton issues in Pakistan?

It would be the Pakistani -- it would be the legacy, I'll call it the legacy CPO Asian business, and the North American business.

And it just to clarify, on the legacy Asian business, are you seeing declines in Korea on HFCS or is it more driven by Pakistan?

No, it's more driven by Pakistan. What we are seeing is, we did have one product that there was a market opportunity that we took advantage of in 2010 that we are not expecting to see in 2011.

Okay.

And, as far as -- what are you seeing as far as sugar replacement? Clearly, there's been strong shifts into HFCS and Mexico, but are you seeing a pronounced shift in the use of corn sweeteners in packaged foods as well, in the North American markets?

You know, I think that -- this is Ilene. I think that there had been some substitution of sugar for high fructose in some of the food products, and I see that that has slowed. There are some brands that continue to use that in their marketing. But at the same time, we see that substitution slowing down. So in fact, we feel that the volume that we have now should continue. But there's always marketing brands that -- where they want to take advantage of some of the different features, but at the moment it seems pretty stable .

And on your synergy guidance, you talked about hitting the $20 million on a run rate basis by the end of 2011. Do you have an estimate of what the absolute realization will be for 2011?

What we said was $15 million. In other words, in year we are expecting $15 million bottom-line impact of those synergies.

Okay.

The $20 million run rate then, of course, it's more back-end loaded.

Okay. Thank you.

And then finally, I just want to follow-up on David's question about your gross corn costs in 2010,the benefit of by-products. Am I interpreting your comment correctly that you have this range of, when you go into the year, of how much of your gross corn costs you're going to hedge, and do I understand you correctly that, going into 2010 you hedged more at the low end of that range, so you were more exposed to the higher corn costs as we moved through the year in North America?

It was the layout of how the contracts and the hedges went on in 2010. So we were more -- we were at the higher ratio in the first three quarters than we were in the fourth.

Okay.

That's what the comment relates to, Heather.

Okay. Thank you. Great quarter, again.

Thank you.

Thank you.

Our next question comes from Ann Gurkin with Davenport and Company. Please go ahead.

Good morning.

Good morning.

Congratulations as well. Terrific results and outlook.

Thank you.

Just wanted to follow on a little bit on South Korea. The momentum was interesting to me in the fourth quarter. Is that something we expect to continue, or can you help me understand that market?

You know, in South Korea, when you go back over a year, we had some issues in terms of the relationship of sugar and high fructose in the beverage side. And so that's continued to be positive for high fructose on the beverage side and we expect that to continue. At the same time, we have a focus in South Korea on the food business, and specialty food. And so we are very focused on trying to grow our ingredient portfolio in South Korea. And what's also interesting is that National Starch has a presence in South Korea which we have put together, and that we expect to have a broader portfolio to sell to those food companies.

Okay.

And then we saw a nice volume for HFCS go to Mexico. How should we think about that momentum in 2011 versus 2010?

I think you should think about it that we are holding our own. There's no major issues related to the fructose sugar substitution in 2011.

Great.

And then finally, on North America, the better than expected volume. Was any of that due to customer wins or market share wins, or anything like that? Can you help me understand that?

I don't think it's new customers or market share. I think it again was driven by the demand from our customers, relative to the underlying beverage and food and industrial.

Okay, so just good organic volume growth?

Right. Recovery from the year before, the continuation of our current portfolio of customers and products.

All right. That's great. Thank you very much.

You're welcome.

Our next question comes from Ken Zaslow with BMO Capital Markets . Please go

Good morning, everyone.

Good morning.

First of all, I don't usually do this on a call, but congratulations. This is truly a transformative acquisition and you guys did a really good job.

Thank you.

Thank you.

So, a couple of questions.

In terms of the legacy CPO business, do you expect to see growth in 2011 outside and absent co-products?

Yes we do. Not a lot, but it's up from 2010.

Ken, as you know, on the co-product issue, when we reset the contracts on an annual basis, it's whatever the co-product value was at the time that contract was put together. The second thing is that I would remind people of is that in the North American market, and we are talking this is mostly North America, is that approximately 50% of the book of business, legacy CPO, is grain-related. I'll call it grain-related. So the customer is the one who gets the benefit, or the hurt, from the change in the co-product values.

Okay.

