If that stimulus happens, that’s an opportunity for us, that’s always good for unit volumes of our customers, and we supply ingredients that support those unit volume sales. I would note that just on one thing, which is within our 2023 results, we’re still absorbing a loss on plant based proteins. And so, that operating loss was just over $40 million. In addition, as the plant-based protein market had slowed down, we did recognize upwards of about $15 million of mark-to-market on inventory value for our plant-based proteins. So, that’s in our numbers for 2023. So, as we look to 2024, we’re going to improve upon that, and we’ll improve upon that in 2025. Further in 2024, a good solid year for sugar reduction. And as we go forward into 2025, we’ll still have the opportunity to take advantage of the additional capacity that we put into our Kuala Lumpur facility and drive growth there.
So, I think there are some things that we’re organically doing that we continue to work that are going to be builders in our operating income as we go forward.
James P. Zallie: Yes. I do think, Jim, it was helpful that you clarified about the protein fortification loss, operating loss and inventory adjustment. That $55 million total is in the 23% increase in operating income last year, and we believe that that has been taken to a low point, where we’re seeing improvements heading into this year. So, that’s something that we are encouraged about as well.
Kristen Owen: Really appreciate the color. I’ll take the rest of my questions offline. Thank you so much.
James D. Gray: Great. Thank you, Kristen.
Operator: [Operator Instructions] Our next question will come from the line of Josh Spector with UBS.
Josh Spector: Yes, hi. Good morning. A quick clarification one on the guide and a question to follow. Just around the operating income side, you made the point on sales that it’s excluding South Korea. Is the operating income guide up mid-single-digit excluding the South Korea impact in 2023 or is that asset based reported number?
James D. Gray: No, it excludes it.
Josh Spector: Okay.
James D. Gray: Yes.
Josh Spector: So then, I guess, organically then, you’re talking about more of a high-single-digitish, operating income growth relative to volumes up low-single. So, can you kind of bridge maybe the pieces of that EBIT that gets you to that level? So, how much is volume leverage and just the movement in price cost between first quarter and the rest of the year, is that a good or bad guide for the year? Is there anything else we should be thinking about?
James D. Gray: Yes. Well, Josh, maybe pull apart the pieces, because I don’t know, maybe we’ve interpreted in our guide the way that you might be reading it. We looked at 2023 and that’s a complete year. We’ve effectively sold Korea early in 2024. So we look at, well, what did Korea contribute to 2023? That contribution won’t be there in 2024. So, that’s kind of our new baseline. And then we issued our outlook, our guidance off of that baseline. And so, when we see adjusted operating income up in the mid-single-digits, essentially what we’re counting on is a return on actual volume is going to be offset by a little bit of price pass through due to lower raw materials, but we’re seeing dramatically lower corn costs and some input costs, and so the lower COGS is helping us.
The additional volume will help us on our manufacturing costs. And all of those come to contribute to a fairly pretty healthy change in our gross profit. We’re going to manage our OpEx tightly, and that provides us leverage to Op income.
Josh Spector: Okay. No, understood. And yes, I guess I did that math interpretation wrong, so I understand what you’re saying now. I was wondering if you could also comment on any of your trends you’re seeing in customer reformulation considering that business maybe is a leading indicator around new mix or products coming out. Is there anything there to give any optimism about maybe more new product introduction, helping you guys gain share, any insights kind of on trends you could share in that regard? Thanks.
James P. Zallie: I think we see a lot of focus on food service innovation, because you’re seeing still strong consumer spending and the pardon me, I’m just going — Jim, could you take it.
James D. Gray: I’ll grab one piece, right. So, the trend obviously since 2022, 2023 carrying a little bit into 2024 still has always been around affordability, right. With obviously with the cost of ingredients going up, our customers have looked at and said, hey, where can we actually design in affordability. So, that we can now going into 2024, that’s even more of a focus for some of our brand customers. And then I think what you’re also seeing is like, hey, I think with the soft landing, consumers feeling not so dire about maybe the economic outcome and maybe that’s just speaking from a U.S. perspective, but that some of the support behind wellness trends and some of their choices that we see in on front of pack. I think that’s going to start to emerge back in 2024.
