Ingredion Inc (INGR) 2012 Q1 法說會逐字稿

Welcome to the Corn Products International first quarter 2012 earnings conference call. At this time, all participants have been placed on a listen-only mode until the question and answer session. (Operator Instructions) This conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call to Mr. Aaron Hoffman, Vice President of Investor Relations and Corporate Communications for Corn Products International. Sir, you may begin.

Thanks, Wendy, I appreciate it. Good morning and welcome to Corn Products first quarter 2012 earnings 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 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 the forward-looking statements and Corn Products International is under no obligation to update them in the future as, or if, circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or 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'm happy to 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. The first quarter came in very much as we anticipated. You'll recall that we indicated in February that we expected adjusted EPS to be down slightly in the first quarter. This was a result of both a very difficult comparison with the first quarter of 2011 and the timing of raw material costs in each year. As reminder, 2011 was a front-end loaded year and the first quarter was the strongest period. 2012 is likely to be the opposite, with results getting stronger as we move through the year.

Given that view, we are all the more pleased with delivering what is the second highest quarterly adjusted EPS in our history. If the back half plays out as we anticipate, that implies a very strong year, in line with our guidance. Beyond the overall good EPS performance, we also saw volumes increase for the Company, driven by strong performance in North America. We experienced very good demand for the beverage and brewing industries. Sales were further driven by robust pricing across the organization. We continue to demonstrate the ability to appropriately pass through higher input costs. Finally, as we previously announced, pending shareholder approval, we intend to change the name of our Company to Ingredion.

We fundamentally see this name as having a much better fit with our business model and our portfolio. While corn is our primary raw material, having it in our name does not reflect our business strategy. As we don't raise or trade crops and we don't speculatively hedge or run for-profit logistics operations, we are more properly defined as an ingredient company. Ingredion clearly conveys who we are. With approval of the name, we intend to make the change official on or about June 4 and will begin trading under the ticker INGR on the New York Stock Exchange.

Let's now take a quick look at our regional business performance in the quarter. Starting with North America, as I mentioned earlier, volume rose on strong soft drink and brewing sales. At the same time, we achieved incremental pricing to offset higher raw material costs. Operating income fell by just $1 million. Let me put that in context as we were lapping one of the strongest quarter we've had in North America. We were also faced with higher priced input costs as the timing and pricing of our hedges were more favorable a year ago. All told, this was a very good quarter in North America and sets the stage for another strong year.

Turning to South America, we've taken significant pricing actions there to offset higher input costs in devaluing currencies. However, the first quarter saw slower economic activity. The decline in operating income resulted from a combination of lower volumes and foreign exchange headwinds. We expect the price through the foreign exchange during the year to mitigate its impact. In fact, we expect year-over-year growth in operating income for this region. We continue to make significant capital investments and are setting ourselves up to benefit from growth in the region, as well as from the upcoming World Cup and Olympic Games. The long-term prospects for the region remain compelling.

We continue to see mixed demand trends in Asia Pacific. Volume was stable and operating income increased. In our EMEA region, sales fell slightly, which should be viewed as a positive considering the challenges we're facing with the sluggish European economy and ongoing energy issues from our customers in Pakistan. Operating income was down due to the soft volume.

As I turn the call over to Cheryl for a review of the results, I will reiterate that the first quarter was very much as anticipated and that we remain confident in our full-year guidance. Our business fundamentals continue to be strong and we see significant opportunity for growth this year and in the future. Cheryl.

Thank you. Good morning, everyone, and again, thank you for joining the call. As Ilene indicated, this was a very good quarter and we are on target to deliver another year of earnings growth. As I had mentioned in the February earnings call, this would be a year where we expected the second half to be stronger than the first half, the exact opposite of the progression last year. This swing is primarily due to the layout each year of the corn costs.

In addition, there were a few items that would not repeat, such as the NAFTA settlement of $58.4 million, which is in last year's first quarter operating income and net income, respectively, and the EPS impact was $0.75. Integration costs, as one would expect, will be lower as we wind down and complete the integration. The first quarter last year was also the quarter that had the lowest corn costs and was the highest performing quarter with respect to gross profit and operating income and earnings per share. While we do not typically comment at this level of detail on earnings guidance and our guidance is given annually, we feel it is appropriate in order to help understand how we expect to perform from a comparative perspective year-over-year.

