ADM
#Good morning, everyone
Slide 4 provides some financial highlights for the quarter
Adjusted EPS for the quarter was $0.45, down from the $0.59 in the prior-year quarter
Excluding specified items, adjusted segment operating profit was $541 million, down $109 million from the year-ago quarter
The effective tax rate for the third quarter was 13%, compared to our forecasted annual tax rate of approximately 28%, due primarily to the effect of certain favorable discrete items, including return to provision and a favorable outcome of a tax position related to an acquisition, partially offset by changes in the forecasted geographic mix of pre-tax earnings and shift to higher tax jurisdictions
Our trailing four-quarter-average ROIC of 6.4% is 60 basis points higher than the same period last year and 40 basis points above our 2017 annual WACC of 6.0%, thus generating positive EVA of $98 million on a four-quarter-trailing-average basis
On chart 18 in the appendix, you can see the reconciliation of our reported quarterly earnings of $0.34 per share to the adjusted earnings of $0.45 per share
For this quarter, we had $0.12 per share charge related to asset impairments and restructuring activities, and a $0.02 per share net gain on the sales of assets and businesses, and a $0.01 per share loss on debt extinguishment
Slide 5 provides an operating profit summary and the components of our corporate line
Before <UNK> discusses the operating results, I'd like to highlight some of the corporate items affecting our quarterly results
In the corporate line, net interest expense was relatively flat at $72 million versus last year
Looking ahead, we're continuing to project net interest expense of approximately $320 million for the full-year 2017, consistent with what we indicated at the beginning of the year
Unallocated corporate costs of $109 million were up slightly versus the prior year and below our $140 million per quarter guidance for fiscal year 2017 on lower spending for special projects and reduced employment and benefit costs
Minority interest and other charges increased by $9 million
Turning to our cash flow statement for the first six months – first nine months on slide 6, we generated $1.6 billion from operations before working capital changes, similar to the prior year
We had favorable changes in the working capital of a bit over $500 million
Total capital spending was about $700 million
Our current expectation for fiscal year 2017 is capital spending of approximately $1 billion
Acquisitions to-date of $187 million were primarily related to Crosswind Industries, a pet treat manufacturer; and Chamtor, a French producer of wheat-based sweeteners and starches
We spent almost $700 million to repurchase shares, and including dividends, we returned $1.2 billion of capital to shareholders in the first nine months
Our average share count for the quarter was 569 million diluted shares outstanding, down 20 million from the same period one year ago
At the end of the quarter, we had 566 million shares outstanding on a fully diluted basis
Slide 7 shows the highlights of our balance sheet as of September 30. Our balance sheet remains solid
Our operating working capital of $7.2 billion was down slightly from a year-ago period
Total debt was about $7.3 billion, resulting in a net debt balance, that is debt less cash, of $6.6 billion
Our leverage position remains comfortable with a net debt to total capital ratio of about 27%
Our shareholders' equity of $17.6 billion was similar to the level last year
We had $4.8 billion available global credit capacity at the end of June
If you add available cash, we'd access to $5.6 billion of short-term liquidity
Next, <UNK>, will take us through a review of business performance
Good morning, <UNK>
Good morning, <UNK>
Good morning, Ken
Ken, it's <UNK> here
I mean, clearly, there is capacity coming online, but that's also a little bit of recognition that there is global protein growth around the world
I mean, you look at the trends, like 4% to 5% growth in terms of meal demand and protein demand
From our perspective, I mean, some of the recent – the quarter's results, they've been impacted by other factors
I mean, clearly, when we take a look at our results in Q3, for Oilseeds, we've seen that as an example, a lot of pressure in terms of the South American crop, impacting particularly the European operations
A lot of meal actually from Argentina went over to Europe and actually caused us to have one of our lowest quarters from a crush perspective over in Europe
We actually think that, over time, will equalize itself
We actually think production levels will adjust in order to take that into account
We've also seen, for example, on the Oilseeds results, part of it is just due to the simply South American origination
We actually entered the third quarter be more optimistic, regarding farmer commercialization
In fact, at the time of the last earnings call, we're actually seeing some good movements in terms of the crops
But what happened was the currency actually moved the other way as we moved through August, and then the farmers actually just really slowed down commercialization
And that really resulted in our South America results being a lot lower than what we had thought
We also – in the case of Wilmar, I mean, they had a good quarter, but it's clearly below our own internal expectations, and it was about a $35 million impact versus our own internal expectations
So I think, Ken, when we look at the quarter, I think that there's certain factors that clearly impacted us
It doesn't really change our longer-term perspective on oilseeds, which is really demand continues to be robust for protein
