10-QPeriod: Q2 FY2014

Archer-Daniels-Midland Co Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 5, 2014For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported a significant increase in net earnings attributable to controlling interests for the second quarter and the first six months of 2014 compared to the prior year. This improvement was largely driven by stronger segment operating profit, particularly in Corn Processing and Agricultural Services, bolstered by favorable ethanol margins and improved merchandising and handling results. The company also benefited from a substantial decrease in corporate charges, primarily due to the absence of significant one-time expenses recognized in the prior year, such as FCPA-related provisions and foreign currency hedge losses. Financially, ADM demonstrated strong liquidity with substantial cash on hand and ample unused lines of credit. The company reduced its debt levels, notably by repaying a large principal amount of convertible senior notes. Inventories saw a notable decrease, contributing positively to working capital management. ADM also announced a significant acquisition of WILD Flavors GmbH, signaling a strategic move to expand its capabilities in the food and beverage ingredients sector, which is expected to be funded through operating cash flows and debt. Despite these positive developments, the company faces ongoing scrutiny regarding tax matters in Brazil and Argentina, although management remains confident in its legal positions.

Financial Highlights

50 data points
Beta

Revenue

$21.49B

5.5% Gross Margin

Net Income

$533.00M

2.5% Net Margin

EPS (Diluted)

$0.81

Total Assets

$39.93B

Cash & Equivalents

$1.63B

Free Cash Flow

$1.13B

Financial Statements
Beta
Revenue$21.49B
Cost of Revenue$20.32B
Gross Profit$1.17B
SG&A Expenses$426.00M
Interest Expense$79.00M
Net Income$533.00M
EPS (Basic)$0.81
EPS (Diluted)$0.81
Shares Outstanding (Basic)656.00M
Shares Outstanding (Diluted)659.00M

Key Highlights

  • 1Net earnings attributable to controlling interests significantly increased in Q2 2014 ($533M vs $223M in Q2 2013) and for the first six months ($800M vs $496M in H1 2013).
  • 2Segment operating profit rose substantially, driven by strong performance in Corn Processing and Agricultural Services, partly due to improved ethanol margins and merchandising activities.
  • 3Corporate charges decreased significantly, primarily due to the absence of prior year expenses like FCPA provisions and foreign currency hedge losses.
  • 4The company maintained a strong liquidity position with $2.0 billion in cash, cash equivalents, and marketable securities, and $6.7 billion in unused lines of credit.
  • 5ADM repaid $1.15 billion in convertible senior notes in February 2014, reducing its long-term debt.
  • 6The company announced a major acquisition of WILD Flavors GmbH for approximately €2.3 billion, aimed at expanding its food and beverage ingredient offerings.
  • 7Despite the positive financial performance, ADM continues to address significant tax assessments in Brazil and Argentina.

Frequently Asked Questions

The significant increase in net earnings was primarily driven by improved segment operating profit, particularly in the Corn Processing and Agricultural Services segments, which benefited from stronger ethanol margins and enhanced merchandising results. Additionally, a substantial decrease in corporate charges, mainly due to the absence of significant one-time expenses recognized in the prior year such as FCPA-related provisions and foreign currency hedge losses, also contributed positively.

ADM announced that the acquisition of WILD Flavors GmbH, valued at approximately €2.3 billion, is expected to be funded using a combination of operating cash flows and debt. The company's credit rating agencies affirmed its credit rating and maintained a stable outlook following the acquisition announcement.

As of June 30, 2014, ADM maintained a strong financial position. The company had $2.0 billion in cash, cash equivalents, and short-term marketable securities, a current ratio of 2.1 to 1, and $6.7 billion in unused lines of credit. Long-term debt represented only 21% of its total capital. Inventories also decreased significantly compared to the end of 2013, aiding working capital management.

ADM is actively engaged in defending against significant tax assessments in Brazil and Argentina related to commodity hedging losses and transfer pricing, respectively. While the company believes it has strong legal positions and has not recorded a liability for these assessments, the ultimate resolution could result in substantial future payments and expenses. Management is committed to vigorously defending its positions.