Ladies and gentlemen, thank you for standing by and welcome to the Ingredion Second Quarter 2015 Earnings Conference Call. For the conference, all participants are in a listen-only mode. There will be an opportunity for your questions. [Operator Instructions] And as a reminder, today’s call is being recorded. I will turn the conference now to Ms. Heather Kos. Please go ahead.

Good morning and welcome to Ingredion’s second quarter 2015 earnings call. Joining me on the call this morning are Ilene Gordon, our Chairman and CEO and Jack Fortnum, our Chief Financial Officer. Our results were issued this morning in a press release that can be found on our website, ingredion.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 these forward-looking statements and Ingredion 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. Now, I am pleased to turn the call over to Ilene.

Thanks, Heather and let me add my welcome to everyone joining us today. We appreciate your time and interest. In previous calls, I have told you how our strong business model and management team can deliver solid operating results in the face of foreign exchange headwinds and slowing economies. I am pleased to report that my confidence has been confirmed. Our second quarter results were up on a year-over-year basis and in line with our expectations. We ended the quarter with growth in our specialty volumes, operating income and earnings per share. Overall volumes were up 6%, driven by our Penford acquisition. Our Penford integration remains on track. We also announced our pending acquisition of Kerr Concentrates, Inc., a privately held producer of natural food and vegetable concentrates, purees, and essences, which will expand our higher value specialty ingredient portfolio. North America had strong operating income. South America and Asia-Pacific were up from last year, while EMEA was down slightly due to foreign exchange. Now, let’s spend a moment on each region’s performance in the quarter. Operating income in North America was $127 million for the quarter, up $17 million from last year. Overall volumes were up 12%, primarily driven by the impacts of the Penford acquisition as well as strong demand for our specialty products. Continuous improvement programs continued to drive good operational efficiencies. In South America, operating income was $20 million, up $4 million from last year. Pricing actions throughout the region, coupled with good cost discipline and continuous improvement projects, helped offset foreign exchange and higher input costs. Brazil’s slowing economy continued to impact volumes. However, our local leadership team has an ongoing focus on cost optimization and price/mix management. Although the Southern Cone economy is still challenging, operating income was in line with our expectations. And…

Thank you, Ilene. Good morning, everyone. Let me start by covering the highlights of the income statement. I should note that these results include a full quarter of Penford operations. Net sales were down $34 million for the quarter. The majority of the decline is attributable to foreign exchange, along with the impact of lower price corn, which is passed through in our selling prices. This decline was partially offset by volume growth related to the Penford acquisition and specialty ingredients. Gross profit was higher by $23 million as a result of higher specialty and Penford-related volumes, margin expansion in North America and lower corn cost. Reported and adjusted operating income were higher than last year by $10 million and $17 million, respectively, as the increase in gross profit was offset by higher operating expenses, predominantly driven by the inclusion of the Penford acquisition. Reported operating income was lower than adjusted operating income by $7 million due to Penford acquisition-related costs. On earnings per share, reported and adjusted EPS were $1.47 and $1.53 respectively. For the quarter, our adjusted EPS was $0.18 higher than last year’s EPS. Moving on to the net sales bridge, our sales of $1.4 billion are lower than last year by $34 million. Volume growth contributed $95 million, but was more than offset by $111 million of foreign exchange headwinds. The price mix reduction in net sales is largely due to lower pricing from passing along our lower corn costs relative to last year. As we look more closely by region, you can see foreign exchange headwinds affected us across all four regions. Volume growth in North America, Asia-Pacific and EMEA helped to offset weaker volumes in South America. Lower price mix in North America and Asia-Pacific was due to passing through lower corn costs. Price…

