Ingredion (NYSE:INGR) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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The full earnings call is available at https://edge.media-server.com/mmc/p/dfs3yiig/
Summary
Ingredion’s Q1 2026 net sales were down 1%, with adjusted operating income down 22%, primarily due to operational challenges at the Argo facility.
The Texture and Healthful Solutions segment posted its eighth consecutive quarter of volume growth, driven by clean label and texture solutions, and is expected to continue benefiting from increased customer demand.
Ingredion announced plans to cease operations at the Cabo manufacturing facility in Brazil to drive operational efficiencies, which is expected to deliver benefits throughout the year.
Argo facility issues led to a $40 million impact due to higher maintenance and logistics costs, but the company expects the facility to return to normal operations in Q2.
Future outlook has been revised, with net sales anticipated to be flat to up low single digits for 2026, and adjusted earnings per share expected to be in the range of $10.45 to $11.15.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to the Q1 2026 Ingredion Incorporated Earnings Conference call. At this time all participants are in a listen only mode. Please be advised that today’s conference is being recorded. After the speaker’s presentation, there will be a question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star one one again. I would now like to hand the conference over to your speaker today. Noah Weiss, Vice President of Investor Relations
Noah Weiss (Vice President of Investor Relations)
Good morning and welcome to Ingredion’s first quarter 2026 earnings call. I’m Noah Weiss, Vice President of Investor Relations. Joining me on today’s call are Jim Zalle, our Chairman, President and CEO, and Jason Payant, our Vice President and Interim CFO. The press release we issued today as well as the presentation we will reference for our first quarter results can be found on our website ingredion.com in the Investors section. As a reminder, our comments within the presentation may contain forward looking statements. These statements are subject to various risks and uncertainties and include expectations and assumptions regarding the Company’s future operations and financial performance. Actual results could differ materially from those estimated in the forward looking statements and Ingredion assumes 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 in this morning’s press release can be found in the Company’s most recently filed Annual report on Form 10K and subsequent reports on Forms 10Q and 8K. During this call, we also refer to certain non GAAP financial measures including adjusted earnings per share, adjusted operating income and adjusted effective tax rate, which are reconciled to US GAAP measures in Note 2. Non GAAP information included in the press release and in today’s presentation appendix. With that, I will turn the call over to Jim.
Jim Zalle (Chairman, President and CEO)
Thank you Noah and good morning everyone. While we expected a challenging quarter after last year’s strong first quarter, results were weaker than anticipated in Food and Industrial Ingredients US & Canada due to operational challenges at our Argo facility. At the same time, performance in our Texture and Healthful Solutions and Food and Industrial Ingredients LATAM segments were in line with our expectations despite an increasingly uncertain macroeconomic environment. Overall net sales were down 1% and adjusted operating income was down 22% versus last year driven by Argo and softer industry volumes in Food and Industrial Ingredients, US Canada and LATAM. As expected, our Texture and Healthful Solutions segment delivered a solid quarter with broad based volume growth reflecting increased adoption of our expanding solutions portfolio and continued customer demand for clean label offerings. Turning to the next slide, we are pleased that our Texture and Healthful Solutions segment posted its eighth straight quarter of volume growth, up 2%, led by clean Label and Texture Solutions in EMEA and Asia-Pacific in Food and Industrial Ingredients latam. Overall volumes were slightly down for the quarter due to expected weaker consumer demand versus a strong first quarter. Last year we saw a modest recovery in Brazil supported by improved customer demand and early benefits from our Polyol’s network optimization completed at the end of last year. Additionally, this morning we announced plans to cease operations at our Cabo manufacturing facility in Northeast Brazil by end of quarter two. As we drive enterprise productivity to deliver operational efficiencies while sharpening customer mix priorities, we expect the actions we have taken in Brazil both commercially and operationally to deliver continued benefits throughout the year. In our Food and Industrial Ingredients US Canada segment, net sales volumes declined 7% in the first quarter, driven primarily by operational issues at our Argo facility as well as softer demand across certain food and industrial markets. As noted earlier, Food and Industrial Ingredients