Q4 2020 Archer-Daniels-Midland Co Earnings Call

January 26, 2021

All lines have been placed on a listen only mode to prevent background noise.

As a reminder, this conference call is being recorded.

I'd now like to introduce your host for today's call Victoria, Delaware, OCA, Vice President Investor Relations for ADM must Delaware co you may begin.

Thank you Shelby good morning, and welcome to Adm's fourth quarter earnings webcast, starting tomorrow, a replay of today's webcast will be available at ADM Dot com.

For those following the presentation. Please turn to slide to the company's Safe Harbor statement, which says that some of our comments and materials constitute forward looking statements that reflect management's current views and estimates for future economic circumstances.

Industry conditions and company performance and financial results.

These statements and materials are based on many assumptions and factors that are subject to risks and uncertainties.

ADM has provided additional information and its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those and this presentation and you should carefully review the assumptions and factors in our SEC report.

To the extent permitted under applicable law ADM assumes no obligation to update any forward looking statements as a result of new information or future events.

On today's webcast, our chairman and Chief Executive Officer, Juan Luciano will provide an overview of the quarter and the year and highlight some of our accomplishments from 2020.

Our Chief Financial Officer, Ray Young will review financial highlights and corporate results as well as the drivers of our performance.

Then Juan will make some final comments after which they will take your questions.

Please turn to slide three I will now turn the call over to Juan.

Thank you Victoria.

This morning, we reported fourth quarter adjusted earnings per share and $1 21.

Up 49% year over year, if we exclude the priority of input did withdraw the biodiesel tax credit.

Adjusted segment operating profit was $1.15 billion, 12% higher than the fourth quarter two 2019.

For the full year, we delivered reported adjusted EPS of $3 59.

Three point for $1 billion, and adjusted segment in Alberta, and brokerage and 12% higher than 2018.

For two straight quarters of year over year segment operating profit growth.

And trailing four quarters adjusted ROIC of.

Seven 7% bold.

Almost 200 basis points above our weighted cost of capital.

We maintained our strong balance sheet and generating strong cash flows.

The team and why what are you took risks superbly.

And we have achieved our strategic initiatives.

Seeding, our $500 million to $600 million guidance and driving our ability to deliver steady sustainable earnings growth.

I'd like to thank our team for this tremendous performance.

I will highlight for you some of our many achievements in 2002 and.

And our optimized pillar.

Around the globe, Amit Lockdowns rapidly shifting demand patterns and extreme weather events.

Our colleagues fulfill our purpose by adapting and innovating to keep our wear to work and vitamins and safe from COVID-19.

Maintaining our operations to support the global crude value chain.

And delivering for our customers to provide nutrition around the world.

Beyond that for.

For the year, our AG services, and oilseeds team delivered more than $300 million and capital reduction initiatives.

And we are focusing on new ways to enhance the return structure of that business from digital technologies like our grain bridge joint venture to differentiated products and services that that share volume for growers customers and ADM.

Yes.

And our drive pillar.

Our new organizational structures and business processes like our centers of excellence and our one ADM business transformation project are helping drive better decision, making and operational excellence.

We continued our work to support our planet and its natural resources.

We achieved our 15 by Gilenya environmental goals ahead of scheduled and.

And launched strive for 35, and even more ambitious plan to reduce greenhouse gas emissions energy water and waste by 2035.

And we're partnering with farmers and their efforts to for better outcomes supported by the $6 5 million acres, we had and sustainable farming programs over recent years.

And our growth pillar.

Our nutrition team exceeded our Neil will be a synergy targets and deliver to them ahead of schedule.

We expanded our plant based protein capabilities and.

<unk> and the launch of our plant plus foods joint venture.

And amid and incredibly dynamic demand environment, we utilize new innovative technologies and continue to launch new products to ensure we are meeting our customers' needs.

Our carbohydrate solutions colleagues move quickly to meet changing customer needs for retail flower industrial starches for Carnival and USP grade alcohol for hand sanitizer.

And the ADM team show its innovative spirit by partnering and supporting companies that are making food out of air spy.

Spider silk out of corn and animal feed out of insight.

Finally, and.

And I'm proud to say, we surpassed by about 10% our stretch goal of $1 $3 billion and readiness run rate benefits by the end of the year.

Readiness is driving our strategic initiatives.

Willing us to be more efficient and powering our growth.

Perhaps most importantly today, we can say that readiness is truly embedded in our culture is how we work.

Thanks to this impressive achievement and I'm pleased to announce a quarterly dividend increase of two 8% to <unk> 37 per quarter.

This dividend will be awarded 357th consecutive quarterly payment and.

And then interrupted record of 89 years.

It's been a remarkable year with achievements and results that truly demonstrates the strategic work, we've been doing over the years to optimize drive and grow.

Even more important is how we are building for the future.

We've created and and now we're strengthening the strategic foundation to deliver a steady sustained earnings growth for years to come.

I'll be talking about that shortly but first let me turn the call over to Ray.

Take us through our business performance great Yeah, Thanks, Juan and good morning, everyone. Please turn to slide number four.

