10-QPeriod: Q2 FY2020

Archer-Daniels-Midland Co Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 30, 2020For Securities:ADM

Summary

Archer-Daniels-Midland Co. (ADM) reported strong financial results for the second quarter and first half of 2020, demonstrating resilience amidst the COVID-19 pandemic. Net earnings attributable to controlling interests significantly increased year-over-year, driven by improved segment operating profit across key segments. The company's diversified business model, encompassing Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition, effectively navigated market dynamics, including price volatility and the impacts of the pandemic. ADM's operational performance was bolstered by strong execution in South America's Ag Services, record origination volumes, and favorable currency movements. While certain segments faced challenges such as compressed crushing margins in North America and reduced demand in the food service channel due to COVID-19, the company adapted by optimizing production and focusing on high-demand areas like industrial alcohol and plant-based proteins. The company also benefited from favorable tax credits and a shift away from LIFO inventory accounting, which positively impacted reported earnings. ADM maintained a strong liquidity position and managed its capital resources effectively, demonstrating its ability to weather economic uncertainties.

Financial Highlights

49 data points
Beta

Revenue

$16.28B

6.8% Gross Margin

Net Income

$469.00M

2.9% Net Margin

EPS (Diluted)

$0.84

Total Assets

$44.34B

Cash & Equivalents

$1.20B

Free Cash Flow

$53.00M

Financial Statements
Beta
Revenue$16.28B
Cost of Revenue$15.17B
Gross Profit$1.11B
SG&A Expenses$638.00M
Interest Expense$87.00M
Net Income$469.00M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)561.00M
Shares Outstanding (Diluted)562.00M

Key Highlights

  • 1Net earnings attributable to controlling interests significantly increased by 99.6% to $469 million for the three months ended June 30, 2020, compared to $235 million in the prior year period.
  • 2Segment operating profit rose by 26% to $813 million for the second quarter of 2020, reflecting strong performance across most segments, particularly Ag Services, Nutrition, and Vantage Corn Processors.
  • 3Ag Services and Oilseeds segment revenue increased by 4.2% to $12.74 billion for the quarter, driven by higher sales volumes, despite some margin compression.
  • 4The Nutrition segment showed robust growth, with operating profit up 35% to $158 million, driven by strong demand in Human Nutrition and Animal Nutrition segments.
  • 5ADM's effective tax rate for the second quarter decreased to 14.5% from 13.1% in the prior year, aided by favorable U.S. tax credits.
  • 6The company reported strong liquidity, with $1.2 billion in cash and cash equivalents and $9.7 billion in unused lines of credit as of June 30, 2020.
  • 7ADM has implemented new accounting standards, including the adoption of ASC Topic 326 (Credit Losses) and a change in inventory valuation method from LIFO to market value for certain agricultural commodity inventories.

Frequently Asked Questions

ADM demonstrated strong financial performance in the second quarter of 2020, with net earnings attributable to controlling interests increasing significantly to $469 million, up from $235 million in the prior year period. Segment operating profit also saw a substantial increase of 26% to $813 million. The company successfully navigated the challenges posed by the COVID-19 pandemic by adapting its operations, optimizing production, and benefiting from demand in areas like industrial alcohol and plant-based proteins.

The Ag Services and Oilseeds segment experienced a revenue increase of 4.2% to $12.74 billion in the second quarter. This growth was primarily driven by higher sales volumes in Ag Services, particularly strong origination and export volumes in South America due to favorable currency movements (weaker Brazilian Real) and robust farmer selling. Global trade also contributed positively amidst the pandemic, while North American crushing margins faced some compression due to COVID-19 impacts.

The Nutrition segment delivered a strong performance, with operating profit increasing by 35% to $158 million. Growth was fueled by improved results in Human Nutrition, driven by solid flavors performance and expanding margins, and strong demand for plant-based proteins and edible beans. The Animal Nutrition segment also saw improvements due to Neovia synergies, robust demand for pet food and treats, and better performance in amino acids, despite some regional impacts from COVID-19 on demand.

ADM maintains a solid liquidity position with $1.2 billion in cash and cash equivalents and $9.7 billion in unused lines of credit as of June 30, 2020. The company expects to manage its capital resources effectively, with projected capital expenditures of approximately $0.8 billion, dividends of $0.8 billion, and share repurchases of $0.1 billion for the full year 2020. While COVID-19 has created market dislocations, ADM has diversified liquidity sources and has access to credit facilities to ensure operational continuity.