Ingredion Inc Q4 FY2025 Earnings Call

Good morning, and welcome to Ingredion's Fourth Quarter and Full Year 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 fourth quarter and full year 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 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 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. Despite unforeseen challenges throughout the year, we are pleased to share that we delivered record full year operating income and earnings per share growth driven by continued strength in Texture and Healthful Solutions and solid results from our Food and Industrial Ingredients LatAm business. Although the largest facility in our Food and Industrial Ingredients U.S./Canada segment faced operational difficulties, we have taken steps at the Argo facility to systematically address the issues. While we expect a gradual recovery, the actions we are taking should lead to steadily improving performance throughout 2026. Turning to the next slide. Let's start with a summary of our net sales volume growth for the fourth quarter. Texture and Healthful Solutions posted its seventh straight quarter of volume growth, up 4%, led by clean label ingredients and solutions. Clean label ingredient volumes experienced significant growth in both the fourth quarter and throughout the year across Asia Pacific and U.S./Canada. Clean label remains one of the food industry's fastest-growing areas, emphasizing its critical role in meeting consumers' preference for authentic ingredients and simple food labels. Ingredion continues to be a leader in the clean label texturizing space due to the breadth and strength of its portfolio, which is supported by proprietary technology, patents, consumer insights and years of formulating expertise. Furthermore, our solutions selling approach continues to deliver robust growth, outpacing the segment's overall net sales performance. This comprehensive way of engaging customers is driving greater intimacy at a time when food companies are pursuing more reinvention and reformulation. These higher margin sales are also expected to be margin accretive to the segment over time. In our Food and Industrial Ingredients LatAm segment, we started to see brewing adjunct volume demand recover from our long-term contracted customers. However, the region continued to face challenges in the confectionery and paper and corrugating sectors, where demand remains soft. Partially offsetting this softness, food ingredient sales experienced modest growth. Lastly, our Food and Industrial Ingredients U.S./Canada segment saw a 7% decrease in net sales volume in the most recent quarter, primarily driven by ongoing production challenges at Argo, which limited our ability to produce inventory available for sale. In addition to this operational issue, our business and the industry faced overall softness in beverage sweetener volumes, further contributing to lower sales. As we move to segment updates, I want to highlight progress against key growth investments and strategic initiatives. Starting with Texture and Healthful Solutions. Our focus on the customer has never been stronger, delivering sales volume growth of 4%, NOI growth of 16% versus prior year. In addition, strategic capital growth and cost savings investments were completed. At our flagship Indianapolis facility, our starch modernization project completed in quarter 4 will reduce our modified starch production costs through more efficient product flows and debottlenecking, which will drive the release of new capacity. In addition, we completed the expansion of our blending center of expertise in Belcamp, Maryland, which increases customized solutions revenue potential by $30 million a year. The range of solutions capable to be produced from this facility support clean label, plant-based protein and fiber fortification, sugar reduction and affordable formulating. Turning now to our Food and Industrial Ingredients LatAm segment. Against a backdrop of regional, economic and political volatility throughout the year, our team managed to deliver record operating income and margins of greater than 21% for the year, up 140 basis points. Mexico specifically demonstrated resilience to offset challenging unforeseen economic conditions, delivering another record year of operating income. In pursuit of more profitable growth, Mexico repurposed a portion of its grind to strategically diversify its customer and product mix towards higher-margin ingredients that serve food and confectionery customers. We successfully completed a complex network optimization move in Brazil for long-term cost competitiveness. We closed our Alcantara facility and successfully expanded polyol production at Mogi Guacu, our largest facility in Brazil. This investment was supported by long-term customer volume commitments. Now turning to our Food and Industrial Ingredients U.S./Canada segment. Operational issues at our Argo facility stubbornly persisted throughout the fourth quarter. Despite being encouraged by a strong September, we experienced intermittent grind shutdowns, which resulted in