As Juan mentioned adjusted EPS for the quarter was $1 21 down from $1 42, and the prior year quarter. As a reminder, the fourth quarter of last year was positively impacted by the recognition of about 61.

Per share for the retroactive biodiesel tax credits.

Absent this earnings would have grown by about 49%.

Our trailing four quarter average adjusted ROIC was seven 7% almost 200 basis points higher than our 2020 annual black.

And our trailing four quarter adjusted EBITDA was about $3 $7 billion.

The effective tax rate for the fourth quarter of 2020 was approximately 8% compared to a benefit of 1% and the prior year.

The calendar year 2020 effective tax rate was approximately 5% down from the approximately 13% and 2019.

The decrease and the effective tax rate for the calendar was due primarily to changes and the geographic mix of earnings and the impact of U S tax credits, mainly the railroads tax credits, which have and offsetting expense and the cost of products sold.

Absent the effect of EPS adjusting items, the effective tax rate for the fourth quarter was approximately 11%.

And for the calendar year 2020 was approximately 9%.

Looking ahead, we're expecting full year 2021 effective tax rate to be and the range of 14% to 16%.

We generate about $3 $1 billion of cash from operations before working capital for the year significantly higher than 2019.

Return of capital for the year was $942 million <unk>.

Including more than 800 million from dividends.

We finished the quarter with a net debt to total capital ratio of about 32% up from the 29% a year ago due to higher working capital needs due to rising commodity prices.

Capital spending for the year was about $820 million in line with our guidance and well below our depreciation and amortization and rate of about $1 billion.

For 2021, we expect capital spending to be and a range of $900 million to $1 billion.

Slide five please.

Other business results were substantially lower than the prior year quarter.

ADM Investor services earnings were impacted by drastically lower short term interest rates.

Captive insurance results were negatively impacted by $15 million more and net intercompany settlements compared to the prior year quarter.

For 2021, we expect other business and results to be in line with 2020.

In the corporate lines unallocated corporate costs of $278 million were higher year over year due primarily to increased variable performance related compensation expense accruals.

Increased.

And project related expenses.

And centralization of certain costs, including from the <unk>.

Other charges decreased due to lower ROE maintenance expenses, partially offset by the absence of prior year investment gains.

For 2021, corporate unallocated should be overall similar to 2020.

Net interest expense for the quarter was lower than last year due to lower short term interest rates and liability management actions taken in 2020.

For 2021, we expect net interest expense for the calendar year to be similar to or slightly lower than 2020.

Slide six please.

The AG services and oilseeds team capped off an outstanding year with record adjusted operating profit in the fourth quarter.

AG services routes were significantly higher year over year.

In North America, the team executed extremely well capitalizing on strong global demand, particularly from China to deliver higher export volumes and margins.

South American origination was lower year over year after significantly accelerated farmer selling and the first half of 2020.

Global trade continued to do a great job contributing to higher results by utilizing its global reach and managing risk well to meet customer demand.

Approximately $80 million of prior timing effects reversed in the quarter as expected.

Crushing also delivered substantially higher results versus the prior year period.

The business did a great job to capture higher margins and a continued environment of tight soybean supply and strong global demand for both meal and vegetable oils.

There was approximately $125 million and net negative timing in the quarter driven by basis impacts and improved soft seed margins.

Refined products and other results were higher year over year absent the recognition of the retroactive biodiesel tax credit and the fourth quarter of last year with good results driven primarily by solid South American margins.

<unk> strong performance drove our equity earnings higher versus the prior year, despite our slightly lower ownership stake.

For the full year AG services, and oilseeds delivered exceptional results of $2 1 billion, 9% higher than 2019.

The <unk> team achieved multiple records, including an all time high global crush volumes and.

In addition, we're proud of the team that brought our reserve export facility back online safely and ahead of schedule despite dealing with multiple severe weather events. This year.

Looking ahead, we expect the first quarter of 2021 results for AG services, and all seeds to be significantly higher than the prior year first quarter.

Driven by extremely strong North American export demand and continued healthy crush margins.

Slide seven please.

And.

The carbohydrate solutions team again delivered substantially higher year over year results. Despite the impacts of Lockdowns in key market segments.

The starches and sweeteners subsegment achieved significantly higher results driven by lower net corn costs and intra company insurance settlement.

Earnings were partially offset by lower results from corn oil and wet mill ethanol margins.

Vantage corn processors results were also better versus the prior year Bill day continues to reflect the challenging ethanol industry environment.

The team delivered higher year over year margins is the met increased demand for USP grade alcohol, partially offset by fixed cost from the two temporarily idled dry mills.

Considering the impact of Lockdowns, and both driving miles and the foodservice sector. We're extremely proud of our carbohydrate solutions team for delivering full year results of $717 million, 11% higher than 2019.

The team achieved record high operating profits from starches and the year.

The acted decisively by temporary idling production at our two BCP dry mill plants, helping address industry supply and demand balances.

And our wheat milling businesses modernization and optimization plan, including a new state of the art mill in Mendota, Illinois.

