Q2 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- ADM anticipates significant sequential improvement in its Nutrition segment, with strong growth in Flavors (sales up 6% excluding M&A) and Health & Wellness (biotic sales growth up to 22%), contributing to a year-over-year improvement in Q3.
- The company is on track to exceed its $500 million cost savings target over two years, having delivered about $127 million in savings in the first half of 2024, ahead of schedule. This momentum is expected to accelerate, positively impacting all three business segments.
- ADM expects favorable biofuel policies to increase demand for vegetable oils, supporting crush margins in the medium to long term. The company sees the "pie getting bigger" with higher mandates for 2025, which is positive for crush margins.
- ADM's Specialty Ingredients segment is facing challenges with decreased demand and operational issues, particularly in texturants and emulsifiers, which have seen declining prices after record highs last year.
- Regulatory uncertainties in biofuels policy are causing short-term volatility and making it difficult for ADM to predict demand, especially due to movements in California's LCFS credits and potential changes in the biodiesel blender's tax credit.
- The Ag Services and Oilseeds segment is in a transition year, moving from tight supplies to a more balanced supply-demand environment, leading to challenging conditions and limited visibility into the second half, with heavy reliance on Q4 performance to meet earnings targets.
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Guidance and Margin Outlook
Q: Any changes to guidance amid tempered AS&O outlook?
A: Management maintained EPS guidance despite tempering language on Ag Services and Oilseeds (AS&O), citing strong performance in other segments. Current crush margins are exceeding the prior range of $35 to $60 per metric ton, but they prefer not to adjust guidance due to existing visibility and expectations heavily weighted toward Q4. -
Nutrition Segment Improvement
Q: Will Nutrition profits increase year-over-year despite past write-downs?
A: Management confirmed that Nutrition segment profits would grow year-over-year off a base of approximately $495 million. Sequential improvements are expected, with Q3 showing significant improvement over Q2. Growth drivers include strong performance in Flavors (sales up 6% excluding M&A), robust Probiotic sales (up 22%), and a recovery in demand after destocking. Specialty Ingredients faces challenges, but overall, the segment is optimistic. -
Cost and Productivity Initiatives
Q: Update on $500 million cost savings by 2025?
A: The company is on track with its cost-saving initiative, delivering about $127 million in the first half of the year, slightly ahead of the planned $125 million per half-year pace. Management expects to achieve the $500 million target well before the two-year mark, with cost savings accelerating across Carbohydrate Solutions, Nutrition, and Ag Services and Oilseeds. -
Crush Margins and Outlook
Q: Clarify the reported soybean crush margins and outlook.
A: The company reported soybean crush margins of $45 per ton in Q2. Current crush margins in the U.S. are between $60 to $70 per ton, with similar margins in Europe. Improved demand for soybean meal, partly due to Argentine farmers holding back sales, has bolstered margins. Management is positive about crush margins for the rest of the year, expecting strong U.S. crops and continued global demand. -
Ethanol Margins and Demand
Q: Are strong ethanol margins sustainable into the second half?
A: Ethanol margins have rebounded due to strong domestic demand and record exports, potentially reaching 1.7 to 1.9 billion gallons per year. Ethanol remains competitive with gasoline globally. Management believes margins are holding and bodes well for a strong Q3. The Sweeteners and Starches business also benefits from robust volumes and lower energy costs due to natural gas prices around $2. -
Argentina Farmer Selling Impact
Q: How might Argentina's farmer selling affect the market?
A: Argentine farmers are holding back soybean sales due to an unfavorable exchange rate gap of about 50% to 55% and low commodity prices. The government focuses on fighting inflation and is unlikely to unify the exchange rate soon. This situation may reduce soybean exports from Argentina, benefiting other markets like North America. -
Chinese UCO Imports and Soybean Oil
Q: What is the impact of Chinese UCO imports on soybean oil?
A: Imports of Used Cooking Oil (UCO) from China to the U.S. have slowed significantly. Factors include industry scrutiny over import quality and Europe's imposition of duties on Chinese products, redirecting UCO flows to Europe. A better-balanced North American feedstock market and rising palm oil prices bode well for U.S. soybean oil going forward.