Earnings call transcript: ADM Q3 2023 reveals lowered EPS guidance

Archer-Daniels-Midland Company (NYSE:ADM) reported its third-quarter earnings with an adjusted earnings per share (EPS) of $1.09. The company has revised its full-year 2024 EPS guidance downward to a range of $4.50-$5.00. Following the earnings announcement, ADM’s stock saw a modest increase of 0.45%, closing at $51.66, reflecting a measured response from investors amidst operational challenges and strategic initiatives.

Key Takeaways

• ADM’s Q3 adjusted EPS was $1.09.
• The company lowered its full-year 2024 EPS guidance to $4.50-$5.00.
• ADM returned $3.1 billion to shareholders year-to-date.
• Growth in nutrition segments, particularly probiotics, was noted.
• Operational challenges continue in U.S. crush facilities.

Company Performance

ADM’s performance in the third quarter highlighted both strengths and challenges. The company reported a year-to-date total segment operating profit of $3.2 billion and a trailing four-quarter adjusted return on invested capital (ROIC) of 8.8%. Despite a robust cash return to shareholders and growth in specific segments, operational issues in U.S. facilities and a delayed startup at the Decatur East facility presented hurdles.

Financial Highlights

• Revenue: Not specified for Q3
• Earnings per share: $1.09 for Q3
• Cash returned to shareholders: $3.1 billion year-to-date ($744 million in dividends, $2.3 billion in share repurchases)

Outlook & Guidance

ADM has adjusted its full-year 2024 EPS guidance to $4.50-$5.00, reflecting anticipated operational challenges and market conditions. The company is focusing on cash, cost, and capital management, with expectations of insurance proceeds of approximately $135 million in Q4. The nutrition segment is projected to experience low single-digit growth or decline.

Executive Commentary

CEO Juan Luciano emphasized the need for a "level playing field" amid regulatory uncertainties, while CFO Manish Patilawala highlighted the importance of internal control enhancements, stating, "Self-help is truly our best friend."

Q&A

During the earnings call, analysts inquired about the impact of regulatory uncertainties and China’s increased commodity production on ADM’s operations. Discussions also covered the company’s strategies to mitigate SG&A cost increases and potential tariff impacts on global trade.

Risks and Challenges

• Supply chain disruptions remain a concern, particularly with U.S. crush facilities.
• Regulatory changes such as the EUDR and U.S. producer tax credit could impact market dynamics.
• Market softness in specific product categories, including pet treats and energy drinks, may affect future revenue streams.
• Global commodity price fluctuations pose a risk to ADM’s competitive positioning.
• The company’s ability to manage operational downtimes and optimize its portfolio will be crucial in navigating upcoming challenges.

Full transcript - Archer Daniels Midland (ADM) Q3 2024:

Conference Operator: Good morning, and welcome to the ADM Third Quarter 20 24 Earnings Conference Call. All lines have been placed on a listen only mode to prevent background noise. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s call, Megan Britt, Vice President, Investor Relations for ADM. Ms.

Britt, you may begin.

Megan Britt, Vice President, Investor Relations, ADM: Hello, and welcome to the Q3 earnings call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer and Manish Patilawala, our EVP and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted on the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward looking statements that reflect management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties.

ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and the materials. To the extent permitted by law, ADM assumes no obligation to update any forward looking statements due to new information or future events. In addition, during today’s call, we will refer to certain non GAAP or adjusted financial measures. Reconciliations of these non GAAP financial measures to the most directly comparable GAAP financial measures are available on our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. Please turn to Slide 4.

I’ll now turn the call over to Walt.

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Thank you, Megan. Hello, and welcome to all who have joined the call. We sincerely appreciate your patience as we work expeditiously to amend the company’s fiscal year 2023 Form 10 ks and Form 10 Qs for the 1st and second quarters of 2024. We are pleased to now be able to share more context about our 2024 year to date financial results and our outlook. Given that we are holding this call later than usual, we are also in a position to provide qualitative color on how the Q4 is progressing.

To start, let’s recap our financial results for the company. ADM reported 3rd quarter adjusted earnings per share of $1.09 and a total segment operating profit of $1,000,000,000 This brings adjusted earnings per share to $3.61 and our total segment operating profit to $3,200,000,000 year to date for 2024. Our trailing 4th quarter adjusted ROIC was 8.8%. Although we made progress on several important initiatives in 2024, these results are not consistent with the high bar that we have set for our team. While we have seen a decline in our total segment operating profit and a decline in operating cash flow before working capital changes due to lower net earnings relative to the prior year period, disciplined management of our balance sheet continues to allow us to invest in our business and return cash to shareholders.

In total, we have returned $3,100,000,000 to our shareholders with $744,000,000 in the form of dividends and $2,300,000,000 in share repurchases year to date in 2024. Next (LON:NXT) slide please. Entering 2024, we laid out key priorities for value creation based on the year we saw ahead of us. And as we moved into the Q4, it’s clear that certain expectations have not all played out as anticipated. The global commodity landscape has continued to shift.

