管理層發言
Good day, and thank you for standing by. Welcome to Ingredion's Second Quarter 2026 Earnings Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Noah Weiss, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to Ingredion's Second Quarter 2026 Earnings Call. I'm Noah Weiss, Vice President of Investor Relations. Joining me on today's call are Jim Zallie, our Chairman, President and CEO; and Jason Payant, our Vice President and Interim CFO. The press release issued this morning, along with the presentation we will reference during today's call, is available on ingredion.com in the Investors section. As a reminder, our comments within this 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. As part of our prepared remarks, we will touch on the announced acquisition of Tate & Lyle and the progress we have made since announcing the transaction. That said, given where we are in the process, we are limited in what we can disclose and cannot speculate on potential outcomes, timing, integration matters or other transaction-related topics beyond information already in the public domain. We appreciate your understanding and ask that questions today be focused on our operating results and outlook. With that, I will turn the call over to Jim.
Thank you, Noah, and good morning, everyone. Ingredion delivered a second quarter performance, which was in line with expectations, led by continued momentum in Texture & Healthful Solutions, with net sales increasing 1% to $1.85 billion. Adjusted operating income was $258 million, down 5% from the prior year. Results were impacted by softer production and demand in our Food & Industrial Ingredients U.S./Canada segment and continued macroeconomic pressures in Mexico. At the same time, performance across the rest of the portfolio was strong as we delivered the second highest quarterly operating income ever in Texture & Healthful Solutions. We are pleased to say that Argo reliability and production sequentially improved during the quarter. And at the end of June, the plant was operating at normal production rates across all major operating units. Turning to the next slide. We are pleased with the momentum that we continue to see in Texture & Healthful Solutions. Quarter 2 marked the ninth consecutive quarter of net sales volume growth in the segment, up 7% with broad-based growth from our solutions offerings and clean label ingredients. While the consumer environment remains mixed, we are seeing robust customer innovation activity with reformulation across health and wellness, protein and fiber fortification and clean label, all supported by new product launches. These trends align with the value propositions inherent in our Texture & Healthful Solutions growth strategy, and they reinforce our confidence in sustainable long-term volume and margin growth. Tempering the positive innovation momentum, we did see additional increases in tapioca costs in the quarter with root prices now up more than 40% since the start of the year due to weather-related impacts limiting supply. We are actively passing through price increases, which, as a reminder, take approximately 1 to 1.5 quarters to realize. In Food & Industrial Ingredients LATAM, volumes were down slightly against a strong prior year comparison. While the macroeconomic conditions in Mexico have been challenging, underlying long-term market trends remain intact. The business in South America continued to benefit from broad regional strength, particularly the growth in Brazil's industrial and brewing markets. In Food & Industrial Ingredients U.S./Canada, volumes remained below prior year levels due to lower production and softer food and beverage demand. That said, reliability and performance at our Argo facility sequentially improved throughout the quarter, and we exited June operating at normal production rates. Our industrial business in U.S./Canada saw growth from the packaging sector, supported by a differentiated solution we recently launched for corrugating, which speeds up box production. Turning to the next slide. Let's review our progress against our 3 strategic pillars. First, under profitable growth, our announced pending acquisition of Tate & Lyle achieved an important milestone last week with the approval by Tate & Lyle shareholders of the deal. As stated previously, we believe this combination will establish Ingredion as a more comprehensive global leader in ingredient solutions with the innovation expertise and geographic reach that will help create the future of food. Our solutions-led growth strategy continues to gain traction, contributing to strong first half performance in Texture & Healthful Solutions. As part of Texture & Healthful Solutions diversified portfolio, we strengthened our pharma business in India through an announced strategic partnership with Sanstar. This important relationship expands our capabilities in pharmaceutical excipients with the opportunity to also partner in the development of specialty food ingredients while providing access to large-scale manufacturing in the world's most populous country and one of the fastest-growing markets for food ingredients. Moving to our next pillar. Innovation remains a key differentiator for