Market Overview

ADM Reports Second Quarter Earnings of $1.00 per Share, $1.02 per Share on an Adjusted Basis

Share:
  • Net earnings of $566 million; adjusted earnings per share up 79
    percent
  • Strong execution, robust global demand drove excellent performance
    across the business

Archer Daniels Midland Company (NYSE:ADM) today reported financial
results for the quarter ended June 30, 2018.

"Our team executed exceptionally well to deliver outstanding results in
the second quarter," said ADM Chairman and CEO Juan Luciano.

"We continue to accelerate the execution of our strategic plan —
optimizing our core, driving efficiencies, and expanding strategically —
generating more than $150 million in run-rate savings, announcing three
acquisitions in Nutrition, and closing on two new joint ventures
overseas. Our actions, combined with robust global demand, position us
to navigate today's dynamic business environment and deliver strong
results in the second half of 2018, and put us on a trajectory for
continued future growth in earnings, returns and shareholder value.

"We are proud of the results we are delivering, committed to our
continued improvement and growth, and confident about ADM's future."

   

Second Quarter 2018 Highlights

 
2018 2017
(Amounts in millions except per share data)
Earnings per share (as reported) $ 1.00 $ 0.48
Adjusted earnings per share1 $ 1.02 $ 0.57
 
Segment operating profit $ 902 $ 642
Adjusted segment operating profit1 $ 924 $ 658
Origination 189 57
Oilseeds 341 201
Carbohydrate Solutions 249 279
Nutrition 114 94
Other 31 27
  • EPS as reported of $1.00 includes a $0.03 per share charge related to
    asset impairment and restructuring activities, a negative $0.01 per
    share tax adjustment related to U.S. tax reform and certain discrete
    items, and a positive $0.02 per share adjustment related to LIFO.
    Adjusted EPS, which excludes these items, was $1.02.1

1 Non-GAAP financial measures; see pages 4, 9 and 10 for
explanations and reconciliations, including after-tax amounts.

Results of Operations

Origination results were up significantly over the second quarter of
2017.

Merchandising and Handling was up substantially year-over-year. North
American Grain was a major contributor, as supply disruptions in
Argentina and Brazil led to strong global demand for U.S. commodities,
resulting in significantly higher volumes and margins for corn, wheat
and soybean exports. Grain also benefited from solid risk management in
basis positions, and from timing impacts from the first quarter. Global
Trade's diversified earnings base contributed positively to results, as
losses related to the potential sorghum duty deposits were offset by
strong performances in other areas, particularly ocean freight.
Destination marketing volumes continued to grow in the quarter.

Transportation was significantly higher year-over-year, driven by
increased volumes as U.S. waterways returned to more normal conditions.
Transportation also benefited from ARTCO's growing businesses in
backhaul freight and stevedoring.

Oilseeds results were also up significantly over the prior-year period.

Crushing and Origination achieved a second-quarter record in crush
volumes, delivering significantly higher year-over-year results amid
continued strong soybean meal demand and robust crush margins. In South
America, high origination volumes and improved margins, largely driven
by more aggressive farmer selling and robust demand from China,
contributed to strong results. Timing effects for the quarter were a net
positive.

Refining, Packaging, Biodiesel and Other was up over the second quarter
of 2017. Solid specialty and refined oils results were partially offset
by weaker results in Golden Peanut and Tree Nuts.

Asia was lower on Wilmar results.

Carbohydrate Solutions results were modestly lower than the year-ago
quarter.

Starches and Sweeteners was down versus the prior-year period. North
American liquid sweeteners had a solid quarter and was in line with the
year-ago period. Globally, starch volumes and dry sweetener margins were
strong in the quarter, leading to good performances. The end of the EU
sugar regime and the delay in the implementation of quotas in Turkey
negatively impacted results in European liquid sweeteners. Flour milling
was impacted by negative timing effects, and lower volumes in Caribbean
operations.

Bioproducts results were down primarily on lower ethanol production
volumes and higher costs due to plant downtime. Execution margins for
ethanol were lower versus the prior year.

Nutrition delivered a 7 percent increase in revenue on a constant
currency basis for the quarter, and earnings were significantly higher
than the year-ago period.

