Welcome to Ingredion Incorporated First Quarter 2013 Earnings Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Aaron Hoffman, Vice President of Investor Relations and Corporate Communications for Ingredion Incorporated. Sir, you may begin.

Thank you very much. Good morning, and welcome to Ingredion's First Quarter 2013 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, ingredion.com. 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, and actual results could differ materially from those predicted in the forward-looking statements, and Ingredion is under no obligation to update them in the future as or if circumstances change. Additionally, additional information concerning factors that 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 Forms 10-Q and 8-K. Now I'm very pleased to 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 are quite pleased with our performance in the first quarter. As we cautioned on our year-end earnings call, when giving guidance for 2013, we thought this would be a year with some real challenges. There's no doubt that throughout our business, we are facing headwinds ranging from commodity inflation to currency devaluation, from slowing economic growth to accelerating input costs. These challenges aren't new, and they're not a surprise. You've heard about these factors from us for some time now. And as you're aware, we've weathered these storms, managing through them on the strength of our business model and the discipline that defines a good management team. The first quarter of 2013 is no different. Our business model remains resilient. Our management team has acted with discipline to maintain our dollar margins. And at the same time, we continue to invest in both geographic and portfolio opportunities to help ensure our long-term growth. From a consolidated view, earnings per share grew nicely. Cheryl will provide you with more detail in a moment. And from a regional perspective, we saw operating income increase in 3 of our 4 regions: North America, Asia Pacific and EMEA, which combined represent nearly 80% of our sales. In South America, where the challenges are the most diverse and severe at the moment, our in-country management team continues to make the right decisions to maintain the overall health of the business even when those are hard choices in the short term. And as our shareholders understand, this management team makes decisions that are designed to drive value. You'll see that in our results. You also see that in our cash allocation. During the quarter, we increased…

Thank you, Ilene. Good morning again. There are a few items that I would like to point out this quarter before we go to the first quarter results. The 2012 financial numbers include the now-exited industrial starch joint venture in China and the closure of our Kenyan plant and the change in the go-to market model there. The net sales impact on a total company basis is $9.8 million, $4.9 million for each entity. At the operating income level, the impact on Asia was minor and about $0.5 million impact on the EMEA results. We continue to see foreign exchange pressures, with the most significant impact in South America. The Argentine peso devalued 16% year-over-year, moving roughly from ARS 4.3 to ARS 5. And the Brazilian real devalued 13%, moving roughly from BRL 1.77 to roughly BRL 2. Our guidance incorporates $0.15 to $0.20 of FX headwinds. The Brazilian real comparison eases as we move into the remainder of the year versus the Argentine peso, which we believe will continue to devalue at this pace. On the pricing front, this is the 10th consecutive quarter of positive pricing actions. The business model of adjusting prices is holding, but we are beginning to see a greater impact on volume. We are looking for a good corn crop this year to ease the pricing pressures and stimulate volume growth for our customers in 2014. Moving to the income statement highlights, net sales were $1,584,000,000, up $10 million or 1% from a year ago. As you will see on the net sales variance chart, North America net sales were up 2%; South America, down 5%; Asia Pacific, up 3%; and EMEA, up 3% as well. Gross profit dollars were $306 million, up $10 million or 3.3%, while gross profit margins increased 50 basis…

Thanks, Cheryl. As I've done on previous calls, I'll conclude with our strategic blueprint, which continues to guide our decision-making and strategic choices with an emphasis on value-added ingredients for our customers. There is no doubt that we're operating in a challenging world today. We all hear that from public companies and from other third parties on a daily basis. The blueprint is a good reflection of our successful business model, which enables the delivery of good results in this volatile world, as you saw in our first quarter and in our full year outlook. We have geographic and portfolio balance, combined with a disciplined management team and effective risk management. Taken together, they offer both the defensive position in a turbulent environment and a growth vehicle for participating in emerging market opportunities, as well as the growth of on-trend ingredients. In sum, I believe that we are well positioned to deliver another good year while always keeping an eye on our future growth opportunities. And now we're glad to take your questions.

