Ingredion Inc Q3 FY2025 Earnings Call

Good day, and welcome to the Ingredion Q3 2025 Earnings Call. At this time, today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Noah Weiss, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Ingredion's Third 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 the third 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 in the company's most recently filed annual report on Form 10-K and subsequent reports on Forms 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. The third quarter was more challenging than we expected, with net sales and adjusted operating income down more than our previous guidance. Despite Q3's results, we are, however, confident that Ingredion's diversified business portfolio will deliver another full year of operating income growth. As we discuss the performance in the quarter, we will highlight the progress we are making to improve upon recent and near-term operating challenges while navigating with agility, pockets of economic weakness and uncertainty by remaining focused on driving innovation and operating excellence to deliver profit growth. Turning to the next slide. Let's start with a summary of our net sales volume growth for the quarter. Texture & Healthful Solutions delivered a solid performance with 4% sales volume growth across U.S., Canada and EMEA, including double-digit sales increases for clean-label ingredient solutions. Growth in foodservice channels globally, as well as for convenient grab-and-go offerings at retail, drove increased demand for our batter and breading ingredients in the quarter. Additionally, our solutions portfolio continues to grow, outpacing the segment's net sales growth, thanks to increased demand for specialty blends that help customers address affordability, eliminate artificial ingredients and simplify labels. In Food & Industrial Ingredients, LatAm, the main driver of the sales volume decrease came from softer brewing industry volumes, with customers attributing it to cooler, wetter weather for some of the seasonal decline. More broadly, weaker LatAm demand became increasingly evident as higher inflation and interest rates impacted consumer spending. Our Food & Industrial Ingredients U.S./Canada segment experienced a 5% decline in net sales volume, largely due to our inability to meet customer demand requirements from continued production challenges at our Chicago plant as well as overall softness in beverage and food volumes. In contrast, we saw increasing volume demand for industrial starches to our major corrugating and paper and packaging customers. Moving to the next slide. I would like to take a moment to elaborate on the primary factor contributing to our Food & Industrial Ingredients U.S./Canada performance, and that is the ongoing operational challenges at our Argo facility outside of Chicago. For background, Argo is one of the largest plants in our network and accounts for more than 40% of the segment's net sales. Following a fire in our feed dryer at the end of quarter 2, which halted the entire plant's production, we faced several challenges while plant operations recovered during the third quarter. This quickly and directly contributed to tighter inventories being available for incremental sales. Given the size of the volumes that move through this plant on a daily basis, we estimate that the cumulative operating income impact to the segment was approximately $22 million across both the second and third quarters, with $12 million of that operating income impact being felt in quarter 3. Production rates remained challenged in July and August before improving in September. In quarter 4, our team remains focused on stabilizing production and rebuilding inventories. Also in the quarter, we experienced the overall market demand for sweetener products weakening in July and August before bouncing back in September. We believe many beverage and food customers were experiencing slowing demand as a result of price increases that were put into effect to offset anticipated rising packaging costs, particularly from aluminum and tin plate. Turning to the next slide, our Food & Industrial Ingredients, LatAm segment saw a decrease in operating income this quarter, down 11% versus last year. The reduction is primarily attributable to the strategic realignment of our brewing customer mix as well as lower brewing industry volumes. We are making good progress strategically diversifying our customer and product mix in LatAm towards higher-margin sweeteners that serve food and confectionery customers. We will continue to repurpose our grind to improve the consistency of profit margins over time. Beyond what we believe was a transitory impact from the brewing segment in the quarter, we are monitoring softer consumer demand in general across LatAm, which became increasingly evident in quarter 3 as higher inflation and rising interest rates weigh upon GDP growth and consumer spending. Turning to the next slide, it is important to reinforce the fact that we have made considerable progress to expand the company's gross margins over the last 3 years through a combination of service differentiation, operational excellence and solutions selling. We are focused on not only sustaining the performance but steadily improving upon it by