The second question I have is, excluding high fructose corn syrup, it's not a major part of the business anymore, can you talk about the pricing? Where you're getting pricing, and kind of give us a little bit more granularity to pricing outside of the high fructose corn syrup? Because high fructose corn syrup is not really as major part of the business anymore, so can you talk about other products?

Yes. And you're right, because now high fructose is no more than 10% of the portfolio globally for the beverage business.

We worked through the increased corn costs and were able to pass those on to our food customers. And of course, we recognize that for the consumer product companies this is a challenge in passing it on to their consumers. But we were able to pass those on pretty much across the board. And again, it's everything from the baking industry, to sauces, and salad dressing. So it was pretty much across the board. Of course it wasn't an easy time, but again we were able to pass on those corn costs.

Now, there are other cost inflationary increases that are more challenging to pass on, and that's where we have to be more productive and efficient in our operations. Now of course increased volume helps that throughput and our utilization, and therefore our efficiency. And then of course, we are also looking at procurement efforts, especially as part of our integration, to be more proactive in strategic sourcing to find other opportunities for cost reduction. So, it's really a balanced effort that's important in today's world.

I guess what I'm trying to get at is, in terms of the pricing, is it more in the beverage, is it more in the beer side of it? Is it in the paper? Where does it -- is it the mix side of it? Can you just talk to some -- again, trying to get off the high fructose corn syrup issue, can you give us a little color on other pricing environments, either regionally or product-wise? So we don't have to always talk about high fructose corn syrup.

No, I -- it's really across the board. In other words, there's no segment where I think that we ended up with more price realization versus cost, versus another. It's really across the board, in the products and in the regions.

Now, of course, as we talked about earlier, the National Starch portfolio, which is a more value added portfolio , again, we're pricing to value creation with the customers as opposed to any kind of cost plus, and we work very closely on product development with our customers there.

Butt I would say it was across the board and that there's no particular segment that stand out to be better or worse than another . And so again, it was a very focused effort across the world and across the product line. But again, nothing stands out to be higher or lower than

I think -- what stands out, and it's on one of the charts, is we broke out the $6 billion of revenue and the change from 2011 versus 2010 . And $1 billion incrementally is coming from the National Starch acquisition, and $600 million is coming from -- basically, it's the pricing increases to cover the input cost increase. And it is truly across the board, whether it be in the food business, the paper business, the pharmaceutical, personal care. It's really the impact of having the ability to pass through the significant change in our input costs.

The other piece that I would go back to is Ilene's comment with National Starch and the ability to partner with the customer. And so, very specifically, when you have products that are requiring high-priced oils, food oils, whether they be soybean or corn, and you can use a modified starch to replace for texture and feel , not only do you reduce the cost for your customer, and granted those products are higher than what the base starches would be, but you also then provide that help and nutrition focus that their customers are

Great.

And my last question is, I'm assuming you're not talking about it in 2011, but 2012 maybe we will be talking about it, is revenue synergies?

Yes, absolutely.

What is the outlook for that? Again, seeing the $1 billion from National Starch and $600 million from pricing, obviously there's no volume growth incorporated in your sales number. Can you talk about the revenue synergies going forward and how that is going to progress?

Yes.

We are very focused on putting that into action now and I'm not ready to commit to a number yet, but I can tell you that there's three pockets of opportunities that we are pursuing in a very succinct way. One is of course, with our new broad portfolio, selling that to global customers, and that we are already seeing signs of global customers are very interested in the new combined portfolio and ways that we can work together with modified starches and sweeteners and work with the global customers. So, I look at that as the first bucket.

The second bucket is really the cross selling of the product line to the two sets of customers. And I think I've said before, there wasn't a large amount of overlap in what I call regional customers, or the smaller to mid sized customers. So that's a real opportunity for cross selling.

And then the third is what I call the innovation or technology synergies, where I believe that with a new combined R&D portfolio of products, we can use our know-how and patents to put together new products for our customers across the board.

So, we are putting this together very succinctly. I think I mentioned to you, Jim Zallie has joined our group from National Starch, my executive leadership team. And Jim is helping lead this effort across the board. And so we see a lot of opportunities here. But we are not ready to give the number yet. But you're absolutely right that we expect this to start producing results in 2012, and we will use 2011 to see these opportunities with our customers and to drive the growth.

