ADM 2022 Form 10-K Summary
Business context and reporting period
Archer-Daniels-Midland Company (ADM) filed its Form 10-K for the fiscal year ended December 31, 2022. ADM operates through Ag Services and Oilseeds, Carbohydrate Solutions, Nutrition, and Other Business. Its activities include agricultural origination, merchandising, processing, food and feed ingredients, biofuels, health and wellness products, and commodity brokerage and insurance services.
ADM is a global, commodity-sensitive business operating in more than 190 countries. Soybeans, corn, and soybean meal represented 17%, 14%, and 12% of 2022 revenue, respectively.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $101.6 billion | $85.2 billion | +19% |
| Gross profit | $7.6 billion | $6.0 billion | +26% |
| Earnings before income taxes | $5.2 billion | $3.3 billion | +58% |
| Net earnings attributable to controlling interests | $4.3 billion | $2.7 billion | +60% |
| Diluted EPS | $7.71 | $4.79 | +61% |
| Adjusted diluted EPS | $7.85 | $5.19 | +51% |
| Adjusted EBITDA | $6.8 billion | $4.9 billion | +$1.9 billion |
| Cash flow from operations | $3.5 billion | $6.6 billion | -$3.1 billion |
Gross margin was approximately 7.5% of revenue versus 7.0% in 2021; net earnings attributable to controlling interests were approximately 4.3% of revenue versus 3.2% in 2021. Management cautions that revenue and cost of products sold in commodity businesses move with underlying commodity prices, making segment margins and profit more informative than revenue growth alone.
- Ag Services and Oilseeds: Revenue increased 19% to $79.6 billion and segment operating profit increased 58% to $4.4 billion, supported by strong global trade, crushing margins, protein demand, renewable diesel demand, and oil demand.
- Carbohydrate Solutions: Revenue increased 26% to $14.0 billion and segment operating profit increased 6% to $1.4 billion. Starches and sweeteners performed well, while Vantage Corn Processors declined because of weaker ethanol margins and the prior-year sale of the Peoria facility.
- Nutrition: Revenue increased 14% to $7.6 billion and segment operating profit increased 7% to $736 million. Human Nutrition benefited from alternative proteins, probiotics, fiber, and Vitamin E; higher costs, foreign exchange, and weaker demand in certain markets offset some gains.
- Other Business: Operating profit increased to $167 million from $25 million, primarily due to higher short-term interest rates and improved captive insurance performance.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $1.0 billion at December 31, 2022; the current ratio was 1.5 to 1.
- Total available liquidity was $10.3 billion, consisting of cash and unused credit lines. Total credit lines were $12.4 billion, of which $9.3 billion was unused.
- ADM had $0.3 billion of commercial paper outstanding and utilized the full $2.6 billion capacity of its accounts receivable securitization programs.
- Long-term debt was $7.7 billion, current maturities were $0.9 billion, and short-term debt was $0.5 billion. Long-term debt to total capital was 24%, compared with 26% in 2021; net debt to capital was 25%, compared with 28%.
- Capital expenditures were $1.3 billion. ADM issued $750 million of 2.900% notes due 2032 and redeemed €500 million of notes due 2022.
- ADM repurchased $1.5 billion of common stock and paid $0.9 billion of dividends in 2022.
- Shareholders’ equity was $24.3 billion. The company remained in compliance with its debt covenants, and rating agencies maintained solid investment-grade ratings with stable outlooks.
Material changes versus the prior comparable period
- Profitability improved substantially, driven primarily by Ag Services and Oilseeds, higher equity earnings from affiliates, stronger oil and protein markets, and favorable market dislocations.
- Operating cash flow fell to $3.5 billion from $6.6 billion. Working capital consumed approximately $1.5 billion, reflecting higher receivables, inventories, segregated investments, and trading activity.
- Processed oilseed and corn volumes declined by 6% and 3%, respectively, due to crop availability, weather, logistical constraints, the idled Ukraine facility, and the prior-year Peoria divestiture.
- Equity earnings from unconsolidated affiliates increased to $832 million from $595 million, primarily because of Wilmar and Olenex.
- Asset impairment, exit, and restructuring costs decreased to $66 million from $164 million. No goodwill impairment was recorded in 2022.
- The company expanded its sustainability and alternative-protein initiatives, including investments in Decatur, Illinois, joint ventures with LG Chem, ScaleUp Bio, and partnerships involving regenerative agriculture, precision fermentation, and high-protein soy.
Guidance, outlook, commentary, and unusual items
- For 2023, ADM expects approximately $1.3 billion of capital expenditures, approximately $1.0 billion of dividends, and up to $1.0 billion of opportunistic share repurchases, subject to operating cash flow, working capital, and strategic capital needs.
- ADM expects purchase obligations and other material cash requirements to remain substantial, including $14.8 billion of purchase obligations due within 12 months, $0.9 billion of current debt maturities, and $0.3 billion of interest payments.
- Management cited strong demand for food, feed, oils, renewable fuels, and nutrition products but identified inflation, higher energy and transportation costs, foreign exchange, crop availability, and uneven animal nutrition demand as constraints.
- 2022 included a $110 million legal recovery, a $50 million USDA Biofuel Producer Recovery Program payment, $105 million of net foreign exchange gains, and $47 million of gains on asset sales within segment results. These items reduce comparability with recurring earnings.
- The Ukraine conflict temporarily idled most ADM facilities in Ukraine. Ukraine and Russia historically represented less than 1% of consolidated revenue, but the conflict increased commodity, logistics, sanctions, counterparty, cyber, and supply-chain risks. ADM reported only immaterial asset valuation charges related to Ukraine at year-end.
- ADM’s Strive 35 program targets, by 2035, a 25% reduction in absolute Scope 1 and 2 emissions, a 25% reduction in Scope 3 emissions, a 15% reduction in energy intensity, a 10% reduction in water intensity, and a 90% landfill diversion rate. The company estimates $270 million to $430 million of capital spending to achieve these targets.
- Principal risks include agricultural commodity and energy price volatility, weather and climate impacts, transportation disruption, geopolitical events, regulatory and carbon costs, food and feed safety, cyber incidents, labor availability, joint venture performance, tax disputes, and dependence on credit markets.
- ADM disclosed ongoing ethanol-related antitrust and commodity-market litigation. Plaintiffs have alleged damages ranging from approximately $500 million to more than $2.0 billion; ADM denies liability and states that it does not expect a material adverse effect, although the ultimate outcome remains uncertain.
Important facts for investors to verify
- Whether elevated 2022 Ag Services and Oilseeds margins and commodity-market dislocations are sustainable as crop supplies, spreads, freight rates, and renewable fuel demand normalize.
- The conversion of strong earnings into cash, particularly the effect of receivables, inventories, segregated investments, and commodity prices on working capital.
- Debt maturities, the renewal or replacement of the $2.6 billion receivables securitization programs, and the effect of higher short-term interest rates on financing costs.
- Progress and returns from alternative-protein, Nutrition, biosolutions, renewable fuels, precision-fermentation, and sustainability-related investments.
- Developments in Ukraine and Russia, sanctions compliance, global trade flows, and related supply-chain and commodity-price effects.
- The potential financial exposure from ethanol-related litigation, tax assessments, environmental requirements, and other contingencies.
- The filing reports an unqualified audit opinion and effective internal control over financial reporting; investors should still review the critical audit matter concerning fair-value estimates for commodity inventories, inventory-related payables, and forward commodity contracts.