Archer-Daniels-Midland Co. Q1 FY2025 earnings call

• Made progress on $500 million to $750 million cost savings target, including workforce reduction and third-party consulting spend review.
• Made strategic decisions for network optimization, including closing Kershaw facility, exiting China and Dubai trading, and consolidating grain warehouses.
• Decatur East facility is in final stages of recommissioning and expected to be at full run rate by end of Q2.
• Nutrition business showing positive results with Flavors innovation and Animal Nutrition turnaround actions.
• Advanced automation/digitization across global manufacturing network, scaling pilots and driving cost savings.
• Announced partnership with Asahi Global Foods for postbiotic design and expanded Regen Ag partnership for farmer resiliency.

AS&O Segment: Operating profit was $412 million for the first quarter, down 52% compared to the prior year quarter. Ag Services subsegment operating profit was $159 million, down 31% y-o-y. Crushing subsegment operating profit was $47 million, down 85%. Refined Products and Other subsegment operating profit was $134 million, down 21% y-o-y. Carbohydrate Solutions Segment: Operating profit was $240 million, down 3% y-o-y. Starches and Sweeteners operating profit was $207 million, down 21% y-o-y. Vantage Corn Processors operating profit was $33 million, up y-o-y. Nutrition Segment: Revenues were $1.8 billion, down 1% y-o-y. Operating profit was $95 million, up 13% y-o-y. Human Nutrition operating profit was $75 million, down 1% y-o-y. Animal Nutrition operating profit was $20 million, up y-o-y.

• Affirmed adjusted EPS guidance of $4 to $4.75 per share, now expecting lower end due to market backdrop.
• Lowered directional guidance for AS&O segment full-year operating profit to be lower than prior year.
• Expect better crush and biodiesel margins in H2 with RVO clarity supporting U.S. demand for crop-based vegetable oil.
• Target $200 million to $300 million cost savings for the year, with actions already delivering savings.
• Monitoring consumer demand and lowering volume expectations for select markets/products in Carb Solutions.

• Uncertainty related to global trade and regulatory policy impacting the business.
• Tariff policy and macroeconomic conditions creating volatility.
• Current domestic crush replacement margins below outlook, impacting crush margin improvement expectations.

Q: Good morning and thanks for the question. Maybe just to start out, I wanted to ask on your expectation for the RPO and how this guides your outlook for 2025? So when we think about biodiesel margins in the back half of the year, should we be thinking that we could see a return to last year's levels? When we look at crush margins, is the assumption that we could see a return to kind of the original guidance, which I think was $45 to $55 per metric ton per soy and $50 to $70 for canola. Just any help on kind of the shape of the year in terms of the second half and how the RVO influences that.

A: Yes. Thank you, Tom, for the question. As you pointed out, we see a strong RVO as the most important driver for the biofuel outlook. We understand that the RVO's role is being developed, and we are engaged with the administration on the important role of the RFS and strong RVOs to support the domestic market for U.S. farmers, and to support a strong American energy independent. And we are confident that EPS is a priority. So of course, at the moment, the industry is not running at rates to satisfy mandated volumes. And we expect, and the logic implies that margins need to go up to bring run rates higher in the second half. When we go to crush, and we're probably going to see that by RINs improving as we go forward. When we go to crush, we have seen strong demand for soybean meal. Of course, there has been a strong crush rates in Argentina, Brazil and the U.S. But we've seen that leg is supportive. Of course, when we cannot produce all these biofuels in the U.S., oil goes to fight with -- for export markets. And that's the weak leg at this point in time. So we expect that with RVOs coming back, we will be able to come back to the original expectations and maybe we had at the beginning of the year.

Q: Hi, good morning. Thanks for taking my question. I actually wanted to follow up on the RVO. Good morning. Just wanted to follow up on the kind of RVO kind of number or range that you're assuming to get to those types of outcomes or how do you maybe think about that, number one? And number two, just more broadly, what is a positive RVO outcome for ADM? Is there like a breakeven RVO above which you see it as a positive outcome below, which is negative. We've obviously seen the reporting north of $5 billion. So I'm just curious how you think about maybe the range of outcomes and how it impacts your business?

A: Yes. Thank you, Andrew. I would say the industry ask to a certain degree is like $5.2 billion of biomass-based biodiesel and maybe $15 billion conventional, so a total of $25 billion, $25.5 billion I think, as I said, we are engaged with administration. We understand that the EPA understands the importance of this. It helps with all the priorities the administration has set up, which is to help the agricultural farming. We need to do that by expanding export markets but also by solidifying internal consumption and biofuel is an excellent way to do that, and also to improve energy dominance, which another objective. So we're engaged. I mean we finished -- as you know, the guidance on all these ended on the 90-day comment period ended in April. So we are expecting that the administration is tackling these hopefully soon. So -- but the industry depends on that.

