- Net earnings of $284 million
- Market conditions began to turn in the
quarter, presenting improved opportunities for second half
Archer Daniels Midland Company (NYSE: ADM) today 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 of new run-rate savings actions in
the first half of the year and remain on track to meet our $275
million target by the end of the calendar year. Also, we
repurchased about $500 million 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:
Quarter ended June 30 2016 2015
As Reported Adj Adjusted1
As Reported Adj Adjusted1
(in millions, except per share amounts) Earnings per share $ 0.48
$ (0.07 ) $ 0.41 $ 0.62 $ (0.02 ) $
0.60 Segment Operating Profit1 Agricultural Services $ 97 $
(40 ) $ 57 $ 152 $ (25 ) $ 127 Corn Processing 219 (56 ) 163 204
(16 ) 188 Oilseeds Processing 234 1 235 344 (43 ) 301 WFSI 106 (12
) 94 104 — 104 Other 24 — 24 4 —
4 Total $ 680 $ (107 ) $ 573
$ 808 $ (84 ) $ 724
1 Non-GAAP financial measures; see pages 4
and 9 for explanations and reconciliations, including after-tax
amounts.
Second Quarter 2016 Highlights (continued):
- EPS as reported of $0.48 includes a
$0.09 per share charge related to LIFO, $0.17 per share of gains
related to sales or revaluation of assets, and other charges of
$0.01 per share. Excluding these items, adjusted EPS is
$0.411.
- 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 of discrete tax items
(about $0.03 per share).
- During the first six months of 2016,
the company returned $0.8 billion to shareholders through dividends
and share repurchases.
1 Non-GAAP financial measures; see pages 9 and 10 for
explanations and reconciliations, including after-tax amounts.
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 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 as reported for the
quarter includes a gain of $48 million in Ag Services related to
the receipt of final additional sales proceeds for Gruma; a gain of
$63 million in Corn Processing related to the sale of the Brazilian
sugar-ethanol business; and a gain in WFSI of $12 million related
to purchasing the remaining equity interest in Amazon Flavors.
Adjusted segment operating profit was $573 million.
The effective tax rate for the quarter was 29 percent compared
to 27 percent in the year-ago quarter, due to $20 million 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 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 of equity losses in its third quarter results.
Conference Call Information
ADM will host a webcast on Aug. 2, 2016, 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
more than 32,300 employees serving customers in more than 160
countries. With a global value chain that includes 428 crop
procurement locations, 280 ingredient manufacturing facilities, 39
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 and Corporate Results A
non-GAAP financial measure
(unaudited)
Quarter ended Six months ended
June 30 June 30 (In millions)
2016 2015 Change 2016 2015 Change
Agricultural Services Operating Profit $ 97
$ 152 $ (55 ) $ 172 $ 346
$ (174 ) Merchandising and handling (excl. specified
items) (14 ) 41 (55 ) 10 148 (138 ) Milling and other (excluding
specified item) 56 67 (11 ) 104 122 (18 ) Transportation (excluding
specified item) 15 19 (4 ) 19 51 (32 ) Gains on sales of
assets/revaluation* 43 27 16 43 27 16 Impairment and restructuring
charges* (3 ) (2 ) (1 ) (4 ) (2 ) (2 )
Corn Processing
Operating Profit $ 219 $ 204 $ 15
$ 350 $ 317 $ 33
Sweeteners and starches (excl. specified items) 182 145 37 323 230
93 Bioproducts (excluding specified items) (19 ) 43 (62 ) (31 ) 85
(116 ) Gains on sales of assets* 63 6 57 63 6 57 Corn hedge timing
effects* (1 ) 11 (12 ) 1 (3 ) 4 Impairment and restructuring
charges* (6 ) (1 ) (5 ) (6 ) (1 ) (5 )
Oilseeds
Processing Operating Profit $ 234 $ 344
$ (110 ) $ 494 $ 813 $ (319 )
Crushing and origination (excl. specified items) 135 198 (63 ) 255