Net sales were $1.574 billion, up $114 million or 8%. The net sales growth was driven by pricing of $121 million, volume was a positive $16 million and weaker foreign currencies had a negative impact of $23 million. The foreign exchange impact reflects the devaluations in South America, primarily Argentina and Brazil, of 8% and 6%, respectively. In the EMEA region with the Pakistan rupee declining 6% and euro down 4%.

Gross profit was $269 million versus $298 million last year. Considering comparable period strength and the impact of the layout of our hedges, we are pleased with our performance. The gross margin percentage was 18.8%, which is 160 basis points below last year, reflecting the impact of higher pricing in the calculation.

Operating income on a reported basis was $161 million, down approximately $66 million from last year. The $66 million decline in operating income is made up of the NAFTA settlement of $58.4 million; approximately $5 million of higher operating expenses to support our larger business; $4 million in restructuring charges for the North American manufacturing optimization, which was largely accelerated depreciation; and about $3 million in miscellaneous other income derived from a bunch of smaller items like scrap sales, disposals, insurance settlements, among others. Earnings per share on a reported basis were $1.21 compared to $1.97 last year, which included the $0.75 impact of the NAFTA settlement. On an adjusted basis, the EPS was $1.26, down $0.02 from a year ago.

The increase in total Company net sales was $114 million, price mix and volume $121 million and $16 million, respectively, was more than sufficient to offset the weaker foreign currencies of $23 million. The business model continues to hold up well in the face of rising costs and currency fluctuations. On a regional basis, the pricing mix was robust across each region. Net sales in North America increased by 14% or $112 million on pricing mix and volume.

South America was flat as we realized another quarter of pricing increases. We also saw the soft volume along with the weaker real and peso. As I mentioned in February, we expect volume to be more robust in the second half for South America as the region recovers from the economic slowdown in Brazil. We also expect to see lower input costs, which should ease some of the pressures on pricing and contribute to a rebound in volume.

Asia Pacific grew net sales by $7 million, driven by stronger price mix. Volume and currencies were flat. EMEA's net sales declined 3% or $4 million on weaker volume and FX pressures. While pricing mix was so robust to 7%, it was not enough to cover the volume and the FX headwinds. We expect EMEA to continue to face some headwinds in the coming quarter in light of the economic slowdown in Europe and energy challenges in impacting our customers in Pakistan.

The operating income view on a regional basis reflects a slight decline in North America of $1 million, a $3 million decline in South America, a positive $1 million impact in Asia Pacific, and a $3 million decline in EMEA. Corporate expenses were up $3 million reflecting the buildup of staff to cover our expanded business. Restructuring and integration expenses for the quarter were $6 million, of which approximately $3 million is accelerated depreciation charge for the manufacturing optimization in one of our US plants.

Turning to the EPS bridge, the impact on operations was a negative $0.07. Breaking that down, margin was a negative $0.09 and the FX impact was a negative $0.03. Volume was positive at $0.02 and a number of small items contributed $0.03 to other income. Non-operational items contributed $0.05 with a reduction in financing costs contributing $0.06, partially offset by a negative $0.01 from the tax rate. Financing costs in the quarter were lower compared to a year ago, due to lower rates and an unfavorable foreign exchange loss last year. The business generated positive cash flow from operations of $29 million for the three months ended March 31, 2012.

Net income was $96 million and depreciation and amortization was $54 million. The mark-to-market impact on our margin accounts was a negative $32 million and we invested $122 million in working capital. The working capital investment is a combination of higher receivables due to sales, inventory build for the second quarter, which is in line with normal business practices, and lower payables due to the timing of specialty corn purchases. We continue to invest in our business around the world and capital expenditures for the quarter were $59 million. We saw a higher dividend payment of $17 million. That reflects impact of the two increases made in 2011, which brings the annual dividend rate to $0.80 per share.

Changing gears to look at the full year, we are maintaining guidance both on a reported and adjusted basis. On an adjusted basis, we expect EPS to be up 7% to 12%, despite some of the challenging economic conditions. Our range is built on anticipated volume growth more towards our historical level of 2% to 4%, strong pricing to cover input costs, and a weakening foreign exchange outlook. The effective tax rate for the year is currently estimated to be between 31% and 33%. Given the number of questions we get on cash flow, we decided to add a slide this quarter to update you on the full-year outlook.

Our cash flow from operations forecast is around $600 million. We expect the margin account to remain stable and to reduce inventory levels as we progress through the year. Our capital spending forecast is between $275 million and $325 million. At the current annual dividend rate of $0.80, we would expect the dividend to be around $60 million. Pricing actions were in line to support the higher cost environment. High capacity utilization rates are expected in 2012 along with strong export demand in Mexico. Volume and operating income in North America are expected to increase. We expect to realize increased spreads as a result of the pricing.

