Ingredion Inc Q2 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Ingredion Earnings Conference Call. Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Noah Weiss, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Ingredion's Second Quarter 2025 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 second quarter results, can be found on our website, ingredion.com, in the Investors section. As a reminder, our comments within the 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 on the company's most recently filed annual report on Form 10-K and subsequent reports on Form 10-Q and 8-K. During the 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 appendix. With that, I will turn the call over to Jim Zallie.

Thank you, Noah, and good morning, everyone. For the second quarter, Ingredion delivered another period of strong performance, with adjusted operating income of $273 million, our highest quarter two in company history. While net sales declined by 2%, primarily reflecting the pass-through of lower corn costs, adjusted operating income increased by 1% for the quarter and 12% for the first half of 2025. Our performance this quarter was led by our Texture & Healthful Solutions segment, which delivered a 2% net sales increase and an extraordinary 29% rise in operating income. Top line growth was supported by a 3% increase in net sales volume, with clean label solutions seeing significant growth in the quarter. Segment margin expanded by 400 basis points, driven by increased utilization and improved fixed cost absorption. Our costs were further reduced by improvements in production efficiency and integrated raw material procurement. Both of our Food & Industrial Ingredients businesses faced modest challenges in the quarter. Our Food & Industrial Ingredients LATAM results were impacted by the Argentina joint venture lapping a strong quarter last year. Apart from the joint venture results, this segment delivered a solid second quarter performance as it continued to manage customer and product demand toward a more favorable mix. In the Food & Industrial Ingredients U.S./Canada segment, our results were negatively impacted by a mechanical fire that briefly shut down our largest plant in Chicago on June 22. Operations resumed before the end of the quarter, and we are working to recoup some of the loss impacts throughout the second half of the year. Turning to a summary of our net sales volume for the quarter. Starting with Texture & Healthful Solutions. Sales volume increased by 3%, with growth across U.S./Canada and Asia Pacific. The majority of our priority food categories within this segment demonstrated growth, with beverages, bakery, and dairy showing the strongest performance. Additionally, demand for clean label solutions increased during the quarter, with U.S./Canada leading with double-digit growth. Furthermore, our U.S. team has done a fantastic job growing customized formulations, which are bespoke solutions for specific customers consisting of two or more specialty ingredients. Net sales volumes in Food & Industrial Ingredients LATAM declined 4% this quarter, primarily due to reduced brewing volumes in Brazil and Mexico as well as macroeconomic impacts across LATAM, notably slower economic growth impacted by higher interest rates. Our Food & Industrial Ingredients U.S./Canada segment saw lower sales volumes in comparison to a strong quarter last year. Industrial starch sales, in particular, were lower, as corrugated box demand weakened in response to customers adjusting production schedules amidst tariff uncertainties. In addition, the mechanical issues at our Chicago plant reduced available co-product supply. In response to the growing trend and media coverage toward health and wellness, I am pleased to note that we saw double-digit growth from our clean label solutions in the U.S. and sugar reduction portfolio globally, as well as high double-digit growth from protein isolates. We are optimistic that this trend will endure as our ingredients represent differentiated value propositions for customers that are actively reformulating towards healthier products. For example, our clean