WFSI results were up substantially versus the second quarter of 2017,
with Specialty Ingredients, WILD Flavors and Health & Wellness all
delivering improved sales and earnings. Specialty Ingredients benefited
from improved volumes and margins in proteins, and from increased sales
in fibers. In WILD Flavors, new business and an improved portfolio mix
boosted sales and margins.

Animal Nutrition results were higher year-over-year, driven by stronger
performances in lysine, as well as in pet premix and treats.

Other results increased on stronger ADM Investor Services earnings due
to higher short-term interest rates.

Other Items of Note

ADM made changes to its segment reporting in the first quarter of 2018
to reflect the company's new operating structure. To assist in
reconciling the new segment results to the prior presentation, the table
on page 11 provides financial information under the historical
segmentation.

As additional information to help clarify underlying business
performance, the table on page nine includes reported earnings and EPS
as well as adjusted earnings and EPS.

Segment operating profit of $902 million for the quarter includes
charges of $22 million ($0.03 per share) related to asset impairment and
restructuring.

In Corporate results, unallocated corporate costs for the quarter
increased due to higher accruals for performance-related compensation
based upon a more favorable outlook for the year.

Other charges for the quarter in Corporate improved due to better
results in the company's investment in Compagnie Industrielle et
Financiere des Produits Amylaces SA (CIP), and lower pension expenses.

The effective tax rate for the quarter was approximately 13 percent,
down from approximately 28 percent in the prior year, due mainly to U.S.
tax reform, which reduced the federal income tax rate from 35 percent to
21 percent; the 2017 biodiesel tax credit recorded in the first quarter
that impacts our overall calendar-year rate; and certain favorable
second-quarter discrete tax items.

Conference Call Information

ADM will host a webcast on July 31, 2018, at 8 a.m. Central Time to
discuss financial results and provide a company update. A financial
summary slide presentation will be available to download approximately
60 minutes prior to the call. To listen to the webcast or to download
the slide presentation, go to www.adm.com/webcast.
A replay of the webcast will also be available for an extended period of
time at www.adm.com/webcast.

Forward-Looking Statements

Some of the above statements constitute forward-looking statements.
These statements are based on many assumptions and factors that are
subject to risk and uncertainties. ADM has provided additional
information in its reports on file with the SEC concerning assumptions
and factors that could cause actual results to differ materially from
those in this presentation, and you should carefully review the
assumptions and factors in our SEC reports. To the extent permitted
under applicable law, ADM assumes no obligation to update any
forward-looking statements.

About ADM

For more than a century, the people of Archer Daniels Midland Company
(NYSE:ADM) have transformed crops into products that serve the vital
needs of a growing world. Today, we're one of the world's largest
agricultural processors and food ingredient providers, with
approximately 31,000 employees serving customers in more than 170
countries. With a global value chain that includes approximately 500
crop procurement locations, 270 ingredient manufacturing facilities, 44
innovation centers and the world's premier crop transportation network,
we connect the harvest to the home, making products for food, animal
feed, industrial and energy uses. Learn more at www.adm.com.

Financial Tables Follow

       
Segment Operating Profit, Adjusted Segment Operating Profit (a
non-GAAP measure) and Corporate Results

(unaudited)

 
Quarter ended Six months ended
June 30     June 30    
(In millions)   2018   2017   Change 2018   2017   Change
                         
Segment Operating Profit $ 902   $ 642 $ 260 $ 1,606   $ 1,318 $ 288
Specified items:
(Gains) losses on sales of assets and businesses (8 ) 8 (8 ) 8
Impairment and restructuring charges 22 26 (4 ) 35 35
Hedge timing effects     (2 )   2       (9 )   9  
Adjusted Segment Operating Profit $ 924 $ 658 $ 266 $ 1,641 $ 1,336 $ 305
 
Origination $ 189     $ 57     $ 132   $ 234     $ 104     $ 130  
Merchandising and handling 158 46 112 200 69 131
Transportation 31 11 20 34 35 (1 )
 
Oilseeds $ 341     $ 201     $ 140   $ 691     $ 514     $ 177  
Crushing and origination 204 35 169 272 156 116
Refining, packaging, biodiesel, and other 85 81 4 258 138 120
Asia 52 85 (33 ) 161 220 (59 )
 