Stronger than expected supply has driven commodity prices down further than anticipated. Canola crush margins has been negatively impacted by regulatory uncertainty and higher seed prices. In addition, China has begun to increase local commodity production and has had a slower pace of demand recovery, negatively impacting the trade of certain commodities and uptake of Animal Nutrition Solutions. We’re also seeing the traffic trailing effects of inflation in part of our business. Some new nutrition projects have been delayed as some customers look for opportunities to manage costs by simplifying their consumer offerings.

We have also seen some softness in demand in other end markets such as pet treats and energy drinks, where consumers are prioritizing their discretionary spending. The global regulatory environment has led to additional uncertainties. Programs such as EUDR and the U. S. Producers’ tax credit are still not fully in place, which has left various stakeholders in the ag supply chain without the confidence of a clear path forward.

Beyond these external factors creating downward pressure, we’re also managing through a balance of both positive and challenging results across our own operational environment. In Carbohydro Solutions, we’ve been able to improve production throughout the network in part due to advancements in automation and digitization at the plant level as well as by finding synergies across our milling network. We’ve seen similar improvements in our crush facilities in LATAM and EMEA, but this has been offset today by the fact that opportunities previously identified in some of our U. S. Plants have been taking longer than expected to be completed.

However, in October, we began to see improvements in unplanned downtime in our U. S. Facilities. Nutrition has continued to manage through the downtime of our Decatur East facility, where our expected ramp up has been delayed from the end of 2024 to the Q1 of 2025 as safe restoration of operations is a top priority. And while the integration of our most recent labor acquisitions has driven positive results, we have experienced demand fulfillment issues due to the complexity of other integration efforts.

We believe that our business is well positioned to grow alongside enduring global trends, such as the expansion of functional food and beverage alternatives, the replacement of petroleum based products across multiple industries, and the broader opportunity associated with decarbonization. As we look at the near term in 2025, however, we anticipate that we could still be managing through a challenging cycle, and we have already begun taking necessary productivity actions with a clear focus on cost and cash management. This slide highlights several of the areas we have already taken action on in 2024, along with additional actions we are aggressively driving at the end of the year. As we manage through the current cycle, we’ve seen success in delivering expansion across strategic initiatives such as regen ag, biosolutions and destination marketing, which achieved record volume handled in October, supporting supply and demand needs through increasing capacity. This is example in our Spiritwood facility, which has achieved near full run rates in the month of October.

And in ramping up the Drive for Execution Excellence program, which has already begun to deliver toward our cost saving goals. Moving forward, as we expand our focus on procurement and execution excellence, we believe that we can double this program’s target cost savings over the next few years. In addition, the automation and digitization efforts that have already achieved 1,000,000 in cost savings are being scoped and accelerated across the other plants in our footprint. Turning to Nutrition’s recovery efforts. To date, we have strengthened our operational leadership, driven simplification and optimization opportunities, and continued to expand our pipeline and win rates in part of the portfolio such as flavors.

These efforts are now being supplemented to increase the pace of recovery. We have placed additional focus on demand generation, supply chain improvement, and rightsizing our production to better flex to the needs of a dynamic demand environment.

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: And

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: finally, from a strategic capital allocation perspective, we have already accelerated our return of cash to shareholders this year in the form of share repurchases and dividends. Going forward, we’re being extremely prudent and focusing our attention on cash generation opportunities, while considering specific portfolio optimization efforts to simplify operations, enhance our focus and drive an improvement in ROIC. Along with all these actions, Mohnish joining us CFO has already brought new perspectives to the team. We are using his experience to help identify and accelerate path for continuous recovery. With this, let me pass to Manish for a more detailed financial review.

Manish?

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: Thank you, Juan. First, I would like to take a moment to say how excited I am to be joining the ADM team at such an important point in the company’s trajectory. While I’ve only been on the job for a few months, I have enjoyed the opportunity to personally engage with our teams and learn the company. I want to thank all my ADM colleagues for their warm welcome. Turning to Slide 6.

On a year to date basis, AS and O segment operating profit of $1,800,000,000 was 42% lower versus the prior year period as ample supplies out of South America have driven lower commodity prices and margins across the segment. Ag Services sub segment operating profit of $4.61 was 52% lower versus the prior year driven by lower South American origination margins and volumes, in part due to industry take or pay contracts. The stabilization of trade flows has also led to fewer opportunities in our global trade business leading to lower results. Crushing sub segment operating profit of $632,000,000 was 30% lower versus the prior year period. Slower farmer selling and lower crush rates in Argentina, coupled with solid demand has supported soy crush margins, leading to year to date executed soy crush margin of approximately $50 per metric ton, which is lower compared to the prior year.

While year to date executed canola crush margins are low by approximately $15 per ton compared to the prior year, margins have moderated significantly in the second half of the year so far, as higher seed prices and regulatory uncertainty drove lower margin. There were net negative timing impacts of approximately $120,000,000 year over year. In the Refined Products and Other sub segment, increased pretreatment capacity at renewable diesel facilities and higher imports of used cooking oil has negatively impacted both refining and biodiesel margins, leading to sub segment operating profit that was 58% lower versus the prior year. There were net negative timing impacts of approximately $360,000,000 year over year. As we look forward, we anticipate AS and O 4th quarter results to be lower than the prior year quarter.

