Q1 2021 Archer-Daniels-Midland Co Earnings Call
To the extent permitted under applicable law ADM and 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 highlight some of our accomplishments.
Our Chief Financial Officer, Ray Young will review the drivers of our performance as well as corporate results and financial highlights.
And 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, I am pleased to share with you of results demonstrate kind of.
Funds and start to 2020, one building on our momentum from our record 2020.
We reported first quarter adjusted earnings per share of the $1 39.
More than double the year ago period.
Adjusted segment operating profit was $1 2 billion.
86% higher than the first quarter of 2020.
And our sixth consecutive quarter of year over year adjusted op growth.
Our trailing four quarter average of adjusted ROIC was 9%.
375 basis points higher than our 2021, and you'll walk and significantly higher than the seven 6% and the year ago period.
And our trailing fourth quarter adjusted EBITDA was about $4 2 billion, 19% higher than the prior year period.
I am proud of our team and the.
The continued to deliver sustained strong growth powered by the continued advancement of the strategic transformation of our business.
At the times and execution and excellent risk management.
And commitment to serving the evolving needs of our customers in new and innovative ways.
I'd like to take a moment now to highlight some of the trends developments and accomplishments from the first quarter.
Turn to slide four please.
First we are encouraged by many of the demand indicators we're seeing.
From a geographic perspective.
China was one of the first countries to emerge from COVID-19 related restrictions and we are continuing to see significant export demand driven by its economic recovery.
In the U S. Net production is strong exports and retail sales remained robust and restaurant dining expands.
Flexing rollout has been the slower in EMEA, but the.
It's accelerating now and so.
We are optimistic the demand will recover their list of the year progresses.
Of course, some countries like Brazil, and India are still in the midst of the pandemic and demand there may be slower to come book.
From a product perspective expectation of a progressive recovery and global foodservice will support of demand for sweeteners flour and other ingredients in 2020 one.
And we're seeing strong demand for beverages alternative proteins and nutritional supplement include.
Including the expected sales growth of 12% per plant protein ingredients this year.
In summary, the recovery from COVID-19 and demand improvements are occurring at BARDA and paces, depending on geography and products.
Complete the recovery will extend over multiple years, but we're seeing clear trends that are favorable for our broad portfolio.
Please turn to slide five.
Another area and which we're seeing positive demand indications is ethanol in the U S.
About a year ago, we made the difficult decision to idle ethanol production at our dry mills, and Cedar Rapids, Iowa, and Columbus, Nebraska.
We committed that we will not restart those facilities until we saw economic and market factors that would point to a sustainable recovery.
As we move through the winter and into spring we saw.
The industry inventories falling almost 10% during the quarter and and almost 20% lower year over year on March 31.
Mobility, and driving miles, increasing net COVID-19 related restrictions ease.
With recent gasoline consumption and getting closer to pre pandemic levels.
Support from the EPA for the renewable fuel standard.
And China, we assume and purchases of U S ethanol in the first half of 2021.
With all of these factors supporting demand growth and improving the industry margins, we decided to restart of production.
At the same time, we are continuing to work with interested parties to complete the monetization of our dry mill ethanol assets.
From a portfolio management perspective, we're still committed to reducing our exposure to vehicle fuel ethanol.
And as demand continues to grow.
For the wide range of innovative alternative products that can come from natural sources like corn.
We expect to see additional interest from other parties involved in volume materials and sustainable aviation fuel.
And.
Slide six please.
One of the ways, we are meeting growing and evolving demand is by introducing new technologies and innovations across our value chain.
In Q1.
Our Covanta is joint venture celebrated the commercial launch of history of evolutionary blockchain platform to modernize the global agriculture Ocean shipping industry.
Similarly in the U S. We've led an effort with industry partners to launch the barge and digital transformation project with.
Uses which uses new technologies to replace outdated inefficient processes on our in line water ways.
We're also innovating to meet the demand for sustainable solutions.
Over the last year and the growth of E Commerce drove demand for packaging, our bio solutions team worked proactively with customers to apply our corn base not even modified starches to help increase the number of signs cardboard boxes can be recycled.
In Europe.
Our animal nutrition teams are using lifecycle analysis of the complete supply chain from crops and ingredients to final animal product like milk eggs and need to help develop new feed supplement that improve animal health and reduce environmental impact.
<unk> greenhouse gas emissions.
Yes.
We're also continuing to innovate to improve the customer experience.
Last year as travel was restricted we launched new technologies designed to take our customers on collaborative virtual journeys that allowed us to share of consumer insight and emerging trends and product solution opportunities, including real time testing.
