10-QPeriod: Q3 FY2008

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 10, 2008For Securities:ADM

Summary

Archer-Daniels-Midland Company (ADM) reported a significant increase in net sales and net earnings for the third quarter of 2008 compared to the same period in 2007. Net sales surged by 65% to $21.2 billion, driven primarily by higher average selling prices across all product lines. This top-line growth translated into a substantial increase in profitability, with net earnings more than doubling to $1.05 billion, or $1.63 per diluted share, up from $441 million, or $0.68 per diluted share, in the prior year. The strong performance was attributed to improved global crush margins, favorable raw material positioning, increased merchandising and handling margins, and a LIFO credit resulting from declining commodity costs. Despite strong operational performance, the company's balance sheet reflects increased inventory and receivables year-over-year, although both decreased from the previous quarter. Cash flow from operations saw a substantial improvement, largely due to a decrease in working capital requirements driven by lower market prices and quantities of agricultural commodity inventories. The company maintained a strong liquidity position with significant cash and marketable securities and a solid current ratio. However, investors should note the company's exposure to commodity price volatility and potential impacts from its significant investment in Gruma S.A.B. de C.V., which reported substantial unrealized mark-to-market losses on currency derivative positions.

Financial Highlights

26 data points
Beta

Revenue

$21.16B

8.8% Gross Margin

Net Income

$1.04B

4.9% Net Margin

EPS (Diluted)

$1.62

Cash & Equivalents

$2.53B

Free Cash Flow

$4.20B

Financial Statements
Beta
Revenue$21.16B
Cost of Revenue$19.29B
Gross Profit$1.87B
SG&A Expenses$409.00M
Net Income$1.04B
EPS (Basic)$1.62
EPS (Diluted)$1.62
Shares Outstanding (Basic)644.00M
Shares Outstanding (Diluted)645.00M

Key Highlights

  • 1Net sales increased by 65% year-over-year to $21.16 billion, driven primarily by higher average selling prices.
  • 2Net earnings more than doubled, rising from $441 million to $1.05 billion, resulting in a significant EPS increase from $0.68 to $1.63.
  • 3Oilseeds Processing segment operating profit surged by 144% to $510 million, driven by improved global crush margins.
  • 4Agricultural Services segment operating profit increased by 87% to $428 million, benefiting from volatile commodity and freight market conditions.
  • 5Cash provided by operating activities dramatically improved to $4.68 billion, compared to a cash usage of $1.21 billion in the prior year, largely due to decreased working capital requirements.
  • 6The company maintained a strong liquidity position with $3.0 billion in cash, cash equivalents, and short-term marketable securities at quarter-end.
  • 7A subsequent event details Gruma's significant currency derivative losses, which are expected to result in a non-cash loss of approximately $24 million for ADM in the next quarter, though ADM does not consider its investment to be other-than-temporarily impaired.

Frequently Asked Questions

The substantial increase in revenue and earnings was primarily driven by higher average selling prices across most of ADM's product lines, contributing to a 65% rise in net sales. This was further bolstered by improved operating profit in key segments like Oilseeds Processing and Agricultural Services, resulting from favorable commodity markets, better crush margins, and volatile freight conditions. A significant LIFO credit also positively impacted earnings compared to the prior year's LIFO charge.

ADM's liquidity and financial health remain strong. The company reported $3.0 billion in cash, cash equivalents, and short-term marketable securities. Its current ratio stood at a healthy 1.9 to 1. A significant improvement was observed in cash flow from operations, which surged to $4.68 billion, primarily due to a reduction in working capital needs stemming from lower inventory levels and receivables. Long-term debt to total capital remained stable at 36%, indicating a consistent capital structure.

ADM holds a 23% stake in Gruma, which announced significant unrealized mark-to-market losses on currency derivative positions. ADM expects to record its share of Gruma's Q3 2008 results, which include a portion of these losses, as a non-cash loss of approximately $24 million (after-tax) in its second fiscal quarter (ending December 31, 2008). While Gruma's situation involves potential future payments, ADM has stated it has no present obligation to fund Gruma and, based on available information and expected future cash flows, does not consider its investment to be other-than-temporarily impaired.

ADM has adopted SFAS No. 157 (Fair Value Measurements) effective July 1, 2008, impacting how it values certain assets and liabilities, including inventories and derivative contracts. The company has also provided details on its adoption of SFAS 158 for postretirement plans. Several new accounting standards (SFAS 141(R), 160, 161, FSP APB 14-1, FSP EITF 03-6-1) are scheduled for adoption in future periods, primarily in 2009. ADM is still assessing the full impact of these upcoming standards on its financial statements, particularly concerning business combinations, noncontrolling interests, derivative disclosures, convertible debt, and share-based payments.