label native starches leverage proprietary plant science to deliver low temperature stability for refrigerated and frozen applications. We are also benefiting from the requirements customers have to optimize the texture and affordability of the recipes as they replace volatile ingredients such as cocoa and eggs or reformulate entirely for a healthier profile. These opportunities leverage our comprehensive portfolio of specialty starches and hydrocolloids, high-intensity natural sweeteners, natural fibers, and protein isolates. Ingredion's solutions selling and go-to-market position is enabling us to access more small and medium-sized customers and insurgent brands that are driving disruptive category growth. Simply put, customer interest in reformulation is fueling long-term growth opportunities as consumers increasingly expect product authenticity and healthier profiles that taste better. Turning to the next slide. We are pleased to report that gross margins have once again expanded sequentially, establishing a higher level of profitability coming off a record year in 2024. This higher level of profitability is being sustained through a sharper commercial focus brought about by our new segment structure, disciplined operational execution, and enhanced risk management. Let me now update you on progress against our three strategic pillars. Beginning with Business Growth. Texture & Healthful Solutions delivered robust performance with strong sales volume growth and expanding operating income margins. The Food & Industrial Ingredients LATAM segment is positioning itself for long-term growth by diversifying its customer base beyond brewing and beverages. Lastly, in the Food & Industrial Ingredients U.S./Canada segment, we are supporting the long-term growth of industrial starches through the expansion of our Cedar Rapids plant, which is progressing well. Moving to the second strategic pillar, cost competitiveness through operational excellence. We now expect to exceed our $50 million run rate savings target by the end of 2025 for our Cost2Compete program. We have identified additional opportunities in SG&A and cost of goods sold savings that are exceeding initial projections. Furthermore, we continue to improve our customers' experience through better service reliability and responsiveness. In the second quarter, we saw measurable gains in key performance indicators, such as perfect order delivery and our Net Promoter Score, reflecting the commercial excellence benefits of our investments in digital transformation. We are also exceeding our procurement savings targets through integrated sourcing strategies and by cross-functional collaboration enabled by our global operating model. Also, a quick reference to tariffs. We experienced minimal direct impact during the quarter and in the first half of the year. And as a reminder, the majority of our products are manufactured locally and sold locally. Moving to our last pillar, our People-Centric Performance-Based Growth Culture. This quarter, we released our 15th sustainability report, creating the future with people who care, which highlights the meaningful progress we've made across our environmental, social, and governance priorities. The report reflects our deep commitment to building a more sustainable future through innovation, partnership, and care for the communities in which we serve. As evidence of our commitment, in May, Forbes recognized us as a Net Zero leader, listing the company among the top 200 global organizations most effectively advancing efforts to reduce greenhouse gas emissions. As we celebrate Ingredion Mexico's 100th anniversary this year, we are proud of the powerful standard for excellence that our Mexican business continues to set. Recently, Ingredion Mexico was named one of the 500 most important companies in the country by Expansión magazine, while also earning a notable rating of 90 out of 100 in the IC-500 Corporate Integrity Index. Given the significance of our Mexican business, we are proud of how this team continues to lead with purpose and integrity. Now I am pleased to hand it off to Jim Gray for the financial review. Jim?