The net sales and operating income growth in South America is anticipated to come from a roughly 3% increase in volume, solid pricing to cover costs, and partially offsetting foreign exchange devaluations. One note about the volume -- we expect it to accelerate over the course of the year as the economic activity improves. In Asia Pacific, similar to South America, we expect to see strong volume growth, which would contribute to the increases in operating income. While foreign exchange is a headwind, we expect the business to manage through it.

Unlike South America and Asia Pacific, currencies are expected to be problematic as the European business model is a combination of local and end imported production. Movement in the euro and pound are more difficult to recapture because of this. We anticipate volume growth based on the more specialty nature of this business. The guidance range incorporates both of these factors. Pakistan's energy crisis remains a challenge for many of our customers and has muted demand. All in all, while every year has its challenges, we expect the combination of our local execution and risk management philosophy to help us deliver on our shareholder promise. With that, I will pass the call back to Ilene Gordon for closing comments.

Thanks, Cheryl. As I've done on previous calls, I'll wrap up with our strategic blueprint, which continues to guide our decision-making and strategic choices with an emphasis on value-added ingredients for our customers. We were off to a good start for the year. The first quarter came in essentially as expected and sets us up to achieve our full year guidance. Volumes rose for the Company in spite of some softness in a few regions. As Cheryl detailed, we fully anticipate stronger results as the year unfolds. At the same time, the sound capital investments that we've made in recent years are starting to pay off and we continue to invest for long-term success.

We anticipate kicking off the second half of the year with the transition to our new name, Ingredion, which will help properly define our Company to the market, our customers, our suppliers, our employees, and other audiences. In sum, I'm confident that we are well-positioned to deliver another good year while setting ourselves up for the future. Now, we're glad to take your questions.

(Operator Instructions)

Heather Jones.

Great quarter.

I have a couple of questions -- three, actually. I was wondering if you could give us some color on -- looking at South America? Your commentary is consistent with what we've heard from some other companies. And just wondering, as we get -- well, we're now in Q2 -- are you seeing strengthening volumes? Because we've heard that the environment was softer more at the beginning of Q1 and began to strengthen as we exited Q1. Just wondering if you could give us some color on what you're seeing?

This is Ilene.

Heather, we're seeing pretty similar. Things are starting to pick up, but very slowly. But we've seen some better performance out of processed foods and even confectionery when you look at versus last year. I remember stating on a few calls that the confectionery was a little weak a little bit last year and exports were difficult. But we're seeing processed food and confectionery pick up. The brewing side is just getting started, and I think, as you've seen some of the announcements, I think everybody believes that the next increase in minimum wage will help fuel some of that growth.

Okay. Can you remind me the timing of the next increase?

The minimum wage?

Right.

I think it's coming up during the second quarter.

Okay. In North America, I noticed in your slides something about building inventories in anticipation of continued strong volumes in Q2. Are you expecting a similar pace of growth as you saw in Q1 in North America?

What we saw in Q1 was a bit stronger than what we had anticipated, and so we would expect that to continue through the second quarter, and actually for the full year. If I look at the change from where we were in February, we see the North American business a little bit more robust, driven by Mexico, and a little bit weaker in the rest of the world, which puts us back towards the total company historical norm of volume growth in that 2% to 3% range. We were hoping that it would be a little bit stronger, more towards the 4% to 5%, if you will, when we came into the year in February; but with a slow first quarter we've made some adjustments.

So, 2% to 3% for the entire company, and that's going to be more driven by North America than you previously anticipated?

That's correct, Heather.

Is it all the brewing and soft drinks? Because I'm sure you've seen commentary from packaged food companies -- it's not only they're struggling with sluggish volumes, but they're struggling with very weak volumes, and then you come out with a plus 4%. Very positive surprise. Is that being all driven by brewing and soft drinks?

Yes. Absolutely. The soft drink demand, as you know, will pick up even more during the year because of seasonality. But, yes, the brewing in Mexico continues to be strong. Our business would be consistent with what you're observing there.

Finally, on Q2 -- and I know you don't give quarterly guidance -- but last year, if you exclude the Argo issue, you would have done $1.22. Should we expect year-on-year growth from that $1.22 in Q2?

I think consistent with the prior comments, Heather, is that the first half is going to look relatively comparable to last year adjusting for the Argo, and that we're heavily weighted towards the second half of the year.

Okay. All right. Thank you.

