Ladies and gentlemen, thank you for standing by and Welcome to the Ingredion Second Quarter 2016 Earnings Conference Call. For the conference, all participant lines are in a listen-only mode. There will be an opportunity for your questions instructions will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded. I will now turn the conference over to Miss Heather Kos. Please go ahead.

Good morning and welcome to Ingredion's second quarter 2016 earnings call. Joining me on the call this morning are Ilene Gordon, our Chairman, President and CEO, and Jack Fortnum, our Executive Vice President and Chief Financial Officer. Our results were issued this morning in a press release that can be found on our website, ingredion.com. The slides accompanying this presentation can also be found on the website and were posted a few hours ago 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. Actual results could differ materially from those predicted in the forward-looking statements and Ingredion is under 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 the subsequent reports on Forms 10-Q and 8-K. During this call, we will 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 US GAAP measures in Note 3 non-GAAP information included in our press release. Now I am pleased to turn the call over to Ilene.

Thanks, Heather, and let me add my welcome to everyone joining us today. We appreciate your time and interest. I am pleased to announce Ingredion ended the quarter with strong operating income and earnings per share. North America, APAC and EMEA had record high operating income and as expected South America was down due to macroeconomic and foreign exchange headwinds in the region. Overall volumes declined 1% driven by macroeconomic headwinds in South America and the sale of our Port Colborne, Canada facility partially offset by the Kerr acquisition volumes. Like last quarter, our price product mix was favorable driven by specialty sales and a favorable trade up of our core ingredient sales. Our focus on continuous improvement and optimizing our global footprint has supported our margin expansion. Overall, I'm pleased that our business model and strategic blueprint continued to deliver shareholder value. For our company overall, our ongoing cash flow from operations and strong balance sheet continue to enable us to deploy cash to advance our strategic blueprint. In fact, we recently began operating manufacturing assets that we added using the capital expenditure we announced in September, 2014. These assets increase our manufacturing capacity for specialty ingredients in the US and the additional capacity in Asia is expected to come online in the third quarter. The expansion is driven by the growing demand for these higher value ingredients used by food and beverage manufacturers to address consumer trends including wholesome foods, simple ingredients and health and wellness. Now, let's spend a moment on each regions performance in the quarter. Operating income in North America was $160 million for the quarter up $33 million from last year. Overall volumes were down 1% driven by the sale of our Port Colborne facility. Price product mix was up driven by specialty sales…

Thank you, Ilene. Good morning, everyone. Let me start by covering the highlights of the income statement. Net sales were up $6 million for the quarter. The majority of the increase is attributable to more favorable product mix in both our speciality and core ingredients, as well as favorable pricing in South and North America. These factors were partially offset by unfavorable foreign exchange and lower volumes from the sale of our Port Colborne, Canada facility. Gross profit was higher by $36 million as a result of favorable price mix in both specialty, our specialty and core ingredients and margin expansion as a result of our optimization efforts. Reported operating income was $25 million higher versus last year. While adjusted operating income was $31 million higher. Reported operating income was lower than adjusted operating income by $13 million, $8 million is related to employee related severance and other cost associated with the execution of information technology outsourcing contracts, $3 million of employee related severance cost associated with the South American restructuring and $2 million is restructuring charges related to the prior year sale of our plant in Port Colborne, Canada. Given that this the first time we have talked about our global IT outsourcing, I want to explain in a bit more detail, what we are doing. The purpose is to advance our IT capabilities supporting our strategic blueprint as technology continues to evolve while maintaining an effective cost structure. Our reported and adjusted earnings per share were $1.58 and $1.73 respectively. For the quarter, our reported and adjusted earnings per share were $0.11 and $0.20 higher than last year's respectively. Moving onto the next sales bridge, our sales of $1.46 billion were higher than last year by $6 million. Favorable price product mix contributed $84 million this was partially…

I'm pleased with our results this quarter from a strategic perspective our business model and blueprint for growth are working and a momentum continues on a positive trajectory. I'm also pleased that our global footprint and our innovation capabilities with our 25 Ingredion Idea Labs allow us to meet the needs of our customers, who demand on trend products customized to local taste. We continue to take actions to optimize our cost structure for the future, while investing for growth in our specialty business. Regionally North America is expected to continue its positive trajectory. Asia Pacific and EMEA are projecting operating income growth and South America is expected to be down versus last year given the macroeconomic headwinds. With our strong balance sheet, we expect to continue to pulling our capital to fuel organic growth, network optimization, acquisitions and other shareholder friendly action. And now we're glad to take your questions.

