Ingredion Inc Q3 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to the Q3 2024 Ingredion Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Noah Weiss, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Ingredion's third quarter 2024 earnings call. I'm Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, our President and CEO, and Jim Gray, our Executive Vice President and CFO. The press release we issued today, as well as the presentation we will reference for our third quarter results, can be found on our website, ingredion.com, in the Investors section. 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-Ks and subsequent reports on Forms 10-Q and 8-Ks. During this call, we will 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 on our press release and in today's presentation appendix. With that, I will turn the call over to Jim Zallie.

Thank you, Noah, and good morning, everyone. Ingredion achieved a significant milestone in the third quarter with a 29% increase in adjusted operating income, marking not only our best third quarter performance ever, but also the second-highest quarter in the history of our company. In fact, all three of our segments delivered double-digit operating income growth in the quarter, which is a testament to the dedication and hard work of our teams across the world. Operating excellence and contract management across each of our segments were key drivers of the exceptional profit growth. Despite facing input and wage cost inflation, our sales teams successfully adjusted multiyear contract pricing with customers, which supported margin recovery. Furthermore, volume recovery improved fixed cost absorption, and our operations and procurement teams drove structural savings, which complemented the savings coming from our cost-to-compete program. Turning to a summary of our sales volume growth, all three segments reported year-over-year increases, resulting in 4% net sales volume growth compared to last year when adjusted for the sale of our South Korea business. Starting with Texture and Healthful Solutions, the double-digit sales volume increase that we experienced was the result of notable food and beverage category growth in the U.S., particularly in areas such as savory, packaged meals, and frozen prepared meals. Additionally, our sales volumes in Europe also experienced double-digit growth, driven by an uptick in consumer buying behavior as more and more people are commuting to work and seeking convenient meal and snacking options. We are experiencing the greatest volume growth with our most differentiated products and solutions, which generally offer higher profitability. We anticipated strong second-half organic volume growth for Textured and Healthful Solutions, and our new global segment is better enabling our commercial and operations teams to identify opportunities and capture growing global demand. In the Food and Industrial Ingredients LatAm segment, volume growth from Brazil's brewing category showed continued recovery, despite some unevenness in the quarter. I'm also pleased to report that our sales for nutritional meal supplements in Colombia have significantly improved, and we anticipate continued growth through year-end. Lastly, for Food and Industrial U.S. Canada, we continued to see strong demand from papermaking and packaging customers, which was partially offset by softer sweetener shipments, primarily to food service. Now, let me update you on progress against our three strategic pillars, beginning with business growth. Customer engagement on current and active future innovation pipeline projects rose by 27% this quarter. These opportunities set the stage for deeper collaborations and greater long-term partnerships, leveraging our expanding solutions capabilities. Texture and Healthful Solutions saw strong sequential net sales and profit growth, driven by lower raw material costs, better volumes, and improved mix. For each of our Food and Industrial Ingredients segments in 2024, we renewed several long-term contracts with key customers, enabling us to offset inflationary input cost increases, which we absorbed over the past two years. The benefits of these renegotiated contracts led to increased profitability. We also observed consistent demand for industrial starches in the U.S. and Canada from the papermaking and packaging sectors. Lastly, this quarter, we ramped up higher throughput production at our Cali, Colombia, and Mexico City facilities after successfully debottlenecking both operations with