Ingredion. We are increasingly leveraging digital capabilities to accelerate innovation. And during the quarter, we launched Ask Ingredion, our AI-powered formulation platform designed to help customers identify ingredients and solve formulation challenges that help them bring new products to market faster. We also strengthened our healthful solutions portfolio through the acquisition of Benicaros, a clinically supported immune health prebiotic. Benicaros' value proposition sits at the intersection of several attractive consumer trends, including digestive health, immune support and clean-label formulation. It is an example of how we are helping customers differentiate their products by enabling them to make science-backed health benefit claims. Additionally, we continue to target new, higher-value industrial applications. Our advancements in coatings, adhesives and barrier solutions for sustainable food packaging continue to gain traction with active customer engagements. For example, we are helping customers replace PFAS-containing grease-resistant barriers with plant-based alternatives that maintain performance while improving recyclability and being regulatory compliant. Our differentiated bio-based adhesive solutions for corrugated packaging manufacturers are improving machine productivity, reducing waste and enhancing board performance. We are bullish on the growth prospects of these targeted industrial applications. We remain equally focused on delivering growth consistent with our sustainability commitments. Ingredion was named to Forbes Net Zero Leaders list for the second year in a row. This distinction is especially noteworthy because it is based on demonstrating progress against objective, quantifiable metrics for lowering greenhouse gas emissions. Finally, for the enterprise productivity pillar, we continue to invest to transform our portfolio and optimize our processes and network to best position the company for long-term value creation. Last quarter, we announced the sale of our majority stake in the Pakistan business as well as the closure of our Cabo, Brazil plant. Both moves reduce our exposure to less differentiated ingredients and will drive improved effectiveness and efficiency. Last week, Tate & Lyle shareholders approved the terms of a recommended all-cash offer by Ingredion for the entire issued and to be issued share capital of Tate & Lyle, an important milestone in the U.K. scheme of arrangement process and a positive step toward completing the transaction. With shareholder approval secured, our focus is now on progressing the required regulatory reviews and satisfying the remaining closing conditions. We are actively engaged with the relevant authorities and are working to support their review processes as efficiently as possible. The financial profile of the transaction remains compelling with the addition of $2.7 billion of highly complementary revenue, the opportunity to deliver $130 million of expected run rate synergies by 2030 and the expectations to deliver greater than 15% adjusted EPS accretion in the first full calendar year post acquisition, all with a clear path to achieving less than 2.5x net leverage within 18 months of closing. Turning to the next slide. Let me explain why we are so enthusiastic about the strategic rationale for the pending acquisition of Tate & Lyle. Across the food and beverage industry, manufacturers are working successfully to appeal to changing consumer buying behaviors. Consumers are placing greater emphasis on health and wellness in response to changing regulations and lifestyle preferences while brands remain under pressure to deliver affordability without compromising taste and the overall eating experience. These challenges increasingly require customers to optimize multiple attributes at the same time. That can include improving nutrition through fortification or reducing sugar while enhancing texture and mouthfeel to maintain great taste and delivering on affordability. This is where combining Ingredion's and Tate & Lyle's capabilities becomes particularly compelling. Together, we will bring a broader portfolio of complementary capabilities across sweetening, texture, mouthfeel, fiber and protein fortification, supported by expanded scientific expertise and a more comprehensive global innovation network. Beyond an expanded portfolio of individual ingredients, the opportunity is to provide more integrated and complete solutions that help customers solve formulation challenges more quickly and effectively. Combined with greater scale, deeper scientific capabilities and enhanced digital and AI-enabled tools, we believe we will be even better positioned to support customers as consumer needs continue to evolve. Following the combination, more than half of our revenue will come from Texture & Healthful Solutions, the fastest growth segment of our business portfolio, where customer and consumer demand remains strong and volume growth endures. Ultimately, Tate & Lyle will accelerate our shift toward higher value and higher-margin solutions and positions Ingredion to be an even stronger innovation partner and reliable supplier. With that, I'll turn the call over to Jason for the financial review.
