10-QPeriod: Q1 FY2005

Archer-Daniels-Midland Co Quarterly Report for Q1 Ended Mar 31, 2005

Filed May 6, 2005For Securities:ADM

Summary

Archer-Daniels-Midland Company (ADM) reported its financial results for the third quarter and the first nine months of fiscal year 2005, ending March 31, 2005. The company demonstrated improved profitability, with net earnings for the quarter increasing by 18.7% to $269.1 million ($0.41 per share) compared to $226.8 million ($0.35 per share) in the prior year quarter. This growth was significantly driven by a substantial gain from the sale of Tate & Lyle PLC shares, which bolstered 'Other expense (income) - net' and also offset declines in operating profits from the Oilseeds Processing and Corn Processing segments. For the first nine months of the fiscal year, net earnings surged by 42.0% to $848.9 million ($1.29 per diluted share) from $597.8 million ($0.92 per diluted share) in the comparable period of fiscal year 2004. This strong performance was attributed to a combination of factors including realized gains from securities sales, improved equity in earnings from affiliates (notably from the sale of Tate & Lyle PLC shares by an affiliate), and a favorable swing in LIFO inventory valuation adjustments. Despite these gains, the company's core operating segments faced some headwinds, with Corn Processing operating profit seeing a notable decline due to increased corn and energy costs and lower lysine prices.

Key Highlights

  • 1Net earnings for the third quarter of fiscal 2005 increased by 18.7% to $269.1 million ($0.41 per share) from $226.8 million ($0.35 per share) in the prior year period.
  • 2For the nine months ended March 31, 2005, net earnings rose 42.0% to $848.9 million ($1.29 per share) compared to $597.8 million ($0.92 per share) in the same period last year.
  • 3The company realized significant gains from the sale of Tate & Lyle PLC shares, contributing $114 million to 'Other expense (income) - net' in the third quarter and a similar amount for the nine-month period.
  • 4Oilseeds Processing operating profit decreased by 48.3% for the quarter ($60.7 million vs. $117.5 million) and 11.6% for the nine months ($270.8 million vs. $306.2 million), impacted by tight soybean supply in North America and industry overcapacity in South America.
  • 5Corn Processing operating profit saw a decline of 23.0% for the quarter ($177.9 million vs. $231.5 million) and 19.1% for the nine months ($413.0 million vs. $510.9 million), primarily due to higher corn and energy costs, and lower lysine prices.
  • 6The company's liquidity remains strong, with working capital of $4.6 billion and a current ratio of 1.8 at March 31, 2005. Short-term debt was reduced by $1.5 billion during the nine months.
  • 7ADM repurchased approximately 259,572 shares of its common stock during the third quarter for an average price of $23.59 per share, as part of its ongoing share repurchase program.

Frequently Asked Questions

The substantial increase in net earnings for the nine months was driven by several factors including $114 million in realized gains from the sale of Tate & Lyle PLC shares, a favorable swing in LIFO inventory valuation adjustments (income of $135 million in the current period compared to a charge of $160 million in the prior year), and a $45 million equity share of gains from an unconsolidated affiliate (CIP) related to the sale of Tate & Lyle PLC shares.

For Oilseeds Processing, the decline is mainly due to lower crushing margins in North America caused by a tight soybean supply and higher soybean prices, as well as industry overcapacity and decreased demand in South America and Asia. For Corn Processing, operating profits are negatively impacted by higher net corn and energy costs, and lower average selling prices for lysine, a key product.

The company maintains substantial liquidity, reporting working capital of $4.6 billion and a current ratio of 1.8 as of March 31, 2005. During the first nine months of the fiscal year, short-term debt was significantly reduced by $1.5 billion, and inventory levels decreased by $625 million. The ratio of long-term debt to total capital also improved to 29.4% from 32.7% at June 30, 2004, indicating strong financial flexibility.

The company received a Finding of Violation from the EPA regarding its Vitamin E plant in Decatur, Illinois, concerning emissions standards compliance demonstrations, recordkeeping, and reporting, rather than emissions limitations themselves. While a civil penalty may be sought, management believes it will not have a material adverse effect. Additionally, ADM is involved in approximately 25 Superfund and state-analogous proceedings as a Potentially Responsible Party, but management does not expect these to materially affect the company's financial condition or results of operations.