Q: Morning. Thank you for the question. I had a question about RPO. So I know there was a -- I think it was a $34 million year-on-year positive timing benefit. But even adjusted for that, given how weak the environment was in the U.S. and the lower -- much lower export volumes out of EMEA. Just curious what drove the strength there? And I know it's significantly lower than the past few years, but prior to the RD rush we saw over the past few years, I mean that was a pretty good showing. But just wondering what were the positives in that given the very challenged backdrop here in the U.S.?

A: So Heather, I would say, yes, in the short run, it was a little better. But when you look at it for the whole year and how our guide is based, I would say, in total, we still continue to see RPO to be softer. And you have seen most of the items, biodiesel margins have already come off significantly. And part of it is driven by just extra volume, pretreatment capacity, et cetera. In EMEA, the margins are also significantly lower than the prior year, where again, we experienced benefits from U.S. SME market flows. And then third, when you just think about the backdrop with the implementation of 45Z as well as all the extra refining capacity that exists, that will continue to weigh on margins. So I would say, in total, taken together, RPO will be significantly low versus the prior year. And that's what we had thought coming into the year, and that's what we continue to think sitting as of right now.

Q: Hi everyone. This is Rahi on for Ben. Thank you so much for the color today. Just regarding tariffs, can you give us more color on trade flow shift, i.e., how you're replacing Chinese demand? And maybe how much of a drop in volume was related to China and Ag Services. Do you have a percentage of profit or revenue that normally relates to China? Thank you so much.

A: Yes. Hi Rahi, listen, at the end of the day, I would say, if you look at Q1. If you think how all these tariffs or this thing has settled, the impact has not been that significant in Q1. Probably the biggest impact we have had has been from speculation about what the USTR Section 301 maritime issue was going to be. But in reality, when USTR issued a ruling, it basically almost removed all the risk from agricultural experts. So we've been pleased to see the administration have paused for 90 days, the implementation of some of these, while we still try to negotiate agreements with the different parties. But if you think about Mexico and Canada export tariffs, basically 98% of our products are exempt from that. So we didn't feel any impact there. Corn, Europe, they delayed the retaliation on corn until July and in soybean until December. And although on China, we escalated, the reality is the U.S. is not going to be competitive to China for the second and third quarter because that's when Brazil and Argentina become most competitive. And we come back in October when there is the U.S. harvest. So we have until then to see how this clarifies. So that's where we see the situation today. Again, we are working as you said how to offset the impact of that, for us. We work directly in the U.S. with 60,000 farmers. It's important for them the access to export markets. So there are going to be export markets where we're going to be gaining share. Remember also that China has moved to Brazil to a certain, -- to a bigger extent in the previous issue with trade in 2017 or 2018. So the reliance on U.S. export into China is not that big, probably for soybeans is in the range of 20 million tons, if you will, if that were the total impact. And then I think China export, so I think that that's the impact at this point in time, we were pleased to see, as I said, USTR Section 301, was sold favorably for agricultural experts.

Q: Apologies about that. Hi, good morning. Thanks for taking the question, here. Just wanted to ask about the soy crush industry. Just with all the announcements with new crush capacity coming online in North America and then just with the weak fundamental backdrop that we've had over the last several months, how have you heard of any signs of rationalization or signs of pause in adding this new capacity in the industry? Do you anticipate anything to come online or be delayed in 2026 and beyond?

A: Yes. Listen, we can speculate for what others are doing. I mean we try to manage what we can control. As you heard in the prepared remarks, I mean we are in the process of shutting down one of our plants in Kershaw. And I think we continue to see -- continue to check for the competitiveness of our plants. We have a lot of self-help agenda to try to continue to improve that. Volumes have been improving there on an unplanned nature. Of course, the industry will take some plant shutdowns when demand is not there. We have seen it also in biodiesel where a lot of the nonintegrated plants have to go down. I think it's important to know that all these capacity, the crush capacity has been brought to comply with the expected RVO mandates, and that's what we think is so important to bring clarity into that because we were in the process of building a renewable green diesel industry and everybody built in anticipation of that supporting U.S. manufacturing. So I think it's important that at the moment we clarify the rules, all this capacity that has been invested in will make sense.

