ADM sees strong returns in Q3, minus animal nutrition

By Aerin Einstein-Curtis contact

- Last updated on GMT

©GettyImages/MarkHegedus
©GettyImages/MarkHegedus
Results in animal nutrition weighed on a positive third quarter for ADM, bringing down overall earnings for that segment.

The Illinois-based company released details of their third quarter, which ended September 30, and the first nine months of the year on Tuesday [November 6].

Overall, Archer Daniels Midland Company (ADM) reported improvement in total revenues and gross profit compared to the third quarter of 2017. This year, the company’s third-quarter revenue was $15.8bn, up from $14.82bn and the gross profit was $1.06bn, up from $812m in 2017.

Revenue for the first nine months of the year was $48.39bn, an increase from the $44.75bn reported in 2017, and gross profit for the period grew from about $2.58bn in 2017 to $3.13bn in 2018. Adjusted segment operating profit for the first nine months of 2018 was $2.5bn, an improvement on the 1.87bn reported by this point in 2017.

The adjusted segment operating profit for the quarter was $861m, up about 60% year-on-year, said Juan Luciano, ADM chairman and CEO, on an earnings conference call.

“Our team continued to capitalize on robust global demand with good execution and great utilization of global footprint,” ​he said. 

Additionally, the company employees were able to navigate the trucking strike in Brazil, improve ADM’s North American origination footprint and divest the company of its Bolivian oilseeds business, he said.

Ongoing company strategy and readiness efforts

Having seen positive returns from focusing efforts on improving a business’s profitability followed by investing in expanding the portfolio through work on the company’s wild flavors business, ADM is anticipating following a similar strategy improve its animal nutrition business, said Luciano.

“This same approach of first driving profitability improvements and then a strong revenue growth is the one we plan to replicate with Neovia at our animal nutrition business,”​ he said. “We've delivered success and we're excited to do it again.”

Part of that effort has included expanding ADM’s footprint through new animal nutrition facilities in China and a new pea protein facility in South Dakota along with recent acquisitions, he said. The company has invested more than $5bn in growth areas since 2014.

“We have launched six new plants globally, purchased and integrated 17 companies, formed four new joint ventures, and added five new innovation centers and labs,”​ said Luciano.  

The results of these practices and decisions are giving the company confidence in earnings growth for 2019, he said.

In addition to efforts to support returns from ADM’s animal nutrition business and in other areas, the company is working on integrating readiness efforts and its strategic plan, he said. The readiness program is an ongoing focus on improving “operational efficiencies”​ throughout the company.

“With readiness, we're standardizing, centralizing and digitizing how we do business on an enterprise-wide level and we're improving our execution capabilities across the company,”​ he said. A next phase of the process includes sending 31,000 employees through the Ability to Execute program, he added.

“As we move into the implementation phase of readiness, we believe we will be able to generate more than $1bn of run-rate benefits by the end of year two, or roughly double the rate of operational excellence improvements that we have been achieving over the past few years,”​ said Luciano.

Segment highlights

At the segment level, results for nutrition were similar to the third quarter of last year, said Ray Young, ADM’s CFO. A strong quarter for wild flavors and specialty ingredients (WFSI) was offset by lysine results.

Overall earnings in nutrition were $67m, a drop from the $68m reported in 2017, the company said. WFSI saw $80m in results and animal nutrition had a $13m loss.  

“In animal nutrition, issues developed during the quarter that constrained lysine production volumes and increased manufacturing cost, contributing to the lower year-over-year results,” ​Young said on the conference call. “Changes in industry vitamin pricing also impacted premix margins.”

In the fourth quarter, it is anticipated that results will show the strength of the nutrition business, he said. In animal nutrition, premix margins are expected to return to normal but there could be residual issues with lysine production.

Results for origination were up year-over-year for all included businesses, he said.

For the quarter, the segment saw earnings of $129m, up from the $39m seen in 2017, the company reported. Merchandising accounted for about $93m and transportation for $36m.

Merchandising and handling improved on the “weak”​ third quarter of 2017, Young said, adding, “The team did a great job managing through a volatile price environment.”

“In North America, we capitalized on our strong asset base to deliver higher volumes and margins including strong export sales, particularly of corn, to customers in markets outside of China,” ​he said. However, looking forward, operations in North America are expected to be pressured by “lower elevation margins”​ stemming from the lack of demand from China, he added.

“Our origination business is making important investments in digital and innovation capabilities with our just announced GrainBridge joint venture and our work with other industry players to modernize the global agricultural value chain,”​ added Luciano.

Total returns for oilseeds were $349m, up from $113m in 2017, ADM said. The majority of the results were in crushing and origination, which brought in $221m, however, Asia accounted for $80m – an increase from the $16m reported for 2017.

Crushing and origination set a new record for global crush volume, said Young. Looking to the fourth quarter, the forecast is for strong year-over-year growth.

“In oilseeds, we announced that we are acquiring certain assets of Algar Agro, particularly two crush, refining and packaging facilities in Brazil, which will further strengthen our processing presence in that important region,”​ Luciano said.

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