CHICAGO — Earnings at ADM for the second quarter ended June 30 largely underperformed across its main business units compared to the same quarter one year ago. Despite the year-over-year declines, Juan Luciano, chairman and chief executive officer of the company, emphasized a positive outlook for ADM moving forward and noted that the company is raising earnings expectations for the full year.
Net earnings attributable to ADM in the second quarter ended June 30 totaled $927 million, equal to $1.70 per share on the common stock, down 38% from $1.24 billion, or $2.18 per share, in the same period a year ago.
Revenues for the second quarter decreased 8%, sliding to $25.19 billion from $27.28 billion.
ADM cited multiple factors that may have contributed to the dips, including softer demand in some categories, unprecedented down-time at a corn germ facility and the steep competition of last year’s record second quarter.
“Through our second-quarter results, ADM has once again shown that the diversity of our business portfolio and our integrated value chain have enabled our team to consistently deliver excellent results, even in very dynamic market conditions,” Mr. Luciano said. “Our pursuit of trend-based innovation and our relentless focus on driving efficiencies across the enterprise continue to create value for our customers and shareholders.”
During a July 25 conference call with analysts, Mr. Luciano expounded on factors that may have contributed to the second quarter outcomes and highlighted areas in which the company was making progress.
“Ag Services & Oilseeds leveraged recent investments in infrastructure and operations to achieve record origination volumes in Brazil, while Carbohydrate Solutions delivered excellent results across global starches and sweeteners,” Mr. Luciano said. “Nutrition achieved strong results in Flavors and drove continued expansion of the customer base and opportunity pipeline, while actively addressing softer demand within other parts of the segment. We continued to make progress advancing our strategic initiatives connected to decarbonization, which are helping us build additional earnings power and growth for ADM. Based on our strong first-half results, increased confidence in second-half performance, and our team’s demonstrated ability to execute, we are raising our earnings expectations for full-year 2023.”
Operating profit in the Ag Services and Oilseeds segment fell 1.8% in the second quarter of fiscal 2023, easing to $1.05 billion from $1.12 billion. Ag services profit fell 6.6% during the quarter to $380 million, while crushing profit decreased 52% to $224 million from $468 million.
“Global soy crush margins remained strong but were lower year-over-year in all regions due to softer demand for both meal and oil and a tight US soybean carryout,” said Vikram Luthar, chief financial officer and senior vice president. “This was partially offset by strong softseed margins and higher volumes supported by a strong Canadian canola crop and use of our flex capacity in EMEA. Additionally, there were approximately $195 million of negative mark-to-market timing effects in the current quarter that are expected to reverse as the contracts execute in future periods.”
Two categories that out-performed last year’s results were Refined Products and Other and Human Nutrition.
“Refined Products and Other results were significantly higher than the prior-year period, achieving a record second quarter,” Mr. Luthar said. “North America results were higher, driven by strong food oil demand and improved biodiesel volumes. In EMEA, strong export demand for biodiesel and domestic food oil demand supported stronger margins. Additionally, there were approximately $90 million of positive mark-to-market timing effects in the current quarter that are expected to reverse as the contracts execute in future periods.”
Human Nutrition saw significant growth in the Flavors sector, which helped boost the category ahead of last year’s results.
“Flavors actually grew profits in the first half 9%, 20% in Q2,” Mr. Luthar explained. “So that’s a very good sign of the recovery we are seeing in parts of the Human Nutrition business. The other thing that's important to note, Flavors actually contributed almost 50% of the overall operating profit for Nutrition in the first half. So that’s an important signal as you think about the future growth of Nutrition. Yes, that was primarily driven in the beverage category, but we see green shoots of opportunity in the food category as well.”
In the overall Nutrition segment operating profit decreased 23% to $185 million in the second quarter of fiscal 2023, down from $239 million a year ago. Within the segment, Human Nutrition profit improved to $184 million from $183 million, while Animal Nutrition decreased to $1 million from $56 million.
The Carbohydrate Solutions segment sustained a loss during the quarter, which the company partially attributed to an outage at a germ crush facility in April. The outage affected ethanol production volumes at a time when ethanol margins were strong, according to the company. Overall, ADM’s focus on Carbohydrate Solutions has been to reduce the category’s environmental impact and implement decarbonizing strategies to make its supply chain more sustainable.
“We continue to make progress on our initiatives to decarbonize the Carbohydrate Solutions footprint, including our definitive agreement with Tallgrass to sequester carbon from our Columbus, Neb., facility and continued progress on decarbonizing our decade complex through additional carbon capture and sequestration wells as well as ultra low-carbon intensity, electricity and steam generation,” Mr. Luthar said. “These are key steps in enabling us to produce low CI feedstocks for use in many applications for our major CPG customers and underpinning our growth opportunities, such as SAS, BioSolutions and our lactic acid polylactic acid joint venture with LG Chem.”
Operating profit in the Carbohydrate Solutions segment fell 36% in the second quarter to $303 million from $473 million during the same period last year. Starches and sweeteners profit decreased 28% during the quarter, falling to $285 million from $393 million. Vantage Corn Processors posted a profit of $18 million in the quarter, tumbling down nearly 78% from $80 million in the same period a year ago.
Looking ahead, Mr. Luciano and Mr. Luthar both emphasized that ADM’s balance sheet “remains healthy,” and noted that the company’s $1 billion in share repurchases throughout the first half of this fiscal year indicates their confidence in the company’s growth potential.
“As we look at the back half of the year, we intend to continue our share repurchase program,” Mr. Luciano said. “We feel that these factors are fundamental drivers of our strong second-half performance. I am proud of how our team has delivered halfway through the year and even more excited about the opportunities presented in the second half and what our team can deliver. Taking collectively, we are raising our earnings expectations for full year 2023.”