Ken Zaslow.

Bank of Montreal.

One big picture question, I know you guys are trying to move to more of an ingredient-type company and with the name change. With that, would you not argue that a greater dividend would also actually put you, actually, not just by namesake in that category, but would put you more as a comped more of the ingredient companies with a higher dividend rate? Can you talk about why you would not start to move in that direction as well?

Ken, I would agree with you. We, right now, have looked at having a payout of 15% to 20%, and I do agree that some of the ingredient companies have a number that is closer to 20% to 25%. I think what we're looking at, really, is what we've said before -- is that we have many capital projects that, with a very good payout, that we're looking at and that's always our first priority for long-term growth. But I think as we've shown in the past year, we do think very favorably about dividend payout, so that is something that we could be looking at.

Would you expect, over the course of the next two to four years, a material step up in the payout ratio? Or is it something that's a wait and see? I couldn't just figure out what you're telling us.

What I would say is that we will seriously be looking at it over the next couple of years as we look at our capital expenditures. Frankly, as I've mentioned on other calls, because you asked for a long-term outlook, on bolt-on opportunities. Again, we look at growth investments as the first priority, assuming that they fit with the strategy and they're bought for the right price. But at the same time, I agree with you that dividend payout, in line with ingredient companies, should also be a priority.

Great. My second question, and then I'll pass it on, is -- the margin structure in North America was actually better than I thought, as well. Can you talk to me about what really happened beneath the volume number? Was it just operating leverage? Was it a cost structure? Was it operating efficiencies? Can you just talk about what's going on within the margin structure and what's the outlook on the margin structure?

Ken, it's Cheryl.

It's a combination of all of the above. It was the continued pricing to cover costs. It was the operational efficiencies from our cost saving initiatives, and it was a high utilization rate.

Would you actually start to get some of the benefit in the back half of the year regarding the mix shift? Or is that still a 2013 event? Can you walk us through some of the math on that? And then I will really end it there. Thank you.

If I look at the layout for North America, if we look at last year, the operating income to net sales ratio was just slightly under 10%. I would expect that we would be in the same bucket or zip code for 2012. The North American numbers, unlike the total company numbers, are a little bit more weighted towards the first half as opposed to the second half.

I would expect that the first quarter's operating income to net sales ratio is going to be the highest; almost similar to the layout last year, Ken, where we were at almost 12.9% and then we dropped down to the 8% -- 8% to 9% -- and that averaged out to almost close to the 10% for the year. I think we're going to see that same pattern in 2012. Part of the benefit in the first quarter not only is the high utilization, the pricing, but again, it's also layout of corn costs.

Thank you. I truly appreciate it. Thank you.

Tim Ramey.

It's D.A. Davidson.

Cheryl, you gave price mix of 8% overall for the company, and as we become focused on the idea of Ingredion and more specialty products and so on, is there a way you can give us some sense of the mix between price and mix -- i.e., did product mix contribute a larger part to that? Or was it really more commodity?

It's a little bit challenging to answer that, Tim. We're still in the process of finishing the systems integrations. In order to get it down to between what's price versus mix, is a little bit more challenging. But as we go forward more towards 2013, that is one of the things that we're striving to do. Because it is an excellent question with regards to what's driving the business; and being able to talk about what's mix with the specialties versus what's price across the core ingredients, I think, would be helpful to the investors.

Is that a function of the final phases of the SAP changeover? Or what's not in place to get that?

It's two things. First of all, the SAP integration on a global basis is not done. We just brought up the US/Canadian business on February 1. We're bringing up the European business in May, and then the rest of -- there's a few Asian businesses that need to come online in the latter part of the third quarter.

That then finishes the infrastructure build from a transactional standpoint. Then we're laying on top of that to reflect the new improved business model and the emphasis on innovation and specialty growth. We're actually building the business analytics that would allow us to have the integrity behind the data to actually talk about what I'm going to call sweeteners, starches, modified starches, in a little bit more color and detail.

Okay. You were just speaking a moment ago about uses of cash and how CapEx would be higher priority than dividends. If you think about just broad brush, the next three years of CapEx spending -- what percent of that might be more focused on revenue opportunities versus cost opportunities?

Generally, speaking most of our capital goes towards growth opportunities, and the growth opportunities I'll define in two buckets -- one is revenue -- it's volume for organic growth; and the second would be for cost savings -- the ability to reduce our energy costs, water consumption, chemical usage, packaging, and supplies. If I do it as a rough percentage, I would probably say 75% of our capital spend is always towards improvement at the operating income through the combination of revenue growth and cost savings.

