Ingredion Incorporated Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Quarterly Challenges: Third quarter was more challenging than expected with net sales and adjusted operating income down more than previous guidance, but confident in diversified business portfolio for full-year operating income growth.
• Texture & Healthful Solutions: Focus on clean-label ingredients and solutions, with double-digit growth in U.S. and Asia Pac. Demand for protein isolates robust, with record sales for protein fortification in Q3 and over 50% contracted for isolates in 2026.
• Innovation: Integrated solutions-based sales growing faster than segment net sales. Latest innovations in egg and cocoa replacement solutions delivered cost savings and improved functionality. Advancing development partnerships for sweet proteins and novel clean taste solutions with stevia and sweet proteins.
• Operational Excellence: Indianapolis facility optimized with modernized plant layout and reengineered slurry transfer systems, reducing inventory requirements and enhancing service levels. Confident to surpass $50 million run-rate Cost2Compete savings target, realizing over $55 million by end of 2025. Hosted first Supplier Day and Global AI Forum for employee base.

Segment Performance

• Texture & Healthful Solutions: Net sales were up 1% in Q3 2025, operating income was up 9%, with an operating income margin of 17.4%. Driven by 4% sales volume growth in U.S., Canada, and EMEA, including double-digit growth in clean-label ingredient solutions.
• Food & Industrial Ingredients, LatAm: Net sales declined 6% versus last year. Operating income was $116 million with an operating income margin of 19.8%. Primarily due to softer brewing industry volumes and strategic realignment of brewing customer mix.
• Food & Industrial Ingredients, U.S./CAN: Net sales declined 7% in Q3. Operating income was $81 million, down 18% or $18 million, driven by production challenges at the Argo plant and lower-than-expected beverage and food volume demand. Estimated $12 million operating loss impact from Argo disruption.
• All other group of businesses: Net sales increased 17% across the board, but operating income was flat versus prior year due to protein fortification gains offset by lower profits from the Pakistan business

Guidance

• Full Year 2025: Net sales flat to low single digits decline. Adjusted operating income up low single digits to mid-single digits.
• Texture & Healthful Solutions: Net sales estimate up low single digits, operating income profit growth up high double digits.
• F&II LatAm: Net sales outlook down mid-single digits, operating profit flat to up low single digits.
• F&II U.S./Canada: Net sales outlook down mid-single digits, operating income down low double digits based on operating challenges.

Risks

• Latin America: Weaker consumer demand due to higher inflation and rising interest rates impacting GDP growth and consumer spending.
• U.S. Food & Industrial Ingredients: Ongoing operational challenges at the Argo plant, including production disruptions from a feed dryer fire, leading to tighter inventories and operating income impact.
• Mexico Beverage Tax: Proposed tax increase on sugary and nonsugary drinks sweetened with artificial sweeteners could impact consumer behavior and business volumes.

Question and Answer

Q: Andrew Strelzik asked about the demand environment, if it's continuing to slow or showing signs of stabilization, and customer mix management in LatAm.

A: James Zallie and Jim Gray responded that in LatAm, inflation and high interest rates are impacting consumer spending, with Mexico and Brazil GDP growth forecasts low. In the U.S., sweetener demand dropped in July and August but recovered in September. Texture & Healthful Solutions is well-diversified with growth in clean-label solutions.

Q: Kristen Owen inquired about F&II businesses, unpacking volume impact from macro weakening and company-specific events, and fourth quarter outlook.

A: Jim Gray and James Zallie explained that in F&II U.S./Canada, $12 million of the decline was from the Argo plant issue and $6 million from market softness. In LatAm, ~40% of revenue decline was from soft brewing volumes, with some transitory aspects. Fourth quarter outlook considers normalized production at Argo and market recovery.

Q: Benjamin Theurer asked about negative price mix in Texture & Healthful Solutions and dynamics in Latin America's beverage tax.

A: Jim Gray explained price mix was due to pass-through of input costs. James Zallie discussed Mexico's beverage tax proposal, noting past impacts on consumer behavior and potential indirect effects on business volumes.

Q: Pooran Sharma asked about U.S./Canada F&II production challenges at Argo and timeline for abating issues.

A: James Zallie stated Argo is a complex facility, with production impacts in July and August, but September returned to normal rates. Team focused on recovery, expecting Q4 better than Q3, with steady progress towards full recovery by 2026.

Q: Joshua Spector followed up on U.S./Canada F&II fourth quarter EBIT and future impacts.

A: Jim Gray noted Q4 EBIT guidance considers market pricing adjustments and consumer elasticity, with anticipated modest pricing inflation and potential demand pickup in Q4.

Q: Heather Jones asked about LatAm 2026 outlook and share repurchase.

A: James Zallie discussed Mexico's economic challenges and USMCA negotiations overhang. Jim Gray explained the new share repurchase authorization for 8 million shares over 3 years, reflecting confidence in shareholder value maximization