The seasonal shift to our North American weighted footprint and strong North American crop should be supportive of volumes. But recent elevation margins are below the levels we expected when we put our guidance in place in November. In crushing, the ramp up of our Spiritwood facility is expected to support high single digit volume improvement. However, we expect lower results due to lower soya and canola crush margins versus the prior year. The addition of new pretreatment capacity has continued to weigh on margins within the RPO business and on the food all side, margins for free to sell opportunities have been under pressure due to increased competition.

Based on the information available today, we also anticipate 100% reinsurance proceeds of approximately $50,000,000 in the 4th quarter related to both Decatur West and East. We continue to monitor the impact of uncertainty related to regulation and trade flows on the operating environment as we look forward to the end of the year. Year to date, Carbohydrate Solutions segment operating profit of $1,100,000,000 in the year to date period was roughly in line with the prior year as lower margins in the EMEA region and ethanol were mostly offset by strong volumes and improved manufacturing costs. As we look forward, a strong North American corn supply and robust export demand is expected to be supportive of VCP. However, North American ethanol production continues to outpace demand, driving lower margins.

We expect to see solid demand and margins in North American starches and sweeteners as we finish the year. Wheat milling margins are expected to moderate from elevated prior year levels. Based on information available today, we also anticipate 100 percent reinsurance proceeds in the 4th quarter related to both Decatur East and West incident of approximately $35,000,000 Taken together, we anticipate the Carbohydrates Solutions 4th quarter results to be in line with the prior year period. Year to date, revenues from Nutrition were 5,600,000,000 up 2% compared to the prior year. On an organic basis, segment revenue was down 3%.

Human Nutrition was flat organically as headwinds related to Decatur East and Texturant’s pricing offset growth in Flavors and Health and Wellness. Animal Nutrition revenue declined 5%, driven by unfavorable mix, negative currency impacts in Brazil and low volumes due to demand fulfillment challenges. Year to date, Nutrition sub segment operating profit of $298,000,000 was 32% lower versus the prior year. Human Nutrition results of 265,000,000 dollars were 40% lower compared to the prior year period, primarily driven by unplanned downtime at Decatur East. Animal Nutrition results of $33,000,000 were slightly higher compared to the prior year due to an improvement in margin.

As we finish the year, we expect continued weak consumer demand, lower texturants prices and ongoing operational challenges to be a headwind. And as Juan previously mentioned, we now anticipate the start up of our Decatur East facility to be delayed until the Q1 of 2025. We expect the impact of prolonged downtime at Decatur East to be partially offset by 100 percent reinsurance proceeds in the Q4 of approximately $50,000,000 based on the information available today. We expect Animal Nutrition results in the 4th quarter to be better than the prior year with tailwinds from our turnaround efforts and as we continue to work through operational challenges in Pet Solutions. Taken together, we expect Nutrition results for the 4th quarter likely lower than the Q3 of 2024, but to be higher than the prior year, which had negative impact of approximately $64,000,000 in non recurring items.

Please turn to Slide 7. Year to date in 2024, the company has generated cash flow from operations before working capital of approximately $2,300,000,000 down relative to the same period last year due to lower segment operating profit. Despite the decline, solid cash generation has supported our ability to invest in our business and return excess cash to shareholders. Year to date, the company has returned $3,100,000,000 in cash in the form of dividends and share repurchases, allocated $1,100,000,000 to capital expenditures and nearly $1,000,000,000 to M and A announced in 2023 and completed in January 2024. Our capital structure continues to provide the financial flexibility to invest in our business and return capital to shareholders.

We continue to see opportunities to drive enhanced cash generation through operating improvements both in our facilities and through better management of working capital. We believe investing in organic opportunities gives us the best return. While we will always look at opportunistic M and A as a way to enhance returns, it is essential that we prioritize maximizing returns from the assets that we have already acquired and also ensuring that we are the best owners of all our assets. Now let’s transition to a discussion of guidance for 2024 on Slide 8. In early November, we announced that we lowered our full year 2024 adjusted earnings per share guidance to the range of $4.50 per share to $5 per share.

The lowering of our guide takes into account our year to date results and headwinds from slow market demand and internal operational challenges. Additionally, we now anticipate our corporate costs to be in within the range of $1,700,000,000 to $1,800,000,000 primarily due to lower incentive compensation and our corporate net interest expense to be in the range of $475,000,000 to 525,000,000 dollars We now expect capital expenditures to be approximately $1,500,000,000 We are also increasing our effective tax rate guidance to the range of 20% to 22% due to the non deductible impairment of Wilmar taken in the Q3. Our expectations for our leverage ratio and D and A are unchanged. Let’s turn to Slide 9 to close the call with a reflection on the key priorities that we are driving with our team to deliver improvement and enhance return. First, my top priority is ensuring integrity and accuracy in our internal controls and financial reporting.