Thank you, Jim, and good morning, everyone. Moving to our income statement. Net sales for the second quarter were $1.85 billion, up 1% versus prior year. Reported and adjusted operating income were $188 million and $258 million, respectively. Adjusted operating income declined 5%, driven by Argo-related manufacturing issues and foreign exchange and macroeconomic headwinds in Mexico, which were partially offset by strong Texture & Healthful Solutions performance. Turning to our Q2 net sales bridge. The 1% increase was driven by $36 million of favorable foreign exchange and $20 million of higher volume, partially offset by $39 million of unfavorable price mix. Moving to the next slide, we highlight net sales drivers by segment for the second quarter. Texture & Healthful Solutions net sales were up 5%, driven by sales volume growth of 7% and foreign exchange favorability of 1%, partially offset by lower price/mix. Food & Industrial Ingredients LATAM net sales were up 3%, driven by favorable foreign exchange, partially offset by lower volumes and weaker price/mix. Food & Industrial Ingredients U.S./Canada net sales declined 7%, driven by operational challenges at Argo and weaker consumer demand. Now let's turn to a summary of results by segment. Texture & Healthful Solutions net sales and operating income were both up 5% in the quarter. The increase in operating income was driven by volume growth and favorable foreign exchange, partially offset by unfavorable price/mix and higher tapioca costs. Texture & Healthful Solutions delivered its second highest quarterly operating income ever despite persistent inflationary pressures, which demonstrates the strength of the portfolio, the quality of execution by our team and the benefits of our solutions-led strategy. In Food & Industrial Ingredients LATAM, net sales were up 3%. Operating income decreased by 7% to $118 million with operating margins of 19.3%. This decrease was driven primarily by transactional currency impacts in Mexico and a more challenging demand environment. Moving to Food & Industrial Ingredients U.S./Canada. Second quarter net sales were down 7%. Operating income was $58 million, impacted by production challenges at our Argo facility and softer volumes and price/mix. Net sales in All Other increased 8%, driven by more than 40% net sales growth in protein fortification, particularly from higher-value isolates and specialty protein applications. Operating income improved by $7 million year-over-year, reflecting improved mix and operating leverage. Turning to our second quarter earnings bridge. The top half of the slide reconciles reported to adjusted diluted earnings per share and the bottom half walks through the drivers of the year-over-year change. Adjusted diluted EPS declined $0.05 compared to the prior year, primarily driven by $0.34 of margin impacts. These headwinds were partially offset by favorable foreign exchange impacts of $0.05 per share, other income benefits of $0.09 per share and $0.12 of nonoperating benefit, $0.07 from share repurchases and $0.05 from lower financing costs. Shifting to our year-to-date income statement highlights. Net sales for the first 6 months were approximately $3.6 billion, flat versus the prior year. Reported and adjusted operating income were $391 million and $470 million, a decrease of 29% and 14%, respectively. Turning to our year-to-date earnings bridge. The result is a decrease of $0.68 per share. Operationally, we saw a decrease of $0.85 per share for the first 6 months, driven by a margin decrease of $1.04, partially offset by other income and foreign exchange of $0.17 and $0.12, respectively. Moving to the change in nonoperational items. We had an increase of $0.17 per share, primarily driven by fewer shares outstanding of $0.13 per share and lower financing costs equivalent to $0.04 per share. Turning to cash flow and capital allocation. We maintained disciplined financial management throughout the quarter. Year-to-date cash from operations was $123 million, reflecting a planned investment of approximately $231 million in working capital that was driven primarily by receivables and payables. We invested $210 million of capital expenditures, net of disposals to support reliability, capacity and strategic priorities across the business. During the first half, we continued to return cash to shareholders through $105 million in dividends and the repurchase of $14 million of shares, which underscores our commitment to balanced capital allocation and long-term shareholder value creation. Now let me turn to our 2026 outlook. We are reaffirming our full year 2026 adjusted earnings per share outlook after amending guidance for the sale of the majority stake in our Pakistan business at the end of the second quarter. For the full year 2026, we still anticipate net sales to be flat to up low single digits, but are now expecting adjusted operating income to be down mid-single digits, reflecting the impact of the sale of our majority stake in the Pakistan business on the second half of the year. We expect full year adjusted earnings per share to be in the range of $10.30 to $10.90, in line with previous guidance after reflecting