executing against our strategic pillars to drive mix improvement and enterprise productivity. Let me now update you on progress against our 3 strategic pillars. To start, I'd like to highlight our focus on driving profitable growth, particularly within the Texture & Healthful Solutions segment where we continue to expand our leadership in clean label ingredients and solutions globally. North America and Asia Pac experienced double-digit clean label growth this quarter, reflecting a growing demand from customers and consumers for greater transparency and simplicity in ingredient labeling. This trend has become mainstream, with both private label and CPG customers reformulating products at an accelerated pace. Additionally, demand for protein isolates remains robust, as evidenced by our record sales for protein fortification during the quarter and the fact that we are already more than 50% contracted for isolates for 2026. Our high-value pea protein isolates offer notable functional advantages and benefits from labeling preferences compared to other protein sources across various food categories, with our new product introductions being preferred for their taste and overall quality. Moving now to our second pillar, innovation. Our focus on integrated solutions continues to favorably impact Texture & Healthful's results, with solutions-based sales growing at a faster rate than the overall segment's net sales growth for the quarter. Furthermore, as food inflation pressures persist, affordability remains a key catalyst for recipe reformulation across our customer base. Brands are actively seeking our assistance with cost-effective ingredient solutions that allow them to maintain quality and shelf life while reducing input costs. Our latest innovations in egg and cocoa replacement solutions delivered cost savings, improved functionality, and enhanced flavor profiles. By enabling customers to reformulate recipes without compromising taste or texture, we’re helping them differentiate their products and respond quickly to market trends. As consumer demand for natural sweeteners continues to increase, Ingredion is advancing development partnerships for sweet proteins and novel customized clean taste solutions containing stevia and sweet proteins. We believe this will further strengthen Ingredion's position as a leader in sugar reduction innovation. Lastly, I'd like to comment on our operational excellence pillar. Our operational focus has translated into meaningful benefits at our Indianapolis facility, where we've taken steps to maximize asset utilization across our starch network. By modernizing the plant layout and reengineering slurry transfer systems, we've created flexibility to run specialty starch operations in a more integrated manner with downstream operations. This means fewer bottlenecks, better load balancing, and improved throughput. These changes reduce inventory requirements, enhance service levels, and deliver meaningful savings, all while better positioning the plant to support future growth for texture solutions. Additionally, we feel confident we will surpass our $50 million run-rate Cost2Compete savings target, and we'll realize more than $55 million in run-rate savings by the end of 2025. This achievement reflects a relentless focus on operational efficiency and disciplined cost management across the organization. By optimizing processes, eliminating waste, leveraging technology, and driving continuous improvement initiatives, we've been able to unlock significant savings. Last month, we hosted our first-ever Supplier Day, bringing together strategic partners from across our supply chain globally in the pursuit of shared value creation. This was a valuable forum for collaboration, knowledge sharing, and strengthening of relationships. The event created increased awareness and understanding by our suppliers of our business and is already leading to new opportunities for value creation for us and them. Lastly, in October, we held a Global AI Forum for our entire employee base to accelerate adoption for the responsible usage of AI. Our AI priorities for value creation are focused on enhancing the customer experience, driving supply chain and manufacturing efficiency, and accelerating innovation. Now I'm 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 third quarter were $1.8 billion, down 3% versus prior year. Gross profit dollars decreased by 5%, with gross margin slightly lower at 25.1% as volume headwinds are partially offset by lower input costs. Reported and adjusted operating income were $249 million and $254 million, respectively. Turning to our Q3 net sales bridge. The 3% decrease was driven by $39 million in lower volume and $30 million in lower price mix, offset partially by $15 million of favorable foreign exchange. Moving to the next slide. We highlight net sales drivers for the third quarter. Texture & Healthful Solutions net sales were up 1%, driven by sales volume growth of 4% and foreign exchange favorability of 2%, partially offset by price/mix. Food & Industrial Ingredients LatAm reported a net sales decrease of 6%, largely attributed to a reduction in sales volumes, which was mainly influenced by weaker brewing demand as well as slower macroeconomic growth across the segment. Food & Industrial Ingredients