Tim, this is Ilene.

Adding to that -- the revenue, of course, is geared toward the growing economies, Brazil, Mexico --

Argentina.

Things that we've been talking about in previous calls. But, of course -- and then the other piece that Cheryl also was referring to -- it's not just cost reduction, but there is a maintenance piece that we've always said is probably a base level of about $75 million of the $300 million average number per year -- that is just what I call base loading, keeping things going and running a good operation.

Terrific. Thanks so much.

Christina McGlone.

Deutsche Bank.

When I look at the changes in the regional outlook this time versus last quarter, and so as you said, North America's stronger and rest of the world is a bit weaker in volumes, overall weaker. Does that put you in a different range within -- the guidance range you gave us, does it now seem like we're maybe a little bit lower than you thought? Or does it make up for it, so that we're pretty much in line with what you thought for the year?

I think there were pluses and minuses that kept us in the range and why we're comfortable with the 5 to 5.25 on an adjusted basis. We never specifically pinpoint where in the range we are. I think we were being appropriately balanced with the volume. If we see a stronger pick up in the second quarter, or even more robust in the third and fourth, obviously that puts us towards the higher end of the range. If volume remains where it is, then we're probably more towards the middle of the range.

And we've got the currencies bouncing around. If I look at where the real on the February call versus where it is today, there is some room in there, as well, to take care of some of the FX. If there was a major explosion on the euro, then I would say that we would have to rethink the range.

Okay. That's helpful. For North America -- since volumes were stronger than expected and now you expect that to continue through the year, what gives you confidence that they'll stay strong?

This is Ilene.

Certainly we know that we have the summer season in North America coming up from the soft drink demand, and the same thing in terms of Mexico -- not just the beer demand, but the economy in Mexico. If you look at some of the GDP numbers, it's still one of the fastest growing economies from a GDP point of view. We are excited about the opportunities there.

And that seemed to strengthen a bit more in the first quarter? I'm just trying to understand why you went in saying stable volumes and now it's stronger? Is it because of the warmer weather?

People were always nervous early in the year. You're in the winter season and you're looking at, what does the year look like. We just saw that the orders that are coming in were increasing the demand for that beverage side, as well as some of the food side in Mexico. We believe that there's enough strength in those economies to drive those numbers.

I would add one other color comment, and Ilene mentioned it earlier in her prepared remarks -- is that, in addition to the confectionery and the beverage, we're also seeing very strong brewing demand and we provide grits into the brewing industry in Mexico. I think those are the two main drivers behind why we thought that volume would be stable, meaning that it wasn't declining but it wasn't necessarily growing, to now where we see some volume growth.

Sometimes I think there's still a perception about CPO that, depending on swings in corn, it's going to change how your operating income stream works. Can you talk about how the Company was positioned relative to corn before National Starch and how it is today? If we see corn start to fall with a very big new crop, what does that mean for corn products?

I have to take this in two different pieces, Christina. One is that the North American business is a contracted business. Again, rough numbers -- 50% is grain-related and 50% is firm price. On the grain-related piece, as corn prices drop, our revenue line will come down, but our absolute dollars remain the same. On the firm price, because we're hedged, it doesn't have much of an impact through the year other than on the cash flows, as the margin account increases. That means we pay up on the mark-to-market and we recover that when we actually buy the physical corn and sell the product to the customer.

On a following year basis, lower corn -- and again, sticking with North America -- should be beneficial, because if some of the volume weakness in the North American market is being driven by the pricing of goods to consumers, then I would think this would bode well for perhaps having a positive impact on demand. In the rest of the world, because of the nature of the business model, we adjust the pricing to reflect current market conditions, typically 30-, 60-day lag.

Again, when you think about how much pricing has gone on in the last two years to cover the rising corn costs, I would think that a declining corn cost would actually bode well, based upon the business model, both North America and rest of the world, because I believe it would have a favorable impact on volume.

Thank you. That's really helpful.

David Driscoll.

Citigroup.

A couple of questions here. The first one is on foreign exchange. Given that profits were down year-on-year in the quarter, is it fair to say that pricing was insufficient to cover ForEx; thus your statement that you will cover foreign exchange pricing requires some kind of additional pricing in the future quarters? Would you guys agree that I have your statements correct?

That's correct. The FX -- and it depends upon which part of the world -- obviously in Europe, we're not going to be able to recover the FX. But when we look at Asia Pacific and we look at South America, the answer would be yes. In total, the FX year-over-year change is pretty significant. It's probably somewhere between $0.17 and $0.20 on an annual basis year-over-year.

