Ingredion Inc (INGR) 2011 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Corn Products International 2011 first-quarter earnings call. Today's conference is being recorded. At this time it is my pleasure to turn the conference over to Aaron Hoffman. Please go ahead.

Thank you very much, Nicole. Good morning and welcome to Corn Products' first quarter 2011 earnings conference call. 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 was 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 these 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, I'll turn the call over to Ilene.

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

As we discussed on our last earnings call, we expect the first half of the year to be stronger than the second half. This is predicated on the upward movement in corn prices. Our results announced today certainly validate the previous guidance. We saw very strong performance across the entire business, driven by a number of factors.

First, we were able to pass through pricing at a sufficient level to cover rising input costs. Second, our mix improved nicely behind a focus on selling more value-added ingredients. In simple terms, we continue to move from more basic products to more specialized offerings that command a higher selling price. We have a good history of executing this shift in South America, which has contributed to their strong operating income growth over the past several years. And the National Starch acquisition gives us a nice catalyst to accelerate that transition in North America, Asia Pacific and Europe.

We also benefited from continued cost savings. Corn Products has a long history of delivering cost reductions, largely through manufacturing optimization. We saw savings flow through in the first quarter and expect that to continue throughout the year. Beyond that, we realized $6 million of acquisition integration benefits in the quarter, primarily from the standardization of our domestic benefit plans and procurement.

All of these items contributed to top- and bottom-line growth in each of our four regions and reflect the overall strength of the business model we have developed. We continue to manage on a local basis with a global perspective. A key element of the model is adherence to a prudent but appropriate risk management philosophy.

While the quarter was strong, we expect the year to also show very good growth trends. As you have seen, we are raising our guidance by $1.25 per share today. $0.75 of that relates to a one-time event, and the other $0.50 reflects anticipated improvement in our underlying operations. Cheryl will provide you with more details in a moment.

With a good 2011 in view, we continue to invest for the long-term as well. We expect incremental capital spending in Brazil and Argentina to continue to participate in those growing economies. At the same time, we plan to invest in Europe to better deliver against key food trends like convenience and healthier items.

Let me give you a short update on the acquisition of National Starch. As a reminder for those who may be new to our story, National Starch is a recognized innovator in specialty starches for food products, which has been 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 development. 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, giving us meaningful mix improvements.

Turning to the quarter and a status update, we remain on plan to complete the integration in the next 12 to 18 months. In fact, Brazil is now fully integrated and Mexico should be by the start of the third quarter.

We are pleased to further report that our synergies are coming in slightly ahead of plan. We realized $6 million in recurring savings in the quarter and now expect to see about $20 million for the full year and likely more than that on a run rate basis. We remain thoughtful but aggressive in pursuing additional benefits, though for now we remain comfortable with $50 million in savings over the next several years.

I should quickly point out that incurred about $7 million of integration charges in the quarter, again keeping us on plan for $30 million of charges for the full year. As in the fourth quarter, the National Starch business had a meaningful financial impact, delivering $348 million in sales, $50 million of operating income and an estimated $0.28 per share of earnings in the first quarter net of financing costs. This was a very strong quarter for the business, so, to steal Cheryl's phrase, we suggest you don't multiply by 4 to get a full-year figure.

Nonetheless, the acquisition has been immediately accretive and has added a higher-margin business that will help us improve our mix over the long term.

In summary, we are very pleased about the strong start to the year for our entire business and our good outlook for the year. Now I will turn this over to Cheryl to take you through some of our financial results. Cheryl?

Thanks, Ilene. Let me add my welcome to everyone on the call and webcast this morning. Before we get into the first-quarter results, let me give you a short overview to set the stage. As we told you last quarter, we anticipated flat volumes for the full year, and the first quarter was in line with that guidance. We have taken significant pricing actions across the business, as you'll see in a moment. These have been focused on passing through higher input costs like corn, which is up about 25% compared to the first quarter of 2010.

Historically our business, both in North America and the rest of the world, has a strong track record of pricing against rising commodity costs. That leads us to the co-product values which were neutral for the total Company in the first quarter on an EPS basis. North America benefited from the improved pricing on oil feed and meal, which was offset by the higher gross corn costs in the rest of the world.

