Ingredion - Earnings Call - Q3 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter twenty twenty Ingredion Incorporated Earnings Conference Call. At this time, all participant lines are in listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, Ms.

Tiffany Willis, Vice President, Investor Relations and Corporate Communications Officer. Please go ahead.

Speaker 1

Thank you, Liz. Good morning, everyone, and welcome to Ingredion's Third Quarter twenty twenty Earnings Call. I'm Tiffany Willis, Vice President of Investor Relations and Corporate Communications Officer. On today's call are Jim Zallie, our President and CEO and Jim Gray, our Executive Vice President and Chief Financial Officer. We issued our results yesterday in a press release that can be found on our website, ingrion.com in the Investors section.

The slides accompanying this presentation can also be found on the website and were posted yesterday for your convenience. As a reminder, our comments within this presentation may contain forward looking statements. These statements are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including the impact of the COVID-nineteen pandemic. Actual results could differ materially from those predicted 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 yesterday's presentation press release can be found in the company's most recently filed annual report on Form 10 ks and subsequent reports on Forms 10 Q and eight ks. During this 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 two non GAAP information included in our press release and in today's presentation appendix. Now I am pleased to turn the call over to Jim Zallie.

Speaker 2

Thank you, Tiffany, and good morning, everyone. As societies around the world enter new phases of the pandemic and continue to grapple with its impact, we at Ingredion remain guided by our values and three priorities that we established at the beginning of the crisis. As part of our CareFirst value, our employees' safety, health, and overall wellness remains our top priority. We've taken measures and applied learnings throughout the year to keep our employees safe. And as a result, I'm pleased to say that to date, we've had no We have also been supporting our employees' needs to balance their personal and professional obligations, which has allowed us to productively progress both our operational and strategic agendas.

Our second priority has been to support the communities in which we operate, and I'm proud to say that our employees have really leaned in. Consistent with our value of everyone belongs, our employees around the world have shown tremendous support for racial justice as we've elevated our commitment to diversity, equity and inclusion. As a company, we have enhanced our internal programs, clarified what we community involvement and financial contributions. As an integral part of the food supply chain, we're also working to do our part to address the growing problem of food insecurity in the communities in which we operate. And again, I'm proud of our company's and employees' efforts to give back through charitable donations and volunteerism.

All of this is in alignment with our purpose, to make life better. Lastly, we've maintained an intense focus on business continuity on behalf of our customers, which has served them and in turn served us. And SKUs, and this has allowed us to get even closer to them during periods of swings in consumer demand. We understand the critical role we play in the food supply chain for our customers, and we strive to deliver on their behalf with each shipment we make. One example we'd like to highlight during the quarter is from our customer Mondelez, who was recognized for its sustainable supply chain.

We are proud to be a trusted, sustainable supplier who played an important role in enabling their success. We have also quickly pivoted digital capabilities to collaborate and co create in real time. This has afforded us the ability to quickly and economically deliver on new concept and reformulation requests, as shown by our work for Cheddy's, a low sugar, all natural cheddar cracker, where we helped improve their margins by leveraging our technical expertise on reformulation. Now turning our attention to the third quarter. We were pleased with our operational execution and financial results in the face of a challenging global environment.

For the quarter, our global net sales were down 5% compared to the year ago period. Net sales were down 2% versus prior year. Quarter three results were sequentially better than the second quarter's 13% year over year decline in net sales. Adjusted operating income for the quarter was down 7% year over year and down 4% absent foreign exchange translation impacts.

Speaker 3

Hey, Jim, let me just pardon you. I think we just need to try and dial back in because the Polycom is breaking up.

Speaker 0

Okay. Let me dial back in.

Speaker 3

Okay. So Just one minute. We'll pause.

Speaker 0

Please continue.

Speaker 3

It's Page seven, Slide seven, Q3 twenty twenty performance.

Speaker 0

Please continue.

Speaker 2

Okay. We're going to get started again. We had a little technical difficulty. So I'm starting with Slide seven, and I'm going to start with the third quarter. So turning our attention to the third quarter, we were pleased with our operational execution and financial results in the face of a challenging global environment.