Carbohydrate Solutions $ 249     $ 279     $ (30 ) $ 462     $ 490     $ (28 )
Starches and sweeteners 238 253 (15 ) 454 454
Bioproducts 11 26 (15 ) 8 36 (28 )
 
Nutrition $ 114     $ 94     $ 20   $ 210     $ 171     $ 39  
WFSI 106 91 15 179 164 15
Animal Nutrition 8 3 5 31 7 24
 
Other $ 31     $ 27     $ 4   $ 44     $ 57     $ (13 )
                         
 
                         
Segment Operating Profit $ 902 $ 642 $ 260 $ 1,606 $ 1,318 $ 288
 
Corporate Results $ (250 )   $ (259 )   $ 9   $ (490 )   $ (477 )   $ (13 )
 
Interest expense - net (73 ) (81 ) 8 (156 ) (160 ) 4
Unallocated corporate costs (180 ) (125 ) (55 ) (326 ) (250 ) (76 )
Other charges (8 ) (42 ) 34 (24 ) (68 ) 44
Specified items:
LIFO credit (charge) 13 (9 ) 22 21 4 17
Restructuring charges (2 )   (2 )     (5 )   (3 )   (2 )
Earnings Before Income Taxes   $ 652     $ 383     $ 269     $ 1,116     $ 841     $ 275  

Segment operating profit is ADM's consolidated income from operations
before income tax excluding corporate items. Adjusted segment operating
profit, a non-GAAP measure, is segment operating profit excluding
specified items and timing effects. Timing effects relate to hedge
ineffectiveness and mark-to-market hedge timing effects. Management
believes that segment operating profit and adjusted segment operating
profit are useful measures of ADM's performance because they provide
investors information about ADM's business unit performance excluding
corporate overhead costs as well as specified items and significant
timing effects. Segment operating profit and adjusted segment operating
profit are not measures of consolidated operating results under U.S.
GAAP and should not be considered alternatives to income before income
taxes, the most directly comparable GAAP financial measure, or any other
measure of consolidated operating results under U.S. GAAP.

   
Consolidated Statements of Earnings

(unaudited)

 
Quarter ended Six months ended
June 30 June 30
2018   2017   2018   2017
(in millions, except per share amounts)
   
Revenues $ 17,068 $ 14,943 $ 32,594 $ 29,931
Cost of products sold (1) 15,887   14,051   30,524   28,167  
Gross profit 1,181 892 2,070 1,764
Selling, general, and administrative expenses (2) 560 525 1,073 1,041
Asset impairment, exit, and restructuring costs (3) 24 23 40 33
Equity in (earnings) losses of unconsolidated affiliates (100 ) (109 ) (247 ) (281 )
Interest income (42 ) (25 ) (75 ) (48 )
Interest expense 89 86 180 167
Other (income) expense - net (4) (2 ) 9   (17 ) 11  
Earnings before income taxes 652 383 1,116 841
Income tax expense (5) (86 ) (108 ) (154 ) (226 )
Net earnings including noncontrolling interests 566 275 962 615
       
Less: Net earnings (losses) attributable to noncontrolling interests   (1 ) 3    
Net earnings attributable to ADM $ 566   $ 276   $ 959   $ 615  
 
Diluted earnings per common share $ 1.00 $ 0.48 $ 1.70 $ 1.07
 
Average number of shares outstanding 567 574 566 576

(1) Includes a charge (credit) related to changes in the
Company's LIFO reserves of ($13 million) and ($21 million) in the
current quarter and YTD, respectively, and $9 million and ($4 million)
in the prior quarter and YTD, respectively.

(2) Includes a settlement charge of $5 million in the prior
quarter and YTD.

(3) Includes charges related to impairment of certain assets
and restructuring charges of $24 million and $40 million in the current
quarter and YTD, respectively, and $23 million and $33 million, in the
prior quarter and YTD, respectively.

(4) Includes a (gain) loss in the prior quarter and YTD
related to the sale of the crop risk services business of ($77 million)
partially offset by an adjustment of the proceeds of the 2015 sale of
the cocoa business of $69 million.

