Business Context and Reporting Period
Archer-Daniels-Midland Company filed its Form 10-K for the fiscal year ended December 31, 2014. ADM processes, transports, stores and merchandises agricultural commodities globally, with reportable segments of Oilseeds Processing, Corn Processing and Agricultural Services; remaining activities were classified as Other. ADM operates in 147 countries and had approximately 33,900 full-time employees at year-end.
The filing also presents unaudited fourth-quarter data. Fourth-quarter 2014 revenue was $20.9 billion, gross profit was $1.45 billion, and net earnings attributable to controlling interests were $701 million.
Financial Performance and Key Metrics
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $81.2 billion | $89.8 billion | Down 10% |
| Gross profit | $4.77 billion | $3.89 billion | Up 23% |
| Gross margin | 5.9% | 4.3% | Improved |
| Net earnings attributable to controlling interests | $2.25 billion | $1.34 billion | Up $906 million |
| Diluted earnings per share | $3.43 | $2.02 | Up 70% |
| Net margin | 2.8% | 1.5% | Improved |
| Cash provided by operating activities | $4.96 billion | $5.23 billion | Down $264 million |
| Capital expenditures | $894 million | $913 million | Down $19 million |
| Long-term debt, excluding current maturities | $5.56 billion | $5.35 billion | Up $211 million |
- Segment operating profit increased 45% to $3.92 billion. Oilseeds Processing contributed $1.61 billion, Corn Processing $1.19 billion, and Agricultural Services $1.09 billion.
- Revenue declined primarily because lower commodity prices reduced reported sales values by approximately $8.0 billion. Management stated that the price decline had a relatively equal effect on cost of products sold and therefore did not materially reduce margins or gross profit.
- Current assets were $26.0 billion and current liabilities were $15.6 billion, producing working capital of $10.4 billion and a current ratio of 1.7.
- ADM reported $1.6 billion of cash, cash equivalents and short-term marketable securities, $6.6 billion of unused credit lines, and no commercial paper outstanding at year-end.
- Long-term debt represented 22% of total capital, while net debt represented 17% of net debt plus shareholders’ equity.
- Shareholders’ equity was $19.6 billion, and total assets were $44.0 billion.
- ADM paid $624 million in dividends and repurchased $1.18 billion of common stock during 2014.
Material Changes Versus the Prior Comparable Period
- Oilseeds Processing operating profit rose $132 million to $1.61 billion, supported by stronger refined and packaged oil margins and significantly improved cocoa press margins, partly offset by weaker South American origination and lower Asian equity earnings.
- Corn Processing operating profit rose $374 million to $1.19 billion. Bioproducts benefited from strong ethanol demand, lower net corn costs and industry production and logistics constraints.
- Agricultural Services operating profit rose $709 million to $1.09 billion, driven by higher U.S. grain export volumes, improved international merchandising and stronger barge transportation results.
- ADM completed the acquisitions of Wild Flavors and Specialty Commodities Inc. for total consideration of approximately $2.9 billion, including approximately $2.76 billion of net cash purchase price in the acquisition accounting. The businesses contributed immaterial 2014 post-acquisition operating results and became a new reportable segment effective January 1, 2015.
- ADM acquired the remaining 20% interest in Alfred C. Toepfer International for $157 million, making it wholly owned.
- ADM repaid $1.15 billion of convertible senior notes in February 2014 using available cash.
- ADM completed the sale of its South American fertilizer blending business, recognizing a gain of approximately $126 million before tax.
- Global chocolate and cocoa operations were classified as held for sale. Announced sale prices were $440 million for chocolate and $1.3 billion for cocoa, with closings expected in 2015 subject to customary conditions and regulatory approvals.
- Corporate costs increased $101 million to $785 million, including a $102 million loss on Euro currency derivatives used to hedge the Wild Flavors acquisition and a $98 million non-cash pension settlement charge.
- The effective tax rate declined to 28.0% from 33.1%, helped by discrete tax adjustments and geographic earnings mix.
