10-QPeriod: Q3 FY2005

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Dec 31, 2005

Filed February 8, 2006For Securities:ADM

Summary

Archer-Daniels-Midland Company (ADM) reported a net sales increase of 3% to $9.3 billion for the three months ended December 31, 2005, compared to the same period in the prior year. Net earnings for the quarter rose by 17% to $367.7 million, or $0.56 per diluted share, up from $0.48 per diluted share in the prior year. This improvement was driven by strong performance in Corn Processing, particularly in Sweeteners and Starches, and favorable results in Oilseeds Processing and Agricultural Services. The company also benefited from a significant reduction in income tax expense due to federal and state tax credits. However, these positive results were partially offset by increased energy costs, lower valuations of private equity investments, asset write-downs, and severance costs related to a plant closure. For the six months ended December 31, 2005, net sales were largely flat at $17.9 billion. Net earnings decreased by 4.4% to $554 million, or $0.85 per diluted share, compared to $0.89 per diluted share in the prior year. The year-to-date decline in earnings was primarily due to a significant negative impact from changes in commodity prices on LIFO inventory valuations, the absence of a large one-time gain recognized in the prior year (CIP Gain), increased energy costs, and reduced performance in Agricultural Services and Other segments. These were partially offset by improved operating results in Oilseeds and Corn Processing, and the aforementioned tax benefits. Investors should note the impact of disruptions from the Gulf Coast hurricanes on the Agricultural Services segment and the ongoing effects of adopting new accounting standards for stock compensation.

Key Highlights

  • 1Net sales for the third quarter of fiscal year 2006 increased by 3% to $9.3 billion, driven by higher selling prices and volumes.
  • 2Net earnings for the third quarter of fiscal year 2006 increased by 17% to $367.7 million, with diluted earnings per share rising to $0.56 from $0.48 in the prior year.
  • 3Corn Processing segment operating profit saw a significant increase of $105 million, largely due to lower net corn costs and favorable energy cost management.
  • 4Oilseeds Processing segment operating profit grew by 8% to $128 million, benefiting from strong biodiesel demand in Europe and improved processing margins in South America.
  • 5The company reported a $36 million reduction in income tax expense due to recognized federal and state income tax credits and adjustments.
  • 6Despite revenue growth, the six-month period showed a decrease in net earnings compared to the prior year, primarily due to LIFO inventory valuation impacts, higher energy costs, and disruptions from Gulf Coast hurricanes on agricultural services.
  • 7The company maintained strong liquidity with working capital of $5.1 billion and a current ratio of 1.8 at the end of the quarter.

Frequently Asked Questions

The primary driver for the increase in net earnings for the quarter ended December 31, 2005, was the improved performance in the Corn Processing segment, largely due to lower net corn costs. Additionally, the Oilseeds Processing and Agricultural Services segments also showed improved operating results. A significant reduction in income tax expense, attributable to federal and state tax credits and adjustments, also contributed to the earnings growth.

The Gulf Coast hurricanes had a negative impact on the Agricultural Services segment, disrupting North American grain origination and agricultural commodity export operations. This led to reduced commodity prices and negatively impacted export volumes, contributing to a decrease in operating profit for this segment during the six-month period.

ADM maintained substantial liquidity at December 31, 2005, with working capital of $5.1 billion and a current ratio of 1.8. The company also issued $600 million in debentures during the six-month period, increasing its long-term debt. The ratio of long-term debt to total capital was 31%, indicating a stable financial flexibility.

Yes, for the six months ended December 31, 2005, the company adopted SFAS Number 123(R) regarding share-based payment accounting. This adoption resulted in a $31 million charge in SG&A expenses and lowered the reported earnings per share for the six-month period compared to what it would have been under the previous accounting standard. For the quarter, the impact was less significant, with a $2 million increase in net earnings.