I echo Juan’s earlier statement and add my particular thanks for the extraordinary efforts of our team to amend and file the restated financials for fiscal year 2023 Form 10 ks and Form 10 Qs for the 1st and second quarters of 2024. We are continuing to focus on implementing enhancements to our internal controls to remediate the previously identified material weakness and are taking action to enhance the integrity and accuracy within internal controls and financial reporting related to inter segment sales. Among other things, the design and documentation of the execution of pricing and measurement and reporting controls for segment disclosure purposes and projected financial information used in impairment analysis have been enhanced and that testing of these controls will continue throughout the balance of the year. Further, training for relevant personnel on the measurement of intersegment sales and application of relevant accounting guidance to intersegment sales has been provided and remains ongoing. In the broader category of improving focus and execution, the team will remain adaptable and focus on items within our control.

On the cost side, we are optimizing our cost structure and enhancing operational resilience initiatives. In this vein, we have the opportunity to create a more cohesive digital strategy. Today, we have invested in numerous efforts to improve our systems and enable a more digital footing for our business. However, we have the opportunity to connect these efforts to accelerate outcomes around how we serve our customers, operate our assets and run the enterprise, while also delivering structural cost improvement. Similarly, we have room in our portfolio and broader asset network to optimize through targeted divestitures or rationalization and we are evaluating numerous actions that we could take to improve our footprint performance and generate cash.

We will also maintain a sharp focus on working capital management to further strengthen our cash position. Lastly, we’ll remain disciplined in capital allocation, seeking opportunities to drive ROIC and enhance returns. I see maintaining our capital discipline as essential to value creation. We will work to ensure that we maintain a healthy balance sheet that continues to create strong cash flow and that we rigor investment opportunities appropriately by applying a stage gated model to ensure that we’re achieving key milestones and meeting our return objectives to continue to invest. In closing, I want to take a moment to thank our ADM colleagues for their hard work and dedication this quarter.

I am optimistic that today we can successfully tackle the challenges and seize the opportunities as we continue to execute our strategy and focus on delivering value for our shareholders. With that, we look forward to taking your questions. Operator, please open the line for our first question.

Conference Operator: Thank you. First question comes from Andrew Strelzik with BMO. Your line is open. Please go ahead.

Andrew Strelzik, Analyst, BMO: Hey, good morning. Thanks for taking the questions. And I appreciate all the color you gave on the outlook and the strategy. I was hoping that you could help reconcile the decline in U. S.

Crush margins over the last several weeks. You have now U. S. Crush margin curve that’s much lower in the near buys than in the spring, which is abnormal. Soybean meal delivery certificates issued last week by some of the commercials, which I also believe is abnormal.

So I guess the question is, what does all this tell us about where crush margins are headed? And how much visibility do you have on crush into next year compared to what you would typically have for this time of year? Thanks.

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. Thank you, Andrew. As you said, board crush rallied steadily from the lows in Q3, but has come under pressure in November. It’s basically a combination of things. First of all, demand for the products have been very good.

Demand for mill is good. Demand for oil around the world is good. But you see during November, we have the Argentine farmers started to sell again. So we’ve seen higher crush rates in Argentina. There are high crush rates in Brazil.

And NOPA here in North America, all our plants have been running well. So we have high crush in October. When you combine that with the regulatory uncertainty now we have in the oil side, that has created the problems that we have. The U. S.

Is exporting oil, the U. S. Is exporting mill, but there is more pressure in the system with more crush being put and less regulatory clarity. So that’s why overall message, Andrew, is as we look forward here, we think that given the soft markets and the regulatory uncertainty, our focus in ADM is on the things that we can control on the double down on productivity, looking at all our efforts in trying to control cost and cash and certainly portfolio management. So that’s kind of our priority for the year.

The markets remain robust. Soybean meal is the most competitive feed out there. So demand is strong and oil is needed for the biofuels market and oil is needed for human consumption. So I think that when we clear the regulatory environment, the regulatory uncertainty, if you will, I think you’re going to see things normalizing a bit.

Andrew Strelzik, Analyst, BMO: Okay. And so if I could just quickly follow-up. Given all of the internal actions that you guys are focused on as you kind of navigate the cycle, And if I were to kind of exclude some of the insurance dynamics from this year and maybe for next year as well, do you think that this is kind of an earnings base from which you would expect those actions to drive earnings growth in 2025? Or do you think about it as still kind of navigating through kind of a muddled environment as we get through the regulatory dynamics? How do you think about kind of this year and the actions that you’re taking and the ability to grow in 2025?

Thanks.

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes, I think it’s important never to lose an opportunity to get yourself extra fit. So we’re taking this decline in margins as an opportunity to review everything from ADM and accelerate all the decisions that were already ongoing. So I will it’s too early in the year. There are too many unknowns, Andrew, to especially on the regulatory front to make a forecast for the year. But we know that focusing on the things we can control continue to drive cash flows, that’s an important thing for our shareholders and that will improve returns.

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: Andrew, I echo what Juan just said. It’s back to the basics of cash cost and capital. And that’s what we are focused on right now. A lot of opportunities head down, get 2024 closed and we’ll come back when we’re ready to discuss 2025. But we know the environment is going to be soft and that’s why the teams are controlling what they control.

Conference Operator: Our next question comes from Tom Palmer with Citi. Your line is open. Please go ahead.

Tom Palmer, Analyst, Citi: Good morning. Thanks for the question. I just wanted to inquire on the nutrition side of the business. We’ve seen some changes in terms of the animal nutrition business, I think, from a cost savings standpoint that’s driven some improved profitability. What about on the human nutrition side?