(5) Includes the tax expense (benefit) impact of the above
specified items and tax discrete items totaling $2 million and ($14
million) in the current quarter and YTD, respectively, and $20 million
and $27 million in the prior quarter and YTD, respectively.

   
Summary of Financial Condition

(Unaudited)

 
June 30, June 30,
2018   2017
(in millions)
Net Investment In
Cash and cash equivalents (a) $ 851 $ 433
Short-term marketable securities (a) 2 237
Operating working capital (b) 7,718 7,034
Property, plant, and equipment 9,948 9,945
Investments in and advances to affiliates 5,355 4,856
Long-term marketable securities 33 199
Goodwill and other intangibles 3,834 3,866
Other non-current assets 938   750
$ 28,679   $ 27,320
Financed By
Short-term debt (b) $ 1,047 $ 353
Long-term debt, including current maturities (b) 6,576 6,627
Deferred liabilities 2,291 2,895
Temporary equity 53 27
Shareholders' equity 18,712   17,418
$ 28,679   $ 27,320

(a) Net debt is calculated as short-term debt plus long-term debt,
including current maturities less cash and cash equivalents and
short-term marketable securities.

(b) Current assets (excluding cash and cash equivalents and short-term
marketable securities) less current liabilities (excluding short-term
debt and current maturities of long-term debt).

 
Summary of Cash Flows

(unaudited)

 
Six months ended
June 30
2018   2017
(in millions)
Operating Activities  
Net earnings $ 962 $ 615
Depreciation and amortization 474 452
Asset impairment charges 33 19
Gains on sales of assets (12 ) (51 )
Other - net (319 ) (35 )
Change in deferred consideration in securitized receivables(a) (4,107 ) (4,093 )
Other changes in operating assets and liabilities (210 ) 1,013  
Total Operating Activities (3,179 ) (2,080 )
 
Investing Activities
Purchases of property, plant and equipment (379 ) (452 )
Net assets of businesses acquired (180 )
Proceeds from sale of business/assets 26 149
Investments in retained interest in securitized receivables(a) (2,184 ) (1,931 )
Proceeds from retained interest in securitized receivables(a) 6,212 5,845
Marketable securities - net (2 ) 106
Investments in and advances to affiliates (132 ) (186 )
Other investing activities 7   (3 )
Total Investing Activities 3,548 3,348
 
Financing Activities
Long-term debt borrowings 17
Long-term debt payments (6 ) (269 )
Net borrowings (payments) under lines of credit 196 195
Share repurchases (511 )
Cash dividends (379 ) (364 )
Other 13   (7 )
Total Financing Activities (176 ) (939 )
 
Increase (decrease) in cash, cash equivalents, restricted cash,
and restricted cash equivalents
193 329
Cash, cash equivalents, restricted cash, and restricted cash
equivalents - beginning of period
1,858   1,561  
Cash, cash equivalents, restricted cash, and restricted cash
equivalents - end of period
$ 2,051   $ 1,890  

(a) Cash flows related to the Company's retained interest in
securitized receivables as required by ASU 2016-15 which took effect
January 1, 2018. Prior period amounts have been restated to conform to
the current presentation.

   
Segment Operating Analysis

(unaudited)

 
Quarter ended Six months ended
June 30 June 30
2018   2017   2018   2017
(in ‘000s metric tons)
Processed volumes (by commodity)    
Oilseeds 9,075 8,518 18,122 17,337
Corn 5,518   5,840   11,109     11,384
Total processed volumes 14,593   14,358   29,231   28,721
 
 
Quarter ended Six months ended
June 30 June 30
2018   2017   2018   2017
(in millions)
Revenues
Origination $ 6,606 $ 5,347 $ 12,821 $ 11,650
Oilseeds 6,675 6,011 12,308 11,237
Carbohydrate Solutions 2,668 2,551 5,290 5,061
Nutrition 1,018 933 1,968 1,788
Other 101   101   207   195
Total revenues $ 17,068   $ 14,943   $ 32,594   $ 29,931
   
Adjusted Earnings Per Share
A non-GAAP financial measure

(unaudited)