higher maintenance costs, lower yields and fixed cost absorption, which reduced both our salable finished product inventory and our co-product valorization. Furthermore, industry volume demand for sweeteners was down throughout the second half. The 2025 full year operating income impact of Argo's operational challenges was approximately $40 million. With the majority of the first quarter still ahead of us, our team remains focused on executing an achievable recovery plan. Despite the unforeseen challenges and headwinds described, Food and Industrial Ingredients U.S./Canada delivered greater than 15.5% operating income margins for the year. Let me now update you on progress against our 3 strategic pillars. Let me start with driving profitable growth. By continuing to prioritize solutions and clean label offerings, we have significantly enhanced the results of our Texture and Healthful segment. As mentioned previously, sales in both ingredient solutions and clean label categories have outpaced the overall segment's net sales growth during the second half of 2025, and we have a strong pipeline and growth momentum in both areas going forward. Furthermore, we are excited to report that our protein fortification business delivered a record year, with net sales growth exceeding 40%. As you know, we have been working diligently to optimize this business for several years. In 2025, we doubled production and were able to increase the average selling price through new product innovation. We see this business representing a viable long-term growth opportunity for us, supported by strong and clear consumer pull. Looking at our second strategic pillar, innovation. We have developed a new family of ingredient solutions that help customers readily replace ingredients that have been impacted by shortages and rapidly rising raw material costs. For example, our suite of solutions to replace cocoa and product reformulations have seen steady sales increases throughout 2025. Furthermore, we are advancing our proprietary sugar reduction taste modulation platform in collaboration with Oobli through a strategic commercial partnership. Our sweet proteins and stevia blends improve the quality of natural sweetness while offering a cost-competitive clean taste solution. Regarding innovation, texture elevation represents the next level in value delivery that we are offering to select customers. This co-creation approach combines proprietary consumer insights, sensory science and rapid formulation expertise to help customers predict overall liking and deliver consumer-preferred textures faster and with higher success rates. Our 2025 customer engagements proved very effective and are leading to customer successes in the marketplace. We are extremely excited by this opportunity and what it represents to grow customized solution sales with the potential also to generate new service revenues. Lastly, I'd like to comment on our operational excellence pillar. In 2025, we delivered $59 million of Cost2Compete run rate savings, exceeding our previously stated $50 million savings target. This achievement reflects our ability to optimize across manufacturing our manufacturing network, as well as deliver procurement and SG&A savings, leveraging our scale. Building off the success of Cost2Compete, we are transitioning our operational excellence strategic pillar toward long-term enterprise productivity. We look forward to updating you on our enterprise productivity progress in the future. It is also worth highlighting that despite the volatile trade and tariff environment in 2025, Ingredion was minimally directly impacted. This was due to the fact that more than 80% of our production is locally made and locally sold. Turning to the next slide. Our results this year demonstrate how Ingredion's diversified portfolio continues to drive stronger and more consistent profitability. While navigating volatile market conditions, we delivered record gross profit and expanded margins to over 25%, a clear testament to our agility and operational discipline. This performance also reflects the ability to leverage the strength of our global network, adapt quickly to shifting demand and our focus on higher-value solutions. As we continue to optimize our mix and execute against our strategy, we are building a foundation for sustained long-term growth. Overall, 2025 stands out as a year where disciplined actions and portfolio balance enabled us to perform well in a challenging environment. Before I turn the call over to Jim to discuss our financial results, I do want to take a moment to comment on our CFO transition. Last week, we announced that Jim Gray will be retiring on March 31, 2026, and we have begun a comprehensive search to identify his successor. The Board, the executive leadership team and I are incredibly grateful for Jim's leadership during his more than 9 years as a CFO of Ingredion. He's been an invaluable partner to me and has made significant contributions to our success. I wish Jim all the best in retirement. And with that, I'll turn the call over to Jim Gray for the financial review.