Power is significantly improvement over full year 2019 for that business.

Looking ahead, we expect carbohydrate solutions results and the first quarter to be significantly higher than last year's first quarter, which was negatively impacted by corn oil mark to market impacts.

But below the fourth quarter of 2020 levels due to the challenged industry ethanol margins.

Slide eight please.

The nutrition team delivered 24% year over year growth and the quarter and.

And human nutrition flavors delivered a strong quarter driven by good sales and product mix and North America.

And EMEA.

Continued strength and plant proteins drove higher results and specialty ingredients.

Health and wellness delivered higher sales and probiotics and natural health and nutrition.

Prior year results included revenue and income related to the launch of the strategic fiber relationship.

Human nutrition results for the quarter also included and intra company insurance settlement.

Animal nutrition results were significantly higher year over year, driven by strong performances in Asia and EMEA.

And improvements and amino acid results.

Partially offset by currency effects and Latin America.

We're continuing to make improvements in our amino acid business, including our announcement last month that we're discontinuing dry lysine production and transitioning to our liquid and encapsulated products and the first half of this year.

For the full year nutrition results were $574 million.

And 37% higher than 2019.

And nutrition team grew revenue, 5% on a constant currency basis and continue to expand EBITDA margins.

We exceeded our <unk> synergy targets and delivered them ahead of schedule.

We are truly seeing the benefits of our investments in nutrition.

Looking ahead, we expect nutrition to solidly grow operating profits in 2021 calendar year.

But the first quarter should be similar to the prior year period due to the timing of certain expenses over the year, including investments and projects to drive organic growth.

With that let me turn it over to Juan to conclude one.

Thank you Ray slide nine please.

I'd like to congratulate the team once more and delivering great results and join you joining.

I'm proud of what we achieved and I'm excited to see our work and powered enough to reach even greater heights.

In 2020 AG services, and oilseeds capitalized and do some parallels and flexible global footprint to meet the strong demand and.

In 'twenty and 'twenty, one we expect our services and oilseeds strong execution.

And diverse and flexible crush capabilities, including an extensive soft seed footprint unimportant extra tissue work to continue to drive results.

In addition, we expect the global demand environment for AG services and oilseeds to remains strong.

China should continue to be a significant buyer we.

We see continued strong global growth and meal demand and.

And we expect increased demand for vegetable oils.

Due to recovery and cooking oils for foodservice and growth and demand for volume fuels, including renewable Green diesel.

That is why we are confident in another outstanding performance from our services and oilseeds and doing a 'twenty one.

Carbohydrate solutions is showing how we have embedded great execution into our operational structure and culture.

The team is doing a great job of strengthening their business by optimizing their plans and product mix.

And their ability to adjust production in 2020 to quickly meet changes in demand showed how those strategic efforts are paying off.

Now they are well positioned to use those same tools as the effect of Lockdowns and so on the foodservice and transportation and fuel sectors dissipates throughout 2021, we.

We expect solid profit growth for the year for carbohydrate solutions.

And attrition continued to harvest investments.

Leading consumer to growth trends areas and.

Partner with customers to bring innovative new products and solutions to market in 2020.

Based on our current organic growth plans.

We expect the nutrition team to delivered solid revenue expansion and and therapy and average 15% per annum operating profit growth consistent with our strategic plan.

Okay.

Our gross ADM, we are fulfilling our purpose and building on a foundation for steady sustainable earnings growth.

We are growing our leading and key trends areas include the improved security and health and wellness and sustainability.

Our continued advancements of readiness is benefiting the entire enterprise.

And we're making investments and exciting growth innovation and blood firms, which we'll be talking more about in the future.

In 2021, we will remain focus on the drivers under our control.

Adding incremental returns as we focus on organic growth.

Advancing operational excellence initiatives to maximize returns from equity business and nobody us.

And continuing to generate benefits from readiness.

With the strong execution of these strategic initiatives and improving market conditions as the year progresses.

We expect to build and a record 2020 with a strong growth and segment operating profit and and.

Another record year of EPS in 2021.

Yeah.

With that Shelby Please open the line for questions.

Certainly at this time, if you would like to ask a question you may do so by pressing star and the number one on your telephone keypad again that is star one if you would like to ask a question.

Your first question is from Michael <unk> of Cleveland Research.

Yes. Good morning, congratulations on a great quarter, just wanted to dig a little bit more into your thoughts on how U S. Crushing is going to play out throughout the year I understand <unk> is going to be really strong but are you worried about tightness and availability of soybeans as we move into the spring and summer and how are you sort of.

Turning your crushing business and case the market gets a little bit tighter.

Yes, Michael Thank you for the question good morning, listen we expect Gilenya to when you want to be a very very strong year for oilseeds and AG services.

And maybe with a different mix of earnings that we have and this year.

If you think about 'twenty 'twenty, one we're starting with the tailwind from 2020, so we're starting from a different and position.

And we're starting the year with improved global crush margins in Q1 versus Q1 last year.

So we see a year and which reflects a little bit lowered our capabilities, we see a strong still soybean crush but and exceptional.