[Operator Instructions] Our first question is from Ken Zaslow.

Bank of Montreal. So just big picture, Ingredion's payout ratio is above your target of 20% to 25%. So my question is, are you looking to raise the guidance later on in the year? Or are you looking to increase the payout ratio target?

Well, Ken, this is Ilene. We've said that the payout ratio was 20% to 25%, and obviously, it is trending a little bit higher. But we're pretty comfortable with that 25% payout ratio, so we're sticking with our guidance. And that number might be a little bit high, but I think in terms of long term, the 25% is a good number.

Okay. And in terms of foreign currency, I know it's a headwind in the near term. Can you talk about your track record to actually recover it? And is it actually a timing issue, or do you forgo the earnings forever? Can you just kind of put us in a little bit of a picture on that?

Sure. Ken, this is Cheryl. In the normal ordinary course, the business model reprices for the currency. And so when I look at -- we have $0.05 in the first quarter as the headwind, which is better than the actual results. I would expect us to be somewhere between $0.15 to $0.20 on the full year. And normally, we price it, and you see that in the margin. What's, I think, a little bit different this year is -- and I'm going to specifically point out Argentina -- is that the combination of the rapid devaluation, and so if you think about 16% this quarter versus last year and if that continues for the remaining 3 quarters at that rate, plus the higher prices for raw material and energy and inflationary pressures on labor costs in excess of 25%, I think it's more of a onetime issue, where our ability to continue the price becomes a little bit more of a challenge. So to wrap it, I would say, I look at it more as a onetime issue that will continue probably for 3 quarters, maybe 4. And then I think the business model continues to go back to where we would expect to capture changes in the FX in the pricing.

Okay. And my last question is, you said in the prepared comments that you are confident that Brazilian demand will come back in the back half of the year. What gives you confidence in that? That's a pretty bold statement.

Yes, this is Ilene. As I said that I look at -- first, look at the GDP forecast, and it's true, it's come down a little bit from 4% to 3%. But everything that I see in the country really does say that they're getting ready for the World Cup and the Olympics with infrastructure and programs to promote employment. And I was down there in February, and there's a lot of excitement down there in the country. So I think -- and then when I look at those food numbers -- remember, I mentioned also that while beer was down a little bit, the consumption of our ingredients in food products was up. It's -- beer is a totally different issue in terms of the supply-demand of that particular part of the market. But the food side is looking good. So I'm obviously reading the same things you are and continue to believe in Brazil, certainly, long term and medium term and, hopefully, short term.

Let me also point out a little bit more color on the quarter, is Brazil was actually up year-over-year at the operating income line. The decline in South America is driven by Argentina, and this is now the second quarter where we've seen improvement in Brazil's number on a year-over-year basis. So combined with what Ilene said the numbers are giving us that cautiously optimistic view that things improve as we go into the second half. And remember that the fourth quarter should be warmer, and that's their high season.

Our next question is Tim Ramey. Timothy S. Ramey - D.A. Davidson & Co., Research Division: It's D.A. Davidson. My question is somewhat of a follow-up on Ken's and that I'm just thinking back to kind of the old days of Konrad Schlatter telling us about Brazil. And it seems like the more chaos that occurred down there back in the old days, the better the results. I mean, the more the moving parts got out of whack by devaluations or inflation, the better the pricing was or the better the operating margins were. Do you -- I mean, I know that's a hard question to kind of ask and that things are different, it's 15 years later, but as you think about that period versus this period, is there a chance that this presages a period of improving operating margin performance?

Tim, it's Cheryl. Let me tell you what I see is slightly different in this period versus to the period that you're referring to under Konrad. We have never seen the consecutive increases in commodity costs like we have over the last 3 years. And the volatility in the raw materials, so we're talking corn, is pretty significant. The volatility on currency devaluations, we've lived and breathed that multiple times. And when it finally settles down, our history has been that we actually do improve. And Argentina is the perfect example. We made more money after the devaluation because we had the pricing power back up and also volume increased. So we're not expecting the fundamentals to change. I think, really, it's this period where we've seen phenomenal volatility in the raw material prices on top of the currency devaluations and the inflation. Timothy S. Ramey - D.A. Davidson & Co., Research Division: So there's a lot of riding on these current prices coming down at the end of the year?