U.S./CAN net sales declined 7%. The sales volume decline of 5% was impacted by the extended recovery time to normalize production at our Argo plant as well as softness in sweetener volume demand. Now let's turn to a summary of results by segment. For the third quarter 2025, Texture & Healthful Solutions net sales were up 1% and operating income was up 9%, equating to a 17.4% operating income margin, significantly higher than prior year. This result has been driven by lower raw material costs, as well as favorable volume impact, partially offset by unfavorable price/mix. In Food & Industrial Ingredients, LatAm, net sales were down 6% versus last year. Operating income declined to $116 million, with an operating income margin at 19.8%, holding strong. Moving to Food & Industrial Ingredients, U.S./CAN, third quarter net sales were down 7%. Operating income was $81 million, down 18% or $18 million, driven by production challenges at our Argo plant and lower-than-expected beverage and food volume demand. As we stated earlier, we estimate that this disruption has had a $12 million operating loss impact on the quarter's results. For the all other group of businesses, the 17% increase in net sales was driven by increases across the board, with operating income flat versus the prior year as protein fortification gains were offset by lower profits from the Pakistan 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 a decrease of $0.31 per share for the quarter, driven by a decrease in operating margin of $0.22 and a volume of -$0.12, partially offset by foreign exchange of $0.03 per share. Moving to the change in nonoperational items, we had an increase of $0.01 per share. Shares outstanding had a favorable impact of $0.05, and a lower tax rate equivalent had a $0.02 per share impact, partially offset by higher financing costs of -$0.06 per share. Shifting to our year-to-date income statement highlights, net sales for the first 9 months were approximately $5.5 billion, down 3% versus prior year. Gross profit dollars grew by 4%, and gross margin has increased to 25.6%, up 180 basis points. Reported and adjusted operating income were $796 million and $800 million, an increase of 10% and 4%, respectively. Turning to our year-to-date earnings bridge, the result is an increase of $0.58 per share. Operationally, we saw an increase of $0.36 per share for the 9 months. The increase was driven by an operating margin increase of $0.61 as well as favorable other income of $0.14 per share, primarily from our Argentina joint venture, and these were partially offset by volume of -$0.38. Moving to the change in nonoperational items, we had an increase of $0.22 per share, primarily driven by fewer shares outstanding of $0.15 as well as lower financing costs and tax rate of $0.03 per share each. Moving to cash flow, year-to-date cash from operations was $539 million, which includes an investment in working capital in the current year. Year-to-date capital expenditures net of disposals were $298 million. The company expects to invest in organic growth initiatives that provide a significantly higher return than our cost of capital. Lastly, we have repurchased $134 million of outstanding common shares, exceeding our share repurchase target of $100 million. We have paid out $157 million in dividends and increased the dividend per share to $0.82 for the quarter, which represents our 11th consecutive annual dividend increase. Now let me turn to our updated outlook for the year. For the full year 2025, we anticipate net sales to be flat to down low single digits, with our outlook reflecting lower price/mix due to pass-through of corn costs and an updated view of the effects of foreign exchange. We anticipate that adjusted operating income will be up low single digits to mid-single digits for the full year. Our 2025 financing cost estimate will now be in the range of $35 million to $40 million, reflecting year-to-date foreign exchange impact. For the full year 2025, we expect a reported effective tax rate of 25.5% to 26.5%, and adjusted effective tax rate of 26% to 27%. We are narrowing our full year adjusted EPS range to be $11.10 to $11.30. Given the macroeconomic softness evident in the third quarter for Latin American economies and the incremental issues that we absorbed related to F&II U.S./CAN segment's Chicago plant outage, we anticipate our 2025 cash from operations will now be in the range of $800 million to $900 million. Our guidance reflects current tariff levels in effect at the end of 2025. In addition, this guidance excludes any acquisition-related integration or restructuring costs as well as any potential impairment costs. Turning to the full year outlook for each segment where we have made updates. For Texture & Healthful Solutions, our estimate for net sales is to be up low single digits. We have raised our operating income profit growth to now be up high double digits. For F&II LatAm, we have lowered our net sales outlook to be down mid-single digits and operating profit to be flat to up low single digits. For F&II U.S./Canada, we have now lowered our outlook for net sales to be down mid-single digits and operating income to be down low double digits based upon operating challenges. That concludes my comments, and I'll turn it back over to Jim.

