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ADM: Reports Fourth Quarter 2018 Results

Chicago / IL. (adm) Archer Daniels Midland Company (ADM) reported financial results for the quarter ended December 31, 2018. «Our team executed well, delivering strong year-over-year profit growth in the fourth quarter,» said Chairman and CEO Juan Luciano. «Looking back on the full year, the team did a great job focusing on the items we could control, as we continued innovating to serve customer needs and advancing our strategic priorities. Our effective management through complicated and rapidly changing trade, geopolitical and market conditions helped deliver an impressively strong 2018 that included solid profit growth, improved returns on invested capital and higher cash flows.

«We will continue working to deliver shareholder value in 2019 by vigorously executing our strategy, including aggressively working to improve execution in select businesses, accelerating our Readiness efforts to deliver increasing value, and harvesting the contributions from our acquisitions and organic growth investments. By continuing to pull the levers under our control, we are positioning ourselves to grow profits and returns in 2019 and beyond.»

Fourth Quarter 2018 Highlights

(Amounts in millions except per share data) 2018 2017
Earnings per share (as reported) USD 0.55 USD 1.39
Adjusted earnings per share (1) USD 0.88 USD 0.82
Segment operating profit USD 786 USD 733
Adjusted segment operating profit (1) USD 860 USD 793
Origination 183 261
Oilseeds 432 201
Carbohydrate Solutions 197 285
Nutrition 62 73
Other (14 ) (27 )

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  • EPS as reported of USD 0.55 includes a USD 0.02 per share loss related to the sale of businesses and assets, a USD 0.35 per share charge related to asset impairment, restructuring and settlement charges, a USD 0.01 per share charge related to acquisition expenses, and a USD 0.05 per share tax benefit related to the U.S. tax reform and certain discrete items. Adjusted EPS, which excludes these items, was USD 0.88.1

(1) Non-GAAP financial measures; see pages 4, 9, 10, and 11 for explanations and reconciliations, including after-tax amounts.

Results of Operations

Origination results were down versus the fourth quarter of 2017.

  • Merchandising and Handling results were lower than the prior-year period, which included significant insurance settlements and other income. North American results benefited from wheat basis gains due to strong carries, as well as solid execution that drove improvements in export margins and comparable year-over-year export volumes, despite the extremely small volume of U.S. soybean exports to China. North American exports of corn, and soybeans to markets outside of China, were higher. Global Trade benefited from good execution in origination and destination marketing, as well as an intra-company insurance settlement, offset by timing losses in ocean freight hedges, which are expected to reverse.
  • Transportation results benefited from improved freight rates, offset by increased operating costs.

Oilseeds results were more than double the prior-year period.

  • Crushing and Origination results were up significantly year over year, as the business continued to leverage its global asset footprint to capitalize on solid demand for soybean meal and strong crush margins.
  • Refining, Packaging, Biodiesel and Other was up on strong biodiesel volumes and margins as well as higher year-over-year results from food oils, partially offset by challenging market conditions in nut processing.
  • Asia was higher on strong Wilmar results.

Carbohydrate Solutions results were lower than the year-ago quarter.

  • In Starches and Sweeteners, North American volumes remained solid. Results were driven by lower margins and sales in EMEA; higher costs in North American liquid sweeteners, in part due to lower production rates at the Decatur complex; and lower co-product income.
  • Bioproducts results were lower than the fourth quarter of 2017, when trading results were very strong. Ethanol margins and volumes were down in a continued weak industry pricing and margin environment.

Nutrition results were down versus the prior-year period.

  • WFSI results were higher year over year, with sales up 14 percent versus the prior-year quarter on a constant currency basis. Recent acquisitions in WILD and Health + Wellness, along with strong demand for lecithin, also contributed to higher results.
  • Animal Nutrition results were significantly lower, driven primarily by continued production issues that compressed margins in amino acids, including lysine.

Other results were negative, but improved versus the prior-year period, which included significant insurance settlements.

  • Current-quarter results were driven by an intra-company insurance settlement relating to sorghum shipments in early 2018, as well as other underwriting losses.
  • ADM Investor Services results were up year over year.

Other Items of Note

ADM made changes to its segment reporting in the first quarter of 2018 to reflect the company’s new operating structure. To assist in reconciling the new segment results to the prior presentation, the table on page 11 provides financial information under the historical segmentation.

As additional information to help clarify underlying business performance, the table on page nine includes reported earnings and EPS as well as adjusted earnings and EPS.

Segment operating profit of USD 786 million for the quarter includes losses of USD 8 million (USD 0.02 per share) related to the sale of businesses and assets, as well as a USD 66 million charge (USD 0.10 per share) related to asset impairment, restructuring, and settlement charges.

In Corporate results, unallocated corporate costs for the quarter increased principally due to performance-related compensation accruals and Readiness-related costs. Other charges for the quarter in Corporate improved due to better results from the company’s investment in Compagnie Industrielle et Financiere des Produits Amylaces SA (CIP).

Corporate results also include asset impairment and restructuring charges of USD 67 million (USD 0.09 per share), a non-cash pension settlement charge of USD 117 million (USD 0.16 per share), and acquisition-related expenses of USD 12 million (USD 0.01 per share).

The effective tax rate for the full year 2018 was approximately 12 percent, and includes the effects of U.S. tax reform and the 2017 biodiesel tax credit recorded in the first quarter along with certain discrete tax items netting to a favorable USD 74 million. The effective tax rate for the fourth quarter of 2018 was a positive 2 percent and reflects a favorable change in the geographic mix of 2018 pre-tax earnings compared to estimates earlier in the year and certain discrete tax items recorded during the quarter netting to a favorable USD 35 million. The effective tax rate for the fourth quarter in the prior year reflects the initial implementation of U.S. tax reform.