Absolutely. I think, again, we're not giving 2014 guidance. But when I look at the expectations for the U.S. corn crop, both in terms of more acreage planted, higher yields, the USDA has revised the forecast on the carryouts, and so we could, there are estimates out there that, obviously, below $5 on the corn prices, and our view is that will ease the pressures on our customers because we're going to price up or down with the corn. And that is the business model, so we would expect our revenues to decline, but our margins would hold and we would expect better margins in absolute dollars as a result of the improved volume. So when I -- when you say it's riding on the fourth quarter, ultimately, lower corn prices helps this business model. And so we should see lower corn costs based upon where the futures market is, assuming there's no problem with the 2013 crop.

Next question is Farha Aslam.

Stephens Inc. First 2 questions. First, just continuing on the South America discussion and then just moving to North America. In terms of South America, the Brazilian government has recently cut taxes on consumers on food just to mitigate some of the inflation that consumer is feeling. How quickly do you think your business can benefit from that tax cut?

Well, this is Ilene. Certainly, it has to end up in the paycheck, and that's a positive, of course. There's been some increase in beverage taxes that do affect, certainly, the beverage part of the business. But I think that if you take the consumer and his take-home pay, those checks in the next month or 2 should be higher, and so, of course, there's more disposable income to spend on beer and food products. So it's something that when the government does that, the expectation is that it's a shorter-term rather than a longer-term effect.

And then just on -- in South America, you have had that off in corn harvest and the safrinha crop is looking very good. Kind of when does that benefit start flowing into your P&L for South America?

It should start in the third and fourth quarter. Prices will come down, which should ease volume. Taking into the account that if the disposable income increases, that bodes well for the second half of the year.

So it's really some of the tax cuts and actions from governments, as well as the World Cup and a good South American harvest that's really supporting your back half confidence in South America?

Correct.

Okay. And then just put into...

And the fact is that we -- Farha, it's Cheryl. We've also seen now 2 quarters where we've seen improvement in Brazil. The decline in South America in the first quarter is all of Argentina. And it's really the FX, where pricing on -- one could say, "Is it FX or is it inflationary pressures, and so your costs are going up?" It's a combination. But clearly, Brazil is actually improving from what we saw a year ago, and that's despite the decline in the high maltose sales to the brewing industry, which with the brewers having excess capacity, they're not as inclined to use the high-maltose corn syrup. They go to grits. And so if prices come down in the third and fourth quarter, that should bode well for us regaining some of that share back to high-maltose syrups.

Right. And then when we switch to North America and you look at Mexico, there's been just a lot of question about the strength of Mexico. You've seen Mexican numbers come out being fairly cautious regarding high-fructose corn syrup use, yet North -- U.S. shipments to Mexico are up 10% in the first 2 months. Could you just kind of share with us your thoughts on Mexico in demand?

Well, Farha, it's Ilene. When you look at overall demand, it's been okay in terms of food products. Obviously, there's been some moderation as sugar came down, which we've acknowledged. But overall, our North American model is really working well and that we've been able to optimize, and that's why our profit was up. But Mexico GDP, it actually is a little bit higher than Brazil. So while it was 3.9% in 2012, the forecast is 3.4%, which is unchanged from -- it's down a little bit, but it's basically the same. It's what it's been forecasted for 2013. So 3.4% is less than 3.9%, but it's still a pretty good growth rate when you look at some of the other countries. So I think that if you look at the rest of the year for Mexico in terms of overall demand, it looks pretty good.

