Adm reports second quarter earnings of $0.84 per share, $0.85 per share on an adjusted basis
Chicago--(business wire)--adm (nyse: adm) today reported financial results for the quarter ended june 30, 2020. “this was another strong quarter for adm. i am proud of our team’s excellent work, as their execution of our strategy continued to deliver results,” said chairman and ceo juan luciano. “through good and challenging times alike, we have kept a strong and steady focus on transforming and improving our company. thanks to that work, and thanks to the adm colleagues who have gone above and beyond to support our customers and the global food supply chain, we are delivering on our purpose by providing high quality nutrition around the world. “we’re also living up to our ideals,” luciano continued. “from our ambitious new sustainability goals, to the continued expansion of products and services to meet evolving consumer needs, to the critical efforts we are all making to protect our employees and support our communities during challenging times, our team is making a positive impact. “as we advance our strategy, we are increasingly seeing growing benefits flow to our bottom line. our team is exceeding the targets we’ve set for those factors under our control, and as we look at the second half of the year, we’ll continue to advance our key focus areas: optimizing business performance, accelerating readiness – which has been critical to our resilience and agility this year – and harvesting the benefits of strategic growth investments, especially in our nutrition segment. we are in a strong position, with great momentum, and we are confident in our ability to continue to deliver strong earnings and returns in 2020 and beyond.” second quarter 2020 highlights (amounts in millions except per share amounts) 2020 2019 earnings per share (as reported) $ 0.84 $ 0.42 adjusted earnings per share1 $ 0.85 $ 0.60 segment operating profit $ 813 $ 645 adjusted segment operating profit1 $ 804 $ 682 ag services and oilseeds 413 362 carbohydrate solutions 195 192 nutrition 158 117 other business 38 11 eps as reported of $0.84 includes a $0.02 per share charge related to asset impairment and restructuring accruals, a $0.02 per share charge related to early debt extinguishment, and a $0.03 per share credit related to the gain on sale of certain assets. adjusted eps, which excludes these items, was $0.85.1 1 non-gaap financial measures; see pages 5, 10, 11 and 13 for explanations and reconciliations, including after-tax amounts. results of operations ag services & oilseeds delivered higher results versus the second quarter of 2019. ag services results were substantially better year over year. strong execution in south america helped deliver record quarterly origination and export volumes in a significantly improved margin environment, driven by a weaker brazilian real and strong farmer selling. global trade delivered another strong quarter, as countries looked to secure stable supplies of food amid the pandemic. lower interior grain margins affected results in north america. crushing was lower versus the prior-year period. south america delivered significantly higher year-over-year results in an environment of solid domestic meal demand and the weaker brazilian real. in emeai, crush volumes and margins remained solid. in north america, margins were impacted by covid-19 effects on customers. refined products and other was higher year over year, driven by improved biodiesel volumes and margins in north and south america as well as strong volumes and margins in refined and packaged oils in south america. demand was lower for biodiesel in emeai, and edible oils in both emeai and north america. wilmar results were lower year over year. carbohydrate solutions results were similar to the year-ago quarter. starches and sweeteners was lower year over year. results were impacted by lower food service demand in north america and mark-to-market losses on corn oil contracts, partially offset by lower net raw material costs and strong risk management results. wheat milling had another strong quarter, as solid retail demand and footprint optimization initiatives continued to drive results. vantage corn processors results were higher than the second quarter of 2019, driven by favorable risk management results on inventory positions and strong demand for industrial