I do these calculations myself, and I agree that it is a significant number, which is why last couple of quarters I keep asking this question. At the end of the quarter, was your pricing in place or do you still have more to go?

The pricing is dynamic, so let's take South America. We're seeing the currencies, especially the real, devalue at a slightly faster clip than what I would have thought in February. They are continuing to price, but as we've talked about, there's typically a bit of a lag. We've been very successful in passing through the corn costs. When you look at the market as it goes forward for the remaining three quarters, Dave, is that as corn prices are coming down, that will help the pricing model to cover the FX headwinds.

Okay. That makes sense.

Cheryl, can you talk a little bit about the pacing of corn costs? Certainly, in North America, you got a healthy price increase this year. Corn costs are up, but can you talk a bit about the pacing of how the corn costs work? It's not an average corn cost that you apply to the quarters; it's going to relate to the hedges that you have in the different quarters -- or please correct me if it needs to be?

No. You're spot on, Dave.

The issue is that the corn costs -- again, let's be specific about North America -- is about 50% of the book of business is going to be grain-related. So there will be the ups and downs related to that. Then relative to the firm price, it's how the team laid out the physicals and the future. If you think about, on last year's, we had lower-priced corn at the end of the year than what we did in the quarter, so we were able to use that lower-priced corn in the cost of production at the same time the prices were going up. That's that quarterly impact as opposed to the full year, where it works itself out.

In a normal environment where you don't have the volatility in the corn, we typically have the lower priced corn in the first half. It gets more expensive as you go through the year, just because of the carrying costs on the futures.

But that's, of course, not true this year. This year, it's going to decline as we go forward?

That's correct.

Okay. In second quarter -- I forget who asked this question -- but somebody asked a good question there about the year-ago second quarter $1.20, give or take. The plant shut down cost was a $0.10 --

It was $0.10, yes.

Then it's like $1.20. Were you saying that you're, to the best guess that you have right now, that you're comparable to that adjusted number of $1.20? Is that what you're trying to tell us, hence the rest of the group --

Yes.

Okay. Wrapping it up. Bottom line, you topped estimates by $0.04, but you said that full-year volumes would be weaker than expected at two to three, down from four to five. You said the quarter was as expected, so maybe our consensus numbers don't mean anything. It sounds like the net read is modestly negative on weaker volumes. Do you guys agree with that? And is there any other offsets that you want to call out?

No. Actually what I would say is that the weaker volume is that we thought that there would be more robust growth in the international arena. It's come down a percentage point or two. When you think about the leverage of North America, and so the fact that North America is going to be up a couple of percentage points, I weigh North America more importantly. That's why we did not change the guidance range. We left it at the $5 to $5.25, because I think if we looked at where the growth was coming from, we were positively optimistic.

Okay. Thanks very much. Good quarter. Take care.

Farha Aslam.

Stephens, Inc.

My questions really focus on Asia. That's a significant growth opportunity for you, and probably why we're always so focused on your cash flow is we're trying to figure out what M&A opportunities you can pursue. Could you give us some color about what you're seeing in M&A opportunities in Asia or the rest of the world, if there's other opportunities?

This is Ilene.

We don't comment on specific opportunities. Certainly, China is a very big market. There are some big local players, but it's pretty fragmented. Of course, our business is in the specialty food arena, where our facility, our wholly-owned facility is very much focused on specialty food. We look at those types of opportunities and so there's some in China. Obviously, there's other parts of Asia that are out there and I know some of our competitors are even looking at India.

I would say that, as those economies firm up in their growth for the year -- and we all know that China has lowered their outlook in the short term -- as those things firm up, we'll continue to look at those as opportunities. Of course, we're always looking for the right strategy, the right fit with our customers. Part of it is the global customers -- as they grow around the world, they like to have companies like ours supplying them for secure, very quality food ingredients. That helps guide some of the things that we're looking at.

As you look down the line, do you expect into 2013, 2014, more of your growth to be driven by M&A opportunities or CapEx that you've invested to fuel organic growth?

I would say that it's the organic growth that will generate higher numbers than M&A. You never know when M&A -- it's kind of a one-time fluke when you get it done, and it depends on the timing of the year. I think the real answer your question is the organic. We've been making investments that we talked about a year, ago, 18 months ago, in different parts of the world. We talked about some investments in Europe for physically modified starches for the clean label.

