Why did ADM's earnings decline in 2023 and Q4?

The decline came mainly from weaker crush and origination margins as global grain and oilseed supplies recovered, lower Wilmar equity earnings, and higher corporate interest and technology costs. Q4 was also hit by Decatur complex downtime, Nutrition operational problems, and cycling one-time 2022 legal and biofuel program benefits.

What does the 2024 guidance imply for investors?

Adjusted EPS guidance of $5.25 to $6.25 implies about an 18% decline at the midpoint versus 2023. ADM expects crush margins to fall to roughly $35 to $60/MT and anticipates improved volumes and some Carbohydrate Solutions and Nutrition gains that only partly offset the margin pressure. ADM did not give a GAAP EPS forecast, citing its inability to predict impairment and other charges.

How is ADM returning cash to shareholders, and can it afford it?

The board added $2 billion of buyback authority under the existing 200 million-share program, which had about 52 million shares remaining at year-end. About $1 billion will be executed through an accelerated share repurchase, funded from cash on hand. ADM also paid $977 million in dividends in 2023. Operating cash flow of $4.46 billion covered dividends and capital spending of $1.49 billion, though buybacks of $2.67 billion were partly funded from the balance sheet, with cash declining to $5.39 billion including restricted cash.

What is the significance of the intersegment transactions investigation?

ADM said its audit committee investigation into intersegment transactions is substantially complete, with more details to come in the Form 10-K. Investors should look for whether the review leads to restatements, control weaknesses, or changes to segment reporting, since any of these could affect how reliable reported segment profits are.

Are the quality of earnings and non-GAAP adjustments a concern?

Adjusted EPS excluded net specified charges of about $0.55 per share for the year, mainly impairments and restructuring, and Q4 charges were about $0.30 per share. These charges recur in some form, with the 2022 and 2023 figures both including them. Investors should weigh GAAP EPS of $6.43 alongside adjusted EPS of $6.98. The filing also notes 2022 segment figures were revised for immaterial errors, which further supports close review of the 10-K.

ADM 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed March 12, 2024. Cited figures are marked; the original filing is the authoritative source.

ADM reported fourth-quarter and full-year 2023 results on March 12, 2024, and the picture is one of earnings compression from a strong 2022 base.

Full-year GAAP EPS was $6.43^a (down 17%) and adjusted EPS was $6.98 (down 11%). Adjusted segment operating profit was $6,244 million, down 6%. Q4 was weaker: adjusted EPS of $1.36 fell 30% and adjusted segment operating profit dropped 16%, driven by lower crush and origination margins, a Nutrition loss, and unplanned downtime at the Decatur complex.

Ag Services & Oilseeds, the core earnings engine, fell 8%^b for the year, and equity earnings from Wilmar dropped about 45%. Carbohydrate Solutions was roughly flat, Nutrition fell 36%, and Other rose 125%, helped by Captive Insurance and higher interest income at ADM Investor Services. The forward-looking guidance is the main investor concern.

ADM expects 2024 adjusted EPS of $5.25 to $6.25^c, which is down about 18% at the midpoint, reflecting moderating crush margins (guided to $35 to $60/MT), higher costs, and a slightly lower Carbohydrate Solutions outlook. Nutrition is expected to grow operating income. Management is leaning on capital returns to support per-share value: it authorized an additional $2 billion in buybacks, including about $1 billion through an accelerated share repurchase, on top of $2.67 billion repurchased in 2023.

Cash from operations was strong at $4.46 billion^d, and Adjusted ROIC was 12.2%. The filing also notes that an internal investigation into intersegment transactions was substantially complete, with details to come in the 10-K. That disclosure is a governance item investors will want to track.

02—Key points

Key Highlights

FY2023 GAAP EPS was $6.43 (down 17%); adjusted EPS was $6.98 (down 11%), with adjusted segment operating profit of $6.24 billion (down 6%).
Q4 2023 was weak: adjusted EPS of $1.36 (down 30%) and adjusted segment operating profit of $1.40 billion (down 16%), hurt by lower crush and origination margins and Decatur downtime.
Ag Services & Oilseeds fell 8% for the year to $4.07 billion, with Wilmar equity earnings down about 45% to $303 million; Refined Products and Other rose 56% on biodiesel.
Nutrition segment profit fell 36% to $427 million for the year and was negative in Q4 (-$10 million), including a $64 million joint-venture deconsolidation and write-down.
2024 adjusted EPS guidance of $5.25 to $6.25 implies about an 18% decline at the midpoint, reflecting moderating margins and higher costs.
Board authorized an additional $2 billion in share repurchases, about $1 billion of it via an accelerated share repurchase; 2023 buybacks totaled $2.67 billion.
Operating cash flow was $4.46 billion, up from $3.48 billion, and adjusted ROIC was 12.2%. An audit committee investigation into intersegment transactions was substantially completed.

03—Questions

Frequently Asked Questions

Why did ADM's earnings decline in 2023 and Q4?
The decline came mainly from weaker crush and origination margins as global grain and oilseed supplies recovered, lower Wilmar equity earnings, and higher corporate interest and technology costs. Q4 was also hit by Decatur complex downtime, Nutrition operational problems, and cycling one-time 2022 legal and biofuel program benefits.
What does the 2024 guidance imply for investors?
Adjusted EPS guidance of $5.25 to $6.25 implies about an 18% decline at the midpoint versus 2023. ADM expects crush margins to fall to roughly $35 to $60/MT and anticipates improved volumes and some Carbohydrate Solutions and Nutrition gains that only partly offset the margin pressure. ADM did not give a GAAP EPS forecast, citing its inability to predict impairment and other charges.
How is ADM returning cash to shareholders, and can it afford it?
The board added $2 billion of buyback authority under the existing 200 million-share program, which had about 52 million shares remaining at year-end. About $1 billion will be executed through an accelerated share repurchase, funded from cash on hand. ADM also paid $977 million in dividends in 2023. Operating cash flow of $4.46 billion covered dividends and capital spending of $1.49 billion, though buybacks of $2.67 billion were partly funded from the balance sheet, with cash declining to $5.39 billion including restricted cash.
What is the significance of the intersegment transactions investigation?
ADM said its audit committee investigation into intersegment transactions is substantially complete, with more details to come in the Form 10-K. Investors should look for whether the review leads to restatements, control weaknesses, or changes to segment reporting, since any of these could affect how reliable reported segment profits are.
Are the quality of earnings and non-GAAP adjustments a concern?
Adjusted EPS excluded net specified charges of about $0.55 per share for the year, mainly impairments and restructuring, and Q4 charges were about $0.30 per share. These charges recur in some form, with the 2022 and 2023 figures both including them. Investors should weigh GAAP EPS of $6.43 alongside adjusted EPS of $6.98. The filing also notes 2022 segment figures were revised for immaterial errors, which further supports close review of the 10-K.

04—Continue

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