[Operator Instructions] and first from the line of David Driscoll with Citi. Please go ahead.

Good morning, this is Cornell Burnette in with a few questions for David. Just want to start off with the two plants that you mentioned are closing in South America. Just so I am clear, this is related to announcements that you previously made last year, so it is not necessarily anything incremental?

That's correct Cornell. It's the same two plants that we're talking about and we're moving some of the capacity to other facilities and so essentially it's taking us the year to execute on that strategy.

Okay. And does this represent though a net capacity reduction in Brazil? If so, how much?

We don't talk specifically about the all capacity or anything, but I think what it does is removes fixed cost from our system because essentially what you're doing as the economies are slow there, you can absorb different products into your other facility.

And just given kind of the continued weakness in the economies, assuming things don't turn around here in the near to medium term, do you see the need for or opportunities to maybe reduce capacity further to kind of adjust to maybe the new realities of the markets down there in South America and particularly in Brazil?

No Cornell, I think we look around our entire network not just Brazil but you know every place including and all through South America. They say what's the right network, where does our demand and supply balance equal out and I think we'll look at network optimization programs going into the future. At this point in time, we don't have anything that we're announcing or anything like that and so I think, that we'll continue to monitor and reflect the demands over those economies based off our own capacity. I would like to highlight a few things though in terms on the positive side in South America. You have to understand that, the demographics are still very strong. We still believe in the longer term demand prospects there. So we do have a very strong position throughout South America. When we think about these things very cautiously in terms of as we move forward with looking at how we invest in that region.

This is Ilene, the other thing I would add is that in brazil, we still have four very good facilities so we're really going from six to four, but the two that we're closing are were very small.

This is very good. And then if I can just move it along to North America as we - kind of into the backstretch of this year and going to another contracting season. Are you seeing utilization rates in the North American industry kind of similar to where they were last year? And then kind of going forward with kind of profitability moving up within the industry, what's your outlook for capacity? Do you think that there is kind of a temptation for new capacity to come online? Or will the market be kind of remain disciplined given the dynamics that we have here?

Cornell, like you know we don't really give 2017 forecast. I think that, if you think about the utilization rates. For the first half I think they were very solid in those high 80s, low 90s type of range which is kind of where we anticipated them to be running at. In terms of like I haven't heard any announcements or anything like that about different capacity increases in the industry. I don't anticipate anything like that but like I haven't picked up anything from that category at all.

Okay, thanks a lot.

Our next question is from Robert Moskow with Credit Suisse. Please go ahead.

Jack and Ilene, North America has had an outstanding year, thus far it looks like it is going to be a strong second half also, beyond certainly our expectations and I think yours too. So I think the question is like is this a new base, a higher base of earnings that you can keep building from given all the expansion of your specialty division? Or is there any thinking internally that, maybe this went beyond what's a normal year for the region?

This is jack speaking. I think we're looking at the North American business. It started out very good from the perspective that we had a mild winter, we had operational efficiencies from our logistics and things like that. So the first half was very - it turned out very well and as you know, we were going through that whole I'll reconfiguration of our network a little bit after the shutdown of our Port Colborne facility in Canada and so I think the results came in very strong for us. In terms of looking into the future as I indicated, we're not going to give 2017 guidance but I think we continue to see that strong specialty growth and I think, Mexico continues to perform extremely well for us in terms of growth of core and specialty. So I think that's kind of how we're looking at North America and Ilene, did you have [indiscernible]?

Yes, the one thing I would add is. I do think that in the North American consumer environment the drive has increased for these healthier ingredients by millennials and all parts of the population and so we're very well positioned with our R&D and product development, to develop those particular solution. So I think what you find in a mature economy, the ability to really grow in the specialty products is increasing. I mean even the desire for non-GMO products is increasing and so we're one of the few companies that's able to supply those type of ingredients we've been supplying non-GMO type starches for over 10 years. So again I think you have both the base dynamics as well as speciality growth in this North America environment.

Okay, then a follow-up, Ilene, for you. I think you mentioned $300 million of CapEx that's going to get deployed around the world. Do you have any specifics as to where that money is going and is it continuing to expand your specialty starch capabilities internationally as well as domestically?

