ADM
#Thanks, <UNK>
Slide 4 provides some financial highlights for the quarter
Adjusted EPS for the quarter was $0.60, up from the $0.42 last year
Excluding specified items, adjusted segment operating profit was $678 million, up $105 million from the year-ago quarter
The effective tax rate for the first quarter was 26% compared to 25% in the first quarter of the prior year
The slight increase in our tax rate is primarily due to the expiration of U.S
tax credits including the biodiesel tax credit, partially offset by changes in the forecast geographic mix of earnings
Our trailing four-quarter-average adjusted ROIC of 6.4% is unchanged from the end of the first quarter last year
Our ROIC has continued to improve for the third consecutive quarter following the challenging operating conditions that we experienced during the first half of 2016. For 2017, we have established our annual weighted average cost of capital at 6.0% following a detailed review of interest rates, equity risk premiums and betas in our cost of capital model
Similarly, our long-term WACC has been updated to 7.0% based upon our review of assumptions and benchmarks
On chart 18 in the appendix, you can see the reconciliation of a, reported quarterly earnings of $0.59 per share to the adjusted earnings of $0.60 per share
For this quarter, we had a $0.01 per share charge related to asset impairments and restructurings; a $0.01 per share LIFO gain; and certain discrete tax items of $0.01 per share
Slide 5 provides an operating profit summary and the components of our corporate line
In Ag Services, we had approximately $7 million in impairment and restructuring charges primarily related to our restructuring efforts in the global trade desk
In Corn and Oilseeds, we had small impairments and restructuring charges
In the Corporate Lines, net interest expense was up approximately $11 million due to higher short-term interest rates and our overall mix of short- and long-term debt the following the issuance of new fixed rate debt in August of last year
Unallocated corporate of $132 million was up versus the prior year due to a higher people cost, including benefit accruals as well as our increased investments in innovation, IT and business transformation, yet modestly below our $140 million per quarter guidance for fiscal year 2017 that we provided at the last earnings call
Minority interest and other charges improved to $20 million, primarily due to improved results from our equity investment in CIP
Turning to the cash flow statement on slide 6, we generate about $508 million from operations before working capital changes during the period, down slightly from the prior-year period
Total capital spending for the period was $200 million, about similar to the prior year
Acquisitions of $90 million in the first quarter were primarily related to Crosswind Industries, a pet treat manufacturer
The other investing activities line up the cash flow statement includes the incremental investments we made in Wilmar, bringing our total ownership stake to approximately 24.3%
During the quarter, we spent about $248 million to repurchase shares, consistent with our prior guidance of $1 billion to $1.5 billion for the year subject to strategic capital requirements
Our average share count for the quarter is 579 million diluted shares outstanding, down 18 million from the time one year ago
At the end of the quarter, we had 577 million shares outstanding on a fully diluted basis
Our total return of capital to shareholders, including dividends, was more than $400 million for the quarter
Slide 7 shows the highlights of our balance sheet as of March 31, 2017, and March 31, 2016. In summary, our balance sheet remains strong
Our operating working capital of $7.4 billion was down $280 million from the year-ago period
Total debt was $7.2 billion, resulting in a net debt balance that is debt less cash of $6.5 billion
Our leverage position remains comfortable with a net debt-to-total capital ratio of about 27%
Our shareholders' equity of $17.1 billion was slightly down from the $17.9 billion level last year, due to returns of capital and changes in the cumulative translation account
We had $5.1 billion global credit capacity at the end of March
If you add available cash, we had access to $5.8 billion of short-term liquidity
Next, <UNK> will take us through a review of business performance
Good morning, <UNK>
Good morning, <UNK>
<UNK>, if you recall last year, 2016, two major factors dragged down Oilseeds results
One, the Wilmar equity earnings; and two, the lack of volumes in South America in terms of origination
Now, those two factors, as we look into 2017, should not be negative factors
And you've seen the strength in terms of the Wilmar equity earnings that translate into our results in the first quarter
And then with the large crop in Brazil, particularly what's expected to be a significantly improved corn crop, origination volumes in South America should be significantly higher, which will contribute towards an overall positive delta in 2017 versus 2016. So again, we expect 2017 to be a lot better than 2016. Again, we don't expect it to approach the 2015 levels
But nevertheless, 2017 for Oilseeds will be a far better year than 2016.