minimal capital expenditures, yielding very attractive returns. We are constantly seeking out these types of modest organic investment opportunities to optimize our network and provide headroom capacity for future growth. Turning to our second strategic pillar, cost competitiveness through operational excellence. Earlier in the year, we launched a two-year cost savings program called Cost to Compete, with a target to deliver $50 million of run rate savings by the end of 2025. I am pleased to report that through the first nine months of the year, we are slightly ahead of our savings target expectations, driven by captured SG&A from our global business resegmentation. We also, as we execute on network optimization projects as part of our cost of goods sold savings initiatives tied to cost to compete over the next 15 months, are also investing in opportunities to expand capacity and capabilities elsewhere. For example, we are investing to expand our Texture Solutions formulating and innovation capabilities. With production ramping up as a result of increasing volumes, our commercial, operations, and procurement teams have improved sales and operations planning efficiency, leading to improved forecasting, higher schedule adherence, and improved service levels, which have been reflected in higher net promoter scores. This has also resulted in lower levels of inventory, which has driven improvements in working capital and strong cash flow. As we manage through 2025 contracting, we're focused on leveraging our pricing centers of excellence to balance volume growth with pricing and a focus on margins to deliver year-on-year growth. Now, let's move to our last pillar: supporting our purpose-driven and people-centric growth culture. Building on our exemplary safety record with a notable reduction in incidents in 2023, we were named a finalist for the National Safety Council's Green Cross for Safety Awards. This prestigious recognition celebrates companies that exhibit exceptional dedication to safety and health, reinforcing our foundational value of care first. Our internship program has been named one of the top 100 in the U.S. by WayUp for the third time. We are especially proud of this ranking as it recognizes that Ingredion is a great place to develop a career and positions us well in the minds of highly sought-after college interns and graduates in a tight labor market. Furthermore, this quarter, we were recognized as one of the most innovative companies in the food, beverage, and ingredient sectors in Brazil by Valor and Novacao. This award was in recognition of our digital transformations that leveraged artificial intelligence to predict equipment failures, the development of products in local markets from our idea labs using proprietary consumer and customer insights, and investing in CO2 emission reductions through the use of biomass energy. Lastly, it is worth highlighting that after a year of significant organizational change impacted by the reorganization of the company into new segments, our employee engagement scores remain at their highest levels and above industry benchmarks. As discussed in the previous slide, our significant gross margin improvement this quarter is largely attributable to a well-executed approach toward contract pricing, raw material procurement improvements in hedging, and increased volumes benefiting fixed cost absorption. Now, I'd like to make some comments regarding the strength of the volume growth in our Texture and Healthful Solutions segment ahead of our Texture Innovation Day coming up next week on November 14. We are pleased that a large proportion of our volume growth is coming from our more highly differentiated solutions. These opportunities are created when our customers come to us with complex problems that require a multifaceted solutions approach to meet a particular label challenge or cost target. Driven by front-of-pack label changes across many geographies, customers are looking to suppliers like Ingredion to partner and deliver on their recipe and labeling needs while meeting cost and sustainability targets. We are investing in our solutions capabilities, specifically in texture solutions, sugar reduction solutions, and protein and fiber fortification. We expect these investments to drive volume growth going forward, offering faster customer innovation, affordable recipe development, along with the opportunity for simplified and sustainable sourcing. Now, I'm pleased to hand it over to Jim Gray for the financial review.