We talked in South America about some the investments, and we've had investments in modified starch in Mexico in the past and even in Argentina. These are going to start to be completed and start to fill up. I would expect that those organic opportunities would have more growth than the M&A. But then again, we do look at M&A opportunistically as well as strategically.

My final question, and then I'll pass it on -- in terms of return, what type of returns do you look at in CapEx, so that we can think about that driving your growth going forward?

Our stated target is to exceed our cost to capital by a couple of hundred basis points. Each Cap Ex project carries an expected return based upon where in the world we're making that investment.

If we are making an investment in Brazil, we're going to look for a slightly higher return than, let's say, we have in the US. If I look at Pakistan, I would look for a much higher return. It's really based upon the weighted average cost to capital in that local market.

Thanks for the color.

Lindsay Drucker Mann.

Goldman Sachs.

Just to get back on North America and to clarify -- last year you had some funky items that made the quarter look especially good. Are you saying that this year, the strong performance is really a good run rate figure and there's nothing that is inflating numbers and this is actually a good reflection how strong the business truly was?

I'm not quite sure what the question is. If I look at last year's first quarter for North America, as well as for the total Company, we had the benefit of the pricing with the lower corn costs. Then as the year went on, so to be very specific, we had a GP in the first quarter of 20.4% that came down in the second, third, and fourth to average for the 18%. If we look at North America, are you referring to the NAFTA settlement?

No, I'm actually saying the timing of realized revenues versus realized corn costs was very favorable in the first quarter last year, so that gave you a pretty good number versus maybe an average spread.

That's correct. That's going to be the same this year as well.

Got you. Okay. When we looked at some of the industry data for some of the key wet mill production products -- high fructose corn syrup and other sweeteners and starches -- it looked like industry volumes in the US slowed in the period, which makes your strong performance particularly striking. Is this a function of you, perhaps your regional mix being better than what is just stated in USDA US numbers? Is it more favorable regional exposure, or do you think you're taking share of other wet mills?

This is Ilene.

We do ship down into Mexico, as well as we produce locally. I started to do some of the industry data, and yes, we're a little bit higher. But, again, I think that when you look at the exports for the region, I think we're very much in line with the industry and that there's demand that's growing in Mexico that continues to help the overall regional picture.

And I don't think based upon, looking at the CRA data, that there has been any movement in market share.

Okay. Can you talk about why we did see exports to Mexico slow in the period? Or why we've seen them slow?

In terms of the data overall, I don't see that they've really slowed down. The CRA overall was -- I think showed data that was up almost 1% including exports. It depends on how you segment the data. I think that people feel that the demand in Mexico continues to be robust.

Okay. We were just looking at the USDA data on high fructose corn syrup shipments to Mexico, and the data, we thought, seemed to have slowed, but maybe we were looking at something different. I guess then, that moves in the peso haven't had any impact in purchasing power there?

No, not that we've seen.

Okay. Thanks very much.

Akshay Jagdale.

It's KeyBanc.

I wanted to ask a little bit about the rest of the world. Can you just tell me why volumes in this quarter were weaker than you had hoped for?

A lot to do with the economic slowdown that we're seeing both in Europe, China, or Asia Pacific and South America.

Right. Again, you're hoping that the economies and the growth there picks up. Again, it could end up being a similar situation if GDP doesn't accelerate from where we are today?

That's correct.

Just going back to North America, following up on the previous questions -- can you give us a sense of that 5% volume number in North America? How much of that was really related to exports?

We don't break out. We report North America on a North American basis. We don't get into how much is in Mexico and how much is in the US or Canada.

Okay. Do you think any of that volume growth strength had anything to do with the warm weather?

I think it may have helped. But again, I think that, when we look at the portfolio of market segments that we're serving in North America, the combination of solid beverage, solid brewing, confectionery -- that it was a well-balanced quarter with the 4%.

Okay. One bigger picture question -- obviously, from my perspective at least, North American volumes were really very strong and probably one of the better quarters I've seen in a while from a volume perspective. I've been hearing a lot about Mexican demand in recent quarters.

I just want to make sure -- in the past, about a decade ago, there was this feeling that Mexico, there was a huge opportunity which there still is, and a lot of capacity came on and that depressed margins for the industry for a while. Although we are hearing a lot of good things coming out of Mexico now, can you just put that into perspective? I know you talked on the last earnings call about not expecting any new capacity to come on, but just give us some perspective as to why the wet corn milling industry maybe has learned a lesson or something; is not going to overexpand, even though we're seeing good numbers in North America.