Now as part of the World reopen we are continuing to expand our innovative customer capabilities.
In March we opened our completely renovated customer innovation center in Beijing.
Expanding our ability to support technical innovation and creation.
And earlier this month, we were proud to celebrate the opening of the new cutting edge and plant based customer and innovation lab at our research hub in Singapore.
These new facilities will propel our abilities to work with customers to create tailored solutions to meet the evolving and growing consumer needs in the region.
Slide seven please.
Finally, I want to speak about the very important issue of sustainability.
Our commitment to sustainability expands our value chain.
It includes our work with growers to implement responsible farm and practices.
Including the 13 million acres, we have enrolled and sustainable farming and programs globally in recent years.
Net income process, our strive to 35 goals to reduce the environmental impact of our processing operations.
Amplified by the recent announcement of our partnership to help advance the proposed revolutionary zero emission power facility utilizing our carbon capture and the storage facility adjacent to our operations indicator of illegal.
Sustainability is the key driver of our expanding portfolio of environmentally responsible plant derived products and our efforts to reduce hunger and support the communities in which we live and work.
One critical pillar of our sustainability work force.
And our customers is increasing the traceability of our supply chain.
We joined the Brazilian soy moratorium into and in 'twenty of six.
And in 2015, we introduced our first comprehensive no deforestation policy.
Since then we've made impressive progress, including achieving 99% price ability to mill and our farms bound supply chain and full traceability to farm for direct suppliers and 25 key municipalities and the Brazilian cerrado.
Now we are taking our efforts to a new level.
Last month, we announced our new policy to protect forests biodiversity and communities.
As part of this ambitious plan, we aim to achieve full traceability throughout our direct and nine direct south American soy supply chains by 2020 two.
And before the stage of free supply chains around the world by 2030.
I am proud of the work our team is doing to deliver on our sustainability commitments and capabilities.
We know they are the key driver of consumer decisions and business success.
But more importantly, they are one of the ways in which we're living up to our purpose and enriching the quality of life around the world.
I'll come back later to talk about the next steps and our journey and our strategy, but now I'd like to turn the call over to Ray who will take us through our business performance great. Yeah. Thanks, Juan Good morning, everyone Slide eight please.
The AG services and oilseeds team delivered an outstanding quarter with operating profit of $777 million.
Representing a record for a first quarter.
AG services results were substantially higher year over year.
Results were driven by a record Q1 for our North American and origination team, which execute extremely well to capitalize on strong Chinese demand.
As expected results from South America were significantly lower versus the prior year period.
Farmer, selling was lower versus the extremely aggressive pace and the year ago quarter.
Lower margins, including the impacts from the slightly delayed harvest and higher freight costs also affected South American results.
Results for the quarter were affected by about $75 million and negative timing related to ocean freight decisions.
And those impacts will reverse as contracts execute in the coming quarters.
Crushing the other.
Its best quarter ever as the business leverage its global footprint and diversified capabilities to capture strong execution margins and both soybean and soft seed crushing driven by robust vegetable oil demand and tight soybean stocks.
Net timing impacts for the quarter in crush or minimal.
Refined products and other results were higher year over year.
While overall volumes were down due to pandemic impacts margins were stronger and both North America and EMEA refined oils glue.
Global biodiesel results were lower year over year.
Equity earnings from Walmart were lower versus the prior year period.
Looking ahead, we now expect full year calendar year results for AG services, and oilseeds to be higher than the record 2020.
With the particularly strong fourth quarter, driven by potentially record global demand for North America and agricultural products.
For the second quarter, we expect results to be slightly stronger and the second quarter of 2020, but significantly lower than the record first quarter of 2021.
With stronger crushing and RPM expectations compared to the second quarter of 2020 of.
Offsetting seasonally lower AG service results.
Slide nine please.
The carbohydrate solutions team again delivered significant year over year profit growth.
Our starches and sweeteners subsegment, which includes the wet mill ethanol production achieved significantly higher results versus the first quarter of 2020.
The business manage risks exceptionally well capitalizing on rising prices and the ethanol complex and favorable co product values and and industry environment of improving margins and following inventories.
Corn oil results were significantly higher than the previous year, which had been impacted by substantial mark to market effects.
In general the demand for sweeteners and flower of by the foodservice sector remained below the prior year, there were signs of acceleration and the month of March.
Starch sales volumes remained solid and demand from the industrial applications like packaging materials.
Vantage corn processors of results were substantially higher driven by improved margins on the distribution of fuel ethanol and strong performance and USP grade industrial alcohol.
Looking ahead of second quarter results of our carbohydrate solutions are expected to be in line with this first quarter of 2021.