Thanks, Jack. We are excited about the pending Kerr acquisition, which has several characteristics consistent with our specialty portfolio, including on-trend applications and high single-digit growth rates. This will extend our clean-label offerings to include a variety of fruits and vegetables. Kerr makes simple, wholesome natural ingredients, types of ingredients that resonate with consumers and are increasingly in demand by customers. Kerr’s expertise in sourcing food and vegetable inputs as well as their application capabilities, coupled with our advanced technologies and new-product development capabilities, should create potential revenue synergies for us. Additionally, we expect to grow the Kerr business through our broad customer network and global presence. As we’ve said before, our business model and strategic plan and blueprint are working. Our underlying business is doing well in spite of currency headwinds and economic challenges. Our geographic footprint, broad product portfolio and focus on higher value specialty products are expected to drive growth and shareholder value. North America is expected to continue its positive trajectory; Asia-Pacific is projecting modest growth; and South America is expected to be in line with last year despite its challenges; and EMEA is projecting a modest decline in the face of currency headwinds resulting from a strengthening U.S. dollar. With our strong balance sheet, we continue to explore other M&A opportunities to accelerate our growth, broaden our portfolio and expand our geographic reach. This, together with attractive dividends and share repurchases, demonstrates our ongoing commitment to shareholders. Taken together, we are confident that we will continue to deliver excellent shareholder value. And now, we are glad to take your questions.

[Operator Instructions] And first in line is Rob Moskow with Credit Suisse. Please go ahead.

Hi, thanks for the question. The one thing I didn’t hear much on the call or in the press release is about the supply/demand dynamics in high-fructose corn syrup, and I think it’s going to be more important, I would expect, in the back half of this year. And you have the cargo plant closing, which is a positive for supply. But it seems like there’s another wave of reformulations in HFCS. A lot of food companies seem to be taking it out again. And I just kind of wanted to know, like where do you stand? How comfortable do you feel with your pricing power in HFCS right now?

Okay. Well, I’ll start, this is Ilene, and I’ll turn it over to Jack, Robert. So first of all, as you know with our strategy, that high fructose for beverage is becoming a less important part of our portfolio. In fact, with the Penford acquisition and the pending Kerr one, we’re trending towards high fructose for beverage to be under 10%, so again, smaller part of our equation. Now, I think, when you look at some of the supply/demand dynamics, in the short term, I think we’ve said before that we see the operating rates something like in the mid to high 80s. So I think, the dynamics are pretty good. But our strategy really is to grow in specialty products with these healthy ingredients, and that’s what’s behind the Penford and the Kerr acquisitions. So while there are many customers that are deciding how to really put their recipes together, many of them are really coming up with these fresh business units, which is very much focused on the perimeter of the store. And so our strategy is following that to be able to have the ingredients to do that. But Jack, I don’t know if you want to add anything to that.

Well, I think, the only thing I would add is if that if we look at the total marketplace, as you know, like we’re looking at network optimization through our facilities. We actually sold our Port Colborne facility, which also produced HFCS, somewhat into the marketplace, and that takes some of the capacity off, as the captive who bought the facility will take that capacity out from HFCS. In addition to that, even in the current year, the supply/demand balance seems to be pretty much in check, from our perspective. I think that it’s kind of more or less where I think, the industry as Ilene said is running at high-80s type of range. So I don’t really see any major impacts going into next year, both negatively or positively. I think it’s more or less in balance.

Okay. And if I could ask a quick follow-up, is the main message here that there’s – not much has changed versus your expectations from last quarter? You have a stronger performance in North America than you might have expected, but it’s kind of offset by weaker conditions in South America, so you can narrow the guidance. Did you consider – what kept you, I guess, from sticking with the very high end of the range of $6? Is it just the South America component?

Yes, absolutely. We feel very good about where we’re at in terms of our guidance, and you’re right, not much has changed, though another quarter with good performance. But when we think about the range, and then, I’ll let Jack comment on that, the South America uncertainty of the economy – we’re doing well, we’re holding our own, but some of that uncertainty. As an example, as you know in Brazil, they raised interest rates today; a little bit of the headwinds in China, they’re not growing at 7%, it’s more in the 6s. Those types of uncertainties keep us from raising the range. And at the same time, we feel very capable to be certainly – to be within our range. Jack, would you add to that?