For the quarter, our global net sales were down 5% compared to the year ago period. Absent foreign exchange impacts of $38,000,000 net sales were down 2% versus prior year. Quarter three results were sequentially better than the second quarter's 13% year over year decline in net sales. Adjusted operating income for the quarter was down 7% year over year and down 4% absent foreign exchange translation impacts Versus the second quarter's 29% decline in operating income, quarter three results demonstrated improved volume demand and better fixed cost absorption. Moving to our third quarter regional results, let me begin with South America.

South America sales were down 9% versus prior year. However, absent foreign exchange, sales were up 7% as favorable price mix more than offset a modest volume decline. Operating income was $29,000,000 up 7% versus prior year as favorable pricemix more than offset foreign exchange impacts. Excluding foreign exchange impacts, adjusted operating income was up 30% driven by strong price mix. To further highlight South America, we have seen a sequential improvement in volume demand.

Consumer activity is returning to informal channels, albeit not to 2019 levels. We have seen a strong recovery in sales for brewing ingredients and steadily improving sweetener sales. In addition, the team has managed pricing actions very well given changing customer demand patterns as well as fluctuations in costs and foreign exchange. Shifting to EMEA, Our sales were up 2% for the quarter. The increase was largely attributable to favorable volume and pricemix in Pakistan.

Operating income was $25,000,000 up 4% for the quarter. The increase was driven by favorable price mix and volume in Pakistan and lower operating expenses in Europe. Moving to Asia Pacific, net sales were up 1% compared to prior year, which includes the addition of PureCircle. Removing PureCircle, Asia Pacific net sales were down 3%, which reflects the pass through of lower tapioca costs to customers. Operating income was $18,000,000 down 18% versus prior year, which includes a $5,000,000 operating loss for PureCircle.

Excluding PureCircle, third quarter operating income was $23,000,000 up 1,000,000 from the year ago period, driven by lower input costs and favorable operating expenses. Transitioning to North America. Net sales were down 6% for the quarter versus prior year. Volume demand continued to be weaker than prior year, although it improved versus the second quarter as away from home consumption increased quarter on quarter. Operating income was $132,000,000 down 9% versus the prior year.

The decrease was driven by unfavorable customer price mix, lower sweetener volume and unfavorable fixed cost absorption in The U. S. And Canada. Returning to a view that we shared in our last earnings call, we wanted to highlight the pace of recovery of net sales in both U. S./Canada and Mexico.

In U. S./Canada, net sales were down mid single digits for the quarter with sweetener syrup volumes improving from the second quarter, although still down high single digits versus prior year. In Mexico, net sales were down high single digits for the quarter, demonstrating a significant improvement from the quarter's steep decline due to a government shutdown of the brewing industry. In the third quarter, sales of brewing ingredients recovered significantly. Now let me turn it over to Jim Gray, who will round out the financial review.

Thank you, Jim.

Speaker 3

Net sales of $1,574,000,000 were down 5% for the quarter versus prior year. Gross profit margin was 21.7%, down 15 basis points. Reported and adjusted operating incomes were $153,000,000 and $170,000,000 respectively. Reported operating income was lower than adjusted operating income due to asset closures and restructuring costs related to Cost Smart, acquisition and integration costs related to PureCircle and the impact of the severe derecho weather, which swept through Iowa in the month of August. Our reported and adjusted earnings per share were $1.36 and $1.77 respectively.

Third quarter net sales of $1,574,000,000 were down 5% versus prior year. We experienced negative foreign exchange impacts of $38,000,000 Sales volume decline of $28,000,000 was driven primarily by COVID-nineteen impacts around the world on volume demand. Unfavorable pricemix had a small impact of $6,000,000 largely due to lower raw material costs geographies and related price through to customers. In North America, net sales were down 6% versus prior year due to sales volume decline of 3% and price mix decline of 3%, driven primarily by the pass through of lower corn cost customers with variable pricing contracts. South America net sales were down 9%, driven by a negative 16% impact from foreign exchange weakness.