532 (277 ) Refining, packaging, biodiesel, and other (excluding
specified items) 53 64 (11 ) 132 145 (13 ) Asia (excluding
specified item) 47 39 8 109 107 2 Gain on sale of assets* — 68 (68
) — 68 (68 ) Impairment and restructuring charges* (1 ) (28 ) 27 (2
) (28 ) 26 Cocoa hedge timing effects* — 3 (3 ) — (11 ) 11
Wild Flavors & Specialty Ingredients Operating Profit $
106 $ 104 $ 2 $ 176
$ 172 $ 4 Wild Flavors and Specialty
Ingredients (excluding specified item) 94 104 (10 ) 164 172 (8 )
Gain on revaluation* 12 — 12 12 — 12
Other Operating
Profit $ 24 $ 4 $ 20 $ 61
$ 15 $ 46 Financial 24 4 20 61
15 46
Segment Operating Profit $ 680 $ 808 $ (128 ) $
1,253 $ 1,663 $ (410 ) *Memo: Adjusted Segment Operating Profit $
573 $ 724 $ (151 ) $ 1,146 $ 1,607 $ (461 )
Corporate
Results $ (273 ) $ (282 ) $ 9 $ (540 )
$ (447 ) $ (93 ) LIFO credit (charge) (88 ) (61 ) (27
) (102 ) (59 ) (43 ) Interest expense - net (63 ) (80 ) 17 (131 )
(158 ) 27 Unallocated corporate costs (116 ) (128 ) 12 (232 ) (231
) (1 ) Minority interest and other charges (6 ) (13 )
7 (75 ) 1 (76 )
Earnings Before
Income Taxes $ 407 $ 526 $ (119 ) $
713 $ 1,216 $ (503 )
Segment operating profit is ADM’s consolidated income from
operations before income tax excluding corporate items. Adjusted
segment operating profit is segment operating profit adjusted,
where applicable, for specified items and timing effects (see items
denoted*). Timing effects relate to hedge ineffectiveness and
significant 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 non-GAAP financial measures
and are not intended to replace earnings before income tax, the
most directly comparable GAAP financial measure. 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 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
2016 2015 2016 2015 (in millions, except per share
amounts) Revenues $ 15,629 $ 17,186 $ 30,013 $ 34,692 Cost
of products sold 14,872 16,222 28,460 32,626
Gross profit 757 964 1,553 2,066 Selling, general, and
administrative expenses 520 525 1,014 1,031 Asset impairment, exit,
and restructuring costs 12 31 25 31 Equity in (earnings) losses of
unconsolidated affiliates (90 ) (87 ) (155 ) (226 ) Interest income
(23 ) (21 ) (45 ) (39 ) Interest expense 65 85 135 166 Other
(income) expense - net (134 ) (95 ) (134 ) (113 ) Earnings before
income taxes 407 526 713 1,216 Income taxes (119 ) (143 ) (195 )
(340 ) Net earnings including noncontrolling interests 288 383 518
876 Less: Net earnings (losses) attributable to noncontrolling
interests 4 (3 ) 4 (3 ) Net earnings attributable to
ADM $ 284 $ 386 $ 514 $ 879
Diluted earnings per common share $ 0.48 $ 0.62 $ 0.87 $ 1.39
Average number of shares outstanding 594 627 595 633
Other (income)
expense - net consists of:
Gains on sales of assets/revaluations (a) $ (121 ) $ (101 ) $ (124
) $ (104 ) Other - net (13 ) 6 (10 ) (9 ) $ (134 ) $ (95 ) $
(134 ) $ (113 )
(a) Current period gain in Ag Services (Q2 $45 million, YTD $47
million) related to realized contingent consideration from the sale
of the Company’s equity investment in Gruma S.A.B de C.V. in
December 2012 partially offset by a $5 million loss on sale of
assets, Corn (Q2 & YTD $63 million) related to recovery of loss
provisions and gain on the sale of the Company’s Brazilian sugar
ethanol facilities, Wild (Q2 & YTD $12 million) related to the
revaluation of the remaining interest to settlement value in
conjunction with the acquisition of the remaining interest in
Amazon Flavors, and individually insignificant disposals in
Oilseeds (Q2 $1 million; YTD $2 million). Prior period gain in Ag
Services (Q2 $27 million, YTD $28 million) related to the
revaluation of the Company’s previously held investments in North
Star Shipping and Minmetal in conjunction with the acquisition of
the remaining interest, Corn (Q2 and YTD $6 million) related to the
sale of the lactic business, and Oilseeds (Q2 $68 million, YTD $70
million) related to the Barcarena export terminal transaction.
