10-QPeriod: Q3 FY2005

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 8, 2005For Securities:ADM

Summary

Archer-Daniels-Midland Company (ADM) reported its first quarter results for fiscal year 2006, ending September 30, 2005. The company experienced a year-over-year decrease in net sales and earnings, primarily impacted by lower commodity prices, reduced sales volumes in Agricultural Services due to hurricane disruptions, and a significant charge related to the adoption of SFAS 123(R) for stock-based compensation. Despite these challenges, the company saw improved operating profits in its Oilseeds Processing and Corn Processing segments, driven by factors such as strong European biodiesel demand and increased ethanol sales volumes. ADM maintained a strong liquidity position with substantial working capital and a robust net worth, supported by the issuance of $600 million in debentures. Investors should note the impact of agricultural commodity price volatility and the ongoing adoption of new accounting standards on reported results.

Key Highlights

  • 1Net sales decreased by 4% to $8.63 billion compared to the prior year's $8.97 billion, largely due to lower average commodity selling prices and reduced volumes in Agricultural Services.
  • 2Net earnings fell to $186.3 million ($0.29 per share) from $266.3 million ($0.41 per share) in the same quarter last year.
  • 3The adoption of SFAS 123(R) for stock-based compensation resulted in a $31 million charge, reducing earnings per share by $0.02.
  • 4Oilseeds Processing operating profit increased by 9% to $99.1 million, driven by improved margins in Europe (biodiesel demand) and Asia, despite North American challenges.
  • 5Corn Processing operating profit surged by 32% to $136.3 million, primarily due to lower corn costs and increased ethanol sales.
  • 6Agricultural Services operating profit declined significantly by 39% to $20.0 million, negatively impacted by hurricane disruptions to North American operations and global grain merchandising.
  • 7The company maintained strong liquidity with working capital of $5.0 billion and issued $600 million in 30-year debentures to strengthen its capital resources.

Frequently Asked Questions

The primary reasons for the decrease in net earnings were a $107 million decrease related to the effect of changing commodity prices on LIFO inventory valuations, increased energy costs, and lower operating results in Agricultural Services. Additionally, a $31 million charge was recognized due to the adoption of SFAS 123(R), which accelerated stock-based compensation expense.

The hurricanes disrupted North American grain origination and agricultural commodity export operations, which negatively impacted commodity price levels and export volumes. This also adversely affected oilseed crushing margins in North America and led to decreased sales and operating profits in the Agricultural Services segment.

The adoption of SFAS 123(R) for stock-based compensation, effective July 1, 2005, resulted in a $31 million charge for the quarter ended September 30, 2005. This charge reduced earnings before income taxes and net earnings, and consequently lowered basic and diluted earnings per share by $0.02.

ADM maintained substantial liquidity with $5.0 billion in working capital and a current ratio of 1.8. The company also strengthened its capital resources by issuing $600 million of 30-year debentures at a 5.375% interest rate. The ratio of long-term debt to total capital remained manageable at 32%.