And recovered after many years of softness in the soft seed crush and.

And I'd remind you that we have about 25% of our capacity and sources and we have about 15% of our capacity.

A shift and so thats a competitive advantage for ADM.

We see a strong demand for meal.

And we see also the <unk> story, playing out with good global demand and.

Prices that are today are about 20% higher than same time last year and.

And not only coming from food demand, but also from fuels.

And new.

The renewable and green diesel and capacity is having an impact.

Bean oil demand and margins and you know.

We think that that could be something about half a billion pounds per year. This year of extra demand. So so all in all we see diet.

Tight balances and we see a strong margin environment for the rest of the year.

Great and then just as a follow up.

And in your slide deck, you talked about.

Slide 13, having $295 million of cumulative crushed deferred time and gains is that all showing up and oilseed crush or is that across the whole portfolio and if you could give us any sort of.

Helpful. In terms of the cadence of when we might see that realized is it going to be primarily and <unk> or more evenly spread throughout the first half.

Yes, Michael It's Ray here, yes. So this is in the crush and part of the AG services and oilseeds.

As you as you pointed out we increased by $125 million in quarters, and now with a balanced about $295 million and timing effects, we expect that roughly half will get reversed and the first quarter based upon the book that we have right now.

And then the other half will be reversed over the second and third quarters.

And as we and actually we will see how prices move but this is our current expectations in terms of how we expect this to play out over the course of 'twenty one.

Thank you.

Your next question is from Adam Samuelson of Goldman Sachs.

Yes. Thank you good morning, everyone.

Good morning Ann.

So I guess my first question was going to be around.

The carbohydrate solutions business and I.

And then you talked about and.

Pathway for growth, there and understand and kind of especially in the first half of the year and there's some pretty easy comps in terms of capacity.

Capacity utilization and.

And with weak volumes on the on the Hfcs side, but help us think through some of the different pieces, there ethanol and the first half of this year looks to be in and a bit of a tougher spot obviously corn prices have moved up pretty pretty notably.

Just trying to think about some of the different moving pieces and help us how do we get to growth for that business and quite frankly.

Let me let me start here so just.

It's useful to kind of refer to also how they manage 'twenty and 'twenty right. Because 2020. When you think about businesses that have been most negatively impacted by COVID-19. The Carpe sold segment was the one most negatively impacted EPS in 2020 day grew earnings right. So what they did was they really managed Prague.

Product mix extremely well driving starches driving industrial alcohol <unk>.

And then manage the ethanol production and well and frankly had a positive impact on industry margins through the dialing actions and tool.

And what lot of people forget is.

We have and and international business, that's growing right. So we're expanding capacity over in Europe, and the European operations, almost doubled and profitability in 2020 compared to 2019 Big contributor there and and then the North America milling operations, the footprint optimization, and really paying off with 20% growth and profitability in 'twenty.

Versus 19, so when you think about 2021.

This playbook continues right. So number one we do expect.

Babelized nations in the North American Starches, and sweetener business as the beginnings of recovery and demand for certain products occur with the <unk>.

Dissipation of Lockdowns and <unk>.

Secondly, there continue to drive great product portfolio mix and so.

And particularly in the area of liquid dextrose, and multiple dextran and citric acid those are actually from a product mix perspective very beneficial.

Thirdly continued international growth and so think about where sugar prices are around the world right now our European operations, whereby we've added capacity continues to drive growth, they're going to be another contributor and then lastly, we expect continued growth in terms of our milling operations and.

Very pleased in terms of how their optimization plan is really playing out.

Now getting back to some of the comments on the year over year comparison.

We start off the year with weaker margins and ethanol, but if you recall in last year margins actually hit a low of negative <unk> 45 in March.

We don't see that right. So when if and when you think about year over year comparisons were going to start off on a challenge basis, but we do expect that the industry supply demand balances in the upper and this should get better balance as we move through the year for several reasons.

Number one.

China actually has been buying U S. Ethanol, that's something that they have not been doing over the past couple of years.

And we believe that they've already made commitments already in the first half of the year for U S ethanol equal to the previous all time high for the calendar year, roughly 200 million gallons and so we'll have to see where China ends up and the calendar year in terms of imports of U S ethanol.

Secondly, there has been announced reconfiguration of ethanol capacity by various competitors and the industry as they kind of focus their production away from transportation and fuel ethanol towards other products. So that's going to have an impact and industry supply and demand thirdly, the industry itself there is <unk>.

10% to 15% of capacity that remains idled and from our perspective, we're going to remain very disciplined in terms of when we actually restart the dry mills, because we'll want to see sustainable margins before we restart and hopefully sometime in the first half we're going to see that and.

And then lastly, how the small refinery exemptions will play out.

Over the first part of the year as the Supreme Court rules on it will have an impact frankly in terms of domestic demand for ethanol and if you take a look at <unk> pricing right. Now there is an expectation and in the U S that domestic ethanol demand is going to be strong over the course of this calendar year given.

And just a recovery in terms of driving miles as we go through the year and then secondly, how the expectations in terms of how the <unk> will play out so overall Adam.

