10-QPeriod: Q1 FY2020

Archer-Daniels-Midland Co Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 1, 2020For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported solid financial results for the first quarter of 2020, despite revenue decline driven by lower sales volumes and prices. Net earnings attributable to controlling interests saw a significant increase of $158 million to $391 million, largely due to a favorable income tax benefit. This was primarily driven by newly enacted U.S. tax credits and a discrete tax benefit from railroad credits. While segment operating profit saw a slight decrease, adjusted segment operating profit showed an increase, reflecting underlying operational improvements. The company's liquidity remains strong, with substantial cash and cash equivalents and ample credit facilities. ADM successfully issued new debt in March 2020, bolstering its financial flexibility. The company is actively managing its operations, including adjustments to ethanol production in response to market conditions exacerbated by COVID-19, demonstrating resilience and adaptability in a challenging economic environment. Investors should note the company's continued focus on its strategic pillars and growth platforms, supported by its robust asset base and global reach.

Financial Highlights

49 data points
Beta

Revenue

$14.97B

6.4% Gross Margin

Net Income

$391.00M

2.6% Net Margin

EPS (Diluted)

$0.69

Total Assets

$48.40B

Cash & Equivalents

$4.73B

Free Cash Flow

-$849.00M

Financial Statements
Beta
Revenue$14.97B
Cost of Revenue$14.02B
Gross Profit$951.00M
SG&A Expenses$664.00M
Interest Expense$83.00M
Net Income$391.00M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)563.00M
Shares Outstanding (Diluted)564.00M

Key Highlights

  • 1Net earnings attributable to controlling interests significantly increased by $158 million to $391 million, or $0.69 per diluted share, compared to $233 million, or $0.41 per diluted share, in the prior year quarter.
  • 2A substantial benefit of $97 million in income tax expense (resulting in a tax benefit of $16 million) was recorded, largely due to newly enacted U.S. tax credits and a $73 million discrete tax benefit related to railroad credits.
  • 3Adjusted segment operating profit increased by $35 million to $643 million, driven by higher results in the Nutrition and Ag Services segments, as well as improved equity earnings from the Wilmar investment.
  • 4Total revenues decreased by $334 million to $14.97 billion, primarily due to lower sales volumes and prices across segments, particularly in Ag Services and Oilseeds.
  • 5The company's liquidity position is robust, with $4.7 billion in cash and cash equivalents and $5.9 billion in unused credit facilities as of March 31, 2020.
  • 6ADM issued $1.5 billion in new debt in March 2020 to enhance its financial flexibility.
  • 7The company is actively managing production in response to market conditions, including temporarily idling ethanol production facilities due to reduced demand and increased inventory, influenced by the COVID-19 pandemic.

Frequently Asked Questions

The significant increase in net earnings to $391 million was primarily driven by a favorable income tax benefit of $97 million. This benefit was largely due to newly enacted U.S. tax credits, including a $73 million discrete tax benefit related to railroad credits, which significantly lowered the effective tax rate to a benefit of 4.3% compared to an expense of 25.7% in the prior year quarter.

While overall revenues decreased, Adjusted Segment Operating Profit increased by $35 million to $643 million. The Nutrition segment saw a strong 75% increase in operating profit, driven by growth in Human Nutrition and Animal Nutrition. Ag Services and Oilseeds operating profit increased slightly, with strong global trade and Brazilian farmer selling offsetting weaker North American results. Carbohydrate Solutions operating profit decreased, impacted by negative mark-to-market timing effects and weak industry ethanol margins exacerbated by COVID-19.

ADM maintains a strong liquidity position with $4.7 billion in cash and cash equivalents and $5.9 billion in unused credit facilities as of March 31, 2020. The company also issued $1.5 billion in new debt in March 2020 to enhance financial flexibility. Despite the challenging operating environment, the company expects capital expenditures of approximately $0.8 billion and dividends of $0.8 billion for 2020, demonstrating confidence in its financial resources.

ADM is actively managing operations in response to the pandemic. This includes adjusting ethanol production, temporarily idling certain facilities, and shifting production to focus on higher-demand products like industrial alcohol for hand sanitizer. The company has not seen significant impacts on its capital and financial resources to date but is monitoring market dislocations and utilizing diversified liquidity sources to ensure stability.