Is there just given some of the end markets, maybe haven’t progressed the way you once anticipated, thought to kind of resizing that business? And maybe how much of an opportunity might that be as we think about the coming year? Thanks.

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. Thank you, Tom, for the question. Listen, I think I will take it by pieces. If you take human nutrition, you have to separate. We have a big issue with the plant that is down.

That plant is a significant cost. It was down for a full year. Now it’s going to be down for the Q1. So that’s an issue that is a little bit of extraordinary that we’re fixing and we thank all the engineers and everybody working expeditiously to bring it back safe. On the rest of the business is the flavors business and the health and wellness business.

We continue to see opportunities. We’ve seen in the positive side, if you will, we’ve seen growth of flavors, revenue flavors in Europe of about 7% like for like, so organic growth year to date. We have seen 5% in North America. These are not the growth rate that we would expect it when we started the year because there has been some categories like energy drinks where although still growing, is growing at lower rates than we expected at the beginning of the year and our customers have expected at the beginning of the year. Some launches have been postponed, but still it’s a robust category and we still see growth.

But as you said, we are adjusting a little bit our supply chain to make sure we match the new reality. When you look at the other piece of human nutrition, which is health and wellness, the probiotics part, which is the part there that is the future, that is the growth part, has grown so far 14% year over year on a revenue side and even higher than that in operating profit side. So I think that there are good signs, but we continue to flex this. This is a year in which, as you understand, nutrition is not where we want them to be, and we are working hard to fix it. But there are on the customer side, there are positive signs that makes us believe that when we put some of these supply issues behind, we’re going to see the results come into the P and L in a bigger way.

Tom Palmer, Analyst, Citi: And just on the capital allocation, it sounds like there was some mention in the prepared remarks of maybe some focus on discipline. But there was also some commentary maybe on the crush side about some unexpected downtime. Is there maybe an elevated maintenance CapEx cycle needed in the crush operation to kind of get it to the operational levels that you desire? And if so, might we expect maybe less of a step down in CapEx next year, just given that or maybe I’m over

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: stating it? No, listen, CapEx for next year will be solid CapEx, if you will. We have many plants, we have grown the company and we need to make sure those plants stay in good shape, but also there are opportunities for automation and digitization that we are adding to that. If you look at the oilseeds plants, Europe and Latin America have been operating very, very well. We have a handful of plants in North America that have given us problems over the summer.

And I’m happy to report that they are doing better in October, they are doing better in November. But we have some issues that took a little bit longer to fix than we thought and we put the resources to do so.

Conference Operator: Our next question comes from Ben Theurer with Barclays (LON:BARC). Your line is open. Please go ahead.

Ben Theurer, Analyst, Barclays: Yes, good morning and thanks

Tom Palmer, Analyst, Citi: for taking questions. Good morning. So I just wanted to like kind of get a

Ben Theurer, Analyst, Barclays: little bit maybe your sensitivities around the implied guidance for the Q4 and taking a little bit of an advantage that we’re early in December and already 2 months have gone past. Clearly, if we look at it, implied low end versus high end, it’s a very widespread. So maybe help us understand and frame a little bit what are the risks getting closer to the lower end, which would be implied a little less than $1 versus the higher piece closer to $1.40 just to kind of understand where we’re shaking out and where you think things are going out considering that 2 months are in?

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. Thank you, Ben. So let me give you the puts and takes for the quarter and you can build it from there. I think in if you think about the Grain Business Ag Services, of course, this is the quarter in which the volumes come to North America for exports. And we see good volumes.

China is buying for Q4 beans. Europe is buying corn for Q1. But we have although we have good volumes, we have not seen the margin expansion that maybe we have forecasted a couple of quarters or a couple of months ago. River logistics are good for December. We will have to monitor the weather for Q1, but so far so good.

And caries in the market should help our interior assets. On a global trade perspective, volumes are strong and lower commodity prices are supporting feeding animals globally. So destination marketing margins are holding. On a crush side, I described before the decline in crush margins, a lot of uncertainty about biofuels policy. Of course, this margin compression could create timing depending on where prices are at the end of the year, we could see positive timing.

So we will not be able to call that until we see the end of December. We have been selling our biodiesel book, but of course it goes all to December. Unfortunately, with the lack of clarity over next year, you could think that if we continue to crush at these levels, maybe oil inventories will climb and something will have to give for next for the Q1. At this point, there is not a lot of margin for independent non integrated plants to run-in the Q1. So, we may see a spike of RINs later in the quarter and we may have to maybe as industry slowdown crash in the Q1.

On a car solutions perspective, it’s kind of steady, if you will. Margins are good, volumes are good, manufacturing is operating well. So we get we are cranking on all the cost savings. We have implemented some of the automation project that’s given us benefits to that. So I would say we should see a little bit ethanol margins are always the variable here.

They are slightly on the breakeven side. So hopefully, we finish the year strong there. And then on the Nutrition side, we certainly, as Manish was saying in the outlook, we’ve seen improvements in Animal Nutrition. We’ve seen a balance of some revenue growth, but also some one offs that we needed to address in the human side. So I will say better than last year, slightly lower than maybe the previous quarter.