Thank you, Jim, and good morning, everyone. Moving to our income statement. Net sales for the fourth quarter were $1.8 billion, down 2% versus prior year. Gross profit dollars decreased by 4%, with gross margin slightly lower at 24.5%, as cost of goods sold was impacted by higher manufacturing expense in U.S./Canada Food and Industrial Ingredients. Reported and adjusted operating income were $220 million and $228 million, respectively. Turning to our Q4 net sales bridge. The 2% decrease was driven by $40 million in lower volume, $39 million in lower price/mix, offset partially by $36 million of favorable foreign exchange. Moving to the next slide. We highlight net sales drivers for the fourth quarter. Texture and Healthful Solutions net sales were up 2%, driven by sales volume growth of 4% and foreign exchange favorability of 2%, partially offset by price/mix attributable to the pass-through of declining tapioca input costs and greater volume mix of lower-value tapioca-based sweeteners sold locally in Thailand. Food and Industrial Ingredients LatAm reported net sales up 1%, largely driven by favorable foreign exchange, partially offset by weaker volumes. Food and Industrial Ingredients U.S./Canada net sales declined 9%. Sales volume fell by 7%, primarily driven by less available inventory for sale as our Argo facility faced operating challenges, and we met customer demand by sourcing from other plants. 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 $0.23 per share for the quarter, driven by a decrease in operating margin of minus $0.22 and volume of minus $0.10, partially offset by a foreign exchange gain of plus $0.08 per share. Moving to the change in nonoperational items, we had an increase of $0.13 per share. Shares outstanding had a favorable impact of $0.08 per share, and a lower tax rate equivalent was $0.06 per share favorable. Moving to our full year income statement. Net sales for the full year were $7.2 billion, down 3% versus prior year. Gross profit dollars increased by 2%, with gross margin increasing to 25.3%. Reported and adjusted operating income were $1.016 billion and $1.028 billion, respectively. Turning to our full year net sales bridge. The 3% decrease was driven by $144 million in lower price/mix, $75 million in lower volume, offset partially by $8 million of favorable foreign exchange. Moving to the next slide, we highlight net sales drivers for the full year. Texture and Healthful Solutions net sales were up 1%, driven by 4% sales volume growth and foreign exchange favorability of 2%, partially offset by price/mix. Food and Industrial Ingredients LatAm reported net sales down 4%, driven by weaker volumes across brewing adjunct. Food and Industrial Ingredients U.S./Canada net sales declined 7%. Sales volume fell 4%, primarily due to previously mentioned challenges at our Argo facility and weaker sweetener demand. Now let's turn to a summary of results by segment. For full year 2025, Texture and Healthful Solutions net sales was up 1%, and operating income was up 16%, which translated into a higher operating income margin of 16.9%, up more than 200 basis points from the prior year. The increase for the full year was driven by lower raw material and input costs as well as improved margin volumes, partially offset by unfavorable price/mix. In addition, one comment regarding Texture and Healthful Solutions' quarter 4 operating income. Last year's fourth quarter had onetime benefits from SG&A, which we were lapping. We anticipate that Texture and Healthful will continue to generate positive operating income growth. In Food and Industrial Ingredients LatAm, net sales were down 4% versus last year. However, operating income increased to $493 million, and operating income margin reached a record 21.1%. Moving to Food and Industrial Ingredients U.S./Canada, full year net sales were down 7%. Operating income was $315 million, down 16%, driven by production challenges at our Argo plant and lower-than-expected beverage and food volume demand. For the fourth quarter, we estimate that operating challenges have had a $16 million loss impact and that the total 2025 impact is approximately $40 million. For the all other group of businesses, the 2% increase in net sales was driven by growth both in our sugar reduction and protein fortification businesses. Operating loss improved by $20 million versus prior year, driven mainly by significant gains in protein fortification. Turning to our full year earnings bridge, where we illustrate a 4.5% year-over-year increase in adjusted diluted earnings per share. Operationally, we saw an increase of $0.13 per share, driven by an increased operating margin equivalent of $0.39 and other income of $0.15, partially offset by volume of minus $0.47 per share. Moving to the change in nonoperational items. We had an increase of $0.35 per share. Shares outstanding had a favorable impact of $0.23 per share, a lower tax rate equivalent of $0.09 per share and lower financing costs of $0.03 per share. Moving to cash flow. Full year cash from operations was $944 million, which includes an investment in working capital of $75 million for 2025. Full year CapEx investments, net of disposals, was $433 million. The company continues to invest in organic growth opportunities that provide a significantly higher return than our cost of capital. We repurchased $224 million of outstanding common shares, exceeding our $100 million share repurchase target announced at the beginning of the year. Furthermore, we paid out $211 million in dividends and increased the dividend per share to $0.82 during the third quarter, which represents our 11th consecutive annual dividend increase. Now let me turn to our 2026 outlook. For the full year 2026, we anticipate net sales to be up low single digits to mid-single digits, reflecting greater volume demand. We anticipate the reported and adjusted operating income will be up low single digits for full year 2026. Our 2026 financing cost estimate is in the range of $40 million to $50 million and a reported and adjusted effective tax rate of 25.5% to 27%. Our full year adjusted EPS is expected to be in the range of $11 to $11.80, reflecting continued sales volume growth in Texture and Healthful Solutions and relatively slower operating income growth from our Food and Industrial Ingredients segments as we face industry volume demand softness and higher manufacturing inflation not fully offset by pricing. This adjusted EPS range is based upon a share count of 64 million to 65 million shares. We anticipate our 2026 cash from operations will be in the range of $820 million to $940 million, reflecting slightly more working capital investment as net sales are expected to grow. Capital expenditures for the full year are anticipated to be between $400 million to $440 million. Please note that our guidance reflects current tariff levels in effect at the end of January 2026. 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 by segment. For T&H, we estimate net sales to be up low single digits to mid-single digits and for operating income growth to be up low single digits to mid-single digits, driven by sales volume growth. For F&I LatAm, net sales are estimated to be up low single digits to mid-single digits and operating profit to be flat to up low single digits, reflecting sales volume growth, partially offset by foreign currency transactional headwinds, specifically in Mexico. As a reminder, we are dollar functional in Mexico. Therefore, a stronger pace of inflates local manufacturing and costs and operating expenses. For F&II U.S./Canada, our outlook for net sales is in the range that is generally flat year-over-year, and operating income is projected to be flat. While we have near-end confidence in Argo's recovery, we anticipate continued challenges through the first quarter, in line with the previous quarter. Furthermore, while contract pricing covered raw material cost changes, we were not fully able to cover anticipated manufacturing cost inflation. For all our other businesses, we expect the combined net sales to be up high single digits and operating income to improve between $5 million to $10 million. Lastly, for the first quarter of 2026, we expect net sales to be down low single digits and operating income to be down mid-double digits, primarily due to the strength of first quarter 2025's 26% operating income growth. With regards to my announced retirement, it has been a privilege to host 35 quarterly calls with you, our shareholders, analysts and employees. Ingredion has an amazing leadership team led by Jim Zallie and will continue to be supported by a very, very strong finance team. As a shareholder, I look forward to Ingredion's continued success as the company navigates any challenges with proven agility and seizes future growth opportunities to deliver solutions that make healthy taste better. That concludes my comments, and I'll hand back to Jim.