Thank you, Jim, and good morning, everyone. Moving to our income statement, net sales for the third quarter were approximately $1.9 billion, down 8% versus prior year. Gross profit dollars grew 14%, with corresponding margins up 490 basis points to 25.6%. Reported and adjusted operating income were $268 million and $282 million respectively, with adjusted operating income up 29% versus the prior year, driven by lower raw material costs, higher sales volume, and better fixed cost absorption, partially offset by price mix. Turning to our Q3 net sales bridge, the 8% decrease was driven by $150 million in lower price mix and $20 million of foreign exchange impact, partially offset by positive sales volume growth of $86 million. Furthermore, the exit from South Korea had a $79 million impact on sales volume. For modeling purposes, last year's Korea net sales for the fourth quarter were similar to this quarterly run rate. Turning to the next slide, we highlight net sales drivers for the third quarter. For the total company, net sales were down 8%, and excluding the impact of South Korea, net sales were down 4%. Texture and Healthful Solutions net sales were flat. Price/mix was down 12% for the quarter, primarily reflecting the pass-through of lower corn costs as well as last year's higher pricing due to double-digit inflation experienced in our specialty corn and energy costs. Food and Industrial Ingredients LatAm net sales were down 6%, and Food and Industrial Ingredients U.S. Canada net sales were down 9%, both resulting from the impact of the pass-through of lower corn costs. Let me turn to a recap of our Q3 performance by segment. Texture & Healthful Solutions net sales were flat compared to the prior year and down 1% on a constant currency basis. Texture & Healthful Solutions operating income was $96 million, up 12% from the prior year. Operating income margin improved to 16%, driven by lower input costs and higher sales volumes partially offset by unfavorable price/mix. We still anticipate operating income margins to be between 13% and 15% for the full year. In Food and Industrial Ingredients LatAm, net sales were down 6% versus last year and down 2% on a constant currency basis. Operating income improved to $131 million, resulting in 26% year-over-year growth. Operating income margin of 21.1% was driven by lower input costs and lapping last year's transition costs to a more sustainable biomass energy source in Brazil. In addition, the weakness in the Mexican peso led to favorable transactional FX impacts as we are dollar-denominated in Mexico. The movement of the Mexican peso weakening contributed approximately $3 million upside in the quarter to LatAm's operating income. We now expect operating income margins for the full year to be between 18% and 20%, with the increase in the range driven by stronger performance as well as transactional FX impacts in Mexico. Moving to Food and Industrial Ingredients U.S./Canada, net sales were down 9% for the quarter and operating income was $99 million, with an operating income margin of approximately 18%. The improvement year-over-year was driven by reduced raw material costs and the renewal of long-term customer contracts, which have been price adjusted for previous year's input inflation. We expect full-year operating income margins for this segment to be between 16% and 18%. For all other, net sales decreased, driven by the overlap of South Korea's net sales in the prior year's quarter. Although the operating loss was minus $4 million, primarily driven by our protein fortification business. Turning to our earnings bridge. On the top half, you can see the reconciliation from reported to adjusted earnings per share. Operationally, we saw an increase of $0.77 per share for the quarter. The increase was driven primarily by an operating margin increase of $0.93, partially offset by volume of minus $0.12 per share, which includes Korea for 2023. Moving to the change in our non-operational items, we had a decrease of $0.05 per share, primarily driven by an unfavorable tax rate change of minus $0.37, mostly offset by lower financing costs, contributing a positive $0.30 per share. Shifting to our year-to-date income statement highlights, net sales for the first 9 months were approximately $5.6 billion, down 10% versus the prior year, due mainly to lower corn costs in the current period. While gross profit dollars decreased 1%, gross margin has increased 220 basis points to 23.8%. Reported and adjusted operating income were $721 million and $768 million respectively, flat to down slightly from last year, reflecting the lap of a strong first quarter in 2023. Turning to our year-to-date earnings bridge, operationally the result is an increase of $0.03 per share. To note, last year's results include an approximate $0.35 per share contribution from the South Korea business. For our non-operational items, we had an increase of $0.54 per share, primarily driven by lower financing costs of $0.64 per share, partially offset by an unfavorable tax rate change of minus $0.19. Moving to cash flow, the first 9 months of cash generated from operations was $1 billion. Cash from operations benefited from consistent net income strength as well as short-term working capital benefits. The year-to-date working capital benefits are the result of lower raw material costs passing through working capital balances as well as improved inventory management. Year-to-date, we have repurchased $87 million of outstanding common shares, and we expect that we will meet or exceed our $100 million goal. Our capital allocation priorities continue to be first organic investment, second, a return to shareholders through our dividend, and third, strategic deployment of cash into M&A and/or share repurchases. Now let me turn to our outlook for 2024. For the full year 2024, we anticipate continued sales volume growth and operating income improvement. Excluding the impact of the sale of South Korea from our outlook, we expect net sales to be down mid-single digits, reflecting the reduction in price mix as we pass through lower raw material costs, partially offset by improving volume demand. We anticipate that adjusted operating income will now be up high single digits due to lower input costs and better operational efficiencies. We are decreasing our financing cost estimate to align with the reduction of overall debt levels and some positive foreign exchange impacts. We now see total financing costs in the range of $40 million to $50 million. For the full year 2024, we expect reported effective tax rate of 28% to 29% and an adjusted effective tax rate of 26.5% to 27.5%. The company expects its full-year reported EPS to be in the range of $10.60 and $10.90, which includes the gain from the sale of our South Korea business as well as our restructuring and impairment charges. For the full year, we are increasing our estimate for adjusted EPS to be in the range of $10.35 to $10.65. We expect diluted weighted average shares outstanding to be between 66 million and 67 million shares. We anticipate our 2024 cash from operations estimate to be in the range of $1.1 billion to $1.25 billion. We expect capital expenditure investment to be between $310 million and $330 million. Corporate costs are now expected to be flat year-over-year. In the appendix, we have included a 2024 full-year segment outlook and our estimated 2023 comparable range. That concludes my comments, and I'll turn it back to Jim.

