Jim Gray: Yes. With the new segments, I think that we have an intention to also be disclosing for the three primary segments gross margins, right? So that will be part of our required reporting in 2025. As we work through our 2023 historical, we’re going to have a better perspective of the lap and how the gross margins are changing. So we’re nearly right in the midst of working all of that historic 2023 and appreciate the work that my team is doing to get us there. But I think as we look forward, you’ll see that the Texture and Healthful Solutions is going to have gross margins in the high-20s as well as there’s product lines in there that are well into the 30s. So those higher gross margins are reflective of the customer value in terms of the price per ton paid.
And then also, as we’ve spoken at CAGNY as part of our strategy we look at the texture market globally almost $20 billion. We think it’s growing at least in the mid-single-digits, maybe the low-single-digits. But we’ve talked about urbanization, we’ve talked about the pull for convenience to make the eating occasion and the grocery shopping experience easier and we really play well to that demand pull. So you should see a KPI from us either on sales volume or volume itself but also the growth that we think is supporting the Texture and Healthful solutions. That will be something that’s important to us. And then when we look at I think our Food and Industrial Ingredients business, while we have I think very competitive positions in some of those broader product categories.
And we’re always going to highlight things like, hey, how do we think the confectionery pull is for glucose syrups, but look to us to also talk about sustainability, because we have this wonderful feedstock and we already have all the infrastructure built, and I think that as the world looks to sustainable sources for either some chemical inputs that may have been previously petroleum-based, I think there’s some opportunities for us to take some, step change in how we might direct our wet mill output, but in a way that then looks at stabilizing revenue growth, and maybe slightly changing the trajectory of revenue growth. So, Kristen, we’re very much focused on volume, on top line growth, as well as we want to be really clear in terms of the level of profitability within the segment.
That’ll start with gross margin. Today, we’re disclosing OI margin ranges, and we’ll, and we’ll work through that as we go through the years.
Kristen Owen: Really appreciate the commentary. I’ll leave it there.
Operator: Our next question comes from the line of Ben Theurer with Barclays.
Ben Theurer: Good morning, Jim and Jim, and thanks as well for taking my question. Not much left. There’s a lot to be asked, but just wanted to follow up a little bit on the volume in the different regions. And one of the things that I wanted to understand a little bit better, you just called out Mexico being very strong. And I mean, we’ve seen, obviously, some of the food and beverage companies reporting very decent volume performance in the region. We also had Brazil results coming through from some corporates very strong. It kind of doesn’t align with that minus 3% volume you had. I just wanted to understand how much of that is still that destocking overhang, that negative impact, and what you’re seeing sequentially with your customers in Latin America as to the engagement to buy product again from you guys?
Jim Zallie: Yeah. Ben, thanks for the question. None. So, literally, we had a significant customer in Colombia. We have an exclusive arrangement with them. They had some budget-slash-demand management. The volume is such that it’s on a contractual obligation for them to take the volume throughout the full year. The customer absolutely needs the volume. There’s every intention for them to take it, and it was just, kind of an unexpected kind of how they load their channel. And we’ve seen it in the past, in prior years, but never have seen in the entire quarter that this unique customer did not pull any volume, but there is a contractual obligation, and they have historically always met their full-year calendar year obligation, but if not for that, Jim, in LatAm, that was all of the 3% decline.
Jim Gray: Sales volume would have been just slightly down.
Jim Zallie : Yeah. Yeah. So that’s it’s a very good. It’s a very astute observation on your part to pick that out, and there’s a unique explanation for it.
Ben Theurer: Yeah. Fantastic. Very good. And as it relates to, like, your expectations and what’s ultimately being reported in Texture and Healthful Solutions, that flat volume. Was that, like, within the expectation range that you had for the quarter, or were you expecting maybe that already to be a little bit better in one cue, but then just got impacted by some of these at-worst situations that happened during the quarter that were related?