 
Quarter ended Six months ended
June 30 June 30
2018   2017 2018   2017
In millions   Per share   In millions   Per share In millions   Per share   In millions   Per share
Net earnings and fully diluted EPS $ 566   $ 1.00   $ 276   $ 0.48 $ 959   $ 1.70   $ 615   $ 1.07
Adjustments:
LIFO charge (credit) (a) (10 ) (0.02 ) 6 0.01 (16 ) (0.03 ) (2 )
Losses (gains) on sales of assets and businesses (b) 22 0.04 22 0.04
Asset impairment, restructuring, and settlement charges (c) 16 0.03 21 0.04 28 0.05 29 0.05
Tax adjustment (d) 7     0.01           (7 )   (0.02 )   4     0.01
Sub-total adjustments 13     0.02     49     0.09   5         53     0.10
Adjusted net earnings and adjusted EPS $ 579     $ 1.02     $ 325     $ 0.57   $ 964     $ 1.70     $ 668     $ 1.17

(a) Current quarter and YTD changes in the Company's LIFO reserves of
$13 million and $21 million pretax, respectively ($10 million and $16
million after tax, respectively), tax effected using the Company's U.S.
income tax rate. Prior quarter and YTD changes in the Company's LIFO
reserves of $9 million and $4 million pretax, respectively ($6 million
and $2 million after tax, respectively), tax effected using the
Company's U.S. income tax rate.

(b) Prior quarter and YTD gain of $8 million pretax ($22 million loss
after tax) related to the sale of the crop risk services business
partially offset by an adjustment of the proceeds of the 2015 sale of
the cocoa business, tax effected using the applicable tax rates.

(c) Current quarter and YTD charges of $24 million and $40 million
pretax, respectively ($16 million and $28 million after tax,
respectively) related primarily to the impairment of a long-term
financing receivable and restructuring charges, tax effected using the
applicable tax rates. Prior quarter and YTD charges of $28 million and
$38 million pretax, respectively ($21 million and $29 million after tax,
respectively) related to impairment of certain long-lived assets,
restructuring charges, and a settlement charge, tax effected using the
applicable tax rates.

(d) Tax adjustment due to changes in the provisional tax amount related
to the enactment of the Tax Cuts and Jobs Act and certain discrete items
totaling $7 million in the current quarter and $7 million YTD and a
discrete tax adjustment of $4 million in the prior period.

Adjusted net earnings reflects ADM's reported net earnings after removal
of the effect on net earnings of specified items as more fully described
above. Adjusted EPS reflects ADM's fully diluted EPS after removal of
the effect on EPS as reported of specified items as more fully described
above. Management believes that Adjusted net earnings and Adjusted EPS
are useful measures of ADM's performance because they provide investors
additional information about ADM's operations allowing better evaluation
of underlying business performance and better period-to-period
comparability. These non-GAAP financial measures are not intended to
replace or be alternatives to net earnings and EPS as reported, the most
directly comparable GAAP financial measures, or any other measures of
operating results under GAAP. Earnings amounts described above have been
divided by the company's diluted shares outstanding for each respective
period in order to arrive at an adjusted EPS amount for each specified
item.

       
Adjusted Return on Invested Capital
A non-GAAP financial measure

(unaudited)

 
Adjusted ROIC Earnings (in millions)
Four Quarters
  Quarter Ended Ended
Sep. 30, 2017 Dec. 31, 2017 Mar. 31, 2018 June 30, 2018 June 30, 2018
 
Net earnings attributable to ADM $ 192 $ 788 $ 393 $ 566 $ 1,939
Adjustments:
Interest expense 79 84 91 89 343
LIFO 2 (8 ) (13 ) (19 )
Other adjustments (3) 106   (303 ) 2   31   (164 )
Total adjustments 185 (217 ) 85 107 160
Tax on adjustments (70 ) (55 ) (24 ) (26 ) (175 )
Net adjustments 115   (272 ) 61   81   (15 )
Total Adjusted ROIC Earnings $ 307   $ 516   $ 454   $ 647   $ 1,924  
Adjusted Invested Capital (in millions)        
 
  Quarter Ended Trailing Four
Sep. 30, 2017 Dec. 31, 2017 Mar. 31, 2018 June 30, 2018 Quarter Average
 
