Thank you for joining us for the Ingredion Incorporated Second Quarter 2022 Earnings Conference Call. Please note that this program may be recorded. I would now like to introduce your host for today, Jason Payant, Vice President of Corporate Finance and Interim Vice President of Investor Relations. Please proceed, Jason.

Good morning, and welcome to Ingredion's Second Quarter 2022 Earnings Call. I'm Jason Payant, Vice President of Corporate Finance and Interim Vice President of Investor Relations. On today's call are Jim Zallie, our President and CEO; and Jim Gray, our Executive Vice President and CFO. We issued our results today in a press release that can be found on our website, ingredion.com, in the Investors section. The slides accompanying this presentation can also be found on the website and were posted today 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 include expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those estimated in the forward-looking statements, and Ingredion assumes no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's press release can be found in the company's most recently filed annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. During this call, we also refer to certain non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted effective tax rate, which are reconciled to U.S. GAAP measures in Note 2 non-GAAP information included in our press release and in today's presentation's appendix. Now I'm pleased to turn the call over to Jim Zallie.

Thank you, Jason, and good morning, everyone. We are pleased to discuss Ingredion's second quarter performance and continued business momentum. We delivered outstanding top-line performance of 16% net sales growth for the second quarter. Our pricing centers of excellence continue to offset higher corn and other input costs, including foreign exchange impacts. Combined with a better product mix, our second quarter adjusted operating income grew 3% over last year's very strong second quarter. And just to note, this year's second quarter performance is now the strongest quarter we've delivered since 2017. Looking more closely at our top-line performance, across all four regions, comparable net sales grew double digits in the second quarter. As I mentioned, our commercial teams continue to successfully manage the terms of our customer contracts to address higher corn and input costs and continue to take actions to offset foreign exchange impacts as the U.S. dollar continued to strengthen. Of note, we offset more than $40 million of foreign exchange sales headwinds in EMEA and Asia Pacific combined. Regarding customer demand, I would like to note that on a comparable basis, our shipped product volumes are now ahead of prepandemic levels for the same quarter in 2019. This is an important milestone for us given the impact that the pandemic has had on the industry and our business over the last two years. At the same time, net sales have grown significantly, and specialty ingredients have increased as a percentage of both volume and net sales, reflecting a higher value mix. Now moving on to our strategic pillars. We continue to make great progress against each of the four pillars that are shaping our growth strategy. Global Specialties once again exhibited strong top-line growth, up mid-double digits in the quarter. Specialties performance was robust across all five growth platforms with texturizing ingredients and sugar reduction leading the net sales dollar increase. Additionally, plant-based protein sales were up strongly in the quarter and are now up more than 185% year-to-date. Moving to commercial excellence. While challenges remain across global supply chains, we've implemented several process improvements to best respond to customer demand. With regard to cost competitiveness through operational excellence, we have expanded our hedging programs and continue to build our capability to address commodity risks primarily in North America. As a result, we anticipate significantly less commodity volatility in the second half of the year. We also maintain momentum against our fourth strategic pillar, accelerating a purpose-driven and people-centric growth culture. We published our 2021 sustainability report Making Life Better, which details our progress against our 2030 global sustainability goals to address important societal and environmental sustainability challenges. During the quarter, we advanced several sustainability initiatives to drive positive, lasting impact in the communities where we live and work. One such example that I would like to highlight is a pilot program that Ingredion Brazil is leading. Working with HEINEKEN and several other suppliers, we are teaching and training farmers to adopt regenerative farming practices. This pilot program resulted in a 25% reduction of emissions in scope and increased the amount of carbon captured in the soil by 40%. Separately, to further reduce our global carbon emissions, we have successfully exited coal usage at our Argo plant in Illinois, which resulted in an 8% reduction in our total Zone 1 and 2 carbon emissions. This change delivered nearly one-third of the reduction needed to meet our 2030 greenhouse gas emissions goal. Also in the quarter, we published our 2021 diversity, equity, and inclusion report, which highlights our broad efforts to increase representation across our employee population. We are committed to creating a growth culture focused on diverse talent, inclusiveness, and community partnerships. As I mentioned, specialty delivered very strong growth this quarter across all four regions. And net sales grew double digits over and above the strong growth we experienced in the first half of 2021. While the growth was led by our texturizing portfolio, we also generated strong growth from our sugar reduction and specialty sweetener ingredients and plant-based proteins. Notably, our first half specialty net sales results are above our expected four-year net sales growth outlook, which we outlined at our recent Investor Day. Now let me spend a moment to update you specifically on sugar reduction, which grew 20% in the second quarter led by PureCircle, where customer wins drove 28% net sales growth and positive operating income. PureCircle's continued momentum demonstrates its market leadership for high intensity, natural sweeteners in a rapidly growing market for reduced sugar foods and beverages, and we are pleased to share that we have increased our ownership of PureCircle from 75% to 82% in the quarter. We anticipate further increases to our ownership of PureCircle over the next three years. As we look ahead to the second half of the year, we are focused on navigating the challenges in the current business landscape. First, we continue to remain committed to offsetting inflationary increases through a combination of pricing and productivity improvements from our operations. We have demonstrated an ability to do this well in the first half, and we expect to be able to offset additional cost increases as they arise. Second, supply chain challenges continue to be impacted by labor availability, COVID restrictions, and the Ukraine conflict. Our teams are operating with agility to overcome these challenges to ensure continuity of supply and service to customers. Third, energy prices remain elevated, and there is increasing concern around the potential natural gas supply disruptions in Europe. We are currently developing contingency plans to mitigate possible impacts in the region. And lastly, while foreign exchange impacts have been relatively benign over the past two years, we are currently experiencing higher foreign currency weakness on the back of a strengthening U.S. dollar. Our pricing centers of excellence have served us well, and we will continue to price through raw material cost increases as well as foreign exchange. Now let me hand it over to Jim Gray for the financial overview.