Thank you, Jim, and good morning, everyone. Moving to our income statement. Net sales for the second quarter were $1.8 billion, down 2% versus the prior year. Gross profit dollars grew 7%, with gross margin up 230 basis points to 26%, a level that demonstrates the consistent effort from our teams to manage customer and price mix, reduce cost input volatility, and deliver operational excellence. Reported and adjusted operating income were $271 million and $273 million, respectively, with adjusted operating income up 1% versus the prior year. Turning to our Q2 net sales bridge. The 2% decrease was driven by $27 million in lower price mix, $15 million in lower volume, and $3 million of foreign exchange impact. Turning to the next slide, we highlight net sales drivers for the second quarter. Texture & Healthful Solutions net sales were up 2%, driven by sales volume growth of 3% and foreign exchange favorability of 3%, partially offset by price/mix. Food & Industrial Ingredients LATAM net sales declined by 5%, reflecting both a reduction in net sales volumes, partly due to slower macroeconomic growth and the impact of significant foreign exchange weakness. Food & Industrial Ingredients U.S./Canada net sales fell 6%. Sales volume decline was impacted by the brief disruption to operations at our Chicago plant, as well as softness in industrial starch volume demand. Now let's turn to a summary of the second quarter results by segment. For second quarter 2025, Texture & Healthful Solutions operating net income was up 29%, which equated to an 18.5% operating income margin, significantly higher than prior year. This result has been driven by increased top line volume, lower raw material and input costs, and improved production efficiency. In Food & Industrial Ingredients LATAM, net sales were down 5% versus last year and down 3% on a constant currency basis. Operating income declined modestly to $127 million, representing a 2% decrease compared to last year's strong result. This quarter's results were negatively impacted by the Argentina peso exchange rate and corresponding impact on our joint venture results. Excluding the joint venture results, segment operating income increased due to favorable raw material costs that were partially offset by lower volumes. Moving to Food & Industrial Ingredients U.S./Canada. Second quarter net sales were down 6%. Operating income was $86 million, down 18%, driven materially by disruptions to our operations at our Chicago plant. We estimate that this disruption has had a $10 million impact on the quarter. Operations have resumed, and we expect to recover some of the impact throughout the second half as we rebuild inventories. For the rest of the group, the 10% increase in net sales was driven primarily by double-digit top line growth from our protein fortification and sugar reduction businesses. 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 $0.04 per share for the quarter. The increase was driven by an operating margin increase of $0.22, partially offset by volume of minus $0.16 and other income of minus $0.03 per share. Moving to the change in nonoperational items, we had a decrease of $0.04 per share, driven by a higher tax rate equivalent of minus $0.07 per share and slightly higher financing costs of minus $0.02 per share, partially offset by fewer shares outstanding impact of $0.05 per share. Shifting to our year-to-date income statement highlights, net sales for the first six months were approximately $3.6 billion, down 3% versus the prior year. Gross profit dollars increased by 9% and gross margin rose to 25.9%, up 290 basis points versus the same period last year. Reported and adjusted operating income was $547 million and $546 million, an increase of 21% and 12%, respectively. Turning to our year-to-date earnings bridge. The result is an increase of $0.88 per share. Operationally, we saw an increase of $0.66 per share for the first six months. The increase was driven by an operating margin increase of $0.82, partially offset by volume of minus $0.26. Moving to cash flow. In the first half, cash generated from operations was $262 million, driven by higher net income, partially offset by working capital investment. In the first half of 2025, we have sold less of our accounts receivables due to the impact of higher short-term interest rates across LATAM. First half capital expenditures net of disposals were $193 million. The company intends to continue to invest in organic growth initiatives that provide a significantly higher return than our cost of capital. Lastly, we have repurchased $55 million of our outstanding common shares and have paid out $106 million in dividends. We are committed to exceeding our $100 million share repurchase target for 2025. Now let me turn to our updated outlook for the year. For the full year 2025, we anticipate net sales to be flat to slightly up. Our outlook reflects lower price/mix due to the pass-through of lower corn costs and a contemporary view of the effects of foreign exchange. We continue to anticipate that adjusted operating income will be up mid-single digits for the full year. Corporate expenses have been adjusted slightly from mid-single digits to high single digits, driven by higher anticipated IT investments and project-related costs to advance our digital infrastructure. Given our strong first half performance, we have improved our full year adjusted EPS range to be $11.10 to $11.60. We now anticipate capital investment for the year between $400 million to $425 million. Please note that this guidance reflects only current tariff levels in effect as of the end of July. In addition, this guidance excludes any acquisition-related integration and restructuring costs as well as any potential impairment costs. Turning to our full-year outlook for each segment, we have made a few adjustments. For Texture & Healthful Solutions, we have now raised our estimate for operating income growth to be up low double digits. For Food & Industrial Ingredients LATAM, we have lowered our net sales outlook to be flat to down low single digits. Our operating income outlook is now up low single digits due to the combination of a weaker macroeconomic business environment and weaker foreign exchange, which we anticipate for the second half of 2025. For Food & Industrial Ingredients U.S./Canada, we have now lowered our outlook for operating income to be down low single digits based upon the second quarter's disruption to operations. For the third quarter of 2025, we expect net sales to be flat to up low single digits for the company, and operating income to be flat to down low single digits as we are again lapping a very strong third quarter from last year. That concludes my comments. Now let me turn it back to Jim.