the sale of our majority stake in the Pakistan business. Guidance assumes diluted shares outstanding of 63 million to 64 million, which includes completion of our planned $100 million of share repurchases this year. We anticipate that our 2026 cash from operations will now be in the range of $700 million to $800 million, with the decrease again stemming from the sale of the majority stake in our Pakistan business. Capital expenditures for the full year are now anticipated to be between $450 million to $490 million with additional spend allocated to our Argo facility. Please note that our guidance reflects current tariff levels in effect at the end of July 2026. In addition, this guidance excludes any acquisition-related integration and restructuring costs as well as any potential impairment costs. Turning to our updated full year outlook by segment. For Texture & Healthful Solutions, we now expect net sales to be up mid-single digits and operating income to now be up mid- to high single digits, driven by higher volumes and solution sales growing at a faster rate than the overall business. For Food & Industrial Ingredients LATAM, net sales are now estimated to be up low single digits and operating income is expected to be down low single digits, reflecting transactional foreign currency and macroeconomic headwinds in Mexico, partially offset by foreign currency translation benefits in Brazil. As a reminder, our Mexico business is U.S. dollar-denominated, but most of our SG&A and operating costs are in pesos. As the peso strengthens against the dollar, our transactional costs increase in dollar terms, which negatively impacts operating income and can more than offset translational benefits from a weaker U.S. dollar in other parts of our LATAM business. For Food & Industrial Ingredients U.S./Canada, we expect net sales to be down low single digits and operating income to now be down 20% to 25%, driven by Argo's operational headwinds in the first half of the year. All Other net sales is expected to be down 20% to 25%, and its operating loss is now anticipated to be approximately $15 million after the sale of the majority stake in our Pakistan business. Lastly, for the third quarter of 2026, we expect net sales to be up low single digits and adjusted operating income to be down mid-single digits, which reflects the impact of the sale of the majority stake in our Pakistan business. Sequentially, Q3 corporate costs are expected to be higher as Q2 benefited from the timing of certain adjustments that are typically evaluated later in the year. Additionally, the second quarter benefited from a $2 million mark-to-market gain on our new investment in Sanstar, which is recorded in the Texture & Healthful Solutions segment. A mark-to-market adjustment based on our equity stake in Sanstar will be made at the end of each subsequent quarter. That concludes my comments, and I'll turn it back over to Jim.
Thank you, Jason. As we wrap up, I'd like to highlight 4 reasons we remain confident in the direction of the business despite a dynamic macroeconomic environment and the first half challenges we experienced in Food & Industrial Ingredients U.S./Canada. First, Texture & Healthful Solutions continues to validate our growth strategy. Strong net sales volume performance, solutions-led growth and market share gains helped deliver the second highest quarterly operating income in the segment's history. Second, at Argo, we have made meaningful progress. Operational performance improved, production levels increased. And as stated, we expect to be operating at normalized run rates for the balance of the year. Our focus remains on sustaining reliability and restoring profitability. Third, we are already seeing the benefits from our enterprise productivity initiatives. These efforts, which are evidenced in our control of operating expenses, are helping to offset inflationary pressures, improving cost discipline and creating opportunities to reinvest for growth. And fourth, we are continuing to reshape our business portfolio in significant ways. The announced pending acquisition of Tate & Lyle will be transformational. And our integration planning efforts are underway to help ensure we're prepared to move quickly and effectively as one organization once the transaction closes. Our balance sheet and cash flow also provide us with flexibility to invest in the business for future integration activities and return capital to shareholders as we reaffirm our commitment to $100 million of share repurchases this year and to our continued track record of dividend growth. Now let's open the call for questions.
分析師問答
Our first question comes from Kristen Owen with Oppenheimer.
I wanted to follow up here, Jim, on the updated guidance, specifically around U.S./Can. Really happy to see some forward progress on Argo. Just in your second half guidance, is there any additional like volume or maybe mix headwinds implied there just as you get Argo to meet spec? And then I have an unrelated follow-up question.
Yes. I'll talk about Argo and what gives us confidence going forward. But let me turn it over to Jason to take the view on the second half guidance. Jason, go ahead.