Well we had announced a little over a year ago was the $100 million of capital towards specialty and what I was referring was the start-up of some of that capacity in Indianapolis most recently and then in Asia and Thailand during the third quarter. So we continue to look at where those opportunities are in the specialty. The $300 million is a round number, it includes maintenance and includes cost reduction and it includes other specialty investments. So we continue to look at, where there's opportunities to invest with features and especially in finishing channels with our wonderful footprint of 40 type facilities in 40 countries to really grow and we also, as you recall announced capacity additions in Mexico, which we announced in January $30 million, which was for both the core and the specialty growth in Mexico. So we're always looking at where the dynamics are growing for specialty growth and what kind of features and capacity we need to address those needs and so that $300 million is part of that.

Okay. All right, well, thank you.

Next we'll go to Farha Aslam with Stephens. Please go ahead.

So, when we look at your North American business and that footprint, Ilene, that you discussed, clearly this year you are getting incremental synergies from the Penford acquisition. As you look further are there more opportunities for you to optimize North America going into next year and perhaps beyond?

Well, I'll start and then turn it over Jack. We're always looking for those opportunities and as you know, when we bought National Starch and even with Penford, we look for acquisitions that primarily add features to help us address the changing demand of consumers with specialty products, but at the same time as we optimize the network, we look at moving specs around and so that's given us opportunities from both National Starch and from Penford that we refer to as cost reduction, that gives us opportunities to optimize the network by moving those around in different facilities and so we continue to look at that. I don't know Jack, you've been involved.

No, I think Farha I think the opportunities are endless to a certain extent when you look at all your configuration of plants and how you can deploy them effectively and we had the, I would like to highlight to that, Penford acquisition and potato facilities as well which are little unique and grow some of our good growth from a revenue perspective, but the primary portion was they had a facility down in Cedar Rapids which was a corn refining facility and we were able to optimize that looking at the configuration of all our facilities in North America moving around where we're producing product, where the freight rates were. It's a fairly complex exercise but it's one that we continue to look at. I would say that, there will be continued synergies we probably won't talk to them as much kind of going into the future or anything like that. Since we're kind of getting to the end of that two year period, but I continue to expect always doing optimization - manufacturing network.

And just as a follow-up on South America. Could you share with us some deeper dynamics in Argentina? How you are seeing that market, particularly as it relates to sugar, going into the second half of the year? And how you expect to transpire [ph] going into next year as perhaps the economy begins to, "normalize a little bit?"

I'll start and then Ilene may have something to add, but you know fundamentally it is a challenging environment in Argentina, right now. I think what we are seeing is inflation still there even after the devaluation that took place late in December last year and the continued devaluation, sugar moving through the market. But the real thing that kind of impacted us more than we anticipated I would call it, that's one of the reasons we're calling South America down now is, the consumer disposable income seem to shrink considerably within Argentina, as they took some of the subsidies away from, whether it be their fuel bills and things, so this is traditionally our slowest period. Don't forget during the winter months right now and what we're seeing is contraction of demand which being in the food and beverage segment, you don't usually see as much contraction and demand as we're seeing there and so is that whole consumer disposable income and so the real question will become, when will it come back? I'm not going to predict 2017 or anything else at this point in time because it seems like it's a little bit elongated. I think Macri has done the right things in general. He's taken some of the subsidies off and getting the bank to a more, I'll say free [ph] market economy type of basis but it's been a little bit delayed in terms of how we anticipate it. In second we've got it kind of running a little bit better because of the seasonality of our business. We're still looking at soft volumes in Argentina. Maybe I can ask Ilene if she has another comment.

Well, the only thing I would add as I look at the whole region, the South America region is, I continue to be very excited about Colombia. I mean, with their GDP rate of 2.5%, I was recently in Medellin very exciting environment with opportunities to grow specialty, so while it's smaller than let's say Brazil or Southern Cone both Colombia and Peru that whole pacific coast continues to have opportunities. So there are parts of South America that continue to do very well and as Jack said, we believe strongly in the region and at some point both Brazil and Southern Cone we believe will join the North West with some of the demand that's coming out of Colombia.

Great, thank you for the added color.

Our next question is from Adam Kendrick with Morningstar. Please go ahead.