Next question is Heather Jones. Heather L. Jones - BB&T Capital Markets, Research Division: BB&T Capital Markets. I guess my first question is on guidance. If I look at what you did for Q1 and then your color for Q2, and then you talk about accelerating growth into the back half, it would seem that, that pretty much takes out the bottom half of your guidance, if we're going to have a growth acceleration in back half. Am I thinking about that correctly?

Well, if you think about the guidance, it's $5.60 $6, so you got to figure out whether you want to be towards the high side or the low side. Actually, nothing has changed relative to the lay-up. In the fourth quarter call, we talked about corn costs being higher in the first half, lower in the second half. And so we're still comfortable that we'll do the $5.60 to $6. Heather L. Jones - BB&T Capital Markets, Research Division: But if we see flat in Q2, like you're expecting, and then accelerating growth in the back half, that would imply full year results in the top half of your guidance. Am I doing my math incorrectly?

Well, the math get is, still, it shows H2 at $2.86 to $3.26, which would be higher than, you're right, H1. So you're right, it does take out the very bottom part of the range. Heather L. Jones - BB&T Capital Markets, Research Division: Okay. And then on Mexico, I was wondering if you could help us with this. If you look at USDA data, it is showing still growth in the first part of Q1 for imports -- for exports to Mexico. But Mexican data is showing pretty significant declines in February and March for imports, which seems to jibe more with what you all are saying. But I was wondering, given -- but the domestic production of HFCS is reportedly up in Mexico. And given that you are such a large producer there and you have this large brewing presence, is that helping insulate your Mexican volumes?

Well, I think it certainly helps to be a local producer there, and we're be able to serve our customers with our facilities there. And certainly, we have many different ingredients there that we serve the customers. And as you know, in Mexico, there is growth in the middle class and a desire for ingredients for prepared foods and baked goods. So certainly, we participate in that. But obviously, we manage on a North America basis and try to optimize, but we do enjoy being one of the top local producers. Heather L. Jones - BB&T Capital Markets, Research Division: Okay. And then you talk about your North American -- or you talk about in your regional outlook HFCS volumes being stable. But yet, you talked about them being down in Q1. So what is driving the improved outlook for the rest of the year? I know you talk about lower net corn costs. Are you planning to pass through some of those net -- lower net corn costs to Mexican customers? Or just what's driving that outlook for improved HFCS demand later in the year?

So when you -- let's talk about the pricing. Pricing in the North American marketplace is a combination of grain-related, which then if corn prices are up, the selling prices go up. If the corn crops are down, then, obviously, the selling prices. So it's totally correlated with the price of corn. So if you look at the forecast for the second half of the year, with corn costs coming down on a grain-related basis, that would bode well for volume. There's also what I call the timing between the quarters and when our customers pull, did they fulfill more of their obligations in the first half, or will they fulfill more their obligations in the second half. And that's based upon their decisions versus necessarily ours.

Next question is David Driscoll.

Citigroup. Wanted to just come back a little bit to the guidance and make sure I understand it as well because I think that when you don't change the guidance range, and it's pretty wide, so from $5.60 to $6, essentially says that no growth to 8% growth. And Ilene, I think you -- in your comments, you said you expect this to be a pretty good year. So I mean, I think the takeaway -- and this is a statement, but it's really a question. The takeaway is simply this bottom end of the range is not likely, given what you produced in the first quarter and the expectations that you guys have laid out. Is that effectively what you're trying to communicate this morning?

Well, this is Ilene, and then I'll pass you to Cheryl. Look, we feel good about how we've dealt with a lot of the different headwinds this year. And we do see good dynamics in the second half. And when we say we expect it to be a good year, we still are committed to our long-term EPS goals of double -- low double-digit improvement over a 5-year period. And so certainly, this is an unusual year. I mean, I just finished my fourth year. So this is, I think, certainly challenging with some of the drought and some of the economic challenges. And so it's certainly in the middle of the range in terms of guidance. We feel pretty good about those numbers, one always wants to be higher rather than lower, but the year is not over. And so as you -- as everybody points out, we're kind of a conservative bunch here, and we want to make sure that we anticipate different headwinds that might happen. But I think when you look at our numbers, we feel good about the range. And if you look at the arithmetic, it would point to more of a middle-of-the-range number than the lower end of the range. And then, Cheryl, do you want to add to that?

