Ben Bienvenu: Jim Zallie, you made a comment about the $10 million impact from weather in the first quarter on shipment volumes. Is that $10 million or $0.10, $0.11 of EPS? Does that get deferred into the second quarter or later in the year? Or is that just lost sales? And maybe Jim Gray, as you think about that as another put and take kind of piggybacking on Andrew’s question around guidance with the solid start to the year some tailwinds. Wondering how that figured into kind of the posture that you took on guidance.
Jim Zallie: Yes. So let me make a quick comment. Just — so the — what we said was greater than $10 million of impact in the quarter. It was predominantly comprised two-thirds of idle fixed cost under absorption and one-third due to lost sales. And we felt that impact at our larger plants in U.S./Canada, Food and Industrial Ingredients segment, but also to a degree at our India and Kansas City plants that support the Texture and Healthful segment. And this was due to that extremely cold weather that we had for about two weeks in January, which did impact the runability of our production of, again, a few of the Midwestern plants and it also did impact and experienced challenges in rail and truck deliveries as many of those were frozen during that period.
But we’ve quantified that impact and that’s how we’ve kind of estimated its impact. And obviously, we’re running the plants now very well and very hard and trying to catch up. But some of those are one-time lost opportunities because the demand was there. The demand was there, the opportunities were there, and we were impacted — we were not alone, but we were impacted and that’s how we’ve quantified it, Jim.
Jim Gray: Yes. So the third of the impact from lost sales will not be caught up. But as we look at the fixed cost due to some of the under absorption as we continue to run in Q2 and Q3 in order to kind of rebuild some of our inventory levels then that will help a little bit in terms of some fixed cost absorption in Q2, Q3.
Ben Bienvenu: Okay. Very good. Thanks for that. My next question is just related to the reclassification of your segments. Recognizing there’s some limited kind of historical data. I have kind of two questions. One, what story do you expect these new segments to tell as it relates to your business and kind of the long-term strategy and performance of your various segments? And then two, as you think — why did you segment them the way you did, I guess? And how should we be thinking about kind of monitoring these new segments versus historically being focused on geographies? Thanks.
Jim Zallie: Well, let me take a shot of why and then the overall — yes, thank you for question, It is very robust. Yes, I know it’s a very helpful question of context from a standpoint of where we’re headed strategically as an organization. So first of all, something maybe that we haven’t talked a lot about is throughout all of 2023, we undertook a company-wide strategy refresh, enterprise-wide, leveraging the play-to-win framework. And it’s a very simple framework to understand. It basically starts with what is your winning aspiration, where to play, how to win, what must-have capabilities do you need to have? And what are your enabling management systems to then execute. So our whole organization, obviously, could quickly identify with the simplicity of the framework.
And it became very clear to us that when it comes to texture solutions with specialty starches and our market leadership position and our breadth and depth in that category that — it afforded us a platform to expand upon to really be a more complete solutions provider for texture solutions. And then in healthful solutions given how much of a mega trend health, wellness is and will continue to be that in the areas of sugar reduction in the areas of protein fortification and fiber fortification, we felt we can play-to-win. And that comprised that segment. And then when we looked at the customer base, there are many global customers, and these are global trends as well in global relevance. We talk about, for example, there are 400 terms, terminologies for very precise descriptions of texture in Japan, 200 in China, et cetera.
So that was the wisdom or logic behind that. And then also, the products that we sell there are typically not sold in bulk or with liquid — in liquid form, so they transport internationally. And so the network of plants that we supply lend themselves more to a global organizational structure when it comes to making trade-offs on behalf of global key accounts to be most customer friendly. So that made a lot of sense. When it comes to our LatAm business, we have a tremendously strong position in Mexico, and Mexico continues to grow, and by the way, delivered another record quarter us this past quarter. And then just the natural Hispanic language and cultural similarities between that and our market leadership position in Brazil and our market leadership position in India and with now a very solid joint venture in Argentina, we felt organizationally from those cultural similarities that, that was a change that we made because remember, Mexico was part of North America before, and despite USMCA we felt there are more compelling talent management opportunities across that platform, and that was just a more what we call natural geographic alignment.
Similarly, the US Canada Food and Industrial Ingredients businesses where you’re driving operational excellence, but also having to make some strategic capital decisions for facilities related to reliability to support some of the slower growth — typically the slower growth categories that we’ve identified HFCS, of course, being one of them, which now again is about 8% of our sales only and a lower percentage of our gross profits. And the industrial starch businesses that will take different capital decisions that we wanted to frame. Now what’s also interesting to point out though and I have to do this is that for the Food and Industrial U.S. Canada business this quarter, operating income was $87 million with an NOI margin of 16%, which was up slightly from last year’s quarter.
The improvement was really driven by — and we’ve talked about this before multiyear customer contracts, tight management of raw material costs, largely offset by higher fixed costs associated again with the extreme weather. So it’s interesting to point out that, sales volumes for that segment US Canada Food and Industrial Ingredients would have been close to flat and operating income would have been up for the quarter if it had not been for the extremely cold weather that impacted that business unit. So, there is a unit that again running it for operational excellence and really executing has a very attractive margin profile, which we don’t know if really investors really fully appreciate it the stability and the health of that business as a cash generator which we will obviously be using to fuel the growth in our Texture and Healthful Solutions segment.
Sorry, it’s a little bit long-winded, but hopefully that gives you some context on how we thought about things strategically in the genesis of it which came out of the play-to-win framework.
Ben Bienvenu: Thanks for all the comments. Appreciate it.
Jim Zallie: Thanks Ben.
Operator: Our next question comes from the line of Kristen Owen with Oppenheimer.
Kristen Owen: Hi. Good morning, Jim and Jim. That one is going to be tough to follow-up, but I’ll do my best here. The first question I have is actually just a clarification on the 2Q guide. The net sales flat down to low-single-digits. Just remind us that is excluding the SK business. And can you help us with what that SK business was in 2Q 2023? So we’ve got the right comp there.
Jim Gray: Yes, it is excluding the South Korea business. Again, I want to say that I think that that’s going to be around see the $70 million but let me follow-up with you on that. And we’ll put a clarification out on that.
Kristen Owen: Okay. Perfect. Thank you so much. So then, I did want to ask a follow-up to the previous sort of re-segmentation but more granular about what those KPIs are? How we should think about or track whether it’s ASPs or revenue per ton? Just how to think about the proxy for the specialty value uplift that you’re getting through this reorientation? And appreciate the cash count nature of sort of the core business. But as we’re watching some of these higher growth areas with higher margins, what’s the KPI that you guys are watching that would be helpful for us to be paying attention to?
