Weather impacts ADM first quarter earnings

Weather impacts ADM first quarter earnings

Despite harsh weather, ADM sees opportunity for a stronger second quarter

Archer Daniels Midland Company (ADM) reported financial results for the quarter ended March 31, 2019. Net earnings of $233 million were reported for the first quarter. Extreme weather conditions negatively impacted the segment's operating profits by approximately $60 million.

The company has expectations for stronger second half, driven by improved business environment and contributions from accelerating business initiatives.

Transportation was up year-over-year as higher freight rates and improved northbound movements offset lower overall barge volumes caused by unfavorable river conditions.

Animal Nutrition results were lower than the first quarter of 2018. Last year’s quarter benefited from temporary industry effects on vitamin additives. Neovia closed on Jan. 31, resulting in additional up-front costs related to inventory revaluation. Lysine production and yields continued to improve from the third quarter 2018 production disruptions, with the expectation of achieving normalized yields by the end of the second quarter.

“The first quarter proved more challenging than initially expected,” said ADM Chairman and CEO Juan Luciano.

Impacts from severe weather in North America were on the high side of our initial estimates, and the ethanol industry environment limited margins and opportunities,” he said.

Moving forward

Luciano added, “We are very encouraged with our new Neovia business and the creation of a global Animal Nutrition platform. Readiness continues to expand our efforts to enhance our competitiveness. And additional actions will help us advance our goals of long-term growth and shareholder value.”

He explained that the company is optimistic that opportunities are to come as a result of the anticipated resolution of the U.S.-China trade situation and an expected acceleration of soybean meal demand driven by African Swine Fever.

“Taking all of these factors into account, we remain committed to continuing to pull the levers under our control to deliver our objective of full-year earnings comparable to or higher than 2018,” he said.

A press release from ADM explained that the company is announcing a series of measures listed below to continue to achieve long-term-value creation:

•  First, to meet growing customer demand, ADM plans to repurpose its corn wet mill in Marshall, Minnesota, to produce higher volumes of food and industrial-grade starches as well as liquid feedstocks for food and industrial uses, phasing out production of high-fructose corn syrup at that facility as soon as committed deliveries are complete.

•  Second, the company is creating an ethanol subsidiary, which will include ADM’s dry mills in Columbus, Nebraska; Cedar Rapids, Iowa; and Peoria, Illinois. The ethanol subsidiary will report as an independent segment. The new structure will allow the company to advance strategic alternatives, which may include, but are not limited to, a potential spin-off of the business to existing ADM shareholders.

• Finally, ADM has begun a series of actions to enhance agility, accelerate growth, and strengthen customer service. These actions include organizational changes to centralize and standardize business activities and processes and enhance productivity and effectiveness; accelerating the capture of planned synergies after a period of acquisitions; and offering early retirement for some colleagues in the U.S. and Canada.

• As a result of Readiness-based improvements in capital prioritization, project evaluation and project execution processes, and in keeping with the company’s commitment to returns, ADM also plans to reduce 2019 capital spending by 10 percent, to the range of $0.8 to $0.9 billion.