I think that if you look at the last couple of years, we're actually one of the local players in Mexico; and so we've invested for the Mexican market for both the beverage and the food industry. It is true that, with NAFTA, we've all been able to ship down to Mexico to participate in the growth, so it's been a balanced system. But I think the industry has seen that it's important to have good supply/demand balance. I think that the industry is looking at different opportunities, but that we're very much in balance now, and that it's a total system to basically supply the different industries. When we look at our own business, we look at the supply/demand and we see that it's in balance, but at the same time, there's opportunities for growth in Mexico.

I think it's balanced and that you won't see any large investments, but I can't speak for what others might do in the particular industry. When you go back, when you're thinking way back, that's a totally different industry. There were different dynamics, different tax rules and so you've got to look at the last three or four years and how the industry has been able to provide the capacity for the growth in Mexico.

This is Cheryl.

I would add one more piece of color to it, is that the growth expansion that was anticipated for Mexico over a decade ago was to add liquid sweeteners, HFCS corn sweeteners, for substitution. That has occurred and is balanced and the market opened up with full NAFTA participation in 2008. No one would look for the same type of growth that, that drove in the next ten years as to what happened over the last the past ten years. If you think about GDP growth in Mexico, GDP growth being relatively flat in the US, and Mexico being a couple of percentage points, you're not talking about the need to add any type of significant capacity like that was done in the past.

That's very helpful. Just one follow-up on that same topic, Cheryl -- in terms of the blend rates, if I may, of HFCS to sugar, our research suggests that the carbonated drinks market there has reached limits. I just wanted to clarify, in terms of the growth you're seeing, is just growth in overall volumes, not a shift in blending from sugar to HFCS. It's real growth.

That's correct.

Perfect. Thank you.

Wendy, we'll take one more question, and then I think we will wrap up right up at about the top of the hour.

Christine McCracken.

Cleveland Research.

Just wanted to clarify quickly and not to focus too much on Mexico, but the brewing business, has it always been a significant contributor? Is this all the new growth or some of the new growth that you're seeing in that market?

It's a combination. Sometimes there's a little bit more organic growth. Sometimes it's just year-over-year changes in supplier demand.

Okay. But it's always been a piece of that --

Yes, it has.

Just in terms of the sweetener market -- because they have had a pretty big shortfall in the sugar crop in Mexico, is that part of your optimism around the growth prospects for sweeteners in that business?

I think it's very much related to the GDP forecast in the country. The data that I see has them at 3.6% for this year. As I said earlier, is one of the strongest economies. I think it's really very much due to the local consumption and the growing economy there in Mexico.

A 10% shortfall in sugar production this year doesn't really affect --

We don't see that as doing a major shift.

Okay. Last question -- in terms of the industrial starch outlook, can you talk just about maybe what you're seeing in the Brazilian market? Because I know that's been up and down. I might have missed it earlier -- it was a little early for me. That seems to be an area that is very telling in terms of economic growth going forward.

You are talking about the industrial in Brazil?

Yes, specifically.

The industrial in Brazil -- I think it's been lackluster, and it's obviously reflecting some of the economic slowdown in Brazil. I don't see that growing in any major way in the short term in Brazil. We see much more the growth in food, confectionery, and the brewing industry. The industrial industry -- it's one of those things, in parts of the world it's still growing, but it's a very slow growth in most areas of the world.

Can you remind me, in terms of order flow, how far out you normally see orders? And does it vary by industry, so you have a better snapshot in maybe industrial given the lead times? Or is it pretty much consistent across the different industries?

I think it's consistent across the different industries.

Is it three months or something less than that?

Probably that.

It depends on the customer. It depends upon the market. Normally, it's an ordering pattern of every 30 days in the international environment. The North American environment -- there's probably a little bit more visibility relative to your contracted for the year. But 30-day visibility from an order standpoint is probably reasonable.

And it's pretty consistent? There aren't any warning flags at this point?

No.

Great. Thanks so much. Have a great day.

This is Ilene.

Before we sign off -- I know we're short on time; I just wanted to make a few final comments. The corn products business model is performing very well and delivering strong results. In fact, the strength of the model becomes more obvious in difficult times when many other companies struggle to weather various headwinds. We delivered a good quarter in a position to achieve our full-year guidance, and we look forward to posting you on our growth and success in the coming quarters.

That brings our first quarter 2012 earnings to a close. We'd like to thank you, again, for your time today. We look forward to talking to you more about Ingredion.

Thanks, everybody.

Thank you. This does conclude today's conference. Thank you for participating. You may disconnect at this time.