No, I would agree with that. Dave, if I look at it, all the wheels came off: volume didn't improve in the second half; costs didn't come down the way that we expect them, economic growth around the world continues to deteriorate; and we got to the bottom end of the range at $5.60. That's still up from the $5.57 last year, granted it's more like 1% or slightly below 1%. And if the volume -- nothing really has changed in the model or the way that we look at it. If we're too cautiously optimistic and -- or otherwise saying a little bit pessimistic on volume. If we're wrong and the volume picks up more aggressively, then that's how we get to the high end of the range. And the high end of the range is $6 relative to the $5.57 last year. Again, given the challenges posed by the third year of significant changes in corn costs, I think it's pretty good performance. Combined with the cash flow generation, roughly $700 million for the full year is why we look at it and say that we're pleased with the performance.

In a normal type year, which I know like it never exists, but in a normal type year, how -- what type of seasonality would you typically expect the quarterly pattern to lay out at. Noting last year, you start off at $1.26. And you end up at the back half, EPS-wise, it was much stronger than the front half. But I don't think last year was normal, but I kind of like you to talk about seasonality of the quarters normally.

I don't think we've seen normal in 3 years. But in -- from a historical perspective, we always saw the strongest quarters as the second and third. And second would have been the North American business as we hit summer, and it would have been the flip for South America. And then it really went between which was the weaker, the first quarter or the fourth quarter? And with the volatility that we've seen in the marketplace from corn, it has skewed the quarters. And as I've said on a number of occasions on these calls is that it's very difficult for anybody to get the quarters right. It's the year-over-year guidance. And if I look back to last year, there was a surprise in our numbers that put us at the high end and the performance that we had, and it really came from the North American volume. Typically, we expect the plus or minus 1% for North America, and we really saw very strong volumes hold throughout the year in North America, which, obviously, will make the comps this year a little bit more of a challenge. But with that said, we don't expect North America to still be up slightly from last year's numbers, and that's a good thing.

Final question on corn coproducts. So last year, as we go through the drought, that drives coproduct pricing up dramatically relative to your hedge position on corn and should have been a good thing. Currently, we've seen since March 28 in the stocks report fairly significant declines in corn prices. And so this would seemingly reverse those types of positive meanings that the variance between your coproduct expectations and the reality of it, perhaps, is going the opposite direction. Can you comment on that and your level of concern with the coproduct values for the remainder of the year?

We actually, in our 2013 guidance, have incorporated a declining, sequentially quarter-by-quarter, for the coproduct values, Dave. All right? So the fourth quarter will be lower than what we experienced. That's our estimate in the first quarter on a total company basis versus last year, where, to your point, the first quarter and the second quarter coproduct values were substantially lower than what they were in the third and fourth quarter. But where -- it's part of our risk management, of managing the gross-to-net ratio, especially in the North American market, where the coproducts is the component that has more volatility. But where -- as we normally are a conservative bunch, so I'll use my phrase cautiously optimistic or cautiously positive, that we will continue to be able to manage that net corn cost.

Next question is Akshay Jagdale.

KeyBanc. I just wanted to ask about the North America and volumes. So you mentioned that, last year, volumes came in better. Just as a reminder, I mean, what were the 1 or 2 main drivers of that in your opinion? And what makes you somewhat cautious, if I may, on volume going forward?

Well, this is Ilene. I mean, we continue to grow our business, which certainly being positively experienced from our ingredient strategy of selling on-trend products for healthy, good-for-you foods, other confectionery-type products. And that, as well as high-fructose corn syrup last year, were part of the growth, we continue to focus on those industries. But as Cheryl said earlier, I think the biggest challenge has been with 2.5, 3 years of price increases from raw materials. We have been putting pressures on customers to accept that. We've done that well. But certainly, the consumer is a little bit cautious in terms of what he's bringing home to the cupboard. And so I think that's what you've seen more recently. Where you didn't see it as much last year because it was only 2 of the 3 years of the price increases. But we expect that to ease with the corn crop coming, and we've managed well through a challenging environment and have been able to pass through our prices and maintain, if not improve, our margins.

