Good morning, everyone, and welcome to the Corn Products International 2011 Second Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Aaron Hoffman. Please go ahead.

Thanks, Corinne. Good morning, and welcome to Corn Products Second Quarter 2011 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, cornproducts.com. The 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. Actual results could differ materially from those predicted in those forward-looking statements, and Corn Products International is under 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 10-K and subsequent reports on Form 10-Q and 8-K. With that out of the way, I'll turn the call over to Ilene.

Thanks, Aaron, and let me add my welcome to everyone joining us today. We appreciate your time and interest. We continue to see strong performance across the entire business, driven by a number of factors. First, we were able to pass through pricing at a sufficient level to cover rising input costs. Second, our mix improved behind a focus on selling more value-added ingredients. With the National Starch acquisition, we continue to move toward higher margin, more functional ingredients that help our customers improve their products and, at times, reduce costs. We also benefited from continued cost savings. We saw manufacturing optimization savings flow through in the first half, and expect that to continue throughout the year. Beyond that, we realized $12 million of acquisition integration benefits in the first half, primarily from procurement and employee-related initiatives. All of these items contributed to top and bottom line growth in each of our 4 regions and reflect the overall strength of the business model we've developed. We continue to manage on a local basis with a global perspective. And underpinning our business model is adherence to a prudent but appropriate risk management practice. With a strong second quarter and first 6 months, we are well-positioned to achieve our guidance. As we discussed on our last earnings call, we expect the first half of the year to be stronger than the second half, particularly in North America. This is largely a result of the upward movement in corn prices. With a good 2011 in view, we continue to invest for the long term as well. We expect incremental capital spending in South America, as we continue to participate in those growing economies. At the same time, we are investing in Europe to better deliver against key food trends like convenience and healthier…

Thanks, Ilene. Let me add my welcome to everyone on the call and webcast this morning. Before we get into the second quarter results, let me give you a short financial overview. As we have discussed on previous calls, we anticipate fairly stable volumes for the full year, and the second quarter was in line with that expectation. Given the microeconomic turbulence in many countries, we view relatively stable volumes as a positive and are pleased that we can maintain these levels this year. I would also point out that the volume recovery last year was quite strong. In the second quarter of 2010, volume was up $143 million. This quarter was similar to the first quarter, with significant pricing actions across the business. These have been focused on passing through higher input costs, particularly corn. Historically our business, both in North America and the rest of the world, has had a strong track record of pricing against rising commodity costs. Given our risk management approach and our historical ability to deal with input cost volatility, on a short-term basis, changes in corn prices generally have a nominal impact on the business. That leads us to the co-product values, which partially offset higher gross corn costs, but resulted in no incremental benefit to our operating results on a consolidated basis. As in the first quarter, North America benefited from improving pricing on oil, feed and meal, which was partially offset by the higher gross corn costs in the rest of the world. Foreign exchange rates were positive in a number of our larger markets. And now, let's move on to the financial highlights for the quarter. You'll likely recall this chart from our previous earning calls. It provides a good summary of the strong second quarter performance that Ilene mentioned.…

Thanks, Cheryl. As I've done in previous calls, I'll wrap up with our strategic blueprint, which continues to guide our decision-making and strategic choices, with an emphasis on value-added ingredients for our customers. With half of 2011 behind us and 9 months of owning National Starch, we're seeing our business model and our strategy continue to work well and evolve. We have delivered strong performance in spite of some difficult economic situations around the world. This is a testament to our prudent, thoughtful approach to managing risk, building our business and the talent of our dedicated employees. At the same time, our strategic acquisition of National Starch continues to provide a catalyst to accelerate Corn Product's already impressive track record. Looking at the back half of the year, while there's always risk in the potential for volatility, we remain confident in our ability to execute well and deliver our anticipated results. And now we're glad to take your questions. Operator?

[Operator Instructions] And first, we'll go to Ken Zaslow with BMO Capital Markets.

I have just a housekeeping question and then one bigger-picture question. If I look at $0.12 from the maintenance, does that include any missed opportunities on the sales growth line? And if so -- if not, how much would you attribute to the sales growth that we might be able to recapture over the next 6 to 9 months?

The $0.12 does not include the missed sales opportunities. Clearly, there were some, because we didn't have extra volume and wanted to satisfy the customer commitments, but we have not quantified what that is. But clearly, there were opportunities that we couldn't fulfill because of the maintenance.

