CHICAGO, ILLINOIS, US — As ADM faces a widening criminal investigation in connection with previous financial practices, the company’s new chief financial officer pledged to make “integrity and accuracy in our internal controls and financial reporting” a top priority.
Monish Patolawala, who came to ADM in July as executive vice president and CFO from 3M, where he was president and CFO, spoke to analysts Dec. 3 in an earnings call that was delayed for a month because of newly discovered concerns about its accounting practices.
The call was conducted just after Reuters said federal prosecutors have broadened a criminal investigation into whether ADM intentionally misled investors about the financial results of the company’s Nutrition division.
The subject of the investigation was not raised during the call, and the company issued a terse statement in the wake of the Reuters coverage: “ADM has been, and continues to, fully cooperate with the Department of Justice and the US Securities and Exchange Commission. Beyond that, we are not going to comment on an ongoing investigation.”
Monish Patolawala
| Credit: ©3MWithout directly addressing the investigation, Patolawala told investment analysts he was committed to righting the accounting ship. He went on to affirm the company was continuing to take steps to ensure past problems, including inappropriate accounting of intersegment sales, would not recur.
“My top priority is ensuring integrity and accuracy in our internal controls and financial reporting,” he said. “… We are continuing to focus on implementing enhancements to our internal controls to remediate the previously identified material weakness and are taking action to enhance the integrity and accuracy within internal controls and financial reporting related to intersegment sales.
“Among other things, the design and documentation of the execution of pricing and measurement and reporting controls for segment disclosure purposes and projected financial information used in impairment analysis have been enhanced, and the testing of these controls will continue throughout the balance of the year. Further, training for relevant personnel on the measurement of intersegment sales and application of relevant accounting guidance to intersegment sales has been provided and remains ongoing.”
Juan Luciano, chairman and chief executive officer, offered an update on the company’s operating results while offering a peek into ADM’s outlook for 2025. While a more challenging operating environment has been the principal factor weighing on the company’s results, Luciano acknowledged execution issues as well, together with difficulties precipitated by interruptions at production facilities.
In the third quarter ended Sept. 30, ADM net income was $18 million, equal to 4¢ per share on the common stock, down sharply from $821 million, or $1.52 per share, in the third quarter last year. Sales were $19.94 billion, down 8% from $21.7 billion a year earlier.
Results in the 2024 quarter included asset impairment, exit and restructuring costs of $507 million, versus $79 million the year before. Adjusted earnings were $1.09 per share, down 33%.
Luciano said the results fell shy of “the high bar” the company set for 2024 but has not impeded its ability to build the business or pay dividends to shareholders. He said certain assumptions ADM made in issuing guidance for the year have not played out as anticipated.
Juan Luciano, chairman and chief executive officer, ADM.
| Credit: ©ADM“The global commodity landscape has continued to shift,” he said. “Stronger-than-expected supply has driven commodity prices down further than anticipated. Canola crush margins have been negatively impacted by regulatory uncertainty and higher seed prices.
“In addition, China has begun to increase local commodity production and has had a slower pace of demand recovery, negatively impacting the trade of certain commodities and uptake of animal nutrition solutions. We’re also seeing the trailing effects of inflation in part of our business. Some new Nutrition projects have been delayed as some customers look for opportunities to manage costs by simplifying their consumer offerings.”
He highlighted areas of progress as well as steps the company was taking to improve performance.
“In Carbohydrate Solutions, we’ve been able to improve production throughout the network, in part due to advancements in automation and digitization at the plant level, as well as by finding synergies across our milling network,” he said. “We’ve seen similar improvements in our crush facilities.”
In ADM’s Nutrition business, Luciano said the company continues to navigate downtime at its Decatur East facility, damaged in a September 2023 explosion. Repairs have taken longer than anticipated, and production ramp up is now expected in the first quarter of 2025 rather than in the current quarter, he said.
“And while the integration of our most recent flavor acquisitions has driven positive results, we have experienced demand fulfillment issues due to the complexity of other integration efforts,” he said.
ADM has strengthened operational leadership of its Nutrition business while driving simplification and optimization as well as building its business pipeline and increasing its “win rates” in parts of its portfolio, including flavors, he said.
Confident ADM is well positioned for powerful global trends, including the expansion of functional food and beverage alternatives, the broad replacement of petroleum-based products and the opportunities associated with decarbonization, Luciano said ADM still anticipates bumps in the new year.
“As we look at the near term in 2025, however, we anticipate that we could still be managing through a challenging cycle, and we have already begun taking necessary productivity actions with a clear focus on cost and cash management,” he said.
Patolawala said the North American markets feature numerous positive near-term developments, including a large corn supply and robust export demand.
“However, North American ethanol production continues to outpace demand, driving lower margins,” he said. “We expect to see solid demand and margins in North American starches and sweeteners as we finish the year. Wheat milling margins are expected to moderate from elevated prior-year levels.”
He said across the company, ADM was “doubling down” on productivity initiatives.
Guidance for 2024 was left unchanged from early November, when ADM cut its projection for earnings per share to $4.50 to $5 in the year, down from prior guidance of $5.25 to $6.25.
During the call, Luciano was asked what ADM was doing to prepare for potential tariffs threatened by President-elect Donald Trump.
“Our business is running a lot of scenario planning for what could happen,” he said. “Normally, what we see in these circumstances is the trade flows adjust. At the end of the day, you continue to have certain demand in the world that is just satisfied in a different way. So that’s where in those situations the global footprint and the ADM team normally shines because it allows us with a lot of agility to repurpose those trade flows to take advantage of the conditions. So, we are remaining agile, and again doing a lot of scenario planning to be ready.”
