ADM reports lower than expected Q4 earnings

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/CharlieAJA
© GettyImages/CharlieAJA

Related tags: Adm, financial returns

The end of 2018 brought mixed results for ADM. The company delivered improved year-over-year profits while dealing with a volatile global environment in Q4, says the CEO.

Archer Daniels Midland Company (ADM) released its full year and fourth quarter results on Tuesday [February 5]. The quarter ended December 31.

The company saw a drop in revenues for Q4, but not for the full year. Quarterly revenues were $16bn in 2017 and $15.94 in 2018, but the full year revenue increased from $60bn to $64.3bn, reported the company,  

Similarly, net earnings for Q4 were $315m, down from $788m for the same period in 2017, it said. However, full-year results were $1.8bn up from $1.59bn the previous year.

Earnings before income taxes (EBIT) fell from $543 to $312 for the fourth quarter, the company said. However, they rose for the full year from $1.6bn in 2017 to $2.06bn for 2018.

The company delivered improved year-over-year profits while dealing with a “volatile global environment”​ for the quarter, said Juan Luciano, ADM chairman and CEO on an earnings conference call.

“Throughout the year, we focused on executing our strategy and pulling the levers under our control,” ​he said. “The result was a year in which we delivered – full-year adjusted segment operating profit of $3.4bn, 26% higher than 2017.”

The non-adjusted segment operating profit for the final quarter of 2018 was $786m and for the year was $3.27bn, both an improvement on the $733m reported for the fourth quarter in 2017 and the full year’s $2.53bn, the company said.  

In review, 2018 was a year that allowed ADM to continue to grow, “regardless of market conditions,”​ Luciano said.

As part of the company’s optimization efforts it sold its Bolivian oilseeds business, worked to improve its US footprint for origination and turned around global trade and South American origination businesses, he said.

It also opened or improved several ingredient manufacturing and laboratory facilities and established a joint venture with Cargill regarding digital innovation, noted the CEO.

In addition, the company expanded its oilseeds crush in Brazil and recently closed on Neovia​, he added.

Segment highlights

Quarterly adjusted results for the origination segment’s operating profit dropped from $261m in 2017 to $183m for 2018, ADM reported. Both merchandising and handling along with transportation came in below results for the same time in 2017.

The origination team saw challenges from the small volume of US exports, particularly in soybeans to China, said Ray Young, chief financial officer with ADM, on the conference call. “Results were down versus the fourth quarter of 2017 mainly due to changes in nonrecurring items,”​ he added.

“North American results benefited from weak basis gains due to strong carries as well as solid execution that drove improvements in export margins in comparable year-over-year volumes,” ​he said. “The team did an excellent job offsetting significantly reduced exports to China by driving North American exports of corn and soybean exports to markets outside of China.”

Full year results for the segment in 2018 were 35% higher than those in 2017, he said. Total results for 2018 were $546m.

The oilseeds segment saw improvement for the fourth quarter and full year returns in 2018 compared to results from 2017, the company said. Results for the quarter were $432m, up from $201m and the full year increased from $825m in 2017 to $1.47bn in 2018.

Within the segment, crushing and origination improved from $45m in the fourth quarter of 2017 to $255m for the same period in 2018, the company said. Results from Asia also grew from $83m to $102m in 2018.

“Oilseeds results were outstanding as the team delivered adjusted operating profits that were more than double the prior year period,” ​added Young. “Crush volumes for the quarter were among the highest ever as the business continue to leverage its global asset footprint to capitalize on solid demand for soybean meal and strong crush margins.”

Results from South America were solid and an effort was made to establish a “conservative risk position on soybeans”​ given the volatility of the market, he said.

Overall results for ADM’s nutrition segment fell in the fourth quarter, but not for the full year, the company said. In the final quarter of 2017, the company saw returns of $73m, which dropped to $62m.

Within the segment, the drop stemmed from animal nutrition, which brought in $17m in 2017 and $3m for the same period of 2018, the company said. In total for the year, in 2018, animal nutrition’s operating profit was $21m, down from $33m during 2017.

Production issues and compressed margins for amino acids affected the animal nutrition business, said Young.

Quick look at 2019

Looking at the origination so far in the first quarter of 2019, the anticipation is for positive carries for the North American grain business and better year-over-year results for the American River Transportation Company (ARTCO) even with a partial offset from margins in global trade, said Young.

“Overall, we expect first quarter 2019 origination results to be significantly higher than the first quarter of 2018,”​ he said.

For oilseeds, the first quarter of 2019 is antiquated to bring lower results than the strong quarter that started 2018, he said. “Crushing and origination should see continuing strong volumes and contributions from our investments in Algar, SoyVen and North American plan expansions,”​ he added.

The nutrition segment is anticipated to see improved profits in the start of 2019 compared to the first quarter of 2018, he said. The prediction is based on expected growth in sales and margin along with contributions from Protexin, Rodelle and Neovia.

“In summary, for the first quarter of 2019 for all of our business units combined, we expect overall segment operating profit to be significantly higher year-over-year if you exclude the $120m of benefits from the retroactive biodiesel tax credit recognized in the first quarter of 2018,”​ Young said.

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