Archer-Daniels-Midland Company — Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the three and six months ended June 30, 2013, compared with the corresponding 2012 periods. ADM procures, transports, stores, processes, and merchandises agricultural commodities through Oilseeds Processing, Corn Processing, Agricultural Services, and Other operations. The company operates in more than 140 countries and has consolidated subsidiaries in more than 75 countries.
Key Financial Metrics
| Metric | Three Months 2013 | Three Months 2012 | Six Months 2013 | Six Months 2012 |
|---|---|---|---|---|
| Net sales and other operating income | $22.541 billion | $22.675 billion | $44.268 billion | $43.830 billion |
| Gross profit | $807 million | $813 million | $1.563 billion | $1.821 billion |
| Approximate gross margin | 3.6% | 3.6% | 3.5% | 4.2% |
| Earnings before income taxes | $317 million | $416 million | $692 million | $984 million |
| Net earnings attributable to controlling interests | $223 million | $284 million | $492 million | $683 million |
| Diluted earnings per share | $0.34 | $0.43 | $0.74 | $1.03 |
| Dividends per share | $0.190 | $0.175 | $0.380 | $0.350 |
- Second-quarter net earnings attributable to controlling interests declined 21% year over year; six-month earnings declined 28%.
- Effective tax rates were 28.7% for the quarter and 28.3% for the six months, compared with 29.6% and 29.1%, respectively, in 2012.
- Segment operating profit was $647 million for the quarter and $1.277 billion for the six months, versus $544 million and $1.462 billion in the comparable periods.
- At June 30, 2013, cash and cash equivalents were $1.848 billion, short-term marketable securities were $181 million, and current assets were $25.036 billion versus current liabilities of $13.123 billion.
- Cash provided by operating activities was $2.348 billion for the six months, compared with cash used of $146 million in 2012. Investing activities provided $58 million, while financing activities used $2.272 billion.
- Total debt, including short-term debt, current maturities, and long-term debt, was approximately $7.524 billion. Long-term debt represented 22% of total capital, compared with 25% at December 31, 2012.
- ADM had $8.9 billion of credit lines, of which $7.9 billion was unused. Commercial paper outstanding was approximately $100 million against a $6.0 billion supported facility.
Material Changes Versus the Prior Comparable Period
- Oilseeds Processing operating profit decreased $10 million in the quarter and $239 million for the six months. Cocoa results were particularly weak, reflecting excess processing capacity, lower cocoa powder prices, customer inventory reductions, and unfavorable prior-period business positions.
- Corn Processing operating profit increased $149 million in the quarter and $169 million for the six months. Bioproducts, including ethanol, improved substantially, although industry margins remained volatile.
- Agricultural Services operating profit declined $42 million in the quarter and $152 million for the six months, primarily because of lower U.S. origination and export volumes, lower execution margins, and reduced barge utilization.
- Corporate results deteriorated by $202 million in the quarter and $107 million for the six months. Major items included LIFO valuation charges, a $51 million loss on Australian-dollar hedges for the GrainCorp acquisition, higher anti-corruption provisions, and lower equity earnings from affiliates.
- SG&A increased 15% to $452 million in the quarter and 12% to $888 million for the six months. The period included anti-corruption provisions of $29 million in the quarter and $54 million year to date.
- No significant asset impairment, exit, or restructuring costs were recorded in 2013. The six months ended June 30, 2012 included $85 million of such costs.
- Inventories declined to $10.194 billion from $13.836 billion at December 31, 2012, contributing to operating cash flow. Management attributed the decline to lower quantities and lower commodity prices.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- ADM does not provide forward-looking information in MD&A because results are highly sensitive to weather, crop yields, commodity prices, energy costs, government policies, global demand, currency movements, and competitive crops.
- Management reported expectations for a large 2013 North American harvest and lower crop prices, continued steady global demand for protein meal and vegetable oil, tight sweetener capacity, volatile but improved ethanol conditions, and continued pressure on cocoa margins.
- ADM held a 19.8% interest in GrainCorp and proposed an all-cash acquisition at A$12.20 per share, implying an aggregate transaction value of approximately A$3.4 billion including GrainCorp net debt. The estimated cash payment for remaining shares was approximately A$2.2 billion, plus assumed net debt. Regulatory approvals remained outstanding in China and from Australia's Foreign Investment Review Board.
- ADM entered into foreign-currency options and forwards to hedge substantially all of the anticipated U.S.-dollar acquisition cost and recorded a $51 million loss in the quarter. Credit-rating agencies had placed the company on negative watch, negative outlook, or under review pending funding plans.
- The company was engaged in discussions with the DOJ and SEC regarding its anti-corruption review. It recorded a $54 million provision for potential disgorgement, penalties, and fines; management stated the matter was not expected to have a material impact on business or financial condition, but the ultimate outcome remained uncertain.
- ADM faced Brazilian tax assessments totaling approximately $544 million and Argentine assessments totaling $51 million, excluding potential additional Brazilian assessments of approximately $96 million. No tax liability was recorded because management believed it was more likely than not to prevail, but resolution could require payment of some or all assessed amounts.
- The $1.0 billion accounts receivable securitization facility was fully utilized at June 30, 2013. The program was scheduled to terminate June 27, 2014 unless extended, and included $500 million of deferred consideration recorded in other current assets.
- Purchase obligations were $16.9 billion at June 30, 2013, including $15.8 billion expected to be paid within the next twelve months.
- ADM announced an exploratory strategic review of its cocoa business, including discussions with potential buyers; no transaction was assured.
Facts Investors Should Verify
- Whether the GrainCorp acquisition received all remaining regulatory approvals, how it was financed, and whether credit ratings changed.
- The final resolution and cash cost of the DOJ/SEC anti-corruption matter and the Brazilian and Argentine tax assessments.
- Whether Corn Processing profitability remained sustainable after favorable ethanol conditions and hedge-timing effects.
- Whether cocoa margins, Agricultural Services volumes, and North American crop availability improved or deteriorated after the expected 2013 harvest.
- The renewal or replacement of the $1.0 billion receivables securitization program before its scheduled June 2014 termination.
- The sensitivity of earnings, inventory values, liquidity, and collateral requirements to commodity-price and foreign-exchange movements.