Okay. My bigger-picture question is, I know you're not providing 2012 guidance, but your long-term growth is 10%. Besides the absence of obviously the maintenance issues next year, are there any factors that we should be aware of for 2012? Or said differently, is there anything that would prevent CPO from achieving at least that 10% growth level in 2012?

Ken, it's Cheryl. I would say that we fully expect, and this is a forward-looking statement, to have our long-term growth of 10% or better. If I think about next year, assuming there's no change in the corn costs, so we don't have a disruption in the crop, and that the pricing model holds, then we should have the benefits from the integration, so the savings coming from combining the 2 organizations, and we should have the benefit coming from the manufacturing optimization going on in our U.S. business. And I would expect that coming into 2012, that hopefully the economic situation on a global basis eases up a bit, and that would give us some more volume.

The $30 million increment earnings from 2012, will that all flow to the bottom line?

It should. The only thing that doesn't flow to the bottom line is the fact that you still have to factor in inflation, and whether or not it all comes in, in the timing in the first, second, third and fourth quarter, offset by perhaps some chemical costs increase. But at this point in time, the $30 million from our visibility looks good, right down to the bottom line.

And what about any return on capital projects in 2012? Is there something that we could think about? How much will be coming on line from just your capital spending on new projects that are coming on line?

Most of the capital spending won't hit until we're out in the later years, 2013, 2014. There are some expansion projects that are smaller, that should start to hit the numbers. But again, they're just startups. So I think, really, at the end of the day, the numbers next year is manufacturing optimization savings, the synergy savings of $30 million and some volume.

And what about pricing? Are you done taking pricing in South America?

No, I think -- well, if corn prices stay at the rate they are today, then we're done having to take pricing action. The pricing action that has to occur is in the North American market next year.

And next we'll go to Christina McGlone with Deutsche Bank.

Cheryl, I just wanted to understand the North American margin commentary a bit more. When you talk about the second half being weaker than the first half, are you pulling out the Argo maintenance charges and the accelerated depreciation to make that comparison? Or are you doing it kind of as reported?

I'm doing it as reported. And the other piece that is prevalent in the North American numbers is, again, we had a very strong first quarter. So if I look at second quarter, where basically the legacy business is down in total, driven by the Argo maintenance project, but the first quarter, the legacy business was up. And that carries through the year. So it really is the layout of the corn costs quarter-to-quarter. Lowest in the first quarter, up 13% second quarter versus the first quarter, and it will continue to rise as we go through the third and the fourth.

Okay, so in as-reported, you had 10.5% operating margins in North America. And you're saying second half will be lower because of that pattern of corn, even though you don't have the Argo charge?

That's correct.

And was there any -- if we look at Argo being down, [indiscernible] and that's your largest plant, I mean, what about fixed cost utilization? How much did that knock off things? And why wouldn't that come back in the second half?

That will come back in the second half, all right, but the $0.12 is a combination of lower yield, higher absorption costs and actual maintenance spending. So it's the combination of the 3.

Okay. And then when you talk about -- can you just review, in Asia Pacific, why were volumes down 6%? I missed that.

Asia Pacific, we had made a comment at the year-end call, that we were going to be down in Asia Pacific. And, again, to put context in, we have realigned the countries, so this is Korea and Southeast Asia in the legacy CPO business. We had onetime liquid dextrose sales. So on the volume number, it skews it. But on the OI, we expect to be up year-over-year. And if I look at the second quarter, again, taking into account that the volume was down, but the legacy CPO is estimated to be up almost double. And net volume was about -- from a net sales standpoint, about worth $2 million.

And just going back to North American margins, if we think about next year, with pricing starting earlier, I think that's a good sign that pricing will be firm and should offset, maybe more than offset net corn costs. Are we -- could we -- when can we start -- how can we think about margins going forward? What would drive margin expansion from this point? Basically, excluding synergies, but if we think about just the core business, if you have this tight utilization and pricing starting this early, shouldn't we see price increases on the legacy business leading to margin expansion?

Well, of course, what we work on with our customers is passing through corn costs. And of course, the environment is tight. So we expect to have a good environment for that. But of course, it's on top of the year, where this year, we had to pass on quite a few corn costs. So of course our -- the consumer is being faced with these price increases and our customers are dealing with that. But we expect in this environment that we should be able to pass through those corn costs. Now of course, you talk about the -- putting aside the synergy, but as we move our different products around the different facilities, we are getting better utilization of our facilities and, therefore, our throughput improves. And therefore, we're getting that benefit. You can call that a synergy benefit, but in a way, it affects the whole system.