ethanol. while average industry ethanol margins were down versus the prior year, prices and margins improved throughout the quarter as lower production, including two idled adm dry mills, and some recovery in driving miles led to falling industry stocks. nutrition continued to deliver significant year-over-year profit growth. human nutrition results were higher versus the prior-year quarter. flavors continued to deliver solid results, as favorable sales mix and margin expansion in north america was offset by some softness in emeai. strong execution to meet rising customer demand for plant-based proteins and edible beans drove higher results in specialty ingredients. health & wellness delivered higher performance on strong sales for probiotics, improved volumes and margins in fiber, and additional fermentation income. animal nutrition was again higher year over year. despite impacts from covid-19 on demand in some regions, continued execution on neovia synergies, robust demand for pet food and treats, and improvement in amino acids drove better results. other business results were higher, driven by improvements in captive insurance operations. other items of note as additional information to help clarify underlying business performance, the table on page 10 includes reported earnings and eps as well as adjusted earnings and eps. segment operating profit of $813 million for the quarter includes charges related to asset impairment and restructuring activities of $14 million ($0.02 per share) and gains on the sale of certain assets of $23 million ($0.03 per share). in corporate results, interest expense decreased due to lower average borrowing costs from liability management actions taken in late 2019. unallocated corporate costs for the quarter were higher year over year due to higher variable performance-related compensation expense accruals, and transfers of costs from business segments into corporate due to centralization of certain activities. other charges declined due to improved foreign hedging results on intercompany funding and improved investment performance. corporate results also included debt extinguishment expenses of $14 million related to the early retirement of a bond. the effective tax rate for the quarter was approximately 14 percent, very similar to the 13 percent in the prior year. note: additional facts and explanations additional facts and explanations about results and industry environment can be found at the end of the adm q2 earnings presentation at www.adm.com/webcast. conference call information adm will host a webcast on july 30, 2020, at 7:00 a.m. central time to discuss financial results and provide a company update. to listen to the webcast, 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 our comments and materials in this presentation constitute forward-looking statements that reflect management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. these statements and materials 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 as a result of new information or future events. about adm at adm, we unlock the power of nature to provide access to nutrition worldwide. with industry-advancing innovations, a complete portfolio of ingredients and solutions to meet any taste, and a commitment to sustainability, we give customers an edge in solving the nutritional challenges of today and tomorrow. we’re a global leader in human and animal nutrition and the world’s premier agricultural origination and processing company. our breadth, depth, insights, facilities and logistical expertise give us unparalleled capabilities to meet needs for food, beverages, health and wellness, and more. from the seed of the idea to the outcome of the solution, we enrich the quality of life the world over. learn more at www.adm.com. financial tables follow source: corporate release segment operating profit, adjusted segment operating profit (a non-gaap financial measure) and corporate results (unaudited) quarter ended six months ended june 30 june 30 (in millions) 2020 2019 change 2020 2019 change segment operating profit $ 813 $ 645 $ 168 $ 1,412 $ 1,256 $ 156 specified items: (gains) losses on sales of assets and businesses (23 ) — (23 ) (23 ) (12 ) (11 ) impairment, restructuring, and settlement charges 14 37 (23 ) 58 46 12 adjusted segment operating profit $ 804 $ 682 $ 122 $ 1,447 $ 1,290 $ 157 ag services