Which would represent a significant year over year profit growth driven by the improved ethanol market environment, including the restart of our <unk> BCP dry mills and the recovery of the foodservice segment.
Slide 10 please.
The nutrition team delivered 5% revenue growth on a constant currency basis and solid year over year operating profit growth.
Human nutrition results were significantly higher than the prior year quarter.
Flavors had an exceptional quarter driven by strong sales across the various market segments, especially beverages.
Favorable product mix and North America improved margins in EMEA and accelerated income from a customer agreement also contributed to results, partially offset by certain specific expenses.
Specialty ingredients results were lower primarily driven by demand factors include the effect of pantry loading in the previous year quarter and shifts and demand for <unk>.
Health and wellness had a strong start to the year with robust demand for nutritional products driving higher results and probiotics and fibers.
Animal nutrition results were lower versus the first quarter of 2020, driven primarily by lower demand and the higher input costs as a result of pandemic effects, primarily in South America.
This was partially offset by favorable results and the mineral assets driven by improved product mix.
Looking ahead, we expect continued strong demand for flavors and proteins and improving demand for our animal nutrition products as restrictions ease and to drive second quarter results that will be significantly higher and the prior year quarter supporting the 15% per annum trend growth rate for the calendar year.
Slide 11 please.
Let me finish up with the few observations from the other segment as well as some of the corporate line items.
Other business results were lower than the prior year quarter, driven by lower captive insurance underwriting results, partially offset by more favorable ADM investor services earnings.
For the quarter there were about <unk> 17 per share of adjusted items for EPS purposes, which I referenced in slide 24, and the appendix.
These adjustment items included Juan the settlement of the class action lawsuit against corn and peanuts to avoid the risks and costs of a prolonged litigation and the case and which we do not believe the violating any laws.
To impairments and restructuring costs related to the exit of certain non core product lines and inefficient assets and nutrition.
And three mark to market on the embedded option and the Walmart exchangeable bond.
And the corporate lines and allocate corporate unallocated corporate costs of about $200 million were slightly higher year over year due primarily to our continued investments and <unk> and.
And business transformation and transfers of costs from the business segments into the centralized centers of expertise and supply chain and operations.
We are still on track for calendar year, corporate unallocated costs to be overall similar to 2020.
As expected net interest expense for the quarter decrease from the year over year period on lower interest rates and the favorable liability management actions taken in the prior year.
The effective tax rate for the first quarter of 2020.
It was first quarter of 2021 was approximately 16% compared to the benefit of 4% from the prior year, we still anticipate our calendar year effective tax rate to be in the range of 14% to 16%.
Our balance sheet remains solid despite a higher commodity price environment with a net debt to total capital ratio of about 33% and available liquidity of $7 7 billion.
As part of our active management of our pension liabilities, we did close on another U S pension liability transfer transaction on April one with.
With the bulk $0 7 billion of liabilities transferred to the U S insurance market. This.
Effectively reduces our U S pension liabilities by close to 40% and will result in the U S pension plans more or less fully funded from our projected benefit obligation perspective.
With that I'll turn it back to Juan.
Thank you Ray Slide 12 please.
I am proud of the team for our great start to 2020 one.
And I'm, even more proud of the track tissue work, we have done to transform our company and enabled our growing success.
We began in 2011 by committing to specific sort of tissue goals and financial metrics.
Focused on what we call the three CS.
Capital discipline and cost reduction and cash generation.
We launched new initiatives like our $1 billion challenge with prioritize of operational excellence and we focused on returns of our primary financial metric.
Recall that the getting fit for the journey.
Once we were fit we launched the next part of our strategy focusing on three core pillars to enhance returns the <unk>.
Never more predictable growth and the strengthened our ability to control our results.
During this time our team has done a great job of.
Optimizing business performance realigning, our portfolio and building a global leader in nutrition.
Driving efficiencies through our operational excellence initiatives.
I'm expanding through organic growth investments M&A, and the broadening of our customer base and protocol offerings.
Now we're moving into the next phase of our strategic transformation by sharpening our focus on two strategic pillars.
Productivity and.
And the innovation.
Our productivity efforts will take many actions that were part of our optimized and drive focuses and boost them to the next level.
The productivity of pillar will include.
Advancing the roles of our centers of excellence or Coes, and procurement supply chain and operations to deliver additional efficiencies across the enterprise.
The continue the rollout of our Juan ADM business transformation program and implementation of improved standardized business processes.
And increasing our use of technology analytics and automation of our production facilities and our offices and with our customers.