Yes. Thanks. So being specific about what changed, it's really only amending the range to reflect the sale of the majority stake in the Pakistan business. So our underlying full year expectations are otherwise unchanged. The composition shifted a little bit. We're seeing better performance in Texture & Healthful Solutions and a little bit softer performance in Food & Industrial Ingredients U.S./Canada. Part of that is because of network optimization with some of our native starches that's benefiting Texture & Healthful Solutions and pulling a little bit back from Food & Industrial Ingredients U.S./Canada. The business is performing in line with expectations, and we continue to see solid execution across Texture & Healthful Solutions, which is very encouraging. And Jim will talk a little bit more about Argo. But as it remains an area of focus, production rates and yields are improving sequentially. They finished June running at normal rates. And the reality of our Q2 to Q3 is we did have some corporate cost benefits in Q2, and corporate costs are going to sequentially be higher in Q3. We also had that Sanstar benefit. It was about a $2 million gain in Q2 that we believe will unwind in Q3. And what we've also seen a little bit in Q3 is we've been relatively fortunate in that the Argentine peso has been fairly benign over the last 5 months, but we did see a steep decline in July, and that's going to negatively impact Q3. So that's why we're seeing a little bit of a pull forward of some benefits in Q2 that are going to unwind a little bit in Q3 and then basically, all unrelated to Argo other than potentially some higher cost in inventory that are still flowing through the P&L in Q3.
I can give you a little bit more specifics regarding Argo. We have systematically addressed the various issues that arose at Argo over the last number of quarters. Starting with the grind, it is now operating reliably and at expected run rates. We've talked previously about the downstream refinery issues, and that led to downtime and rework, and that's now been completely addressed. The vast majority of the costs associated with that rework that impacted us previously is now behind us. The unexpected thermal event that occurred on April 10 that took down our germ processing unit came back up in early June due to efforts by engineering, procurement, the operations teams and the supplier that rebuilt the baghouse operation. Our oil processing is now operating at historical run rates. We feel these accomplishments, along with the investment of targeted additional capital directed specifically towards reliability at Argo, give us confidence in the guidance that we put forward for the rest of the year.
That's super helpful. And then you talked about some of the transitory costs. I'm interested in some of the elevated input costs. I mean, tapioca is one you guys have been really clear about. But just help us understand how much of the inflationary costs that you're seeing, how much of that do you expect to stay with you versus maybe just some timing around your ability to pass that through in price?
Yes. Let me turn it over to Jason because Jason has been on point similar to how the finance team was on point last year with tariffs, and we set up a tariff hub. This year, we've got a Middle East response team in response to the conflict in the Middle East and what that's doing. But Jason, do you want to talk specifically about inflation and the tariffs and how we're looking at the net impact of that for the full year?
Yes. Similar to the tariff response team last year, we now have a Middle East response team and it's really impacting to a greater degree our APAC and EMEA businesses. What we're seeing there is generally in APAC, and it's a little bit compounded with the tapioca increases. But because of our history of passing through tapioca price changes, which can occur fairly dramatically and fairly quickly, that business is very solid and moving those prices through. It does take about 1 quarter to 1.5 quarters to completely pass those prices through and get more to a neutral place. At the end of the day, we're estimating that the net impact outside of tapioca for the inflationary pressures from the Middle East conflict is manageable and the impact is in the range of a few million dollars, and that's all factored into the guidance.
Our next question comes from Ben Klieve with Benchmark.
I wanted to ask a follow-up here on the Argo progression. Great to hear all the progress on getting that operational at a full run rate by the end of the quarter. But I'm wondering if you can isolate the kind of margin structure that you're seeing out of that facility here at the end of the quarter. Great that volumes are back, but I'm wondering kind of where margins stand at the end of the quarter and kind of how you see the margin profile for that facility specifically kind of evolving over the next couple of quarters as those mechanical improvements that you noted are made.
Jason, do you want to take that?
Our margins were up approximately 400 basis points or more quarter-over-quarter.
Yes. Significantly quarter-over-quarter.