Thank you, Jim. In closing, 2025 was another year where we displayed meaningful progress against our strategic pillars, led by the strong sales volume momentum we saw from our Texture and Healthful Solutions segment. We believe the clear customer focus that has resulted from the resegmentation completed 2 years ago, along with our advanced approach to solutions selling, positions us well for continued growth in this segment in 2026. We are also encouraged by the continued benefits we expect to see from the nearly $60 million of Cost2Compete run rate savings we delivered by the end of last year. Our commitment to cost competitiveness will continue forward as we pursue enterprise productivity for long-term effectiveness and efficiency. We anticipate Food and Industrial Ingredients in U.S./Canada to meaningfully overcome its operational setbacks as we remain laser-focused on stabilizing Argo, and we expect steady improvement from the facility throughout the year. Finally, our financial position remains a source of strength. We delivered nearly $950 million of cash from operations in 2025 and returned $435 million to shareholders. And as Jim explained, we expect cash flow from operations to continue at these levels, providing flexibility to pursue growth. Now let's open the call for questions.

Our first question is coming from Kristen Owen with Oppenheimer & Co.

And Jim Gray, best wishes. Thank you so much for the help over the last several years. So kicking off then with the outlook. You sprinkled some breadcrumbs throughout the prepared remarks about the Argo facility. Just help me understand how much in the fourth quarter was Argo versus the volume decline? And then how we should think about that playing out in 2026? Because I would have thought with the $40 million headwind from that facility that maybe the op income guide would be a bit higher in F&I North America. So maybe help me bridge all those pieces together that you left for us throughout the call?

Certainly. In the fourth quarter, we faced significant operational challenges, which we estimate impacted us by around $16 million due to idle and yield loss and some additional maintenance costs within the U.S./Canada F&I segment. Overall, for 2025, the total impact on this segment is approximately $40 million. Looking ahead to the 2026 guidance for this segment, we noted a decrease of roughly $58 million when comparing 2024 to 2025. Part of the $40 million is from the Argo facility, along with other earlier manufacturing incidents, including a minor train derailment in Cedar Rapids, which accounted for about $10 million, plus around $8 million related to volume softness from 2024 to 2025. As we moved through 2025, particularly from June onward, we observed some customer responses to tariffs leading to price increases in several categories, including soda and canned beverages. These categories tend to be price sensitive, resulting in some softening of volume in the latter half of the year, starting possibly in May or June and continuing through summer and fall. As we approach 2026, we will still see some costs associated with Argo, mainly affecting the first quarter. However, we expect to recover some of those one-time costs in the latter half of 2026. Consequently, our operating income for 2026 should increase year-over-year compared to 2025, potentially rising by $15 million to $20 million. When assessing contract pricing, we managed to cover anticipated changes in net corn costs; however, we are contending with manufacturing inflation, including rising natural gas and labor costs that are affecting our COGS in the U.S./Canada. Our guidance assumes these factors; if inflation is lower or if there is stronger volume in the second half, that would positively impact our results. Thus, we felt it was sensible to guide for a flat year-over-year outcome.

And Jim, just to answer the question regarding the percentage or say, the apportionment of the decline in the quarter, Argo vis-a-vis sweetener volumes, we say 2/3 Argo, 1/3 sweetener volumes?

Yes, 2/3, 3/4.

And then in addition to that, the impact for the full year of $40 million for Argo. Of course, if you look at that as limited to 2025, and I would say January's been a little bit of a rough start to January. And so...

And pretty cold.

