Archer Daniels Midland, one of America’s oldest and most profitable food companies, said in late 2020 that customers’ preference for foods with “bright, exciting” colors and “familiar, nostalgic” flavors has increased. “It will shape the food industry,” he predicted. ADM looked poised to take profits. Over the next few years, he acquired two companies specializing in the craft of flavor. Create savory dairy flavors for snacks and frozen foods.
But the nutrition division, the division leading ADM’s push into new flavors, wasn’t as healthy as it seemed. Sales fell short of expectations, sparking internal, government, and shareholder scrutiny.
ADM placed its chief financial officer on administrative leave in January as in-house lawyers investigated accounting practices. According to Reuters, the company’s stock price fell about $68 to $51, or 24%, in one day, the worst trading day since the Great Depression.
The US Department of Justice is currently investigating ADM’s accounting practices. The company has requested documents and subpoenaed current and former employees, according to company filings. Shareholders also sued Nutrition, accusing management of misrepresenting Nutrition’s financial performance. ADM’s “accounting practices misrepresented its true financial results and prospects,” the lawsuit claims.
On March 12, ADM said in a corporate filing that “certain” sales information was not recorded at “amounts approaching market value.” However, ADM said that information had “no impact” on the company’s overall balance sheet. The company said it is also cooperating with the Department of Justice.
ADM declined to comment when Investigate Midwest asked about the Justice Department investigation.
The situation in the nutrition sector is the latest in which ADM has faced accusations of misconduct.
Late last year, a judge ruled that ADM must take on a lawsuit accusing competitors of manipulating ethanol prices. Competitors claim that ADM sold products at artificially low prices. At the same time, ADM bet on low ethanol prices on the Chicago Mercantile Exchange, one of the main venues for trading agricultural products, according to Bloomberg.
The incident is reminiscent of the company’s infamous price-fixing scandal in the 1990s. The federal government has discovered that high-ranking officials are fixing prices in markets around the world. Matt Damon played a whistleblower in the film “The Informant,” about this scandal.
According to newsroom CU-CitizenAccess, authorities also recently discovered serious problems with worker safety at ADM. Last year, police responded to the company’s North American headquarters in Decatur, Illinois, dozens of times, and the Occupational Safety and Health Administration investigated fatalities at the facility. The death resulted in ADM being fined more than $300,000.
A publicly traded company founded in 1902, ADM currently operates on six continents and employs approximately 41,000 people. According to the company’s website, its overseas sales are in the tens of billions of dollars. For decades, its headquarters were in the small town of Decatur, Illinois, but its international headquarters are now in Chicago.
One of ADM’s main roles is as an intermediary between farmers and consumers. For example, turning corn into different types of sweeteners. Some sweeteners may contain less sugar and still maintain the same level of sweetness. Using ADM sweeteners, companies sell name-brand beverages to consumers. For example, Coca-Cola sources its high fructose corn syrup from his ADM.
“We generally don’t own farms and we don’t have brands on grocery store shelves,” a company executive told FoodNavigator in 2021. “We are the bridge between the two.”
Over the past decade, the company has invested heavily in the nutrition sector, including a range of sweeteners and flavors. The company acquired the Swiss-German joint venture Wild Flavors for $3 billion in 2014, which remains its largest acquisition, according to the shareholder lawsuit.
At the time, the flavors business was seen as less volatile than ADM’s grain business, which was ADM’s main focus, according to a 2014 Reuters article. Weather conditions around the world can affect the prices of agricultural products. But analysts interviewed by Reuters said ADM could struggle to see value after paying so much money.
In January, ADM shareholder Raymond Chow filed a lawsuit in federal court accusing the company of misrepresenting the financial performance of its nutrition division. As of early April, the lawsuit was ongoing.
In early 2020, ADM told investors that nutrition is a growth area for the company. ADM had traditionally focused on soybeans and corn, but was looking to diversify, according to the complaint. The company now plans to increase its investment in flavors.
“Nutrition continued its growth trajectory with record operating results,” an ADM executive said during an April 2020 earnings call, according to the complaint.
During a July 2020 earnings call, another ADM executive said nutrition is poised to become a core part of ADM. “This is a business that could easily reach, and continues to reach, 25%, 30% of our profits,” he said, according to the complaint.
For more than a decade until early 2020, ADM’s stock price consistently hovered around $30 to $40 per share. But it started to rise in the summer of 2020, according to stock data.
According to the complaint, ADM said in January 2021 that Nutrition’s profits would increase by an average of 15% each year. “We expect Nutrition to continue its impressive growth trajectory,” one executive said on an earnings call later that year.
According to stock data, ADM stock peaked at around $93 at the end of 2022 and hovered around $70 the following year.
But the complaint says there were signs of trouble. In 2022, Nutrition’s profit will be just 7%, far short of what ADM executives predicted.
ADM placed Chief Financial Officer Vikram Luthor on leave in January. His stock price plummeted.
In the lawsuit, Chow’s lawyers claim that ADM executives “recklessly” ignored facts when discussing the nutrition department. According to the lawsuit, ADM “lacks a reasonable basis for making positive statements” about Nutrition’s financial health and that the company’s accounting practices do not provide “an accurate impression of ADM’s operating results and prospects.” It is said that it was not provided.
Republish our articles online or in print for free.