Thanks, Jim. Our strong sales volume growth from Texture and Healthful Solutions, coupled with operational excellence, has enabled us to increase margins despite inflationary pressures. Cost-to-compete savings are ahead of target in year one of the program, with line-of-sight to network optimization projects that have been scoped and will be the focus of cost of goods sold savings over the next 15 months. We continue to deliver profitable growth and strong cash flow with a commitment to return cash to shareholders, as evidenced by our 10th consecutive annual dividend increase and our full-year $100 million share buyback goal. We anticipate building on our highest-ever third-quarter operating income performance, enabling us to carry momentum through year-end and into 2025. And finally, our driving growth roadmap continues to guide long-term value creation for our shareholders, as we leverage the benefits of our new segment structure and capture new market and customer opportunities. Before we go to the Q&A, I would like to remind everyone about an exciting event that we are planning for November 14 that we will highlight our texture innovation leadership capabilities. During the event, our leading scientists and culinologists will lead participants through a delicious journey of texture and how it impacts taste. We will explain the strategic vision and the differentiated solutions that will drive incremental profitability and growth for this business segment. We are excited to demonstrate how we intend to use our vast ingredient library and expertise along with the capabilities we are building to provide texture solutions that make healthy taste better. Now let's open the call to questions.

Our first question comes from Ben Theurer from Barclays. Please go ahead.

Good morning. Jim and Jim, congratulations. I have two quick questions. Firstly, you have shown impressive volume growth in the Texture and Healthful Solutions segment, achieving 8% last quarter and 11% this quarter. However, there seems to be a slight decline in the price/mix. I want to understand if you are implementing strategies with your customers to drive volume in relation to price mix. Is the growth driven more by price or by mix? I'm curious about the strong volume alongside a more negative trend in price/mix within Texture and Healthful Solutions, and what factors are influencing this trend. That's my first question. Additionally, I have a quick follow-up.

Yes, Ben, thank you. I think what we feel good about is that if we go back to the pricing centers of excellence that we put together probably 3 years, 4 years ago that served us so well through the ramp-up of inflation, that also led to us becoming very clear-minded in relationship to the customer base and the marketing categories that we wanted to position ourselves in. And we've invested a lot in consumer and customer insights to anticipate where the puck is going in relationship to consumer buying behavior. And with inflation, we've sought out pockets of growth. So I would say that we feel fortunate that we are well-positioned to grow in those categories and those end uses that are generating growth. So, for example, in this past quarter, we've seen low single-digit volume growth in the U.S. across the categories of savory, prepared meals, bakery and snacks, as well as dairy. And our volume growth in these same categories was reflected by our sales in the quarter. And also, it's worth noting that we are lapping last year's soft demand as customers were optimizing their inventory levels. In Europe, there's evidence that consumer sentiment has turned more positive versus last year's economic challenges. And we believe we're seeing more worker mobility as professionals return to the workplace and the demand for the products that we're selling into for convenience and takeaway items picks up. Right now, we anticipate that this strength in demand will continue through the end of the year. Jim, do you want to add any additional comments?

I would just highlight, too, in that Jim started to note upon kind of more our more differentiated solutions. I would say that the way that those show up in our call is that we do sell some ingredients that might be very clean label that have high functionality; they show up at a higher value per ton. And we're selling that volume, which is helping to drive the gross profit dollar growth to some of the products that were in Texture and Healthful Solutions that might be a bit more kind of functional in terms of their week-to-week, month-to-month use. As corn price comes down, it does get passed through, and that's what I think you're seeing in terms of the price mix. So, very confident in the profit pool and the growth that we're generating in Texture and Healthful.

Okay, got it. And then just a quick follow-up on capital allocation. You significantly increased your free cash flow guidance to roughly $300 million, give or take. At the same time, CapEx seems to be a bit lower. What are you planning to do with the excess cash?

Yes. Well, fair enough. I think that those are both beneficial to our overall balance sheet and our financial position. I understand that we've said this in the past, that our capital allocation, we really look at first, what are those organic investment opportunities. We're going to be very disciplined on the dividend. We have increased it for the 10th year in a row. It does generate excess cash on our balance sheet. We're looking at and are very committed to our share repurchase goal for the year. So, we plan to meet or exceed that. And then yes, I think also that there has to be a bit of timing involved. It can't necessarily just be every quarter. There are opportunities in front of us both organic investments as well as we're always looking at M&A. And I think that we have to look at what we have done as a team to deliver results for shareholders. And just note that when cash flow was against us, like in, say, 2022, corn was going up, and we had a significant investment in working capital. Since then, if you look back over the last 2 quarters and 3 quarters years, we've delivered 50% total shareholder return. So, I think that now that we just have a bit of a surplus of cash flow because working capital is a little bit favorable, that's temporary. Our business invests in working capital, and so we'll invest that cash very wisely.

