Archer-Daniels-Midland Company — Q3 2023 Form 10-Q Summary
Business context and reporting period
ADM is a global agricultural supply-chain manager and processor serving food, feed, energy, industrial, and nutrition markets in more than 190 countries. Reportable segments are Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition; Other Business primarily includes futures commission, brokerage, and captive insurance activities. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $21.7 billion | $24.7 billion | $71.0 billion | $75.6 billion |
| Gross profit | $1.81 billion | $1.81 billion | $5.77 billion | $5.81 billion |
| Gross margin | 8.3% | 7.3% | 8.1% | 7.7% |
| Net earnings attributable to controlling interests | $821 million | $1.03 billion | $2.92 billion | $3.32 billion |
| Diluted EPS | $1.52 | $1.83 | $5.35 | $5.87 |
| Adjusted diluted EPS | $1.63 | $1.86 | $5.62 | $5.91 |
| Adjusted EBITDA | $1.49 billion | $1.64 billion | $4.88 billion | $5.15 billion |
| Operating cash flow | Not separately presented | Not separately presented | $1.89 billion | $3.35 billion |
Q3 segment operating profit was $1.42 billion, including $71 million of specified items, compared with $1.56 billion in the prior-year quarter. Adjusted segment operating profit was $1.49 billion, down from $1.58 billion. Carbohydrate Solutions operating profit rose 49% to $460 million, while Ag Services and Oilseeds declined 21% to $848 million and Nutrition declined 22% to $138 million. Other Business increased to $46 million from $18 million.
For the first nine months, segment operating profit was $4.67 billion, down from $4.94 billion. Adjusted segment operating profit was $4.85 billion, compared with $4.98 billion. Processed volumes increased 3% to 39.4 million metric tons, led by higher oilseed volumes, while corn volumes declined.
Balance sheet, debt, liquidity, and capital allocation
- September 30, 2023 cash and cash equivalents were $1.50 billion; total current assets were $30.5 billion and current liabilities were $18.1 billion, implying a current ratio of approximately 1.7.
- Long-term debt was $8.22 billion, compared with $7.74 billion at December 31, 2022; short-term debt was $116 million and current maturities were $1 million.
- Long-term debt represented 25% of total capital, compared with 24% at year-end 2022. Net debt to capital was 21%, compared with 25% at year-end 2022.
- ADM had $13.5 billion of total credit lines, of which $11.7 billion was unused. Total available liquidity, including cash, was $13.2 billion. Accounts receivable securitization programs provided up to $3.0 billion of funding, with $1.3 billion unused.
- During the nine months, ADM generated $1.9 billion of operating cash flow, spent $1.1 billion on capital expenditures, paid $738 million in dividends, repurchased approximately $1.1 billion of stock, and used $2.8 billion in financing activities overall.
- ADM issued $500 million of 4.500% notes due 2033, redeemed €600 million of 1.750% notes due 2023, and redeemed $300 million of zero-coupon exchangeable bonds due 2023.
Material changes versus the prior comparable period
- Revenue declined 12% in Q3 and 6% for the nine months, principally because of lower commodity selling prices; higher volumes partially offset the declines.
- Net earnings attributable to controlling interests fell 20% in Q3 and 12% for the nine months. Higher interest income and stronger Carbohydrate Solutions results did not offset lower equity earnings, weaker Ag Services and Oilseeds and Nutrition results, higher interest expense, and increased impairment and restructuring costs.
- Q3 interest expense increased $58 million to $155 million, primarily because of higher short-term rates and customer deposit balances. Nine-month interest expense increased $220 million to $482 million.
- Equity earnings from unconsolidated affiliates decreased $127 million in Q3 and $198 million year-to-date, primarily due to lower results from Wilmar and other affiliates.
- Asset impairment, exit, and restructuring costs increased to $79 million in Q3 and $146 million year-to-date, compared with $28 million and $30 million, respectively, in the prior-year periods. The 2023 charges primarily included impairments of long-lived assets and discontinued animal nutrition trademarks.
- Operating cash flow fell $1.46 billion year-to-date, largely because of working-capital movements, including lower trade payables and brokerage payables, partly offset by a $3.5 billion inventory reduction.
Guidance, outlook, commentary, risks, and unusual items
Management did not provide specific earnings guidance in the filing. For 2023, ADM expected approximately $1.5 billion of capital expenditures, approximately $1.0 billion of dividends, and approximately $2.0 billion of opportunistic share repurchases, subject to strategic capital needs, operating cash flow, and working-capital conditions. The company had 73.2 million shares remaining under its repurchase authorization as of September 30, 2023.
Management reported solid demand and margins in Carbohydrate Solutions and favorable ethanol economics, but softer demand in several Nutrition categories. Human Nutrition was affected by inflation, destocking, and weaker demand for higher-priced products. Animal Nutrition faced competition, production-cost inflation, weaker feed demand, animal-disease impacts, and formulation changes by customers. Ag Services and Oilseeds were affected by global commodity supply shifts, Brazilian export strength, lower North American water levels, and volatile renewable-fuel and biodiesel markets.
- The Ukraine conflict, expiration of the Black Sea Grain Initiative, supply-chain disruptions, commodity-price volatility, weather, crop conditions, trade policies, foreign exchange, and energy costs could materially affect results.
- ADM’s Ukraine and Russia operations historically represented less than 0.2% of consolidated revenue. Management concluded that assets in the region were appropriately valued as of September 30, 2023, but continued conflict could affect future results.
- The Decatur, Illinois incident, as well as prior downtime at facilities in Turkey and Cedar Rapids, affected corn processing and certain Nutrition results.
- ADM disclosed putative class actions alleging ethanol derivatives price manipulation. The company denies liability and believes the matters will not materially affect its financial condition, results, or cash flows, but final outcomes remain uncertain.
- Tax authorities have challenged transfer-pricing positions in Argentina and the Netherlands. The filing reports assessments of $3 million in tax plus up to $13 million of interest in Argentina and $86 million of tax plus $32 million of interest in the Netherlands; ADM has accrued its best estimate for the likely Netherlands outcome and has not recorded a liability for the Argentine assessments.
- The company identified no material changes in off-balance-sheet arrangements, critical accounting policies, or market risks during the quarter. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether weaker Nutrition demand, animal-feed conditions, and commodity-processing margins persist into subsequent quarters.
- The sustainability of Ag Services and Oilseeds margins amid global crop, export, freight, and commodity-price changes.
- Progress against the 2023 capital-expenditure, dividend, and share-repurchase plans and the effect on liquidity.
- Future cash flow after working-capital normalization, capital spending, dividends, and repurchases.
- Changes in interest expense, short-term borrowing costs, and debt maturities following the 2023 refinancing activity.
- Developments in the ethanol-related litigation, tax assessments, Ukraine/Russia operations, and any additional impairment or restructuring charges.
- The filing’s non-GAAP reconciliations, particularly adjusted EPS and adjusted EBITDA, before comparing performance across periods.