As we stated on the Q1 earnings call, what we were looking for even with the thermal event that required significant efforts by the team was sequential improvement during the quarter, and that's what we saw. It does take some time for those costs to completely flow through inventory in the P&L. So we'll carry a little bit of that into July, but the plant now has room to run. As the plant runs and we can rebuild inventories, we should get back to normal historical margins towards the end of the year.
Okay. Great. And then my follow-up is related to Argo as well here. You noted the investments to enhance the predictability for Argo going forward. I'm wondering if you can just lean into this a little bit. Tell us a bit about not only what's changed operationally, but what these investments are to enhance the reliability out of this, so we can just kind of get a bit more comfort that this facility is going to be more boring going forward?
We also want it to be more boring as well. The investments are in targeted locations throughout the plant to improve reliability. We're also making changes beyond capital. We've conducted extensive root cause analysis across maintenance, training, leadership and operating procedures. For example, some of the issues were related to management of change issues that we have standardized more strongly. Those issues won't reoccur. The targeted investments include redundancies in some tanks used for saccharification, where you take the feedstock for the starch and liquefy it, which is the main heart of the facility that feeds all the downstream refineries. We now have, or will have, redundancies built in to prevent impact should one of those tanks not perform as expected, which was one of the factors that impacted us. A notable amount of the capital is directed there, but it's not just capital; it's across maintenance, training, leadership and operating procedures. Many of these things have been improved, and we do feel we've turned the corner in stabilizing the plant. Now we have to continue to demonstrate sequential incremental improvements quarter-on-quarter.
Our next question comes from Ben Theurer with Barclays.
I wanted to dig a little bit and try to understand a little bit more of the dynamics within the volume performance across sectors. And particularly within Food & Industrial U.S., maybe to start off, I mean, obviously, you still have a little bit of an impact from Argo. But could you help us understand how significant the continued weakness in food and beverage sweetener volumes has been over the course of the quarter? Essentially, what is the decline if Argo would have been normal or not an impact on Food & Industrial U.S./Canada volumes?
I can take that. The teams really did a good job. If you look at our volume impact relative to the operating income impact, it was largely about moving things around the network. Where we are seeing softer volumes in general, that was not the lion's share of the impact. As the plant gets up and running and we can take additional opportunities for volume, we should expect that to normalize. We are seeing a little softness in the industrial side, market-driven, and we expect that to improve for the balance of the year as things normalize from a macroeconomic standpoint globally. But really, the larger share of the impact is from the Argo challenges, not necessarily a weaker demand environment.
We did go through efforts to make sure that we serviced customers, which also came at some incremental cost, but the volume was there to ship and to supply.
Okay. Got it. And then as we think about rounds of pricing, I mean, obviously, across different regions, there are different challenges everywhere. In LATAM, you have Mexico a little bit softer; in the U.S., you have lower demand. I think the only area with fewer issues is Texture & Healthful Solutions. As you prepare customers for pricing initiatives and consider pricing actions in food and industrial areas, North America as well as Latin America, what are the conversations you're having in terms of price evolution? What has been mix versus real price realization impact on top line? How should we think about this for the second half and into 2027 as you start renegotiating some of the contracts?
I think the pricing approach this year has been driven by the Middle East response team, analogous to the tariff hub we established. We're also looking at implications of tariffs that may go into place in mid-August. Customers have understood that these in-year price increases are justified. The impacts are across regions depending on ingredient origins, freight, logistics and chemicals. The net impact is not large because pricing offsets many of these costs. It's too early to talk about next year and corn prices. One area outside of the Middle East response team we are laser-focused on is the tapioca cost run-up. As we referenced previously, we view that impact as temporary and not structural. We'll see near-term margin pressures as pricing catches up to cost; it typically takes 1 to 1.5 quarters to realize that. Tapioca prices have been very high due to dry conditions in Thailand, but historically when tapioca prices come down, we benefit from sticky down and then give back some to customers. We've been laser-focused on that, and so far, so good. Volumes for tapioca, because of its premium nature, have continued to be strong.
Our next question comes from Pooran Sharma with Stephens.