And Ben, I just think to address the capital investment phasing aspects of your question, I think it's just a reminder that we have historically spent the most of our capital investment for projects in the fourth quarter. Our teams have many projects underway, and we anticipate we will invest a significant amount of capital into our growth and the reliability of our manufacturing assets, and it's natural from a phasing standpoint to incur some delays from equipment suppliers and the availability of local skilled labor to complete projects on time. And that can impact the timing of the spend from one year to the next. However, we do anticipate getting close, I guess, to our full-year target despite being at $170 million through the first 3 quarters on capital spend.

Our next question comes from Kristen Owen from Oppenheimer. Please go ahead.

Good morning. Thanks for taking my question and congratulations on the nice results. Hoping we could start with the demand question. You noted the improved European consumer behavior that's been sort of a lackluster performer for the entire sector year-to-date. So, I'm wondering if you can double-click on that. Help us understand what's driving the volume growth? Is it lack of destock? Or are we seeing some real green shoots in that region?

Yes. I think that the first thing to highlight is that against the prior year quarter, we are lapping a softer quarter. So, I think that, that's important to put in perspective, just as I highlighted in relationship to the U.S. situation as well. That all being said, it does appear that the European consumer is more mobile and is spending more in relationship to convenience type offerings. And that's one of the outlets that we've deciphered back to the customer base and where we think we're doing well. That's basically how I would summarize it.

Okay, maybe just a quick follow-up. The level of inventory, if you could comment on how you're seeing channel inventories there. Are we really still at this stage where a little bit of growth because the comps are easy? Or is there any restocking that you're seeing in the channel?

I don't see restocking as a significant driver of sales volume growth. There was an excess of inventory in some of our packaged foods and private label customers in both the U.K. and Europe, and they needed to clear out those inventories throughout 2023. I don't believe they reduced their inventories to a level focused on managing cash flows. Instead, we are observing a steady increase in demand, as Jim mentioned, due to greater consumer mobility, more takeaway lunch and breakfast options, and an overall need for convenience, which is contributing to the increased demand from our customers.

Yes, I don't think there are any concerns at a macro level globally to rebuild inventories with safety stock that would be in excess of anything that would be typical. If anything, we're taking a cautious approach in relationship to the outlook as it relates to how customers will manage inventories between now and the end of the year, which is always the case as you go into a new year of contracting. So, we don't see anything where there's any kind of a robust pipeline refilling or restocking.

Yes. Demand is very steady. Utilizations are up. Yes.

I did have one follow-up question just on the COGS side, some nice improvement in the gross margin here. I'm just wondering if you can help us unpack how much of that is the improved volume backdrop versus you're continuing to roll off that high cost for?

Yes. We've renegotiated the multiyear contracts, which allowed us to recover the margins and costs we absorbed over the past few years. This has positively impacted our Food and Industrial Ingredients segments. Additionally, the decrease in raw material input costs has benefited our customers as well. However, it’s important to note that last year, we faced a fixed cost absorption challenge due to reduced production volumes. As we have seen volumes increase in Texture and Healthful Solutions, we benefit from improved fixed cost absorption in those areas, which is driving our better performance. We are effectively managing this situation, focusing on pricing, cost, and the mix and volume in Texture and Healthful Solutions, along with the fixed cost absorption.

Our next question comes from Ben Mau from BMO Capital Markets. Please go ahead.

Good morning, and thanks for taking my question. So, industry sources suggest that 2025 sweetener contracting is tracking better than buyers maybe initially expected. So, what is your visibility on contracting so far? And do you foresee a chance that pricing could be up modestly and I have another question.

Ben, can I just clarify your question? And you said tracking better than buyers expected?

Yes. Sorry, then sellers expect it.