Cash Flow, Liquidity, Debt and Capital Allocation
- Operating cash flow of $4.96 billion exceeded capital expenditures, dividends and share repurchases, but cash used in investing activities increased to $3.41 billion, principally because of acquisitions and capital expenditures.
- Cash and cash equivalents declined to $1.10 billion from $3.12 billion, reflecting acquisitions, debt repayment, share repurchases and dividends.
- ADM utilized $1.6 billion of accounts receivable securitization capacity at year-end. Transferred receivables had a fair value of $2.1 billion, with $511 million recorded as deferred consideration.
- Management expected 2015 capital expenditures of $1.1 billion to $1.3 billion, approximately $700 million of dividends, and $1.5 billion to $2.0 billion of share repurchases, subject to strategic capital requirements.
- Credit ratings remained solid investment grade with stable outlooks, and ADM stated that it was in compliance with applicable debt covenants.
Outlook, Management Commentary, Risks and Unusual Items
Management described protein meal and vegetable oil demand as strong and steady, North American corn and soybean exports as strong but affected by winter logistics, corn sweetener demand as steady, and ethanol margins as volatile but strong overall. The filing does not provide a formal earnings forecast or quantified operating guidance beyond expected 2015 capital expenditures, dividends and share repurchases.
- Key exposures include agricultural commodity prices and availability, weather, crop disease, energy and transportation costs, foreign exchange, interest rates, government renewable-fuel policies, trade restrictions and global economic conditions.
- ADM is exposed to risks from product safety, food quality, environmental compliance, transportation disruptions, cyber incidents, geopolitical instability and counterparty or joint-venture performance.
- ADM held approximately $3.9 billion in investments in and advances to affiliates, over which it has limited control. Net sales to unconsolidated affiliates were $5.8 billion in 2014.
- Brazilian tax authorities asserted approximately $493 million of assessments against ADM do Brasil concerning the deductibility of commodity-hedging losses. Argentine tax assessments concerning transfer pricing totaled approximately $93 million, with potential additional assessments estimated at approximately $325 million. ADM has not recorded liabilities for these assessments and intends to contest them.
- Contractual obligations totaled $26.6 billion, including $14.1 billion of purchases, $5.6 billion of long-term debt principal, $5.7 billion of estimated interest payments and $987 million of operating leases.
- Letters of credit and surety bonds totaled $980 million; contingent obligations, primarily guarantees related to equity-method investees, totaled approximately $27 million.
- Unusual 2014 items included the Pacificor dilution gain of $156 million, fertilizer-business sale gain of $126 million, $102 million of Euro hedge losses, $98 million of pension settlement charges, $105 million of asset impairment, exit and restructuring costs, and $64 million of relocation and restructuring costs.
- Other comprehensive loss was $1.19 billion, primarily reflecting foreign-currency translation and pension liability adjustments.
Most Important Facts for Investors to Verify
- Verify whether earnings growth remains sustainable after excluding the Pacificor gain, fertilizer-sale gain, currency-hedge loss, pension settlement, restructuring costs and other unusual items.
- Assess the earnings outlook for ethanol, grain merchandising, oilseed crushing and cocoa following the unusually strong 2014 segment performance.
- Monitor integration, goodwill and intangible-asset risks associated with the $2.9 billion Wild Flavors and SCI acquisitions and the creation of the new specialty-ingredients segment.
- Confirm the closing and proceeds from the announced chocolate and cocoa divestitures and the planned sale of a 50% interest in the Barcarena export terminal.
- Evaluate liquidity after acquisitions, debt repayment, dividends, share repurchases and the use of receivables securitization programs.
- Track the Brazilian and Argentine tax disputes, commodity-price volatility, foreign-exchange exposure and potential regulatory changes affecting ethanol, biodiesel, food safety and greenhouse-gas emissions.
- Review the impact of the $1.11 billion pension underfunding and the additional actuarial losses recognized in accumulated other comprehensive income.