We're seeing China continue to be very, very strong in terms of demand side
We do believe that while there are some capacity additions, we actually think that's going to be limited in some respects as the market really adjust to the crush margin levels
And I think we actually get to a level whereby there's going to be a better balance and we're going to see industry margins actually recover in the crush business
Yeah
I mean in Mexico as you probably have heard for – the government is actually looking towards introducing more ethanol into the market
There's about three cities that they're not looking to put it right now, but outside those three cities, they're looking actually to actually bring in additional ethanol blends up to 10% in those areas there
So, we're rather encouraged that we should see incremental growth in that area
I know there has been some talk regarding some injunctions out there, but we think that's going to get sorted out
We do believe, for example, Mexico, is one of these markets whereby vehicle sales will continue to grow
And so, basically, consumption is going to grow in Mexico, and given the pollution considerations in Mexico, we believe ethanol is actually a fairly clean fuel that will actually help them address some of their pollution issues
I think it's about a couple hundred million gallons
I mean, I think that's what we're thinking about right now
Morning, <UNK>
Well, I just think that with the RVOs, I mean we're talking about, again, 15 billion gallons in the case of ethanol here
We're seeing the U.S
It continues to grow, albeit at a slower rate, but it continues to grow
On the export side, looking at next year, we're probably looking for some modest growth versus, say, the 1.3 billion gallons that we're seeing this year, 2017. So we could be up to about 1.4 billion gallons
And then there's upside, in terms of some other markets that will develop, such as Mexico
And as <UNK> even indicated, in the case of China, they may decide to open up bringing in ethanol as opposed to growing corn using their water in order to make their own ethanol
So like over time, we do see total demand for U.S
ethanol continue to move up over the medium term compared to kind of where we are at this point in time
I mean, I think that, again, looking at domestic gasoline demand, currently about 14.4 billion gallon in terms of the ethanol blend, that's probably going to move up to 14.6 billion gallons next year
So therefore, I mean, the demand side is moving up towards the 15 billion gallon level, which would be the mandate in 2018. So, we do believe that there is growth in the domestic market
It will be approaching the 15 billion gallon
It'll necessarily need to have like some of the biodiesel in order to trying to meet that particular – those RVOs there
Good morning, <UNK>
So, just maybe some perspectives on the third quarter
First of all, you're right
I mean, it's actually a favorable environment for us to have ownership
And when you actually take a look at our inventory levels, they actually went up
So, we actually did have good ownership in order to take advantage of carries
Now, our total working capital did not go up because we actually managed the rest of the working capital, and some receivables and payables very, very effectively to offset the increase in terms of ownership that we had on the inventory side
The other aspects of Ag Services in the third quarter was – I mean, clearly it was below our expectation and part of it's just due to the fact that just handling volumes were actually down during the quarter versus our initial expectations
In fact, handling volumes were about down 20% versus where we thought we would be
And with lower volumes that had impact on our margins
And so, our average margins versus where we thought we would be were about 50% lower in the U.S
because a lot of it is volume-driven
The other factor is like in global trade
I mean, we had a very good quarter in global trade, but we kind of had a one-off item here in the sense that we had some hedges on some Black Sea sales on both corn and wheat
We hedged it off some North American exchanges and there was kind of like a lack of correlation between the hedge and the underlying movement
And that was about like – that was over $20 million impact for us, which is within the quarter here
So, but as we kind of look forward, we do have good ownership, there are carries in the market
We know our volumes are going to be moving up in the fourth quarter, both in terms of soybean handling and even in the case of corn, we're actually starting to see U.S
corn becoming more competitive in December now
So that's going to be a positive story for us and that's what gives us more confidence
And frankly, we also have more visibility in terms of our look, looking into the last two months of this year than we had in terms of visibility of looking into August and September at the time of our second quarter earnings call
So that's what gives us more confidence in terms of Ag Services for our fourth quarter in terms of an improvement versus kind of what we're seeing right now
I mean, looking at 2018, again it's still early into 2018, but we do believe that our strong ownership position will carry into the new year
And frankly, we're still seeing great global demand
And so that should translate into some good numbers
We're seeing stocks-to-use ratios maybe stabilizing, maybe coming down
So, that could also point towards the situation where the markets may actually start normalizing a little bit and provide us with more opportunities in order to merchandise