Our innovation activities will help us accelerate growth and profitability not just for the near term, but importantly for the long term.
We will expand and invest in improving the customer experience, including liberation of where producer relationships and enhancing our use of state of the art digital technology to help our customers growth.
Sustainability, driven innovation, which income taxes of the full range of our products solutions capabilities and commitment to serve our customers' needs.
And growth initiatives, including organic growth to support additional capacity and meet the growing demand.
Opportunistic M&A and increased Liberty aging of our very successful venture capital portfolio.
We will support both pillars with the investments in technology, which include expanding our digital capabilities and investing further and product research and development.
And of course, all of our efforts will continue to be strengthened by our ongoing commitment to revenue.
As I look at our long term clients and this evolution of our strategy.
I'm very excited about the value creation opportunities ahead of us.
Our teams are continuing to perform at the high level and doing a great job serving our customers.
The demand outlook for our products is the strong.
Driven by the three and viewing global strength of food security and health and wellbeing and sustainability.
And we are delivering on our potential and our programs.
That is why we are even more optimistic in our 2020 one outlook today that we were three months ago.
With expectations for significantly higher full year operating profit and EPS versus our record 2000 and Duane.
And as we look beyond 2020 one.
We expect that our sharpened focus on productivity and innovation.
And bind with continuing demand the expansion driven by the fundamental needs and evolving demands of our global customers and the multiyear copies of recovery.
We will deliver sustained growth and earnings in the years to come.
With that Chris Please open the line for questions.
Thank you.
And I wanted to ask a question for star and the number one on your telephone keypad.
And the first question comes from Ken Zaslow of Bank of Montreal Your.
Your line is open.
Hey, good morning, everyone.
Good morning, Ken.
Just wanted to touch base.
And your comment was which was actually really interesting.
The growth sustainable growth for years to come.
So with that just a couple of points. One is do you look at 2021 or 2020 as the case here from which you can grow and second what are the key demand drivers that you see beyond 2021 that will continue to propel you or is it more internal actions that would create the growth.
Yes, Thank you Ken.
As I was referring to in my remarks, we see the future with the lot of optimism I mean, we think that fundamentally we have as you know.
The strong agenda of both now productivity and innovation, where there are things that we can control that we drive under our control and we've been executing the similar.
And so now youre going to see the strengthen and the cast and more longer.
Horizon reach if you will debt, we like about the sharpening.
But all of this is in the and so.
Posted by these three strong.
Three strong trends that we see in food security and health and wellbeing and sustainability. So let me give you a little bit the flavor of where we continued to see strong demand.
The food security of course of the global population growth.
Protein demand continues to grow around the world of people increase the standards of living and as countries come back from the pandemic of this demand.
And to a certain degree of suppressed.
And we see that in China, we see that in the in the U S and we believe that given the uneven vaccine recovery above the same rollout this will take several years so.
And in an environment, Ken as you know of very tight supply demand balances. So we expect and.
Environment of good good profits.
For the following years.
And when we look at the health and wellbeing debt propelling, our nutrition division and many of our other offerings.
And which we.
We continue to see strong growth even access the rate if you will.
With pandemic or other events.
And we continue to see more of demand for products made based on plans that what we call volume solutions.
Put all of that actually replace industrial products made from the resources that are non renewal we have a long list of interested parties and doing more of that and we continue to develop solutions for that so again, when we see the trends when we see the strong demand environment and the types of supply.
The demand <unk>.
<unk> plus the agenda of productivity and innovation, we feel very strong about our ability to deliver earnings growth from where we are today.
So 2020 of 2021 would you say is your gear from which we could start thinking about growth.
I think the.
2021, we're going to growth significantly versus 2020. So in 2021, we are establishing this sharpening again. So if you will maybe we can reset the two product levels of 2021, and we start from here.
Yes.
And the shake out we have of rolling five year plan as you know.
And that we constantly update and and we constantly make it more robust, but we can we can deliver and we can deliver earnings growth year over year.
Great I appreciate it thank you.
Thank you Ken.
Your next question comes from Adam Samuelson of Goldman Sachs. Your line is open.
Hi, Thanks, good morning, everyone.
2009 a M.
So I guess my first question really just trying to think about the market environment, a little bit and obviously a lot of cross current happening.
And at the moment, specifically I wanted to think about on the oilseed franchise and the expansion.
Of renewable diesel.
And as we think about Juan you can sort of see it already and the soybean oil market and what that's doing the crush margins, but as we think about the second half of the year into next year as some of the bigger capacity start to come on and.
How do we think about the earnings leverage both and your crushing franchise, but also and the edible oils business with the refining that.