U.S. & Canada results were negatively impacted by Argo in the quarter. Within our February outlook, we expected 10 to 15 million dollars of additional costs to impact the quarter as the facility recovered to normal grind rates. However, additional operational challenges slowed the recovery and negatively impacted saleable inventory. As a result, the actual quarter one impact was much greater than anticipated, coming in at $40 million comprised of higher maintenance spend and the costs associated with elevated levels of rework. Additionally, we incurred higher logistics costs as we sourced products from other facilities in our network to meet customer commitments. In response to challenges in our refinery operations, we took meaningful actions during the quarter to diagnose and remedy the sources of process failures. We assembled a multidisciplinary team of internal and external experts in refinery unit operations and are pleased to say that downstream production returned to normal levels by quarter end. Unfortunately, in the midst of this progress, on April 10th there was an isolated thermal event in Argo’s corn Germ processing operations. While the front end grind and refinery were not impacted, crude oil production went offline. Our teams are working diligently to restore our Germ processing capabilities and we expect to return to normal operations in this unit within the second quarter. Our balance of the year assumptions for Food and industrial ingredients U.S. & Canada are based on the Germ processing recovery timeline that I just outlined, as well as sustaining current levels of production and yield through the refinery operations at Argo. Turning to a significant Driver of Texture and Healthful Solutions Growth in the Quarter Our solutions sales continue to outpace overall segment growth. As a reminder, our solutions portfolio is approximately $1 billion or 40% of this segment’s revenue. Clean label remains a major growth driver within our solutions offering. It is noteworthy to point out that even against a challenging volume backdrop, customers continue to seek clean label options. Our industry leading portfolio of functional native starches grew strongly in the quarter, benefiting from from sustained customer demand for simpler ingredient panels and increased reformulation support. Examples include customized texturizing systems for dairy and dairy alternative applications as well as solutions supporting reformulation for healthier bakery and beverage platforms. Solutions growth is coming from more than just clean label ingredients. It also reflects the breadth of our capabilities and how we are partnering with customers through co development, providing formulation expertise and differentiated ingredients. This combination is helping us deepen customer engagement and improve mix within texture and helpful solutions. As part of the innovation engine for solutions, we are increasingly leveraging artificial intelligence to power the consumer insights and predictive formulation work that are at the heart of our solutions customer briefs. This is helping us accelerate the brief to solution cycle time. Moving to another bright spot in the quarter, our healthful solutions portfolio comprised of clean taste solutions for sugar reduction and protein fortification continued to grow strongly. Sales of our pea protein isolates driven by recent new product innovations grew more than 50% in the quarter and our clean tasting stevia based solutions also demonstrated a solid 6% growth in the quarter. Growth in these categories is broad based across both branded and private label, reflecting the heightened consumer pull for protein fortified and lower sugar offerings. As we look ahead to the remainder of the year, we are actively monitoring and managing both the direct and secondary effects of higher energy prices. The largest impact we foresee is related to increased logistics costs which we are actively working to offset with in year price increases. It’s important to mention that at this point we don’t foresee major challenges related to sourcing any of our important manufacturing inputs. The work done in recent years to increasingly localize our supply chains should position us well to mitigate disruptions. We are also monitoring the impact higher energy costs are having on packaging inflation and gasoline prices and the effect that together they could have on consumer demand in the second half. At this point, it’s too early to estimate the degree to which these inflationary pressures may impact volumes. We are also carefully monitoring fluctuations in the value of the US Dollar. The Mexican peso has unexpectedly maintained its strength and this is presenting a meaningful transactional foreign exchange headwind for FNII Latam segment the dynamics brought on by new inflationary headwinds are familiar to us as we have successfully managed through these periods before. We have the operational experience to react with agility and we are leveraging our pricing centers of excellence to implement targeted price increases where they are required and where possible. With that, I’ll turn the call over to Jason for the Financial Review.
