ADM: Profit and Revenue Slide in Q3/2015

Chicago / IL. (adm) Archer Daniels Midland Company (ADM) reported financial results for the quarter ended September 30, 2015. The company reported adjusted earnings per share of 0.60 USD, down from 0.86 USD in the same period last year. Adjusted segment operating profit was 684 million USD, down 27 percent from 94 million USD in the year-ago period. Net earnings for the quarter were 252 million USD, or 0.41 USD per share, and segment operating profit was 709 million USD.

«The ADM team executed well in an environment very similar to the second quarter», said ADM Chief Executive Officer Juan Luciano. «Ag Services earnings were limited by lower margins and volumes of North American exports, due to the continued strength of the U.S. Dollar and ample global crop supplies, particularly from South America».

«In Corn, we continue to confront very weak industry ethanol margins, while sweeteners and starches results remain solid amid tight supplies».

«In Oilseeds, good global meal demand again supported soy crushing results, and solid origination volumes contributed to our South American operations, while continued weak oil demand – particularly outside the U.S. – weighed on our softseeds business».

«And, in WFSI, the impact of macroeconomic headwinds – weaker demand from some emerging economies and the strong U.S. Dollar – was greater than we’d expected».

«We continue to execute our strategic plan. Among other actions, we’ve closed on the sale of the global cocoa business, acquired Eatem Foods, and closed the Eaststarch transaction. We’re also making strong progress in driving operational efficiencies, which will further enhance our cost position. And we remain committed to our balanced approach to capital allocation for our shareholders».

Third Quarter 2015 Highlights

  • Adjusted EPS of 0.60 USD excludes approximately 0.19 USD of losses on debt extinguishment, 0.04 USD of gains on asset sales, 0.07 USD of LIFO credits, 0.10 USD of charges related to asset impairments and restructurings, and a 0.01 USD charge to update the estimated annual effective tax rate.
  • Agricultural Services decreased five million USD amid lower North American export margins and volumes.
  • Corn Processing decreased 176 million USD on lower bioproducts results, as U.S. ethanol industry conditions remained similar to the second quarter.
  • Oilseeds Processing results were lower than the very strong year-ago period, as continued strong demand for protein meal was offset by weaker softseed results.
  • Wild Flavors and Specialty Ingredients earned 70 million USD in the third reporting period for this business unit.
  • Trailing four-quarter-average adjusted ROIC was 8.3 percent, down 40 basis points year over year, and 170 basis points above annual WACC of 6.6 percent.
  • During the first nine months of 2015, the company returned 2.3 billion USD to shareholders through dividends and the repurchase of 37.5 million shares.

Ag Services Earnings Decline on Lower N.A. Export Volumes and Margins

Agricultural Services operating profit was 149 million USD, down five million USD from the year-ago period.

Merchandising and handling earnings declined seven million USD to 57 million USD. While global demand for agricultural commodities remained solid throughout the quarter, ample global supplies of grain, a weak Brazilian real that motivated Brazilian farmer selling, and a strong U.S. Dollar reduced the competitiveness of our North American exports – particularly corn and wheat – limiting both volumes and margins. Later in the quarter, North American soybean exports became more competitive.

Transportation results declined four million USD to 31 million USD, as reduced U.S. exports lowered barge freight rates.

Milling and other results improved six million USD to 61 million USD, due mainly to higher product margins and strong merchandising results.

Corn Processing Earnings Decline with Solid Sweetener Results
Offset by Lower Ethanol Results

Corn Processing operating profit decreased from 341 million USD to 165 million USD.

Sweeteners and starches results declined 33 million USD to 125 million USD as North American sweetener volumes and margins remained solid, but co-product margins were weaker, and the slower ramp-up of commercialized volumes at the Tianjin sweetener facility limited absorption of fixed costs.

Bioproducts results declined from 183 million USD to 40 million USD due to lower ethanol industry margins. While demand for ethanol domestically and from overseas markets remained solid, industry production levels were also strong, resulting in high industry inventory levels, which kept industry margins considerably lower than last year.

Oilseeds Earnings Again Solid, though Lower than Very Strong Year-ago Quarter

Oilseeds operating profit of 276 million USD decreased 72 million USD from the year-ago results.

Crushing and origination operating profit declined 39 million USD to 175 million USD. North American soybean crushing operations capitalized on strong meal demand in the U.S. and nearby export markets. Weak demand for vegetable oil reduced margins and volumes of softseeds operations, particularly in Europe. In South America, origination and export margins and volumes for corn and soybeans were boosted by the significant weakening of the Brazilian real and contributed to stronger South American results.

Refining, packaging, biodiesel and other generated a profit of 66 million USD for the quarter, down twelve million USD from year-ago results that benefited from 27 million USD in retroactively applied biodiesel blenders’ credits. This quarter’s results benefited from improved margins in refined and packaged oils.

Excluding hedge timing effects and the gain from the sale of the global chocolate business, Cocoa and Other results decreased due to lower cocoa press margins and peanut processing results.

Oilseeds results in Asia for the quarter increased seven million USD from the year-ago period mainly due to improved results from Wilmar.

Wild Flavors and Specialty Ingredients Earns 70 Million USD in Third Reporting Quarter
In the third quarter, Wild Flavors and Specialty Ingredients operating profit was 70 million USD, including positive contributions from Wild Flavors and SCI. Sales to emerging markets declined as their economies weakened, and the strong Dollar kept Dollar-linked input costs high, pressuring margins and volumes.

Note that when reviewing comparative performance, the third-quarter 2014 results of ADM and WFSI do not include revenues, costs or profits of Wild Flavors and SCI, because they were acquired in the fourth quarter of 2014 and the new segment was created on January 1, 2015.

Other Items of Note

For the third quarter, the effective tax rate was 31 percent, versus 28 percent in the same period last year. This year’s third-quarter tax rate was negatively affected by some discrete items, mainly finalization of some international tax returns. The calendar year 2015 tax rate should be approximately 28 percent.

Segment Operating profit of 709 million USD as reported for the quarter includes a 33 million USD impairment charge related to ADM’s Brazilian sugar-ethanol business and a gain of 32 million USD on sale of the global chocolate business. In addition, the corporate line includes a 189 million USD charge associated with U.S. debt repurchases, and a 23 million USD pension-settlement charge.

As additional information to help clarify underlying business performance, the tables on page nine include both adjusted EPS as well as adjusted EPS excluding significant timing effects.