Q3 2026 Ingredion Incorporated Earnings Conference Call - INGREDION INC

Explicit Guidance:

• Full-Year 2026 Outlook:
  • Net Sales: Flat year-over-year.
  • Adjusted Operating Income: Down mid-teens.
  • Adjusted EPS: $9.25 – $9.70 (assumes diluted shares of 63.5M – 64.0M, including $100M share repurchases).
  • Cash Flow from Operations: $650M – $750M.
  • Capital Expenditures: $450M – $490M.
  • Effective Tax Rate: Excludes acquisition-related integration/restructuring costs and potential impairments; reflects tariff levels as of October 2026.
• Segment-Specific 2026 Outlook:
  • Texture and Healthful Solutions (T&HS): Net Sales up low single digits; Operating Income flat to up low single digits.
  • Food & Industrial Ingredients (F&I) LATAM: Net Sales up low to mid single digits; Operating Income down mid to high single digits.
  • Food & Industrial Ingredients (F&I) U.S.-Canada: Net Sales down mid-single digits; Operating Income down 35% – 40%.
  • All Other: Net Sales down 20% – 25%; Operating loss approx. $15M (post-Pakistan sale).

Business-Segment Outlook:

• Texture and Healthful Solutions (T&HS):
  • Driven by "Clean Label" demand; pipeline equals >33% of prior year's clean label sales with new capacity online.
  • Momentum expected to continue as customers reformulate for simpler labels and higher protein content.
  • Volume growth expected to outpace price mix headwinds in 2026.
• F&I LATAM:
  • Mexico: Volumes recovering from prior year softness due to favorable weather and consumer spending; transactional FX headwinds expected to persist (strong MXN vs. USD).
  • Brazil: Consolidation benefits realized; multi-year brewing agreement secured.
  • Columbia: Kali plant operations normalized; customer delivery issues expected to resolve as supply chains recover.
  • Regional advantage: Locally produced ingredients remain competitive against imports during high transport cost environments.
• F&I U.S.-Canada (Argo Facility):
  • Production stability achieved for two consecutive quarters; inventories rebuilt.
  • Financial recovery lags operational recovery due to lower-than-industry corn extraction yields and elevated maintenance spend.
  • Focus remains on normalizing yields and controlling maintenance spend to restore profitability.
  • Volume softness observed in sweeteners/confectionery from August through Q4; industry data suggests continued weakness.

Market and Competitive Outlook:

• Demand Trends:
  • U.S. & Canada: Significant volume softness in soft drinks, confectionery, and packaged foods driven by "affordability pressures" on middle/lower-income households; consumers trading down to smaller package sizes.
  • Emerging Markets (LATAM/Asia): Resilient demand; brewing and beverage sectors driving growth in Mexico and Brazil.
  • Europe: Held up reasonably well despite inflation.
• Pricing & Input Costs:
  • Tapioca: Record high costs (up ~45% since Jan, ~65% YoY) due to Thai crop shortages (weather/disease); prices forecasted to decline modestly but remain elevated; 1-quarter lag in passing costs to customers.
  • Energy/Logistics: Diesel prices at record highs impacting freight/utilities; company targeting 70-80% pass-through in-year for these costs.
  • Substitution: No material substitution of tapioca observed due to unique texture/mouthfeel properties; customers preferring cost-absorption over reformulation.
• Reformulation & Solutions:
  • Increased complexity in customer briefs (balancing nutrition, texture, taste, cost) driving demand for integrated partners.
  • "Clean Label" and "Solutions" segments acting as strong growth drivers and margin stabilizers.

Macro / Industry Outlook:

• Economy & Consumer Behavior: Management cites "affordability pressures" and "middle/lower-income" trade-downs as primary demand drivers in North America.
• Currencies:
  • MXN: Strong peso creating transactional headwinds; company hedges forward, but volatility remains a risk.
  • BRL (Brazil): Volatility noted post-election; managed with caution.
  • ARS (Argentina): Stabilized.
• Regulation & Tariffs: Guidance assumes current tariff levels (as of Oct 2026); no major regulatory changes anticipated that would impact 2026 guidance.
• Supply Chain: Colombia earthquake impact largely resolved; logistics constraints expected to ease.

Strategic Initiatives:

• Tate & Lyle Acquisition:
  • Regulatory/antitrust reviews ongoing; target close in H2 2027.
  • Integration planning active; aiming for "day one" readiness.
  • Synergies/Value: Combination expected to create a single partner for complex reformulation (protein fortification + fiber/mouthfeel), co-creation with customers, and higher value solutions.
  • Network Optimization: Post-close, will analyze combined network for further plant consolidations (already targeted at 2 locations outside Brazil/Argo).
• Operational Restructuring:
  • Argo: Yield improvement and maintenance spend normalization are critical 2026 priorities.
  • Capital Allocation: Committed to completing $100M share repurchases by year-end; dividend increased to $0.83/share (12th consecutive year of increases).

Risks and Headwinds to Outlook:

• Argo Operations: Yields remaining below historical/industry rates; maintenance spend ahead of budget; slower-than-expected customer volume recovery.
• Input Costs: Persistent tapioca inflation (delayed price passes) and energy/logistics cost volatility; limited ability to hedge tapioca exposure.
• Consumer Demand: Unanticipated volume weakness in Q4/U.S. sweeteners due to consumer trade-downs; potential impact of SNAP benefit cuts/election outcomes in 2027.
• FX: Continued strength of Mexican peso and volatility in other LATAM currencies (BRL).
• Geopolitical/Physical: Earthquake impacts in Colombia; potential for further supply chain disruptions.
• Guidance Assumptions: Excludes one-time integration/restructuring costs; assumes tariff stability; does not factor in future acquisition costs.

Management Tone on the Future:

• Cautious but Confident: Management expresses "cautious" sentiment regarding Q4 and 2026 volume recovery due to market softness, yet remains "confident" in the long-term "solutions-led strategy" and the value of the Tate & Lyle acquisition.
• Operational Focus: Firm stance on fixing Argo's yield and cost issues; emphasizes that "operational recovery and financial recovery are at different stages."
• Strategic Optimism: High confidence in the combined entity's ability to solve complex customer reformulation needs and generate growth in 2027 and beyond.
• Guidance Changes: Explicitly lowered 2026 EPS and operating income guidance compared to prior expectations due to "slower-than-expected profit recovery at Argo" and "softer consumer demand."

Miscellaneous:

• New CFO: Diego Reynoso (ex-Boston Beer) joined Oct 1st; brings transformation experience to support Tate & Lyle integration.
• Dividend: Raised quarterly dividend to $0.83/share.
• Share Count: Guidance assumes 63.5M – 64.0M shares, reflecting planned buybacks.