Milling & Baking News - May 7, 2019 - 18

Financial Results

Weather, ethanol industry bog
down ADM profit in quarter
CHICAGO - The first quarter of fiscal 2019 "proved more challenging
than initially expected" for Archer
Daniels Midland Co., the company's
chief executive said when financial results were announced on April 26.
Net earnings attributable to ADM
in the first quarter ended March 31
totaled $233 million, equal to 41c per
share on the common stock, down 41%
from $393 million, or 70c per share, in
the same period a year ago.
Revenues for the first quarter eased
1.5%, falling to $15,304 million from
$15,526 million.
"It was a more challenging quarter
than we initially expected," Juan Luciano, president and chief executive officer, said during an April 26 conference
call with analysts. "Severe weather in
North America, the ongoing China
trade disputes and a difficult ethanol
industry margin environment all impacted the quarter.
"As we look ahead, however, we
expect improved conditions in the second half of the year, and we remain
focused on executing our strategy and
making changes to improve our company, including some new actions we
are announcing today. And despite
the challenging start of the year, 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."
Operating profit in the Origination
segment increased 65% in the first
quarter of fiscal 2019, climbing to $76
million from $46 million. Merchandising and handling profit rose 42% during the quarter to $61 million, while
transportation profit increased sharply to $15 million from $3 million.
"The team executed well and produced solid margins from North
American exports of both soybeans
and corn," said Ray G. Young, executive vice-president and chief financial
officer. "In addition, a strong performance in the structured trade finance
and the reversal of some timing impacts from the fourth quarter helped
to offset the softer performance in
global trade, which was impacted by
normalized South American soybean
and soybean meal margins versus the
first quarter of last year. Results in the
quarter were also held back by high
water river conditions, which limited
grain movement and sales in North
America. The transportation team did
18 / May 7, 2019

Milling & Baking News

a great job to deliver higher year-overyear results as improved freight rates
in northbound movements offset lower overall margin volumes caused by
unfavorable river conditions."
Oilseeds Processing profit fell 2.3%
in the first quarter, to $341 million.
Crushing and Origination results increased 252%, to $211 million, but refining, packaging, biodiesel and other
fell 58%, and Asia declined 51% during the quarter.
"Higher executed crush margins
and record first-quarter volumes globally helped drive the strong performance," Mr. Young said. "The reversal

ARCHER DANIELS MIDLAND CO.

of timing impacts from the previous
quarter had a positive effect of about
$75 million, and there is an additional
$75 million still to reverse in the coming quarters. Slow farmer selling and
lower China demand negatively impacted South American Origination
results."
Operating profit in the Carbohydrate Solutions segment decreased
55% in the first quarter to $96 million.
Starches and sweeteners profit eased
22% during the quarter, and the company's bioproducts unit sustained a
decline of $74 million in the period.
"The severe weather in North
America during the quarter significantly affected results in both starches
and sweeteners and bioproducts by
reducing production volumes, increasing manufacturing logistics costs
and causing onetime remediation expenses," Mr. Young said. "The most
significant impacts were at our corn
wet and dry mills in Columbus, Neb.,
though the Decatur (Ill.) complex was
also impacted due to slowdowns in
corn deliveries."
In the Nutrition segment operating profit decreased to $81 million in
the first quarter of fiscal 2019, down
from $96 million a year ago. Within

the segment, WFSI profit improved to
$88 million from $73 million.
"WFSI results were higher yearover-year, with 21% profit growth
spread across all three businesses
and Wild Flavors, in particular, turning in another very strong performance," Mr. Young said. "Year-overyear sales increased 11% on a constant currency basis. Organic sales
new acquisitions were up 6%, and
improved product mix and new customer wins such as plant-based proteins utilizing alternative meat products, new food service offerings, leveraging our systems approach and
innovative dairy beverages containing our probiotic and extract offerings helped drive positive results."
Looking ahead, Mr. Luciano identified three new measures ADM has
planned to strengthen the company,
enhance results and drive long-term
value creation.
First, the company plans to repurpose its corn mill in Marshall, Minn.,
to produce higher volumes of food and
industrial-grade starches as well as liquid feedstocks for food and industrial
uses. ADM also intends to phase out
production of high-fructose corn syrup
at the facility as soon as it completes
committed deliveries, Mr. Luciano said.
"The market for starch continues to
grow in North America," he said. "Our
teams have done a great job meeting
this demand. And with this repurposing, we'll be positioning ourselves to
continue to be a leader in food and industrial starches."
Mr. Luciano said ADM also will create an ethanol subsidiary that will report as an independent segment once
it is established.
"The establishment of the new subsidiary will facilitate the separation
of our three ethanol dry mills as we
advance strategic alternatives, which
may include, but are not limited to,
a potential spin-off of the business to
existing ADM shareholders," he said.
"Of course, as with any strategic decision, these changes to our portfolio
will be subject to market conditions,
acceptable valuations and the approval of our board."
Finally, ADM will continue to follow through on a series of actions put
in place earlier in April to enhance the
company's ability, accelerate growth
and strengthen customer service.
Among the actions is a series of organizational changes to help centralize
and standardize business activities
and processes and enhance productivity and effectiveness. MBN
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Milling & Baking News - May 7, 2019

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