Archer-Daniels-Midland Company — Q1 2021 Form 10-Q Summary
Business context and reporting period
ADM is a global agricultural origination, merchandising, transportation, processing, and human and animal nutrition company operating in more than 70 countries. Reported segments are Ag Services and Oilseeds, Carbohydrate Solutions, Nutrition, and Other Business. The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Results are unaudited and interim results are not necessarily indicative of full-year performance.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $18.893 billion | $14.970 billion | +$3.923 billion, 26% |
| Gross profit | $1.548 billion | $951 million | +$597 million, 63% |
| Gross margin | 8.2% | 6.4% | +180 basis points |
| Net earnings attributable to controlling interests | $689 million | $391 million | +$298 million, 76% |
| Diluted EPS | $1.22 | $0.69 | +$0.53 |
| Net margin | 3.6% | 2.6% | +100 basis points |
| Adjusted EPS | $1.39 | $0.64 | +$0.75 |
| Adjusted EBITDA | $1.259 billion | $726 million | +$533 million, 73% |
| Operating cash flow | $298 million | $(655) million | +$953 million |
| Capital expenditures | $174 million | $194 million | $(20) million |
Revenue growth was driven primarily by higher commodity and product prices, which contributed approximately $3.7 billion, and higher sales volumes, which contributed approximately $0.2 billion. Cost of products sold increased to $17.345 billion, principally because of higher average commodity costs.
- Ag Services and Oilseeds: Revenue increased 35% to $15.007 billion; segment operating profit increased to $777 million from $422 million. Crushing benefited from strong soybean and canola margins, robust vegetable-oil demand, and tight soybean stocks.
- Carbohydrate Solutions: Revenue decreased 4% to $2.223 billion, but operating profit increased to $259 million from $68 million. Starches and sweeteners, ethanol-related activities, co-products, and Vantage Corn Processors margins improved.
- Nutrition: Revenue increased 6% to $1.563 billion and operating profit increased to $154 million from $142 million. Human Nutrition improved, while Animal Nutrition declined due to weaker demand and higher South American input costs.
- Other Business: Revenue was $100 million and operating profit was $9 million, compared with $11 million in the prior-year quarter.
Liquidity, debt, and capital resources
- Cash and cash equivalents were $694 million at March 31, 2021, compared with $666 million at December 31, 2020. Total cash, cash equivalents, restricted cash, and restricted cash equivalents were $5.852 billion.
- Current assets were $29.284 billion and current liabilities were $18.512 billion, producing a current ratio of 1.6 to 1.
- Short-term debt was $2.763 billion and long-term debt was $8.437 billion. Long-term debt represented 29% of long-term debt plus shareholders’ equity, compared with 28% at year-end 2020.
- Net debt to capital was 33%, compared with 32% at December 31, 2020.
- ADM had $11.5 billion of total credit lines, of which $7.0 billion was unused. Commercial paper outstanding was $1.6 billion against $6.5 billion of supporting facilities.
- Accounts receivable securitization programs provided up to $2.0 billion of funding; $1.7 billion was utilized at March 31, 2021, leaving approximately $0.3 billion unused.
- On March 25, 2021, ADM issued €500 million of fixed-to-floating-rate senior notes due September 25, 2022.
- Management expects 2021 capital expenditures of approximately $0.9 billion to $1.0 billion, dividends of approximately $0.8 billion, and up to $0.5 billion of share repurchases, subject to other strategic uses of capital.
Material changes versus the prior comparable period
- Operating cash flow shifted from an outflow of $655 million to an inflow of $298 million. The comparison was affected by the 2020 restructuring of the receivables securitization programs and the absence of a $2.0 billion deferred-consideration effect recorded in 2020.
- Investing cash flow changed from $1.853 billion of inflow to $169 million of outflow, primarily because 2020 included substantial cash flows associated with securitized receivables.
- Financing cash flow decreased to $1.077 billion from $3.342 billion. Current-period financing included $593 million of long-term debt borrowings and $729 million of net borrowings under credit lines.
- Processed volumes declined to 12.610 million metric tons from 14.697 million metric tons, including a decrease in corn volumes associated with temporarily idled dry-mill facilities.
- Segment operating profit increased to $1.105 billion from $599 million. Adjusted segment operating profit increased to $1.199 billion from $643 million.
- The effective tax rate was 15.9%, compared with a 4.3% tax benefit in Q1 2020. The prior-year benefit primarily reflected U.S. tax credits, including a $73 million discrete benefit related to railroad maintenance expenses.
- Q1 2020 benefited from a $91 million pre-tax credit from the elimination of a LIFO reserve; Q1 2021 included a $20 million pre-tax mark-to-market loss on the conversion option of exchangeable bonds.
Guidance, outlook, risks, contingencies, and unusual items
- ADM announced the resumption of ethanol production at its Cedar Rapids, Iowa, and Columbus, Nebraska, dry mills on April 1, 2021, with production expected to ramp to full rates by late spring.
- Management cited strong North American export demand, tight soybean stocks, strong refined-oil demand, improving ethanol conditions, and broad demand in Human Nutrition. Risks included weather, harvest delays, farmer selling activity, freight costs, COVID-19 effects, commodity-price volatility, foreign exchange, interest rates, trade and government policies, and changing global demand.
- Q1 2021 included $31 million of asset impairments, $23 million of restructuring charges, $5 million of corporate restructuring charges, and a legal settlement-related provision. Total specified items within segment operating profit were $94 million.
- The company expects an approximately $80 million non-cash pre-tax pension settlement charge in Q2 2021 following the transfer of approximately $0.7 billion of pension obligations to insurers on April 1, 2021.
- ADM accrued $45 million related to a Golden Peanut legal settlement. The company stated that it was not party to any legal proceeding or environmental claim expected to have a material adverse effect on financial position, results of operations, or liquidity.
- Material tax contingencies include Argentine assessments totaling $48 million of tax and interest, plus potential subsequent assessments estimated at approximately $94 million, and a Netherlands assessment totaling approximately $129 million of tax and interest. ADM has accrued its best estimate for the likely Netherlands litigation outcome but believes its tax positions are supportable.
- The first accounts receivable securitization program, with capacity increased to $1.4 billion, was scheduled to terminate on May 18, 2021 unless extended. The second program, with capacity of approximately $0.6 billion, was scheduled to terminate on February 14, 2022 unless extended.
- Commodity market exposure increased: the average weekly commodity position was $1.197 billion, with estimated market risk of $120 million for a hypothetical adverse 10% price change.
Most important facts for investors to verify
- Whether the resumption and ramp-up of ethanol production improves Carbohydrate Solutions earnings and processed volumes in subsequent quarters.
- Whether elevated commodity prices, soybean crush margins, refined-oil demand, freight costs, and farmer selling activity remain favorable.
- The renewal or replacement of the receivables securitization program scheduled to terminate in May 2021 and its effect on liquidity and operating cash flow.
- The timing and amount of the expected $80 million pension settlement charge in Q2 2021.
- The ultimate outcomes of the Golden Peanut, Netherlands transfer-pricing, Argentine tax, and ethanol-related litigation matters.
- The impact of the $0.9 billion to $1.0 billion capital expenditure plan, approximately $0.8 billion of expected dividends, and potential share repurchases on debt and liquidity.
- The sustainability of Q1 adjusted EPS of $1.39 after excluding specified items and the comparability effects of the prior-year LIFO adjustment.