ADM reported financial results for the quarter ended March 31, 2020, showing net earnings for Q1 2020 was $391 million, up from $234 in Q1 2019. First-quarter adjusted earnings per share was $0.64, up from $0.41 in Q1 2019.
“I’m extremely grateful to our 38,000 global colleagues, whose commitment, ingenuity and agility are powering ADM as we support the global food supply chain and provide nutrition around the world,” said Chairman and CEO Juan Luciano. “Our performance is a testament to the resilience of our people, the strength of our business model, and the breadth and depth of our capabilities to fulfill customer needs, even in a market environment that is changing rapidly due to the COVID-19 pandemic."
Luciano said the company’s first priority is supporting its colleagues.
“We’ve put into place detailed guidelines and protocols to help protect our teams and support continuity of operations, and I’m proud that we are operating around the globe with very minimal disruptions,” he relayed. “We’ve also taken steps to bolster our already strong balance sheet and liquidity position to further enhance our ability to run our business.”
Even amid the challenge of COVID-19, Luciano said the ADM team is doing a great job advancing work to make ADM a better company.
“From improving underperforming businesses, to driving readiness, to harvesting our investments — particularly in nutrition — we remain committed to delivering our strategy and focusing on the business drivers under our control. There are many unknowns, and ADM isn’t immune from some of the negative effects of this pandemic, but we are confident in the ability of our great team to shift to whatever our customers need and continue to deliver nutrition around the globe.”
Ag Services & Oilseeds delivered strong results that were in line with the year-ago period.
- Ag Services results more than doubled versus the first quarter of 2019, which was negatively impacted by high water conditions in North America. Global trade performance was driven by strong results in destination marketing and structured trade finance. Robust farmer selling in Brazil drove higher year-over-year origination volumes and margins, which were partially offset by weaker results in North America.
- Crushing results were lower than the prior-year-period. Volumes were strong, and execution margins were solid, though below the high realized margins in the first quarter of 2019, which benefited from the short crop in Argentina. The prior-year quarter also benefited from about $75 million of positive timing impacts.
- Refined Products and Other results were higher than the first quarter of 2019. Higher margins in both biodiesel and refined oils in North America were offset by lower biodiesel margins in EMEAI. Peanut shelling results were significantly improved versus the prior-year period.
- Wilmar results were significantly higher year over year.
Carbohydrate Solutions results were lower than the first quarter of 2019.
- The Starches and Sweeteners subsegment, including wet mill ethanol results, was down year over year, largely due to about $50 million in negative mark to market impacts on forward sales of corn oil, much of which could reverse over the balance of the year. Absent those impacts, results were higher due to better operating performance at the Decatur complex, strong results in wheat milling, and improved conditions in EMEAI.
- Vantage Corn Processors results were slightly higher than the prior year. Effective risk management, combined with the lack of the severe weather impacts seen in the first quarter of 2019, helped offset weak industry ethanol margins caused by significantly decreased demand.
Nutrition results were once again substantially higher year over year.
- Human Nutrition businesses, including flavors, specialty ingredients and health & wellness, delivered strong performance and growth across the broad portfolio. Increased sales revenue in North America and EMEAI flavors, continued sales growth in alternative proteins, and additional bioactives income helped drive improved results.
- Animal Nutrition continued its growth trajectory. Improved year-over-year results were driven by a strong performance from Neovia, good volumes and margins in feed additives, and solid sales in pet care. Amino acids were negatively impacted by a year-over-year decline in the global pricing environment.
Other Business results were down year over year. Futures commission loss provisions were partially offset by improvements in captive insurance operations.
Luciano addressed the current state of the world due to the COVID-19 pandemic.
“With major western economies shut down. We are encouraged by the actions many nations are taking to contain the spread of COVID-19 and enabled an eventual recovery. How that recovery unfolds where and at what pace is something we'll be monitoring very carefully.”
While precise predictions are difficult, he said there are a few ways we can categorize some of the market impacts.
He explained that the company saw short term acceleration in demand for certain products, such a flour, or stapled packaged goods that provide flavors and ingredients for consumers loading their pantries in advance to stay-at-home orders.
“Many of these products have reached or will reach saturation point and we expect demand to normalize.”
From there, he said products that have been impacted include refined oils, or food service, as well as biofuels like ethanol and biodiesel.
“As you know, we've made the difficult decision last week to idle two of our dry mills amid continued low gasoline demand. We would expect to see some of these demand build back in as economies reopen, though there will be a significant variability depending on when and how those re-openings occur.”
Volatility in margin environments for certain commodity products has also been issue, he said, “as markets constantly reevaluate global supply and demand balances due to a variety of factors.”
The company continues to monitor “one key element”: The Phase 1 trade agreement with China.
“We've seen good buying of U.S. agricultural products by China so far this year, which could bode well for future purchases in the back half of the year.”
Equally as importantly, Luciano said, is the company’s global footprint that “gives us continued confidence in our ability to support global trade flows of food and agricultural products.”
There are changing behaviors as a result of the pandemic that may have longer term impacts, according to Luciano.
“For example, in the food market we are seeing a back-to-basics approach, desire for comfort foods, snacks and staple goods, while consumers are staying home. We're seeing consumers increasing their purchases online, which impacts the demand for industrial starches used to make cardboard. And we are seeing an increase in interest in products that support health and wellness.”
Overall, he said there are many unknowns.
“What we do know, however, is that the transformation that ADM has undertaken over the last several years is now helping ensure that we're well equipped to pivot to whatever our customers require and whatever the world needs. We built up our product portfolio, our footprint, our innovation and our agility.”