We feel good about how we start the year.

In terms of the carb solutions businesses, but we do see and particularly in the area of ethanol and we see green shoots of recovery in 2021 for this business here.

That's a lot of really helpful color and if I could just squeeze a second one just on the balance sheet.

Just given the move up and commodity prices the increased cost of inventory how do we think about kind of the tolerance for more offensive capital deployment in terms of buybacks or M&A over the course of 'twenty one how much dry powder do you think you have.

And here today.

And we finished the year actually from a leverage perspective on a debt to EBITDA ratio and reasonable position because as you know inventory financing from a rating agency perspective, you get Rmi credit right, so and so with the movement and higher commodity prices, which move.

Working capital higher clearly, we're financing it and one other things very different and last crisis back in 2008 is that we've really diversified our working capital lines and so I feel good about our ability to finance the higher working capital levels.

And so from a leverage percentage.

Perspective, with the Rmi credits or our leverage our balance sheet remains strong and so we believe we've got firepower in order to continue to look at opportunistic M&A opportunistic share buybacks over the course of the year.

Alright, I really appreciate all that color I'll pass it on thank you.

Your next question is from Vincent Andrews of Morgan Stanley.

Thanks, and good morning, everyone.

I just wanted to ask you I was just wanted to ask you both about the the universe that we see and the corn and soy market.

How are you going to manage that.

And the AG services business, this year, and what challenges or opportunities does that present for you.

Yeah. Thank you Vince.

Listen the aim versus certainly is indicating the farmers and everybody that.

To bring the product to the market. So we see.

A little bit of Destocking of course, nobody wants to run that team versus through.

Coal inventories through the numbers, but we are seeing is the dunlin vertices, bringing is that.

Is bringing to clear.

Clear seasons for exports for North America, and South America, and we think that the.

That's an advantage for the AG services business and Gwich'in brings but the margins normally for export season, so you're going to see a little bit what happened last year, you'll note that our sales sold everything.

Run out of material and then the died shifted immediately for the U S.

The U S and starting from and extended.

Window for exports, because Brazil has started a little bit late planting. So so we are starting with good margins. We're starting good good exports for the first quarter for the first quarter events, we expect.

U S growth volume.

Volume supported Q1.

And then we expect a very strong season at the end of the year with another strong Q4 so.

Very very optimistic about it.

Okay. That's very helpful. If I could just follow up on freight rates.

They really have had run up is that something that you benefit from business, presumably you have long term contracts, but those freight rates have to get pushed into.

Sort of the market pricing and you're just maybe get the benefit on the revenue line, but don't experienced the cost or is there a different dynamic there.

No I think.

You are correct and your assessment and you also have to understand.

The value of the full value chain that would run and ADM and when I described for example record exports that means also at record lows for the article So we get we get a secondary stream of profits from day or for the full value chain. We have as Steve has already and we have the barges and we have the export terminals. So the co.

And so when you have that kind of volumes to hold the whole value chain and gets enhanced margins all through the chain.

Okay very good I appreciate the comments I'll pass it along thank you.

Your next question is from Ben Bnb Avenue of Stephens.

Hey, Thanks, good morning, everybody.

And Ben on and Ben.

I wanted to ask you or your outlook for the year for 'twenty and 'twenty one.

And you made a note in your press release on your comments that you expect improved market conditions I suspect in light of the detailed comments that you gave you are referring to the carbohydrate solutions group, particularly.

But I'd be curious.

And what you're expecting on the AG services and oilseeds business.

2020, a number that we think is.

Comparable to be eclipsed for EBIT based on the market view that you have right now or how should we be thinking about that setup.

Yes, Brian when I.

Thank about the three businesses for 2021, and when we think about the strong in 'twenty and 'twenty one.

AG services and oilseeds business will be a very very strong year.

And as I said before may be with the different and the mix of earnings with May.

Maybe we are not going to get to the same levels.

And our <unk> business, and maybe South America and oils.

But we're going to have a better canola and.

And self seed margins in general for the business, we still expect.

Exports from our services to be very strong.

We have and exceptionally strong year for global trade in 'twenty, joining which I think we're going to have a strong year. We don't know exactly we're going to get to the same level. So we plan another outstanding year for AG services, and oilseeds in 'twenty and 'twenty one.

Carlos solutions, I think that Thats the business as Ray explained it before that has been the biggest.

<unk> impacted by Covid, 19, and with things that.

Last year. It was a really tough for you and which the team did an outstanding job of growing not only 11% in that environment and we think that conditions for this year, especially when you think about the pent up demand the improvements and conditions.

And more prevalent vaccination in the second half on all that and.

And with some exports to China and ethanol we expected there are many elements there to build a more co.

Instructive scenario in 2021 done in 'twenty, Duane and the.

The nutrition business will continue to grow we are investing and that business and.

It's a business that have a strong organic growth program and.

And we see we see and that range as I mentioned before and then when we look at the strategic plan for and.

Tradition, as we grow nutrition to the $1 billion during the our plan, we look for a 15% CAGR to get there and that's what we're expecting for this year. So.