Yes, I think, the only thing I would add is we kind of look at the top and the bottom of the range, and we kind of say, what would drive us to the top portion of that range? And really, that would be if we can – if there’s continued strengthening of the dollar, how quickly we can pass the foreign exchange impact through on our pricing. And with this – some of the slowdown in South America, that becomes a little bit more challenging. But if we can get those prices through and if the volumes stay reasonable in South America, that’s the other part that will happen. But also here in – the other component of it is we have a number of different cost containment or as I call them, cost-containment initiatives, we’re optimizing our costs across each one of the platforms. And so we’re continuing to drive cost, and as we accelerate these programs so we can get more cost out of our system, that will get us up to the top of the range as well. And then you go down to the bottom of the range though and you kind of say there is still that strengthening of the dollar and the risk of not being able to pass through the entire impact through on pricing. We see the Brazilian economies continuing to be very sluggish in terms of how it’s responding. They just raised the interest rates just recently again to keep their currency in check. And so you see that and you also see the impact of China on the Asian economies. And so net-net, we are thinking that it’s a fairly balanced type of approach, where North America is a little stronger, South America is maybe a little weaker and the rest of them are kind of trending as we anticipated.

And the only thing I would add is that it’s really all about our strategy in the medium, long-term. And so that’s why we are excited about the acquisitions that we have been able to make and the pipeline, because we are really looking at how do we drive value and improvement and shareholder value next year and the years beyond that. And so we are feeling better about that having been able to announce the ones that we have done this year. So, while this year is turning to be exactly as we thought it would, we are really planning for the future.

Very good. Thank you.

Thank you.

Our next question is from Brett Hundley with BB&T Capital Markets. Please go ahead.

Hey, good morning everyone.

Good morning, Brett.

Hey, Brett.

Has Port Colborne started making any product mix changes yet?

No, not at this point in time. That transaction actually closes in December of this year. Brett, the facility itself supplies an over-the-fence arrangement with Jungbunzlauer, who we are selling the facility to. And so they will continue to run it and produce the liquid dextrose that feeds their facility. However, that’s the only product that will be there. Right now, it also produces high fructose, which will actually be a reduction in our capacity, but when you look at – from our network optimization being able to fill that capacity from other locations.

Okay. And Jack, can you give us a sense of – when that facility goes away in say 2016, can you give us a sense of the potential volume loss, maybe in percentages for North America?

It represents approximately, let’s call it, 10% of our HFCS. So, it has a small impact on the industry as well in total. I think it kind of ties in to what we are seeing the demand forecast to be.

Okay. And the other thing I wanted to ask you about too was in Korea, I didn’t see any mention of the MERS outbreak, did that impact you guys negatively at all at least in so far as you could measure it?

No, we did not see a major impact on that. And when I look at the demand for products in Korea, of course, we have our beverage business and food and we have been growing in the specialty sweeteners, especially in Korea, but we did not have any large effect from that.

Okay. And two more quick ones if I could. Just on Penford, your North American results were fantastic and I think there is a lot of different moving parts to that and you guys called out better margins – better operating margins, better specialty. But I wanted to get a sense for Penford. You said it was performing in line with your expectations. If you could just talk briefly about the top line there and what you see going forward and then maybe just how margins are performing in that business. It might help me a little bit?

Sure. Brett, just a couple of comments, very similar to our business, is a segment of that business which has lower revenues than what you might have seen last year because of the lower corn cost, because it passed through lower corn cost on that business. But we continue to see very solid volume growth on the potato side of the business as well as grow the total supply chain in Penford. And obviously, they have a small piece, which is their ethanol piece, which is under a little bit of stress from that perspective, but the rest of the business is performing, meeting our expectations, and we really didn’t have much emphasis on the ethanol except for as – sort of to optimize the plant operations, from that perspective. The margins are coming in very much as we anticipated. We’re driving the synergies out of that business, and we’re looking at hitting the $20 million run rate by the end of this year, that Ilene had commented to. And obviously, Ilene is pushing for a little bit more than $20 million, but that’s kind of the range that we are at in terms of looking for those synergies right now. So, we are very pleased with the business right now.

The other thing I would add is, as Jack mentioned, the focus on potato. It’s really on trend. And when you read about the focus on gluten-free and non-GMO, the potato starch really addresses the consumer demand for recipes that include that type of product. So that’s going well.

And then just last for me, Ilene, on Kerr, nice acquisition. And I don’t ask this to be negative in anyway, I ask it more as a discovery process, but can you just go through how Kerr competes against some of these behemoths that are out there in – whether it’s flavors or colors or whatever direction you want to take it, but can you just talk about what Kerr brings to the table if it’s niche and kind of how you intend to grow it?