Thank you, James. Good morning to everyone. Starting first with our Q2 regional performance. North America net sales increased by 20% compared to the same period in 2021, primarily due to strong pricing dynamics arising from last fall's contracting season and in-year pricing adjustments. North America operating income was $161 million, reflecting an 8% rise from the previous year, driven by favorable pricing that outweighed inflationary input costs, including higher corn prices. In South America, net sales rose by 8% compared to the prior year, which includes the effect of the Argentina joint venture presentation change. On a comparable basis, net sales would have increased by 42% year-over-year, supported by strong pricing and volume across the region. South America operating income was $39 million, up by $6 million, aided by better performance in Andean and Brazil, along with a positive contribution from the Argentina joint venture. Excluding foreign exchange effects, adjusted operating income grew by 15% for the quarter. In the Asia Pacific region, net sales rose by 11% during the quarter, and without foreign exchange impacts, sales increased by 19%. Asia Pacific operating income was $21 million, down by $3 million from the previous year. Strong performance in ASEANI was more than offset by challenges in Korea resulting from increased input costs and COVID-related issues in China. Foreign exchange also negatively affected the region in the quarter. In EMEA, net sales were up 10% for the quarter, and absent foreign exchange effects, net sales increased by 24%. EMEA operating income was $29 million for the quarter, down by $3 million compared to the prior year, as higher corn and input costs in Pakistan and foreign exchange pressures outweighed resilient performance in Europe. Excluding $5 million of foreign exchange impacts, EMEA's adjusted operating income increased by 6% in the quarter. Moving to our income statement, net sales reached $2.044 billion, increasing by 16% for the quarter versus the previous year. Gross profit dollars were higher year-over-year, while gross margin was 19.1%, a decline of 170 basis points primarily due to the delay in price versus rising corn and input costs, especially in Pakistan and Korea. Reported operating income was $213 million, while adjusted operating income was $215 million. The reported operating income was lower than adjusted due to restructuring expenses. Our reported and adjusted earnings per share for the second quarter were both $2.12. In our Q2 net sales bridge, we achieved strong price/mix totaling $328 million, largely resulting from significant contracting and dynamic pricing across all four regions, particularly North America and South America. The sales volume decreased by $5 million due to the presentation change linked to the Argentina joint venture, although offset by strong volume increases in all regions. Foreign exchange posed a 2% headwind in the quarter, with notable impacts in EMEA and Asia Pacific. Reported results from South America reflect the impact of the Argentina joint venture presentation change on volumes. South America net sales grew by 42%, with volume increasing by 15% on a comparable basis excluding the joint venture's impact. Now, regarding our earnings bridge, operationally we saw an increase of $0.07 per share for the quarter, driven mainly by an operating margin increase of $0.24, partially offset by lower volumes of $0.11 and negative foreign exchange effects of $0.07. In terms of nonoperational items, EPS remained flat compared to the previous year mainly due to lower financing costs of $0.02 and a favorable impact from outstanding shares of $0.02, mostly balanced by a higher adjusted effective tax rate of $0.03. For the year-to-date, net sales reached $3.936 billion, up 17% compared to the previous year. Gross profit margin stood at 19.5%, down 180 basis points. Year-to-date reported operating income was $423 million, while adjusted operating income was $428 million, with the reported amount lower primarily due to restructuring costs. Reported earnings per share year-to-date