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ADM: Reports Second Quarter 2019 Financial Results

Chicago / IL. (adm) Archer Daniels Midland Company (ADM) reported financial results for the quarter ended June 30, 2019. «We took aggressive action in the face of challenging external conditions, and we are confident that our work over the first half of the year will help deliver a stronger back half,» said Chairman and CEO Juan Luciano. «Just as important, our transformative changes are positioning ADM to capitalize on significant market opportunities, and grow earnings and returns in 2020 and beyond.

«Although the timing is uncertain, we remain confident in the resumption of significant food and agricultural trade flows between the U.S. and China, which will help bolster margins in the U.S. grain export and ethanol industries,» Luciano continued. «We are also seeing early signs of how African Swine Fever might impact global animal protein markets, and eventually support incremental soybean meal demand in key meat-producing regions outside of China. And, of course, fast-growing consumer trends such as plant-based proteins are creating long-term growth opportunities for our comprehensive portfolio of food and beverage solutions.

«We are focused on executing our strategic plan to ensure that ADM is poised to capitalize on these market opportunities and create value for our shareholders. We’re seeing the results of our efforts to turn around underperforming businesses. We continue to enhance our efficiency, customer service and competitiveness through Readiness. And we’re harvesting the benefits of Neovia and other growth investments. We are excited about our future. We are creating a company that is uniquely positioned to seize the opportunities ahead of us and deliver strong results for customers and shareholders alike.»

During the quarter, ADM advanced its strategic initiatives to enhance agility, accelerate growth and strengthen customer service, and took aggressive actions on a variety of fronts. These actions, which will also help offset the significant weather impacts of the last six months, include:

  • Combining the company’s Origination and Oilseeds business units into a single business, Ag Services + Oilseeds, which will report as a new segment beginning in the third quarter;
  • Completing significant organizational changes announced last quarter, including early retirement offers for colleagues in the U.S. and Canada;
  • Centralizing and standardizing business activities, including appointing a senior vice president, Global Operations, to lead a new operations structure; and
  • Aggressively harvesting the benefits of recent acquisitions, including planned synergies.
  • EPS as reported of USD 0.42 includes a charge of USD 0.18 per share related to asset impairment and restructuring charges, a USD 0.03 per share charge related to LIFO, and a USD 0.03 per share tax benefit related to the U.S. tax reform transition tax and certain other discrete items. Adjusted EPS, which excludes these items, was USD 0.60.(1)

Second Quarter 2019 Highlights

(Amounts in millions except per share data) 2019 2018
Earnings per share (as reported) USD 0.42 USD 1.00
Adjusted earnings per share (1) USD 0.60 USD 1.02
.
Segment operating profit USD 645 USD 902
Adjusted segment operating profit (1) USD 682 USD 924
Origination 71 191
Oilseeds 291 341
Carbohydrate Solutions 192 247
Nutrition 117 114
Other 11 31

.

Results of Operations

Origination results were significantly lower than the very high results in the prior-year period, when the drought in Argentina and increased purchases of U.S. crops by China in anticipation of tariffs drove strong volumes and margins.

  • Merchandising and Handling results were lower when compared to the extremely strong second quarter of 2018. Despite solid execution, second quarter 2019 volumes and margins in North America were impacted by continued high water conditions on U.S. rivers, which limited river asset utilization, and the competitiveness of U.S. crops, particularly corn, in export markets.
  • Transportation was down year-over-year, as the unfavorable river conditions throughout the quarter limited barge volumes and margins.
  • Across Origination, high water conditions were more severe than originally anticipated at the beginning of the quarter, causing a negative impact of approximately USD 40 million.

Oilseeds results decreased versus the second quarter of 2018, which saw record volumes and extremely high margins.

  • Crushing and Origination results were solid, though lower than the very strong results from the second quarter of 2018. Strong domestic industry demand supported crush margins in North America and EMEA. South American crushing and origination margins were down on higher soybean prices and lower China demand during the quarter. In North America, crush volumes were down mainly due to production outages caused by high water at the company’s Quincy, Illinois, facility, which had a negative impact of approximately USD 10 million.
  • Refining, Packaging, Biodiesel and Other results were lower than the year-ago quarter, as a result of weaker margins in South America and some timing impacts in EMEA.
  • Asia was higher on Wilmar results.

(1) Non-GAAP financial measures

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

  • Starches and Sweeteners was down versus the second quarter of 2018. North American sales and margins were solid, but were offset by lingering high water impacts at our Columbus, Nebraska, facility. Results in EMEA were pressured by lower margins due to low sugar prices and the Turkish quota on starch-based sweeteners.
  • Bioproducts results were significantly lower than the prior-year period on continued negative ethanol industry margins caused by ample industry inventory and lower U.S. exports.
  • Continued impacts from severe weather reduced segment results by USD 15 million.

Nutrition results were higher year-over-year.

  • WFSI results were slightly lower than the second quarter of 2018. WILD Flavors North America demonstrated very strong sales and margin growth, but was offset by changes in customer order patterns in EMEAI and lower sales in APAC. Specialty Ingredients was lower due to isolated production shortfalls. Health + Wellness continued on its growth trajectory, driven by both contributions from acquisitions as well as organic sales and margin improvements.
  • Animal Nutrition results were higher than the second quarter of 2018, driven largely by accretion from the Neovia acquisition.

Other results were down significantly from the year-ago period, due primarily to captive insurance underwriting losses partially offset by higher ADM Investor Services earnings.

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 645 million for the quarter includes charges related to an asset impairment and a settlement totaling USD 37 million (USD 0.04 per share).

In Corporate results, unallocated corporate costs for the quarter decreased principally due to lower accruals for performance-related compensation, partially offset by higher investments in IT and Readiness-related project costs.

Corporate results also included non-cash early retirement charges and global workforce restructuring charges of USD 101 million (USD 0.14 per share) and a LIFO charge of USD 25 million (USD 0.03 per share).

The effective tax rate for the quarter was approximately 13 percent, in line with the prior year, and included transition tax benefits from the 2018 U.S. tax reform and other discrete items. The effective tax rate, adjusting for these items, was approximately 21 percent.