And we’re putting all our efforts in finishing that plant, so we can have a 20 25 cleaner of all those extra costs.

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: Just a couple more for you, Ben. Ben, can I just add a couple more? Yes. The insurance proceeds that is a partial settlement right now, if you add the 3 segments I gave you, in the Q4 there’s an assumption that we will get 100 percent reinsurance proceeds of $135,000,000 So that’s the other variable. And then back on Nutrition, what Juan said just for disclosure, currently based on where the team is seeing, we think with M and A, it’s low single digits growth in the Q4.

And on an organic basis, it’s low single digits negative growth. And so that’s the other piece. I just wanted to add to what Juan Thank you.

Tom Palmer, Analyst, Citi: And to clarify, dose insurance just similar in

Ben Theurer, Analyst, Barclays: the Q3 that will basically then be deducted in other, correct?

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: No. These are all 100% reinsurance proceeds, Ben. So they will so our captive insurance has reinsurance cover. And so we expect to get $135,000,000 as a partial settlement for the Decatur East Coast. And this will continue into 2025 and 20 6, Ravi.

Yes, it’s different than 3Q where the captive was paying for it. Now we are expecting reinsurance proceeds.

Conference Operator: We now turn to Heather Jones with Heather Jones Research. Your line is open. Please go ahead.

Heather Jones, Analyst, Heather Jones Research: Good morning. Thanks for the question.

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Good morning, Heather.

: So you guys talked

Heather Jones, Analyst, Heather Jones Research: good morning. So you all have talked a lot about the challenging cycle we’re in and as far as looking to ’twenty five. But wanted to get a sense of, I mean, what are some things that could be givebacks in 2025? So I was just wondering if you could quantify how much take or pay hit you guys in 2024? And then the cost impact of all the unplanned downtimes that presumably as you’ve gotten these plants running better, you should get back that’s separate from the crush curve.

So I was just wondering if you could first quantify those couple of things for me.

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. I would say I’m not sure I have all of them top of my head for the full year, Heather, but let me say the following. I agree with you. I think on the take or pay, first of all, we’ve learned our lesson. So we can act differently, I think, as ourselves and maybe even the whole industry.

I think also the weather in Brazil is very good. So we expect to have probably 170,000,000 tons type of crop next year that will avoid these issues. I will say all these resets in 2025, so we still have very little exposure of our take or pay, but I don’t have top of my head what was the whole thing. And then on the manufacturing side, we have issues mostly in the Q3, I would say. Some of the plants when we look at our capacity when we were down, sometimes it was things like Paraguay because we didn’t have margins, so we shut it down ourselves.

And then sometimes it was Ukraine or other plants like that. We have a plant in Des Moines, Iowa that we were a little bit waiting for a permit, so we couldn’t bring it back. So there are improvements there. I don’t know if, Manish, you have some numbers in your head. I will hesitate to quantify them myself.

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: Yes. So I would just on take or pay, Heather, it’s year to date, it’s approximately $40,000,000 of impact. We’ll have to see what 2025 brings and what the volume and what the revised take or pay contracts look like. And then on the downtime, again, it comes down to the teams are focused on trying to get that up. The cost has gone up per cost per ton.

But I would not quantify that right now. I would just wait through as we get to there should be upside as these plants start running. But I would not quantify because it’s not like a systemic down of x over month, it’s puts and takes of downtime.

Tom Palmer, Analyst, Citi: Right. One thing

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: that you need to consider, sorry, in the manufacturing is, we implemented our automation projects in the Carve Solutions business first because we run a pilot and it was good return, so we extended that. Now we have finished our first pilot in the oilseeds plant in one plant in Brazil and the results are very encouraging. Based on those results, we may do the same thing that now that we did in automation in Carrot Solutions into the oilseeds plant. That has given us improvements in not only yields, but also energy savings and exchange losses and things like that. So there is an upside there as well as we go into we’re going to implement all of these in

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: I think we have 15 projects going into 2025 for this. So I think that you should see that as a positive for us. And Heather, I would add to Juan’s piece on this is, everyone looks at downtime and says cycle up or cycle down. What the team is actually doing is a very good lean based approach. So they’re actually going into deep root cause, looking at what equipment caused the failure, why did it cause the failure, is there a way to automate, is there a way to digitize.

So in the long run, I put this under the pillar of operational excellence. Our factory should continue to run better in the longer term and we’ll put in the right appropriate CapEx needed to make sure that we can over the long term have sustained operating leverage from our factories.

Heather Jones, Analyst, Heather Jones Research: Okay. Thank you. My follow-up is just do you have an estimate of how much reinsurance proceeds will be at 2025 and 26? I think you said it will continue into 2016. So just give us a sense of what those just rough numbers, what those numbers will look like?

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: Yes. So I’ll start with just the overall possible loss that is there. And again, this is very preliminary. The teams are still working it through. But we believe Decatur West should be approximately in the $100,000,000 of loss and Decatur East should be in the $300,000,000 to $400,000,000 of loss.