was $4.04 and adjusted earnings per share was $4.06. In our year-to-date net sales bridge, the 17% growth was largely attributed to $612 million in price/mix improvements, especially from North America. The sales volume increased by $14 million, with contributions from each region, primarily North and South America, but was partially offset by a sales volume decrease of $128 million due to the presentation change related to the Argentina joint venture. This increase in sales was countered by $66 million in foreign exchange headwinds in the first half. In terms of year-to-date earnings, operationally we saw an increase of $0.22 per share, driven by margin improvement of $0.44 and other income of $0.02, but was offset by lower volumes of $0.13 and foreign exchange effects of $0.11. Moving on to cash flow, second-quarter cash from operations was near breakeven, increasing from the prior year due to higher working capital usage driven by increased input costs affecting inventory values and accounts receivable. Net capital expenditures reached $137 million, up by $35 million from the previous year due to the timing of expenditures, and we are on track with our 2022 capital commitment expectations. In the first half of the year, we paid $86 million in dividends to Ingredion shareholders and repurchased $83 million in outstanding common shares. Additionally, we acquired more shares of PureCircle from minority shareholders for $27 million. For the full year of 2022, we expect adjusted EPS to be in the range of $6.90 to $7.45, excluding acquisition-related integration and restructuring costs, as well as any potential impairment charges. We anticipate net sales growth in the mid-double digits due to strong price/mix and volume growth on a comparable basis. Significant increases in reported operating income are expected due to the prior year reflecting a net asset impairment charge concerning our Argentina operations in the joint venture. Adjusted operating income is projected to rise in the low double digits compared to last year. Financing costs for 2022 are expected to range between $88 million and $93 million, mainly due to higher incremental borrowing costs. The anticipated adjusted effective annual tax rate is expected to be between 28% and 29%, showing a decrease at the higher end compared to previous guidance. Cash flow from operations is now expected to range between $300 million and $360 million, owing to greater working capital investments. Net capital investment commitments are expected to fall between $290 million and $320 million, with approximately $85 million earmarked for specialty growth. We predict total diluted weighted average shares outstanding will be between 67 million and 68 million for the year. Regarding our regional outlook, North America net sales are forecasted to rise by 15% to 20%, fueled by favorable price mix and higher volumes. Operating income is expected to grow in the low to mid-double digits due to favorable pricing and product mix, which should more than offset higher corn and input costs. For South America, we now forecast net sales to increase by low double digits due to strong price/mix, which will cover the impact of the Argentina joint venture presentation change. Operating income in South America is also expected to grow in the low double digits, supported by favorable pricing dynamics. In Asia Pacific, we project net sales growth of 10% to 15% compared to the prior year, with operating income anticipated to remain flat to the previous year, impacted by increased corn costs in Korea linked to the Ukraine conflict and COVID lockdowns in China, balancing stronger performance from PureCircle. For EMEA, we expect net sales to increase by 10% to 15%, while operating income is predicted to be flat to down low single digits due to higher corn and energy costs alongside negative foreign exchange impacts. For the third quarter of 2022, we expect net sales growth to be in the high teens and operating income to grow in the high single digits compared to the prior year. That concludes my comments, and I'll hand it back to Jim.