and oilseeds $ 413 $ 362 $ 51 $ 835 $ 779 $ 56 ag services 171 90 81 335 165 170 crushing 113 139 (26 ) 183 355 (172 ) refined products and other 78 71 7 159 143 16 wilmar 51 62 (11 ) 158 116 42 carbohydrate solutions $ 195 $ 192 $ 3 $ 263 $ 288 $ (25 ) starches and sweeteners 177 215 (38 ) 276 350 (74 ) vantage corn processors 18 (23 ) 41 (13 ) (62 ) 49 nutrition $ 158 $ 117 $ 41 $ 300 $ 198 $ 102 human nutrition 131 103 28 244 191 53 animal nutrition 27 14 13 56 7 49 other business $ 38 $ 11 $ 27 $ 49 $ 25 $ 24 segment operating profit $ 813 $ 645 $ 168 $ 1,412 $ 1,256 $ 156 corporate results $ (261 ) $ (371 ) $ 110 $ (485 ) $ (667 ) $ 182 interest expense - net (86 ) (101 ) 15 (163 ) (191 ) 28 unallocated corporate costs (194 ) (132 ) (62 ) (383 ) (315 ) (68 ) other charges 35 (12 ) 47 (17 ) (18 ) 1 specified items: lifo credit (charge) — (25 ) 25 91 (26 ) 117 early debt repayment expenses (14 ) — (14 ) (14 ) — (14 ) expenses related to acquisitions — — — — (14 ) 14 impairment and restructuring charges (2 ) (101 ) 99 1 (103 ) 104 earnings before income taxes $ 552 $ 274 $ 278 $ 927 $ 589 $ 338 segment operating profit is adm’s consolidated income from operations before income tax excluding corporate items. adjusted segment operating profit, a non-gaap financial measure, is segment operating profit excluding specified items. 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. 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 2020 2019 2020 2019 (in millions, except per share amounts) revenues $ 16,281 $ 16,297 $ 31,251 $ 31,601 cost of products sold (1) 15,173 15,325 29,192 29,701 gross profit 1,108 972 2,059 1,900 selling, general, and administrative expenses (2) 638 602 1,302 1,261 asset impairment, exit, and restructuring costs (3) 16 136 57 147 equity in (earnings) losses of unconsolidated affiliates (103 ) (90 ) (243 ) (191 ) interest income (15 ) (46 ) (55 ) (95 ) interest expense 87 109 170 210 other (income) expense - net (4) (67 ) (13 ) (99 ) (21 ) earnings before income taxes 552 274 927 589 income tax (benefit) expense (5) 80 36 64 117 net earnings including noncontrolling interests 472 238 863 472 less: net earnings (losses) attributable to noncontrolling interests 3 3 3 4 net earnings attributable to adm $ 469 $ 235 $ 860 $ 468 diluted earnings per common share $ 0.84 $ 0.42 $ 1.53 $ 0.83 average diluted shares outstanding 562 566 563 566 (1) includes a charge (credit) related to changes in the company’s lifo reserves of $(91) million in the current ytd and $25 million and $26 million in the prior quarter and ytd, respectively. (2) includes acquisition-related expenses of $14 million in the prior ytd. (3) includes charges related to impairment of certain assets and restructuring of $16 million and $57 million in the current quarter and ytd, respectively, and $136 million and $147 million in the prior quarter and ytd, respectively. (4) includes gains of $23 million related to the sale of certain assets and early debt repayment expenses of $14 million in the current quarter and ytd and a settlement charge of $2 million in the prior quarter and ytd. prior ytd also includes gains of $12 million related to the sale of certain assets and a step-up gain on an equity investment. (5) includes the tax expense (benefit) impact of the above specified items and tax discrete items totaling $(1) million and $19 million, in the current quarter and ytd, respectively, and the tax benefit impact of the above specified items and certain discrete items totaling $(58) million and $(44) million in the prior quarter and ytd, respectively. summary of financial condition (unaudited) june 30, 2020 june 30, 2019 (in millions) net investment in cash and cash equivalents (a) $ 1,203 $ 849 short-term marketable securities (a) — 4 operating working capital (b) 8,540 7,804 property, plant, and equipment 9,833 10,245 investments in and advances to affiliates 5,239 5,449 long-term marketable securities 3 8 goodwill and other intangibles 5,212 5,545 other non-current assets 2,043 1,821 $ 32,073 $ 31,725 financed by short-term debt (a) $ 531 $ 1,699 long-term debt, including current maturities (a) 8,642 7,713 deferred liabilities 3,504 3,281 temporary equity 85 53 shareholders’ equity 19,311 18,979 $ 32,073 $ 31,725 (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 2020 2019 (in millions) operating activities net earnings $ 863 $ 472 depreciation and amortization 489 493 asset impairment charges 47 44 (gains) losses on sales of assets (64 ) (30 ) other - net 276 37 change in deferred consideration in securitized receivables(a) (2,456 ) (3,613 ) other changes in operating assets and liabilities 409 (116 ) total operating activities (436 ) (2,713 ) investing activities purchases of property, plant and equipment (360 ) (383 ) net assets of businesses acquired (3 ) (1,944 ) proceeds from sale of business/assets 91 23 investments in retained interest in securitized receivables(a) (2,121 ) (2,590 ) proceeds from retained interest in securitized receivables(a) 4,577 6,203 marketable securities - net (3 ) 65 investments in and advances to affiliates (5 ) (10 ) other investing activities (3 ) (18 ) total investing activities 2,173 1,346 financing activities long-term debt borrowings 1,478 2 long-term debt payments (525 ) (611 ) net borrowings (payments) under lines of credit (667 ) 1,413 share repurchases (112 ) (94 ) cash dividends (405 ) (395 ) other 3 (42 ) total financing activities (228 ) 273 increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 1,509 (1,094 ) cash, cash equivalents, restricted cash, and restricted cash equivalents - beginning of period 2,990 3,843 cash, cash equivalents, restricted cash, and restricted cash equivalents - end of period $ 4,499 $ 2,749 (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. segment operating analysis (unaudited) quarter ended six months ended june 30 june 30 2020 2019 2020 2019 (in ‘000s metric tons) processed volumes (by commodity) oilseeds 9,103 8,773 18,266 17,940 corn 4,099 5,546 9,633 10,678 total processed volumes 13,202 14,319 27,899 28,618 quarter ended six months ended june 30 june 30 2020 2019 2020 2019 (in millions) revenues ag services and oilseeds $ 12,741 $ 12,228 $ 23,820 $ 23,766 carbohydrate solutions 2,014 2,441 4,330 4,844 nutrition 1,437 1,524 2,908 2,806 other business 89 104 193 185 total revenues $ 16,281 $ 16,297 $ 31,251 $ 31,601 adjusted earnings per share a non-gaap financial measure (unaudited) quarter ended june 30 six months ended june 30 2020 2019 2020 2019 in millions per share in millions per share in millions per share in millions per share net earnings and fully diluted eps $ 469 $ 0.84 $ 235 $ 0.42 $ 860 $ 1.53 $ 468 $ 0.83 adjustments: lifo charge (credit) (a) — — 19 0.03 (69 ) (0.12 ) 20 0.03 losses (gains) on sales of assets and businesses (b) (18 ) (0.03 ) — — (18 ) (0.03 ) (9 ) (0.02 ) impairment, restructuring, and settlement charges (c) 12 0.02 105 0.18 44 0.08 115 0.20 expenses related to acquisitions (d) — — — — — — 9 0.02 early debt repayment expenses (e) 11 0.02 — — 11 0.02 — — tax adjustment (f) 1 — (19 ) (0.03 ) 8 0.01 (2 ) — sub-total adjustments 6 0.01 105 0.18 (24 ) (0.04 ) 133 0.23 adjusted net earnings and adjusted eps $ 475 $ 0.85 $ 340 $ 0.60 $ 836 $ 1.49 $ 601 $ 1.06 (a) current ytd changes in the company’s lifo reserves of $(91) million pretax ($69 million after tax), tax effected using the company’s u.s. income tax rate. prior quarter and ytd changes in the company’s lifo reserves of $25 million and $26 million pretax, respectively ($19 million and $20 million after tax, respectively), tax effected using the company’s u.s. income tax rate. (b) current quarter and ytd gain of $23 million pretax ($18 million after tax) related to the sale of certain assets. prior ytd gains of $12 million pretax ($9 million after tax) related to the sale of certain assets and a step-up gain on an equity investment, tax effected using the company’s u.s. income tax rate. (c) current quarter and ytd charges of $16 million and $57 million pretax, respectively ($12 million and $44 million after tax, respectively), related to the impairment of certain assets and restructuring, tax effected using the applicable rates. prior quarter and ytd charges of $138 million and $149 million pretax, respectively ($105 million and $115 million after tax, respectively), related to the impairment of certain assets, restructuring, and settlement, tax effected using the applicable tax rates. (d) prior ytd acquisition expenses of $14 million pretax ($9 million after tax) consisted of expenses primarily related to the neovia acquisition. (e) current quarter and ytd early debt repayment expenses of $14 million pretax ($11 million after tax), tax effected using the company’s u.s. income tax rate, related to the make-whole call provisions on a bond. (f) tax adjustment totaling $1 million and $8 million due to certain discrete items in the current quarter and ytd, respectively, and $(19) million and $(2) million due to u.s. tax reform and certain discrete items in the prior quarter and ytd, respectively. 