Summary of Financial Condition
(Unaudited)
June 30, June 30, 2016 2015 (in millions) NET
INVESTMENT IN Cash and cash equivalents (b) $ 334 $ 867 Short-term
marketable securities (b) 396 309 Operating working capital (a)
8,184 8,282 Property, plant, and equipment 9,802 9,806 Investments
in and advances to affiliates 4,429 3,930 Long-term marketable
securities 487 492 Goodwill and other intangibles 3,865 3,347 Other
non-current assets 648 405 Net current assets held for sale —
1,229 $ 28,145 $ 28,667 FINANCED BY Short-term debt
(b) $ 1,554 $ 157 Long-term debt, including current maturities (b)
5,832 6,766 Deferred liabilities 3,049 3,186 Temporary equity 41 —
Shareholders’ equity 17,669 18,558 $ 28,145 $ 28,667
(a) Current assets (excluding cash and cash
equivalents, short-term marketable securities, and current assets
held for sale) less current liabilities (excluding short-term debt,
current maturities of long-term debt, and current liabilities held
for sale). (b) 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.
Summary
of Cash Flows
(unaudited)
Six months ended June 30 2016 2015 (in
millions) Operating Activities Net earnings $ 518 $ 876
Depreciation and amortization 452 441 Asset impairment charges 20
31 Gains on sales of assets/revaluations (121 ) (104 ) Other - net
169 (50 ) Changes in operating assets and liabilities (1,404 ) (787
) Total Operating Activities (366 ) 407 Investing Activities
Purchases of property, plant and equipment (396 ) (540 ) Net assets
of businesses acquired (120 ) (69 ) Proceeds from sale of
business/assets 96 135 Marketable securities - net 63 190 Other
investing activities (456 ) (123 ) Total Investing Activities (813
) (407 ) Financing Activities Long-term debt borrowings —
1,244 Long-term debt payments (8 ) (28 ) Net borrowings (payments)
under lines of credit 1,454 50 Purchases of treasury stock (487 )
(1,164 ) Cash dividends (353 ) (350 ) Other (3 ) 16 Total
Financing Activities 603 (232 ) Increase (decrease) in cash
and cash equivalents (576 ) (232 ) Cash and cash equivalents -
beginning of period 910 1,099 Cash and cash
equivalents - end of period $ 334 $ 867
Segment Operating Analysis
(unaudited)
Quarter ended Six months ended June 30
June 30 2016 2015 2016 2015 (in ‘000s metric tons)
Processed
volumes
Oilseeds 8,468 8,438 16,749 17,287 Corn 5,087 5,709 10,829 11,011
Total processed volumes 13,555 14,147 27,578 28,298 Quarter
ended Six months ended June 30 June 30 2016 2015 2016 2015 (in
millions)
Revenues
Agricultural Services $ 6,387 $ 7,005 $ 12,867 $ 15,050 Corn
Processing 2,352 2,579 4,559 5,045 Oilseeds Processing 6,099 6,822
11,096 13,115 Wild Flavors and Specialty Ingredients 680 682 1,272
1,288 Other 111 98 219 194 Total revenues $ 15,629 $ 17,186 $
30,013 $ 34,692
Adjusted Earnings Per Share A
non-GAAP financial measure
(unaudited)
Quarter ended Six months ended June 30 June 30
2016 2015 2016 2015 EPS (fully diluted) as reported $
0.48 $ 0.62 $ 0.87 $ 1.39 Adjustments: LIFO (credit) charge (a)
0.09 0.06 0.11 0.06 Gains on sales of assets/revaluations (b) (0.17
) (0.11 ) (0.17 ) (0.11 ) Asset impairment and restructuring
charges (c) 0.01 0.04 0.02 0.04 Effective tax rate adjustment (d) —
(0.01 ) — — Sub-total adjustments (0.07 )
(0.02 ) (0.04 ) (0.01 ) Adjusted earnings per share (non-GAAP) $
0.41 $ 0.60 $ 0.83 $ 1.38 Memo:
Timing effects (gain) loss Corn (e) — (0.01 ) — — Cocoa (f) —
(0.01 ) — 0.01 Sub-total timing effects —
(0.02 ) — 0.01 Adjusted EPS excluding timing
effects (non-GAAP) $ 0.41 $ 0.58 $ 0.83 $ 1.39
(a) Current quarter and YTD changes in the
Company’s LIFO reserves of $88 million pretax ($55 million after
tax), and $102 million pretax, ($63 million after tax),
respectively, tax effected using the Company’s U.S. effective
income tax rate. Prior quarter and YTD changes in the Company’s
LIFO reserves of $61 million pretax ($38 million after tax) and $59
million pretax ($37 million after tax), respectively, tax effected
