Corn Products International (CPO)

Q3 2011 Earnings Call

October 27, 2011 9:00 am ET


Ilene S. Gordon - Chairman, Chief Executive Officer and President

Cheryl K. Beebe - Chief Financial Officer and Executive Vice President

Aaron H. Hoffman - Vice President of Investor Relations & Corporate Communications


Ann H. Gurkin - Davenport & Company, LLC, Research Division

Kenneth B. Zaslow - BMO Capital Markets U.S.

David Driscoll - Citigroup Inc, Research Division

Jeffrey D. Farmer - Jefferies & Company, Inc., Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Christina McGlone - Deutsche Bank AG, Research Division

Christine McCracken - Cleveland Research Company

Heather L. Jones - BB&T Capital Markets, Research Division

Vincent Andrews - Morgan Stanley, Research Division



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Good day, everyone, and welcome to today's Corn Products International 2011 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Mr. Aaron Hoffman, Vice President of Investor Relations and Corporate Communications for Corn Products International. Please go ahead, sir.

Aaron H. Hoffman

Great. Thanks, Melody. Good morning, and welcome to Corn Products Third Quarter 2011 Earnings Call. Joining me on the call this morning are Ilene Gordon, our Chairman and CEO; Cheryl Beebe, our Chief Financial Officer.

Our results were issued this morning in a press release that can be found on our website, The slides accompanying this presentation can also be found on the website and were posted about an hour ago for your convenience.

As a reminder, our comments within this presentation may contain forward-looking statements. These statements are subject to various risks and uncertainties.

Actual results could differ materially from those predicted in those forward-looking statements, and Corn Products International is under 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 Form 10-Q and 8-K.

With that out of the way, I'll turn the call over to Ilene.

Ilene S. Gordon

Thanks, Aaron, and let me add my welcome to everyone joining us today. We appreciate your time and interest.

We continue to see strong performance across the business, and the year is playing out largely as we had described in February when we first issued 2011 guidance. At that time, we indicated that 2011 would be front-end loaded. Looking back, the adjusted EPS for the first quarter was $1.28. That was followed by $1.10 in the second quarter, though that included the Argo maintenance. Today, we reported $1.20 of adjusted EPS and are guiding to $1.05 to $1.15 in the fourth quarter.

The primary reason for the sequential decline in EPS is the layout of our hedge corn costs with the cheapest corn coming early in the year and rising as we move through 2011. I'm pleased to see that our team and our business model proved resilient. We delivered our plans and commitments in spite of tough macroeconomic conditions and volatile commodity markets. And I see this performance as all the more impressive given the significant workload the organization has undertaken to successfully and quickly integrate National Starch. We are on plan to complete the integration by the end of 2012. By implementing certain integration programs more quickly, we are in a position to achieve an incremental $30 million of cost savings in 2012. And we remain focused on the long-term growth prospects that underpin our strategy, expand our portfolio of products and extend our geographic reach. We have recently committed approximately $100 million of capital to support the long-term growth of our specialty ingredient platform and for geographic growth.

The addition of National Starch's R&D capability enhances our go-to-market position. It gives us long-term opportunity to enhance our mix of products. While the strategic fit of the acquisition is outstanding, the financial implications are also compelling. During 9 months of 2011, our adjusted EPS has increased by $1.38, roughly 2/3 of that amount came from National Starch's net of financing costs. At the same time, that leaves significant growth having come from organic business performance. In fact, that implies double-digit EPS growth on an organic basis in spite of the headwinds that I discussed earlier.

Let's now shift from a broad view of the first 9 months to some thoughts about how the business performed in the quarter. I'll take this from a fairly high level. Let's start with North America.

We continue to see stable demand in North America as we have for most of the year in spite of the general economic challenges. We have also seen significant price increases take hold to offset rising raw material costs. On our second quarter earnings call, we reported that contracting had begun a bit early and has continued through the third quarter. We'll update you further on our year-end call when we wrap up the contracting season.

And manufacturing optimization is progressing well. This is the process of integrating the Corn Products and National Starch manufacturing footprints to maximize efficiencies and minimize costs. It should represent an important part of our integration cost savings in 2012.

Turning to South America. We continue to see strong food, beverage and brewing demand, reflecting positive economic conditions. At the same time, we have made capital investments in the region this year and will continue to do so next year in anticipation of long-term opportunities. As in North America, you can see in our press release today that we've taken significant pricing actions in South America to offset higher input costs.

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