Well, as we mentioned, we haven’t closed on it per se, but certainly, we understand what we’re buying. And there is many different companies. It’s a very fragmented industry in different parts of the business. And I think, what we’re excited about is that when we think about some of the products from Kerr, their purees and concentrates add color, flavor balance and texture to products like smoothies and frozen novelties and soups. And the juice concentrate from Kerr give just-picked flavors to refrigerated juices, sauces, dressings, marinades and confectionery. And Kerr also has custom products that add fresh fruit taste and healthy the appeal to yogurt, snacks and baked goods. So Kerr’s strength is in the procuring and processing of these fresh fruits and vegetables and the ability to put them together in recipes. And so we’re excited to bring that together with Ingredion’s technology capabilities to bring Kerr into other product applications for our customers as well as to other geographies. So Kerr participates in that part of the industry, and Ingredion was – did not have expertise in procuring fruits and vegetables and processing it into purees. So this will be a nice broadening of the portfolio.

Thanks, Ilene.

Welcome.

Our next question is from Farha Aslam with Stephens. Please go ahead.

Hi, good morning.

Good morning.

Good morning.

And just can – as a follow-on to your last answer you had highlighted that this year, Kerr is going to be neutral to earnings. Kind of going into next year and beyond, what kind of accretion can we expect from Kerr?

Well, I will start out and then I will turn it to Jack. But what – again, when I think about Kerr’s capability with the Ingredion specialty portfolio, we are looking at largely revenue synergies and as opposed to a lot of cost synergies. So, there will be a few back office ones, but the reality is it’s really in the revenue synergies. So, when I think about the next two or three years, we ought to be able to grow that portfolio, again, with our customer portfolio and Ingredion technologies. And so I think we are looking at something on the order of a $0.05 to $0.10 accretion, two to three years, as we build that portfolio. And Jack, I don’t know how you think about that.

No, I think that’s exactly what I would say is – well, I think if you think about how we have targeted our long-term goals we have always said that we should be earning above that 10% return on capital employed. Obviously, with the acquisition, we are not too sure whether we have to invest a little bit more in terms of the facilities and things, but we have a $100 million investment, so we should be looking at that $0.05 to $0.10 accretion to get back up to that return on capital employed. Now, I do say that, that will probably take us like 2 to 3 years to get there as well. So, I wouldn’t look for that in next year’s numbers, necessarily.

Okay, that’s very helpful. And then just as a follow-on, you highlighted that Mexico has been performing quite well. Could you share with us, which products are working in Mexico and what’s driving the strength of the Mexican market for you guys?

Yes. Well, I will start out. So, as we have talked about before, these new obesity laws and taxes that came in about 18 months ago have really set the scene to grow specialty products. And what’s interesting for us is that we have been able to come up with some of our specialty starch applications that make yogurt more creamy or more crunchy. So, textures become important. And also what’s become important in Mexico, we call it our save-money focus, where we are able to substitute starch for oil and have applications that actually help our customers deliver value to their consumers in a more cost effective way. So, I think the whole awareness of what the Mexican consumer is consuming, is eating, both beverage and food has created this environment for us to create – use our specialty products to grow that portfolio. So, I think that, that’s a very exciting environment. I think there is also growth in the demand for beer in Mexico and many of the brewers are investing to raise capacity in Mexico. So, that’s certainly a longer term investment and that’s for both the local market and potentially export. But I think those two dynamics are very exciting, coupled with a very decent GDP for 2015. The number is still 2.4% and versus many of the other economies around the world, that’s very decent. Anything you want to add, Jack, to that?

The only thing basically to summarize that, Farha, I look at Mexico as one of those nice markets where we see core growth as well as the specialties accelerating very nicely across all the segments. And so it’s just one of our key growth markets at this point in time.

And in Mexico, is specialty now equal to your corporate average? Is it over-indexed? I am just trying to get a read from that part of that?

As you know, our specialty has been growing very rapidly and we don’t break it out by country or anything like that. It’s closing the gap to the corporate average rate quickly as it continues to grow.

Great, thank you so much.

One thing I would add there is that the core is growing relatively well as well, and so it makes the denominator that much larger.

Yes, understood.

Perfect, thank you.

Welcome.

