Archer-Daniels-Midland Company: Q3 2021 Form 10-Q Summary
Business context and reporting period
ADM is a global agricultural origination, processing, merchandising, and human and animal nutrition company operating through Ag Services and Oilseeds, Carbohydrate Solutions, Nutrition, and Other Business. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $20.34 billion | $15.13 billion | $62.16 billion | $46.38 billion |
| Gross profit | $1.33 billion | $1.04 billion | $4.34 billion | $3.10 billion |
| Net earnings attributable to controlling interests | $526 million | $225 million | $1.93 billion | $1.09 billion |
| Diluted EPS | $0.93 | $0.40 | $3.41 | $1.93 |
| Adjusted diluted EPS | $0.97 | $0.89 | $3.69 | $2.38 |
| Segment operating profit | $1.00 billion | $904 million | $3.25 billion | $2.32 billion |
| Adjusted EBITDA | $1.03 billion | $913 million | $3.50 billion | $2.53 billion |
| Operating cash flow | Not separately provided | Not separately provided | $5.85 billion | $(1.52) billion |
Gross margin was approximately 6.5% in Q3 and 7.0% for the first nine months, versus approximately 6.9% and 6.7%, respectively, in the comparable 2020 periods. ADM notes that margin percentages are less meaningful in commodity merchandising businesses because revenue and cost of products sold move with commodity prices.
- Q3 revenue increased 34%, primarily from higher commodity selling prices, partly offset by lower volumes.
- Q3 gross profit increased 27%; higher Crushing, Refined Products and Other, and Nutrition results more than offset weaker Ag Services and Carbohydrate Solutions results.
- Q3 effective tax rate was 18.4%, compared with a 13.0% benefit in 2020. The nine-month rate was 15.8%, compared with 3.4% in 2020.
- At September 30, cash and cash equivalents were $1.08 billion; segregated cash and investments were $7.89 billion.
- Total debt consisted of $314 million of short-term debt, $581 million of current maturities, and $8.04 billion of long-term debt.
- Long-term debt to total capital was 27%, compared with 28% at December 31, 2020. Net debt to capital was 26%, compared with 32%.
- Credit facilities totaled $12.4 billion, of which $10.5 billion was unused. Accounts receivable securitization programs provided up to $2.1 billion of funding, with $1.5 billion utilized.
- Capital expenditures were $714 million and dividends paid were $626 million during the first nine months. The quarterly dividend was $0.37 per share.
Material changes versus the prior comparable periods
- Ag Services and Oilseeds Q3 operating profit rose to $618 million from $436 million. Crushing and Refined Products and Other improved substantially, while Ag Services declined due to timing effects, Hurricane Ida-related export disruption, and a prior-year insurance settlement. Nine-month segment operating profit increased to $1.97 billion from $1.27 billion.
- Carbohydrate Solutions Q3 operating profit declined to $213 million from $246 million because of higher input costs in Starches and Sweeteners. Vantage Corn Processors improved as two previously idled dry mills resumed production in April 2021. Nine-month segment operating profit increased to $855 million from $509 million.
- Nutrition Q3 operating profit increased to $176 million from $147 million, supported by Human Nutrition and Animal Nutrition. Nine-month operating profit increased to $531 million from $447 million.
- Corporate expense declined to $347 million from $704 million in Q3 and to $948 million from $1.19 billion for the nine months, largely because prior-year periods included substantially larger debt retirement charges.
- ADM acquired Golden Farm and a 75% stake in P4, a pet treats and supplements business, for aggregate cash consideration of $501 million. The remaining 25% interest is subject to future call and put rights.
- ADM issued $750 million of 2.700% notes due 2051 and redeemed $500 million of 2.750% notes due 2025, recording a $36 million debt extinguishment charge.
- Operating cash flow improved materially because of earnings and working-capital changes, including higher brokerage customer payables and the absence of the prior-year deferred consideration effects from receivables securitization.
- The company completed an $83 million non-cash pension settlement in the first nine months through the purchase of group annuity contracts.
Guidance, outlook, commentary, risks, and unusual items
- For 2021, ADM expects 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.
- Management described strong demand for vegetable oils, renewable diesel feedstocks, flavors, specialty proteins, bioactives, fibers, amino acids, and pet food products. It also cited elevated freight costs, supply-chain bottlenecks, higher energy and input costs, and volatile commodity markets.
- Q3 performance benefited from positive timing effects in Crushing and Refined Products and Other that management expects to reverse in future periods. Ag Services experienced negative timing effects that are also expected to reverse.
- ADM announced or pursued additional acquisitions, investments, and joint ventures, including Sojaprotein, renewable diesel-related soybean oil production, and other nutrition and biotechnology initiatives. October agreements totaled approximately $0.7 billion and were expected to close before year-end, subject to customary conditions and regulatory approvals.
- ADM agreed to sell its Peoria, Illinois ethanol production complex, with a book value of approximately $0.1 billion and an expected immaterial operating impact.
- Material risks include weather and crop conditions, commodity-price and basis volatility, foreign exchange, energy costs, freight availability, global demand, government and trade policies, counterparty credit, and market exposure from derivatives and inventories.
- ADM faces tax disputes in Argentina and the Netherlands. The company disputes the Argentine assessments and expects a court ruling in the Netherlands matter in the first quarter of 2022; the ultimate outcomes and potential additional impacts remain uncertain.
- ADM is defending putative class actions alleging ethanol derivatives and market manipulation. The company believes these matters will not materially affect its financial condition, results of operations, or cash flows, but outcomes cannot be predicted with reasonable certainty.
- The filing states that no significant changes occurred in risk factors and that disclosure controls and procedures remained effective.
Important facts for investors to verify
- Whether favorable Q3 timing effects in Crushing and Refined Products and Other reverse as management expects.
- The sustainability of elevated commodity, vegetable oil, renewable diesel, nutrition, and pet food margins amid higher input and freight costs.
- Completion, purchase price, and integration effects of the announced acquisitions, investments, joint ventures, and Peoria asset sale.
- Availability and renewal terms of the accounts receivable securitization programs, including the February 2022 and May 2022 termination dates.
- Future cash requirements for $12.9 billion of purchase obligations due within 12 months, capital expenditures, dividends, repurchases, and pending strategic transactions.
- Resolution and potential financial exposure from the Argentine and Netherlands tax matters and the ethanol-related litigation.
- Commodity derivative and Level 3 valuation exposure, including the sensitivity of reported earnings and cash flows to commodity prices, basis, freight, and foreign exchange movements.