We’ve got $95,000,000 in Q3. We expect to get $135,000,000 give or take in Q4. We expect that in 2025, we should be somewhere in that $50,000,000 to $100,000,000 range and then and the rest will work over the next. Now all of this is based on information we have right now. All of this is based on still working through with the actuaries, with the insurance companies, etcetera.

And our goal is to continue working it and we’ll keep you posted as we get to know more. But this is truly based on what we know as of right now.

Conference Operator: We now turn to Manav Gupta with UBS. Your line is open. Please go ahead.

Manav Gupta, Analyst, UBS: My question specifically is to you, Muneesh. You have been in the seat for some time. But looking at the next 12 months to 24 months, Mohnish, what are your key priorities? What are you going to be most focused on for the next couple of years to make ADM a stronger company?

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: Yes. First, Manav, I’ll just say, yes, I’ve been here slightly over 90 days and it’s been a blast to be here. It’s a fantastic team. I’ve got a chance to go see some farms. I’ve got a chance to go see our operations.

I’ve got a chance to go meet the teams in the field and it’s a very exciting time to be here. I would tell you on my priorities as I think about it, as I said in my prepared remarks, my first priority is the integrity and of our financial statements and remediating the material weakness. The team has already done a lot of work, but there’s a lot more we can do in improving our processes, our internal controls and our systems. And that’s what I’m focused in with the IT team and the finance teams to make sure that we have systems that can support all the reporting and all the revised pricing, etcetera for inter segment sales. So that’s one item.

Then I come to the second piece, which is driving cash cost and capital. As Juan mentioned and I have said, there is a lot of opportunity here to control what we control. And therefore, we are doubling down on our productivity efforts. And I’m working with the teams on multiple areas that we can simplify our business, reduce our cost, take advantage of our procurement savings, as we should be getting into a slightly deflationary environment, while at the same time making sure that we are having functional excellence, which is we are delivering from the center what really the businesses need. So we are following a zero based approach in certain of our functions.

We are looking at all the costs and saying what are we doing, do we get the value for it or not. Similarly, when it thinks about capital, you’ve heard about capital allocation. When you think about CapEx, it’s a stage gate model. So making sure that we are investing in areas because there are tremendous opportunities for investment available to us, but at the same time making sure that we’re getting a return and we’re going to follow a state gate approach, which means we’ll fund you a little bit. We’ll see what the return looks like at that point in time.

If you hit the milestones, you get the next funding. Otherwise, the money goes to somebody else. So create some internal tension to make sure that everyone’s fighting for the last dollar of CapEx that’s available. Then I go into digital and I think there’s tremendous opportunity for you. You know that Christy and team who’s our CIO has done a really nice job.

The company has done a nice job of improving the infrastructure that we have. We still have long way to go in that, but I feel there’s also a chance here to accelerate some of the ability to use data and data analytics to drive business outcomes. So that’s another priority of mine. And then I would tell you back to portfolio. The company has always said they will look at portfolio.

I’ve said that too in my prepared remarks and my 3 month past year I’ve seen there are opportunities here that we are working on to make sure we simplify a portfolio. And I look at it from a simple lens of do I have a market and do I have a right to win first? And if I do, am I the rightful owner of that asset and what return are we getting? And Juan and I have spent quite some time together on talking about this. He’s always been open to portfolio and we are going to continue working on that.

So Manav, I don’t know if I answered your question, long answer to your short question, but a lot of priorities. And then I’ll end with where I started, which is back to the basics. You got to drive cost, cash and capital in this environment where we know that the commodity cycle may not be our best friend. So self help is truly our best friend. And that’s what the teams are working on.

So hopefully I answered your question.

Manav Gupta, Analyst, UBS: No, you absolutely did. My very quick follow-up and this is more on the policy side. We saw some news that there are some changes to China export taxes as it relates to Yuko and maybe Chinese Yuko will make its way less to the global markets. There’s a little bit of possibility that President Trump might impose some tariffs on any risk Yuko coming into the U. S.

So was trying to understand from the perspective of ADM, if China exports less EUCO to the global markets, how can that help ADM?

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. Thank you. Well, You see Manav what happened when the flood of YUKO came into the U. S. So then basically soybean oil or canola oil lost percentage lost share as a percentage of feed stocks, if you will.

And there were a lot of concerns on the origin of some of these YUGO and there have been a lot of questions by people about making sure we verify that origin, especially when you start seeing big palm oil producing countries being big exporters of yucca also. So I think part of that is to make sure that whoever is playing here is playing with the right rules. So I don’t know about the regulation. There are a lot of speculation at this point in time about regulations. We just want a level playing field.

We just want to work on products that are real what they say they are. And I think that’s what we aim for is transparency in the rules. Then we play by the rules.

Conference Operator: Our next question comes from Stephen Haynes with Morgan Stanley (NYSE:MS).

Megan Britt, Vice President, Investor Relations, ADM0: Maybe just coming back to the cost side of things, I think your SG and A is up quite a bit this year and accelerating a bit, maybe more than kind of what would be implied by normal inflation. So I guess when we’re thinking about that kind of ramp up this year, what are some of the key drivers there? And then how are we supposed to think about that going into next year, pairing with your comments about more focus on controlling costs? Thank you.