Better than sellers expected. Okay. Well, what we would say is contracting appears to be moving slower than last year. And I think that's probably attributable to the change in the value of corn that is modest year-over-year. But just a reminder, in relationship to contracting for 2025 and really, for that matter, for any year when we're at this point of the year, approximately 50% of our revenue dollars in North America come from fee contracts or should I say, U.S. Canada, primarily from fees that reprice monthly with corn cost inputs from our customers. We anticipate some pass-through of lower corn costs in 2025 if the markets remain with a similar outlook as today. But Jim mentioned earlier the fact that industry capacity utilization has also lifted up a couple of percentage points as well, which has kind of tightened up overall supply-demand. We believe that our experienced commercial teams and our pricing centers of excellence are well prepared to manage pricing and volume trade-offs thoughtfully in response to customer demand and competitive market conditions. And I guess, although raw material and input cost inflation has moderated, the wet milling industry is a high capital-intensive industry and needs to earn a fair return. So that's all yet to play itself fully out. So that's kind of how I would summarize where we're at right now with contracting. It is still early, Ben. It is early.

But I would say that we see that industry grind utilization is up year-over-year and so that's always a nice backdrop.

Yes, that's very helpful. My second question is about mergers and acquisitions. You previously mentioned focusing on smaller, bolt-on acquisitions, approximately under $400 million. Given your strong cash position, are you considering more transformative acquisitions, even though they would likely need to be outside of the U.S.?

Ben, I think as we've always stated, we consider the M&A landscape broadly, right? So while the Street may characterize it as tuck-in, we look at acquisitions that accelerate our capabilities and our market position, particularly in Texture as well as Healthful Solutions. We're always going to take a disciplined approach to that. We're going to be front and center on what's the return to the Ingredion shareholder really first and foremost. And that, I think, guides us. I think in terms of maybe market opportunities, Jim, I...

Well, I think that one of the things we feel very clear-minded about is the strategic direction of a company because of the enterprise-wide strategy refresh work we did all of last year and then the activation of that strategy with our winning aspiration, which is to be the go-to provider for Texture and Helpful Solutions that make healthy taste better. That is what is uniting the company going forward. And that will shape the M&A approach that we take. Anything that we can do to enhance the value propositions inherent in that strategy is what we're looking at. I would say that we're always actively managing a pipeline of M&A opportunities across the spectrum of size. But what we want to buy is we want to buy revenue, profit, and talent and capabilities that are going to complement that winning aspiration culture. Obviously, cultural fit as well. But that's what we're looking to do to. We're encouraged to expand growth. And honestly, I think the landscape is fertile with some opportunities out there. So, we're actively working those.

Our next question comes from Josh Spector from UBS. Please go ahead.

Good morning. I guess the first thing I want to ask is you hit on these maybe different ways, but specifically how much of the earnings improvement when you look at the last couple of quarters would you say is structural? So, this is the earnings power of Ingredion today; you've recovered corn, you're running at better utilization rates. Let me stop there and get your thoughts first.

I believe I can address this, and then Jim can add to it. What we have observed regarding our performance over the previous quarters is primarily influenced by our operating model supporting the new business segment structure. The transition to this new segment structure, which came after the company-wide strategy refresh in 2023, has provided greater clarity and focus within these segments concerning their customer base, raw materials, and the aim to reduce earnings volatility. We are definitely benefiting from the dedicated focus and leadership resulting from this clarified segment work. However, I think what has not been fully recognized is the global operating model that we began developing about three to four years ago, which continues to evolve. It creates a substantial amount of productive tension internally regarding roles and responsibilities. We have moved beyond the challenging phases of this transition. For example, our operations and supply chain team has shifted from internal metrics for on-time delivery to achieving perfect order status, which is a higher delivery standard, and we are now exceeding 90% perfect order rates, supported by our Net Promoter Scores. Our procurement teams are continually finding ways to optimize operations, and we will hold our first procurement supplier day next year, which we wouldn't have conceived of two, three, or four years ago. There is a maturity aspect to this, and Jim can certainly discuss shared services and how that has evolved. I believe we are just beginning to see the benefits of our resegmentation. We've highlighted some of these gains that stem from the focused approach that these now more global or multiregional segments provide, contributing to management's accountability and visibility to their customer base. I apologize for being a bit lengthy, but it's an important question. We are also engaging in some self-reflection because we are pleasantly surprised and pleased with our progress, but we want to ensure we have a clear understanding of it. Overall, we feel positive about the various levels of performance.