Thank you, Jim. As we conclude today's call, I want to emphasize the focus we have on our operational and strategic priorities. Clearly, we have a near-term focus on improving productivity at Argo and rebuilding inventories while driving sales recovery in our U.S. Food & Industrial Ingredients segment. Complementing this focus on operational excellence, the entire organization is committed to exceeding its Cost to Compete target, delivering $55 million of run-rate savings by year-end. We will continue to deploy capital towards organic growth opportunities to expand and strengthen our Texture & Healthful Solutions portfolio. Lastly, we remain committed to returning capital to shareholders through share repurchases. As of the end of September, we exceeded our full-year target by purchasing $134 million worth of shares and have increased our 2025 share repurchase target to $200 million, underscoring our commitment to maximizing shareholder value. Reflecting our confidence in the future, we are announcing that our Board has authorized a new share repurchase program of up to 8 million shares over the next 3 years. Now let's open the call for questions.

And our first question will come from Andrew Strelzik with BMO Capital Markets.

I wanted to start on the demand environment, and I apologize if you covered some of this in the prepared remarks that I missed. But I guess I'm just curious that you're seeing that evolve. It certainly seems a bit softer than anticipated. And so I guess, are you seeing it continue sequentially to slow? Or are you seeing any signs of stabilization? In the release, you mentioned some customer mix management. I was hoping you could maybe elaborate on that as well.

Yes, Andrew, I'm going to start back with the response related to what's happening in LatAm and with Mexico and Brazil, I think that's where the line got cut off. Is that correct?

Ladies and gentlemen, please remain on the line. Your conference will resume shortly. Once again, ladies and gentlemen, please remain on the line. Mr. Strelzik, I just want to make sure that you can hear me.

I can, yes.

Speakers?

Yes. We're back.

Okay. You're loud and clear, and we still have Andrew on the line for his question.

Okay. Andrew, I'm going to start back with the response related to what's happening in LatAm and with Mexico and Brazil. I think that's where the line got cut off. Is that correct?

Yes. I mean the question was broadly about the demand backdrop and if you're seeing any signs of stabilization, but then there was the comment. I think it was on LatAm about the mix management, customer mix management. I was hoping you could elaborate on.

Right, right. Yes, so in Brazil and in Mexico, we're seeing inflation, elevated prices that are impacting the consumer. Interest rates are relatively high versus history, and we do believe that's impacting consumer spending and confidence. Mexico GDP is forecasted to only grow 0.5%, and Brazil's GDP is forecasted to grow only 2%. It's just noteworthy to remind everyone that food spending represents approximately 20% to 30% of disposable income for the LatAm consumer. And thus, when we see softness, we’re seeing the cumulative impacts related to softness in beverage and multiple food categories. Moving to the United States, we saw demand for sweeteners in particular decrease in July and August. That's what the industry data showed. It was a pretty notable drop in July and August, but it did recover nicely in September. So, for the quarter, July and August was impacted. And of course, we, at the same time, in those months, had issues related to Argo depletion of inventories, inability to sell, but things picked up in September. And again, as it relates to Texture & Healthful, we didn't see that kind of decline. In fact, the U.S. market contributed most to volume, net sales and operating income growth, but all 3 geographies grew operating income high single digits for Global and Texture & Healthful. Hopefully, that answers the question.

I would like to explore the Texture & Healthful Solutions segment in more detail. What has changed in the outlook there? What is the main factor driving this change? Is it primarily based on what you experienced in the third quarter, or is it more reflective of your expectations for the fourth quarter? I'm looking for additional insights regarding the guidance change in that area.