I would like to ask a question about the mix impact on the percentage of your business, specialty and the percentage of this core. Because I get the feeling that must have moved a lot particularly since you have closed some of the low margin business, Port Colborne has been closed and you have expanded capacity and are continuing to expand in specialty.

I think every year we're kind of wrap up our percentages, we're trying to drive to that 30% category last year we moved by 1% to 24% to 25% and so it's a combination of many things. So you know our specialty business we're very pleased with the growth rates that we're seeing there and as Ilene indicated, we have capacity coming on stream now in North America to meet some of the demand of those products as well as in Asia, we have some incremental capacity which will be coming on later in the year. So I think from a supply perspective we're in pretty good shape, in terms of the growth projections we're seeing in there. And so you know I think we're still tracking fairly well in terms of our speciality growth and as we anticipated getting to the 30% level by 2019.

Good. And I was going to ask you a follow-up question on the price mix. How much of the 6% in the quarter was actually price and how much is mix? If you can maybe cast some light on that even if you maybe can't give us precise figures.

If you look at the price mix, we've got that continual trade up and what we had commented on in our earnings algorithm is if you held corn and all the inputs constant [ph] including exchange that the price mix would improve our margins by about 2 percentage points over the period of five years. Now what we have seen though, you have to understand is that we did have some of the devaluations that took place last year as well that we say that it takes three to six months to price that through and some of it is recovering some of the devaluations from last year that took place and so we're tracking fairly well and getting our margins back in line with what we anticipated them to be at that point.

The other thing I would add is and we talked about this last quarter that we, also with the optimization of our network, have been able to trade up in both the core and the specialty. So you're getting a combination of growth in the specialty that we continually talk about but also a trade up within the different categories.

Good, that is fine. Thanks.

Next we'll go to Kem Zaslow with BMO Capital Markets. Please go ahead.

Good morning, this is Patrick filling in for Ken. You guys talked a little bit about the Argentinean operating outlook earlier. I just wanted to follow up on the legislative environment. It seems like farmer supply increased corn planting in light of the favorable tariff environment. On the other hand I think Macri relaunched the price controls early on this quarter. So, I'm just wondering how you guys kind of net the two together.

Well, it's interesting because as they've taken off the subsidies on the corn, it becomes maybe a slightly beneficial crop compared to soybeans from an export perspective, so there will be more plantings, it depends on how much is exported, so that's always a tough call for us in terms of how much goes out of the domestic markets, since we're looking at the domestic market for our consumptions. The netting of the two, I think that really, it's really from our vantage point much more because of the fact that Argentina is principally a core ingredients play with us and it has some HFCS, it’s really what happens to sugar in that domestic market. And we anticipate that sugar should start to move up to those normalized type of world sugar prices, we haven't seen that at this point in time. I don't really think that the price controls as a limiting factor there, it's just a supply-demand balance as consumption being low right now, but I do think it will get into a more normalized environment, where you have relatively cost effective corn, which you know Argentina always had and then, if the domestic market goes closer to the world sugar market, it should bode well in terms of getting the least margins, by some margin improvement going into the future, but I still think the big issue there is buying demand in terms of consumer demand is just dark [ph] right now, as they go through this transition.

And I think the other thing I would add is, as you know on the utilities for many of the consumers as the subsidies were removed, utilities went very high for the consumer and the recent legislation in July where the government promised to cap it at 400% and even to go retroactive for consumers back to April will right size that and give the consumer a little bit of confidence that at least they won't see it, to be any worse than it's been and maybe even better for some people, so that's a piece of legislation that I think was very positive for the consumer at least and as they come out of the winter, it will certainly improve.

Yes. Sticking with legislation or but changing the geographies. You talk a little bit about non-GMO growth helping specialty in North America. I am just wondering if the US does pass the GMO labeling law how will that kind of accelerate your specialty growth, will that structurally improve your North American margins? Any color would be appreciated.

I mean I would say that I think that having the US rule on a labeling law will help the our overall customers rather than having to deal with different states and certainly it helps them from the supply chain and the packaging side, but I think the trend in the demand for consumer. Well consumers really want to know that their food is healthy, healthy ingredients and so it plays very well in terms of our specialty portfolio, so the demands we're seeing everything from people wanting simple food, simple labels, non-GMO they look at that as a proxy for healthy, there's no definition of natural. So in a way non-GMO I think helps the consumer feel better, they pay more for it. So I think certainly we just supply what our customers want and don't particularly have a view on whether labeling is good or bad, so to speak, but we're there to supply what our customers want and I think that the certainty for the consumer helps our customers in the terms of their supply chain.

