10-QPeriod: Q2 FY2016

Archer-Daniels-Midland Co Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 2, 2016For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported a decline in net earnings attributable to controlling interests for the second quarter and the first six months of 2016 compared to the prior year periods. This was primarily driven by lower revenues across most segments, particularly Agricultural Services and Oilseeds Processing, attributed to decreased sales prices (largely due to lower commodity prices) and lower sales volumes. Gross profit also decreased year-over-year, impacted by compressed margins in grain handling, lower ethanol and biodiesel results, and reduced soy crush margins. Despite the revenue and profit declines, ADM highlighted solid demand in its Corn Processing segment, particularly for sweeteners and starches, and strong domestic ethanol demand. The company also completed several strategic acquisitions and divestitures during the period, aligning with its plan to reduce capital intensity and redeploy capital. ADM's liquidity remains strong, with significant unused credit facilities, though cash generated from operating activities decreased year-over-year.

Financial Highlights

50 data points
Beta

Revenue

$15.63B

4.7% Gross Margin

Net Income

$284.00M

1.8% Net Margin

EPS (Diluted)

$0.48

Total Assets

$40.10B

Cash & Equivalents

$334.00M

Free Cash Flow

-$610.00M

Financial Statements
Beta
Revenue$15.63B
Cost of Revenue$14.89B
Gross Profit$737.00M
SG&A Expenses$500.00M
Interest Expense$65.00M
Net Income$284.00M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)591.00M
Shares Outstanding (Diluted)594.00M

Key Highlights

  • 1Net earnings attributable to controlling interests decreased to $284 million in Q2 2016 from $386 million in Q2 2015, and to $514 million for the six months ended June 30, 2016, from $879 million in the comparable 2015 period.
  • 2Total revenues declined by 9% to $15.6 billion for the three months ended June 30, 2016, and by 13% to $30.0 billion for the six months ended June 30, 2016, primarily due to lower commodity prices and reduced sales volumes.
  • 3Gross profit decreased by 21% to $0.8 billion for the quarter and by 25% to $1.6 billion for the six months, impacted by reduced merchandising results, lower ethanol and biodiesel results, and weaker soy crush margins.
  • 4The Corn Processing segment showed resilience with increased operating profit, driven by strong performance in Sweeteners and Starches, benefiting from higher volumes, pricing, and optimized flex grind.
  • 5ADM completed several strategic acquisitions, including a controlling stake in Harvest Innovations, a 50% interest in Medsofts Group, and a corn wet mill in Morocco, alongside divestitures such as its Brazilian sugar ethanol operations.
  • 6Cash used in operating activities was $366 million for the six months ended June 30, 2016, a decrease from cash provided by operations of $407 million in the same period of 2015.
  • 7The company maintained a strong liquidity position with $7.5 billion in total lines of credit, of which $4.9 billion was unused at June 30, 2016.

Frequently Asked Questions

The decrease in net earnings was primarily driven by lower revenues across most segments, particularly Agricultural Services and Oilseeds Processing. This was due to a combination of lower average sales prices resulting from decreased underlying commodity prices and lower overall sales volumes. Consequently, gross profit also declined due to compressed margins in areas like U.S. grain handling, lower ethanol and biodiesel results, and reduced soy crush margins.

ADM completed several strategic transactions, including acquiring stakes in Harvest Innovations and Medsofts Group, and a corn wet mill in Morocco, while divesting its Brazilian sugar ethanol operations. These actions are part of ADM's strategy to reduce capital intensity and redeploy capital. While the financial impact of these specific transactions isn't detailed in isolation for this period's core profitability, they are expected to shape future performance and align with the company's strategic direction.

The Corn Processing segment demonstrated resilience, with its operating profit increasing year-over-year. This was largely due to strong performance in the Sweeteners and Starches business, benefiting from higher volumes, pricing, and improved margins from optimizing flex grind. Although the Bioproducts sub-segment faced challenges with weak ethanol margins, the overall segment performance was positive, indicating a solid demand for its core products.

ADM is inherently exposed to commodity price volatility due to its business model. The company utilizes various strategies, including derivative instruments, to manage price risks. In this reporting period, the decrease in underlying commodity prices had a relatively equal impact on revenues and cost of products sold for its commodity merchandising and processing businesses (Agricultural Services and Oilseeds Processing), thus resulting in an insignificant impact on gross profit from this specific factor. However, specific margin pressures in areas like grain handling and soy crush did negatively affect overall segment profitability.