10-QPeriod: Q3 FY2008

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Dec 31, 2008

Filed February 9, 2009For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported strong financial results for the quarter and six months ended December 31, 2008. Net sales increased modestly for the quarter but significantly for the six-month period, driven by higher average selling prices across most segments, particularly in Oilseeds Processing and Agricultural Services. Net earnings showed substantial year-over-year growth for both periods, primarily attributed to decreased LIFO inventory valuation reserves due to declining commodity costs and improved segment operating profits, especially in Oilseeds Processing and Agricultural Services. The company's Corn Processing segment experienced a notable decline in operating profit, largely due to significantly higher net corn costs and reduced ethanol margins. Despite this, ADM maintained a strong liquidity position with substantial cash reserves and an unused portion of its credit facilities. The balance sheet remains robust, with a stable long-term debt to total capital ratio. Investors should note the company's ongoing efforts in managing commodity price volatility and the impact of foreign currency fluctuations.

Key Highlights

  • 1Net earnings for the quarter ended December 31, 2008, increased to $585 million ($0.91 per share) from $473 million ($0.73 per share) in the prior year quarter.
  • 2For the six months ended December 31, 2008, net earnings more than doubled to $1,635 million ($2.54 per share) from $913 million ($1.41 per share) in the comparable prior year period.
  • 3Net sales for the six months increased significantly by 29% to $37.8 billion, driven by higher average selling prices across key segments.
  • 4Oilseeds Processing segment operating profit saw a substantial increase of $100 million for the quarter and $401 million for the six-month period, driven by improved crushing and refining margins.
  • 5Corn Processing operating profit declined significantly by $246 million for the quarter and $381 million for the six-month period, primarily due to higher corn costs and reduced ethanol margins.
  • 6The company maintained strong liquidity, with cash and cash equivalents of $2.2 billion and significant unused credit facilities of $5.7 billion.
  • 7ADM's investment in Gruma S.A.B. de C.V. is expected to result in additional non-cash charges of $80 million to $110 million in the current quarter due to derivative losses.

Frequently Asked Questions

The substantial increase in net earnings for the six-month period was primarily driven by a decrease in LIFO inventory valuation reserves due to declining commodity costs, coupled with increased segment operating profits, particularly from the Oilseeds Processing and Agricultural Services segments. These factors significantly outweighed increased commodity costs and manufacturing expenses in other segments.

The Corn Processing segment experienced a significant decline in operating profit for both the quarter and the six-month period. This was mainly attributed to sharply higher net corn costs, reduced ethanol margins stemming from lower gasoline demand and prices, and excess industry capacity. While some segments benefited from volatile commodity markets, Corn Processing faced headwinds from rising raw material costs that could not be fully passed on to selling prices for its products.

ADM maintained a strong liquidity position as of December 31, 2008, with $3.4 billion in cash, cash equivalents, and short-term marketable securities. The company also had $5.7 billion in unused lines of credit. The current ratio was 2.0 to 1, and the ratio of long-term debt to total capital remained stable at 36%, indicating solid financial flexibility to fund its capital-intensive business.

ADM's equity method investment in Gruma S.A.B. de C.V. is expected to result in significant non-cash charges due to Gruma's substantial unrealized mark-to-market losses on currency derivative instruments. ADM estimates its share of these derivative losses for the quarter ended December 31, 2008, to be between $80 million and $110 million (after tax). The company has assessed its investment and does not consider it other-than-temporarily impaired, based on its projections of Gruma's future cash flows and business.