Next we'll go to David Driscoll with Citi Investment Research.

I just wanted to follow up on the second quarter a little bit. So the second quarter came in a bit light versus consensus estimates. You guys don't provide the quarterly forecasts. Can you tell us how the second quarter came in versus your internal forecast?

It was right as we expected. We planned that maintenance project very well, moment by moment, and it basically came off the way we thought it would. And the quarter basically was what we expected. So we felt good that we got through that and negotiated labor contracts and kept our customers very happy.

On the co-product piece, you basically -- I think you made today the same comments that you made in the first quarter, that there was no real net benefit because South American co-products kind of come in a little bit below their historical averages on a relative basis, versus the experienced gross corn costs. Can you talk about why that's happening? I guess, I'm sure a lot of folks out there were thinking that this would have been a favorable benefit, this quarter and perhaps for the rest of the year, but it certainly doesn't sound like that's happening.

No. And David, let me see if I can take a stab at this. When I look at, clearly, the co-product credit, on a global basis, is up from whether we're comparing first quarter 2011 to first quarter 2010, or we're doing the second quarter the same comparison. And if I do sequential quarters from the first quarter of 2011 to the second quarter, the co-product credit is up. It's just that it's not moving at the same rate that the gross corn cost is moving. So if we look at the market data, gross corn costs, year-over-year, are up 100%. And so, even though there is improved co-product values, it's not enough to offset the increase in the gross corn cost on a global basis. And again, all of our international operations, or x North America, are pricing based upon current corn costs. So I think that's really from a market standpoint, I think where the most difficult comparison is. That's the one that tends to cause some disconnects.

Okay. I understand the mechanism here, but perhaps I don't understand why it's working this way. So I mean these co-product values, historically, corn feed, corn meal and corn oil, they usually have a good relationship between the spot price of corn. And as they rise on a percentage basis, there's an established relationship. It's working correctly in the United States, but it doesn't seem to be working in the same way in these international markets. Again, do you have any sense as to why? And does this change in the back half? I mean, is there any sense that these situations or this situation will improve?

I think, Dave, the difference is the fact that in the North American market, we're doing annual contracting. 50% roughly is grain-related, in which case then there is no benefit at all to the company relative to a change in co-product values. And the other 50% is improvement, it helps to offset the higher corn costs. And so, that's why the North American market gets the benefit, but the rest of the world doesn't. And the rest of the world is dealing with having -- they don't have a hedged portfolio because we expect them to be able to reprice.

[Operator Instructions] Next, we'll go to Heather Jones with BB&T Capital Markets. Heather Jones - BB&T Capital Markets: I wanted to follow up on a couple of questions. Going back to the Argo lost volumes issue. I want to make sure I understand that when you put out there the $13 million hit, that includes the maintenance expense, but you're also saying it includes the fact that there was underabsorption of fixed costs?

That's correct. Heather Jones - BB&T Capital Markets: So I understand you're not going to give a number, but when we're -- if we try to estimate the impact of that lost volume, should we assume a higher contribution margin? Or do you -- would you suggest we use a margin in line with the quarter average?

I don't know how to answer that one, Heather. Let me think about it. Heather Jones - BB&T Capital Markets: Okay. And going to the second half, you mentioned that in Q2, legacy North American profitability is down year-on-year because of Argo. I understand that North America is going -- legacy North America can be weaker than Q1, but do you expect it to be down year-on-year?

The North American operating income year-over-year will be up. Heather Jones - BB&T Capital Markets: The legacy business.

Legacy business. That's correct. Heather Jones - BB&T Capital Markets: And going back to the contracting discussion. Some of your peers have noted that they anticipate margin-enhancing price increases, due to tight capacity, due to high sugar prices. Is that a comment you feel comfortable with? Or do you think it's premature to commit to that?

We don't really comment on the margin side. Our expectation is to pass corn prices on and work with our customers through this. But we don't really comment on the margin expectations. Heather Jones - BB&T Capital Markets: Okay. And then finally, on the by-product, the co-product issue, you mentioned that it wasn't a for the quarter, but was it actually a detriment when you consider the rest of the world, year-on-year, with the, basically, by-product values not keeping up?

Let's kind of do a run around the CPO world. So if I look at Asia Pacific, Korea and Thailand, Korea had no benefit, it actually was a negative, because they have the issue of hoof and mouth disease, which is impacting the grain prices. Then when you look at Thailand, we do tapioca. So really, no benefit, actually a negative relative to the co-product in Asia Pacific. EMEA, it's not large enough and, again, the dynamics are different than the North American and South American markets. And in South America, it's the fact that we're pricing year-over-year 100% and the co-product values have not kept up the same way they have in the North American market. Heather Jones - BB&T Capital Markets: So net-net, it sounds like it might be a negative for the company?