Equity (1) $ 17,570 $ 18,313 $ 18,732 $ 18,710 $ 18,331
+ Interest-bearing liabilities (2) 7,336 7,493 9,000 7,630 7,865
+ LIFO adjustment (net of tax) 44 46 49 39 45
Other adjustments (3) 66   (326 ) (2 ) 23   (60 )
Total Adjusted Invested Capital $ 25,016   $ 25,526   $ 27,779   $ 26,402   $ 26,181  
 
 
Adjusted Return on Invested Capital 7.3 %

(1) Excludes noncontrolling interests

(2) Includes short-term debt, current maturities of
long-term debt, capital lease obligations, and long-term debt

(3) Includes the impact of U.S. tax reform

Adjusted ROIC is Adjusted ROIC earnings divided by adjusted invested
capital.
Adjusted ROIC earnings is ADM's net earnings adjusted
for the after tax effects of interest expense, changes in the LIFO
reserve and other specified items.
Adjusted invested capital is
the sum of ADM's equity (excluding noncontrolling interests) and
interest-bearing liabilities adjusted for the after tax effect of the
LIFO reserve, and other specified items.
Management believes
Adjusted ROIC is a useful financial measure because it provides
investors information about ADM's returns excluding the impacts of LIFO
inventory reserves and other specified items and increases
period-to-period comparability of underlying business performance.
Management
uses Adjusted ROIC to measure ADM's performance by comparing Adjusted
ROIC to its weighted average cost of capital (WACC).
Adjusted
ROIC, Adjusted ROIC earnings and Adjusted invested capital are non-GAAP
financial measures and are not intended to replace or be alternatives to
GAAP financial measures.

     
Segment Operating Profit, Adjusted Segment Operating Profit (a
non-GAAP measure) as Currently Reported vs Previous Segments

(unaudited)

 
Quarter Ended Six Months Ended
June 30, 2018 June 30, 2018
As   As  
Currently Currently
As Currently Reported Pro Forma   Reported   Pro Forma Reported   Pro Forma
(In millions)
Segment Operating Profit Segment Operating Profit $ 902 $ 902 $ 1,606 $ 1,606
Specified items: Specified items:
Impairment and restructuring charges Impairment and restructuring charges 22     22   35     35
Adjusted Segment Operating Profit Adjusted Segment Operating Profit $ 924 $ 924 $ 1,641 $ 1,641
 
Origination Agricultural Services $ 189     $ 230   $ 234     $ 319
Merchandising and handling Merchandising and handling 158 151 200 191
Transportation Transportation 31 31 34 34
Milling and Other 48 94
 
Oilseeds Oilseeds $ 341     $ 344   $ 691     $ 696
Crushing and origination Crushing and origination 204 208 272 275
Refining, packaging, biodiesel, & other Refining, packaging, biodiesel, & other 85 86 258 261
Asia Asia 52 50 161 160
 
Carbohydrate Solutions Corn Processing $ 249     $ 213   $ 462     $ 403
Starches and sweeteners Sweeteners and Starches 238 195 454 367
Bioproducts Bioproducts 11 18 8 36
 
Nutrition Wild Flavors & Specialty Ingredients $ 114     $ 106   $ 210     $ 179
WFSI Wild Flavors & Specialty Ingredients 106 106 179 179
Animal Nutrition 8 31
 
Other Other $ 31 $ 31 $ 44 $ 44

Segment operating profit is ADM's consolidated income from operations
before income tax excluding corporate items. Adjusted segment operating
profit, a non-GAAP measure, is segment operating profit excluding
specified items and timing effects. Timing effects relate to hedge
ineffectiveness and mark-to-market hedge timing effects. Management
believes that segment operating profit and adjusted segment operating
profit are useful measures of ADM's performance because they provide
investors information about ADM's business unit performance excluding
corporate overhead costs as well as specified items and significant
timing effects. Segment operating profit and adjusted segment operating
profit are not measures of consolidated operating results under U.S.
GAAP and should not be considered alternatives to income before income
taxes, the most directly comparable GAAP financial measure, or any other
measure of consolidated operating results under U.S. GAAP.

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