Q: Good morning. And thanks for taking my question. I wanted to ask on Argentina, cited as a headwind for crush in the quarter. But we've been kind of seeing some headlines that farmer selling there is off to a historically slow start. So maybe you could just put a finer point around what you've assumed for the commercialization of that crop for the balance of the year as it relates to the guidance?

A: Yes, Steven. In Argentina, the farmer basically kept about 7 million tons of the old crop waiting for the valuation that in reality did not happen. So I would say, you should expect now the farmer to become a little bit more regular commercializer of the crop as they need to take advantage of the tax advantages they get from the government before they expire in about two months. So I think you're going to see a little bit of an acceleration. But yes, as an Argentine farmer myself, we withheld about 7 million tons of this expecting a devaluation that didn't come.

Q: Hi. Good morning. Thank you so much. So my question is on Starches and Sweeteners. Could you comment what volume growth was for S&S in the quarter? And more importantly, what volume growth you expect for the full year? I heard you say you're seeing some weakness in some customer demand and adjusted volume outlook because of that. So any thoughts on volume growth as we think about 2025?

A: Yes. Thank you for the question, Tami. Listen, when I think about the overall Carb Solutions business, and we have said our guidance was slightly lower than last year, and we are reiterating that guidance. We see, in general, solid demand, solid volumes and margins across the business. There are some pockets of weakness here or there. One, our results in Europe, are going to be a little bit lower because we have higher corn costs in Europe and a little bit lower volumes. And there is some weakness in Starches in either the paper industry, maybe not running in all cylinders, and some of the exports to Mexico with all this uncertainty about tariffs or no tariffs, I think that maybe some of the exports from the U.S. to Mexico has been a little bit soft in March, maybe picking up a little bit in April. So I would say the overall tone is in general solid but not very robust, if you will.

Q: Yes. Good morning. I want to ask about a couple a couple of things that -- to clarify a couple of things about your Q1 earnings and the outlook. In VCP, firstly, you had some pretty solid operating income, even though AS&O margins by calculations were at multiyear lows. So how was it so much better both year-on-year and quarter-on-quarter? And how should we think about it for the rest of the year? And similarly, on Nutrition, I think the Q1 guidance was for a 50% drop year-on-year and said you delivered 13% growth. So what was the difference versus expectations? And does this mean that the full year directional guidance that you reiterated now implies much stronger earnings growth than before?

A: Yes. Thank you, Salvator. So let me take that by pieces. So on the ethanol side, as you pointed out, I think our team outperformed the markets and the industry. I think it was good risk management by the team. So, kudos to the team. In general, we see, hopefully, margins improving over the year for ethanol. But ethanol in this environment is a little bit of a question mark. We believe that ethanol could potentially see some benefits from higher exports as some of these trade agreements get resolved, because there are opportunities as a very cheap oxygenate for ethanol to make it into blends around the world. When we think about Nutrition, I think we've been highlighting that we've been doing a lot of foundational improvements in Nutrition. And at one point in time, they start to come into the P&L. So we started to see the fruits of some of these improvements. I think that our value proposition continues to resonate strongly in the Flavor area, in the Health & Wellness area, especially Health & Wellness, a lot of the biotics coming into play. They do very well there. I think we have had a lot of successes or we are working a lot in terms of things like Ag replacement or Ag extension, data replacement, Beverage industry continues to favor some of our solutions. And we have seen a lot of activity and requests for our line of natural colors. And we see our teams engaging with our customers on that. So it was purely driven by the improvement in Flavors, the strength in Health & Wellness and also improvements in Animal Nutrition. Animal Nutrition, although not a revenue growth story, it's a margin improvement story, and the team has been working hard at that. And we started to see the improvements to that as well. Of course, Specialty Ingredients has been the downside of Nutrition and the headwind, and we have been to report that finally, the East plant is being commissioned right now. So it's starting to operate. And we expect that to be a positive year-over-year for the second half of the year if the plant gets to full capacity.

Q: Good morning guys. I just wanted to confirm, Decatur would be fully restarted by the second quarter. So should we assume some contribution for the second quarter? Or should we assume the contribution starting in second half? And remind us of all the benefits for the company once this plant is fully up and running and operational.

A: Yes, Manav. I think you should consider, given that it is a very complex plant that the impact will be in the second half of the year. So the plant is ramping up capacity right now, but effectively, it will impact the P&L in the second half. And we have said before, the impact of this plant being down was about $25 million per quarter for Nutrition, so that's kind of the expectation for the second half of the year.