Ingredion Incorporated (INGR)

INGR 
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Industry: Consumer Non-Durables
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Ingredion Incorporated (INGR)

Q1 2013 Earnings Call

May 02, 2013 9:00 am ET

Executives

Aaron H. Hoffman - Vice President of Investor Relations & Corporate Communications

Ilene S. Gordon - Chairman, Chief Executive Officer and President

Cheryl K. Beebe - Chief Financial Officer and Executive Vice President

Analysts

Kenneth B. Zaslow - BMO Capital Markets U.S.

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Farha Aslam - Stephens Inc., Research Division

Heather L. Jones - BB&T Capital Markets, Research Division

David Driscoll - Citigroup Inc, Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Presentation

Operator

Welcome to Ingredion Incorporated First Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Aaron Hoffman, Vice President of Investor Relations and Corporate Communications for Ingredion Incorporated. Sir, you may begin.

Aaron H. Hoffman

Thank you very much. Good morning, and welcome to Ingredion's First Quarter 2013 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, ingredion.com. 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, and actual results could differ materially from those predicted in the forward-looking statements, and Ingredion is under no obligation to update them in the future as or if circumstances change. Additionally, additional information concerning factors that 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 Forms 10-Q and 8-K.

Now I'm very pleased to turn the call over to Ilene.

Ilene S. Gordon

Thanks, Aaron, and let me add my welcome to everyone joining us today. We appreciate your time and interest. We are quite pleased with our performance in the first quarter. As we cautioned on our year-end earnings call, when giving guidance for 2013, we thought this would be a year with some real challenges. There's no doubt that throughout our business, we are facing headwinds ranging from commodity inflation to currency devaluation, from slowing economic growth to accelerating input costs. These challenges aren't new, and they're not a surprise. You've heard about these factors from us for some time now. And as you're aware, we've weathered these storms, managing through them on the strength of our business model and the discipline that defines a good management team.

The first quarter of 2013 is no different. Our business model remains resilient. Our management team has acted with discipline to maintain our dollar margins. And at the same time, we continue to invest in both geographic and portfolio opportunities to help ensure our long-term growth.

From a consolidated view, earnings per share grew nicely. Cheryl will provide you with more detail in a moment. And from a regional perspective, we saw operating income increase in 3 of our 4 regions: North America, Asia Pacific and EMEA, which combined represent nearly 80% of our sales. In South America, where the challenges are the most diverse and severe at the moment, our in-country management team continues to make the right decisions to maintain the overall health of the business even when those are hard choices in the short term. And as our shareholders understand, this management team makes decisions that are designed to drive value. You'll see that in our results.

You also see that in our cash allocation. During the quarter, we increased our quarterly dividend by 46%, providing investors with a solid yield to go along with the strong historical and long-term anticipated earnings growth of the company.

Now let's take a look at each of the regions and their performance in the quarter, starting with North America. We continue to achieve good results. Our manufacturing efficiency program is delivering meaningful cost savings. If you recall our long-term EPS guidance, a portion of the growth is expected to come from cost savings, and this is a good example. We have a long history of successfully managing costs and expect that trend to continue. As in previous quarters, we continued to demonstrate the ability to appropriately pass through higher input costs in pricing. This has been critical to our success in an escalating commodity environment and reflects favorable industry dynamics and the importance of our ingredients to our customers.

Finally, our risk management discipline has also allowed us to manage through a highly volatile commodity environment. While we can never fully eliminate input cost fluctuation, through our contracts and hedging of firm-priced business, we expect to be able to significantly mitigate the volatility.

Speaking of a volatile environment, South America is certainly that right now. Inflationary pressures continue in Brazil and Argentina. Economic growth has slowed, and currency devaluations pose a challenge. But in spite of these challenges, we are holding our own as our managers navigate a difficult environment while staying true to our business model. Cheryl will take you through all the numbers, but it's worth pointing out that South American operating income was down only $2 million as we traded price for volume. This is exactly how we want the business to respond in this situation. And importantly, we remain confident that the Brazilian economy will pick up in the second half of the year as Brazil gets closer to the World Cup in mid-2014. And while we've seen softness in the Brazilian brewery market, our food business there is experiencing positive volume trends.

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