3% sales volume decline was more than offset by strong pricemix, delivering 10 percentage points of favorability. In Asia Pacific, net sales were up 1%, driven by the inclusion of PureCircle. Excluding PureCircle, net sales were down 3%, driven by the pass through of lower tapioca costs in Thailand to our customers. EMEA net sales were up 2%, driven by higher volume and favorable price mix in Pakistan, which offset foreign exchange impacts. For the quarter, reported operating income decreased $12,000,000 while adjusted operating income decreased $14,000,000 The decrease in reported operating income versus adjusted operating income is primarily due to asset closures and restructuring costs related to Cost Smart, acquisition and integration costs, and the impact of the derecho weather event impacting Cedar Rapids, Iowa in August.

Operating income was down in North America. It was up in both South America and EMEA. While Asia Pacific's operating income is down, please recognize that this includes a $5,000,000 operating loss for PureCircle. While flat year over year for the quarter, corporate costs include continued investments to drive business and digital transformation, partially offset by less travel expense. In addition, our company incurred incremental expenses due to COVID-nineteen for compensation, personal protective equipment, sanitation and health screens.

This direct expense amounted to $2,000,000 during the quarter, with the majority occurred from North America. Turning to our earnings bridge. On the left side of the page, you can see the reconciliation from reported to adjusted. On the right side, operationally, we saw a decrease of $0.15 per share for the quarter, driven primarily by margin decline of zero seven dollars Unfavorable foreign exchange was a negative $07 impact to the quarter. Moving to our non operational items, we saw an increase of $06 per share for the quarter, driven by lower financing costs attributable to lower net interest expense due to lower interest rates.

Tax rate was unfavorable, driven by lower U. S. Foreign tax credits, geographic earnings mix and other one time adjustments. Year to date net sales of $394,004,000 were down 6% versus the year ago period. Gross margin was 20.9, down 29 basis points.

Reported and adjusted operating incomes were $419,000,000 and $473,000,000 respectively. Reported operating income was lower than adjusted operating income due to asset closures and restructuring costs related to Cost Smart and acquisition and integration costs. Our reported and adjusted earnings per share were $3.45 and $4.5 respectively. Year to date net sales of $394,004,000 were down $266,000,000 from the same period a year ago. Foreign exchange impacts represented a $138,000,000 headwind.

Sales volume decline of $2.00 $6,000,000 of which $178,000,000 occurred in the second quarter. The sales volume decline was partially offset by $78,000,000 of favorable price mix. Turning to our year to date earnings bridge. Operationally, we saw a decrease of $0.69 per share, driven by volume decline of $0.41 Unfavorable foreign exchange, margin and other income items represented a negative $0.20 $0.05 and $03 decline per share, respectively. Moving to our non operational items, we saw an increase of $0.12 per share year to date, driven by lower financing costs and other non operating income items.

Moving to cash flow. Year to date cash provided by operations was $562,000,000 Capital expenditures were $250,000,000 up $19,000,000 the prior year period due to the timing of payments for our growth projects. At quarter end, we had cash and cash equivalents of $553,000,000 During the quarter, we used cash towards the acquisition of PureCircle and the redemption of our November 2020 senior notes. Due to the uncertainty of COVID-nineteen, we cannot reasonably estimate results at this time. During the fourth quarter, we expect continued adverse impacts from COVID-nineteen on net sales across our operating segments, with recovery in sales generally correlated with easing of restrictions and increased consumer activity out of home.

For the fourth quarter, we expect adjusted operating income to be down mid single digits versus prior year, with the greatest range of potential outcomes in North America and South America. We anticipate cash flow in line with changes to operating income and supported by tight management of working capital. For the year, committed capital investments are anticipated to be between $290,000,000 to $310,000,000 Our reported annual effective tax rate is anticipated to be between thirty two percent and thirty six percent. And our adjusted annual effective tax rate is expected to be between 2728%. For North America, we are assuming slow resumption of consumer activity in both The U.

S. And Mexico and are watchful of potential COVID resurgence, which could lead to greater restrictions and new stay at home orders. We anticipate North American net sales to be down slightly and op income to be flat to slightly up versus prior year as the business overlaps unfavorable corn costs. In Q4, we anticipate South America's operating income to be modestly down versus the prior year. We expect continuing impacts of COVID on demand for our ingredients in the Andean region and potentially unfavorable impacts due to Argentina currency weakness.

