Corn Products International (CPO) Q2 2011 Earnings Call July 28, 2011 9:00 am ET Executives Ilene Gordon - Chairman, Chief Executive Officer and President Aaron Hoffman - Vice President of Investor Relations & Corporate Communications Cheryl Beebe - Chief Financial Officer and Executive Vice President Analysts Vincent Andrews - Morgan Stanley Christina McGlone - Deutsche Bank AG Adam Josephson - KeyBanc Capital Markets Inc. Heather Jones - BB&T Capital Markets Christine McCracken - Cleveland Research Company Kenneth Zaslow - BMO Capital Markets U.S. David Driscoll - Citigroup Inc Presentation Operator
With that out of the way, I'll turn the call over to Ilene.Ilene 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 entire business, driven by a number of factors. First, we are able to pass through pricing at a sufficient level to cover rising input costs. Second, our mix improved behind a focus on selling more value-added ingredients. With the National Starch acquisition, we continue to move toward higher margin, more functional ingredients that help our customers improve their products and at times reduce costs. We also benefited from continued cost savings. We saw manufacturing optimization savings flow through in the first half, and expect that to continue throughout the year. Beyond that, we realized $12 million of acquisition integration benefits in the first half, primarily from procurement and employee-related initiatives. All of these items contributed to top and bottom line growth in each of our 4 regions and reflect the overall strength of the business model we developed. We continue to manage on a local basis with a global perspective. And underpinning our business model is adherence to a prudent but appropriate risk management practice. With a strong second quarter and first 6 months, we are well-positioned to achieve our guidance. As we discussed on our last earnings call, we expect the first half of the year to be stronger than the second half, particularly in North America. This is largely a result of the upward movement in corn prices. With a good 2011 in view, we continue to invest for the long term as well. We expect incremental capital spending in South America, as we continue to participate in those growing economies. At the same time, we are investing in Europe to better deliver against key food trends like convenience and healthier items.
Let's now shift from a broad view of the first half to some thoughts about how the business performed in the quarter. I'll take this from a fairly high-level, and Cheryl will fill in the financial results.Let's start with North America. As we discussed last quarter, in May, we shut down our largest facility for a large maintenance project. The work was done essentially on plan, and the facility was back online in 12 days. We estimate that this initiative had a $0.12 per share impact on the quarter. It also limited our ability to increase sales, as we had less capacity available than normal. During the quarter, we also negotiated a new labor agreement at this location, and the largest facility acquired with National Starch. We are grateful for the constructive and positive interactions with our union employees that led to new agreements with no downtime. We continue to make progress integrating National Starch. In the U.S., our plans for network optimization are going well. Network optimization entails moving production to the most appropriate facility to reduce cost and improve quality. Finally, we are experiencing an early start to contracting for 2012. As most of you know, in North America, the vast majority of contracts are done on an annual basis, and traditionally, are signed in the fourth quarter for the upcoming year. Some customers have reached out to us to begin this process a bit early, in order to gain visibility to their input costs next year. We won't comment about specific customers or volumes of business at this time. Moving to South America. We continue to see strong results in spite of difficult comparisons to last year, which included the World Cup. In particular, we are doing well in the brewing and soft drink markets. We also completed the integration of National Starch's Brazilian operations during the quarter. Read the rest of this transcript for free on seekingalpha.com