Foreign exchange rates were positive, particularly the Brazilian real, the Canadian dollar, the Mexican peso and the Korean won. In the quarter we received a tax-free payment of $58.4 million from the government of Mexico that resulted from a NAFTA settlement. That payment is worth $0.75 per share of earnings, so we back that out of the operating income and EPS when we do our adjusted calculations, as you'll see in a moment.

Net financing costs were up $22 million, primarily reflecting the increase in our debt to acquire National Starch. And, finally, our tax rate for the quarter was 22.6%, due to the tax-free nature of the payment from Mexico. Absent that payment, the rate would have been slightly above 30%.

Those items then set the stage to look at some of the key financial highlights for the quarter. You will likely recall this chart from our last earnings call. It provides a good summary of the strong first-quarter performance that Ilene mentioned. 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 nonoperational. 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 as well as the Mexican settlement.

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 estimated EPS basis. As Ilene noted, our integration is progressing nicely. However, as we continue to fully merge the two businesses, it will become more challenging to provide this level of detail. We will attempt to help you understand the impact of the acquisition as appropriate.

With that said, let's take a look at the results, starting with a 56% increase in net sales for the quarter. This bridge provides a good look at the drivers of that increase. I'll start with the largest figure on the page and point out that National Starch contributed $348 million, or about two thirds of the growth. As a reminder, we treat all of the incremental National Starch sales as volumes and don't have prior-year comparable figures to provide more detail.

As expected, the impact of foreign exchange and volume was fairly small. The major operational change was an incremental $149 million of price mix driven by pricing pass-through and mix improvement. Looking at sales variance by region, the largest single factor is the incremental volume from National Starch. Beyond that, price mix is up 16%, reflecting both pass-through of higher commodity costs and ongoing mix improvements. Volume was up 1% for the total Company. Asia Pacific was down as a result of cost volatility of tapioca root in Southeast Asia. And for Europe, Middle East and Africa the strong volume was largely driven by sales growth in Pakistan.

Moving down the slide, you can see a sizable jump in both gross profit dollars and margin. In fact, this is the highest quarterly gross profit margin in the Company's history. Good results from both legacy Corn Products and the addition of higher-margin National Starch business contributed to the performance. We expect the first quarter will have the lowest net corn costs for the year. As we have previously pointed out, the net corn cost is not evenly distributed throughout the year. Versus the timing of the futures, later quarters have higher carrying costs, the difference between the spot prices and the future. And, second, our business outside of North America reflects current market prices. This is simply one of those instances where I'm going to suggest you don't multiply by 4.

We expect to see gross margin expansion this year, but it is likely to be more around 18% versus the 20.4% we saw this quarter.

Reported operating income rose $155 million compared to an increase of $98 million on an adjusted basis. About half of the increase in adjusted operating income came from National Starch, and the other half of from legacy Corn Products. Adjusted operating income margin was 12.1% compared to 8.3% last year. The operating margin is expected to compress mathematically as prices have risen so significantly and will outpace income growth.

Looking at regional contributions to operating income, you can see that we had growth in all four geographies. Income grew in North America largely as a result of mix improvement, which is what I will call National Starch, and cost reductions. South America had virtually no impact from National Starch. The entire increase came from positive mix shift and lower costs. In Asia Pacific, the growth came from the addition of National Starch. In EMEA, the improvement came from both National Starch and legacy Corn Products.

Corporate costs were up slightly, and we finish the chart by backing out the NAFTA settlement and the integration charges.

And now let's move to a discussion of earnings per share. We saw EPS rise 246% on a reported basis. On an adjusted basis, it rose 103% and excluding the estimated $0.28 from National Starch, EPS is $1, up 59%. As you have seen, we certainly expected a strong full year, but I will reiterate, don't multiply the first quarter by 4 to get to a full-year number.

