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ADM: Reports Fourth Quarter 2019 Financial Results

Chicago / IL. (adm) Archer Daniels Midland Company (ADM) reported financial results for the quarter ended December 31, 2019. «Our team delivered a solid fourth quarter, consistent with our expectations three months ago,» said Chairman and CEO Juan Luciano. «At the end of 2019, we can look back on a full year in which the team did a great job managing through some difficult external conditions while continuing to deliver innovative solutions for our customers.

«Looking ahead, we’re excited about the opportunities we see in 2020 and beyond. Our industry-leading array of products and solutions from nature is helping us give our customers an edge in meeting global demand in fast-growing consumer trend areas – from alternative proteins, to foods and beverages that enhance health, to unique products for pets. We expect market conditions to improve as the year progresses, particularly as impacts from the U.S.-China Phase 1 trade deal take hold. More importantly, another year of expected 20-plus percent growth in Nutrition profitability, combined with our work to improve business performance, advance Readiness, and harvest our growth investments, give us confidence in strong results in 2020 and the years to come.»

Fourth Quarter 2019 Highlights

(Amounts in millions except per share amounts) 2019 2018
Earnings per share (as reported) USD 0.90 USD 0.55
Adjusted earnings per share [1] USD 1.42 USD 0.88
Segment operating profit USD 934 USD 786
Adjusted segment operating profit [1] USD 1,028 USD 860
Ag Services and Oilseeds 739 615
Carbohydrate Solutions 174 197
Nutrition 102 62
Other 13 (14 )

[1] Non-GAAP financial measures; see pages 5, 10 and 11 for explanations and reconciliations, including after-tax amounts.

EPS as reported of USD 0.90 includes a USD 0.24 per share charge related to a loss on sale of an equity investment, a USD 0.16 per share charge related to asset impairment and restructuring charges, a USD 0.04 per share charge related to LIFO, and a USD 0.08 per share tax expense related to certain discrete items. Adjusted EPS, which excludes these items, was USD 1.42.[1]

Results of Operations

Ag Services + Oilseeds results were higher year over year, and included approximately USD 270 million net operating profit impact from the passage of the biodiesel tax credit (BTC) for 2018 and 2019.

  • Ag Services results were slightly lower year over year. In North America, a delayed U.S. harvest contributed to lower export volumes and correspondingly lower margins, partially offset by South America results, which benefited from improved margins driven by good export demand and farmer selling.
  • In Crushing, margins overall remained solid, though substantially lower than the near-record levels last year caused by the short 2018 Argentine soybean crop. Negative timing impacts this quarter versus positive timing impacts in the prior-year quarter also contributed to lower year-over-year results.
  • Refined Products and Other results were substantially higher. The impact of the passage of the retroactive biodiesel tax credit for 2018 and 2019 was a major driver. Absent the BTC, results were strong and higher year over year, as the business benefited from strong global demand for both biodiesel and food oils. The Algar Agro acquisition in Brazil, which was completed in December 2018, also contributed to results.
  • Wilmar results were slightly higher year over year.

Carbohydrate Solutions results were lower than the fourth quarter of 2018.

  • Starches and Sweeteners results were up year over year, driven by reductions in manufacturing costs and higher income from co-products in North America, partially offset by continued margin pressures in EMEAI. Stronger global wheat milling results also helped contribute to segment performance.
  • Bioproducts results were down, largely due to continued unfavorable ethanol industry margins.

Nutrition results were substantially higher year over year.

  • WFSI results were significantly higher than the prior-year quarter. Strong sales and margins for WILD in North America, EMEAI and APAC drove results for the quarter. In Specialty Ingredients, lower sales volumes and margins in emulsifiers and reduced margins in edible beans were partially offset by continued margin growth in proteins. Health + Wellness results benefited from a new strategic agreement for ADM fermentation capacity.
  • Animal Nutrition was up substantially versus the prior-year period. Neovia continued to contribute positively to results, partially offset by continued losses in lysine due to a weak global pricing environment.

Other results were up significantly year over year. Captive insurance results were negative, but substantially better than the fourth quarter of 2018. ADM Investor Services results were higher versus the prior-year period.

Other Items of Note

As additional information to help clarify underlying business performance, the table on page 10 includes reported earnings and EPS as well as adjusted earnings and EPS.

Segment operating profit of USD 934 million for the quarter includes charges related to asset impairment and restructuring activities of USD 94 million (USD 0.15 per share).

In Corporate results, unallocated corporate costs for the quarter were higher year over year principally due to continued investments in IT, business transformation, and higher benefit accruals. Other charges increased due to a railroad maintenance expense that had an offsetting benefit in tax expense, partially offset by improved foreign hedging results on intercompany funding.

During the quarter, the sale of our interest in Compagnie Industrielle et Financiere des Produits Amylaces SA (CIP) resulted in a pre-tax loss of USD 101 million and a USD 32 million tax expense (combined USD 0.24 per share). The sale generated pre-tax proceeds of USD 210 million in December.

In addition, there were non-cash early retirement charges and global workforce restructuring charges of USD 9 million (USD 0.01 per share), and a LIFO charge of USD 27 million (USD 0.04 per share).

The effective tax rate for the quarter was approximately a positive 1 percent compared to a positive 2 percent in the prior year. The calendar year 2019 effective tax rate was 13 percent compared to 12 percent in 2018. The low 2019 tax rate is due primarily to the impact of U.S. tax credits signed into law in December. In the absence of tax credits and specified items, the effective tax rate for calendar year 2019 would have been approximately 19 percent.