Thank you, Jim. Following our strong first half performance, we feel good about the momentum we are carrying forward into the second half. Our Texture & Healthful Solutions business is delivering strong sales volume growth, fueled by deepening customer engagements and a robust innovation pipeline. We expect this momentum to continue as we co-create solutions for our customers who are actively reformulating in response to consumer health and wellness trends. Given our leading market position in LATAM, we have the experience to navigate short-term macroeconomic headwinds. And our focus in Food & Industrial Ingredients U.S./Canada for the second half is to maximize production in order to meet customer demand and rebuild inventories. We are guided by our aspiration to be the go-to provider for Texture & Healthful Solutions that make healthy products taste better, and we are committed to delivering long-term shareholder value. Now let's open the call for questions. Operator?

Our first question will come from the line of Kristen Owen from Oppenheimer.

Maybe starting with a little bit of a simplistic question here, but you're tracking well ahead of where you guided each quarter. Q1, you beat by $0.50; Q2, call it another $0.05 to $0.08. But you've looked at the guide, maybe $0.20 since we started the year. So one might ask if your guide is still too conservative at this point. Maybe help us unpack some of the offsets here and provide a bit of color around the scenarios for the upper and lower end of the EPS range at this point.

Thank you, Kristen, for your question. It's a very reasonable one. Throughout this year, starting in early February as we wrapped up our Q4 and full year 2024 call, we had a tariff announcement just days before our earnings call that could affect the U.S. and Canada. Moving through Q1 and Q2, we continue to deal with tariffs; some have been paused while others have been delayed by 90 days. The U.S. government is currently in negotiations with specific countries. We have conducted extensive analysis of our country pair risks, and Jim pointed out that tariff impacts in the first half were minimal. However, our customers are experiencing uncertainties. As they reassess their demands or anticipate higher costs, they are considering strategies to maintain their revenue and profit expectations. We are cautiously optimistic. We believe there is still strong underlying volume in our U.S./Canada business, and Jim understands that if Argo operates effectively in that division, we can better amortize our fixed costs, some of which we absorbed in Q2. This presents a tailwind for us.

Yes. I think I would just complement what Jim is saying in relationship to a lot of the noise that's out in the world right now, in relationship to perhaps indirect impacts to consumers that we just don't have a view on yet because the full implementation and settling of the tariffs that are getting implemented gets implemented. So it's prudent to be somewhat cautious in relationship to the outlook for the second half. Now that being said, what I'd like to do is just put in perspective, if I could, quarter three, because we have guided flat to down in operating income growth for quarter three. But I want to just put this in perspective. It's important to remember, we are lapping the highest quarter three operating income that we've ever had and the second best quarter in the company's history for quarter three. We see right now some macroeconomic headwinds in LATAM, particularly Brazil and Mexico, and a couple of our very large customers have spoken about that as well, impacting their business. We're also not expecting top line growth in Food & Industrial Ingredients in quarter three. Now with that said, the momentum that's behind Texture & Healthful Solutions is anticipated to be an offset and could be better than our forecasts. And lastly, if the Argo facility runs very well, we can make up a lot of ground to offset some of the negative impacts we endured in quarter two, and we've seen that in the past. Hopefully, that just provides a little bit of a window into how we're viewing the backdrop of the second half and specifically, quarter three, that's right in front of us.

Jim and Jim, really, really helpful on that context. And it does bring me to my next question, which is on the leverage, the operating leverage in Texture & Healthful Solutions, mean the nearly 30% growth in operating income on 2% volume. Can you help us understand what's driving some of that? How much of that is operational execution, how much of that is just running the plants at higher utilization? And then, I guess, I am still a bit surprised by the negative price mix in that category. So just help us unpack some of those mechanics, what's driving the leverage there? And then do we, at some point, get to a positive price/mix impact there to get that incremental leverage?

Jim and I will tag team on this one. Again, I'll let Jim go first.

I want to emphasize that as we expand our portfolio in Texture & Healthful Solutions, adding items like hydrocolloids and selling natural fibers, these inputs represent a smaller part of our business and can have more variability. We identified this two years ago, and our supply chain and procurement teams have made significant improvements by enhancing our capabilities in demand forecasting and procurement to align raw material risks with demand and pricing. This has proven to be beneficial in our Q2 results for Texture & Health. We believe this improvement will be permanent going forward. Furthermore, with the strong volume and increased price points per ton in Texture & Healthful, we can expect recurring operational income growth in the high single-digit to low double-digit range. Additionally, it's worth noting that lower tapioca costs in Thailand have positively impacted our functional starches and contributed to volume growth in our syrup and industrial businesses, extending through 2025. However, this still sells at a lower price per ton, affecting our weighted average slightly. Overall, we're pleased with the current tapioca costs, which are helping us drive significant volume growth across our portfolio in Asia Pacific, North America, and Europe.

Yes. To add to what Jim said, there has been a slight decrease in corn and tapioca costs. This does not reflect a change in anticipated volume, which is influencing the sales forecast and average selling price. As we entered into contracting this year compared to last year, we had to slightly adjust some of our pricing, but moving forward from 2024, we do not expect further adjustments, and very little is needed for 2025. This situation is beginning to normalize. In fact, we anticipate prices may rise as we approach the next calendar year. Additionally, we expect that the upcoming innovations with customized formulations will generate higher margins, ultimately increasing the margins for Texture & Healthful Solutions.

Our next question will come from the line of Ben Theurer from Barclays.

Jim and Jim, congrats on the results. Wanted to follow up a little bit on the conversation here, particularly in Texture & Healthful Solutions. So I was wondering if you could help us bridge a little bit the second half outlook. You've had, call it, plus/minus flat year-to-date on sales, but you're still looking for some mid-single-digit growth on sales into the full year. So we would need to see some high single digit in the second half. So just wanted to understand, where do you think this is coming from? Like between volume, price mix, and FX, what are your assumptions for the Texture & Healthful Solutions piece for the second half?