Thanks, Jim. While there are a number of variables that could impact our expected results in the second half, we believe we have developed a solid pricing playbook and have significant experience in managing inflation. Additionally, our teams are taking actions to mitigate earnings volatility through our expanded risk management program and are working to limit our exposure to corn price movements, all of which is expected to support margin expansion in the second half relative to the prior period. We are also carefully monitoring potential changes in consumer behaviors and spending, which could impact sales volume amidst a possible recession. We are positioned well since the ingredients we produce are used in a broad range of food and beverage categories and are consumed across many different types of eating occasions. For example, we benefit from resurgent strength in both foodservice and private label sales in the U.S. and Europe. In closing, our second quarter results were very strong. We grew our top and bottom lines in the quarter despite significant inflation and continued supply chain disruptions; we advanced progress against our strategic pillars. We exit the first half with solid momentum, and we expect to deliver continued growth in the second half. Now let's open the call for questions.

And our first question comes from Adam Samuelson from Goldman Sachs.

Yes, my first question is about understanding how the forward outlook has changed. In the quarter, your operating income performed better than expected, staying mostly at the lower end of the guidance range. I'm trying to understand whether this reflects more caution regarding currency or cost layout. I want to clarify why the strong performance in the first half doesn't seem to completely carry over into the latter half of the year, if at all.

Yes, Adam, this is Jim. I’ll start off. First, I want to remind everyone that as we analyze the corn layout, we observed that corn prices were increasing at the beginning of the year while we were establishing hedges for Q2, Q3, and Q4. We will experience higher corn costs in Q3 and Q4, which is reflected in our assumptions. More importantly, we are cautious about Europe, particularly regarding energy supply. As mentioned on the call, we are implementing plans to mitigate any gas curtailment and strategizing on product movement. Additionally, in Asia Pacific, we experienced COVID disruptions in China, but we appear to be recovering strongly at the beginning of Q3. However, we remain cautious about corn costs in Korea, which is also reflected in our forecasts. Overall, EBIT will see a year-over-year increase, with Q3 and Q4 being significantly stronger compared to last year’s weaker performance, and the total EBIT for the year will be slightly higher than our previous forecasts.

No. That's helpful. And then maybe zeroing in on North America. I mean volumes up, one. And I guess specialties are growing in that. I guess we're also hearing about parts of kind of some of the more commodity products and core products that are in quite tight supply at the moment. And I'd love to get any thoughts you have about kind of the demand trends in some of those core products in North America and how that frames your view of supply and demand going into contracting for 2023?

Yes. Maybe I'll comment on syrups and then maybe Jim can comment on more kind of dextrose. So what we're seeing for syrups is generally a pull within North America as you've seen really strong food service takeaway, both in Q2, probably continuing all throughout summer. You're seeing strong pull for beverages, and you're also seeing strong pull from brewery. And then also just to add, Mexico, most throughout last year was still kind of came out of Delta, Omicron kind of hit and I would say that the bounce back in Mexico in '21 was a bit subdued. And what we're just seeing is, I think, a nice recovery, a full volume recovery in Mexico as we go through the year. And with regard to kind of more kind of value-added core products, crystal and dextrose has been in strong demand throughout the whole year.

