Archer-Daniels-Midland Company: Fiscal 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited fourth-quarter results. ADM is a global agricultural commodities, food ingredients, animal feed, biofuels, and specialty ingredients company operating through Agricultural Services, Corn Processing, Oilseeds Processing, Wild Flavors and Specialty Ingredients, and Other.
Financial performance and position
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $60.828 billion | $62.346 billion | Down 2% |
| Gross profit | $3.506 billion | $3.619 billion | Down 3% |
| Earnings before income taxes | $1.609 billion | $1.822 billion | Down $213 million |
| Net earnings attributable to controlling interests | $1.595 billion | $1.279 billion | Up $316 million |
| Diluted EPS | $2.79 | $2.16 | Up $0.63 |
| Adjusted EPS | $2.43 | $2.16 | Up $0.27 |
| Operating cash flow | $2.211 billion | $1.555 billion | Up $656 million |
| Adjusted EBITDA | $3.064 billion | $3.004 billion | Up $60 million |
Gross margin was approximately 5.8% in 2017 versus approximately 5.8% in 2016. Reported net income benefited from a provisional $379 million net tax benefit related to the Tax Cuts and Jobs Act, including a $528 million deferred-tax remeasurement benefit, partly offset by a $149 million transition-tax liability. Excluding tax reform and other specified items, adjusted EPS was $2.43.
- Segment operating profit was $2.536 billion, down from $2.704 billion; adjusted segment operating profit increased to $2.670 billion from $2.623 billion.
- Corn Processing operating profit increased 19% to $909 million, driven by sweeteners, starches, lysine, and trading results.
- Agricultural Services operating profit increased 2% to $585 million.
- Oilseeds Processing operating profit declined 4% to $841 million because of weaker soybean crush and South American origination margins.
- Wild Flavors and Specialty Ingredients operating profit increased 3% to $284 million, although specialty ingredient start-up costs and margin pressure remained.
- Processed oilseed and corn volumes increased 3% overall to 57.433 million metric tons.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $804 million at year-end; cash, cash equivalents, and short-term marketable securities totaled approximately $0.8 billion.
- Current ratio was 1.6; working capital was $7.355 billion.
- Long-term debt, excluding current maturities, was $6.623 billion; long-term debt represented 27% of total capital. Net debt to capital was 27%.
- Credit lines totaled $7.7 billion, with $5.5 billion unused. Commercial paper outstanding was $0.7 billion, supported by $5.0 billion of facilities.
- The accounts receivable securitization programs provided up to $1.6 billion of funding; $1.4 billion was utilized at year-end.
- Capital expenditures were $1.049 billion, share repurchases were $750 million, and dividends paid were $730 million, or $1.28 per share.
- Management expected approximately $0.8 billion of 2018 capital expenditures and approximately $0.8 billion of 2018 dividends.
Material changes and unusual items
- 2017 acquisitions included Crosswind Industries, an 89% interest in Biopolis SL, Chamtor SA, and a 51% interest in Industries Centers, for aggregate cash consideration of approximately $194 million.
- ADM increased its Wilmar ownership from 23.2% to 24.9%; equity earnings from unconsolidated affiliates increased to $456 million from $292 million.
- ADM sold its crop risk services business in May 2017 and announced the sale of its Bolivian oilseeds operations, subject to regulatory approval.
- Asset impairment, exit, and restructuring costs increased to $173 million, including $63 million related primarily to the Peoria, Illinois ethanol complex, $20 million related to a WFSI facility closure, and $54 million of corporate restructuring charges.
- ADM incurred an $11 million debt-extinguishment charge associated with redeeming $559 million of notes due in 2018 and issued $500 million of 3.75% notes due in 2047.
- The fourth quarter included $788 million of net earnings attributable to controlling interests, including a $370 million after-tax tax-reform and discrete-tax benefit.
- Subsequent to year-end, legislation reinstated the 2017 biodiesel blenders tax credit. ADM expected to record an estimated $100 million to $130 million of pretax earnings in the first quarter of 2018.
Outlook, risks, and contingencies
Management did not provide broad revenue or earnings guidance in the filing. It expected a 2018 effective tax rate before discrete items of approximately 20% to 23% and planned continued investment in processing, logistics, ERP transformation, specialty ingredients, and innovation.
- Primary operating sensitivities include agricultural commodity prices and availability, weather, crop yields, global supply-demand conditions, energy and freight costs, foreign exchange, ethanol and biodiesel economics, and government policies.
- Low commodity-price volatility and abundant global supply may reduce merchandising opportunities, while high prices can increase working-capital and liquidity needs.
- ADM faces risks from global competition, trade restrictions, renewable-fuel mandates, environmental and carbon regulation, food and feed safety, transportation disruptions, cyberattacks, and emerging-market political or economic instability.
- Brazilian tax assessments totaled approximately $474 million and Argentine transfer-pricing assessments totaled approximately $113 million, with potential subsequent Argentine assessments estimated at approximately $203 million. ADM had not recorded liabilities for these assessments based on its expectation of prevailing.
- A Netherlands transfer-pricing assessment totaled $108 million; ADM had accrued an amount it believed represented the likely outcome but stated that additional exposure could reach the full assessment.
- Outstanding letters of credit and surety bonds were $1.2 billion. The filing also disclosed approximately $23.3 billion of contractual obligations, including purchases, debt, interest, leases, transition tax, and benefit contributions.
Most important facts to verify
- Reconcile reported EPS of $2.79 with adjusted EPS of $2.43, particularly the $0.64-per-share tax benefit from the Tax Cuts and Jobs Act.
- Assess whether improved Corn Processing performance can offset weaker soybean crushing and South American origination margins.
- Monitor commodity prices, crop conditions, energy costs, ethanol and biodiesel margins, and the effect of global trade policies on working capital and earnings.
- Review liquidity after considering $0.7 billion of commercial paper, $1.4 billion of receivables securitization utilization, contractual obligations, and planned 2018 capital spending and dividends.
- Track resolution of the Brazil, Argentina, and Netherlands tax matters and any resulting cash-tax exposure.
- Evaluate execution of acquisitions, the Wilmar investment, the global ERP rollout, facility reconfiguration, and restructuring initiatives.
- Confirm the timing and amount of the expected $100 million to $130 million pretax biodiesel-credit benefit in first-quarter 2018 results.