Yes. As we navigate through the corn cycle, I believe that the price mix for Texture & Healthful in the second half will not be a disadvantage; it will be stable or may even provide a benefit. We expect sales volume to maintain its momentum. We anticipate a slight reversal in the price mix, considering the low corn costs that will carry into the second half of 2024. Regarding the top line for Texture & Healthful, this will certainly be reflected. Additionally, as Jim mentioned during the call, there is a significant demand for clean label solutions. Many of the higher functional native starches we offer are at higher price points, and we are witnessing consumer wellness trends and increased awareness of labels influencing our clients. Both small and large customers are leaning towards reformulations, typically associated with a higher price per ton, leading to improved mix upgrades for us. I believe this trend will positively affect Texture & Healthful not only in the second half but also into 2026.

We have observed some weakness in certain consumer companies that purchase our products, particularly in the beer and soft drink sectors. This was evident during the second quarter, where we experienced poor volume performance. The outlook for the third quarter is not very promising, although the fourth quarter might improve slightly. As a result, we have adjusted our guidance for the Food & Industrial segment in LATAM. However, looking at our order book and the demand from these companies, are you noticing any signs of improvement in their orders, or does the situation remain weak and uncertain due to the macroeconomic challenges in key regions like Mexico and Brazil?

Yes. It's worth noting that several large customers, particularly those with significant operations in Brazil and Mexico, have described their weaker results as somewhat unique and have pointed to unusual weather conditions affecting brewing in Brazil and, to some extent, in Mexico. In Brazil, the economy is currently facing higher inflation at 5%, with an expected decrease to 4% inflation by 2026. GDP growth is projected to be modest, at up to 2%. The local currency has fallen by 9%, and interest rates sit at around 15%. Additionally, there is some uncertainty regarding tariffs in Brazil, putting pressure on household spending due to persistent inflation. As we look to the second half of the year, the macroeconomic backdrop suggests that this period of the year typically brings stronger volumes for our brewing and beverage products, which is encouraging. In Mexico, the economy has also slowed, with GDP now expected to remain flat or decline slightly. Interest rates are over 7%, and inflation is projected at 4% for this year, 2025. Nevertheless, we are confident in our strong market position and experienced management team in Mexico, and we anticipate that improvements in economic conditions and consumer sentiment will lead to benefits for our business. While both of these economies are currently uncertain, we believe that some of the volume challenges we've faced are accurately reflected in our customers' comments regarding recent weather-related issues, which should not recur in the second half. Therefore, we are maintaining a cautious outlook for LATAM. Overall, aside from the Argentina joint venture, we achieved solid performance in the second quarter.

Maybe just an additional color. I always point out that the Mexico business is much larger and goes across many more categories. And so Ben, directly to your question, there are the agility of our team in Mexico, given its broad customer base and kind of how high we run on utilization. We're always looking like, okay, well, where can we improve the mix and which customers can we serve. And then finally, I'd just highlight that when we created this LATAM segment, we always thought that there were synergies across how we operate and how we supply product. And I think the team continues to work on that, so I do think that there's a little bit more of a tailwind behind LATAM as we continue to look at where we manufacture, what's our manufacturing cost, and how can we be just further optimizing that?

Our next question will come from the line of Ben Mayhew from BMO Capital Markets.

Curious to get your thoughts on the recent news pertaining to the use of cane sugar versus high fructose corn syrup. So what do you think is the most likely outcome as far as you can see? And do you have any other products that could help offset any potential near-term shift of corn syrup business, for example, in your Texture & Healthful Solutions portfolio?

Yes. Thanks for the question. We don't believe that we will have any noticeable impact on HFCS demand. We were very pleased with Coke's statement in support of high fructose corn syrup regarding its safety, its availability, and its affordability. The reason, I guess, for our belief is that the impact will not be materialize that Coke has announced that the new product will not be replacing the existing recipe but rather be a complement to their core portfolio. The company said that this product will feature U.S. cane sugar in glass bottles, thus targeting premium channels and different occasions. Because Coke sees an incremental growth opportunity as opposed to any cannibalization, we do not see this as having a noticeable impact on HF demand. It's also noteworthy for us, HFCS used in beverage manufacturing in the U.S. represents approximately 4% of Ingredion's total sales, to put it in perspective. And so we don't really believe this is going to have a noticeable impact. We're always working with our customers, in answer to your second part of your question, on sugar reduction, which we highlighted that this last quarter our sugar reduction portfolio of sales increased double digits. And when we replace sugar with our high-intensity natural stevia solutions, we're always working to what we call build back mouthfeel, build back texture, and build back that functionality. And so we do have products in our product line that do add mouthfeel properties that typically are replaced when sugar, whether it be high fructose corn syrup or liquid sugar, is replaced. So we're continuously working with customers to balance the texture when sugar is replaced. So we'll benefit from that, and we did this past quarter as well in quarter 2.

