Q3 2026 Ingredion Incorporated Earnings Conference Call - INGREDION INC

Financial Performance:

• Third quarter net sales were $1.8 billion, down 1% YoY (or up 2% excluding the Pakistan divestiture).
• Adjusted operating income declined 19% to $206 million; reported operating income was $201 million.
• Adjusted diluted EPS decreased 47 cents YoY, primarily driven by a 72-cent margin impact.
• First nine months net sales were $5.4 billion (down 1%); adjusted operating income fell 16% to $676 million.
• Texture and Healthful Solutions operating income dropped 10% to $95 million due to higher tapioca and manufacturing costs.
• Food and Industrial Ingredients (F&I) LATAM operating income decreased 6% to $109 million, impacted by currency and the Colombia earthquake.
• F&I U.S.-Canada operating income fell 36% to $52 million, driven by higher maintenance spend and volume softness at the Argo facility.
• Cash from operations for the first nine months was $389 million (down from prior year); capital expenditures were $313 million.
• Dividend increased to $0.83 per share (12th consecutive annual increase); $85 million in share repurchases occurred YTD.

Guidance and Future Outlook:

• Full-year 2026 net sales guidance updated to flat; adjusted operating income guidance lowered to mid-teens decline.
• Updated full-year adjusted EPS range set to $9.25–$9.70.
• Revised cash from operations guidance for 2026 lowered to $650–$750 million; capex remains $450–$490 million.
• Texture and Healthful Solutions: Expected sales growth of low single digits; operating income flat to low single-digit growth.
• F&I LATAM: Expected sales growth of low-to-mid single digits; operating income decline of mid-to-high single digits.
• F&I U.S.-Canada: Expected sales decline of mid-single digits; operating income decline of 35%–40%.
• All Other segment: Net sales expected down 20%–25%; operating loss approximately $15 million.
• Guidance assumes current tariff levels as of late October 2026 and excludes acquisition integration costs.

Business Segments and Product Lines:

• Texture and Healthful Solutions achieved 10 consecutive quarters of volume growth (up 2%); Clean Label Solutions up 8% YTD.
• F&I LATAM volumes grew 4%, led by brewing and beverage in Mexico and Brazil; secured a new multi-year brewing agreement in Brazil.
• F&I U.S.-Canada volumes declined 3% due to soft consumer demand; Argo plant production stabilized and inventories rebuilt.
• New capacity coming online for Clean Label Solutions; pipeline for new projects equals over one-third of prior year sales.
• Brazil production consolidated into a single plant, yielding initial efficiency savings.
• The acquisition of Tate & Lyle is progressing on schedule with a target closing in the second half of 2027.

Market and Competitive Landscape:

• Consumer demand softening in U.S.-Canada, particularly in sweetener categories (soft drinks, confectionery), driven by affordability pressures.
• Reformulation trends accelerating as CPGs seek to balance nutrition, taste, and cost; customers turning to Ingredion for complex solutions.
• Industry-wide tapioca prices up ~45% since January due to adverse weather in Thailand and cassava mosaic disease.
• Mexican peso strength creates transactional headwinds for LATAM operations; monitoring volatility in other Latin American currencies.
• Emerging markets (Asia-Pacific, LATAM) showing resilience, while Europe remained relatively stable.
• No material substitution of tapioca observed; its unique texture properties maintain demand despite price spikes.

Risks and Challenges:

• Argo facility facing operational headwinds including lower-than-target yields and elevated maintenance spending required for reliability.
• Record-high input costs for non-corn raw materials (tapioca) and energy (diesel) affecting margins with a lag in passing costs to customers.
• Severe weather in Thailand driving tapioca costs up ~65% YoY; price recovery lags by approximately one quarter.
• Geopolitical and natural disaster risks: Colombia earthquake impacted regional customer operations and volumes.
• Slower recovery of customer volumes in U.S.-Canada due to consumer trading down to smaller package sizes.
• Currency volatility, specifically the strong Mexican peso, negatively impacting LATAM margins.

Management Commentary and Tone:

• Tone was cautious and realistic regarding near-term profitability pressures, while maintaining confidence in long-term growth strategies.
• CEO Jim Zalley and new CFO Diego Reynoso emphasized the need to manage operational costs at Argo while rebuilding volumes.
• Management expressed strong confidence in the strategic value of the Tate & Lyle acquisition for solving complex customer reformulation needs.
• CFO Reynoso highlighted the strength of customer relationships and the potential to improve performance post-integration.
• Repeated emphasis on the "solutions-led strategy" as a key differentiator amidst affordability-driven reformulation.

Analyst Questions and Answers:

• Argo Challenges: Clarified that production stability has returned but financial recovery lags due to yield inefficiencies and higher-than-budgeted maintenance spend; no pricing concessions are being made to win volume.
• Tapioca Dynamics: Confirmed no viable material substitution for tapioca due to its unique textural properties; expects costs to moderate slightly in Q4 but remain elevated.
• Pricing and Spreads: Spreads in the U.S.-Canada F&I business are holding well as most business is multi-year contracted; cost pass-throughs are proceeding with a typical lag.
• 2027 Outlook: Management expects the one-time headwinds of 2026 (peso, Argo, tapioca, earthquake) to diminish in 2027, potentially allowing return to historical growth algorithms, though full guidance will come in February.
• Customer Recovery: Customers affected by the Colombia earthquake are back online, though pipeline fill-in created a temporary volume gap in the quarter.
• Productivity: Identifying further plant consolidation opportunities outside Brazil but preferring to wait for Tate & Lyle network integration to optimize the global footprint.

Other Key Points:

• Inaugural CFO Diego Reynoso previously served as CFO of Boston Beer, with prior experience at Tyson Foods and Constellation Brands.
• Ingredion has completed the sale of its Pakistan business; the remaining "All Other" segment reflects an operating loss.
• The company is leveraging its U.S. network to supply customers during Argo's operational recovery without losing market share.
• The acquisition target assumes regulatory and antitrust approvals; integration planning is already underway.
• The "snap benefit cuts" and election-related economic uncertainty in the U.S. were noted as potential factors contributing to volume softness.