I wanted to understand a little bit about the industrial applications and sustainable packaging. At what point do you think these opportunities become meaningful enough to offset some of the secular pressure we're seeing in more commoditized products?
What's important about our industrial business—separate from CPG—are personal care, beauty care and pharma, which are higher margin and growing at high single digits. Beyond those, we've focused more on the corrugating side of the business, where box production and linerboard production need better speeds and strength at lower basis weights. We've invested in technologies to help corrugators speed up. A larger portion of our business is exposed there rather than products in secular decline like uncoated freesheet. There is a growing market for sustainable food packaging and food-compliant packaging, including coatings for grease resistance. We call that advanced packaging materials. We've targeted new product development in that area, and those products are being trialed and are growing. They have respectable margins, close to our solutions margins, and are a trade-up versus less differentiated industrial markets. We strategically expanded capacity at Cedar Rapids to support this business. We think the trend is favorable and are focused and selective in pursuing these opportunities. We'll provide more detail and updates in the future.
Our next question comes from Andrew Strelzik with BMO.
You mentioned in the press release some of the integration planning work you've been able to do with the Tate business. Can you talk about at this stage what you're able to do in terms of that work? Any surprises or learnings from that process as it relates to combining the two businesses?
No real surprises. Last week was an important milestone with shareholder approval. The transaction is now subject to ordinary regulatory approval in 11 jurisdictions, including the U.S. and the EU. To date, we're on track with all requisite filings and the projected timeline reflects the anticipated time required to get clearance for a deal of this size. That's where we are in the normal process. We feel good about shareholder approval; it's another step in the process.
It's too early to talk about pricing and corn prices, but thinking through year 2 of volume declines for the industry, where do utilization rates sit now for the industry or Ingredion in the U.S. and globally? Given your risk management, how would you offset a higher corn price environment should that materialize if utilization rates aren't where they need to be?
On corn, we've managed through multiple cycles using disciplined hedging and pass-through pricing. While volatility can create short-term timing differences, our hedge program and pricing mechanisms preserve earnings stability. We would not expect changes in corn prices alone to materially impact margins or alter our long-term outlook. Regarding utilization, in the U.S., one of the manufacturers announced closure of a facility representing about 5% of capacity utilization sometime in 2027. That will impact contracting into 2027 and is notable. Putting aside Argo challenges, we felt volumes were there to service our customers this year, particularly for the products we produce relative to larger producers of some sweeteners. The facility closure in 2027, representing roughly 5% of industry capacity, is something to watch as it will affect the market.
That's helpful. One last question: the Canada tariff announcement and potential impact on your plant in Ontario — can you talk about workarounds and potential implications?
That is still evolving. Nothing is in place yet other than the announcement. As we assess it, it appears the impact on us will be fairly limited. We have network capabilities to move product where needed, and historically, we've been able to pass through these additional costs to our customers. We would expect to do the same going forward.
Our next question comes from Josh Spector with UBS.
I want to return to Argo for a second. You said it was a $40 million impact in Q1. My math looks like maybe $20 million to $25 million in Q2, and your Q3 guide implies about $10 million to $15 million in Q3. Overall, that gets to about $70 million to $75 million. Are those numbers roughly right for Q2 and Q3? Should those numbers be added back for next year as a base assumption in Food & Industrial Ingredients U.S. and Canada? You commented on network inefficiencies serving texture and health. I want to square that away.
Let me help with some numbers. For Q2, Q3, Q4 last year, cumulative impact was $40 million. In Q1 of this year, the impact was $40 million. That was frustrating for us about Q1. I'll let Jason address estimates for Q2 and Q3 and how we've prudently set outlook for the second half regarding Argo reliability.
Your math is directionally correct. One piece to consider is network moves we made because native starches we make at Argo are also made in our Texture & Healthful Solutions network. Some volumes moved, and it will take time to move those volumes back, particularly since we look to benefit the business as a whole versus one segment over another. When that happens, we have intersegment sales, and there's a bit of profit kept by the manufacturing entity and the remainder passed to the selling entity. That math isn't always apparent and will impact Q3 and Q4. It will give a tailwind in Texture & Healthful Solutions and offset with a headwind in Food & Industrial Ingredients U.S./Canada. We expect Food & Industrial Ingredients U.S./Canada to return to normal profit margins and levels next year, though there will be a hangover from network moves as we move into next year.