That's very clear. And just one follow-up question. Is there any update on the status of the potential sale of the Pakistan's asset?

Ben, this is Jim Gray. We're in process. I would say that we've been working right now with kind of three companies that have interest in acquiring a majority equity stake of the Rafhan Maize business. And so more news to come, but it's progressing kind of as expected on a normal type of process like this.

Our next question will come from the line of Pooran Sharma from Stephens.

Congratulations on the quarter. I wanted to follow up on Ben's question regarding the second half outlook for Texture & Healthful Solutions. I appreciate the details provided about achieving the top line. However, I would like to focus on the operating income aspect. I noticed you mentioned strong margins, particularly strength in clean labeling and other areas across the portfolio in your prepared comments. I'm trying to understand the math here, and I wanted to ask if you anticipate margins returning to a more normalized level, or how do you feel about maintaining the 18% to 18.5% operating margin moving forward?

I believe we are being a bit cautious for the second half regarding product movement and sourcing costs. I still expect operating income margins to remain in the high teens, although they might decrease slightly from Q2. In Q2, we experienced a significant change in our raw material procurement. If we don't encounter some of the costs we are anticipating due to tariffs and the logistics of moving products from Asia to the U.S. or Europe, we could see an upside to our forecast.

I don't see margins, Jim, decreasing back to the levels of 2024, and to make it very clear. And I think the level that we're at is going to now remain within a fairly narrow range of maybe plus or minus 0.5% to 1% perhaps, perhaps 1% plus or minus from where we're at currently. And the benefits, again, on the raw material procurement that we talked about, the fixed cost absorption of the plants. The plants in Texture & Healthful Solutions actually ran very well, and we anticipate that will continue. The clean label solutions will lead to a higher mix along with the customized formulations, a higher mix. So we believe that the step-up that we've seen will continue to operate within a range, maybe plus or minus 1% of maybe where we're at today going forward. And then going forward over time, of course, as part of a longer-term outlook, we anticipate mix to continue to improve based on the investments we're making in R&D and innovation. And over time, the margins will increase.

Great. Great. Appreciate that color there. And maybe for my follow-up, just wanted to hone in and get an understanding on maybe the industrial starch side of the business, obviously, being impacted by tariffs, is the mechanics that your customers are kind of uncertain and they're moving to spot, which has lower margins. How are your conversations with your customers going? And obviously, I think you'd see a resolution when there's some sort of conclusion to this tariffs dynamic, but would love to hear your thoughts on what others are saying about a potential resolution here for industrial.

Yes. So I think it's important, first of all, to put maybe the segment, and I'm going to talk about the segment of Food & Industrial Ingredients U.S./Canada because that's the segment that has the largest aspect of industrial starch that goes into box manufacturing, corrugating box manufacturing, as well as paper making. Just to put the segment's performance in quarter two into perspective, first of all, and I'll answer specifically your question regarding industrial. It's worth remembering that quarter two 2024 for that segment was a very strong quarter. And this past quarter, of the $19 million decline, approximately $10 million, again, can be considered a one-off related to the challenges at our Argo facility. The remaining shortfall was due to weaker beverage volumes and softer industrial starch sales for the corrugated box market. And again, if it's worth noting that if you excluded the $10 million one-off impact of Argo, the business is still operating at greater than an 18% operating income margin. Now for the second half, we're anticipating stronger industrial starch sales based on what we've heard from our packaging customers. Some of them, which have seen some reduced demand outlook for box shipments, rebalanced some inventories for industrial starch in quarter two. From what they are telling us and what they have said publicly, we anticipate box shipments to increase. Now that all being said, that's against the backdrop of uncertainty regarding the impacts of tariffs, not all of which are still settled and clear. And so that's kind of how we're looking at the industrial starch market. We have a great market position. And long term, we feel very optimistic about our position as a leading supplier of highly functional strength additives and coding additives for packaging and paper making, and that's been reinforced by the investment we're making in Cedar Rapids right now that will actually give us growth opportunities as that market recovers, which, again, listening to our customers, what they're saying is for the second half, they're anticipating volumes to pick up.