Cool. Thank you very much.

Okay.

Our next question comes from Christine McCracken with Cleveland Research.

Good morning.

Good morning.

Just wanted to touch on your overall business. You talked about the strength, I think, in food and beverage, brewing, didn't talk as much, I don't think, about corrugated or industrial. I know that that, over the last year or so, has been kind of volatile. I'm just wondering, as we head into the end of the year and now into 2011, if you saw any change or pick up in that business?

You know, I think that this business certainly has done better in 2010 and early 2011 versus 2009. And if you look at some of the numbers from the industry, like the corrugated industry, the fourth quarter was up 3.1% from the year before and 3.5% for the year. So, there are improvements year-over-year, but it is a lower margin business. I mean, it is a tough business.

And the industry itself has its own headwinds, so they like value creation but don't necessarily want to necessarily always pay for that. As so a result, our industry has had a little less focus on it, versus the food companies that do value the R&D and the additional product development. So, I'd say it's certainly an industry that needs our products and we -- our industry will be there for industrial, but it's, I think, upside is a lot less than the food industry.

Fair enough. It sounds like you'd probably make an intentional move away, if possible, from that business.

Well, it's all about balance and our opportunities. And we want to serve our customers and live up to our commitments. At the same time, we do need to invest our capacity in R&D growth for where we can grow and add value.

There is a third segment. You know, we talk about industrial and paper, but there are other industries in terms of personal care, we don't talk that much about, we talk about food. But the personal care side actually has similar dynamics to the food industry. And so we look at that as an upside opportunity. And if you look at like skin creams and shampoos, and even the detergent side of the business, there really are some value added opportunities, especially if we can focus on what I call green solutions that help our customers really answer the consumer desire for biodegradability, in the packaging, and some of the ingredients. I'd say in that, I don't want to write off all of industrial, it's just the paper and corrugated side has been less exciting than the food and personal care.

Just in terms of Brazil, it sounds like since the beginning of the year there's been a couple of new plants announced by Cargill and another competitor. I'm just curious, are you seeing outsized growth in that market? Is it unexpected? Obviously, it would be some time before those were fully up and running, but I'm just curious, as you look at the competitive landscape, if you see it getting more competitive with the addition in new volume?

The Brazilian market, it is growing 7%, 8%, 9%, I see numbers all over the board. And in fact, the recovery from whatever the recession there was came back very quickly in Brazil . So the demand for the products, from the brewers, from the food, from confectionary, even the personal care side, is very positive in Brazil.

So when you look at the announced capacity expansions, I think we are all growing with the market ,and that we are the leader there and we expect to continue to serve our customers in a very strong way. We now have four facilities in Brazil and we are excited about it. So, we think of the market growth will be served by the current

Okay.

And just one final one on Enliten . The plant's set, I think, to open up here. I'm just curious, what your early interest has been and if you think you're on target, I guess, for products out of that

Well, of course, it's an exciting new product. We see yourselves as more of a niche player and our channel will come on board this quarter. We have had interest and some early wins in what I call tabletop applications, actually both in North America and in Brazil. And so there's many customers that we are testing, with the food processors. So we are on track with getting the facility on target, and then we will be ready to serve the customers. And we see the demand growing at a very measured rate, because the product has been around from some other entities around the world. But we think that our niche and our value proposition to our customers, where we control and work with farmers on the Cultivar, that we can warrant quality from batch to batch, will be very exciting to our potential customers.

It certainly will be. Congratulations.

Thank you.

Our next question comes from Christina McGlone from Deutsche Bank.

Good morning, and congratulations.

Thank you

On the capacity utilization, the improvement, I wanted to understand how much of it was from demand improvement or recovery and then how much are you benefiting, or will you benefit from the integration of National Starch?

I don't think -- Cristina, it's Cheryl. I don't think there's necessarily a capacity utilization benefit from National Starch . It really is driven by the recovery in the economy and the demand coming out of

Okay.

And if you think about your growing, now you have different options to send your starch stream to. So I thought that would tighten utilization going forward, with -- now you can decide between, I don't know, dextrose, fructose, and one of the value-added National Starch products. Am I thinking about that the wrong way?