<unk>.
And I never really got that much attention and grown much prefer a number of years given the move away from trans fats, but we seem to be kind of very strategic for a bunch of of refiners, who don't have pre treatment over the next couple of years can and then I got a capital allocation question afterwards.
Yeah.
And Im listen and we said at the before we feel very strongly about the future of our oilseeds business.
Is the business that was built traditionally and one leg. If you will from the mill supporting all of these and we would always waiting for the whole story of <unk> story.
And you can see as of right now planar oil values debt reached record levels.
Soft seed margins that being the best in the last eight years. If you will so they're supporting very good soy crush margins and the great subsidy of margin.
We invested in these many years ago remember with all the switch capacity.
Have about.
Give or take 15% of our total cash capacity that it can be switched from soybeans to the sources, so the dust and advantage for us and.
And the.
The.
Now all of the processing, we are having this new demand that is coming because of all of the sustainability trends that we discussed before with this and the in the form of renewable over index and so.
And it just comes to strengthen our our belief into this business of this very strategic for us and and to be honest very proud of the way. The business is executing these are not easy market to navigate with a lot of volatility with very big volumes and the.
And they are having touch with and impeccable of run and they've done and done very well.
And the other sophistication and knowledge of.
And and to be honest also the <unk>.
The stability that being the full value chain supplier and the global supplier of Gibson.
<unk> continued to work very close with our food and fuel and customers and staying close to them and make sure. We can read whats coming down the pipe, but again all of them.
Very encouraged by all of these developments and.
Very happy for our strategic Oilseeds business.
Okay, and that's certainly helped the wanted to and my second question is really on the balance sheet and the the smart per Ray and I'm, just trying to think about kind of cash and capital deployment from here, obviously at the very sensitive to the increase in commodity prices and the impact that has on readily marketable inventories, but the main impressively here.
Credit capacity has actually gone up on a year on year basis.
Despite the horizon.
And Rmi.
And so I'm just trying to think about what would it take to see cash return to shareholders or more of the more aggressive or offensive M&A.
Moving forward it seems like Theres, a lot of underlying cash generation and the business and.
And it doesn't seem like we've got a clear kind of.
The target of where we're at.
And at the moment.
First of all of the balance sheet is what I consider and one of the greatest assets of ADM.
And while inventories of actually increased 50% compared to March of last year, we still have significant available credit capacity to undertake actions.
The actions right and so I think the first priority is continue to fund the working capital needs and its not non.
And the surprise commodity prices continue to go up right now and so therefore, we will use our balance sheets and kind of fund additional working capital requirements.
And secondly, we have flexibility to do whatever we need to do from a strategic perspective as you know in prior periods during higher commodity prices there are distressed assets and the marketplace.
And so to the extent that they are of distressed assets that makes sense for us to acquire in order to consolidate we'll look at those that's one of the big advantages of our <unk> balance sheet. So, but we all know what eventually commodity prices will come down and that will free up additional capital and the balance sheet and and and we can look at additional incremental returns on capital to our shareholders at the point and.
Hi.
But again the dividend we've increased the dividend that's an important element of return on capital to our shareholders.
And I am convinced that our balance sheet, because we all know prices go through cycles, there will be of release of working capital at some juncture that will again free up.
And the capacity for us to take additional return of capital actions.
Okay, and sorry, I really helpful color and I'll pass it on thank you.
Thank you Allen.
Your next question comes from Tom <unk> of Jpmorgan. Your line is open.
Hi, good morning and pumps.
Good morning, Tom and Tom.
And could you give us some more color on around you and how you're managing your crush assets this year and yes.
To what extent, the Lockheed and crush capacity for the next few quarters and.
And on the oil side, how are you approaching negotiations with potential renewable diesel customers versus your more traditional customers.
Yes.
And so I can say, we have reasonable visibility.
On the Q2 for oilseeds as we have.
And both built and we say a little bit more open for the Q3 and Q4.
That's probably to the extend of that.
I will disclose.
In terms of food versus.
Oil customers.
And I think we think growth to both of course.
And we provide we have long term relationships with our food customers debt.
We've been working with them through all of these and <unk>.
The case in Venmo on this new demand that is coming and we are forging new relationships with customers from renewable and bring this and that of course the mill the big issue for that the industry feedstock availability. So we're having a lot of discussions but the range from the tactical to the strategic discussions with some of them and they deserve.
Right on the future investments.
That's what I will describe the relationship.
Thank you and then just the question on the Nutrition I think you mentioned a shift in demand as the texture and <unk> can you provide some more color of that.