Next, we go to Ken Zaslow with BMO Capital Markets. Please go ahead.

Good morning, everyone.

Good morning.

Just a couple of questions. Again, I know somebody asked about the North American business. But I was curious, on the North American business, how much of that is cost reductions? And I know you don’t like to talk that much about it, and look, I think there’s a lot of opportunity here. Can you talk about it a little bit more and see if there was any major opportunities in the quarter and is it – how is it progressing for the next year or so?

Alright. Ken, as we have talked in the past, we continue to drive optimization in our networks. And that’s one of the reasons why, even as we looked at our network optimization and reduced our – sold off our Port Colborne facility, it actually helps drive our fixed costs, spreading across more ingredients that way, in terms of our total volume. But in addition to that, I would add – highlight a couple of things as well. They’ve obviously had a fairly good operating performance, just in general. They’re driving their continuous improvement programs on an ongoing basis. They also had – they were coming off some comps last year, where they were coming out of that polar vortex, which helped them improve the margins. They’re getting their mix up and improved and as they came through that. And I think right now, we are – I think that one of the things we’re trying to do is right across the board, it’s not just North America, is really look at our cost equation and then try to figure out how we can continually optimize our cost so we can be highly competitive in the marketplace. And I know that we talk all about our strategy pertaining to specialties, but one of the things that we also are looking at very closely is all our costs across all the regions. And I’d like to also highlight that in South America, that’s one of the areas that has really allowed them to weather some of these challenging storms as they look at all their costs and really drive their energy efficiencies and water usage out of it, and we continue to look for network optimization opportunities in our South American business as well. So it’s a general program that we’re really initiating across the entire platform to say, how do we drive cost out of our system, because we know that it’s what our customers require as well.

And how big do you think that could get, not just from this year, but what type of costs can you take out over the next two to four years?

We haven’t quantified it at this point in time in terms of targets. I think that like what we have stated in the past is we certainly can offset our inflationary increases through our continuous improvement programs. I think, one of the things we’re trying to do is just really get down into the data analytics that we haven’t perhaps looked at in the past in terms of the actual operations and where we source product from and how we move it around. And so I’d like to come back to you at a later date, unless Ilene has a comment in terms of trying to identify exactly what our cost reduction programs would be. I would like to come back at a later date with some targets in those areas.

So, the only thing I would add, because I do echo Jack’s sentiment of our opportunity and continuous improvement and what I call exchanging best practices in every region, which does give us an ability to offset some inflation, more of it in some of the economies like North America, a little less so when you have very high inflation. But that’s why network optimization has become a very good opportunity for us. And so as you saw in North America, we’re selling off our Port Colborne facility, we’re looking at it in other regions. And in our comments, we talked about Europe, as an example, where we made some agreements to optimize and source some of our raw materials more locally rather than shipping across the ocean. And that in effect gave us a leg up in a quarter like this when you have a lot of exchange headwinds, and we were able to make the right things happen in terms of that particular region. So I think that gives us even more ammunition to accelerate it. But we’ll continue to look at that and see if it makes sense to quantify that on a more high-level way for you.

And my last question is on 2016, I know you are not going to provide guidance, but what do you think are the key drivers, one way or the other way, that would return you guys back to your long-term growth? But are there exogenous factors that we should be aware of? Are there factors that are really in your control? How do you see the business heading up for – in 2016, again not on a numbers basis, but more of a qualitative basis?

Well, I will start off and then turn it over to Jack. I mean certainly this year when you look at our guidance versus last year, we feel that we’ll be back to the trajectory when we laid out the long-term numbers for you back in November, when we refresh those. But it’s all about having the right portfolio with specialty products, so that we are meeting those consumer trends. And while the consumer is looking for this fresh, healthy food and we have our focus on nutrition, on this clean label, on texture and even our biomaterial solutions that we have talked about, that expertise we explained with the Penford acquisition, our portfolio is very much focused on that. And so I think with GDP growth, where it exists around the world coupled with the consumer demand for these healthy fresh foods and the more mature economies, will present for us the equation to deliver growth and value being on trend. And so that’s what makes us want to use our balance sheet to continue to grow with the right M&A to broaden the portfolio to be more important to these customers. And so we are seeing with the Penford acquisition as well as excited about the pending Kerr one, we believe that we are broadening our portfolio and we will be able – we will be in a position to create these recipes to be on trend with these growing dynamics.

