Archer-Daniels-Midland Co. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Performance: ADM reported fourth quarter adjusted earnings per share of $1.14 and full-year adjusted earnings per share of $4.74, in line with full-year guidance. Total segment operating profit was $1.1 billion in Q4 and $4.2 billion for the full year. Trailing four-quarter adjusted ROIC was 8.3%, and cash flow from operations before working capital changes was $3.3 billion.
• 2025 Priorities: Focus on execution and cost management, strategic simplification, and capital management. Announced plans to reduce approximately 600-700 roles, expecting $500 million to $750 million in cost savings over 3-5 years. Also, focus on strategic growth investments and returning cash to shareholders through dividends and share repurchases.
• Operational Progress: Achieved strong crush volumes in LATAM, improved safety with over 35% reduction in Tier 1 and 2 process safety incidents, made progress in innovation areas like biosolutions and health & wellness, and increased the quarterly dividend for the 93rd consecutive year.

Segment Performance

• AS&O (Ag Services & Oilseeds): Fourth quarter operating profit was $644 million, down 32% year-over-year. Full-year AS&O segment operating profit was $2.4 billion, 40% lower than the prior year. Ag Services subsegment operating profit was $715 million, 39% lower year-over-year, driven by lower South American origination volumes and margins. Crushing subsegment operating profit was $844 million, 35% lower year-over-year due to ample global supplies. Refined products and other subsegment operating profit was $552 million, 58% lower year-over-year due to factors like higher pretreatment capacity and biofuel policy uncertainty.
• Carbohydrate Solutions: Fourth quarter operating profit was largely in line with the prior year. Full-year carbohydrate solution segment operating profit was $1.4 billion, flat compared to the prior year. Starches and sweeteners subsegment operating profit was $1.3 billion, slightly higher year-over-year, while Vantage Corn Processes subsegment operating profit was $33 million, 28% lower year-over-year due to lower margins from higher industry production.
• Nutrition: Fourth quarter operating profit was $88 million, higher year-over-year due to improved mix and insurance recoveries. Full-year nutrition segment operating profit was $386 million, 10% lower than the prior year. Human nutrition subsegment operating profit was $327 million, 22% lower year-over-year, and animal nutrition subsegment operating profit was $59 million, higher than the prior year due to margin improvements.

Guidance

• Adjusted earnings per share expected to be between $4 to $4.75 per share. Lower margins in AS&O and Carb Sol will be a material headwind. Cost actions are expected to yield $200 million to $300 million in 2025. Less insurance proceeds are anticipated in 2025 (~$60 million). Capital expenditures are expected to be in the range of $1.5 billion to $1.7 billion. Effective tax rate is expected to be 21% to 23%. Leverage ratio is expected to be approximately 2.0.
• Q1 2025 outlook: AS&O segment profit expected to be down ~50% relative to prior year, Carb Sol segment profit down 5%-15%, and Nutrition segment profit down 50% compared to prior year. Full-year AS&O segment profit is expected to be below or similar to 2024, Carb Sol segment profit lower, and Nutrition segment profit higher than prior year.

Risks

• External uncertainties: Trade and regulatory policy shifts, geographic supply/demand impacts, biofuel and trade policy uncertainty, Argentina export tax policy, and fluidity in 45Z guidance.
• Operational challenges: Unplanned downtime, demand fulfillment issues, inflationary costs (e.g., chemicals, energy), labor and third-party spend management, and ongoing headwinds from unplanned downtime at facilities.

Q: Just on the nutrition segment, I wanted to make sure I understood the expected profit recovery. It implies a pretty big inflection as the year progresses. You noted 1Q has some maybe heightened headwinds. It sounds like at least for the second quarter, I wasn't sure if it was second quarter or for the full-year, the start up at Decatur's noted as a headwind. And then, you've got the insurance headwind, especially in the second-half. So, just trying to understand what really drives that inflection.

A: Yes, thank you, Tom, for the question. Listen, nutrition has a big self-help story inside themselves as we have in ADM of course. But I think the main issue for Nutrition is you need to think about like three different buckets. There is one bucket that is the Decatur plant, which is Specialty Ingredients, that is a big headwind and until we can bring the plant back that will continue to be. So, that is going to happen in the first quarter. Hopefully the plant will be back in the second quarter we expect, and that will naturally bring an improvement to the results. The other bucket is a bucket that it continues to go very well, which is, if you think about flavors and if you think about biotics, those businesses are going very well. They are growing. They have grown 7% and 10% respectively in revenue in 2024. So that's going to continue and that's basically execution of their pipeline, and their pipeline is very robust and very good. And I would say, the third bucket is you have this steady improvement month-over-month, quarter-after-quarter of animal nutrition, which is not a revenue story, but it's a margin improvement story. So, you have three different things, and when you put them altogether, we see a strong recovery in the last-half of the year for nutrition.

Q: Good morning, and thanks for the question. Just on the vegetable oil demand, soybean oil demand in particular. Now that we have the 45Z guidance kind of behind us to a certain extent and the imported UCO that's not going to qualify for tax credits. In kind of your first-half, back-half, a summary there slide, you gave what I would say is a reasonably constructive outlook for vegetable oil demanded. So I guess, I'm just curious for how you think about the puts and the takes around that because I know there's a lot of concern in the market.

A: Yes, thank you, Andrew. A lot to unpack there, so yes, we received guidance from 45Z in January and I think it was constructive, but it's still a lot is in the air. We still need to get finalized that guidance. Probably, it's not going to happen until the end of Q1 and by that time we might have sold already Q2. So we have to see how that evolves. So we have to be cautious with that. On the other hand, when you do the math that probably implies an extra maybe 0.5 million tons of oil demand by Yuko that's not going to qualify for this. Our team anticipates that soybean oil share will be up from 35% to 40% and maybe Yuko down from 20% to 14%. So, I think that this is a year in which right now the Ag Services and Oilseeds Industry is trying to digest this extra capacity, if you will, extra production because we have North America, we have Brazil and we have Argentina producing -- crushing a lot and also this big uncertainty not only on tariffs for imported products, but also the policy uncertainty around biofuels. We think that as these policy uncertainties start to clear through the year, we're going to see margins improving and you can see that in the current in the market for crush going forward. We are excited about the manufacturing improvements we're going to have and we are excited about the fundamental demand that when these clouds of uncertainty regulatory will clear, you will see that the livestock area is very strong and soybean meal continues to be the most beneficial feeding material, so that's maximizing the rations at the moment. So, USDA is thinking meal growth probably 5.5%, maybe we have even some upside to that number potentially. And then you have this area of all the mandates that are coming around the world. I think Monish referred before in his previous remark about SAF in Europe, but also it's Indonesia, also it's Brazil increasing their biofuels mandate. So and when we clear 45Z, we're going to have that extra demand from the U.S. So, we see a first-half, second-half different pattern than other years and very hard to quantify what else on one and the other, because it will depend more on government and clarifying the regulatory environment, which we can only adjust to, but we cannot manage.