Great, I will pass it along. Thank you.

And we'll go to Akshay Jagdale with Jefferies. Please go ahead.

Congratulations on another solid quarter. I wanted to ask about the specialty business maybe you can give us a little bit more color by region. The reason I am asking this is when you look at top-line trends in regions like EMEA, your organic growth slowed down sequentially a little bit. And in Asia-Pacific it is negative; those are two regions where the mix of specialty is higher. So it looks like on the surface just the top line - looking at top-line trends that maybe the specialty portfolio is slowing or not growing as fast. But I think you have to peel the onion and look at the EBIT trends to really understand what is going on. So, can you help us peel the onion a little bit on your specialty portfolio and give us by region a little bit more color on what the growth looks like? I mean North America we can talk about separately after that, if I may.

I'll start off and then turn it to Jack and I feel with it from a very high level in terms of, how I see the consumer trends in each of the regions. Certainly in North America as I said earlier, that the consumers demanding these healthy solutions and certainly Mexico is an engine to that in terms of the consumer wanting to eat more healthy. We supply ingredients very much focused on the food industry and as I mentioned some of the non-GMO and certainly in Mexico, the affordability is very important and that demand provides us an opportunity for some great recipes that we deliver to our customers in terms of gluten-free and non-GMO and substituting starch for oil, so that continues to go well and we've had that ability to grow speciality and even trade up in our different categories. South America of course, you know you have macroeconomics that are challenging at the same time, our team there is really growing our specialty products from a very low base, but even I look at the dairy sector some of the taste and desires in South America, even demand for Stevia-based products continues to grow and then if you go to EMEA, certainly in Europe which is very largely a specialty segment. The consumer is demanding our NOVATION type products that, as you know modify starch with heat, rather than enzymes very focus on the clean label aspects, continue to grow the capacity we've added in Europe continues to run very well and even run above design capacity, so that continues to go well and then in Asia Pacific, I think Jack will talk about the dynamics of the P&L, but we've able to grow our specialty in a place like Korea, where there's demand for specialty sweeteners people want to eat more healthy. China we continue to grow and even in Thailand, where we're adding some specialty capacity for both the region and for exports based on Tapioca, which also is the Casava is gluten-free and non-GMO. So we see the opportunities continue in all the different regions, but certainly different, different dynamics. So I know Jack, do you want to talk more specifically about the quarter or?

Maybe just add a little bit of color in terms of let's start with Asia Pacific for example and as you know that, our business is kind of we have some mature economies and some developing, I call it developing economies where mostly specialities are there and if you look specifically in the countries like China the volume continues to grow very well, we've seen very strong and that's all specialty sales. You see Japan the volume of specialty sales moved very relatively slow moving economy actually grew very well and Southeast Asia was another one that really highlighted, our growth in specialties through that region. So you might see a little bit of tempering in the region when you look at the total volume number, but that's primarily on the core side of the business and so I'm fairly confident that we're moving forward. Ilene mentioned Korea, but you know that's principally a core ingredient type of market and it's kind of moving along fairly slowly with population growth and so it kind of pushes down the absolute growth volumes and then when you talk about EMEA, you have to understand a couple of things there, as we have Pakistan which is core and then you've got your specialities which is really the European continents there and particularly in Europe, we've seen like in Europe's almost all specialty from our view point and so what we've seen is, particularly continental Europe growing very nicely at this point in time, it's coming forward with very strong growth. And so we were actually very pleased with some of the growth and the projections for growth going into the rest of this year as well. So I think Europe and APAC have both done a nice job and you've seen it through the GP because both of them had record quarters this quarter as well from an operating income perspective and so, it's kind of translating. You may not see it totally in volume because of some of the trade up strategy that we're deploying but you're seeing it in terms of profitability and so I think that's kind of how we're looking at the quarter as well as the year.

Okay. And then just on North America, first a question for the back half of the year. Is there anything specific to your cost structure or contracts that would meaningfully change the trajectory of the margins in the business relative to the first half? So, first half the margins have been 17.8%, 17.9%. I know you manage it on a dollar basis. But from a modeling perspective is there anything you'd just call out that might change the trajectory one way or the other whether it's how your corn costs shape up or how the contracts might be flowing through?