Okay. I'll follow up offline. On Texture & Health: Q2 was very strong — 7% volumes. We're not seeing any end market growing at that level. Can you help decompose that between wins like share gains? And given tapioca commentary, is there any pull forward in Q2 from customers expecting price increases? Or is this a good run rate you'd expect?
We don't think there's any pull forward in the Q2 numbers. We're pleased with the 7% net sales volume growth and the ninth consecutive quarter of sales volume growth. That performance is driven by structural trends we've discussed for years: clean label, texture solutions, sugar reduction, protein fortification, and customized formulations and systems with large CPGs, private label manufacturers and insurgent brands through a revamped solution selling model supported by customer briefs and a strong pipeline. Customers increasingly want customized systems to address regulatory changes, health and wellness trends, and consumer preferences. These dynamics have supported the strong volume performance.
Our next question comes from Heather Jones with Heather Jones Research.
I wanted to revisit the Texture & Healthful Solutions volume question. If I'm doing the math correctly, it was like a two-year stack of plus 10% on volumes. If I remember correctly, at the time of the Q1 call, it didn't sound like things were that strong. Could you give a sense of the cadence for demand as the quarter progressed? You mentioned a tailwind from Argo shifting some volume to texturants — did you see any restocking in EMEA or other regions? What drove the increase?
We saw volume supported across the board. Solutions continue to grow faster than the rest of the business, but we also saw strong performance in native starches, which is positive. There wasn't significant restocking; overall, the market is performing well.
Regarding Argo and fast-forwarding into 2027, have you done work around how much the benefit to Texture & Healthful Solutions nets against Argo? Have you quantified that net benefit?
In general, it's a few million dollars a quarter. Also remember there is a tailwind from the Sanstar $2 million gain on our shares that hit the Texture & Healthful Solutions business; that is a one-time item that we think will unwind in the third quarter. It's not just moving native starches; when you're filling up another plant, you also get an absorption benefit that can be outsized for native starches.
Your back half guidance for U.S./Canada implies anywhere from like 5% to 20% plus year-on-year growth. Is that a function of demand growth or Argo improving at the clip you anticipate? Should we expect backsliding or is the range driven by expected Argo recovery?
It definitely includes Argo improving in the second half. We saw a little benefit in Q2. That assumes Argo recovering for the balance of the year. We saw some benefit in Q2 from corporate cost timing and the Sanstar gain; those will unwind. We expect Argo to improve quarter by quarter, which is reflected in our guidance.
We haven't projected an automatic straight-line uptick. It's a sequential improvement quarter to quarter.
Our next question comes from Pooran Sharma with Stephens.
You guys have talked about the solutions business for quite some time. Could we get higher-level details around customer penetration? Are your largest global customers already heavily utilizing the platform, or is the bigger opportunity expanding solutions with existing customer relationships?
Over the last two years we've evolved our solution selling model while aligning go-to-market resources with where reformulation and innovation are happening. Innovation and new product introductions have come from private label manufacturers, and we've pivoted to support that ecosystem, including co-manufacturing networks. Branded manufacturers are also innovating to gain share, and we have strong relationships there. We are focused on insurgent brands and start-ups that, when successful, drive outsized organic volume growth, and we've adjusted our go-to-market to reach and support them. We're also focused on foodservice, especially QSRs seeking affordability and textural innovation. These efforts are where we've deployed resources and are contributing to nine consecutive quarters of net sales volume growth for Texture & Healthful Solutions.
That concludes today's question-and-answer session. I'd like to turn the call back to Jim Zallie for closing remarks.
I want to thank everyone for joining us this morning. We look forward to seeing many of you at our upcoming investor events with the next significant engagement being the Barclays Global Consumer Conference on September 8 in Boston. At this time, I want to thank everyone for your continued interest in Ingredion.
This concludes today's conference call. Thank you for participating. You may now disconnect.