We anticipate that EMEA operating income will be down mid single digits to high single digits, driven by higher expected corn costs in Pakistan. The effects of a hard exit of Britain from the EU trading block and very recent country stay at home restrictions are additional uncertainties potentially impacting volume demand. Including Pure Circle results, we anticipate Asia Pacific to be down mid teens versus the prior year. And viewed without the addition of Pure Circle, we expect Asia Pacific op income to be up mid to high single digits. We expect PureCircle operating losses to be between 4,000,000 and $6,000,000 as the business progresses the integration, works to reduce cost of goods sold, and continues to broaden and strengthen its customer relationships.

Now let me turn the call back to Jim Zallie.

Speaker 2

Thanks, Jim. Our driving growth roadmap continues to provide the direction for the execution of our strategy and value creation. We continue to make meaningful progress against each one of our specialty growth platforms as we diversify and expand our ingredient portfolio in line with the most significant trends shaping consumer buying behavior. Our PureCircle integration has progressed significantly since we closed on the acquisition in July, and we are on track to substantially complete the integration before year end. Leveraging the Ingredion go to market network, we have begun strengthening the customer pipeline for sugar reduction projects and are executing on new customer contracts.

We are excited by the talent we have acquired in PureCircle, and the Ingredion and PureCircle teams are sharing the same passion for customers and innovation, which is leading to new ideas to drive stevia growth. We previously shared that we expect to achieve both cost synergies of greater than 10% and additional revenue synergies starting in the second half of this year. To date, we are pleased to say that we have begun to deliver upon $11,000,000 of annual cost synergies. This tangible achievement in the first three months of ownership is a testament to the cross functional integration team we put in place on day one. Also in the quarter, we continue to make excellent progress in building out the capabilities for our plant based proteins growth platform.

The South Sioux City pea protein isolate facility continued its commissioning startup as we worked to obtain food grade certification, which is required for any new food grade manufacturing operation. We hosted members of our board at the South Sioux City manufacturing facility for a ribbon cutting ceremony in mid September, and we expect to be sampling customers towards the end of the year and fulfilling orders in the first half of twenty twenty one. As you saw earlier today, we are increasing our investment in Verdient Foods to have 100% ownership in the fourth quarter. The opportunity to acquire 100% of Verdient Foods will enable us accelerate net sales growth, further expand our manufacturing capacity and enhance our supply network for protein, flours and concentrates for plant based foods. The Verdient acquisition will bring our cumulative investment in plant based proteins to greater than $200,000,000 and provide a complete formulating portfolio for nutritional and texturizing ingredients and solutions for plant based consumer food and animal and pet nutrition.

Before closing, I would like to update you on the work we're doing to transform the company, not only as part of our Cost Smart savings program, but also in response to the opportunities and necessities created by the pandemic. We continue to advance Cost Smart to improve profitability and invest in future capabilities. From the launch of Cost Smart in 2018, our global team has engaged in over 90 initiatives to reshape and restructure our organization. By way of example, the pandemic has not held us back from expanding our shared service platform globally to include Asia Pacific and Europe. Expect to open our Asia Pacific Center in the beginning of twenty twenty one.

Our team is exemplifying our value of an owner's mindset and demonstrating creativity in how we rethink work. In the quarter, we stood up an Office of Transformation globally that is led by a highly skilled specialist we brought into the company who has experience leading transformations at large multinationals. The scope of this work is broad, yet focused on organizational design, work policies and practices, and digital transformation, all to maximize productivity while building resiliency. We look forward to updating you in the future on the results of this work. That concludes my comments.

And now let's open the call for questions.

Speaker 0

Our first question comes from the line of Ben Bienvenu with Stephens. Your line is now open.

Speaker 4

Hey, good morning everyone.

Speaker 3

Good morning, Ben. Hey, Ben.

Speaker 4

I want to ask thank you for the color on the fourth quarter. Good to see the volumes recover in the third quarter. I'm curious, we've already seen the impact of a COVID spike earlier in the year. I'm curious to what extent given that we're seeing escalating cases in various geographies today, how do you think the business is positioned in the event that we see worsening COVID backdrop in the fourth quarter relative to how it performed in the first quarter? And kind of what actions can you put in place based on your learnings that might mitigate some of the risks associated with that?