And Ken, the only thing I would add to that is if you think of the growth algorithm that we gave to – at the Analyst Day, I think we are tracking fairly well towards that. We were seeing some volume growth both core, but more so in the specialty growth area, where we are driving those margin enhancements of – we targeted 2% improvement in terms of that, which partially comes out of some of these cost initiatives as well. And then the spreading of our operating expenses across a higher volume as well. And so I think that we can still get there – get to that double-digits, particularly given the fact that we are also deploying our cash for the one-third that we had indicated would be coming from acquisitions, because we have been fairly – I think we are on track to try to hit those type of numbers and our growth as well. And so if I go back to that algorithm, we are seeing the volume growth, particularly in our specialties which improves our margin. We are seeing the spreading of our cost nicely across our portfolio, and then, we’re deploying our cash for further earnings enhancement, both through share buyback or acquisitions. And so I think – and that kind of ties in and it’s lining up very nicely to how we laid it out to the investors back in November.

Okay, I appreciate it. Thank you.

You’re welcome.

Next, we will go to David Driscoll with Citi Research. Please go ahead.

Thanks. Good morning.

Good morning.

Good morning, David.

I had a short-term question on Brazil and then maybe a longer term question on Brazil and South America overall, kind of the short-term question we have just had another food company report that it experienced dramatic margin and volume pressures in Brazil, the beer companies have seen a decline in volumes in the second quarter, so can you just talk a little bit about how much pricing you expect to realize or implement new pricing in the back half of the year and kind of what’s your confidence in the ability to do that. And I mean I ask it very explicitly because we hear so much negative commentary about it, I just want to get the sense of how confident you are in the ability to get pricing and kind of what is the magnitude, what’s the hurdle rate you got to jump. Bigger picture, long-term, can this geography get back to the type of – this is all of South America now, not just Brazil, can it get back to the type of operating profits that it used to generate years ago when it was roughly $200 million?

Sure, David. Let me answer those questions and then I will pass it potentially back to Ilene, if she has anything to add. Let me start with the short-term questions in terms of how we expect the latter part of the year to roll out in South America and specifically Brazil. Obviously, the Brazilian economy has continued to deteriorate somewhat, where we are seeing the GDP, the expectations not recovering even close. It’s actually negative 1% to 2% type of range in the current year. And that is impacting volumes throughout the region. And let’s get into the pricing a little bit. I think right now, we have indicated that our price mix improved by about 8% year-to-date. And just to put that into perspective, I know you – if you will think about the algorithm in terms of you have got 30% devaluation. We are trying to lock our margins, don’t forget not get back the entire 30% in pricing or anything like that. And so that 8% relatively covers those type of margin per unit basis type of numbers. And so I think that we are seeing – if you look at the back half of the year, I think those pricing unless there is a major devaluation, which I don’t anticipate in Brazil and not – it’s not in our forecast, it’s still trading around that BRL3 plus type of thing. And so my expectations is that our pricing that we have implemented so far is probably going to cover most of the back of the year. And I look at some of the drivers in that economy. And it is a seasonal economy to a certain extent, where the back half is more – a little bit heading into the summer months where beer demand picks…

Well, the other thing I would – what I would add is when Jack is talking about the specialty and more in particular in Brazil, I would say in places like Columbia, Peru and Chile especially that you are seeing the demand for healthy specialty products be more obvious in the short-term. And so we look at the continent long-term, as Jack said the demographics will be right, the GDP should be coming back. And we look at return on invested capital. I mean, it’s all about earning our cost of capital and are these good regions to be in. And so as we said in our script here that we believe in South America long-term and – but it will take some time to get back to where it needs to be.

Okay. Thank you for the comments.

You’re welcome.

Our next question is from Keith Carpenter with Canaccord Genuity. Please go ahead.

Hi, good morning. A couple of questions here just going again on the South America, if we look at the volumes, were down 4% in the quarter, can you highlight, I am sorry if I missed this, can you highlight possibly some breakdown between Brazil, Argentina and elsewhere, I know you made a comment where you said it, seemingly it was across the board, but can you add a little bit further color to that?