Jim Gray, I’m going to let you take that.

Andrew, I mean, I think that as we look at Q4, we have from prior years, kind of a slightly easier lap. But I think more importantly, when we look across Texture & Healthful, it's really a diversity of customers. And so we have some of our largest customers that are in foodservice. We also have customers that are into private label as well as kind of branded CPG. So when affordability and value against either the U.S. or the European consumer, we're already benefiting a bit from what that sort of food service traffic and food service ticket looks like, as well as whether it's store brands or private label brand. I think we're seeing a nice balance of our volume demand across all of our customers. And so we feel like that's a well diversified and very solid business right now that has some growth right in front of it.

And we're also benefiting from a focus with a well-defined definition for solutions selling, where we went through a complete retraining of our go-to-market sales and technical service force. And we're into the second full year of, I would say, more advanced solution selling than we've ever had in relationship to selling differentiating ingredients, customized blends and solutions all around consumer benefit platforms around affordability, health, and wellness, which are really aligned to the trends. And that's why I think we're seeing the strength in our clean label solutions growth, which again grew double digits in the U.S. and Asia Pac.

One moment for our next question. That will come from the line of Kristen Owen with Oppenheimer.

Jim, I did want to follow up on the F&II businesses. You gave some helpful color on Argo in the prepared remarks. But can you just help us unpack how much of the volume was sort of this macro weakening that you addressed in the first question, how much of that was sort of these company-specific events like the Chicago plant or this transition in your brewery business in LatAm? And I'm just trying to think how much of those one-time items kind of roll off in the fourth quarter and what sticks with that? If we could start there and then I'll have a follow-up.

Kristen, can we just clarify which segment? So U.S./CAN F&II first.

Yes. Let's first discuss U.S./CANADA F&II, Jim, and then I will cover the LatAm F&II.

Yes. Okay. Is that okay, Kristen? Yes.

Yes, I was hoping to get both.

Regarding U.S./CAN F&II, as Jim mentioned in the prerecording, the feed dryer is at the end of the process. When it goes down, the entire plant must shut down. As we assessed the situation, we aimed to ensure a full recovery of the plant. We experienced some impacts, including lower value from co-products that needed to be cleared out and periodic interruptions in the grinding process, which affected several refinery operations. Consequently, we had less volume available and had to absorb some fixed costs. As we moved towards normal production rates in September, we capped those costs, which amounted to about $12 million in impact for Q3. We do not expect this to happen again. Our focus is on improving reliability and planning for the future, aiming to operate at normal to full capacities by 2026. Therefore, I don't anticipate overlapping maintenance and idle plant charges within U.S./CAN F&II.

So $12 million of the $18 million decline, we would attribute to the Argo issues. The remainder related to the market weakness that we saw, which was very curious with the drop-off in July and August, but the good news is we saw industry recovery in September. So let me pivot, and I'll talk about LatAm. For the LatAm F&II segment, approximately 40% of the revenue decline year-on-year was attributable to soft brewing volumes. Now the largest contributing factor was related to the impact of the terms and timing of purchases associated with the rollover of significant customers' multiyear agreement. That situation is now satisfactorily resolved and it should not repeat. So for color, in the quarter, Mexico was down 10% with half of the net sales decline due to brewing-related situations tied to that unique customer situation. And in Brazil, 90% of the decline was due to brewing demand, again, predominantly related to that customer situation. And because brewing adjunct represents 18% of net sales for F&II/LatAm, and a larger percentage of our volume, what we've been doing is we're actively pursuing alternative paths to utilize our grind more profitably by trading up to support higher-margin products in food and confectionery. We believe this represents an exciting incremental opportunity to diversify beyond brewing and valorize our grind more profitably. So hopefully, that answers the question related to what we believe is some transitory aspects in F&II, with about half of the decline in LatAm being due to the brewing transitory nature, and Jim indicated about two-thirds of the decline in F&II US/Canada was related to the Argo situation. Hopefully, that's clear.