No, I think you're thinking about it the right way, but that will occur over time as we optimize our manufacturing network. And really what it is is a change in your finishing channel investment, and so instead of having to do a grind back investment for growth in a market place, in the North American marketplace you will be able to divert that starch slurry to a modified starch finishing line.

Okay. Thank you.

And then, in terms of Mexico, the USDA is projecting even more penetration for high fructose into the overall sweetener market. So are you -- when you talked about, to a prior question, just kind of stable growth, wouldn't Corn Products benefit from that increased penetration?

We are holding our own there. I know that people talk about increased penetration, but we had a very good run up, as you saw, in 2010. And so our intent is to hold our own in that industry in Mexico with our customers, and feel good about that. So, it's not something that we are betting on large growth. I think there will be some industry growth, but we are very -- we are happy with our position.

Okay.

And the issue with corn in Mexico that just kind of came up the last few weeks, does that impact you or are you mainly getting your corn from the US?

Christina, we source our corn from the US, and we also have local grown corn, as well.

Okay. So, would that be a headwind or it's really just too small?

I think it's too small.

Okay. And then my last question, this is also on the smaller side. But in terms of South Korea, is there an impact because of the fact that you are seeing livestock numbers fall, an impact on feed demand as it relates to your co-products, or is that not really relevant?

As a percent of the total, it's less relevant, but yes, there will be an impact on the pricing in Korea on the feed.

Okay. Thank you very much.

You're welcome.

Our next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone.

Good morning.

Maybe just a follow-up on Christina's question.

With US stocks (inaudible) at 5% right now, I know you guys hedge out your corn for 2011 already in the US, but are you at all concerned about availability of product of corn elsewhere in the world as we go through the year, in the event that we have some sort of weather disruption in the US during the spring?

Vince, it's Cheryl.

The North American market, again, as you pointed out, because of the way we hedge and the market pricing war, less of a concern. It's the issue around where is corn prices, not the availability, but where the price is going, as you come through 2011 and into 2012.

Okay. So you're not worried in South America, or anywhere else, about actually getting physical product at any point in this year if something goes amiss.

No, we are not.

Okay.

We're more concerned on the price side of it.

Okay.

And that's just presumably because in those spot markets there could be delay in terms of the ability to match the product price with the -- the presumable spike in gross corn costs, is that correct?

That's correct.

Okay. Thanks.

And just on co-products on 2011, am I correct to assume that there's been a co-product benefit for you guys since contracting in the fourth quarter of 2010?

Well, the co-product values have moved up so, yes as they stand right now, there is a benefit in some of it, and again really more the North American market. But again, the book of business is, roughly 50% is grain-related so, we don't get a benefit on that.

Okay, so not on all of it.

And then on the volume growth you're seeing, it seems pretty broad-based and it's obviously impressive, but in the developed markets where you are seeing it, can you characterize it a little bit, just because we just sat through another quarter of packaged food earnings where most of the companies are reporting still pretty weak volumes. And that's much more of a US and Europe thing, obviously in the emerging markets things are better. Are there any trends you're seeing, or anything that's changing on the margin?

I think that certainly in South America, we talked before about Brazil and the growth in all of South America, especially, well both Brazil and Argentina, has been extraordinary. But I think if you also look within some segments. So as an example, in looking in Europe, as I talked a little bit earlier, we are very focused on what we call the wholesome segment, which is all about the clean label drive in Europe, and that we have, as a part of National Starch, we have starches that are physically modified and so they are very attractive to those food companies that are looking for clean labels, very useful in ready meals in the UK. And so that segment is growing faster than the average. So that would be a pocket of opportunity, certainly, for us with a strong position.

But of course, as we said, South America and Asia has some above average growth, and some of the other countries.

Okay. I think I understand it.

And then maybe lastly, can you tell us now with National Starch, the percentage of your operating profit in both North America and for total company from high fructose corn syrup is what?

I don't think we can answer that question. I don't think we break it out to that level of detail, Vince.

Can't, or don't want?

What we publish is --

Well, you know the revenue numbers, Cheryl.

10%, across the world, for the beverage industry.

And that's -- I only ask, because you guys want to sort of not be considered the high fructose corn syrup company, and if we knew the percentage of operating profit it would be a lot easier to make that argument. Maybe you don't have it today, but maybe it's something you will think about disclosing, going forward.