I wouldn't say it's a negative. I think it's neutral. There was no incremental benefit. If I look at, and we've been asked a number of times on recovery ratios, and you look at it as what's your co-product values as a percent of your gross corn costs. All right, we're basically, if I look at the second quarter versus the first quarter, that recovery ratio was down. And if I look at it versus a year ago, it's basically flat. So not a -- I wouldn't call it a hurt, and I wouldn't call it a help. Heather Jones - BB&T Capital Markets: Okay. And finally, on SG&A, you've given us some color on what you expect for the gross margin. But could you give us a sense of what you're expecting the SG&A run rate to be quarter-to-quarter? Should it be in the mid-120s range? Or should we be looking to something higher?

I think that we're not too far off the run rate that we had this quarter, maybe a little bit less. But if you look at the first quarter, we're about $131 million, this quarter $137 million. So, you know, $130 million, $135 million, I think, is a reasonable level to guide to.

We'll now go to Vincent Andrews with Morgan Stanley.

Couple of questions from me. The first is, Cheryl, the basis, the corn basis is kind of reversed in the U.S. I just want to make sure -- I know you guys hedge in the U.S. But my understanding is you can't hedge basis. Has there been any impact from the change in basis to your business?

Not that it's material, quarter-to-quarter, you see some swings. But full year, I think we're fine.

Okay. And then my second question is just on the -- on your inventory level coming out of 1Q, was it below normal?

No, it was actually higher. And so, taking out the higher corn costs on the valuation of your inventory, which is probably about 65% of the change, we actually did build inventory; one, to improve the service levels in the Modified Starch business, a.k.a. the acquired National Starch. We also built some inventory on raw material side, to try to get ahead of the rising corn prices.

Okay. I'm just trying to square up. I would have thought that, if you were going to bring Argo down, you would have tried to -- I just want to understand. Maybe you would have tried to have inventory at a higher level for that, and maybe you just couldn't because the demand environment is so strong?

It's a combination of both. Yes, we did build some inventory to cover the outage. But there's a limited amount of storage capacity. So again, that's why the sales group and the supply chain were so well synced to make sure that we didn't overpromise and underdeliver.

Okay. None of it was a function of you just did much better in 1Q than you thought, and that borrowed a little bit from Q2? I'm sorry. I'll say it again. There was no -- it wasn't a case where you just did much better in 1Q and borrowed a little bit from 2Q?

No, it was not.

The following question comes from Christine McCracken with Cleveland Research.

I just wanted to follow up on the contracting question. Ilene, you mentioned that about 50% of your contracts are done on tooling. I'm wondering if you've seen any change going into this year, given some of the volatility in commodity costs we've seen?

No. I think we expect our book of business to still be about 50% grain-related. Some customers feel that they want to take that risk and get the upside or downside of co-products and have their own corn hedging programs. And others leave it to us and want more of a fixed price. And so, I think the ratio is about the same.

All right. Just wondering, too, you mentioned some of the benefit on pricing tied to the tightness in the North American business after you shut down your plant. I'm wondering if you've seen overall tightness in the industry helping pricing? And whether or not you can comment on kind of where the industry sits on a relative basis here in North America?

Sure. We haven't mentioned the word Mexico yet. And I think that, as we've talked about in other calls, and what's been published on the demand in Mexico for high-fructose corn syrup, and so that continues to be a strength for the industry. And therefore, the utilization rate that we've talked about and the tightening up has really come from the growth in Mexico. And that continues to be a positive as Mexico's local demand grows, and we've been able, as an industry, to supply from the U.S. So I think that balance, though, is where -- where it is, is where it's going to be. And that we expect for next year for that to be similar. And of course, this is all driven by the benefit of the NAFTA agreement allowing for that shipment. But that continues to be I think a positive for our industry.

And just one last question on brewing. You mentioned the tough comparison versus a year ago. We've heard recently that, that market has picked up quite a bit, sequentially. Just wondering if you're expecting to see kind of better volumes there, as you move through the balance of the year? And if that's factored into your guidance?

Yes, well, it is factored into our guidance. And we would expect it to pick up. Plus, we're coming out of the winter season in Brazil and Argentina. And so, as we go more towards summer, I think that will pick up again. And we are seeing the brewers are -- they're expecting to order a lot of material and to grow their business.