It's been pretty cold. It's been pretty cold in January. And as we sit here right now, the plant is running well. It actually ran well from a standpoint of through the very severe cold spell, but January was not as strong as we had anticipated. And I think that in addition to everything else that Jim just said, is the reason why we're putting forward, say a flat year-on-year projection for the full year.

Yes. And maybe, Kristen, I think it's helpful to then say, well, what do you anticipate U.S. CAN F&I's potential to be. I think once through Argo's recovery and we look at some of the investments that we've made and how we're positioned with customers, this segment can definitely still achieve a 16% to 17% op income margin.

Okay. That is super, super helpful. I'm going to ask one here also on Texture & Healthful Solutions. Because I think, Jim, you called out maybe some tapioca headwinds here, maybe some mix headwinds. One of the questions that we get about Ingredion is through this Texture & Healthful Solutions, really looking to see that ASP per ton move higher, help contribute to that OI income outgrowth. Maybe pencil out for us the onetime items there? And then the price/mix headwinds that you're expecting in 2026, just help us unpack those a little bit?

Yes. If you look at the operating income margin for Texture & Health in the fourth quarter, you'll see it declined slightly year-over-year. This was mainly due to some operational expense benefits we experienced in the fourth quarter of 2024. There were one-time adjustments and some comparative benefits that we needed to account for. Essentially, it's just the cleanup from one year's results to the next. However, I want to emphasize that the gross margins for Texture & Health improved in Q4, with gross profit increasing and margins expanding. This is a more accurate measure of the health of our product mix in that segment. Looking ahead to 2026, we expect positive movement in price/mix and year-over-year gains in average selling prices, supported by the growth in solutions Jim mentioned and advancements in texture elevation. These factors are contributing to higher selling prices per ton and enhancing value for our customers. I want to note that we're wrapping up the second year of our resegmentation and as we approach 2026, we still have some segments that may not achieve higher average selling prices, such as our tapioca glucose syrup business in Thailand. This segment has a significant volume compared to our higher-value tapioca texture solutions, and fluctuations in demand or healthy tapioca crops could affect pricing and mix. We will account for these changes in raw materials and communicate them. Nevertheless, we remain optimistic about the growth of our texture solutions and the positive implications for average selling prices in the upcoming years.

Yes. And it's noteworthy, I think, for the full year, Texture & Healthful operating income margins were up 210 basis points.

Our next question comes from Josh Spector with UBS.

You have James Cannon on for Josh. I wanted to ask on the LatAm business. You had some mix management from business rationalizations earlier in the year. And you talked in the quarter about underlying demand there being improving. I was just wondering if you could kind of break out some of the volume movements that you saw there, kind of like you did with U.S/CAN earlier?

Yes. Quarter 4 net sales were up 1%. For the segment, quarter 4 sales volume declined by 3%, but that was largely attributable to the brewing adjunct volume declines. More than 100% of the downside was attributed to brewing adjunct, whereas there was sales volume growth for food and beverage, and that was positive. And because the brewing adjunct business represents 18% of net sales and a larger percentage of our volume, we've been actively pursuing alternative paths to utilize the grind more profitably by trading up to support higher-margin products in food and confectionery. And this really represents an exciting incremental opportunity to diversify beyond brewing and valorize our grind much more profitably. Just for some additional color, Mexico food volumes were up 3%, and beverage volumes were up 1%.

For the quarter?

Yes, we have initiated the transition. Mexico will likely need at least 1 to 2 years to ramp up the volume due to adjustments and customer changes, but things are starting positively, and we are excited about it.

Okay. Great. And then I just wanted to poke one thing on THS as well. You talk about the solutions business being higher margin than the rest of the segment. Could you just give us some quantification of like how much of the mix is sold as solutions today, what that margin differential looks like?

Yes, sure. Go ahead.

The solutions business has been focused on establishing a baseline and defining it clearly, and that work was completed in 2024. In 2025, Jim, Patrick Kalotis, and Michael O'Riordan set concrete objectives for the sales teams. Currently, that business is just over $1 billion in 2024 and 2025, and the gross margins are significantly above the segment average, around 30% to 35%.

I'd say 5% higher than the segment's overall average, and it's about 40% of the revenue approximately of the segment.

Our next question comes from the line of Ben Theurer with Barclays.

Jim, I’ll speak with you later, but enjoy your retirement. I have two quick questions. First, regarding Texture & Healthful Solutions, could you clarify where you currently stand on contracting pricing for 2026 within the guidance framework? Are there any off-cycle pricing mechanisms we should be aware of? If I recall correctly, you mentioned it would start flat at the beginning of '25 and then trend somewhat negative in the mid-single digits. I'd like to understand the drivers you've already discussed, including tapioca and other factors. How should we view your expectations for '26 in relation to T&H? That's my first question.