So that's kind of how do I think for about 2021.

Okay, that's great and if I could.

As it relates to <unk> and particular for carbohydrate solutions.

You noted you expect for results to be significantly higher than <unk>, but lower than for Q2, that's a pretty big range is there any more granularity and could provide there should we be thinking about something.

With a $100 million based on the current market for you.

Or is that too high or maybe just any more specificity if youre willing to give it on that segment in particular and <unk> and then I'll let <unk>.

A lot of it's going to be a function of kind of where ethanol moves over the course of the year, we expect it to be over $100 million sales.

And yes, we expected the overall honeymoon and where we land a lot of it.

For ethanol kind of moves over the next couple of months here.

But again, if you recall last year, we had about $65 million of negative corn oil and mark to market and that won't get repeated so thats going to be a benefit and our first quarter results for this year.

Okay. Thank you, both and best of luck and and this year. Thank you. Thank you Vin.

Your next question is from Robert Moskow of Credit Suisse.

Hi.

Congratulations on a great year.

I wanted to know if you have any color for us on the impact of rising corn costs.

There is some.

Comparison.

I guess benefits compared to I guess benefits compared to last year, where you had corn oil which was out of sync but.

And as rising corn costs going to be a problem for carbohydrate solutions at any point and maybe you could talk more specifically about high fructose corn syrup negotiations and were you able to increase your prices to offset the higher corn costs.

Yes, Rob it's ray here.

A couple of things.

First of all the team did an outstanding job on risk management. So.

Without disclosing everything that they do but it's fair to say that we had a lot of our requirements for 2021 hedged before the significant run up in terms of corn costs. So.

I think that the team.

And did some great work in terms of anticipating how smbs would actually work for the course of 2021.

With respect to contracts.

Just a reminder, not every contract gets negotiated and the contract cycle, we have multi year contracts and so.

Certain amount of contracts Scott negotiated and the outcome of the negotiations is that fact that we expect to be able to maintain our margins as we go into go through 2021.

Relative to 2020 through the combination and contract negotiations as well as the efforts that we're doing in terms of managing the mix and also managing our cost there.

The other comment in terms of rising corn costs and also given really a strong demand environment for feed is <unk> seen co product values go up.

Benefit or for our businesses as well so I think in the fourth quarter. We made the comment that part of the strong results is that we had very favorable net corn costs.

Expect that the team is also going to be able to manage through 'twenty, one with a with a good net corn costs as well. So I think the teams and and carb salt team they've done outstanding job on the risk management side and and managing through this the higher corn cost environment here.

If I may add I think something that gives us confidence because of course.

The team is very good and doing this is that in very tight markets than the and then the fundamentals become more important because the markets move more based on fundamentals and there. The information we have the visibility we have in the network and becomes much more important to make decisions and in other times when maybe.

Materials are a little bit longer and softer than there are more to body of wells that come into play.

Maybe.

You can't give this much detail, but and the contracts that you were negotiating.

Were you able to negotiate price is higher in reaction to higher corn or was it not like that.

I think Rob I mean, I think it's fair.

And keep it to the fact that we've been able to manage in total the portfolio the contracts and be able to maintain the margins year over year.

That's the level of I think disclosure and we want to make at this point. Thank you got it okay. Thanks.

Yes.

Your next question is from Ken Zaslow of BMO.

Hey, good morning, everyone two.

Two questions.

First the Capex spending has gone up what are you incrementally spending on and what do you think the returns are and when will you actually get the returns associated with that and how do we think about the incremental.

That's my first question.

So Ken a couple of things on the increased Capex Juan I mentioned that we are in the midst of the business transformation program. So for 2021 will be one for peak years and to project 100, ATM projects. So we do have some capitalized some incremental capitalized costs associated with the program.

And that's in part of our Capex budget.

<unk> and some.

And with the pandemic and 2020, some projects got moved over and got pushed from 2020 to 2021. Some of them are growth projects some of our cost reduction projects.

Some of them are just non discretionary.

Venture projects. So there is a series of projects that we did push from 2020 and 21, just due to the pandemic and our ability to execute and then thirdly, we do have growth projects, we mentioned organic growth.

And our focus and that area. So we do have organic growth projects go on and the course of 2021 so.

And those are the three buckets as to why the numbers increasing from the number that we finished up and 'twenty to 2021 again the range 901 billion for large range of losses.

We have and improve some of these projects, which is putting it in terms of a placeholder, but part of our part of our disciplined as we will be you're valuing the timing the returns and determining what do we actually spend it and the course of 'twenty, one or not.

But as you know in terms of growth projects, our hurdle rates are double digit percentages right. Our hurdle rates are double digit percentages in order to approve these projects and I'll remind you and Ken.

First of all we're also becoming a larger companies so that other projects now, but that organic approach had coming from the new <unk> acquisition. The animal nutrition, we are expanding our bioactive production in Valencia, Spain. So we are becoming a larger company and.

And I also remind you that we have a program to divest to reduce capital investment and we achieved $300 million.

And in.

And that side of the ledger. So we will continue with the same capital discipline them before you can be assured of that.