Akshay, as you know we don't give the quarterly guidance just for that reason because we always have fluctuation of how the corns layered in year-over-year on our fixed price business and things and if you think about, what I would say is if you're looking first half versus second half, the first half was it worked very well for us, we had good utilization, I mentioned some of the weather was positive so we had good energy and logistic savings coming out of it. Some of these we're not looking quite the same type of rates in the second quarter and the fourth quarter really comes down to utilization rates, you know we're still I think, we talked last quarter a little bit about, how and with the closure of Port Colborne it allowed us to run during the first quarter a little bit higher utilization rates and we'll be balancing our inventories during the fourth quarter of this year and so we'll have to see, whether we're running strong or weak depending on supply-demand in some of our core ingredients in the fourth quarter. So you know I think that's one of the things that could change around the layout of the quarters, but fundamentally you know we're still seeing a very positive outlook in North America, I think we're very pleased with it, Mexico continues to do very well for us and the rest of it kind of just lays out the way we've got our forecast in place.

And just one more on North America. If you look at next year just generally speaking and you think of the algorithm between core and specialty. If utilization rates stay where they are today and the contracting season goes okay, we should see productivity improvements driving low-to-mid single-digit EBIT growth in core and continued double-digit growth in specialty, is that how we should think of generally the algorithm with the current operating dynamics or is the specialty business maybe then go even faster next year because of this new capacity that's coming on.

I think you know you have to look at our algorithm at over five-year period. Where we are seeing that, first of all the operating income was growing at that 68% type of range organically the remaining one-third came from acquisition and that 2% to 4% in terms of volume growth and it was really driven by both small core growth and the mid-to-high single-digit specialty growth. And so obviously when you start-up new facilities, you don't sell them out immediately or anything like that, so it takes a while to get them moving through our supply chain and approval by our customers and demand there. I think what's nice about the capacity increases is we have the capacity to fulfil that future demand and so I think you really have to look at algorithm over like the longer period of time, that was if anticipated for and just use it as a guide.

And I think the other thing I would add is, we talk about using our strong balance sheet to look at M&A opportunities and as we've said before, the primary focus is on broadening the portfolio and growing in specialty. So talking about Jack's algorithm that he just talked about, I mean that in addition to our organic growth and using our capability in product development and R&D at Bridgewater, we continue to look at M&A that would be part of that specialty growth on top of that and so we think, that will continue to support the algorithm over the five years. So that would enhance that growth rate over the five years.

And just one last one on M&A and cash deployment, you obviously have been very efficient with your balance sheet. But given the strong run in the stock with this solid performance, how does that change the priorities for cash? Does it open up any transformational deal type opportunities? Or just help me think through, I know you are very disciplined in terms of a filter on what you are going to buy and things like that. But just help me understand, does stock having had a good performance have any real impact on the way you are thinking about cash deployment? Thanks.

We continue to be very disciplined and but M&A of course is a priority, use of cash after we've funded our operations, so we talked about the $300 million, but we continue to look for opportunities around the world to build the portfolio with acquisitions that would create value for our customers and for shareholders and at the same time, as Jack talked about both our dividend and share buyback is another part of using cash. So but again, I would say that the priorities haven't changed and we're just continued to be a very disciplined owners of our shareholders money and delivering value for our customers, making us more important in terms of really broadening the portfolio.

Thanks a lot, I will pass it on.

And we'll go to Adam Samuelson with Goldman Sachs. Please go ahead.

So, maybe coming back to the North American margin question and I am trying to just, and I appreciate some of the incremental color on some of the drivers of the margin upside, the gains you have had the last quarter and year, frankly. Logistics, energy in particular, would you characterize those this year as being particularly advantageous or favorable? Is it something where in a more normal winter environment and over the next 12 months because that could be something that is a little bit maybe less favorable than it has been? Or do you think there are more structural transformations in your internal product flows that have been - that have boosted the bottom line?