Speaker 2

Jim, do you want to take that?

Speaker 3

Yeah, sure. Hey Ben, one of the things that we learned, I think, with broad and severe shutdowns is how much it constrains the supply chain of channels where consumers go for food and beverage choices, primarily in food service, or if you look to The UK and kind of food takeaway. And as we saw, our customers, whether they're direct manufacturers or distributors, everybody was adjusting their supply chains to that supply chain constriction. Whether there's resurgence in particular cities or in particular countries, what we're really watching for is how consumers have adapted to whether it's curbside pickup or ordering food from away from home occasions. And I think the adaptation has probably moved beyond maybe the April and May shutdown that we experienced in The United States.

We will still see, as a caution, think we will still see where certain governments may take more severe actions with stay at home restrictions and broad testing. And that can

Speaker 2

two week

Speaker 3

periods, and speaking I think primarily to Asia Pacific. So what we're doing is we're keeping our inventories ready, And we may carry some inventory as we finish out the year. But we're really just trying to stay closer to our customer supply chains and understand kind of where they're at with regard to their demand.

Speaker 2

Yeah, and I would say, just picking up on what Jim said, is that we've learned a lot through the last six to eight months in relationship to how our customers are looking at their supply chains. They've learned a lot. We've learned a lot. And we're very close to them in relationship to how they're looking to forecast for their brand. In many cases, as they have looked to rationalize and prune their product lines and SKUs and support some of their bigger brands, we equally have done the same cascading back to our supply chains.

So we're applying all those learnings to make sure that we have the right products at the right level of inventory, and taking some forward looking bets based on some of the products that go into retail for stock ups that we're seeing going into the winter months and into the fall and winter months both in North America as well as in EMEA.

Speaker 4

Okay, great. Thanks for that. My second question is also related to COVID, but is more from a long term perspective. We heard from you at CAGNY earlier this year about your outlook longer term for the growth of your Specialty Ingredients business. The world's changed a bit, but still is in flux.

I don't think it's lessened the importance on the growth of that business either to your customers or to your businesses. But I'm curious, how has COVID, do you think, impacted the pace and magnitude of growth in the Specialty Ingredients business, if at all?

Speaker 2

So our global Specialty Ingredients have performed well this year in the face of the challenges due to the COVID pandemic. Year to date, our sales are up slightly on a constant currency basis, and we're performing well with larger customers. We expect Specialty Ingredients to be up to about 10% of our total net sales for the year. And we expect to return to historical specialty rates when COVID-nineteen restrictions ease, and away from home approaches the pre pandemic levels. We believe that every one of our five global growth platforms remain as relevant today as they did pre pandemic.

When you think about starch based texturizers for affordable formulating into a variety of retail and big branded based products when you think about clean and simple ingredients, and the trend towards simpler and cleaner labels. Sugar reduction in relationship to one of the comorbidities around obesity, or plant based and formulating more complete food systems to support customers' needs to have more integrated solutions given how labor costs in the workplace have increased, and just simpler, faster ability to streamline their manufacturing and supply chain. So we think every one of those specialty growth platforms are as relevant today as they were prior to. And to date, through the pandemic, we're pleased to be actually up in our sales in constant currency terms.

Speaker 4

Okay, great. Thanks. Best of luck.

Speaker 3

Thank you.

Speaker 0

Our next question comes from Ken Zaslow with Bank of Montreal. Your line is now open.

Speaker 5

Hey, good morning, everyone.

Speaker 6

Hi, Ken.

Speaker 3

Hi, Ken.

Speaker 5

I just question on North America. There's a lot of things going on in North America between your strategy for ingredients, but then you have the potential for Mexican labeling and somewhat the lower fructose corn syrup demand and stuff like that. So when you think about the North America, what do you think of the path of recovery? Do you think 2021, 2022 is growth years? Are you looking to hold profitability?

How do we frame that? And not just for this year, just how do we frame it a little bit longer term given all the pushes and pulls?

