ADM Q3 results: Robust growth in nutrition segment offsets weak grain exports and ethanol margins

01 Nov 2019 --- Amid constrained North American grain export volumes and weak ethanol industry margins, Archer Daniels Midland Company (ADM) reports strong growth in its nutrition segment for the third quarter of 2019, ended September 30. In yesterday’s earnings call, the US global food processing and trading corporation outlined a higher-than-expected quarterly profit, in spite of the ongoing US-China trade conflict and the impacts of African swine fever (ASF) that has dampened demand for soy in China. Meanwhile, grain harvest in the autumn period was weighted by wet weather conditions.

“We stayed focused on the levers we could control advancing our strategic plan despite the difficult external environment. North American grain export volumes and margins remained limited,” says Juan Luciano, Chairman and CEO.

“Crush margins were part of the record-high 2018 levels and ethanol industry margins remained challenged. Despite all of these, we delivered the performance consistent with the perspectives we provided last quarter, including the strong year-over-year growth in our nutrition business,” he adds.

ASF continues to affect what crops some plants are processing, highlights Luciano. In China, the world’s largest hog producer and soybean importer has led to a tightening of ADM’s oilseed processing business both in the US and South America. The company has since turned its eye toward other export markets, including Vietnam.

African swine fever has impacted demand for soymeal in China.“We actually continued to see strength outside China. In forecast outside China, soybean meal growth is about 3 percent,” highlights Luciano. “Big pork inflation has created incentives to increase weight before slaughtering. So we’re seeing higher feed on animals as well. So I think in general, we continue to be positive about soybean meal demand going forward. We don't see a significant decline.”

Extreme weather in the US, which caused historic late plantings in much of the Midwest and led to a delayed and wet harvest this autumn, has impacted ADM and other grain merchants’ supply chains, as noted by the company’s officials.

ADM is still unclear as to how adverse weather conditions will impact its bottom line next quarter. The company expects to see “some significant drying revenue” in the coming months, as US farmers deliver wet grain that will need to be dried, according to ADM CFO Ray Young.

In other highlights, the company completed its previously announced transaction with Cargill to exchange grain elevators in Illinois and Indiana. “We celebrated the opening of our new state-of-the-art mill in Mendota, Illinois, an important milestone in our ongoing process of replacing older, higher cost plants with more efficient facilities,” says Luciano.

In forward-looking statements, the CEO adds, “We are excited about our strategic growth activities, and particularly our participation and leadership in major global trends such as flexitarian diets, nutrition for health and sustainable materials.”

Q3 Financial Overview
Net earnings in the quarter under review totaled US$407 million. Increased revenues across all the segments of the company were noted as the primary reason behind the top-line results.

The grain trader’s adjusted earnings of US$0.77 per share saw a decline of 16.3 percent from the same quarter of last year. On a reported basis, the company’s earnings were US$0.72 per share, down 23.4 percent from the same quarter in the previous year.

Effective third-quarter 2019, ADM merged its Origination and Oilseeds segments into a single business – Ag Services & Oilseeds. This action was taken to offset the impacts of adverse weather conditions in the first six months of 2019.ADM facilities in Decatur, Georgia, US.

Going by segments, quarterly revenues at the Ag Services & Oilseeds, Carbohydrate Solutions, Nutrition, and Other grew 2.9 percent, 1.2 percent, 58 percent and 4.8 percent, respectively, to US$12.6 million, US$2.6 million, US$1.5 million and US$88 million.

ADM outlines that results in its Ag Services & Oilseeds segment were lower than the third quarter of 2018, which benefited from significantly strong crush margins. In South America, results were up on improved origination margins in Brazil and increased export volumes from Argentina. In North America, improved merchandising results from favorable ownership positions helped offset a continued challenging volume and margin environment for US exports.

In the Crushing segment, results were lower year over year. Crush margins globally were substantially below the record high levels seen in 2018, though still solid in North America and EMEA. In South America, margins were pressured by continued strong exports of soybeans to China. Global crush margins benefited from positive net timing effects of approximately US$50 million during the third quarter.

Carbohydrate Solutions segment results were substantially lower than the year-ago period. Starches and Sweeteners results were down versus the third quarter of 2018. Results in North America were affected by higher net corn costs partly offset by lower manufacturing costs, which included improvements at the Decatur corn complex. Europe, the Middle East and Africa (EMEA) region results were impacted by lower selling prices and continued pressure from Turkish sweetener quotas. In wheat milling, an increase in sales volumes was more than offset by lower margins due to limited opportunities in wheat procurement.

ADM reports substantially higher Nutrition segment year-on-year results this quarter. WILD Flavors & Specialty Commodities Inc (WFSI) results were significantly higher than the prior-year quarter, with growth across the portfolio. In Specialty Ingredients, the protein business continued to expand amid the growing consumer market for alternative proteins. Continued contributions from growth investments in bioactives and fibers benefited the Health & Wellness business.

By Benjamin Ferrer