James P. Zallie: Yes. I think continued focus on helpful solutions, a lot of focus on a dynamic consumer related to continued spending for experiences and mobility and an increasing focus on return to office, lunch trade, again, those foodservice type offerings where we’re very connected into the quick service restaurant trade. We’re seeing a lot of activity from a standpoint of ideation and innovation there. And I think Jim, emphasized just naturally, you’re going to see a lot of focus continually on affordability related to consumer debt that may be increasing and just overall affordability. I don’t think you’re going to see much more shrinkflation. I think that’s run its course and there’s been backlash. But I do think overall recipe formulation is what we’re seeing a lot of the briefs that we’re working with customers on.
James D. Gray: Hi, Josh, I’d always say, look, there’s an undercurrent. There’s always a theme with consumers in today’s world with blogs and the Internet. To think about authenticity in the ingredients and always to move towards natural, right. And so some of, I would say, is when we work on our Stevia business, just the underlying appeal to customers has always been around from nature ingredients, and everything that we make is from plants. And so, I think that is an overall trend that still supports us. And that’s a mega trend and that’s a long-term.
James P. Zallie: Yes. For sure, the high intensity natural sweetener space is something that we’re seeing a lot of attention. Based on a lot of the news that came out in the middle and towards the end of last year with some of the studies about the high intensity artificials as well.
Josh Spector: Thank you. Appreciate your thoughts.
James D. Gray: Sure thing.
Operator: Our next question will come from the line of Adam Samuelson with Goldman Sachs.
Adam Samuelson: Yes. Thank you. Good morning, everyone.
James P. Zallie: Hi, Adam.
James D. Gray: Hi, Adam.
Adam Samuelson: Hi. So, I guess first as I think about the bridge to 2024 and you guys have given some very helpful color. But I’m just trying to make sure I’m thinking about kind of fixed cost absorption and how the impact of volumes, what negative impact that had in 2023 as you managed through destocking and a high-single-digit decline in organic volumes. You’re talking about a low-single-digit increase in volumes in 2024. Obviously, that’s still well off where you would have been a couple of years ago. And I’m just trying to make sure, is there still fixed cost absorption charges embedded in the 2024 outlook? Or were you actually under shipping your own production last year, so you’re planning to ship to production this year, so that you can get your capacity absorption in the right place?
James D. Gray: Yes. It’s the latter, Adam. So, I think our planning team did a really nice job looking at the decline in orders, order volume shipped in 2023. We really tried to manage the finished goods inventory ending point. So, as we look at 2024 and we see that order volume and anticipate that order volume being up. And I think like you appropriately characterized it, I think you nailed it, which is like this is not a huge bounce back. This is a gradual improvement, but we do see an improvement in 2024 on order volume versus the lows, I think, that we saw in 2023. And I think we are poised for our production to start absorbing fixed costs and fixed cost, some fixed cost absorption is part of our guide for 2024.
Adam Samuelson: Okay. That’s helpful. And then just coming back to the question on capital and it ties into kind of use of proceeds with Korea, I guess I’m just trying to make sense of why not at a minimum use a placeholder to allocate the cash for buyback at this juncture? It would seem like there’s not much, if any buyback really assumed in the plan this year based on the average share count. And should we be thinking that, hey, there might be M&A that you’re kind of balancing against? Or what would be the condition by which you wouldn’t be deploying that excess cash flow and divestiture proceeds this year?
James D. Gray: Yes. Well, obviously, we are looking at and had worked on a number of items that are in our M&A pipeline, Yes, as well as, and as I mentioned kind of earlier though, thinking about there is cash proceeds. There is a healthy cash balance in terms of where we ended the year. And so, as we look at the shares and where they’re trade, that’s absolutely something that’s in our thinking. I don’t know if we’ve necessarily committed to it, because we don’t always know when windows are going to be open and, when we’re going to be able to execute on share repurchases.