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, 2019 dec. 31, 2019 mar 31, 2020 june 30, 2020 june 30, 2020 net earnings attributable to adm $ 407 $ 504 $ 391 $ 469 $ 1,771 adjustments: interest expense 97 95 83 87 362 lifo (16 ) 27 (91 ) — (80 ) other adjustments 48 253 48 8 357 total adjustments 129 375 40 95 639 tax on adjustments (32 ) (8 ) (7 ) (23 ) (70 ) net adjustments 97 367 33 72 569 total adjusted roic earnings $ 504 $ 871 $ 424 $ 541 $ 2,340 adjusted invested capital (in millions) quarter ended trailing four sep. 30, 2019 dec. 31, 2019 mar 31, 2020 june 30, 2020 quarter average equity (1) $ 18,873 $ 19,208 $ 18,952 $ 19,293 $ 19,082 + interest-bearing liabilities (2) 8,891 8,891 12,512 9,181 9,869 + lifo adjustment (net of tax) 49 69 — — 30 other adjustments 36 274 39 6 89 total adjusted invested capital $ 27,849 $ 28,442 $ 31,503 $ 28,480 $ 29,070 adjusted return on invested capital 8.1 % (1) excludes noncontrolling interests (2) includes short-term debt, current maturities of long-term debt, finance 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. adjusted earnings before taxes, interest, and depreciation and amortization (ebitda) a non-gaap financial measure (unaudited) the tables below provide a reconciliation of earnings before income taxes to adjusted ebitda and adjusted ebitda by segment for the trailing four quarters ended june 30, 2020. four quarters quarter ended ended sep. 30, 2019 dec. 31, 2019 mar 31, 2020 june 30, 2020 june 30, 2020 (in millions) earnings before income taxes $ 503 $ 496 $ 375 $ 552 $ 1,926 interest expense 97 95 83 87 362 depreciation and amortization 249 251 245 244 989 lifo charge (credit) (16 ) 27 (91 ) — (80 ) losses (gains) on sales of assets and businesses — 101 — (23 ) 78 asset impairment and restructuring charges 53 103 41 16 213 railroad maintenance expense — 51 73 — 124 early debt repayment expenses — — — 14 14 expenses related to acquisitions — 3 — — 3 adjusted ebitda $ 886 $ 1,127 $ 726 $ 890 $ 3,629 four quarters quarter ended ended sep. 30, 2019 dec. 31, 2019 mar 31, 2020 june 30, 2020 june 30, 2020 (in millions) ag services and oilseeds $ 511 $ 833 $ 514 $ 502 $ 2,360 carbohydrate solutions 264 258 148 274 944 nutrition 175 160 199 217 751 other business 55 20 15 39 129 corporate (119 ) (144 ) (150 ) (142 ) (555 ) adjusted ebitda $ 886 $ 1,127 $ 726 $ 890 $ 3,629 the tables below provide a reconciliation of earnings before income taxes to adjusted ebitda and adjusted ebitda by segment for the trailing four quarters ended june 30, 2019. four quarters quarter ended ended sep. 30, 2018 dec. 31, 2018 mar 31, 2019 jun. 30, 2019 jun. 30, 2019 (in millions) earnings before income taxes $ 632 $ 312 $ 315 $ 274 $ 1,533 interest expense 87 97 101 109 394 depreciation and amortization 232 235 245 248 960 lifo charge (credit) 7 (4 ) 1 25 29 losses (gains) on sales of assets and businesses (21 ) 8 (12 ) — (25 ) asset impairment, restructuring, & settlement charges 2 250 11 138 401 expenses related to acquisitions (4 ) 12 14 — 22 adjusted ebitda $ 935 $ 910 $ 675 $ 794 $ 3,314 four quarters quarter ended ended sep. 30, 2018 dec. 31, 2018 mar 31, 2019 jun. 30, 2019 jun. 30, 2019 (in millions) ag services and oilseeds $ 580 $ 711 $ 510 $ 457 $ 2,258 carbohydrate solutions 364 281 178 274 1,097 nutrition 103 99 134 173 509 other business 37 (3 ) 24 18 76 corporate (149 ) (178 ) (171 ) (128 ) (626 ) adjusted ebitda $ 935 $ 910 $ 675 $ 794 $ 3,314 adjusted ebitda is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. the company calculates adjusted ebitda by removing the impact of specified items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. management believes that adjusted ebitda is a useful measure of the company’s performance because it provides investors additional information about the company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. adjusted ebitda is a non-gaap financial measure and is not intended to replace or be an alternative to earnings before income taxes, the most directly comparable gaap financial measure.
