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    Archer-Daniels-Midland Co (ADM)

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    Business Description

    ADM is a global leader in agricultural supply chain management and processing, offering a diverse range of products and solutions across three main business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. The company is involved in the origination, merchandising, transportation, and storage of agricultural raw materials, and processes oilseeds into vegetable oils and protein meals . ADM also converts corn and wheat into sweeteners, starches, syrups, glucose, and dextrose, and produces industrial alcohol . Additionally, ADM provides plant-based proteins, natural flavors, probiotics, and animal health and nutrition products .

    1. Ag Services and Oilseeds - Manages the origination, merchandising, transportation, and storage of agricultural raw materials, and processes oilseeds into vegetable oils and protein meals. Supplies peanuts and peanut-derived ingredients and engages in structured trade finance activities .
    2. Carbohydrate Solutions - Converts corn and wheat into products such as sweeteners, starches, syrups, glucose, and dextrose, and produces alcohol for industrial use. Involved in carbon capture and sequestration initiatives .
    3. Nutrition - Provides ingredients and solutions including plant-based proteins, natural flavors, and probiotics, and processes and distributes animal health and nutrition products .

    Q3 2024 Summary

    Initial Price$60.82July 1, 2024
    Final Price$59.52October 1, 2024
    Price Change$-1.30
    % Change-2.14%

    What went well

    • New CFO Monish Patolawala is implementing strong measures to improve financial integrity, drive cost savings, optimize capital allocation, and increase returns.
    • Despite challenges, the Health & Wellness segment is showing strong growth, with probiotics revenue up 14% year-over-year, and even higher growth in operating profit.
    • ADM expects high single-digit volume growth in crush, supported by the addition of the new Spiritwood facility running at full capacity.

    What went wrong

    • Declining U.S. crush margins due to increased global supply and regulatory uncertainty: ADM has experienced a decline in U.S. crush margins, attributed to higher crush rates in Argentina and Brazil and regulatory uncertainty in the oil sector, leading to market pressure and lower margins.
    • Operational challenges and delays in Nutrition segment recovery: The Decatur East facility, crucial for ADM's Human Nutrition segment, remains down, with its ramp-up delayed from the end of 2024 to the first quarter of 2025, resulting in significant costs and impacting profitability.
    • Potential negative impact from China's increased local commodity production: China's efforts to incentivize local corn production have reduced its corn imports, negatively affecting global trade flows and potentially impacting ADM's trading opportunities.

    Q&A Summary

    1. Crush Margins Outlook
      Q: Where are crush margins headed amid declines?
      A: Crush margins have declined due to higher crush rates in Argentina, Brazil, and North America, combined with regulatory uncertainty in the oil sector. While demand for meal and oil remains strong, increased supply and lack of regulatory clarity are pressuring margins. ADM is focusing on productivity, cost control, and cash management, anticipating normalization once regulatory issues clear.

    2. Earnings Growth in 2025
      Q: Can internal actions drive earnings growth in 2025?
      A: Management is using margin declines as an opportunity to enhance efficiency and accelerate key decisions. Although it's too early to forecast due to regulatory unknowns, they are concentrating on controllable factors like cash flow to improve returns, positioning for potential earnings growth in 2025.

    3. Q4 Guidance Risks
      Q: What are the risks to Q4 earnings guidance?
      A: Good export volumes are expected, with China buying beans and Europe buying corn. However, margin expansion hasn't materialized as forecasted. Crush margins are under pressure due to regulatory uncertainty, which may impact timing effects. Ethanol margins are near breakeven. The Nutrition segment shows improvements but faces some challenges. Anticipated insurance proceeds of $135 million add variability to Q4 earnings.

    4. Cost Focus and Priorities
      Q: What are Monish's key priorities to strengthen ADM?
      A: Priorities include remediating financial material weaknesses, enhancing processes and systems, and driving reductions in cash, cost, and capital. There's a focus on productivity, business simplification, digital transformation, and strategic portfolio management to deliver value and control factors within their reach.