Yes. I think demand continued to be strong in the second quarter, and orders continue to remain robust right now. Our visibility, Adam, at this point indicates strong demand continuing through quarter 3, which is typically a strong quarter, tied to customers' pipeline filling for holiday offerings. That's not meant to imply that quarter 4 will soften. We just don't have visibility that far forward just yet. So what we see is still strong demand from food service, private label, strength and strong orders through quarter 3, and it remains to be seen, obviously, how quarter 4 will continue. And as a reminder, our customer base is broad with sales across all the different categories, whether it be branded grocery, private label, food service as well as we have a very strong distributor network really around the world. And we certainly would say food service appears robust through the end of the summer for sure. So that's about as much visibility as we have, and that's all positive at this point in time from a demand forecasting standpoint.

And our next question comes from Robert Moskow from Credit Suisse.

I would like more details on your fill rates for customers as we've heard about some shortages, particularly in the starch complex. What is the current status of your service issues, and do you anticipate they will continue to improve? I also have a follow-up question.

Yes. Thanks, Rob. What I would say is that the industry at large has experienced supply disruptions for certain products, which has strained product availability. And demand has continued to be strong for a number of the products we supply, and this has been the case since the rebound from the depths of COVID going back to quarter 3 of 2020. And as we indicated during the presentation, sales volumes are now back to 2019 pre-pandemic levels, and we're operating at high levels of capacity utilization. Through this period, we've worked closely with customers to overcome many of the global supply chain issues. And our teams have been really working diligently to meet the increased demand. We've made investments in digital processes such as automation of order receiving, product allocation, order confirmation, etc. to make sure that we're focused on those customers that are the most strategic from a relationship standpoint to us to optimize the timely and efficient delivery of product. And also what we've done to help address some of the tightness in the supply issues, it's noteworthy that we have very high demand for our clean label texturizers, and we accelerated the capacity expansion of these products at our Indianapolis facility, and that capacity is now online, and we're shipping products to customers around the world. And that's in addition to a significant expansion of specialty starch production in China that is commissioning right now in quarter 3. So the industry at large, I would say, has been tight. There's been a number of issues that have impacted service across the industry, whether it be chemical shortages or some force majeures that have been declared in various chemical supplies as well as just the overall impact of tightness with truck drivers, labor, etc. that we all know about. But from a standpoint of the look forward for the remainder of the year, we see the situation steadily improving in the second half as supply chains normalize over the remainder of the year.

Okay. And maybe an update on your plant-based protein capacity expansion, customer orders. You gave some very specific detail on profit impact, I think, last quarter. Any update there?

Yes. We had actually a very strong quarter, which has us on track at this point in time. We've got a challenging second half comparable from a standpoint of what our internal targets are. But from a standpoint of our portfolio, it remains very well positioned for growth given the breadth of our product portfolio across protein flowers, concentrates, and isolates and across four different types of pulse ingredients. This really doesn't make us dependent on sales into one product category such as alternative meats with, say, just isolates, for example. We have a very robust project pipeline with many customers across multiple consumer product categories such as alternative dairy, alternative snacks, and bakery, and we really have strong relationships that we've built with leading players in each of those categories and are focused on delivering the innovation to them. We really strongly believe that the plant-based trend is built on long-term sustainable fundamentals. And what we're focused on is delivering great taste and texture as well as high-quality nutrition along with clean and simple labeling. We really believe that's the recipe for long-term success in this category, and our facilities are running well now. And again, the portfolio of products that we've developed, we think are leading edge products from a taste and protein content standpoint. So the interest in our products is great, and we had a good second quarter, and the team is just running hard to deliver a solid second half.

Jim, just to be more specific. I think it's operating below breakeven this year. Does that mean that there's an opportunity for kind of a rebound year or strong profit growth comparisons in '23?

