Written by PJ Hufstadter and Sourasis Bose
(Reuters) – Global grain trader Archer Daniels Midland on Tuesday cited lower energy and manufacturing costs as it seeks to emerge from accounting problems that prompted a U.S. government investigation into the grain trader. In addition, its profit for the first quarter of 2024 exceeded market expectations.
The Chicago-based company reaffirmed its previous outlook for 2024, but executives warned of continued declines in soybean crushing margins and headwinds to its nutrition sector, which is the focus of a government investigation. did.
ADM stock was trading down about 4.6%, underperforming Wall Street’s major indexes.
Adjusted operating income for ADM’s Agricultural Services and Oilseeds segment, which includes soybean crushing and trading operations, decreased to $864 million from $1.21 billion in the year-ago period.
ADM and its trading and processing rivals Bunge and Cargill are seeing profits come under pressure as global supplies of crops swell and prices fall from recent historic highs. Agribusinesses make money by processing, trading, and shipping crops around the world.
ADM’s increased soybean crushing volumes during the quarter partially offset lower crushing margins, company executives said in a conference call with analysts on Tuesday.
However, the division’s operating profit for the second quarter declined significantly compared to the same period last year, and the company said it expects global soybean crushing margins to remain in a low range. However, CEO Juan Luciano said he expected Brazil’s squeeze margins to improve going forward.
“Our team is looking for every opportunity to manage what we can control while advancing our strategy and remaining agile to quickly adapt to external conditions,” Luciano said.
Adjusted operating income for Carbohydrate Solutions, ADM’s ethanol and sweeteners business, was $248 million, down from $279 million in the same period last year.
In March, ADM revised six years of financial data after an internal investigation found that some sales between the company’s business units were not properly recorded. ADM announced that it had overstated the annual operating profit of its nutrition business by up to 9.2%.
ADM acknowledged in March that some of its employees had received grand jury subpoenas from the Justice Department, which is investigating its accounting practices. A government investigation is not evidence of wrongdoing and does not necessarily result in charges.
Company executives did not discuss the investigation Tuesday. Chief Financial Officer Vikram Luthor said last week that he plans to step down in September, becoming the highest-level executive to leave the company since disclosing the accounting problems.
The nutrition division, touted by executives as the future of ADM, was experiencing explosive growth until profits began to decline in late 2022.
On Tuesday, the nutrition division reported adjusted operating income of $84 million, down from $138 million in the year-ago period.
Luciano said that during this period, the division faced headwinds from its specialty ingredients business. He said ADM’s Decatur East processing plant was shut down last year due to an explosion, and lower prices for texturants led to a significant decline in the division’s operating income.
ADM said Nutrition’s operating income for the next quarter will be lower compared to the same period last year. Mr. Luciano remained optimistic about the division’s future performance, noting that ADM has strong demand for flavors.
The Chicago-based company reported adjusted earnings of $1.46 per share for the three months ended March 31, compared to analysts’ average estimate of $1.36 per share.
ADM said the segment’s operating income increased 15 cents per share from the same period last year due to lower energy and manufacturing costs.
(Reporting by PJ Huffstutter in Chicago and Sourasis Bose in Bengaluru; Editing by Shingini Ganguli and Chizu Nomiyama)