Jim Zallie: Yeah. Let me take a shot at it a little bit, and then let Jim add some color commentary. So, first of all, on Texture and Healthful Solutions, to remind you, the performance of what is now the newly defined segment was really exceptionally strong in quarter one of 2023, and that was because we were able to achieve some really very strong exceptional pricing and reaction to double-digit inflation at the time for specialty corn types and the run-up in natural gas prices that were happening in Europe. And as these, I will call them extraordinary costs, moderated as we entered 2024, there was just a natural reset to pricing levels that was necessary. In addition to the pricing impact, margins in quarter one were compressed due to the higher value of 2023 inventory, which carried over into the new year.
As we move through 2024, however, newer inventory will reflect the lower cost of the specialty corn and lower fixed costs as these items normalize. because this is a make-to-inventory business, it takes two to four months, typically, for this segment to typically work through changes in inventory and carrying costs. And the other thing that’s just noteworthy is the segment is absorbing still some costs from the early stage capacity expansion investments for growth that we made in recent years. For example, we more than doubled our specialty starch capacity in China and expanded capacity for specialty starches in Thailand and Mexico. So it’s a combination of all of that that hopefully helps to put in perspective textural healthful solutions this quarter, but we really are very bullish, obviously, on the winning aspiration, the strategy, and the health of that position and the assets that we have around the world to support customer growth.
Jim Gray: Yeah. And I think the heart of your question is, well, Ben, is, I mean, we are seeing that volume uptick. I mean, look, if you look at the Q1 lap and 2023 on a scan basis, volumes, US, at least for the type of texture products, were down 5%, 6% unit volumes. And then obviously we got into Q2 of last year, and unit volumes were then, from grocery retail really, really stepped down. And so I do think that we are seeing that kind of 0% sales volume that we advertised for the segment is pretty good. And we’re feeling pretty solid that we’re definitely seeing broad customer takeaway.
Ben Theurer: Perfect. Jim, thank you very much.
Jim Zallie: Thank you, Ben. Can I just want to respond to Kristen’s question on — so Q2 Korea net sales last year was about $80 million. So just to put that one on the record for everybody.
Operator: Our next question comes from the line of Josh Spector with UBS. Josh, your line is now open.
Lucas Beaumont: Hi. This is Lucas Beaumont on for Josh. I just wanted to sort of go back to kind of the resegment session. I was curious about, sort of, why the expectations to the margins in the Texture, Health segment are, sort of, below food and Industrial. Is any of that sort of, being driven by how you’re allocating SG&A or transfer pricing across the business? And would you expect that to kind of diverge over time so that takes you kind of benefits as you get further scale there?
Jim Gray: Lucas that is kind of dead on. So Texture and Healthful Solutions as a global segment as Jim has alluded to. And it does carry higher gross margins than the other businesses by at least 600 basis points to 800 basis points. And it also gets a higher proportion of SG&A costs and those are the people capabilities that we need the technologists, the food scientists, the solution selling sales capabilities the marketing insights to be able to really lead with those solutions that our customers are looking for. And so much like some competitors in Europe that may carry like a flavor or a fragrance house that may have more SG&A as a percentage of sales in the business to reflect the competencies and the people capabilities that you need to support this type of business that’s the similar kind of business model and operating expense model that’s in our Texture and Healthful solutions.
And we do see that as the top-line grows we do expect to get operating expense leverage out of that.
Jim Zallie: And also Jim the investments that we — I highlighted as far as the early-stage capacity expansion that we’ve made we are obviously in the early innings of getting the returns on those investments which are allocated cost-wise to that business.
Jim Gray: Yes. And then maybe Lucas just one note since I know that the team is a little bit newer. But we — when we do acquisitions and tuck-in acquisitions any amortization of intangibles. We keep those in. So we don’t adjust out or call those out. And so there is some amortization as well against some of the past acquisitions that we’ve done that have now really fall into the Texture and Healthful Solutions segment.
