Business Context and Reporting Period
ADM filed its Form 10-K for the fiscal year ended December 31, 2023. The company operates globally across agricultural origination, merchandising, processing, food and animal nutrition, biofuels, and specialty ingredients. Reportable segments are Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition, with remaining operations classified as Other Business.
The filing also provides unaudited fourth-quarter results. ADM’s 2023 results were affected by lower commodity prices, softer Nutrition demand, higher interest expense, impairment charges, and an internal investigation involving intersegment sales.
Financial Performance and Liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $93.9 billion | $101.6 billion | Down 7% |
| Gross profit | $7.5 billion | $7.6 billion | Down 1% |
| Gross margin | Approximately 8.0% | Approximately 7.5% | Improved modestly |
| Net earnings attributable to controlling interests | $3.5 billion | $4.3 billion | Down 20% |
| Diluted EPS | $6.43 | $7.71 | Down 17% |
| Adjusted EPS | $6.98 | $7.85 | Down 11% |
| Adjusted EBITDA | $6.2 billion | $6.8 billion | Down $623 million |
| Operating cash flow | $4.5 billion | $3.5 billion | Increased $1.0 billion |
Fourth-quarter revenue was $23.0 billion versus $25.9 billion in the prior-year quarter. Fourth-quarter net earnings attributable to controlling interests were $565 million, or $1.06 diluted EPS, versus $1.0 billion, or $1.84 diluted EPS, in the fourth quarter of 2022. Fourth-quarter gross profit was $1.7 billion, representing an approximate 7.6% gross margin, and quarterly net margin was approximately 2.5%.
- Ag Services and Oilseeds revenue declined 8% to $73.4 billion; segment operating profit declined 8% to $4.1 billion.
- Carbohydrate Solutions revenue declined 8% to $12.9 billion; segment operating profit declined 3% to $1.4 billion.
- Nutrition revenue declined 6% to $7.2 billion; segment operating profit declined 36% to $427 million.
- Other Business operating profit increased 125% to $375 million, primarily due to higher interest rates benefiting ADM Investor Services and improved captive insurance results.
- Income tax expense was $828 million, and the effective tax rate increased to 19.3% from 16.6%.
At December 31, 2023, ADM had $1.4 billion of cash and cash equivalents, a 1.6-to-1 current ratio, $8.3 billion of long-term debt, and $24.1 billion of shareholders’ equity. Long-term debt represented 25% of total capital, while net debt represented 22% of capital. Total credit lines were $13.2 billion, of which $11.5 billion was unused; accounts receivable securitization programs provided up to $3.0 billion, with $1.6 billion utilized. The company reported compliance with applicable debt covenants.
Capital expenditures were $1.5 billion in 2023. Financing uses included $2.7 billion of share repurchases and $1.0 billion of dividends. The company issued $500 million of 4.5% notes due 2033 and repaid approximately $1.0 billion of maturing long-term debt.
Material Changes Versus the Prior Comparable Period
- Revenue fell primarily because of lower selling prices for oils, soybeans, corn, biodiesel, and farming materials; higher soybean volumes partially offset the decline.
- Adjusted segment operating profit decreased $405 million to $6.2 billion. Lower results in Crushing, Wilmar, Nutrition, Ag Services, and Starches and Sweeteners outweighed stronger Refined Products and Other, Other Business, and Vantage Corn Processors results.
- Nutrition performance weakened because of destocking, demand fulfillment challenges, softer demand for plant-based proteins, lower amino-acid results, and weaker global feed markets.
- Asset impairment, exit, and restructuring costs increased to $342 million from $66 million, including a $137 million goodwill impairment in Animal Nutrition and $64 million of customer-list and discontinued-trademark impairments.
- Interest expense increased to $647 million from $396 million because of higher short-term rates, commercial paper costs, and a higher-rate debt issuance.
- Cash flow improved as inventories declined $2.9 billion and trade receivables declined $0.7 billion, partially offset by lower trade payables and brokerage-customer payables.
- ADM repurchased approximately 21.2 million shares during the fourth quarter and had approximately 52.0 million shares remaining under the repurchase authorization at year-end.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
For 2024, management expects capital expenditures of approximately $1.3 billion, dividends of approximately $1.0 billion, and up to $2.3 billion of share repurchases, subject to strategic capital needs, operating cash flow, and working-capital conditions. The filing does not provide a clear consolidated earnings or revenue forecast.
Management’s strategy centers on Productivity, Innovation, and Culture, supported by the 1ADM transformation program, technology and automation investments, research and development, sustainability initiatives, and capacity expansion. ADM spent $256 million on research and development in 2023 and introduced more than 40 new products.
- Internal investigation and controls: ADM identified errors in the pricing and reporting of certain intersegment sales involving Nutrition, Ag Services and Oilseeds, and Carbohydrate Solutions. The corrections were considered immaterial to consolidated financial statements and did not affect consolidated revenue, earnings, balance sheets, or cash flows, but they changed historical segment disclosures.
- Material weakness: Management and Ernst & Young concluded that internal control over financial reporting was ineffective because of inadequate controls over intersegment sales. The company is implementing remediation, but cannot yet conclude that the weakness has been remediated. The auditor issued an adverse opinion on internal control over financial reporting while issuing an unqualified opinion on the consolidated financial statements.
- Government investigations and litigation: ADM is cooperating with voluntary SEC and DOJ requests and grand jury subpoenas concerning the intersegment-sales matter. A securities class action was filed in January 2024. The timing and outcomes are uncertain and potential fines, penalties, settlements, litigation costs, or additional claims could affect liquidity and results.
- Credit risk: Two credit-rating agencies placed ADM ratings on “Credit Watch” or “Under Review” after year-end. A downgrade could increase borrowing costs or reduce access to commercial paper and other debt markets.
- Commodity and geopolitical risk: Results remain sensitive to crop yields, weather, commodity prices, energy and transportation costs, interest rates, foreign exchange, trade policies, and conflicts affecting Ukraine, Russia, Israel, the Black Sea, and the Red Sea.
- Subsequent acquisitions: ADM acquired Revela Foods for $656 million and FDL for $232 million in January 2024, and PT Trouw Nutrition Indonesia for $18 million in February 2024, subject to specified adjustments.
- Sustainability commitments: ADM targets 25% reductions in absolute Scope 1 and 2 and Scope 3 emissions by 2035, a 25% low-carbon-energy share, and additional water and landfill-diversion improvements. The company expects $360 million to $490 million of capital spending to support its Strive 35 goals.
Most Important Facts for Investors to Verify
- Whether ADM remediates the material weakness and whether subsequent filings identify additional accounting or segment-reporting corrections.
- The conclusions, costs, penalties, and litigation exposure arising from the SEC and DOJ investigations and related securities litigation.
- Rating-agency actions and the effect of any downgrade on commercial paper access, borrowing costs, and liquidity.
- Recovery in Nutrition demand, especially plant-based proteins, flavors, specialty ingredients, amino acids, and animal nutrition.
- Sustainability of current margins in Crushing, Refined Products and Other, ethanol, and biofuels as commodity and energy markets normalize.
- Execution of the announced 2024 capital-allocation plan, including $1.3 billion of capital expenditures and potential share repurchases of up to $2.3 billion.
- Valuation sensitivity of Animal Nutrition goodwill and other long-lived assets; the filing indicates that modest changes in discount rates, revenue growth, or EBITDA margins could produce additional impairment.