With that said, this chart gives us a good snapshot of where our EPS improvement came from. We start with a reported first-quarter 2010 EPS of $0.57, add back $0.06 of charges related to the integration and -- excuse me -- acquisition and restructuring charges for Chile, and you have $0.63. From there, we have $0.42 of improvement in our operations, largely driven by $0.33 of market expansion that reflects higher prices, higher utilization rates and cost savings programs. We also had about $0.05 of integration benefits and some favorable FX.

From a non-operational standpoint, we had a $0.05 negative variance, primarily driven by higher financing costs.

That takes us (technical difficulty) to $1 of adjusted EPS before the impact of National Starch. As you saw earlier, the National Starch contribution is estimated at $0.28 of EPS net of financing costs. We then account for the settlement from Mexico and the $0.06 of integration charges, and we end up at the reported EPS of $1.97.

We can conclude the look at this quarter with a view of the cash flow statement, as you see on this slide. I'll point out a couple of items. First, we generated $22 million of cash from operations. Net income and depreciation covered the working capital increase of $202 million. As you can imagine, higher sales levels combined with the increase in raw material prices had a significant impact. At the same time, we built inventory in anticipation of customer orders entering the summer months.

About 60% of the change relates to commodity costs. The other 40% is the inventory build, which we would expect to work down over the course of the year. I will also point out that CapEx was $33 million, so we have some significant spending left to do in the remaining nine months. We also paid down $20 million of debt.

Let's turn to the guidance for the year. We expect 2011 earnings per share to be in a range of $4.85 to $5.15, an increase of $1.25 compared to the guidance provided in February. There are two components to the change. First, we received a NAFTA settlement, which adds $0.75. The other piece is that we have adjusted the guidance to reflect the better-than-anticipated first-quarter results.

It's also important to note that our guidance includes approximately $20 million of anticipated synergies from the integration of National Starch that we will expect will be offset by about $30 million of integration costs. As you have seen in the first quarter, we have already realized $6 million of acquisition integration benefits and $7 million of integration charges. We continue to believe that the first half of the year will be stronger than the second half and, as we have said before, this is based upon the upward movement of corn costs. We expect sales to exceed $6 billion in 2011 as we price through higher input costs.

The effective tax rate is expected to be between 31% and 32% for the full year. Capital expenditures should be between $280 million to $300 million to support growth initiatives, particularly in South America and Europe, as we have discussed earlier. Included in this range is $50 million of integration capital.

Before I turn the call back to Ilene to talk about the regional outlook, I would like to point out an anomaly in the second-quarter expectations. I'd like you to be aware that the second quarter will be negatively impacted by a sizable maintenance project at our largest facility in the US. Ilene?

Thanks, Cheryl. Let's start with North America. We currently expect sales to exceed $3.3 billion for the full year, driven largely by necessary pricing to cover higher input costs as well as incremental sales from National Starch. As Cheryl pointed out, corn costs are anticipated to increase as the year unfolds. We expect high utilization rates to continue. We also intend to implement 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 in specialty products from National Starch that I discussed earlier in our presentation. As part of the integration of National Starch, we will optimize our US manufacturing network to generate better efficiencies. Cheryl mentioned that we plan to spend $50 million of integration capital. This project is a significant part of that investment.

In South America we expect sales to reach a record of $1.5 billion, driven by strong sales to the beverage, brewing, confection and packaged food industries. Operating income should increase as we anticipate low-single-digit volume growth, mix improvement and cost savings combined with incremental profit from National Starch. And as we've announced, we expect to make significant investments to support the growth in our largest markets, Brazil and Argentina.

In Asia Pacific, we expect sales to top $800 million as we leverage the National Starch product line across the region. I will also reiterate the risk in Thailand from the ongoing issue with tapioca root cost and availability due to pest issues. And in Europe, Middle East, Africa region, we anticipate sales in excess of $500 million as we bring legacy Corn Products offerings in traditionally National Starch markets and vice versa.

We also expect margin recovery during the year as selling prices should catch up to higher input costs and as we execute cost reduction initiatives.

We've already mentioned some capital expansions which should help us accelerate our growth in these regions. And finally, I will call out the continuing energy issues in Pakistan.