Yes, you're correct. We're currently operating at breakeven because we just launched the plant late last year. Our goal is to achieve a $10 million year-on-year improvement in operating income from those facilities. At the moment, we are on track to achieve that, along with the sales growth I mentioned. As with any new startup, there are operational costs until the plants become fully operational. Jim, do you have any additional comments?

Yes. Just I think, Rob, as you look from 2022 and where we'll finish the year to 2023, we anticipate to kind of build even more on the net sales in '23 versus the foundation that we've laid in 2022. That helps us amortize more of the fixed costs in that facility. And we have yet to say what our '23 kind of expected improvement in the operating margin from plant-based proteins will be, but we're heading in the right direction, and we're seeing notable improvement in 2022's operating loss versus 2021.

And our next question comes from the line of Ken Zaslow from BMO.

As you prepare for 2023, it looks like you have increased capacity coming online and a strong outlook for demand, along with tight utilization rates. How will that affect your plans for 2023? Are you optimistic about this? Your growth strategy appears achievable for next year, if not even better. Can you share some insights on that? I understand it might be early, but how does this year's performance influence your expectations for next year?

Well, let me take a shot first, and then I'll turn it over to Jim. What I would say is right now, we're seeing demand strong. And then if you just think about navigating pricing, we've done a very good job, I think, year-to-date being able to navigate pricing, offsetting corn costs and other input cost inflation and foreign exchange. And we're anticipating continuing to be able to do that going forward. The industry capacity utilization is tight for the ingredients that are starch-based derivative-based. And we see that at this point in time continuing going forward. So it's really early, Ken, to really put any kind of an outlook on 2023. But I think one thing that I would say that I think everybody is tracking is our corn prices. And looking at today's corn futures outlook and the 2023 strip pricing, we would anticipate that any required pricing actions would imply an increase versus today's increased level, but those levels would be certainly much less than what was required in 2022. So from a standpoint of that hurdle to be able to get that pricing through, I don't think it's going to be as severe as it has been as required at what it was in '22. Anything else, Jim?

Ken, I would just add in terms of what the entire team here is working towards is when we look at our specialty ingredients, greater functionality and greater value in a recipe, we highlighted that in our Investor Day. That carries with it higher average prices that customers really value the ingredients and always working towards higher gross margins in our portfolio mix. And then I think the addition that we've seen is really in some of our core products is that you do have this shift that we've made, looking at high fructose corn syrup, we've really moved more towards kind of glucose and other specialty dextrose. And I think that, that has its own demand as we head into '23.

Yes. And I know, Ken, oftentimes we end up on these calls talking about North America predominantly, but it is also noteworthy to say that we anticipate really steady demand in the second half from Mexico and South America, especially with events such as the World Cup later in the year. Both of those businesses have done extremely well for us over the last few years. And so from that vantage point, volumes look to remain strong in the second half of this year as we head then into 2023.

My follow-up question is how much additional capacity do you have coming on in 2023? Also, to what extent do you expect to see a return on that?

Well, our operations team is very focused on improving on-stream effectiveness, OEE, to squeeze more pounds out of our plants because right now, and the situation has been this way for quite a while, we can sell every pound we make. So we've been very focused on operational excellence. We've made the investment in the FBR in Indianapolis, which has expanded our clean label texturizing portfolio. That came on in record time, and our expansion in China has really been remarkable from a standpoint of that facility has actually shipped its first product to customers. And so that plant is coming on stream with significant capacity for that local market and potentially some export opportunities as well within that region, which relieves export requirements from other regions into Asia, freeing up some capacity. So we've taken a number of steps. And we also announced, and I'll just draw you back to an announcement we made at Investor Day of $160 million of capital investments, specifically in texturizers to expand volume growth. And that's across a variety of downstream refining assets for the more highly valued specialty texturizing ingredients. And that's across the pre-gelatinized and/or cold water swelling category. That's across the clean label texturizers that I mentioned as well as different bases as well. So whether it be potato-based or rice-based, we have seen strong growth. So we're expanding capacity there, but in the downstream finishing channels not necessarily in the grind capacity realm. Jim?