I would say that we – the primary slowdown was in Brazil. As we mentioned, Argentina basically performed as we anticipated. Where we were looking at is in Argentina, it’s more about steady state that we have achieved, at least until the end of this year when the new – once the elections are in. And then, we will reforecast that model, but I think we are in pretty good shape there. In the Andean region, we continue to see some growth, but there were some headwinds with respect to foreign exchange there as well. But there is – the volume slowdown was actually in Brazil, but on the – as I commented earlier some of our mix improvement did help offset that volume shortfall. And so I think that covers it, basically.

Okay, great. And then just again on the costs side, specifically to South America, when you look at South America versus other regions, have you scrubbed more of the cost potential savings in that region given headwinds over the last couple of years or do you think going forward that you have potentially almost as much opportunity to realize some further cost savings in that region as you would elsewhere?

Yes, this is Ilene. It’s interesting because on these calls, we have started to talk about the cost opportunities in South America particularly in Brazil, only in the last year or 2 years. And there was a time when GDP was growing and everybody was adding capacity and a lot of excitement. But as things have slowed down, we have begun the process and have – really do have a comprehensive continuous improvement process in South America that we actually took from North America and exchanged some of the best practices. So we have talked about as an example a conservative focus on energy improvement in Brazil, and we are moving from factory to factory to implement that. So I think it’s a journey. These journeys are normally 3 years to 5 years and we are probably in the middle of that. So I believe we have certainly had some very good achievement, but that there is more to get, certainly in South America. Anything you would add to that, Jack?

No, I think that answers.

Okay.

Perfect. And then, I just had one final question. On – when you look at M&A versus share repurchases, do you look at that once a year or say at year end or something of that nature and say, here is our potential targets for tuck-ins on M&A and at a certain timing of the year, do you say, you know what, maybe we have a little bit of left, maybe we are not going to get to that what we want to get to in the M&A side and we will add some to our share repurchases or is it not structured that way and it’s really just a conversation you have at any point in time to suggest what you might do on further share repurchases?

Yes. The most important priority is really M&A that can create value. And we are looking at all points in time. In fact, I have talked about our pipeline and we work through our pipeline over the years. And to make sure that the M&A that we are targeting is on trend, we will create enough value, we look both geographically and broadening the portfolio. And that pipeline continues to be very robust. As we have said, our sweet spot is $300 million to $500 million and sometimes we will look at a company like Kerr that is smaller, but will create a lot of value. But we are constantly looking and pushing ahead with our M&A agenda. And the share repurchase, we have said that we like to buyback dilution, but we do want to be a good steward of shareholder value and our cash. And so it’s not a once-a-year, but it’s certainly a continuous look at our choices. And again, priority for M&A, making sure that we have the dividend that’s appropriate with our strategy and our cash flow and then using the share buyback at the same time to make sure that we are creating enough value.

That’s prefect. Thank you.

You’re welcome.

And next, we’ll go to Akshay Jagdale with KeyBanc Capital Markets. Please go ahead.

Good morning.

Good morning.

Good morning.

So, can you talk a little bit about the core business? So obviously, there is core versus specialty. There is a lot going on, on specialty, but can you talk about the core business? And probably the best region that I would like you to talk about is North America. So, if you could give us a sense of how the core business performed there? That would be great. Because in my – from what I can tell, it’s performing as well as it has ever, I think. So, can you just give us some color there on the core business growth this quarter and how we should think about that going forward? So, I am thinking, excluding Penford and excluding specialty business, how is the core doing in North America and what’s the expectation for the back half?

Yes, Akshay, I think you are correct. It is performing fairly well for the first half of the year so far and we would anticipate it to be in that same range for the second half of the year. I would say, when you look at the core business, you have always said that it’s in that – particularly if you are talking about North America, in that 0% to 1% type of range, because it weighs in to our 1% to 3% around the world type of growth. And so I think that – and when I – as I look into the core business, it’s a matter of matching the supply and demand in that business. And if you think about our Mexican business continuing to grow in the core segments very well with strong demand, we have seen demand fairly, I would say, relatively flat in U.S. and Canada to a large extent. It’s still – I think it’s still there, but it’s the kind of flat in terms of its growth. So, most of the growth in North America is coming out of our Mexican unit from that viewpoint. And I think the operational side is where we are really driving the efficiencies is we continue to drive operations at this. So, I think – you know what, Akshay, I think that’s probably the primary drivers there.