    5. Capital Expenditure Plans
      Q: Will maintenance CapEx increase due to crush downtime?
      A: Next year's CapEx will remain solid to ensure plant upkeep and invest in automation and digitization. While European and Latin American plants are operating well, some North American plants faced issues but are improving. These challenges aren't expected to significantly elevate maintenance CapEx beyond planned levels.

    6. Insurance Proceeds Impact
      Q: How much are expected future insurance proceeds?
      A: Expected losses are approximately $100 million for Decatur West and $300–$400 million for Decatur East. ADM received $95 million in Q3 and expects $135 million in Q4. In 2025, they anticipate $50–$100 million, with remaining amounts in subsequent years, depending on ongoing assessments and settlements.

    7. Policy Changes Impact
      Q: How could tariffs and export taxes affect ADM?
      A: Potential reductions in Chinese UCO exports and U.S. tariffs on UCO could benefit ADM by leveling the playing field. Enhanced regulation and verification of feedstock origins may restore soybean and canola oil's share in feedstocks, provided transparency and fair rules are maintained.

    8. SG&A Costs Increase
      Q: Why is SG&A increasing more than inflation?
      A: SG&A growth is driven by higher litigation costs related to material weaknesses and investments in digital transformation. Additional expenses from recent M&A activities contribute to the increase. The company is implementing zero-based budgeting and seeking functional excellence to control costs while continuing essential investments.

    9. China's Commodity Production
      Q: How is China's increased production impacting trade?
      A: China has encouraged local corn production, reducing corn imports this year. This policy-driven shift affects global trade flows. In contrast, soybean imports remain stable as China refreshes reserves, so the impact is more significant in corn than in soybeans.

    10. Brazilian Real Depreciation
      Q: How does Brazilian real’s depreciation affect ADM?
      A: Devaluation impacts farmer selling behaviors; Brazilian farmers have become more reluctant sellers, affecting grain commercialization. This reluctance influences ADM's ability to source grain efficiently in Latin America, potentially affecting supply and margins in the region.

    Guidance Changes

    Annual guidance for FY 2024:

    • Adjusted EPS: $4.50–$5.00 (lowered from prior guidance “unchanged for FY 2024” )
    • Capital Expenditures: ~$1.5B (raised from $700M )
    • Corporate Costs: $1.7B–$1.8B (no prior guidance)
    • Corporate Net Interest Expense: $475M–$525M (no prior guidance)
    • Effective Tax Rate: 20%–22% (no prior guidance)
    • Leverage Ratio and Depreciation & Amortization (D&A): Unchanged (no prior guidance)
    • Reinsurance Proceeds: $35M and $50M for Decatur East and West incidents (no prior guidance)