As we look at get through the integration, and it's a good question, Vince. What we need to do is get our systems merged over the next 18 months, so that we can get a clear view of what the gross profit is by the various segments. But, I would point out that while we are less focused on -- clearly less focused on HFCS, given the fact that we run integrated plants, you have the ability to base load your plants with your liquid sweeteners. So that's a good thing, not a bad thing.

Right. Oh, no, I understand.

Thanks very much. I will pass it along.

Lisa, we will take one more question and then we have to wrap up.

Thank you.

Our final question will come from Ian Horowitz with Rafferty Capital Markets.

Hello. Good morning, everyone.

Good morning.

A couple of quick questions.

The Enliten plant is scheduled to come online second quarter, there's been some conversation about it, is this going to be any kind of -- do you expect significant volume out of this facility for maybe the second half of 2011, or is this going to be kind of fulfilling customers test batches and just small volume, kind of getting it up to operation?

I think 2011 is going to be a year to -- getting up to speed in current customer demand and maybe a 50% utilization. And it's really, 2012 is where it should be the bigger impact.

And, Ilene, would you expect that to be kind of at the year, so second quarter 2012 kind of time frame?

We hope to be able to really drive customer acceptance and demand, and it takes a lot of testing of flavors and texture to get it up. So I would say that during 2012, by the middle of the year, we should be to have some -- be able to show success in the plant. It's not a large facility, so we expect to be able to satisfy demand during 2012.

Okay.

And then, Cheryl, the tax rate, the 32% to 34%, excuse me, I would see that as kind of a geographic mix?

That's correct.

And so we should kind of model that for out years, as well?

At this stage, tax rates are predicated on what countries are doing, where your mix of income is, where you are in terms of your tax audits, but at this stage of the game, 32% to 34% as a long-term rate is a fine way to model.

No, understood. So, it's not some sort of one-time, unique opportunity --

No. And what we've talked about on previous calls is that our desire is to continue to be as efficient and effective and to drive the tax rate lower, if possible. And so, from a historical standpoint, we've probably been closer to the 34% , 35% and as we have grown the international operations, we've been able to reduce the tax

Sure. Understood.

And then, the guidance of the $15 million in synergies and the $30 million of integration costs, I understand the synergies will be somewhat -- the run rate would be somewhat back-end loaded. Could we assume that the $30 million of integration costs would be more front-end loaded, and that the second quarter should have, not maybe a similar charge as the first quarter, but something to that extent?

I think, again, because the costs are a combination of what I am going to call sales office leases, a number of real estate properties, some manufacturing optimization, they're probably more evenly distributed through the year. I wouldn't say that they are front-end loaded. I think it's pretty consistent across the four quarters.

Okay.

And lastly, Ilene, you've commented in the past, just given us some color on casual dining and down stream customer demand here in North America. Have you seen maybe a turn the maybe a turn, or if not a turn, maybe a bottom in this segment of your business yet?

Yes, you know, when I was looking at some of the numbers, like the restaurant numbers in terms of people going out to eat, it seems to have come back a bit. The numbers I've seen are over 4%, whereas retail grocery has been up last quarter more like 2.8%. So I see people going back to the restaurants and that part of our business, as it relates to selling to those type of customers, seems to be increasing. And of course, if you remember, we always said that when people go out to eat there's always an element of food that isn't always eaten but it is cooked and prepared. So we like that segment to be healthy, all of us. So, it's coming back. It's slow. The consumer is cautious.

And one of the interesting items about National Starch is that they work very closely with some chefs at restaurants in formulating products, not just for the restaurant but actually for what I call the restaurant take home market, where people actually can buy a frozen or prepared item and then prepare it at home with a few additional ingredients and have almost like a restaurant type meal. We do that for, let's say, PF Chang items . And that segment, as an example, has been growing. A lot of great positive response there.

So it's starting to come back and so we are excited about our National Starch acquisition and the product development that we are all coming together . And our future, going forward as a combined company, is

Okay. Great.

Thank you. That's helpful, and congratulations.

Okay. Thank you.

Great, and I think that concludes the call today.

Thank you all very much for your time, and we are, as always, available to answer any further questions. Thanks a lot and have a great day.

And that concludes today's teleconference. Thank you for your participation. )