Ken, as we outlined in our four-year outlook, for us to look at our texturizers, we really need to plan for volume growth that's going to be in the mid-single digits. And so while Jim highlights a number of our areas, we have a pretty comprehensive capital planning to make sure that as we're looking forward to the next year and the year after that, that as we anticipate customer demand in texturizers that we're really planning ahead to accommodate that growth.

And our next question comes from Seth Goldstein from Morningstar.

How do the new contract structures work in a scenario where commodity prices were to fall and particularly in specialty, would you be able to maintain higher prices? Or would there be some sort of a pass-through to reflect the commodity price declines?

Well, for more specialty products, those are sold on a value-added basis and from a standpoint of the performance they're delivering in that application. And prices typically for those ingredients don't necessarily fall or come down associated with say, corn cost inputs to the same degree or if at all, in comparison to more of the core ingredients, the core bulk sweeteners, for example, that doesn't typically happen. And so those margins, remember, are minimum in GP 2x, the core ingredient margins. So that's typically how pricing works with those products. And it's different also depending on the region. North America is a little different than Asia Pacific, which is a little different than South America and EMEA, for example.

Okay. That's really helpful. And what percentage of the EMEA sales come from the two facilities in Germany? Just trying to size up the potential risk that you're trying to mitigate should there be natural gas shortages?

So the two facilities. We have one facility of consequence, which is in Hamburg, Germany. We have a smaller facility related to the KaTech operations, which we most recently acquired last year. Out of EMEA's entire sales, half of it approximately or a little more than half is from Europe itself. And from that facility, maybe 25%, 30% of the sales comes from that German facility.

Our next question comes from Ben Theurer from Barclays.

Just wanted to follow up a little bit on the outlook into the second half. Obviously, in one half, we've seen very strong pricing momentum and essentially volumes being, call it, plus/minus flat. Have you seen amongst your customers, any elasticity, any pushback? I mean, you've talked about the order book into Q3. But how do you feel about the pricing needs and the ability to put through pricing just given the general inflationary environment?

Yes. I think for this calendar year, we remain confident in the ability to pass through pricing through the remainder of this year based on the visibility we have for the demand outlook. Beyond this year, we really can't at this point comment because we don't have obviously visibility that far forward. But we feel pretty confident because we have been able to put through not only price increases related to our typical contracting period, which goes back to say last fall even into say January of this year, which is the typical contracting period, but we have put through multiple across multiple regions, dynamic in-year price increases related to incremental inflationary cost increases we've incurred. And as we've demonstrated, we've been able to more than offset those through pricing actions this calendar year. And it's not been an insignificant proportion of the pricing that we've obtained for total 2022 and that has come from in-year dynamic 2022 pricing in comparison to what we had to put through related to typical contracting at the time when we had visibility to our cost structures as we headed into 2022. So that's what I would say. But we are monitoring, like everyone else, we're monitoring very closely, consumers' behavior and spending and watching very closely. At this moment in time, we don't see softness for the ingredients we supply, given we believe the diversified usage of those ingredients across multiple channels. So as I was mentioning, the COVID rebound, everybody is obviously out enjoying summer holidays and food service and food away from home; we benefit from foodservice equally as consumers trade down private label increases; we equally benefit there, and that's just the nature of the diversified nature of the products we sell and the reach of those products.

Okay. Following up on your comments about the Asia Pacific region being affected by lockdowns, could you share some examples of how recovery is progressing? If we consider the guidance with operating income expected to be flat for the year, there needs to be a significant acceleration in growth rates in the latter half of the year. How confident are you, and are you observing any on-the-ground indicators that reinforce your positive outlook to transition from the first half's negative growth of 12% to 13% to flat?