Yes, we see we've seen some some softness in some of those segments, but I would say.
This is the this is a little bit of the transition time in.
Nutrition goes through so many applications and the.
And depending on the geographies foodservice and some parts are coming back and in some other parts.
That's the still delayed so.
So I would say in general.
And <unk>.
Very pleased actually nutrition sort of.
My own expectations this quarter by growing profitability by around 9% and revenue 5%.
It was.
<unk>.
The demand recovery from COVID-19 and the impact of that and different market is very uneven around the world.
The world is getting access to the vaccination of different rates. So we are seeing that so.
And as I said this was a quarter of remember investments in the in nutrition. So we would expect and results similar to last year, we ended up delivering and the result of down 9% better than last year. So.
Very happy with the.
We had some.
The specific pockets of softness may be some.
Chewing gum.
And kind of softness and some softness in some places and animal nutrition, but overall.
Very strong flavors and Beverly to supplement Firebird per hour you updates specialty specialty proteins. So.
The main trends remain the.
Thank you for that and maybe just from more question from me.
And Mike could you share your house view of the U S planted acres of corn versus beans.
Yes, I would say.
And in our view given the early planting at the start that we have in the U S.
I think we have four and about 17% and soybeans of about 8% at the moment.
We believe that there is probably upside to the USDA numbers. So we believe that by the next time USDA report acres with probably kind of find maybe try and Moreover million acres combined between soy and corn kind of evenly split if you will give or take.
Between the two.
Excellent. Thank you very much and I pass the dumping.
Thank you Tom.
Your next question comes from Luke Washer Bank of America. Your line is open.
Hi, good morning, everybody.
Look the payload.
And so I wanted to touch on Sweden oil and little bit and we've talked a little bit of that renewable diesel trend, but have you seen soybean oil demand ramp this quarter relative to your expectations, perhaps at the beginning of this quarter and is this largely driven by renewable diesel demand or are you also see and increased demand for edible oils and is there any destruction of.
Is happening with the prices where they are.
Yes, listen we continue to see strong demand I think debt.
And some restaurants and some places out of reopening we started to see foodservice is coming back a little of it to be honest, we saw that across the company not only and soybean oil and I would say March orders were significantly better than January and February and I think we see the continuing in April so again, and even with recovery, but we can see.
The.
I'd say of.
Of course, we're green diesel customers are starting to show in demand. So we see that the increased demand.
So in general we see we see a strong demand in terms of.
Destruction of demand, we havent seen debt to any degree probably the only of sample I can pinpoint this brazil with biodiesel debt reduced from the 13 to be 10 per.
Probably the only thing you can say things have become the extensive of at least and Brazil as I made the.
As I mentioned in my and my answer the remark, Brazil is having a very difficult time with the COVID-19. So I think that the overall economy suffered and and I think the government is trying to alleviate some of.
And to alleviate the little bit of pressure on inflation, there, so but thats probably the only example, I can pinpoint to at this point of demand destruction.
Great. Thanks, Loren and then maybe one more on nutrition can you talk about what's driving your confidence and the 15% CAGR. The you expect this year one of the ways of your driving operating profit margins higher this simply growing and higher margin businesses or are you doing cross selling or any other actions you are taking maybe just some of the puts and takes for this year.
Sure.
Yes, yes, absolutely listen the debt remember the 15% came from and we'll put together of the five year plan and when we see us achieving our target book of $1 billion Op base.
And basically by 2024 give or take in order to get there we need to grow 15%. So we were planning to start the CSR and this year is not an exception to that we plan and 15%. When we started the and we were planning to start of the year of success kind of flattish versus and.
And the.
The business continued to show strength.
How does the strength current product is revenue growth part of my confidence is given by the pipeline. We have a strong pipeline we are very the.
And the team is very disciplined and religious and looking at the pipeline and looking at the customer by customer and the projects and.
And that pipeline continues to grow and our win rate continues to grow. So those are very positive indicators that the.
The euro value proposition is very.
Very appreciated by your customers sales.
Italy and other things that we do is the.
The T minus the product mix, very well and that debt.
Allows us to increase profitability, even in excess of the of the revenue growth that we've seen.
And you know there are different and part Wild for example for flavors and for.
For plant based proteins and certainly for the probiotics is much more of revenue growth story for park like animal nutrition is more of like a margin recovery story and.
So we have different waste and minus this portfolio that we call and nutrition, but it's a very complex portfolio, but that complexity also bringing the lots of growth opportunities and thats what gives us the confidence that it's a very balanced business from an opportunity perspective supported by a very strong pipeline.
And I'm good thank you.