As I did last quarter, I will wrap up with our strategic blueprint which continues to guide our decision making and strategic choices. This quarter is a good reflection of the business model at work. We delivered operational excellence as we managed through movements in commodity cost and continued to reduce costs through manufacturing efficiencies. At the same time, we reported strong bottom-line growth through mix improvement. That mix improvement is a result of broadening our portfolio to move into higher value-added products and categories, and we continue to invest in key geographies to capitalize on fast-growing economies and emerging consumer trends.

Our results and our prudent, thoughtful approach to delivering them over the long term should reward our shareholders today and in the future. And now we are glad to take your questions.

(Operator instructions) David Driscoll, Citi.

Good morning, everyone. Congratulations to another good quarter; you guys have -- you are on a roll here.

I'd just like to go off with a couple of detailed questions for the model and then one bigger-picture question. Cheryl, what's your expectation for interest expense for the year? I'm just going to roll these off, because they are pretty quick -- interest expense for the year? What is your expectation for the foreign exchange benefit to EPS for the year? And then also, can you talk about the North American maintenance, that issue that you called out; what's the earnings impact in the second quarter? So three details and one bigger-picture question.

Okay, let's start with the interest expense. $90 million to $95 million would be the (technical difficulty). On the FX full-year, estimating, we are probably $0.17 to $0.20 as a benefit versus last year. And then the North American maintenance project is at Argo, and it is estimated to be about $0.10.

And that's all second quarter?

That's all second quarter -- and the maintenance.

The bigger-picture question just relates to National Starch versus the legacy operations. Ilene, can you talk about the rate of profit growth expected between like the two businesses? So if we were to decompose them and just think about them in that -- separate buckets, how do you think about the trajectory of profit growth in each of the two pieces?

You know, the National Starch business we've talked about does have a higher margin versus legacy Corn Products. And certainly, we expect to continue to grow the business. But I don't really think of them as separately because, as we integrate the two businesses we are in the midst of bringing R&D and synergies to both parts of the business. But certainly, the National Starch has had a higher margin and it's targeted at a lot of the healthy ingredient consumer trends around the world.

Well, maybe if I followed up, I guess the underlying question is just looking at in the North American legacy operations for CPO, there's always been the belief that the margin structured there could be improved significantly. So there is like top-line growth from legacy ops and there's the margin benefit in legacy operations.

In the National Starch, I'm just not so familiar with what the margin opportunity is. Is it more just straight up sales growth, no real leverage to the margin itself, and then that's how profits grow over the course of time?

Yes. I think that, certainly, there's a little margin growth, but more so it's improving the mix of National Starch opportunities overall. And so I think you get a higher percentage of the business with the higher margin occurring over time. I don't know if -- Cheryl, would you add anything to that?

I would add that, in the North American market -- and it's what we alluded to, David, in terms of the manufacturing optimization. And so, when you combine these two businesses, one would hope that the top-line sales growth improves because you have a broader portfolio, and the bottom line improves because you are able to rationalize your manufacturing costs. And when I say rationalize your manufacturing costs, it's really, you shift the production between the three major Midwest plants -- Argo, North Kansas City and Indy -- to take advantage of freight charges, corn basis, energy charges, etc.

That's helpful. Thank you so much and again, congrats on the results today.

Heather Jones, BB&T Capital Markets.

Good morning and great quarter. I'm looking to go into South America as far as the organic volumes there. I was wondering if you could give us a sense of -- I was under the impression that Brazil is still fairly strong, and so just wondering if you could you give us a sense of what is going down there, specifically.

Yes, well, certainly Brazil continues to be strong across all the different industries, such as brewery and confectionery and the food areas. Colombia has been a bit slow, and certainly at one point we had shipped from Columbia into Venezuela, which we are not doing now. So there's a little bit of slowness, I would say, in Columbia. And Argentina -- the growth has not been very large of late, though we have certainly had some very positive profit improvement opportunities there, and certainly we have had to pass through corn prices there.

So I would say certainly the Brazil -- we are continuing to enjoy that growth. But some of that is offset in the region by Colombia and Argentina.

Okay, so Brazil is still strong?

Yes.

Going back to the Argo issue, is that going to be a $0.10 impact for the full year like that we should get back, say, in 2012 --

No, it's --

-- or is it an efficiency that you should recoup it in the back half?