No, really, I appreciate all of that color. That is very helpful in helping us understand what goes the way in the fourth quarter. My follow-up question is actually as far as thinking about fourth quarter contracting season. I understand it's a little early on 2026. But just given some of these one-time items in '25, I'm wondering if you can give us a sense of how you're thinking about price-cost dynamics into 2026. I mean we've had a lot of volatility on the input cost side. And then you've got some of these one-time items on the cost side. So just some of the big buckets that we should think about from a price-cost perspective into 2026 would be very helpful.

Yes. I would say, just as it relates to contracting, obviously, we're early in the process. I would say that we're currently midway through firm price contracting in the U.S. and in Europe. So still a long way to go. And as it relates to inflationary pressures, which there are on input costs, along with U.S. cost of corn projected to be higher in '26 versus '25, we anticipate this is going to prolong customer commitments, and that contracting will not be completed until late in the year. And obviously, we always do a, we think, a pretty good job of balancing all of the puts and takes, especially given the pricing centers of excellence that we have stood up over the last few years that have served us very well during the inflationary period, and now as we manage a more benign but yet still sticky inflationary period. We're cautiously optimistic that 2026 contracting will position us for another year of modest profit growth based on everything that's happening in the economies globally, along with the backdrop of uncertainty.

One moment for our next question. And that will come from the line of Ben Theurer with Barclays.

I wanted to follow up on T&H, just the dynamics in the quarter and the outlook. So the first question really is related, if you could elaborate maybe with a few examples on what's been driving the negative price mix in Texture & Healthful Solutions, which at minus 5% look pretty high. So that's the first thing I would like to understand. And then I have a quick follow-up.

Let me have Jim make that comment, Jim?

So Ben, regarding the price mix, if you look at it from one quarter to the next, we noticed that some of the pricing we experienced at the start of 2025 from Europe was influenced by higher energy costs that were apparent in 2024. As energy costs have decreased, this has impacted our pricing mix. This trend has been consistent throughout the year, along with the corn prices. Corn costs remained stable, but we have also observed higher anticipated costs for corn and the basis for some of our specialty grains. In the previous year, those costs were present, and as corn availability has improved, some of that basis has decreased compared to the prior year. It really reflects a pass-through effect of the net corn costs or inputs.

Okay. Perfect. My follow-up question relates to the dynamics in Food & Industrial, specifically in Latin America, and the outlook. In Mexico, there is a proposal nearing approval for a significant tax increase on soft drinks that will impact both sugary and non-sugary beverages. This means even drinks with no calories will be taxed. The local bottler anticipates a substantial need to raise prices due to these taxes, which is expected to lead to large volume declines. I would like to know what your strategy is regarding this and how you plan to protect volume. What steps are being taken in your contracting approach, especially in Mexico, concerning sweeteners, including both caloric and non-caloric options that will be affected by the taxation changes expected in 2026?

Jim, why don't you take first, and then I'll pick up on it.

So what Ben is discussing is the sweetness tax that will affect both caloric and non-caloric or light beverages in Mexico. I believe the legislation is either up for a vote or has been approved, with an effective date of January 1, 2026. For caloric beverages, bottlers in Mexico can choose between liquefied sugar and HFCS, and we anticipate that cost competitiveness and formulation factors will favor HFCS. Historically, when taxes on beverages are implemented, there's typically an immediate reaction from consumers, but they tend to adjust to the increased prices over time, incorporating it into their overall grocery costs or meal expenses. This initial impact usually lasts anywhere from one to five months before it stabilizes. Our customers are also mindful of their pricing strategies and will consider value in adjusting to these changes. For non-caloric sweeteners, the situation is more complex; with a consumption tax introduced, it will be interesting to see if certain beverages, like those containing stevia, can offer a unique proposition that would allow them to endure the increase from the tax.