Your next question comes from Robert Moskow of Credit Suisse. Your line is the.
Thank you and congratulations.
Thank you my other question about cash.
And the question about the crush margins and the quarter I mean, it's such an outstanding result, and I think you've mentioned that risk management or just execution played a role.
And if you look at spot margins during the quarter just looking at forward prices.
And they werent nearly that's good but I've heard that you and others have been.
Delivering results much better than that so I.
I guess my question and can explain why it's so different from what we see and the spot markets and.
And is this sustainable into two Q or are there some of new unusual aspects of first quarter that we should know about.
Yes.
No listen it was a very clean quarter from the.
And nothing that you should know about other than cash crush margins remain very healthy we have a strong product demand from both meal and the specialty oil and.
And these margins remain considerably stronger and the bed with board crush indicate particularly North America and Europe.
Look at both crush and North America or the Europe.
And from the months is about $25 million per door, and we see margins on a cash basis of.
And around $40 per ton and so there is the significant difference there.
I would say, we see as I said before we have reasonable visibility into Q2, given the book of business. We have so we shouldnt see any sort of price is there and we are expecting.
Another good quarter of of crush over there. So I mentioned before we have our switch capacity.
Soft seed margins have been good they've moderated a little bit since Q1, but they continue to be very good. So.
Oil volumes continued to the strong.
And and demands for our customers and Neil and North America, our customers are already enjoying and good margins at this point in time. So they are trying to produce as much as the ATM. So we see strong demand from both the mix of the cash.
And we feel good about it at the moment.
Okay. Thank you.
Okay.
Your next question comes from Ben <unk> of <unk>.
<unk>.
Your line is open.
Hey, good morning, everybody.
Good morning, Ben.
I wanted to focus on with two questions on the carbohydrate solutions business, which was really really solid and the quarter.
And focusing first on the starches and sweeteners business the.
You can can you disaggregate the contribution from your ethanol production out of your wet mills.
Versus the kind of core starches, and sweeteners business and all of that starches and sweeteners business.
And we're net corn cost of tailwind for you guys. I know you favorably hedged your gross corn costs.
And <unk>.
Im wondering kind of what the relationship between that hedged corn versus the strong co product values delivered and as it relates to your realized net corn costs.
And so the maintenance of a reverse order so the net corn cost what's the tailwind for us.
I mean clearly as.
As we pointed out and the last earnings call, we actually procured a lot of our requirements of the very attractive price last year, and hence we benefit from basically a very good procurement and hence net corn was a tailwind for us. Despite the fact that when you look at the board corn costs are higher right now.
With respect to the question on.
Disaggregate starches and sweeteners from ethanol.
And my only comment is one of the big improvements and starches and sweeteners and the quarter compared to last quarter last year's first quarter was the fact that we didn't have the corn oil and mark to market impact and if you recall last year, we had about $50 million negative impact due to the corn oil divergence from the soybean oil we didn't have this year. So that was clearly a tailwind.
In terms of our results.
From a volume perspective.
And when you look at the starches and sweetener of business right now.
Still.
And you look at I'm looking at corn of high fructose corn surfing and concept, we're still down versus last year. So we are we are.
Suffering from the impact of the pandemic and because of the foodservice sector does not fully recovered we indicate that we're starting to see elements of recovery and the month of March from.
The volume perspective, and the first quarter total sweetener volumes are still down versus last year right. So therefore, that's kind of a like a headwind, but we expect that to progressively recover as we move through the year. So I guess overall I mean, we've been actually pretty pleased in terms of the performance given given the particular head.
And we had and the first quarter, we were very pleased in terms of how we manage.
On the business.
April net corn procurement.
Favorable risk management, and frankly, even with the cold weather impacts to the head and the first quarter, we were able to keep on delivering to our customers, which is very very important.
Very good okay, great and my second question is on DCP and your decision to restart the dry mills, we're seeing improving driving demand gasoline demand.
Off of kind of load this year and last year.
I'm curious, though.
We've seen production and the weekly EIA numbers come out that and then a little bit lagging I think what might be expected when thinking about your facilities coming back online.
Can you help us think about your outlook the outlook for as much visibility as you have as it relates to ethanol F&B and.
And when you think about the velocity of restarting your mills.
What is your focus there or are you worried about that disrupting the F&B and ethanol at the extent.
You can give us any color on.
David.
One in the first three months of the year they are imports of proteins.
That's up 20% and.
And they continue to have very strong forecast for the importation of grains to feed animals.
So that's where we see and of course foreign prices have been expenses and China.
And.
So China has been taking up much of.
And as they can from from Europe to try to make a little bit of the substitution.