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Benjamin I. BardVice President and Chief Integrity OfficerDecember 2023Benjamin I. Bard is the Vice President and Chief Integrity Officer at ADM, a position he has held since December 2023. Prior to this role, he served as the Vice President and Chief Audit Executive from June 2021 .
    Camille BatisteSenior Vice President, Global Supply Chain and ProcurementMay 2021Camille Batiste has been serving as the Senior Vice President, Global Supply Chain and Procurement at ADM since May 2021. She was previously the President of Global Supply Chain from January 2020 to May 2021 .
    Christopher M. CuddySenior Vice President; President, Carbohydrate Solutions business unitMarch 2015Christopher M. Cuddy has been serving as Senior Vice President of the Company since May 2015 and as President of the Carbohydrate Solutions business unit since March 2015. He has been with ADM for 25 years .
    Pierre-Christophe DupratPresident, International Corn MillingAugust 2022Pierre-Christophe Duprat has been serving as President, International Corn Milling at ADM since August 2022. He was previously President of BioSolutions from August 2022 to January 2024 .
    Kristy FolkweinSenior Vice President; Chief Technology OfficerJanuary 2020Kristy Folkwein has been serving as Senior Vice President of ADM since March 2018 and took on the role of Chief Technology Officer in January 2020. She was previously the Chief Information Officer .
    Molly Strader FruitVice President, Corporate ControllerMarch 2021Molly Strader Fruit has been serving as the Vice President, Corporate Controller at ADM since March 2021. She was previously the Vice President of Global Financial Services from May 2019 to March 2021 .
    Leticia GoncalvesPresident, Precision Fermentation and ADM VenturesNovember 2023Leticia Goncalves is the President of Precision Fermentation and ADM Ventures at ADM since November 2023. She was previously President of Global Foods from March 2021 to November 2023 .
    Regina Bynote JonesSenior Vice President, General Counsel and SecretarySeptember 5, 2023Regina Bynote Jones has been serving as the Senior Vice President, General Counsel, and Secretary at ADM since September 5, 2023. She was previously the Chief Legal Officer at Baker Hughes .
    Domingo LastraPresident, South AmericaJuly 2017Domingo Lastra has been serving as the President, South America at ADM since July 2017 .
    Juan R. LucianoChair of the Board of Directors; Chief Executive Officer and PresidentJanuary 2015Juan R. Luciano has been with ADM since 2011. He became the Chair of the Board of Directors in January 2016 and has served as the Chief Executive Officer and President since January 2015 .
    Rodolfo LutermanVice President and Corporate TreasurerDecember 2023Rodolfo Luterman has been serving as the Vice President and Corporate Treasurer at ADM since December 2023. He was previously the Assistant Treasurer from July 2022 to December 2023 .
    Gary McGuiganPresident, Asia PacificDecember 2023Gary McGuigan has been serving as President, Asia Pacific since December 2023. He was previously the Chief Risk Officer from November 2021 to January 2024 .
    Nuria MiguelSenior Vice President and Chief Science OfficerAugust 2023Nuria Miguel has been serving as the Senior Vice President and Chief Science Officer at ADM since August 2023. She was previously the Vice President of Human and Animal Nutrition .
    Gregory A. MorrisSenior Vice President; President, Ag Services & Oilseeds business unitJuly 2019Gregory A. Morris has been a Senior Vice President at ADM since November 2014 and has served as the President of the Ag Services & Oilseeds business unit since July 2019 .
    Dermot O'GradySenior Vice President, Global OperationsNovember 2023Dermot O'Grady has been serving as the Senior Vice President, Global Operations at ADM since November 2023. He was previously the Vice President of Oilseeds Operations - EMEA .
    Ian PinnerSenior Vice President; President, Nutrition business unit and Chief Sales and Marketing OfficerNovember 2023Ian Pinner has been a Senior Vice President at ADM since January 2020. He currently serves as the President of the Nutrition business unit and Chief Sales and Marketing Officer .
    Ismael RoigSenior Vice President; Interim Chief Financial OfficerJanuary 2024Ismael Roig has been a Senior Vice President at ADM since December 2015. He was appointed as the Interim Chief Financial Officer in January 2024 .
    Joseph D. TaetsSenior Vice President; President, Animal NutritionFebruary 2024Joseph D. Taets has been a Senior Vice President at ADM since August 2011. He currently serves as the President of Animal Nutrition, a position he has held since February 2024 .
    Jon TurneyPresident, EMEA Oilseeds and Chief Risk OfficerJanuary 2024Jon Turney has been serving as the President, EMEA Oilseeds and Chief Risk Officer since January 2024. He was previously the Vice President, Oilseeds Crush EMEA .
    Thuy-Nga T. VoChief Counsel, Corporate, Securities, and Mergers and Acquisitions and Assistant SecretaryJanuary 2017Thuy-Nga T. Vo has been serving as Chief Counsel, Corporate, Securities, and Mergers and Acquisitions and Assistant Secretary at ADM since January 2017 .
    Jennifer L. WeberSenior Vice President, Chief People and Diversity OfficerAugust 2020Jennifer L. Weber has been serving as the Senior Vice President, Chief People and Diversity Officer at ADM since August 2020. She was previously the Executive Vice President of Human Resources at Lowe’s Companies, Inc. .
    Monish PatolawalaExecutive Vice President and Chief Financial OfficerAugust 1, 2024Monish Patolawala joined ADM as Executive Vice President and Chief Financial Officer effective August 1, 2024. He was previously President and Chief Financial Officer of 3M Company .
    David R. McAtee IIBoard Member, appointed to the Nominating and Corporate Governance Committee and the Compensation and Succession CommitteeNovember 1, 2024David R. McAtee II was elected as an independent director to the Board of Directors of ADM on November 1, 2024. He was appointed to serve on both the Nominating and Corporate Governance Committee and the Compensation and Succession Committee .