Yes. So let me take that and then let Jim add some color commentary. I would say that contracting for TH&S in the U.S. was completed with pricing slightly down, and we anticipate that we covered any changes in the cost of corn and other raw materials. We are anticipating volume gains year-over-year. That said, some large customers were communicating that unit volumes might be lower given their pricing actions and the fact that U.S. consumers continue to struggle with affordability. We anticipate that we will not fully cover the expected manufacturing cost inflation, and that will hold our gross margins basically flat in general for that segment.

And Ben, just for Texture and Healthful, right, so slightly higher semi-variable and fixed costs in that business, right, as we use more production lines to create value. So manufacturing cost inflation, 2%, 2.5%. Some of that reflected in energy cost change year-over-year, some of that in labor costs. And as you go into your pricing, clearly, you're having a conversation with the customer about any change in the raw material. But you're always trying to price in enough to cover that manufacturing cost inflation. And I think this year, we are looking at the outlook and saying, well, some of that manufacturing cost inflation is going to show up. And we'll see. Clearly, our operations team will always take up the mantle to work enterprise productivity, to lower that. Our procurement team is going to go and work against any rate changes year-over-year, but that would be upside to our guidance for Texture & Healthful.

Okay. Perfect. And then, Jim, for you, on the outlook. I mean, clearly, cash from operations, expected another strong year, close to $1 billion, with CapEx a little less than, call it, $0.5 billion. So that leaves me with like $0.5 billion free cash flow. You've spent a little over $200 million for repurchases and then there's a little over $200 million on dividends. How should we think for '26 in terms of repurchases of stock, and that maybe in context to M&A, what you might have in your pipeline or not? So what are the key preferences here between one or the other, given where the stock price is currently at?

Yes. Currently, we have set a share repurchase commitment of at least $100 million for 2026, similar to previous years. Our balance sheet remains robust, with nearly $950 million generated from operations this year. We believe it's essential to stay flexible and have options for strategic M&A opportunities, and our balance sheet supports that. For the buybacks, just as a reminder, we repurchased over $200 million in shares in 2024. Therefore, for 2026, we have established the same target of at least $100 million.

Yes. And maybe just for everyone listening because when we think about capital allocation priorities. We're putting out there that CapEx will be between $400 million and $440 million, tongue-twister. But within that, it's still a healthy budget for growth, anticipating between like $80 million to $100 million in growth for 2026. Pretty excited about those projects. Jim highlighted a few projects that we've completed in 2025. We still see opportunities around the world that really support us having the capacity as well as the product lines to continue to drive growth, supporting solutions and supporting some of our other sectors where we see growth. And then we also have about $40 million or so in kind of large cost savings and infrastructure improvement projects. And so those will finish up in '26. But for example, at our Indianapolis plant, we're working on a new cogeneration, and that project will finish in 2026. So we have some very discretionary discrete opportunities that we're pursuing in our CapEx budget that we think is a great deployment of capital to create returns for shareholders.

Our next question is from Heather Jones with Heather Jones Research LLC.

Thanks for the question. Jim, I'm really going to miss working with you. It's been a great pleasure, and I'm sure you'll enjoy retirement. My first question is about Latin America. With the recent surge in currencies, particularly the Mexican peso, and considering some tax regulatory changes happening this year in Mexico, I'm curious about the positives that could counterbalance these potential risks and stimulate growth in that segment in 2026.

Yes. Maybe let me take some upsides and downside maybe to what is currently in our forecast with regard to LatAm. So you're right. So as I mentioned in the remarks, so we're dollar functional in Mexico, which means that a strong peso increases our operating expense and increases some of our manufacturing expense. And so we're feeling that right now. And so that will be the transactional cost headwind as we go into 2026. Now there are opportunities. We're going to watch the value of the peso versus the dollar. But if that peso gets stronger, that's kind of really the downside estimate. And so the opposite is we have upside if we saw moments where the peso was weaker versus the dollar, then that's something that we can go in and kind of secure for the balance of the year. I think within LatAm, what we're really, I think it's encouraging to see at least is that there is some of like the food and maybe the beverage category volume at retail. So more the Nielsen data was showing volume up in Q4. And so there's been a bit of noise economically around Mexico in terms of its GDP growth, where might inflation wind up. And so hopefully, what we'll see in 2026 is a slightly stronger consumer in Mexico once kind of wage impacts are felt.