Great and then my second question really more of a clarification you said in 2021.

EPS and operating profit will be higher year over year or could be significantly higher.

Exactly right, but does that include or exclude the $2 95, and then I'll leave it there.

Referring to $2 95 for timing effects. Ken Yes is it are you going to be able to grow numbers outside the 295 or is that 295 included in what you think is going to be a year.

It's all included there is all included and the number there Ken all included.

Would you be able to grow even without that or is that part of.

And I'm just trying to figure out when you say significant growth kind of day is that beyond the 295 or is that including is it. If you didn't have the 295 would you still be able to grow and I'll leave it there.

I mean, there's a lot of the puts and takes there Ken you're right and so I think it's fair to say that our pre tax numbers are going to grow significantly.

And there's going to be a low that you take a little bit off with a higher tax rate I think that's probably the more important factors are higher tax rate, we'll skim off a lot of the pre tax improvement that we're going to drive.

'twenty one versus 'twenty.

Okay, great. Thank you guys very much.

Thank you for your.

Your next question is from Tom <unk> of Jpmorgan.

Hi, good morning, everyone.

Good morning, Tom.

Just following up on the U S export strength, how much U S corn and do you expect China to import beyond this marketing yet.

Yes, sorry.

Trying to get my Moscow.

We're expecting China to take about.

25 million tons of corn.

So you know the situation there and.

And in China.

And we think that the inventories are much ore reserves are much lower than what.

And that market is reported in there.

You can see that.

And the prices that we've seen and.

And China do you think have a great crop. So so we expect.

We expect significant imports for both oilseeds and.

Corn.

So do you think that 25 million tons as sustainable beyond this marketing it.

And with things so with things so of course, not all of it comes from the U S come from different sources, but it is and.

China is try and other things as well they are reducing a little bit there wheat stocks. They have imported a lot with from Australia as well.

Remember that all of this is driven by the recovery from ASF. They are trying to rebuild the curve, but also by the professionalization of the feeling has to include as much more of the old these grains and the Russia. So.

We think that we will continue to see multiyear increases in Chile.

China is up and died for all of this commodity.

Okay. Thank you and maybe you could breakdown your nutrition outlook for 2021, and you mentioned the 15% segment profit growth, how does that compare for human versus animal nutrition.

Yes.

And dynamics.

So human nutrition is <unk>.

<unk> <unk> related to specific innovation projects that are driven by customers and our pipeline and we feel very strongly about that our pipeline continues to grow and our win rates continue to grow.

And among nutritional has been a little bit more affected by Covid and defense. There are some parts of it like Aqua culture, where fish and shrimp, but a much more consumer and restaurants donut hole.

While on the other can pit with people spending more time at home companion animals have become.

A little bit better so I would say.

There are puts and takes there.

And difficult to judge ahead of time I think the important thing about the nutrition business is when you take.

Look at what's happening is that that's a business that is investing in growth. But this also has been able to grow returns and to grow margins during the year in both divisions, both and animal and in human nutrition and I think we're going to we're going to continue to see that with as I said the different.

And just to grow with.

Animal nutrition lower in building organic growth for some of the projects, especially in Asia.

And parts of Latin America and.

And then.

And then in human nutrition with more specific customer and innovation projects in North America and Europe.

Yes.

That's very helpful. Thank you I'll pass it on.

Thank you for them.

Your next question is from Eric Larson of Global Securities.

Yes, Thank you and good morning, everyone and congratulations on a really good year.

Thank you Eric Thank you Eric.

So one I just wanted to dive a little I just wanted to add a little bit. My first question is on nutrition, and just to add a little bit more.

Clarity to that.

Last year, you had talked about harvesting.

More of your investments you built a lot of plants and in South America and Asia for your <unk>.

Nutrition business and.

I still expect that harvesting that investment is still a big part of your earnings story and your margin story can you can you talk a little bit about.

Where you are in your harvesting.

Margins for nutrition, and Im sure it differs between human and animal, but can you help us with that a little bit.

Yes.

I'd say the harvest and continue this plant that we built a relatively new plants, where there is pea protein or a specialty proteins income for under so we're going to have harvesting for many years down the road hopefully.

I would say.

The 2021 is a year of heavy.

For your investments if you will.

And again another round of investment some of those things are capabilities, whether it is customer insights and marketing whether it is.

New digital connections to customers new models to innovate virtually.

Uneven a lot of organic growth, we we kind of went live in organic growth projects and 90 malnutrition.

During 2020, because we were working on the synergies and to be honest because the COVID-19 environment didn't allow for a lot of project work and now.

Now, we're going into more of that so youre going to see 'twenty 'twenty one.

B and a little bit heavier investments in and.

And capabilities and.

And plants and we see some of these you don't see because this is building. The foundations. We are at a science based nutrition company, but you'll see for example in the quarter. We got two awards. We go we got the FY year Award for innovation and Pea protein and <unk>.

We got the <unk>.

<unk> Innovation award for BPL, one and one of our probiotics so.