Morning, <UNK>
I think 1 million tonnes
Yeah, and we are seeing this year an extra 10%, that's as of first quarter growing
So that's kind of the pace, if you will
To the extent that it's adding cost, it's adding cost that is included in this $8 to $10 per tonne
So we shouldn't double-count that extra cost, I will say
So I think you should think about adding earnings from the destination marketing volume that is growing and hopefully picking up something like $6 per tonne versus our original FOB trade
And then you have another source of earnings, which is a slight reduction of structural cost in the global trade desk as we improve our footprint there, as we optimize our footprint there
So those will be basically the two numbers you keep in your head
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
Morning
Good morning, <UNK>
<UNK>, we've reviewed basically the underlying cost of capital model over the past several quarters
And so, we took a hard look at long-term interest rates, equity risk premiums, betas in our model
If you recall, when we established the 8% long-term WACC, that was done back in 2012, 2013, and looking back historically over 20 years
And so, some of those assumptions, frankly, were outdated as we kind of look through these assumptions, we did some benchmarking
And so, once we kind of update our model for, like long-term interest rates, recent long-term interest rates, recent equity risk premiums, we determined that it made sense to update the long-term WACC to 7% from 8%
And a big driver of that was really equity risk premiums, which have come down over time
In terms of what it means, our long-term objective still remains 200 basis points over long-term WACC
So, that – the spread has not changed in terms of how we're targeting the organization for results
In terms of your comment on Ag Services, I mean, naturally, when we set projects and when we look at projects that we're evaluating across all the businesses; there's clearly a spread above even the 200 basis points over the long-term WACC
So, our hurdle rates remain significantly higher in the double-digit areas
And we, frankly – we are not going to really adjust those hurdle rates because, we still believe it makes sense to really drive all the businesses to achieve strong earnings and strong returns
But at least from our perspective, as we kind of think about longer term, what makes sense for our company over a cycle, we do believe like 7%-plus the 200 basis points spread gets you to 9% that over a cycle, we should be achieving about a 9% type of return for this company
No, we haven't changed our assessment in terms of long-term earnings for the company
And so from our perspective, we still believe that it is important for us to kind of drive this 200 basis point spread over our long-term cost of capital
Good morning, Ken
Yeah, a significant part of the increase in terms of unallocated corporate on the management line is related to our investments in IT, the business transformation and R&D and innovation
We've indicated that these are – we view those as related investments
Although again from a GAAP perspective, we classify that as expense
But it's a fairly significant investment
I mean, as you are going to appreciate, one of our priorities is to improve our business processes
And so, we launched this program a couple years ago
And frankly, the run rate of spending as we head into 2017 is actually a fairly significant run rate right now in terms of investments
And so, I think, Rob, that this is actually a very, very important part in terms of our commitment, our investments, in terms of making this company better, particularly in the area of processes
In the area of innovation, frankly, for a company our size, we were under spending in terms of R&D and innovation
And I think what we're doing right now is actually devoting the more of our spending in that area
So WILD Flavors acquisition was actually very, very important because from that acquisition, we actually acquired a lot of innovation centers around the world
And that type of expense actually goes into this line called unallocated corporate as well
When you actually take a look at what I call core central staff costs, and when I say core, I mean this is excluding IT, excluding business transformation, excluding R&D
Our core central staff costs actually are still running at what we call the 2012 levels
I mean, if you recall back in 2012, we went through a restructuring of our central staffs
And so we've actually set our budgets and our cost plans based upon ensuring that our, what I call core central staffs, do not exceed the 2012 levels
And, so, I think it's important to kind of understand that in what I call like true corporate central staff cost, like the functions themselves, like accounting and HR, et cetera, et cetera, we've actually kept a lid on all those costs, where as we have we actually spent more money in terms what I call investments, particularly in business transformation, R&D and innovation
That's where we've seen the increase in
And we think that this is important for this company to make these types of investments at this point in time in order to allow us to be a better company in the future
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Thanks for the color <UNK>
And the $50 million in run-rate cost savings that you highlight; is that net of this incremental spending in any way or is it just kind of a separate metric?
That's separate
I mean, that's really related to our operational excellence initiatives there
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Thank you