Yes. And I think it's noteworthy also, we got asked about this on one of the prior calls, that the sugar tax on sweetened beverages went into effect on January 1. And essentially, the amount is approximately 7% to 8% on single-serve full-calorie sodas and a new tax of 3% to 4% on lighter diet beverages. And in the past, what we have seen this type of tax has an early negative impact on volumes in the first few months, and then after implementation, then those impacts subside. So we're going to watch that. Now also, it's noteworthy to point out, and we've seen this repeatedly every 4 years, is this is a World Cup year. And so we are expecting incremental volume from the World Cup, which should benefit volumes in Q2 and Q3. And that goes for beverages as well as brewing as well.

Can you remind me of the sales breakdown in Mexico between food and beverages? Since you're mentioning stronger volumes in food, understanding the split would help us consider the risk of the new tax.

I would estimate that the volume from brewing adjuncts and beverages is around 40%, while food, industrial, confectionery, and other segments make up the remainder.

But also, Jim, the breakdown of soft drinks vis-a-vis in Mexico vis-a-vis brewing is much smaller.

Much smaller proportion.

Much smaller. And so we're not a big exporter into Mexico of HFCS because we produce locally. And so we've talked about that in years past on how we strategically diminish that exposure. So it's more weighted towards brewing and less so towards soft drinks exposure.

Okay. For my follow-up, you mentioned that you expect to regain some of the Argo effect in the second half of this year. I was wondering what your assumptions are regarding how much of that $40 million you'll recover in the latter half for the U.S./CAN business.

I think it would be fair to say that in Q1, we are likely to experience an impact between $10 million and $15 million. This won't be offset, so you might see a $20 million benefit from Argo coming back in the second half. There's a range around that assumption, right?

It's just worth reminding everybody in relationship to quarterly phasing. That quarter 1 operating income last year was up 26% versus 2024. And in particular, Argo was running quite well in 2025 first quarter. And also in first quarter last year, LatAm had a record quarter 1. So that also is impacting the phasing for quarter 1.

Our next question comes from Benjamin Mayhew with BMO Capital Markets.

Congratulations on your retirement, Jim Gray. We're going to miss you a lot. My first question is about the long-term algorithm you shared at the Investor Day regarding operating income growth. Given everything discussed so far, when do you expect to return to that algorithm level? Will it be in the second half of 2026, where you're anticipating 5% to 7% growth in operating income? How should we approach the idea of accelerating towards that target?

Yes. Ben, let me set the stage a little bit because I mean, I think 2025 in the first part of the year had some surprises for all of us within the U.S. marketplace. So our Investor Day in September was based upon 2024 full year actuals, and at that time, kind of our first half 2025 momentum. So 2025 introduced new challenges to the business environment, which had secondary effects on the rest of the world through tariffs had impacts on immigration in the U.S. and changing dietary guidelines within the U.S. And these changes impacted our customers, our customers' costs, our customers' pricing actions, our customers' volume demand. And our long-term strategy and the direction of the 3-year outlook that we laid out at Investor Day kind of remains intact. But given these factors, we're going to sass whether and how best to update the current 3-year outlook. And we're getting our heads around how we completely finish '25, making sure that all of our contracting information is in, our forecasting tools for '26. And so we'll share our latest thinking with you at CAGNY. I think the 1 perspective though, that I would share with you now with regard to Food and Industrial Ingredients U.S./Canada specifically, is that I would characterize our outlook as more kind of measured versus September. We will likely kind of reset to 2025 space results. And then I think that this segment can return to a 17% to 18% op income margin, probably more evident in 2027 and maybe 2028. And again, our business targets are really delivering across cycles, right? So at any point in time, there may be like one time when you're kind of taking a little bit more of a flat year versus the chance and the opportunity where all of your growth bets are coming into place and you have at least favorable wins in terms of managing your cost inflation and pricing and customer and product mix is working in your favor. And so that very much allows this business to kind of hit those mid-single digits and high single digits types of year-over-year op income. I hope that characterizes a little bit.

Yes. No, that's great. My last question is more kind of broad-based here in terms of what we're seeing in the CPG industry in terms of like portfolio shift. And I'm just wondering, how do you guys view your positioning as we kind of absorb the secular shift in packaged food industry? Like how do you view your capabilities in the true opportunities that you might have to help your customers reshape their portfolios? And also, you mentioned earlier the advantage of both producing and selling locally, that stood out to me. So if you could just kind of tie that all into maybe your competitive advantage there moving forward as your customers look to really shift their offerings for the consumer?