Speaker 2

Yeah, let me start and then I'll turn it over to Jim. I think that one of the keys to North America's recovery is going to be the pace of food consumed away from home, so food service overall consumption, which obviously both in Mexico and in U. S./Canada got hit very hard. And that recovery is going to be linked with the recovery of the economies related to reduced cases and COVID-nineteen impacts abating. So that's, to me, the biggest key to the path to recovery.

And at the same time what we're doing is we're obviously investing in the larger customers that are doing the best right now through the pandemic and are looking to innovate with them as it relates to the micro trends and pockets of growth, we call it, that are emerging through the pandemic. And that will be to heavily continue to invest in our specialties, you know, to leverage our specialties investments that we have made, where we have made significant investments that we're expecting starting next year to provide an additional boost to our North America sales in the form of plant based proteins, for example, as well as, sugar reduction popularity is, very significant both in U. S./Canada as well as in Mexico. You talked about the labeling in Mexico. We're watching that obviously very closely.

That began October 1 for all packaged and processed foods. And regardless of that change, we do know that there's interest in health and wellness, and there's going to be a lot of reformulation opportunities. And that will provide opportunities for reduced calorie, reduced sugar. And we have products like Allulose and Stevia in Mexico that will perform well. We are encouraged also by what we've seen in regards to the bounce back in certainly the Brewing segment in Mexico.

Jim, do you want to add to that?

Speaker 3

Hey, Ken, the one thing I'd add is that if you look at North America segment op income and you take what we're done year to date, down about $50,000,000 and you looked at our outlook for Q4, largely that decrease, three quarters of that decrease has really been driven by volume demand. And I'd say there's another portion of that which is higher fixed cost absorption, given that volume demand has been down. As we look forward to the factors that Jim highlighted in Mexico, as well as in U. S./Canada, we'll see as we get through winter, hopefully as vaccination programs start and begin in the first half of the year, we'll see volume demand return both from our medium and small customers who participate in retail, as well as probably more broadly from other parts of our customer set that serve food service and serve, use a polar ingredient into away from home uses. And so when we look at that, we really think it's about that volume recovering and the pace of that through 2021, probably more into kind of a full recovery by 2022.

Speaker 5

Perfect, thank you very much.

Speaker 0

Our next question comes from Robert Moskow with Credit Suisse. Your line is now open.

Speaker 6

Hi. Thank you. I was surprised to see mix down in North America in third quarter. I think that's a change from the first half of the year. So if specialty sales are doing well, Jim and Jim, why would mix be down?

Speaker 2

Jim, I'm going let you take that one.

Speaker 3

Rob, one of the as we've highlighted in the past, primarily our U. S.-Canada business but also some in our Mexico business, we have variable pricing on contracts. And as we saw the prices of corn drop through really through Q2, they kind of hit a low. Really, it's just the repricing of those contracts given where the monthly corn cost for those customers is.

Speaker 6

And that impacts the mix, not the price?

Speaker 3

That impact well, also what you saw was that your larger customers were also pulling, I think, a higher proportion of our volume. So that's the mix portion of that.

Speaker 2

Branded

Speaker 3

retail customers, or customers that serve food products into grocery retail, etcetera. I think their supply chains were acting very swiftly to get product back onto shelf. They were pulling a higher proportion of our ingredients. And as larger customers, they tend to have better pricing.

Speaker 6

So you're kind of cutting it out. But you said big retail customers had a lot of had stronger volume. Those Yes,

Speaker 2

was customers basically, have Ken, it was proportion of sales to larger customers that have better pricing.

Speaker 6

Okay. Okay. Will that continue into fourth quarter? Or is that just kind of a transitory inventory thing?

Speaker 2

I think it may continue into quarter four. And again, a lot depends on the mix of the customer base in quarter four vis a vis quarter three.

Speaker 6

Okay. And then last question is, can you talk a little bit about the pricing environment for sweeteners going forward? I imagine everything is getting pushed back. But what do you how do you see that shaping up in North America?

