ADM: Reports Second Quarter Financial Results

Chicago / IL. (adm) Archer Daniels Midland Company (ADM) reported financial results for the quarter ended June 30, 2016. «After a challenging start to the year, general market conditions began to turn at the end of the second quarter, providing us with improved opportunities for the second half of the year», said ADM Chairman and CEO Juan Luciano. «Weak grain handling margins and merchandising results continued for Ag Services. Results for Corn included strong performance in sweeteners and starches offset by lower ethanol results. Our Oilseeds operations leveraged their flex capacity to crush record volumes of soybeans in the second quarter as global protein demand continues to grow. WFSI saw strong growth in flavors and systems, with operating profit in line with the year-ago quarter».

«During the quarter, we continued to advance our strategic plan, acquiring full ownership of Amazon Flavors, a leading Brazilian manufacturer of natural extracts, emulsions and compounds. We added soybean crushing capability to our facility in Straubing, Germany, allowing us to utilize flex capacity while also meeting growing customer demand for non-GMO soybean meal and oil in Western Europe. We continued to invest in Asia’s growing and evolving food demand by further increasing our strategic ownership stake in Wilmar from 20 percent to 22 percent. In addition, we continue to make progress in the strategic review of our ethanol dry mills. We have implemented almost 150 million USD of new runrate savings actions in the first half of the year and remain on track to meet our 275 million USD target by the end of the calendar year. Also, we repurchased about 500 million USD of shares in the first half as we continue to execute on our balanced capital allocation framework».

«The first half of the year was very challenging. However, with improved fundamentals, we anticipate a more favorable second half of the year».

Second Quarter 2016 Highlights

• EPS as reported of 0.48 USD includes a 0.09 USD per share charge related to LIFO, 0.17 USD per share of gains related to sales or revaluation of assets, and other charges of 0.01 USD per share. Excluding these items, adjusted EPS is 0.411 USD.
• Trailing four-quarter-average adjusted ROIC was 5.7 percent1, 90 basis points below our annual WACC of 6.6 percent.
• The effective tax rate for the quarter was 29 percent compared to 27 percent in the year-ago quarter. This quarter’s taxes included about 20 million USD of discrete tax items (about 0.03 USD per share).
• During the first six months of 2016, the company returned 0.8 billion USD to shareholders through dividends and share repurchases.

Results of Operations

In Ag Services, merchandising and handling earnings declined primarily due to compressed margins across the U.S. grain handling network. Excluding the valuation gain booked last year related to the acquisition of the company’s Romanian port, international merchandising results were up due to stronger origination results in Argentina and the addition of destination marketing in Egypt through the Medsofts joint venture.

Transportation results declined due to weak barge demand and lower freight rates. In Milling and other, ADM Milling had a strong second quarter on solid volumes and margins. In Corn Processing, sweeteners and starches results increased as the business continued to perform well with higher volumes and pricing, and improved margins from optimizing product grind in the company’s corn wet mills. The integration of the recent Eaststarch and Morocco acquisitions has gone better than planned, contributing to the company’s global sweeteners and starches portfolio and results.

Bioproducts results were down in the quarter. With ethanol margins continuing to be weak coming into the quarter due to high industry inventory levels, the company decreased production. Lysine results continued to be pressured by large global production, particularly early in the quarter. However, results improved late in the quarter as global inventories declined and strong demand continued.

In Oilseeds Processing, crushing and origination operating profit declined driven primarily by continued weak canola margins as well as lower soy crush margins, which were historically high last year. The company achieved record soy crush volumes in North America and Europe through increased utilization of new flex capacity. Throughout the quarter, the company effectively managed through unprecedented crush margin volatility.

Refining, packaging, biodiesel and other results were down from one year-ago mainly due to biodiesel timing effects, despite strong results in Specialty Fats and Oils and Golden Peanut. Oilseeds results in Asia for the quarter improved slightly from the year-ago period, partially due to Wilmar’s first quarter equity earnings.

WFSI results included approximately 4 million USD of operational start-up costs related to Tianjin and Campo Grande. WFSI saw strong growth in flavors and systems offset by weaker sales of functional specialty proteins and fibers.

Other financial operating profit increased on higher ADM Investor Services customer volumes and improved results from captive insurance operations.

Other Items of Note

As additional information to help clarify underlying business performance, the tables on page 9 include both reported EPS as well as adjusted EPS excluding significant timing effects.

Segment operating profit of 680 million USD as reported for the quarter includes a gain of 48 million USD in Ag Services related to the receipt of final additional sales proceeds for Gruma; a gain of 63 million USD in Corn Processing related to the sale of the Brazilian sugar-ethanol business; and a gain in WFSI of 12 million USD related to purchasing the remaining equity interest in Amazon Flavors.

Adjusted segment operating profit was 573 million USD.

The effective tax rate for the quarter was 29 percent compared to 27 percent in the year-ago quarter, due to 20 million USD of negative discrete tax items in the quarter.

Wilmar issued a profit warning in July, announcing that it expects to report net losses of approximately 230 million USD for its second quarter. Because ADM records its share of Wilmar’s results on a one quarter lag basis, ADM expects to report about 50 million USD of equity losses in its third quarter results.