And this is Cheryl. I would add a little more color to Ilene's comment. With regards to 2012, we saw very good demand in the brewing industry in Mexico, along with the beverage. And on top of that was, as Ilene said, the on-trend starches and glucose.

That's helpful. And then -- so just similarly, on the same topic, I mean, if you look at the margins in your North American business, really outstanding for the last couple years. And that's -- in my opinion, that's a function of the high utilization rates. So just help me understand like what are the risks to that margin structure sort of coming down? Because it's almost at like peak level. It's been there for a while. It's sustained itself for various reasons that you mentioned. I mean, why should we expect those margins to be sustainable where they are today?

Well, I'd say 2 things. First of all, the utilization rates in the industry now are kind of mid-80s. And so I think that as demand grows with prices coming down from corn, presuming that we have a big corn crop, that will even tighten it up even further. But I think the other part of our success has been in optimizing our utilization and our cost structure, and that we've made some good investments, as well as our acquisition of National Starch, which gave us opportunities to optimize all the different facilities in the network. And as I said before, can you move specs around? So we've actually enjoyed that optimization process. And now we're reaping some of that results, which is manifesting itself in the better margin. So we're just very good operators and take the right decisions at the right time.

This is Cheryl. I'd add one other color commentary, is that you have to look at dollar numbers, not percentages, again, because of the correlation with corn prices up or down. And so, if we expect corn prices to come down, the revenue line will come down, but we don't expect the absolute dollars to decline. So all of a sudden, the OI-to-net sales ratio will look like we're geniuses. And it's just a function of the movement in the net sales line. The second component is that the overcapacity that existed in the market because Mexico was not open, from a border standpoint, for the free flow of sweeteners and starches to move is what impacted the dollar margins going back 4, 5, 6 years ago. And that really, finally, structurally changed 2007, 2008. So the issue around capacity and capacity utilization, there's no reason for anybody to be expanding in a market that's relatively stable. And therefore, the dynamics around the "dollar margins" somehow implode, while nothing's is impossible, it seems to be pretty slim.

And just one last one on this quarter's North American volume decline. If you've said it before, because I joined the call a little late, don't repeat yourself. I can go back and read the transcript. But if you haven't, can you give us a little bit more color on what actually drove that 3% decline?

First of all, there's a tough comparable to last year's number. And the second is, as we have talked for probably 8 quarters now in our North American optimization program, we're looking to improve mix, and we shed some lower-volume...

Lower value.

Lower value -- Thank you, Aaron -- lower-value products to move up the mix.

[Operator Instructions] Next, we have Ann Gurkin. Ann H. Gurkin - Davenport & Company, LLC, Research Division: Davenport & Company. I just have one question left. I wanted to get just a little more color on pricing. Do have all the pricing in place for calendar '13? Should we look for more pricing in the back half? price mix was only a benefit this quarter. I was just wondering if you could address that topic.

There's 2 ways to address it. We expect price mix across all 4 regions to be positive throughout the year compared to last year. The exception may be South America as we hit the fourth quarter and their corn prices come down. Our firm price business is negotiated for the full year...

North America.

In North America.

And at this time, we're showing no further questions.

Thank you all very much. Let me turn the call back to Ilene for a couple final comments.

Okay. I just wanted to make a couple final comments. As you can see, the Ingredion business model is performing well. We're delivering good results. And we believe that our model allows us to consistently deliver shareholder values, which is really our clear focus. And so we make those decisions every day. That brings our first quarter 2013 earnings call to a close. And again, thank you for your interest. And we look forward to further updating you. Thank you.

Thank you for your participation. That does conclude today's conference. You may disconnect at this time.