Thank you for the question, Ben. We feel very good about our efforts in customer segmentation, particularly through our resegmentation work, which helps us understand consumer movement within various customer channels. We focus on identifying the customers best positioned to benefit from these shifts. We’re enhancing opportunities within global key accounts, managing both multinational and regional accounts in foodservice. Recently, we have been mapping the private label channel for growth, along with the co-packing network that supports it. We're also exploring innovation sources, including collaborating with consultants and advisers for private label producers that are investing heavily to become leaders in the industry. For example, Kroger has recently emerged as a thought leader by providing valuable consumer insights. We are investing in specialists and resources to navigate the evolving consumer landscape in these categories, particularly noting that the dairy category has shown positive unit volume growth, which has always been a strength for us. Our solutions selling approach aligns well with this strategy. Additionally, we are focused on strengthening our partnerships with distributors, as their margins are typically higher than our average margins. We aim to maximize these partnerships effectively. We've been intensifying our focus on foodservice and private label over the last two years, and we are starting to see positive results from these efforts.

Our next question comes from Pooran Sharma with Stephens.

Congrats on the retirement, Jim. It's been good working with you. Just wanted to maybe start off and understand how broader industrial starch demand trends have been faring? I think on the last call, you mentioned you're starting to see momentum there. Just wondering if you could give an update on that? And then kind of on that, are you able to give us a little bit of clarity as to how much what kind of benefit you're going to expect here and maybe like a cadence or a pacing to that benefit for the Indianapolis starch modernization project?

Okay. Let me take a little bit of the industrial. And then it's distinct and different than the Indianapolis because the Indianapolis produces exclusively for food. But let me address your industrial starts demand question. First of all, it's a business that we don't really talk about a lot, but we probably should because it's done exceptionally well in recent years, not just from a standpoint of organic growth, but also in margin growth and overall operating income contribution. I would say this past year in contracting, pricing was a little bit more intense than it had been in prior years. And typically, it's obviously an indicator of overall economic health for the industry, for the macro economy. And I would say that volumes in the second half were a little bit softer than we saw in the first half. But as you know, we announced, I think it was early last year, a $50 million investment in Cedar Rapids to expand capacity and modernize some of our drying capacity. And it's because the business has done exceptionally well, and we needed to solidify our position as a reliable supplier to customers. So when that is going to I think, complete in the second half of this year and position us well for 2027. So we feel very good about our position there. The other thing that we're doing in industrial is working with customers capitalize on the trend and requirement for what we call advanced packaging materials. And these are materials that would have a value proposition around sustainability or biodegradability. And they could be corrugating adhesives, which we have a niche market that's growing nicely, or for binders for compostable bowls. And so this is different than just starch for potential strength or wet end strength or coding. And so very well positioned, pursuing pockets of growth there, but the underlying base business is very solid, very strong customer relationships, exceptionally strong. I think, Jim, you may want to comment on the Indy modernization and the commissioning of that and where that's trending? And maybe you may want to make a comment on even our cogen investment there as well?

We analyzed areas where we could improve efficiency by removing some problematic product transitions within the plant, allowing for a smoother flow of products. We also made significant upgrades to our drum drying unit in Indianapolis. Witnessing the improvements from these complex investments in an older facility highlights the effective engineering and enhancements we've implemented. The upgrades have created a safer and cleaner environment, reduced costs, and slightly increased our capacity. I'm pleased to report that we have successfully completed this part of our modified starch unit. Additionally, thanks to the opportunity arising from the infrastructure investment tax, we have moved towards greater sustainability at our Indianapolis site through our cogeneration unit. Progress has been promising, and we expect to commission it in the third quarter of this year. This will enable us to manage our natural gas supply more effectively, mitigate future volatility in energy costs, and drive ongoing energy savings in Indianapolis, which we anticipate seeing in the fourth quarter.

I appreciate your insights. My follow-up question concerns the commentary you've provided about contracting. You've discussed pricing declines and the impact of tariffs, as well as consumer affordability and economics. I'm curious if GLPs were mentioned in your discussions with consumers. Has the growth and interest in GLP-1s influenced more people to seek your services? I would love to hear your thoughts on GLP-1s.

I think everyone is looking to understand the impact, and there is certainly an effect. On a positive note, regarding our protein fortification business, which we haven't discussed in several quarters, we want to highlight the full year performance showing a double-digit sales increase and a revenue growth of 40%. It's also worth mentioning that the reduction in operating income loss for this business exceeded $20 million in 2025. We have active programs to enhance the value of pea starch and pea fiber, along with the growth of pea protein isolate. We're fully contracted for 2026, indicating strength tied to the impact of GLP-1 on protein fortification. We expect another year of significant revenue growth and improved operating income for this segment. We're monitoring GLP-1 closely, but I can confirm it's impacting our protein fortification business.

Positive impact.

Thank you. And I would now like to hand the conference back over to Jim Zallie for closing remarks.

Thank you, operator, and thank you all for joining us this morning. We look forward to seeing many of you at our upcoming investor events, with the next significant engagement being CAGNY on February 17. At this time, I want to thank everyone for your continued interest in Ingredion. Thanks very much.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.