Speaker 2

Yes, Rob, I would say that prices for the 2021 crop year for corn, you know, have increased approximately 15% above the prices for the twenty nineteen-twenty twenty crop at the same time last year. And obviously, that's being driven by increased import demands from China for commodities. And looking forward, we expect higher corn prices, and therefore industry logic would typically translate into elevated pricing to customers. That said, you know, there is more corn wet milling capacity available in the short term due to the pandemic, which may temper price increases. That's really the best outlook I can give you right now.

It's too early to comment on 2021 pricing outlook. But those are the two key variables that will be taken into account by the industry.

Speaker 6

Okay. One more question. In terms of your investment into digital, does that include vendors' earnings calls? Or is that separate?

Speaker 2

Sorry, Rob. Could you just repeat? I think he was making a joke. And the answer is yes, it will certainly, Rob. Of course.

Speaker 6

Okay. Yes. Thanks for the acknowledgment. Okay. Bye bye.

Speaker 0

Our next question comes from Adam Samuelson with Goldman Sachs. Your line is now open.

Speaker 4

Yes. Thank you. Good morning, everyone. I was hoping to continue on the maybe just on the specialty side a little bit. And with the increased investments on the plant side, you've got the Aguilar plant in Mexico ramping up.

I'm just trying to make an understanding of what's the reasonable expectation on contribution from some of those growth investments next year on a year on year basis?

Speaker 3

I'm just

Speaker 4

trying to think about balancing kind of the cyclical dynamics in the base business and some of the comments on contracting that you just made with some of the internal investments that you have underway and how much we can reasonably expect those to be kind of company specific growth drivers.

Speaker 3

Yes, sure. Hey Adam, this is Jim Gray. As we've said, when we invest in new facilities where we bring on substantial capacity, we usually plan over kind of a three to five year horizon for the ramp up of volume through that facility. So usually in the first year, while we are having samples out and we're working the customer pipeline and we're shipping those initial orders, our expectations are volume and revenue tend to be at onefive to onefour of the capacity. And we are having cost impacts necessarily in the first year as we're running the facility, but ramping up in that volume.

So I think we're just on this path. We understand the path for both our Allulose expansion at our San Juan Del Rio facility, but also for 2020. Those are continuing on a path of ramp up in the early years. Yes. And I would just

Speaker 2

build on that in relationship to, say, PureCircle. In the near term, our expectation is the net sales are going to grow high single digits next year. And the synergies are going to deliver greater than 10% savings. And so we're very optimistic and bullish based on what we've been able to do in the first four months after fifteen months of PureCircle really being challenged in the last four months with customers as well as internally with our optimization program. And on plant based proteins, with regard to sales growth to commence in 2021, the return on that investment is really going to be dependent upon the rate of customer adoption and market growth.

And so and that is looking very favorable right now. So we feel that that investment is perfectly timed with the growth in the marketplace for plant based proteins right now.

Speaker 4

Okay, that's helpful. And then my follow-up is really just any comments on the M and A pipeline and opportunities to further grow inorganically? And especially with tax reform potentially on the agenda, maybe that gives an impetus for some of the family owned or private companies to make some decisions there. But any comments you have on that front and scope for anything on the larger side of the M and A front?

Speaker 2

Well, I would just highlight that we've been opportunistic with M and A in relationship to the acquisition of certainly PureCircle. And then the Verdient announcement that we're making on this call and being able to acquire 100% of Verdient, we're pleased with. And again, all of our M and A focus is around enhancing the value propositions for the five Growth Platforms. So I think you can expect us you can expect to see that any announcement that we would make would be to support those five growth platforms for specialties, primarily in the bolt on area as we go forward. Whatever we were to buy would enhance shareholder value creation.

Speaker 4

Okay. I appreciate the color. I'll pass it on. Thanks.

Speaker 2

Thank you.

Speaker 0

That concludes today's question and answer session. I'd like to turn the call back to Jim Zallie for closing remarks.

Speaker 3

Okay. Let me just answer real quick. We do understand that there were some technical difficulties on the call, so we apologize for that. And, you know, we're obviously going to look into whether it was the transmission lines at this point. But we'll try and capture it all in the transcript.

Speaker 2

Jim? All right. That concludes the comments. I just wanted to thank everybody for joining us today. We look forward to conferences.

And until we speak again, I just want to wish everyone a safe safe holiday season. Thanks so much.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.