And we'll now go to Heather Jones with BB&T Capital Markets. Heather Jones - BB&T Capital Markets: Just going back to the growth capital projects. My understanding has been there -- that there had been some of these expansion projects last year then some this year. And just wondering when you expect those to start flowing through -- the returns from those to start flowing into earnings? So not National Starch, specifically, but more the legacy CPO business?

Well, I was about to say, that we had talked about some National Starch investments, especially in Europe, that we've been making to address the growing trend of clean label and ready meals. And we have some capacity that is coming on in the fourth quarter that will be in our guidance, but it will be helpful for our customers. And so, certainly something like that. I think that we've had other capacity in the legacy coming on and some of the specialty products, but it's still a small number in terms of it. So I think that where you're going to see the benefit in the legacy capital projects really is in what we call the synergy number and the optimization of moving some of the specs around between the different facilities. And so, that's reflected in this $20 million run rate that we talk about, $20 million this year and part of what's in next year. So it really would be from those type of projects for legacy, but more in the specialty side in Europe, as in for example, for the National Starch side. Heather Jones - BB&T Capital Markets: And like the expansion you've been doing in Brazil, and I can't remember specific timeframes, but I remember there being an ongoing expansion in Brazil for the legacy business. Is that already in the numbers? Or is that more -- something we should see later this year or in 2012?

We should see it in 2012. The expansions that we have talked about at Mogi, at Cabo, which is in the Northeast, those should hit the 2012 numbers. Heather Jones - BB&T Capital Markets: And are those the ones that you're talking about are fairly small? Or are those more meaningful?

I think they're well -- in respect to the total pie, I think it's relatively small.

I think we will take one final question.

We'll go to Adam Josephson with KeyBanc Capital Markets.

How much longer do you expect U.S. capacity utilization to stay as high as it is? Do you think these levels of utilization represent the new norm for the industry? Or that the industry will revert to levels that more closely approximate the historical average?

I think that as I talked about Mexico, we continue to expect the Mexico demand to be part of the situation. And as we both talked about in the past, a lot of that is driven by sugar prices being high and high-fructose corn syrup being in the mix. So the expectation or what we've factored in is that, that will continue, and that's helped create some of the tightness in the North America. So certainly in the foreseeable future, as far as we're looking ahead, we think that should remain and don't see any major disconnects to that. But of course, there's lots of things that can happen in the world. Consumer demand, it seems to be okay, certainly for the soft drink side. Certainly in Mexico, it's been robust. And if you look at some of the numbers from people like Coke, Mexico was up 10% for soft drinks this quarter. And in fact, the Coke brand in Mexico, they published, was up 7%. So that part remains robust. Some of the other soft drink numbers in the U.S. are a little less in competing with some other beverages. But generally, we would expect the demand for high-fructose corn syrup to be what it's been in the last year.

Great. And just one other one on National Starch. National Starch's EBIT margins have fluctuated substantially over the past couple of years. They were 11% in '08, 9% in '09 and they've been 15% thus far in 2011. What would you say is the normal margin for that business? I know it's hard, given that you're integrating it into the rest of your business now, but any light you can shed on that issue would be terrific.

I would say that on the gross profit level, it tends to be in the 21% to 23% would be the expected average norm. And then the operating expenses run higher than the legacy CPO business. The legacy CPO business would have been in the average of 6% to 7%. NS/legacy, probably 10%.

This is on operating expense numbers? Just to be clear.

Operating expenses. So when we get down to the OI level, there's not too much differential between the 2 businesses. And when we actually finish the integration and the harmonization, then there should be, in the combined business, from the historical averages, a couple of percentage point increase.

So this is Ilene. So just, before we sign off, let me just make a few final comments. We continue to feel optimistic about our future and the anticipated opportunities in front of us. We've had strong results in recent quarters, and we continue to believe that we've really built a business model that can deliver growth for the long term. So to name just a few of those drivers, we believe that there is still more synergy savings to come, as we've said, what those numbers are. We have good visibility on our input costs, and we have an excellent track record of appropriately passing through these input costs. So I think this year shows that. And we're actively working to improve our product mix by selling more higher-margin, value-added ingredients, which is really our strategy of being an ingredient provider. And that brings our second quarter 2011 earnings call to a close. So again, we'd like to thank you for your time today and look forward to future conversations. Thank you.

Once again, this concludes today's conference. Thank you, all, for participating [ph].