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: So I’ll just start with answering the question on what’s driving the increase in SG and A. There are a couple of drivers here. One is the higher litigation costs that we have in defending or sorry, the higher litigation costs that we have with the material weakness that we have. So that’s number 1. Number 2 is the company has invested in digital transformation over the last few years and that’s the cost that is increasing there to support the transformation of our ERP.

Number 3 is we got higher interest costs that we have, which is also reported. Sorry, you were just asking SG and A, not corporate. So those are my 2 big drivers that drive it, which is GT and then some litigation costs. We also have normal merit increase that goes into that, but that’s partially offset by the lower incentive compensation that as we see the results of the company right now, you’re going to see lower. So when you look at all of that, back to your question also what are we going to do about all of this?

As I said, couple of things is, we need to continue investing in digital transformation as we go through that. Secondly, I would tell you that as we work through some of the zero based budgeting exercises that we have here, we need to make sure that where there is opportunities, there is value being added for those activities. That’s what we are working on. And then the 3rd piece that is an add to the cost, which is M and A. So as we have bought 4 companies that closed in 2024, you get added costs that of course comes through into SG and A, but that’s also where we have to keep looking at and saying, making sure the synergies for those M and As are coming through too.

So I would say in the long run when I look at this, this is where we clearly have an opportunity to continue driving our focus on cost. And I would do cost in 2 places. 1 is cost in SG and A. The second cost is our manufacturing cost, which Juan has already talked about and I’ve talked about where we should be able to keep driving efficiencies, which should help us reduce costs.

Conference Operator: We now turn to Tami Zakaria with JPMorgan.

: My question is on crush volumes. I think I saw on your slide you expect high single digit percent type volume growth in the Q4. So I’m just curious, is that a good starting point for next year barring any policy development? Or can you share any initial thoughts on how you’re thinking about volume?

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. I would say, as you said, if you take the regulatory uncertainty out and what’s going to happen with people adjusting their crush because of the lender’s tax credit to producer tax credit issue whenever that’s going to be sold, I think that that level that we are disclosing is probably a reasonable level on normal conditions, if you will, yes. And that basically is just is the addition of Spiritwood that is running at full capacity basically, almost full capacity.

: Understood. That’s helpful. And then just following up on that tariff question from earlier. Are you preparing for any either positive or negative impacts? Should the incoming new administration slap tariffs on foreign imports maybe starting in January?

Do you see any immediate opportunities or even risks to business when initial tariffs go into effect?

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes, of course, our business is running a lot of scenario planning for what could happen. Normally, what we see in these circumstances is the trade flows adjust. At the end of the day, you continue to have certain demand in the world. It’s just satisfied in a different way. So that’s where in those situations is where the footprint, the global footprint and the team of ADM normally shines because it allows us with a lot of agility to repurpose those trade flows to take advantage of the condition.

So we are remaining agile and again doing a lot of scenario planning to be ready.

Conference Operator: We now turn to Salvator Tiano with Bank of America. Your line is open. Please go ahead.

Megan Britt, Vice President, Investor Relations, ADM1: Yes. Thank you very much. You did make a comment early in the call about China increasing production of certain commodities that is impacting trade. And I was just wondering if you can talk a little bit more about that, what are these commodities you’re talking about and whether this is something that’s more cyclical like higher crop production because of favorable weather or something more structural, and certainly more policy I guess driven that could impact global trade in the longer term?

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: Yes. No, I think that China has shown this year that they wanted to encourage or incentivize their local corn production. And as such, they have reduced their imports of corn. I think in that’s probably what I was referring to their imports of corn this year is going to be lower. I think in terms of soybeans, the situation is slightly different.

I think they are preparing for the eventuality of of having to have tariffs or whatever. So they’ve been buying and they’ve been refreshing their reserves. So I think that in that sense the amount that they imported has been about the same. So I would say it was more a corn comment.

Megan Britt, Vice President, Investor Relations, ADM1: Okay, perfect. And just want to follow-up a little bit on to ask about the depreciation in the Brazilian real recently. And I’m just wondering what impact could this have in most of your bottom line in Q4, but especially in 2025 given that’s now under it’s now over 6?

Juan Luciano, Chair of the Board and Chief Executive Officer, ADM: I think, Salvador, the biggest impact that’s happened with the valuations in Latin America is how they impact farmers selling. You see it in Argentina now that the currency and or the spread with the 2 exchange rates is just 10%, the farmer is a more normal seller, if you will, when they need cash and more of a steady seller. In Brazil, now with the devaluation, the farmer has been more reluctant seller, if you will. So I would say, when you look at Latin America, that’s probably what impact us the most is the ability of the farmer to be a commercializer of

Manish Patilawala, Executive Vice President and Chief Financial Officer, ADM: grain.

Conference Operator: We have no further questions. I’ll now hand back to Megan Britt for any final remarks.

Megan Britt, Vice President, Investor Relations, ADM: Thank you so much for joining the call today and for your interest in ADM. Please feel free to follow-up directly with me if you have any additional questions.

Conference Operator: Ladies and gentlemen, today’s call has now concluded. We’d like to thank you for your participation. You may now disconnect your lines.

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