We'll recoup in the back half. It's just a time issue.

Okay. And given your guidance increase, just wondering what drove that increased confidence, because it sounds as if co-products were neutral for the quarter. So just wondering, as you look through the rest of the year, was it just better price realization? Just wondering what's underpinning your more bullish guidance.

There are three things. It's the price mix/margin. So we are still running at high utilization rates. And I just want to point out, on the co-products we did have a benefit in North America. But I thought it would be disingenuous to say that it was a benefit for the total Company when our gross corn costs and net corn costs were up vis-a-vis last year.

So the guidance increase of $0.50 is split among price mix/margin improvement, stronger FX. If I look at where the Brazilian real is sitting -- let's call it 1.56 -- we had a weaker rate in our original plan, and it has come in a lot stronger, at 7%-8% improvement. And last but not least is the tax rate. When we have looked at the mix of how the quarter performed and expectations for the year plus some additional R&D credits, we were able to lower the tax rate by a couple of percentage points.

Okay. And, finally, I don't know if I'm reading too much into this, but when I was reviewing the 2011 outlook by region, I didn't see, really, any risk called out for South America and North America. But in Asia you talked about the tapioca risk and then Pakistan, the energy issues. Do you believe those, across all the regions, are the two biggest risks to your outlook? Or am I -- again, am I just reading too much into this?

Well, I think, certainly those are the two risks that we think should be called out other than, certainly, the maintenance item that we mentioned in the US. But in terms of what I'd call market issues, those are the two that we believe are the most important to call out.

Okay, thank you and good quarter again.

Ann Gurkin, Davenport & Co.

I too add congratulations on a nice quarter. Did I hear in your comments you are targeting synergies of $20 million this year? Is there upside to that number in 2011?

You know, I think that that is a good number. Certainly, originally we had said $15 million and that we would be at a $20 million run rate by the end of the year. It's coming in a little bit earlier than we thought, and so we feel that $20 million is a good number for the total year. So that is an increase from the $15 million, so the run rate may be a little bit higher at the end of the year.

I don't see a lot of upside to that for this year, and in fact I think, as I said earlier, the $50 million for the two years, I still feel very comfortable that that's the right rate.

Okay, great. And then if I think about legacy Corn Products business, if I understand correctly, you are looking for relatively flat organic volume growth. What's behind that?

We are, I'm going to say, cautiously optimistic and balanced that when you look at the price increases going through the food chain as well as the energy chain is we are not taking a bullish look on the second half. And we had fairly robust growth last year, so the comps are tougher.

All right, that helps. And just on a bigger picture, in any markets or any of your segments, are you seeing any change in consumer purchase behavior patterns? In other words, consumer moving up the value chain -- any change in that trend?

No, I don't see any change. Of course, certainly, as an example in Europe we do continue to see demand for clean label-type products where our physically modified starches, our specialty starches are in high demand. But that's just a continuing consumer trend. Otherwise, I think they all continue at the rate they have been.

Okay, that's great, thank you very much.

Ken Zaslow, BMO Capital Markets.

Two questions, one is CapEx. The $280 million to $300 million -- how much is maintenance CapEx?

It's probably about $60 million to $70 million, Ken.

So if I take that out, is it fair to say the projects that are being instituted are somewhere between, call it 15% to 25% return?

Generally speaking. Some of them are cost savings, some of them our growth opportunities. But yes; if I look historically, what we have gotten on project returns, you are in the ballpark.

Okay, so if I think about 2012 that would potentially contribute more than $0.35-$0.40 of just growth; it's just on the return on that? Is that a fair --

It depends upon the timing, Ken, because, if you think about time to implement a finishing channel, capacity, it's typically 18 months. Sometimes it's a little bit longer. There will be some cost savings which I would expect in 2012, and there should be some, I'm going to call it margin improvement from the network optimization project in the US. I don't know that I would put the OI benefit quite as high as you did.

Okay. And what about the Brazil project -- the Brazil plant that just came online? How is that going?