And we'll continue to invest and science and customer insights and inorganic growth and this business as we harvest and.

And the harvest and you see.

How our ROIC continues to grow and that business and Youll see the success of our value proposition and co the EBITDA margins.

Continue to grow our business. So we are very happy, but and the early.

Early stages of building, the best and Nutrition company out there we are probably halfway through that build.

Okay, great. Thanks for the color there so Juan.

Question that I that I haven't.

You've talked a lot about day.

Around the world, which.

It was even support surprisingly strong despite.

The grain pricing environment that we have which is pretty high and we're still seeing good exports, but.

And when you look at.

The U S crop upcoming planting season. This year you look at what's going on.

And South America, which is.

And clearly the world needed 140 million metric tons of soybean corn, and Brazil, and theyre not going to get that now we're seeing weak and we're seeing weak and Russia can you.

It seems to me when you just put all the numbers together on a global basis.

We are not going to rebuild these global supplies and a single year it might take a couple of years of good weather and.

And all of that to sustain demand can you kind of encapsulates how are you.

ADM is looking at the next two years regarding demand and supply of global grains.

Yes, we see.

And an environment of real demand real effective demand.

Happening out there and to be honest, our customers don't have a lot of inventory because everybody has been destocking going hand to mouth with these endeavors.

So we see truly strong demand and tight balance sheets, as you said corn and oilseeds I think theyre going to touch pipeline balance sheet.

<unk> is a little bit stronger, but the black sea has not had a great wheat season, Although Australia has.

Growing season. So we see this is going to take 18 to 24 months for these supply demand balances to be a rebuild.

So we see these conditions.

Subsisting for the next couple of years.

Even with even with farmers a much and like you trying to plant more because I think that these prices will bring more acres into production, but we need those extra acres right now.

Yes, so not only plant more acres, but we will also try to maximize our yield.

The combination of bulk so net.

Thank you gentlemen, I'll pass it on.

Thank you Larry.

Your final question is from Ben Theurer of Barclays.

Hey, good morning, corn, Ray and Congress and results.

And I just wanted to follow up.

On the Capex related to the different businesses and I mean, clearly you've been putting a lot of emphasis on the growth and the prospects within nutrition and you just said.

And this will be another year and the need of investments in order to in order to get to that 15% CAGR you've been talking about so if we think about the capex and general of that $900 million, maybe a $1 billion, which is clearly up from what we saw and the last two years could you give us a little bit of and.

Understanding how you allocate or how you plan to allocate within that Capex.

Two.

And to the different segments and in particular, the tube and nutrition business just to understand how much capital in Europe.

Adding to that business.

Something that you have to understand and then.

And going to pick and high level here, but.

And the nutrition adjusted different and <unk> to capital sensitivity than the other businesses. These projects.

And sometimes you have big projects like Campo Grande for specialty proteins, but the rest of the projects. If you think that the commodity business and have maybe a multiplier of you need five units of Capex to get one unit of Ob, sometimes and nutrition Youll get the 101.

No.

And I think the issue is that because it's a smaller business sometimes these investments these efforts.

Have a higher impact in their P&L, because they need to cover.

And as they build the smaller business, but I would say.

Tradition is not a heavy capital intensive business. So when you hear me speaking about animal nutrition and organic growth projects those are small project.

They are not in the hundreds of millions of dollars type of approach and so I would say.

We continue to emphasize them, but if not the heavy burden on the company.

And that's why we're growing so fast and.

We still are not forecasting north of $1 billion, even when we're doing one ADM and all of that so I think it's a very affordable and grows from a capital perspective, and Theres a couple of vendors a couple of large projects and the <unk> solutions business that we're finishing up in 2021, so the Bulgaria expansion, we're finishing up we're finishing up.

The building of the feed health and Clinton, So theres a couple of chunky investments that we're just finishing up.

Over the course of 'twenty one.

Okay perfect. Thanks, and then one final one just netting it out you have been talking about.

The ethanol imports.

China, but then how is that netting out, whereas this Brazil and what Youre seeing there is that just the fit for take south to north or how are how is the balance currently on that export business to China.

I think listen and exports to China, we've been talking a lot about that we expect this year, we will be the record high so they have taken because corn is.

As expensive and China, you also need to remember in this equation sugar prices are and all time high so in Brazil, you make a choice so different and the U S and Brazil Youll make a choice how much you may go for sugar and ethanol and of course sure.

Gold prices are at a big temptation. This year. So we expect higher exports and maybe we expect a little bit of a less pressure from Brazil and thats. It.

Okay.

Perfect. Thank you very much weighted here. Thanks.

There are no other questions in queue at this time Ms. Delaware go do you have any closing remarks.

Yes. Thank you for joining us today slide 10 notes upcoming investor events, and which we will be participating.

As always please feel free to follow up with me if you have any other question.

Have a good day and thanks for your time and interest and ATM.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Good morning, and welcome to the <unk> fourth quarter 2020 earnings Conference call. All lines have been placed on a listen only mode to prevent background noise.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's call Victoria Delaware.

Vice President Investor Relations for ADM must Delaware co you may begin.