using the Company’s U.S. effective income tax rate. (b) Current
period gain of $118 million pretax ($101 million after tax),
primarily related to recovery of loss provisions and gain related
to the sale of the Company’s Brazilian sugar ethanol facilities,
realized contingent consideration on the sale of the Company’s
equity investment in Gruma S.A. de C.V. in December 2012, and
revaluation of the remaining interest to settlement value in
conjunction with the acquisition of the remaining interest in
Amazon Flavors, partially offset by a $5 million pretax ($3 million
after tax) loss on sale of assets, tax effected using the
applicable tax rates. Prior period gain of $101 million pretax ($71
million after tax), primarily related to the revaluation of the
Company’s previously held investments in North Star Shipping and
Minmetal in conjunction with the acquisition of the remaining
interest, the sale of assets to the new Barcarena export terminal
joint venture in Brasil, and sale of the lactic business, tax
effected using the applicable tax rates. (c) Current quarter and
YTD charges of $12 million pretax ($8 million after tax) and $25
million pretax ($16 million after tax), respectively, primarily
related to impairment of certain long-lived assets and
restructuring charges, tax effected using the applicable tax rates.
Prior period charges of $31 million pretax ($28 million after tax),
primarily related to certain long-lived assets, tax effected using
the applicable tax rates. (d) Impact to EPS due to the change in
annual effective tax rate. (e) Corn timing effects for corn hedge
ineffectiveness gains (Q2’15 $11 million pretax, $7 million after
tax), tax effected using the Company’s U.S. effective income tax
rate. (f) Cocoa timing effects (Q2’15 gains of $3 million pretax,
$2 million after tax; YTD’15 losses of $11 million pretax, $8
million after tax), tax effected using the Company’s effective
income tax rate.
Adjusted EPS and adjusted EPS excluding timing effects reflect
ADM’s fully diluted EPS after removal of the effect on EPS as
reported of certain specified items and timing effects as more
fully described above. Management believes that these 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 an alternative to EPS as
reported, the most directly comparable GAAP financial measure, 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 quarter in order to arrive
at an adjusted EPS amount for each specified item and timing
effect.
Adjusted Return on Invested Capital A non-GAAP
financial measure
(unaudited)
Adjusted ROIC Earnings (in millions)
Four Quarters Quarter Ended
Ended Sep. 30, 2015 Dec. 31, 2015
Mar. 31, 2016 June 30, 2016 June 30, 2016
Net earnings attributable to ADM $ 252 $ 718 $ 230 $ 284
$ 1,484 Adjustments: Interest expense 69 73 70 65
277 LIFO (75 ) 14 14 88
41 Other adjustments 222
(260 ) 13 (106 )
(131 ) Total
adjustments 216 (173 ) 97 47
187 Tax on adjustments (71 )
(135 ) (37 ) (43 )
(286 ) Net adjustments 145
(308 ) 60 4
(99 ) Total Adjusted ROIC
Earnings $ 397 $ 410 $ 290 $ 288
$ 1,385 Adjusted Invested Capital
(in millions) Quarter
Ended Trailing Four Sep. 30, 2015 Dec. 31,
2015 Mar. 31, 2016 June 30, 2016 Quarter
Average Equity (1) $ 17,863 $ 17,899 $ 17,899 $ 17,655
$ 17,829 + Interest-bearing liabilities (2) 6,783
5,877 6,646 7,386
6,673 + LIFO adjustment (net of tax) 26 35
44 99
51 Other adjustments 149 (362 ) 8 (91 )
(74 ) Total Adjusted Invested Capital $ 24,821
$ 23,449 $ 24,597 $ 25,049
$
24,479 Adjusted Return on Invested
Capital 5.7 %
(1)
Excludes noncontrolling interests
(2)
Includes short-term debt, current
maturities of long-term debt, capital lease obligations, and
long-term debt
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.
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Archer Daniels Midland CompanyMedia RelationsSteve
Schrier312-634-8484orInvestor RelationsMark
Schweitzer217-451-8286
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