The Enliten plant? It comes online in the second quarter, so we will begin to see revenues from it as we progress through the rest of the year. But again, as I said on the last call, to the overall numbers it's immaterial. (multiple speakers). But of course, there were other investments in Brazil that we also announced earlier in the year that will be implemented in the other facilities in Brazil, too.

Okay. And then my second question is on revenue synergies. Can you give us -- and I know I ask this every quarter, but I probably will continue to do it. Can you give us some roadmap to see how the revenue synergies are going to be coming in 2012? And how do we at least -- and I know you can't give guidance, but can you give us a way to think about it? I know that -- the three different levels that you tell us, but is there some anecdotal evidence? Is there something that you are talking to customers, anything that we could kind of think about a little bit harder than just a framework?

Well, I know you would like more numbers to it, but I would say that we are still in what I would call the early stages, being six months into the acquisition. But I can tell you that our teams are working on very specific plans to look at what I call the cross-selling aspects for both local and global customers and being very definitive about where that will be value creating for the customers, and that at the same time we are looking at technology pieces that we can take our R&D and bring it to all our different customers.

So I think that, again, it's too early to give any numbers for that. But my expectation is that we would start to have impact in 2012. I don't know, Cheryl, would you want to add anything to that?

I would say that, again, given the fact that this was done for geographic and product portfolio diversification, it's really -- the benefit was for the margin enhancement from the mix. The geographic growth we wouldn't necessarily align and say that was a revenue synergy. So, Ken, I think we are very consistent in the conservative nature of the group. But unless they are really -- they can -- the sales and marketing team can pinpoint a customer that was not being sold by either one of the sides of the house and get a demonstrated benefit, I think the cost savings, the mix improvement, the geographic is really more the focus.

And on a $6 billion-plus business, again, the revenue synergies would be immaterial.

Okay, cool, thank you.

Christine McCracken, Cleveland Research.

Just on your North American volume numbers, I was trying to get a little bit more granularity regarding Mexico versus the US. You've seen, obviously, a very strong performance, their shipments into Mexico. And I'm just wondering if there has been any change to that or if you are equally as optimistic, I guess, going forward.

I think we are equally optimistic, Christine. When I look at the first-quarter numbers, the volume was a little bit softer in the US/Canadian markets but strong in the Mexican markets.

And with the declines we've seen here lately in sugar prices, just curious -- is it creating the same type of opportunity? I assume, based on my numbers, anyhow, we've still got a pretty nice benefit of using high fructose over sugar. But maybe globally, does that change the dynamic at all?

I haven't seen any change. And I see that will continue both in the US and in Mexico; there's still enough of a difference that the economics do favor the corn sugar. And so I think we will continue to see the same effect we've had with the strong demand in Mexico for US product.

And then just one kind of secondary question. I know your exposure is maybe more limited. But with China's change in policy relative to starch and, I guess, the implementations around starch processing, I'm wondering does that create more of an opportunity for you to export into that region? Or does it, net-net, hurt your exposure there?

I would answer it in that, why we have a food operation in China that we acquired with the National Starch acquisition and we have a very small industrial in China, where we actually have a difference in the National Starch model is that you have supply from Australia, supply from Thailand that can go into China as well. And it's an interesting opportunity over the long run to see if there's something that we could do with the South Korean business in the modified starches that would make sense to actually reverse the flow and have them go into China. But it's still a little bit too soon.

Okay, so no real big impact generally from that shift?

No.

No.

Okay, thanks so much, congratulations.

Christina McGlone, Deutsche Bank.

Good morning, congratulations. I guess the first question -- on the volume standpoint, the fact that it was -- that you had expected flat and it came in flat. But if you look at the Mexican opportunity and some of the corrugated box numbers that we are seeing, it just seemed that it would come in a little bit stronger, especially in the first half, because the comps are easier. And I'm curious, is it demand elasticity, or what is holding the volume back?

Well, I think that if you think about North America, we had a big focus on passing through prices, and I think that's where you are seeing the overwhelming focus. Mexico -- we had had very large growth a year ago, and so we continued to shift to our share in Mexico. And so, again, I think that was reflected a year ago, and that we held our own during this year. I think that, as I mentioned, I talked a little bit before about South America and certainly Brazil continues to be very exciting. And Europe obviously does have some opportunities; we are coming from a lower base there.