Yes. I would also mention, Ben, that this proposed increase of $0.17 per liter on sugary drinks, as well as nonsugary drinks sweetened with artificial sweeteners, is coming now about eight years after the initial 6.8% tax was implemented. As Jim noted, when that tax was enacted, there was a decline in purchases for approximately 6 to 9 months. Interestingly, consumer behavior changed, and the tax led to unintended consequences, affecting the sales of other products beyond just food. People returned to some caloric beverages, particularly those consumed by laborers and construction workers. We have observed this phenomenon. We will see what happens this time. Additionally, it's important to point out, Jim, that we don’t export much high fructose corn syrup (HFCS) to Mexico; the quantity is quite small because we produce locally and are not a significant HFCS producer in the region, focusing more on glucose production. Therefore, in terms of direct impact, I don't anticipate a significant direct effect; the industry's response and indirect consequences are still uncertain. However, I believe it won't be a straightforward one-to-one relationship; consumers will adapt as they did when the tax was introduced in 2016 and 2017, and we will observe the outcomes from there.

One moment for our next question. And that will come from the line of Pooran Sharma with Stephens.

I just wanted to ask about U.S./Canada F&II. I think you mentioned it in the prepared comments and in the Q&A here. I think you called out $12 million weakness from Argo and $6 million from a softer market, and just parsing into that further, you mentioned softness in July and August, but a recovery in September. Were you speaking on a volume basis? And are you able to kind of share if that recovery has held into October? Or what you're seeing thus far quarter-to-date?

Yes, I believe you've accurately summarized the situation regarding the U.S. and Canada. The comments we made about July and August pertained to the volume shipments in the sweeteners industry, which we were specifically discussing, and the recovery in September was also linked to volume and sweeteners. It's still early in the fourth quarter, but I don't anticipate seeing the same drop in July and August that we previously experienced. We believe this was due to certain brand food companies in beverages and packaged foods taking price increases, reducing promotions, and absorbing higher costs of aluminum and tinplate packaging, which they then passed on. The 232 tariffs, which went into effect after being announced in March, started to impact retail prices around that time, leading to a one-time effect in those months. Manufacturers adjusted their pricing strategies, and consumers felt that impact. Adjustments have been made, and September reflected that change. This is our interpretation of the situation, but we need further data to draw definitive conclusions.

Great. Great. I appreciate that detail there. And just maybe wanted to understand just Argo a little bit better. Maybe I was wrong in my thinking, but I think last time we had spoke, or last earnings call, you were expecting to get some of the volumes back as we work through 3Q and 4Q. So I was just wondering what you are all facing from like a production challenge standpoint. And do you see these manufacturing issues abating by 2026? Or what kind of timeline should we be thinking of here?

Yes, you are correct about our expectations. The key point we want to reiterate is that Argo is a large and complex facility. When it operates efficiently, we can recover a significant amount of lost production. We had anticipated a quicker recovery than we experienced, which unfortunately extended into the quarter. To elaborate, when a facility of this scale goes offline, we face the initial challenge of its impact on the co-products and feed, leading to a loss of the valorization premium on those co-products. We need to get the plant operational again and manage the co-products to prevent them from causing bottlenecks, and it takes time to restore the quality of those co-products for valorization. Additionally, there are intermittent stoppages in grinding that affect the downstream refining processes, resulting in product downgrades, under-absorption of fixed costs, and unplanned maintenance, all of which we encountered. The production challenges we faced were particularly severe in July and August, though we returned to normal production rates in September. Our team is currently focused on recovery, and while we are not declaring victory, we are seeing steady progress and stabilization, making us optimistic that the fourth quarter will be an improvement over the third quarter. If we can avoid severe weather events like polar vortexes this winter, we believe we will be on a solid path to recovery at Argo.

One moment for our next question, and that will come from the line of Josh Spector from UBS.