Josh, I would add that when we look at our Food and Industrial Ingredients types of businesses, there's a cadence in the business that we've tightened, right? So, it's around how is the raw material cost changing? How do we implement our pricing and our contracting? How does that reflect against expanded hedging and then just running the assets at a reasonably good utilization? So, that is helping support the higher operating income margins that we're seeing both in our U.S. Canada F&I business as well as in our LatAm F&I business. I think on our Texture and Healthful Solutions, the structural improvements that I think Jim alluded to are still a little bit in the early innings. It's really around which products and which solutions we can provide for customers. Recognizing that the better job we do there, there's even more utilization of our downstream assets, which really enhances our gross profit growth. So, I think yet to come there.

Really helpful. I appreciate all those comments. I guess I did want to follow up that. Earlier in the call, you talked about a balance of pricing with volume growth to deliver year-on-year growth next year. I think your comments earlier on contracting seem somewhat optimistic there. So, I don't know if that comment is geared just with concerns on what demand growth looks like or if there's increased competition elsewhere, but how do you see that balance playing out for you?

Yes, not to be evasive, I just think it's early yet still in the process. We feel good about the momentum that we have as we finish the year and don't sense anything other than perhaps the normal working capital management that goes on at customers in December month. Corn is fluctuating a bit and...

Reasonably affordable. Yes. And generally, you're seeing, I think, GDP across the globe in some of our key countries improving—this is somewhat the—if I could generalize the global interest rate environment softens, that's generally good for demand, and that's the type of industry utilization that we're seeing is increasing year-over-year.

Yes, then interest rates are remaining elevated. So, I think that...

Our next question comes from Heather Jones from Heather Jones Research. Please go ahead.

Good morning. Congratulations on the quarter. I would usually begin with this, but this year, your financing costs have been quite volatile due to recent currency fluctuations, resulting in a decrease of nearly $50 million from the original guidance. So, this is a significant consideration, but if currencies were to stabilize from this point forward, which is uncertain, how should I approach net financing costs for 2025?

Yes. I think we've had some FX gain which is offset or lowered our financing costs. I want to say we're about $9 million to $10 million year-to-date, favorable. I can follow up with you on that. But that's generally, if I think about what's happened in the quarters, I think the other really unanticipated piece, Heather, was that the lower cost passing through our working capital, we just didn't have to invest in working capital this year. In fact, it's been a bit of the reverse. It's been a source of cash. It's allowed us to pay off or pay down any kind of short-term lines of credit. We're not carrying any CP, and obviously, short-term rates have been in the 4% to 5%. So now we have some cash balances, and we're earning some interest income. So that's really been the two big drivers of the expectation for financing costs for the full year.

Okay, perfect. And then on the protein fortification business. So, I think, if I remember correctly, you guys were reducing your losses there by roughly 1/3 this year. Is it fair to think that you could reduce it by a similar amount going into '25? Or how are you all thinking about that?

Yes, that's exactly how we're thinking about it. We've had those internal discussions, obviously, as we're putting our budgets together for next year. And again, just a reminder, protein fortification is within the all other category. That group does consist of our protein fortification or sugar reduction and our Pakistan business of which we have a 71% stake and Pakistan and sugar are generating positive operating income and they're growing, and they will continue to contribute positively. But protein fortification is loss-making, but we have been actively working a turnaround plan to steadily improve the health of that trending operating unit over the next 1 to 3 years. This year, we have line of sight to a significant year-over-year improvement in operating income. Proportionately, we estimate that we should see that same order of magnitude of improvement next year based on business that we have actually contracted heading into next year for that relatively small segment. But because it's loss-making, it's worth highlighting, and I appreciate the question. Thank you.

Yes. So, when you're thinking about that improvement in '25, is it similar for the Canadian and U.S. assets? Or is one of those benefiting more? Because I know I can't remember the magnitude, but there were antidumping duties put on Chinese imports. So, are you seeing more of the improvement in the U.S. assets? Or how should I think about that?

Yes. I would say that my comments were based on the entire protein fortification business operating segment, and the higher value P-protein isolate business is the business that is carrying the improvements right now, and that was what my comments were predominantly based off of in relationship to this year's improvement in operating income and what we project for next year being proportional.

I'm showing no further questions at this time. I will now turn it back to Jim Zallie for closing remarks.

All right. Well, thank you all for joining us this morning. We look forward to seeing many of you at the upcoming Texture Innovation Day in Bridgewater, New Jersey next Thursday. And I want to thank you for your continued interest in Ingredion.

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