So we continue to focus on sustainability as we make those investments as well.
John Neppl: Sam, I would add that food is still 75% to 80% of our volume on refined oil. So while energy certainly has been a nice demand for us, food is a big focus. We have very big downstream customers and they depend on us from a traceability sustainability standpoint, and to be able to provide a multi-oil. So that’s still the primary focus of that RSO segment.
Sam Margolin: Okay, thanks. That’s super helpful. And then just to follow up on capital allocation and the discretionary CapEx component, I think this year it feels like it has more of the characteristics of sort of a trough year than maybe something structurally problematic. And so it makes sense that discretionary CapEx is still at the top of your queue. But is there anything that a scenario that you can imagine that might cause you to decelerate growth CapEx or any market condition specifically that you’re watching for that could change, maybe change the mix of your capital allocation and move growth CapEx kind of lower on the priority list. Thanks.
Gregory Heckman: Yes, the reality is most of the projects that are in our growth pipeline now are all underway, so the bulk of it won’t change because we still believe those are great long term projects. Certainly around the fringes if new things come up. We may tradeoff between that and M&A, which we have done some of, we’ve seen some great bolt-on M&A opportunities and have allocated some capital in that direction instead. But I would say largely our forward track here for ’24 and ’25 is pretty locked in from a CapEx standpoint.
Sam Margolin: I see. Thank you.
Gregory Heckman: Sure.
Operator: The next question is from Davis Sunderland with Baird.
Davis Sunderland: Hi, good morning, guys. Thanks for taking the question.
Gregory Heckman: Good morning.
Davis Sunderland: Just one for me. Was curious about the cost structure for processing and RSO, maybe just how this has evolved as new capacity has come online in the industry and maybe any comments you guys could give on variable cost changes over the last few years and how your cost structure compares to competitors would be helpful.
John Neppl: Sure. This is John. Look, I think we have not been immune to the inflation that we saw over the last few years relative to kind of started during COVID and worked its way through. But what we’ve seen recently is energy prices coming off quite a bit, especially in Europe, which has lowered our variable costs over there quite a bit. I think our belief is that we’re probably or probably close to the most efficient in the industry or certainly on par with others and as you can imagine the higher cost areas generally it’s going to be U.S. with inflation and Europe with energy costs and inflation, but we also have some very low cost production areas. Brazil certainly is an area where costs are much lower than average and in Asia as well, but highly competitive.
And I think, again, we’ve seen things come off certainly, and I think where we’re focused on a lot of our capital recently, especially on the sustaining side, has been focused on improvements and efficiencies in the plants. I think we will continue to be able to do a good job of offsetting some of the inflation that we’re seeing just naturally. So we feel, I think, pretty good about where we are from an efficiency standpoint right now.
Davis Sunderland: That’s great. I’ll pass it on. Thanks, guys.
Gregory Heckman: Thank you.
Operator: The next question is from Andrew Strelzik with the BMO.
Andrew Strelzik: Hi, good morning. Thanks for taking the questions. First for me, I was hoping you could compare the current environment and the curves to the 850 EPS assumptions and the baseline more broadly, I guess it seems like for the most part, most of the profitability and margin structures are similar to those assumptions, especially on the crush side if you were able to lock in the first quarter a little higher, the exceptions, maybe you said a little bit weaker on merchandising. And if a couple of hundred million lower on refined oils is right, and I add buyback, the math is something like $10 plus, I think, and I understand the volatility of the environment, et cetera. But am I thinking about that correctly? Is there anything that else that’s materially weaker than kind of the baseline assumptions?
John Neppl: Yes, I can start and Greg can jump in. I think actually our margin assumptions right now for 2024 are better than the baseline, marginally better than where we were in the 850 baseline assumptions. So we think that’ll hold for the year, if not improve, where we’re seeing a little and that’s probably more on the soft side than the soy side. The higher assumption around margin structure and what we’re seeing today, I think where we see the downside versus our baseline is really in merchandising. As we look forward, Greg pointed out, there’s not a lot of visibility going forward in that. And based on how we finished ’23, we’ve kept a lower forecast in for them in ’24, which is actually lower than what we have in our baseline.
But on the other side, RSO is higher. So those are kind of the big things in terms of the commercial side of it, when you look at the non-business part of it or the other items, interest expense is quite a bit higher than what we had in our baseline, driven by interest rates, certainly, and then a little bit higher effective tax rate, as we’ve seen some tax legislation changes globally. So interest and taxes are higher. Soy on the margin side, soy and soft are higher from an expectation, RSO is higher and then merchandising is lower. So it’s kind of how I’d think about it.
Gregory Heckman: And probably the only thing on the commercial side that we didn’t mention, while the margins on crush are a little higher than the baseline, the volume is just a little bit lower. And that’s due to we exited Russia as a choice, and then in Ukraine, our volume is down with the war ongoing there.
