Chicago / IL. (adm) Archer Daniels Midland Company (ADM) reported financial results for the quarter ended September 30, 2020. «We delivered an outstanding quarter, and I am proud of our team’s continued great performance,» said Chairman and CEO Juan Luciano.
«Across the enterprise, ADM colleagues are doing what it takes to help our customers and our company succeed and grow. Our strategic initiatives, combined with exceptional execution, are driving strong results across all of our businesses. Readiness is enhancing our performance, accelerating our work in areas ranging from operations to sales. Our strong cash generation is allowing us to retire higher-cost debt while retaining balance sheet flexibility. And Nutrition continues its impressive upward trajectory, delivering a fifth consecutive quarter of 20-plus percent year-over-year operating profit growth.
«From our Strive 35 sustainability goals, to our partnership with Spiber to produce plant-based polymers, to the announcement of a significant expansion in probiotics with our new state-of-the art facility in Valencia, we’re advancing our work to enrich the quality of life around the globe. We’re excited about our future as we look ahead to another strong quarter, with positive momentum continuing through 2021.»
Third Quarter 2020 Highlights
| (Amounts in millions except per share amounts) | 2020 | 2019 | ||||||
| Earnings per share (as reported) | USD | 0.40 | USD | 0.72 | ||||
| Adjusted earnings per share(1) | USD | 0.89 | USD | 0.77 | ||||
| Segment operating profit | USD | 904 | USD | 758 | ||||
| Adjusted segment operating profit1 | USD | 849 | USD | 764 | ||||
| Ag Services and Oilseeds | 436 | 417 | ||||||
| Carbohydrate Solutions | 246 | 182 | ||||||
| Nutrition | 147 | 118 | ||||||
| Other Business | 20 | 47 | ||||||
EPS as reported of USD 0.40 includes a USD 0.53 per share charge related to early debt retirement, a USD 0.03 per share charge related to the mark-to-market adjustment of the exchangeable bond issued in August 2020, a USD 0.10 per share credit related to the gain on sale of Wilmar shares and certain assets, and other charges totaling USD 0.03 per share. Adjusted EPS, which excludes these items, was USD 0.89.1
(1) Non-GAAP financial measures; see pages 5, 10, 11 and 13 for explanations and reconciliations, including after-tax amounts.
Results of Operations
Ag Services + Oilseeds results were higher than the third quarter of 2019. Both Ag Services and Crushing saw expanding margins during the quarter, resulting in approximately USD 155 million in total negative timing effects, which are expected to reverse in the coming quarters.
- Ag Services executed extremely well to capitalize on strong North American industry export margins and volumes. Results were lower in South America, as the pace of Brazilian farmer selling slowed as expected following the aggressive selling in the first half of the year. Global Trade’s continued focus on serving customers contributed significantly to results, as did a USD 54 million settlement related to 2019 U.S. high water insurance claims. Negative timing impacts of almost USD 80 million led to lower overall results versus the prior year.
- In Crushing, strong execution in an environment of tighter soybean supplies and solid global demand for meal and oil supported improved execution margins in North and South America, partially offset by lower year-over-year margins in EMEAI. Negative timing impacts of approximately USD 75 million versus a gain of approximately USD 50 million recognized in the prior-year quarter led to lower year-over-year results.
- Refined Products and Other delivered significantly higher year-over-year results, driven by improved biodiesel margins around the globe. Packaged oils in South America also contributed.
- Equity earnings from Wilmar were substantially higher versus the prior-year period.
Carbohydrate Solutions results were significantly higher year over year.
- Starches and Sweeteners subsegment results were substantially higher versus the third quarter of 2019. In North America, balanced ethanol industry supply and demand drove improved wet mill ethanol margins versus the prior year. Demand for starches in North America was substantially stronger than earlier in the year, and higher than the prior-year quarter. Reduced food service demand affected sweetener and flour volumes, though retail demand for flour remained solid. Strong risk management and improved net corn costs contributed positively to results. EMEAI delivered improved results on higher demand and reduced manufacturing and raw material costs.
- In Vantage Corn Processors, distribution gains on wet mill ethanol, in addition to significantly improved year-over-year industry ethanol margins, helped to offset fixed costs from the two temporarily idled dry mills, driving higher year-over-year results. Increased volumes and margins of USP-grade industrial alcohol for hand sanitizer also supported improved performance.
Nutrition delivered its fifth consecutive quarter of 20-plus percent year-over-year profit growth.
- Human Nutrition results were substantially higher versus the prior-year quarter, with improved results across the business portfolio. Flavors delivered another exceptional quarter, driven by increased revenue globally and improved mix and margins. Plant-based proteins helped drive a solid performance in Specialty Ingredients. Sales growth in probiotics, along with income from the Spiber fermentation agreement, contributed to strong results in Health + Wellness.
- Animal Nutrition was higher year over year. Continued delivery of Neovia synergies, strength in livestock feed and year-over-year improvement in amino acids were partially offset by softer aquaculture feed demand as well as negative foreign currency impacts.
Other Business results were lower, driven by lower ADM Investor Services earnings and captive insurance underwriting losses, including a USD 17 million settlement impact for the high water claim with Ag Services + Oilseeds.
Other Items of Note
Segment operating profit of USD 904 million for the quarter includes charges related to asset impairment, restructuring, and settlement activities of USD 2 million and gains on the sale of Wilmar shares and certain assets of USD 57 million (USD 0.10 per share).
During the quarter, the company leveraged its strong cash position to re-balance its mix of long- and short-term debt, which will also reduce future interest payments, by economically retiring USD 1.2 billion of higher-coupon debt, resulting in a debt extinguishment charge of USD 396 million (USD 0.53 per share).
In Corporate results, unallocated corporate costs for the quarter were higher year over year due primarily to variable performance-related compensation expense accruals, which were low in the prior year. Other charges increased due to railroad maintenance expenses, partially offset by improved foreign hedging results on intercompany funding and investment gains in ADM Ventures. Corporate results also include the early debt retirement charge referenced above, a mark-to-market loss on the exchangeable bonds issued in August 2020 of USD 15 million (USD 0.03 per share), and an impairment charge of USD 6 million (USD 0.01 per share).
The effective tax rate for the quarter was a benefit of 13 percent compared to an expense of 19 percent in the prior year. The current quarter rate reflects the effects of the early debt retirement as well as the sale of Wilmar shares and increased year-over-year Wilmar earnings on the annual effective tax rate. The impact of U.S. tax credits, primarily the biodiesel and railroad tax credits, also contributed significantly to the decreased Q3 rate from the prior year; the railroad tax credits have an offsetting expense in cost of products sold. Absent the effect of EPS adjusting items, the effective tax rate for the current quarter was approximately 11 percent.