Okay. Yes, I was talking more from an EBIT perspective. So, is it – because you have got really strong growth there and is it coming mainly from these process improvements or is it a combination of process improvement and margin expansion? Can you give us a little more color there? And can you then talk a little bit about the overall specialty portfolio? What did it grow at this quarter? Maybe it’s better to talk about that portfolio too on a constant currency basis, but how should we think of growth in the specialty portfolio this quarter relative to your long-term guidance? Because it seems like, just on a reported basis, the specialty portfolio this quarter is growing below what your long-term algorithm for it would be?

We don’t break out the specialty growth on a quarterly basis. And so as we said, at 2014, it was 24% of our portfolio. And our intent is to grow it twice the core and get it up to 27% to 30% of the portfolio. I will say that we’re running well. And so when you run well from an EBIT point of view, we do get a good margin. And really, our scenario is really to grow specialty, as I’ve said, twice the core. So the core might be flattish but yet we’re growing the specialty twice that rate in general and really growing with the trends. So that’s the equation that you’re seeing the result of, and we feel that the specialty portfolio has that momentum. We’ve said it was about $1.3 billion, $1.4 billion in revenues in 2014, but with the food trends and the plants basically run both core and specialty, so it’s a nice mix. You have a nice core throughput run well and then have added channels that run the specialty business that’s growing in all different parts of the world. So it’s a nice, balanced scenario.

And just one last one for me, can you give us some color on the 2% or 1.8% volume decline in North America? When you exclude the acquisition, you had a pretty big bump up in – volume growth is very solid in 1Q. What’s going on with the non-acquisition volume and space business volume in North America?

Yes, Akshay, let me answer that. I would say that, that’s just a layout of the volumes between quarters, to a large extent. When you’re looking at the year-over-year comps, it’s always a challenge when we came out of the polar vortex last year whether they match out the exactly the same way in the shipments this year. And so I would say that for the full year, I think that we are tracking just as we anticipated on our volume with – if you include the next six months’ forecast type of perspective. And so you get a little bit of distortions from quarter-to-quarter, but I think we are tracking very well from a volume perspective. And so I wouldn’t read too much into any declines there.

So just look at it maybe first half being up 1.6% that’s the better growth?

Exactly.

Perfect.

And I think that is probably a good indication as you look into the second half.

Perfect. Thanks a lot. I will pass it on.

And we will go to Sandy Klugman with Vertical Research. Please go ahead.

Thank you. So on Kerr, given the size of the deal and your comment on how fragmented the industry is, how should we think about the potential for you to complete similar transactions in the fruits and vegetables space? Do you need or want additional properties or does the integration of Kerr with your existing customer portfolio provide you with the critical mass you are looking for?

Well, that’s a good question and we haven’t closed on Kerr yet. So, we are learning about the business. Certainly, we did our due diligence and our homework and we believe that it’s an important space for us to be part of, again to be more important to our customers to formulate these fresh products. And so there are many opportunities for us to build that business that we will be looking at along with other ways to broaden our portfolio. We have talked about textures. So, we have done quite a bit in texture certainly in sweetness and certainly this part of flavor. We are excited about that. So, again, it’s all about creating recipes for the customer that make us more important. So, there are different ways that we will be looking at our portfolio.

And should I assume that the cross-selling opportunities between their customer base and your existing customers is pretty significant?

Well, I think, when you – when I talked earlier on about the revenue synergies, certainly that will be an opportunity to cross-sell some of the products, but I would say more importantly, to formulate together the new recipes for the customer base out there. But as I said, we haven’t closed yet. So, this is all very early days, but that’s part of the revenue synergies that I talked about earlier.

Okay, great. Thank you very much.

Welcome.

And we have no further questions in queue. I will turn it back to the company for any closing comments.

Okay, good. Well, before we sign off, I would reiterate our confidence in our business model, our strategy and long-term outlook. So, we remain keenly focused on shareholder value creation and are committed to delivering shareholder value. That brings our second quarter 2015 earnings call to a close. Thanks again for your time today everybody. Thank you.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.