For the Asia Pacific operating income, we anticipate it to remain relatively flat for the year. There is a notable year-on-year improvement linked to PureCircle, which positively affects our bottom line. It's important to note that we are facing start-up costs for the new modified starch plant in China. We believe that the second quarter represented the lowest point for our Asia Pacific business due to the severe impact of COVID lockdowns and increased corn and energy costs in Korea. Currently, we are also experiencing foreign exchange weakness in several currencies. However, our team is implementing in-year pricing adjustments that are effectively taking place in the second half, alongside strong demand. Our Tapioca franchise is performing exceptionally well, the ASEANI business is thriving, and China is showing promising growth. We are already shipping products from the new plant to customers, which is ramping up. Therefore, we have a more optimistic outlook for the second half compared to the first half, and particularly, we view the second quarter as the lowest point of the year, with expectations for improvement moving forward.

Ben, I just want to add to what Jim mentioned that the Ukraine conflict caused a corn supply issue for Korea. It took our team a quarter to secure their corn for the second half and to plan for price increases. Now, we will see these price increases take effect in the second half, which will help offset the higher corn costs in Korea. This is the expected improvement for the second half in Asia Pacific, along with the other points Jim discussed.

And our next question comes from Ben Bienvenu from Stephens.

I want to ask about capital allocation specific to what is a really strong balance sheet positioning, continued progress on the integration of PureCircle. In your updated guidance today, it looks like, obviously, you'll continue to have your dividend payment, but there's not going to be considerable repurchase activity on the buyback. What is your appetite for incremental M&A, just given the progress that you've made on PureCircle integration and the cash generation of the business?

Jim, do you want to talk about just the cash in year and how you see that playing out? And then I can maybe take the last question.

Yes, Ben. When we consider a rising corn market or inflation, we'll be paying more for corn, which will affect our inventory values and result in higher prices on invoices for our customers. This impacts both aspects of our working capital. We have experienced similar situations in the past, including a significant reversal of benefits in 2020. We invested in working capital in 2021 and continue to do so in 2022, as our revenue exceeds $8 billion. This trend is typical for our business. We anticipate it will stabilize in 2023 and 2024, leading to a reduced investment in working capital from cash. We expect cash from operations will return to a run rate level around $700 million. From there, we will focus on strong organic capital growth projects, prioritize the dividend, and have funds available for strategic investments in M&A.

No, I think that's well said, and we obviously continue to work an active M&A pipeline. And we believe that this situation will sort itself out as we go through next year.

Okay. My second question is related to the EMEA segments and more specifically, the trends you’re seeing in Pakistan, you cited it as a source of cost pressure in the quarter. Obviously, we’ve seen currency come under considerable pressure there. If you could just talk about what’s going on there in the broader economy and the business trends, implications for you guys, that would be helpful.

Thank you for your question. We don't frequently discuss our business in Pakistan, which is quite significant for us in the EMEA region. As you pointed out, Pakistan is facing considerable cost inflation, particularly in corn and energy, along with unfavorable foreign exchange conditions. Prices for summer corn crops are continuing to rise, and we anticipate that they could increase by an additional 10% on top of the over 40% increases seen in the first half of 2022 compared to the previous year. Regarding the rupee, it has depreciated more than 14% against the dollar this year. Our team is working diligently in Pakistan, where we hold a strong market position. They have already implemented significant price increases in the first half of the year and will continue to adjust prices to manage higher costs in the second half. Like many places, we need to monitor the extent of necessary price increases due to these unique circumstances, including inflation in agricultural inputs and energy, and how that affects consumers. While Pakistan is somewhat of an emerging market, it remains solid for us. We’ll have to observe how this plays out over time, given the scale of needed price increases to balance those input costs. Overall, things have been manageable in the first half; there’s an effect, but it’s been muted, and our team is striving to maintain this in the second half.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jim Zallie for any further remarks.

I just would like to thank everyone for joining us this morning. We look forward to seeing many of you at our upcoming investor events this fall. And I just want to conclude by saying thank you to everyone listening for your continued interest in Ingredion.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.