    Questions to Ask Management

    1. Given the material weaknesses identified in your internal controls and financial reporting, can you elaborate on the specific steps you are taking to remediate these issues and ensure integrity moving forward?
    2. You've lowered your full year 2024 adjusted earnings per share guidance due to internal operational challenges and slow market demand; can you provide more detail on these challenges and how you plan to address them?
    3. With regulatory uncertainty impacting canola crush margins and delays in new nutrition projects due to customer cost management, what strategies are you implementing to mitigate these headwinds and drive growth in these areas?
    4. Considering your plans to optimize the portfolio through targeted divestitures or rationalizations, can you specify which areas or assets you're evaluating and how these actions will enhance shareholder value?
    5. As you focus on capital allocation and mentioned capital expenditures of approximately $1.5 billion, how are you balancing necessary maintenance investments with opportunities in digital enhancements and operational improvements in a challenging market environment?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateNovember 5, 2014 August 7, 2019
    End Date/DurationDecember 31, 2019 December 31, 2024
    Total additional amount100,000,000 shares 100,000,000 shares
    Remaining authorizationN/A14.8 million shares
    DetailsInitial program Extended program

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Earnings Per Share (EPS): Lowered to $4.50 to $5.00 per share .
      2. Corporate Costs: Expected to be $1.7 billion to $1.8 billion .
      3. Corporate Net Interest Expense: $475 million to $525 million .
      4. Capital Expenditures: Approximately $1.5 billion .
      5. Effective Tax Rate: 20% to 22% .
      6. Leverage Ratio and Depreciation & Amortization (D&A): Unchanged .
      7. Reinsurance Proceeds: $35 million and $50 million for Decatur East and West incidents, respectively .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      1. Earnings Per Share (EPS): Unchanged for FY 2024 .
      2. Soybean Crush Margins: $35 to $60 per metric ton .
      3. Nutrition Segment: Year-over-year improvement expected .
      4. Cost Savings: $500 million by end of 2024 .
      5. Capital Expenditures (CapEx): $700 million .
      6. Ethanol Demand: Solid demand expected .
      7. Carbohydrate Solutions: Strong performance anticipated .
      8. Animal Nutrition: Improvement continues .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      1. Earnings Per Share (EPS): Unchanged .
      2. Corporate Net Interest Expense: Raised to $525 million .
      3. Capital Expenditures: Aligned with depreciation and amortization .
      4. Share Repurchases: Additional $1 billion planned .
      5. Nutrition Segment: Sequential improvement expected .
      6. Ag Services and Oilseeds (AS&O): Lower than prior year .
      7. Carbohydrate Solutions: Higher than prior year .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Earnings Per Share (EPS): $5.25 to $6.25 per share .
      2. Global Soybean Crush Margins: $35 to $60 per metric ton .
      3. Capital Expenditures: Aligned with depreciation and amortization .
      4. Share Repurchases: $2 billion planned .
      5. Segment Expectations:
        • AS&O: Lower than prior periods .
        • Carbohydrate Solutions: Strong but slightly lower than 2023 .
        • Nutrition: Mid-single-digit revenue growth expected .
      6. Vegetable Oil Demand: Growth expected .

    Latest news

    Recent developments and announcements about ADM.

    Financial Reporting

      Earnings Call

      ·
      Dec 4, 2024, 9:07 AM

      ADM recently held its third quarter earnings call, where several key points were discussed. The company reported a third quarter adjusted earnings per share of $1.09 and a total segment operating profit of $1 billion, bringing the year-to-date figures to $3.61 per share and $3.2 billion in operating profit for 2024 . Despite these results, ADM acknowledged challenges, including a decline in total segment operating profit and operating cash flow due to lower net earnings compared to the previous year .

      Management provided forward guidance, lowering the full-year 2024 adjusted earnings per share to a range of $4.50 to $5.00, citing slow market demand and internal operational challenges as contributing factors . The company also anticipates corporate costs to be between $1.7 billion and $1.8 billion, with capital expenditures expected to be approximately $1.5 billion .