Jason Payant (Vice President and Interim CFO)
Thank you Jim and good morning everyone. Moving to our income statement, net sales for the first quarter were $1.8 billion, down 1% versus prior year. Gross profit declined 14% with gross margin decreasing to 22.4%, driven primarily by operational challenges at Argo, lower volumes and unfavorable mix in food and industrial ingredients. U.S. & Canada and food and industrial ingredients. LATAM and transactional foreign exchange impacts in Mexico. Reported and adjusted operating income were $203 million and $212 million, respectively. Turning to our Q1 net sales bridge, the 1% decrease was driven by $32 million in lower volume and $22 million in lower price mix, partially offset by $33 million of favorable foreign exchange translational impacts. Moving to the next slide, we highlight net sales drivers by Segment for the first quarter, Texture and Healthsold Solutions net sales were up 2%, driven by sales volume growth of 2% and foreign exchange favorability of 2%, partially offset by lower price mix, food and industrial ingredients. Latam net sales were up 1%, driven by favorable foreign exchange, partially offset by lower volumes and weaker price mix food and industrial ingredients. U.S. & Canada net sales declined 9% driven by operational challenges at Argo and weaker consumer demand. Now let’s turn to a summary of results by segment, Texture and healthful solutions. Net sales were up 2% in the first quarter and operating income was up 1%. The increase in operating income was driven by favorable input costs, foreign exchange and better volumes, partially offset by strategic price and mix management in food and industrial ingredients. Latam net sales were up 1% in the quarter. However, operating income decreased by 9% to $115 million with operating margins of approximately 20%. These decreases were driven primarily by Mexico transactional currency impacts and softer volumes in Mexico and the Andean region. Positive performance in Brazil and the Argentina joint venture helped offset some of these headwinds, allowing the total segment to deliver results in line with expectations. Moving to food and industrial ingredients US Canada first quarter net sales were down 9%, operating income was $34 million, driven by operational challenges at our Argo plant and weaker volumes and mix, Net sales in all other increased approximately 3%, driven by continued growth in protein fortification, particularly in higher value isolate and specialty protein applications. Operating income improved by over $3 million year on year, reflecting improved mix and operating leverage. Turning to our first quarter earnings bridge, the top half of the slide reconciles reported to adjusted earnings per share and the bottom half walks through the drivers of the year over year change. Adjusted diluted earnings per share declined by 63 cents year over year, including 71 cents of margin impacts and 14 cents of volume impacts that were primarily the result of the operational challenges we previously discussed. These headwinds were partially offset by foreign exchange benefits of $0.07 and other income benefits of $0.08 per share as well as $0.07 of non operating items including $0.06 of share repurchase benefits. Turning to cash flow and capital allocation, we continued to demonstrate financial discipline in the quarter year to date. Cash from operations was $33 million, reflecting a planned investment of approximately $205 million in working capital. This was driven primarily by receivables and payables. We invested $110 million of capital expenditures net of disposals to support reliability, capacity and strategic priorities across the business. During the quarter, we continued to return cash to shareholders through $52 million in dividends and the repurchase of $14 million of shares. This underscores our commitment to balance capital allocation and long term shareholder value creation. Now let me turn to our updated 2026 outlook. As Jim noted in his opening remarks, we have revised our outlook to reflect the updated impact from Argo foreign exchange transactional impacts from continued strength of the Mexican peso relative to the US Dollar, the impact of higher energy prices on input costs in logistics and softer volumes in Latam for the full year 2026. We now anticipate net sales to be flat to up low single digits and adjusted operating income will be flat to down low single digits. Our 2026 financing cost estimate is in the range of $35 million to $45 million and a reported and adjusted effective tax rate of 26% to 27.5%. Our full year adjusted earnings per share is now expected to be in the range of $10.45 to $11.15. This outlook assumes sequential operating improvements at Argo and continued resilience in the texture and helpful solutions segment. Our adjusted earnings per share range is based on a diluted share count of 63.5 to 64.5 million shares. We anticipate that our 2026 cash from operations will now be in the range of $725 million to $825 million reflecting our updated net income expectation as well …
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