Okay, thank you. And then in South America -- I'm not sure if I've missed this. But, Cheryl, did you say that your National Starch did not contribute to South America?

That's correct. I mean, when you look at the size of our South American business versus what was in National Starch, it gets lost in the rounding.

Okay, but that's something that you are expecting to grow?

Yes. What we see is the combination. As you will recall, we've made some sizable investments in Brazil in the modified starch arena over the last several years. And so what we would expect that now, by combining these two businesses, we can accelerate that growth.

And then I think you were going to be combining plants down there; is that right?

We actually picked up a plant that's called Trombudo. We have not closed that plant because the demand is strong for the specialty starches, so we will run both facilities. What we are combining is the applications, research/development lab; those we are combining at Mogi.

And then, I guess, last question -- I'm curious as; I know that Cargill bought Tate's Fort Dodge facility, and I think it's mostly ethanol. But I wanted to see if you see that impacting specialty starch at all, or if they will have any impact on the business.

No; we don't see that impacting specialty starches and we don't know what they will do with the facility, but we don't see it entering that part of the business.

Okay, thank you.

Vincent Andrews, Morgan Stanley.

Thank you, and good morning and congratulations, everyone. And also thank you very much for the very detailed breakout on Corn Products versus National Starch. You didn't have to do that; a lot of companies don't, and it was very helpful.

I just wanted one quick one; it's just -- Cheryl, you're saying the co-products are going to be neutral to the total Company for this fiscal year?

We should have a benefit in the North American numbers, Vince, on that 50% of the book of business that is firm price. But in the rest of the world, the rate of growth at which the gross corn costs are moving, the benefit will be wiped out. So when you put the whole thing together, that's why I said I wanted to be clear that there was a benefit in North America, but the total Company there's not, because of the rate of growth in the gross corn for the rest-of-the-world operations.

Okay. Then my second question is just, could you help us bridge the strong performance in the quarter with the price/mix margin upgrade in the guidance? I guess really what I'm looking for is just what's going better than your expectations both in the legacy business and in National Starch? Was it just you were able to price better faster in the non-contract piece? I know you called out higher corn costs moving through the rest of the year sort of as a watch-out relative to multiplying the quarter by 4. But it also just seems like things are going better than you thought and maybe there's some conservatism on how you yourself are carrying that forward in the balance of the year, regardless of the corn prices.

Vince, let me answer -- I think you had two questions there. We did better in the first quarter because we got the prices through quicker, both domestically and internationally. And so, with the lower corn costs in the quarter, as composed to the four quarters of 2011, there was margin enhancements; I'll call it price mix/margin. We had a benefit of FX, and we had a slight benefit from the tax rate.

So if I put all those together, the increase in the guidance is heavily weighted to the performance that we had in the first quarter. As we progress through the year, we will expect to see higher gross corn costs both domestically -- I'll call it the North American business, and that's just the timing of how the contracts lay out and how the futures are allocated to them. And then for the rest of the world we are sitting at higher prices than where we were at the beginning of the year, and we've seen the organization be able to pass those through.

So really that's what I call the margin coming down a couple of percentage points from the first quarter is a reflection of the fact that the corn costs -- and it's predominantly the corn costs -- are going up over the remaining three quarters. And the second quarter has the anomaly for the maintenance project.

Okay, and maybe just one last follow-up on the corn costs. Have you baked in -- we're off to a slow start planting in the US, obviously; that doesn't mean we are not going to have a great crop. But there is some risk, some asymmetric risk, in our view, in terms of what could happen to corn prices if something goes haywire with the growing season. Is that contemplated in your expectations for corn costs in the international business, where you are buying on the spot market, at all?

The guidance is reflective of where the current market is today. If you had a sea change because there was a crop problem in the US, no we have not baked that in.

Okay, that's very helpful, thanks very much for all the answer.

(Operator instructions) Jeff Farmer, Jefferies & Co.

Great, thank you and good morning. You touched on this on the last call, actually earlier on this call. But on the last call you said that you believed North American capacity utilization rates increased by about 2% in 2010. Where do you think that number is today, and what's your expectation for 2011?

