10-QPeriod: Q1 FY2007

Archer-Daniels-Midland Co Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 9, 2007For Securities:ADM

Summary

Archer-Daniels-Midland Company (ADM) reported strong top-line growth for the third quarter and first nine months of fiscal year 2007 compared to the prior year, driven by increased selling prices and volumes across key segments like Oilseeds Processing, Corn Processing, and Agricultural Services. Net sales increased by 25% for the quarter and 18% for the nine-month period, reflecting higher commodity prices and robust demand for processed products. Despite top-line growth, segment operating profits showed mixed results for the quarter, with Oilseeds Processing and Agricultural Services experiencing declines, while Corn Processing and Other segments saw improvements. The increase in net earnings for the quarter to $362.9 million from $347.8 million a year ago was supported by a significant increase in "Other (income) expense - net," largely due to a gain on the sale of a business and improved equity in earnings of affiliates. The company also completed a significant financing transaction, issuing $1.2 billion in convertible senior notes, the proceeds of which were partly used for share repurchases, demonstrating a focus on capital management.

Key Highlights

  • 1Net sales surged by 25% to $11.4 billion for the third quarter of FY2007, and by 18% to $31.8 billion for the first nine months, driven by increased commodity prices and sales volumes.
  • 2Net earnings for the quarter rose to $362.9 million ($0.56 per share) from $347.8 million ($0.53 per share) in the prior year quarter.
  • 3Corn Processing segment operating profit increased by 15% for the quarter and 86% for the nine-month period, driven by higher ethanol prices and volumes, and strong demand for sweeteners and starches.
  • 4Oilseeds Processing segment operating profit declined by 5% for the quarter, primarily due to lower softseed crushing margins and decreased biodiesel profits in Europe, though soybean crushing margins improved.
  • 5Agricultural Services segment operating profit saw a significant decrease of 48% for the quarter, impacted by reduced grain storage and handling results and lower barge freight rates.
  • 6ADM issued $1.2 billion in convertible senior notes in February 2007, with interest rates of 0.875%, and used a portion of the proceeds for a $370 million stock repurchase program.
  • 7The company reported a $53 million gain on the sale of its Arkady food ingredient business within the 'Other' segment, contributing to its profit increase.

Frequently Asked Questions

ADM's revenue growth was primarily driven by increased selling prices of agricultural commodities and corn processing products, alongside higher sales volumes in segments like Oilseeds Processing and Agricultural Services. Specifically, increased average selling prices for vegetable oil and protein meal, coupled with higher sales volumes of vegetable oil and biodiesel, boosted Oilseeds Processing sales. Corn Processing benefited from higher ethanol selling prices and volumes, and strong demand for sweeteners and starches. Agricultural Services saw increases due to higher commodity prices, particularly corn, and increased sales volumes in global grain merchandising.

Performance varied by segment. Corn Processing showed significant improvement with operating profits up 15% due to higher ethanol prices and volumes, and strong sweetener/starch demand. The 'Other' segment also saw a substantial increase of 57%, largely due to a $53 million gain from selling the Arkady food ingredient business. However, Oilseeds Processing operating profit decreased by 5%, impacted by lower softseed crushing margins and European biodiesel profits. Agricultural Services experienced a sharp decline of 48% in operating profit, mainly due to reduced grain storage/handling and lower barge freight rates.

In February 2007, ADM issued $1.2 billion in convertible senior notes due in 2014 with a low interest rate of 0.875%. This issuance increased the company's long-term debt. Approximately $370 million of the net proceeds, along with proceeds from warrant transactions, were used to repurchase about 10.3 million shares of ADM's common stock under its repurchase program. The issuance also included measures, like purchased call options and warrants, intended to mitigate potential dilution from future note conversions.

ADM is preparing to adopt new accounting standards. The most impactful for investors might be FIN 48, 'Accounting for Uncertainty in Income Taxes,' which is required by July 1, 2007, and clarifies how to recognize and measure uncertain tax positions. SFAS 158, 'Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,' requires ADM to recognize the funded status of its pension plans on its balance sheet as of June 30, 2007. SFAS 157 ('Fair Value Measurements') and SFAS 159 ('The Fair Value Option') are also on the horizon, set for adoption in July 2008, which may lead to expanded disclosures and potential changes in how certain financial instruments are measured.