      Strategically, ADM is focusing on cost management and operational resilience, with efforts to enhance internal controls and financial reporting . The company is also prioritizing cash generation and portfolio optimization to improve returns on invested capital (ROIC) .

      During the call, analysts inquired about various aspects of ADM's operations. Questions were raised about the Nutrition segment, particularly regarding the impact of unplanned downtime at the Decatur East facility and the performance of the Human Nutrition business . Management highlighted growth in the Flavors and Health & Wellness segments, despite some challenges in other areas .

      ADM also discussed the impact of global market conditions, including regulatory uncertainties and changes in commodity production in China, which have affected trade dynamics . The company is actively managing these challenges through scenario planning and maintaining agility in its operations .

      Overall, ADM is navigating a challenging market environment by focusing on internal efficiencies and strategic initiatives to drive future growth and shareholder value.

      Earnings Report

      ·
      Nov 19, 2024, 8:00 PM

      ADM Third Quarter 2024 Earnings Results

      Archer-Daniels-Midland Company (ADM) released its third quarter 2024 earnings results on November 18, 2024. Here are the key highlights from the report:

      • Net Earnings: ADM reported net earnings of $18 million for the third quarter of 2024. However, adjusted net earnings were significantly higher at $530 million, reflecting adjustments for non-cash charges and other specified items .

      • Earnings Per Share (EPS): The company reported a GAAP EPS of $0.04, while the adjusted EPS was $1.09, both showing a decline compared to the previous year .

      • Revenue and Profit: Total revenues for the quarter were $19,937 million, down from $21,695 million in the same quarter last year. The total segment operating profit was $1,037 million, a decrease of 28% from the previous year .

      • Segment Performance:

        • Ag Services & Oilseeds: This segment saw a 43% decline in operating profit to $480 million, impacted by lower margins and higher logistics costs .
        • Carbohydrate Solutions: Operating profit was slightly down by 3% to $452 million, with strong performance in starches and sweeteners offset by lower margins in other areas .
        • Nutrition: The segment's operating profit decreased by 19% to $105 million, affected by lower margins and higher costs in Human Nutrition .

      • Cash Flows: Year-to-date cash flows from operating activities were $2,468 million, compared to $1,891 million in the prior year period .

      • Outlook: ADM anticipates continued challenges with softer market conditions expected into the next year. The company is focusing on productivity and operational excellence to drive value creation .

      These results reflect the ongoing challenges in the market, including lower margins and higher costs, which have impacted ADM's financial performance in the third quarter of 2024.

      Financial Restatements

      ·
      Nov 5, 2024, 12:00 AM

      Financial Restatement Alert: Archer-Daniels-Midland Company (ADM)

      Date of Announcement: November 4, 2024

      Details of the Restatement: Archer-Daniels-Midland Company (ADM) has announced that it will restate its financial statements for fiscal year 2023 and the first two quarters of 2024. This decision follows discussions with the U.S. Securities and Exchange Commission and is due to errors in segment information disclosure. The restatement will address intersegment sales that were either not in accordance with prior disclosures or misclassified as intrasegment sales. These errors were identified during the testing of new controls implemented to remediate a previously identified material weakness in the company's internal control over financial reporting .

      Potential Effects on the Company: The restatements are not expected to materially impact ADM's consolidated financial statements, including earnings, comprehensive income, balance sheets, cash flow, or shareholders' equity. However, the company is actively working on enhancing its internal controls and has provided training to relevant personnel to prevent future errors. The management is also in discussions with its independent registered public accounting firm, Ernst & Young LLP, to ensure the accuracy and integrity of its financial reporting .

      Forward-Looking Statements: ADM has issued cautionary notes regarding forward-looking statements, highlighting the risks and uncertainties involved. These statements are not guarantees of future performance and are subject to change based on various factors .

      Conclusion: ADM is taking significant steps to address the identified issues and improve its financial reporting processes. The restatement is a proactive measure to ensure compliance and accuracy in its financial disclosures.

      For more detailed information, please refer to the company's official filings and announcements.