Next question will come from the line of James Cannon from UBS.

I wanted to ask about the situation in Argentina. It seems to have been quite volatile this year due to significant foreign exchange movements. Can you clarify what your expectations are for the LATAM guidance regarding that business?

We do not disclose our expectations regarding the share of net income from the Arcor joint venture moving forward since they are a public company in Argentina. However, I can point out some changes. At the start of 2024, the new government decided to allow the official exchange rate for the peso to float more and do so more frequently in relation to the blue rate. In early 2024, despite high inflation, there was pricing ahead of inflation due to expectations of a weaker peso, but then the peso stabilized. This led to a very strong Q2 2024 for the joint venture, as pricing was anticipating inflation, which began to decrease, and the peso stabilized. When we look at the current quarter, we did not experience the same currency and pricing advantages. Instead, there was a more typical performance from Q1 2025 to Q2 2025, which aligns with winter in Argentina. What we observed is a stabilization of a lower overall inflation rate, less variability in corn and sugar prices, resulting in what I would consider a more usual expected outcome from the joint venture for the winter quarter in Q2 2025.

Next question will come from the line of Heather Jones from Heather Jones Research.

I wanted to ask, at the risk of belaboring this, about the outlook for THS. I'm curious about the level of conservatism in your guidance for the year. Even if I assume a mid-teens increase, rather than low double digits, that suggests only about 1% or 2% EBIT growth in the second half. Additionally, assuming those margins, it seems your year would be close to a 17% margin, while you mentioned reaching 16% to 18% by 2028 during your Analyst Day. Is this conservatism? If so, it appears you might be below 17% this year, and I would like to know how we should consider the cadence for 2026, 2027, and 2028. I'm trying to reconcile all of these elements.

Yes. I'll let Jim take a shot at that. But just a reminder, we will be updating, in only a number of weeks here on September 17 at our Investor Day, the long-term outlook for each of the segments. So that will be updated. So Jim, do you want to?

Yes, Heather. I am quite confident that the full year operating income margin for the segment will be in the upper teens range. For the second half, I want to approach this with caution. I will be closely monitoring changes in my transportation and production costs, especially as the global product segment may need to adjust to tariffs. We received critical information last night regarding imports into the U.S., which will be effective on August 7. We're currently analyzing a large model and will assess everything with a careful perspective, which I believe is wise. We are projecting some costs for the second half of Texture & Healthful, which seems appropriate. Businesses typically require several months to adapt and gain certainty about the new regulations we are facing. The teams will have plenty to consider and work on to optimize supply chains, reduce costs, and all of this will impact us in 2026 and 2027.

Yes. Regarding the uncertainties related to tariffs, we believe that for this calendar year, the net impact of tariffs will be minimal based on what we currently know. However, we are approaching this with caution, particularly concerning the indirect impacts. While we have a good understanding of the direct impacts, the indirect effects on our customers are what prompt us to remain suitably cautious.

Okay. And then my follow-on is just wondering, I know you don't typically give these details, but just wondering qualitatively, maybe you could give us a sense of your volume cadence through the quarter, particularly in THS and LATAM, like does that strengthen as the quarter went along? Or just how should we think about that? How you exited the quarter?

You're right. We don't usually talk about kind of month-to-month within a quarter. The only maybe the thing I may just comment on is just kind of where the placement on Easter was and how that always affects some of the kind of the spring demand, particularly in the U.S. But other than that, I think, again, we're still looking at what we consider decent sales volume growth for Texture & Healthful for the second half of the year. We're not seeing any concerns of anything abruptly changing as we exit quarter two and enter quarter three from a negative view standpoint exiting and then entering quarter three.

And with that, this concludes the question-and-answer session. I would now like to turn the call back over to Jim Zallie for closing remarks.

Thank you, and thank you all for joining us this morning. We look forward to seeing many of you at our upcoming Investor Day on September 17 in New York. If you plan to attend in person, we did want to request that you please register for the event. We're excited to share a multi-year outlook that builds on the progress we've shared with you today, and I look forward to continuing the conversation in New York. Thank you all again for your interest in Ingredion.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.