I have a follow-up regarding the U.S. and Canada. For our fourth quarter, it seems that your guidance indicates a decline in the low double digits, which suggests that your fourth quarter EBIT is around $70 million. This reflects a decrease of about $10 million compared to the previous year, correct? Is this primarily due to weaker market demand and seasonality, or are there other factors at play? Additionally, will this trend extend into the first half of next year in light of the comments about reduced consumer purchasing?

Josh, this is Jim Gray. Regarding our outlook for Q4, we don't anticipate any significant operational or one-time issues related to the U.S./CAN Chicago plant operations or the LatAm brewing. I want to emphasize that in the U.S./CAN market for beverages and food, particularly regarding our sweetener products, we are observing customers, both branded and private label, adjusting prices in response to package cost inflation. While consumers are always somewhat responsive to price changes, the overall cost inflation we are seeing isn't drastic. There are some unit price increases reflected in the scanner data, and I expect this trend will continue into Q4, influencing our guidance. Overall, this is not unexpected. The U.S. consumer is in a decent position concerning wages, and while affordability remains a key concern, there is a slight necessity for pricing inflation among some beverage and food customers, which will likely dampen demand for sweeteners. However, if sweetener demand rises in Q4, we are well-positioned for that, which is a factor in our guidance.

One moment for our next question. And that will come from the line of Heather Jones with Heather Jones Research.

Apologies if I repeat anything. I was wondering about Latin America and how you're approaching the Mexico tax issue you mentioned, along with the broader inflation challenges facing consumers. I know you're not providing guidance for 2026 yet, but I'm curious about your thoughts on the situation for next year, especially considering it's experienced a couple of strong years. I hope you can share some insights on that.

Yes. We recently celebrated our 100th year operating in Mexico. During our Board meeting there, we had the opportunity to meet with government officials and economists to discuss the current economic conditions. The government's budget deficit has created challenges alongside slower GDP growth. As a result, we are observing a weakening economy in Mexico. Additionally, some of our clients in Mexico export to the U.S. and to Hispanic communities in the U.S. for certain products and brands. We have also seen from consumer packaged goods companies in the U.S. that there is a decline in spending among Hispanic consumers. This decline has started to affect our shipments to these customers in the third quarter, a trend that has not been present before. It is beginning to emerge, and we anticipate ongoing uncertainty related to USMCA negotiations, which will need resolution or postponement by July 2026. This uncertainty is likely to impact the Mexican economy as we finish this year and move into the next. That said, we maintain a solid and strong position in the Mexican market. The overall consumer in Mexico has shown resilience, and affordability will be crucial in our approach as we collaborate with customers on recipe development. We also have effectively optimized our operations in the region, with three excellent plants, and our team is focused on enhancing supply chains and managing costs. This serves as our current strategy, although it is too early to make predictions about what we might see as we move from Q3 into 2026.

Okay. And then my next question is just on the share repo. This is a throwback to years ago, but I remember at one point, your shares weren't as liquid as far as how they trade and all. And so that sort of limited the optionality on the magnitude of share repurchases. So I was just wondering if you could update us as far as your thinking on that? Is there a limit to how many you want to repurchase ultimately and just update it. Thank you on that.

Yes. First of all, the new authorization from our Board on our share repurchase program is important. The previous program was set to expire at the end of 2025. Overall, we are confident in the company’s growth strategy and believe that organic investment will continue to positively impact cash flow growth. Looking ahead, our capital allocation priorities focus on reliable capital, organic growth investment to support the dividend, and after that, we have strategic cash to deploy along with a healthy cash balance. We are planning to exceed $200 million in share repurchases in 2025. We anticipate more share repurchases in 2026, 2027, and 2028, which is why we feel the need to renew and reauthorize it for 8 million shares during that time.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Jim Zallie for any closing remarks.

Thank you, operator, and I want to thank all of you for joining us this morning. We look forward to seeing many of you at our upcoming investor events in the next engagement being the Stephens Annual Investment Conference in mid-November. And at this time, I just want to thank everybody again for your continued interest in Ingredion.

This concludes today's program. Thank you all for participating. You may now disconnect.