CHICAGO, ILLINOIS, US — Archer Daniels Midland Co. posted net earnings of $225 million for the third quarter ended September 30, 2020, equal to 40¢ per share on the common stock. This compared with earnings of $407 million, or 72¢ per share in the same period a year ago.
Revenue for the quarter slipped to $15.12 billion compared to $16.72 billion in the previous period.
“Our strategic initiatives have continued to enable our teams around the world to demonstrate their expertise and skills,” said Juan Luciano, chairman, president and chief executive officer of ADM. “And I'm proud of how our colleagues are supporting customers and driving strong results. The team has done a great job handling the daily and sometimes hourly challenges that have come our way in 2020.”
In an Oct. 30 call with analysts, Luciano said the ADM team has done a good job advancing its growth and transformation with optimization, drive and expansion.
“In our optimize pillar, our Ag Services and Oilseeds team continued its work to enhance returns, delivering another $100 million in invested capital reductions in the third quarter,” Luciano said. “Since 2017, Ag Services and Oilseeds has improved its capital position by exiting from no longer strategic assets, including 71 grain origination locations, 6 oilseed facilities, 14 Golden Peanut and Tree Nuts locations and 7 ocean-going vessels.”
Within its drive pillar, ADM is working to drive efficiencies such as with its Decatur corn complex demonstrating the benefits of centralized operations organization.
“Our supply chain center of excellence is delivering as well,” Luciano said. “Using our enhanced processes and tools as well as integrated planning between commercial, supply chain and operations, we've recently piloted changes at the nutrition facility that are on track to unlock a 20-plus percent increase in production capacity at that location and have already resulted in enhancements in customer service without additional capital spending. We'll be rolling these kinds of improvements out to other locations.”
Investments in the expand pillar have continued to help the company create strongholds in different regions and provide new, high-demand products.
“For example, year-to-date, our Algar Agro acquisition has tripled its year-over-year operating profit,” Luciano said. “In a very short time, Algar has grown to be an important component of the South American business. We have successfully expanded production of high-quality USP grade alcohol in Peoria and Clinton to meet high demand for hand sanitizer.”
Its Ag Services & Oilseeds business posted earnings of $436 million, which compared to $417 million in the same quarter a year ago.
“In Ag Services, we saw extremely good execution around the globe,” said Ray Guy Young, executive vice president and chief financial officer of ADM. “The North American team did well to capitalize on strong industry export margins and volumes, and the global trade team had another strong quarter as they continued their focus on serving customers. Ag Services also benefit from a $54 million settlement related to the 2019 US high water insurance claims, which is partially offset by an expense in captive insurance.”
Ag Services and Crushing saw expanding margins during the quarter, resulting in approximately $155 million in total negative timing effects.
“Those timing impacts are expected to reverse in the coming quarters,” Young said. “Refined Products and Other was significantly higher year-over-year, driven by improved biodiesel margins around the globe. Equity earnings from Wilmar were substantially higher versus the prior year period.”
ADM does anticipate a strong fourth quarter for Ag Services and Oilseeds.
“We expect to see strong North American exports in global crush margins in the fourth quarter, combined to contribute to a very strong Ag Services and Oilseeds performance, with results significantly higher than the third quarter of this year, though lower than Q4 of 2019, which included a $270 million benefit for two years of the retroactive biodiesel tax credit,” Young said.
The Carbohydrate Solutions results were higher year-over-year with its subsegment, Starches and Sweeteners, buoyed by strong risk management, improved net corn costs and balanced ethanol industry supply and demand, Young said.
The Carbohydrate Solutions segment, which includes grain milling saw a significant year-over-year operating profit increase of $246 million in the third quarter of 2020 compared to $182 million in the previous period.
“Reduced food service demand affected sweetener and flour volumes but we're seeing good demand recovery for starches in North America,” Young said. “The Vantage corn processors team did a good job executing on the wet mill fuel ethanol distribution and capitalizing on higher year-over-year industry margins while managing the fixed costs from the two temporarily idle dry mills. Increased volumes and margins on USP grade industrial alcohol to support the hand sanitizer market also contributed to higher year-over-year profits.”
The Nutrition business delivered its fifth consecutive quarter of 20-plus year-over-year profit growth. The Human nutrition subsegment saw higher earnings than the previous quarter due to strength across the entire pantry, including flavors, plant-based proteins and probiotics.
“Animal Nutrition was also higher year-over-year, driven by continued delivery of Neovia synergies, strengthened livestock and year-over-year improvement in amino acids, partially offset by softer aquaculture feed demand as well as negative foreign currency impacts,” Young said. “Looking ahead to the fourth quarter, we expect nutrition to deliver another quarter of 20-plus percent year-over-year OP growth with a typically seasonally weaker Q4 in Human Nutrition, offset by seasonally stronger Animal Nutrition.”
Looking ahead, ADM is working to expand by prioritizing food security, functional ingredients and sustainability.
“At the time of heightened concerns around food security, ADM's vast global value chain is helping ensure that countries and families can continue to put nutritious, delicious foods on the table,” Luciano said. “As consumers focus more and more on proactive approaches to health, we're expanding the frontier in groundbreaking functional ingredients and supplements and paving the way to a new world of precision nutrition personalized for every individual. And as sustainability becomes a key driver of consumer decisions and business success, we're playing a leading role in the transition to a low-carbon economy for our industry.”