Well, we don't give a lot on capacity utilization rates, but I believe that it remains high, in the high 80s/low 90s, similar to what it was at the end of last year. And the expectation is it should stay around that level.

Okay. And then going back to an earlier sugar price question, it looks like in the last month alone sugar prices have dropped about 20%. Is there a level where you start to get concerned about potential demand destruction if we gap down another 10%, 15%, 20%? Do you start to see some of that sweetener demand roll off?

You know, I've always thought of sugar as certainly being 30% higher than high fructose, and in some cases even more, and there has been some volatility. I think most of the food companies and the soft drink have made decisions as it relates to marketing and brands and taste, based on that difference. And so I think small changes or even the (technical difficulty) won't dramatically affect that in the short term. That doesn't mean that wouldn't change for the long term, if that difference narrowed and continued to stay at that level. But what I've seen is the volatility and certainly still enough of a difference to make the economics favor the corn sugar.

All right, that is helpful. Just based on what you just said -- it's hard to sort of parse it out, but is there a lag that you have historically seen in terms of sugar prices go south and then six, nine, 12 months later you see some demand destruction for your products?

No, I've never seen any correlation on that.

Okay. And then just final quick question, sticking on the demand side here, looking at just, I guess, North America specifically, looking at beverage, food processing, food service, any big changes in the demand outlook in 2011 relative to the last call?

No, I don't see any changes. I look at some of the reports that have come out of Coke and Pepsi, and they've had some good growth. But it varies by brand. And I would say the food companies, from what I've seen, are a little bit less. When I looked at the retail grocery numbers it was more like 3.6% improvement, and restaurants was 3.5%. So I think this is basically in line with what we've been seeing over the past three to six months, and it's what makes sense. I don't see any changes coming.

Okay, thank you.

(Operator instructions) David Driscoll.

Just, Cheryl, one clarification on the co-product statements that you made -- I believe the correct interpretation of the comment that the rest-of-world co-product values kind of offset the benefit of the co-products in North America. My interpretation of that, and this is what I want to make sure I understand right, is that you had higher corn costs in the rest of the world. You buy that roughly on a spot basis. And as you are trying to raise prices, if you are not able to raise prices fast enough, your recovery of the co-products as a percent of the gross corn costs goes below historical norms.

That's correct. You are spot on.

Then the follow-up to that would be, at the end of the quarter, had you achieved high enough prices, given where spot corn is, such that kind we are -- kind of at the end of the quarter, we are at a run rate where those co-products are normalized?

I would say yes.

Perfect, thank you so much.

We are going to take one more question, Nicole, and then we're going to wrap up the call.

Vincent Andrews.

Thanks for the follow-up; it's actually a follow-up on the last follow-up. Cheryl, just on the co-product -- so benefit in the US offset by higher gross corn costs ex-US. I guess my question is more, as we go into next year, assuming corn prices don't go up again and you don't have -- and that co-products benefit in the US dissipates as you move into higher contracts, what does that mean for the total Company margin, then, if you still have the higher costs ex-US?

Here's what I would expect, is that in the North American market as they reset their pricing, they will reset to whatever the prevailing co-product value is. And so it starts the clock all over again. The rest of the world, all right, if we are holding at the current prices then they should start to, because -- and we've peaked towards the latter part of the quarter as opposed to the beginning of the quarter, then I would expect that we will be neutral because we will have to pass through the net corn cost.

Okay, got it, thanks very much.

Good, and we're going to let -- Ilene is going to make a few comments to wrap up, and then we will be all done.

Okay, well again, thank you all for dialing in. Again, we are happy about our good quarter. We know we have a lot to do to continue in the year, but our integration is going well and we are spending a lot of time and energy making sure we are executing against that and focusing on our customers to deliver value. And we continue to be excited about the opportunities for growth that we see around the world, and that the investment we will be making will be to address those opportunities for growth. So thank you again, and we look forward to future discussions.

Thank you to our speakers. With that, we will conclude today's conference. Thank you all for your participation. You may now disconnect.