Let me just talk a little bit about the - the winter is a mild winter and you know we have extreme winters, we have mild winters, this was one that was mild. I'd say on average within a tolerable range in terms of we didn't have real upsets this year and the plants ran continually well. But one of the things that I think we have to give some credit to is, our operations continually drive for reliability and we've really spent a lot of our continuous improvement in terms of reliability of our facilities and so we put in backup systems and contingencies on those and so we continue to drive that efficiency which it makes it much more effective and that's why we continue enable ourselves to do network optimization as well because as our facilities are very reliable. They continue to say okay, how do we treat between different plants producing products in different locations and so you know, I think I wouldn't put as obviously if we have a string like we did a polar vortex, which was the other opposite extreme, it's not at these type of levels. So you know like I think, I just highlighted because of the fact it has been a very good quarter from a logistics perspective and let's face it, energy rates are down. Diesel prices are down in terms of transportation cost and so some of those flow right through to us, as well as customers in many case.

Okay, that's helpful. And maybe going to - one of the comments on the back half outlook and your comments on we will have to see on utilization rates in the fourth quarter as we think about inventories for core products. Can you talk about the volume and demand trends this year and how the balance of risks on utilization in the fourth quarter and what would make you more concerned about your own or industry inventory levels or less concerned and more optimistic?

Right now and the demand is been pretty steady in terms just in general and so it's been, a fairly constant normal year from our perspective from that view point. I think where I was little concerned with on the execution of our Port Colborne sale and how we distributed that back into our network, to make sure that we're supplying our customers, we have a very high level of customer satisfaction that we're driving towards and so therefore you know I was looking in the fourth quarter and you just never know how that fourth quarter is going to materialize whether we need because when we thought we were at capacity, will be extremely tight in the first quarter and as we built up some of our products, but with the plants running extremely well, we're in good shape in that perspective.

And of course in South America seasonally, it will be summer time by the fourth quarter and so naturally yet better demand than you get right now.

I think that's a very good point and I would like to highlight something too Adam, I mean like one of the things there's a bit of anomaly we look around the entire globe, but South America is one of the few locations that have actually ended up with higher energy cost coming through as well just because some of the subsidies coming off, some of the dollar impact and things and so I'm like a lot of our regions, that is one of the negatives that is impacting South America, right now.

Yes, so that's helpful color, I will pass it on, thanks.

We'll go to Sandy Klugman with Vertical Research. Please go ahead.

Good morning, you have covered a lot of territory here, but I will try to find some new questions. On FX you continue to see a lot of volatility. I was hoping you could comment on how that's impacting your ability to recoup currency headwinds through higher prices. Specifically are you finding that the process is taking longer than the typical three to six month timeframe that you cited in the past? Or do you expect things to remain in line with your historical trends?

The volatility always changes a little bit because you'd seen the dollar strengthen in certain currencies then move back and so it really is a longer term type of proposal. So I think they we're actually managing very well, even in those challenging economies like Brazil and things. We've been able to keep our dollar margins and don't forget I just want to highlight the one component is that and we're talking about pricing back through, it doesn't necessarily correlate one-to-one on the revenue line because we're really pricing back the margin component of that and so I think we're doing a very admirable job in terms of managing through these volatilities. You've seen it even in APAC, where we've managed the get the margins back in check with after the devaluation in Brazil and Argentina obviously with the supply-demand balance, it's always harder there's a little bit more headwinds in terms of soft demand and you're not too sure whether it's FX impact or not, but I would say is that sweetest six months in our business model, is really what we would like to target and it is one of those ones that I think is critical differentiator for us because of the fact that we kind of say, if our raw materials are basically US Dollars or asset basis US Dollars. I mean we need to get those margins back in US Dollars and so that's really is a philosophy of ours.

Great, thank you and then I know you are largely unexposed to price movements in corn through your tolling agreements. But is there any tailwind from this year's elevated production that might be reflected in your results? And specifically how should we think about the impact of the lower prices on your core product sales into the animal feed market?

We always look at it as principally pass-through even on grain related, we really try to pass some of those cost through. There's always the current year crop actually probably sets us up well for better demand as you know because pricing in general is impacted by us and so therefore, abundance of corn and lower price corn has a tendency of reducing any substitutes that some of the core ingredients that come into play and so it's usually good for volume perspective. We kind of factor in like the short-term fluctuations into our guidance as well and so I don't, we reviewed it and I feel comfortable with it at this point in time.

Thank you very much.

And with no further questions in queue, I'll turn it back to the company for any closing comments.

So just before we sign off, I want to reiterate our confidence in our business model that we talked about strategy, our long-term outlook [Ends abruptly]