But they also don't have infinite.
And with reserves and the during this year, we think that both coal and reserve and with research and needs to be.
The replenish.
And at one point and time, we don't think that Thats happening now nobody's replenishing inventories in the face of and inverse, but we think that the makeup and later in the year of Green.
Okay and the one if I could just ask you a follow up and perhaps your comments on sort of bio based products that you made during the prepared remarks, where you're just referring to sort of of the initiatives the existing initiatives around <unk> and cardboard and steeper and acrylic acid or are there new things that youre looking at.
And we're going back to some of the old stuff like PHA or just when do you want to tell us about that anything incremental.
Yes, I think that there is the portfolio of things some of the ones. You mentioned, we have not gained going back the PHA.
But there are some.
More and more in areas like construction or pharma or per.
Personal care, we continue to find.
Customers.
Yes.
And that's kind of application development capabilities, but they want to change their input and instead of being natural gas and oil they want the plant base and.
And for that listing we have we stand on the on a great source of sugar that is of the card solution business. We have part of Mentation technologies and we have the good cost position of here in the U S and up.
As we have the capability of the critical mass. So I think that we are and attractive partner that everybody's brainstorming and looking for the solution to match their sustainability targets.
And having discussions with our theme. So there are some things that we cannot unveil right now, but we may and daily over the course of the year.
Thanks very much.
Youre welcome.
Your next question comes from Michael <unk>.
And of Cleveland Research Your line is open.
Yes. Good morning, I, just wanted to talk a little bit about South America, and maybe we could start with Brazil, and just it seems like there's been some weather issues, but the subpoena crop and.
And just trying to understand how you see kind of your volumes and business shaping out in South America over the next couple of quarters and it's net net.
At this point do we are we cheering for a bigger south American crop of smaller South American crop with respect to your overall global footprint.
Yes.
Yes, Thank you Michael.
And yes, South America.
And the weather and South America of course delayed a little bit the growth and.
And certainly is hurting a little bit of freemium.
We still expect.
Additionally April and May are Brian.
The weather months in Brazil, So that's not the grades for these and thus the with putting a little bit of the premium in the <unk>.
Whether the premium and corn.
So we expect that growth to be a little bit the smaller and.
Brazil exports of about 35% of their corn production, so that is and impacting the market.
And what are we rooting for and we are looking for larger crops, we like to move growth. So.
And the.
Soy crop is expected to be a good one maybe 130 536 million tons and so that's in check.
And and I think what Brazil is doing at the moment as maybe is getting a little bit of corn from Argentina, certainly is getting weak too.
And to try to replace some of the corn and feeling because of adjusted as I said before the <unk>.
<unk> biodiesel to defend so it's a year in which Brazil and eastern navigate with.
Very tight stocks and so it's going to be is going to be.
Michael here and a year of heavy management for.
For the Brazilian the crush and the grain side of the fleet.
Great and then as a follow up.
And just thinking ahead to 2022 with the protracted growth and renewable biodiesel combined but very or tightening the corn market I mean, how do you sort of see the acreage playing out in the U S for 2022 between corn and soybeans to meet this demand and I guess from your perspective.
I know you guys have some swing capacity, but it seems like theres other crushing capacity up and Canada phosphate three of it.
Competitors announced expansion, how do you see kind of the margin environment working out and we need the plant more corn next year. Thanks.
Yes, yes, I think that of course, the fundamental react the pricing and although.
This may be too late to shift a lot of acres of corn, given how late we are already.
I think first of all day, we'll try to plant as much as possible.
And next year as well given prices will continue to be elevated.
And listen to us as it gets tight the mark.
Market, that's an advantage of our value chain.
The procurement, our long value chain and the fact that we have such a good coverage of everywhere.
In a tight market, that's where our footprint shine and.
And we get the competitive advantage. If you will so we like to kind of a more crops, but and in period and which products are going to be tight.
We have a good system to make sure we get our hands into into the crops and because of.
And sometimes basis go up but to be honest given the strong demand and the good profitability of our customers I think we will be able to price of those team.
So I think that we are.
We are looking constructively about in terms of margins for the future.
And you talked from the acreage shift.
It's too early to tell and.
That our co manufacturers I mean, we're still trying to plant we have implanted like 10% of our described it's difficult to speculate about the 2020 two growth here.
Okay. Thank you.
Okay.
Okay.
Your next question comes from Ben Theurer of Barclays. Your line is open.
Hi, good morning, and thanks for taking the quantum of debt question and congrats on the the results.
Thanks, two quick ones and so the first of all of you gave a little bit of guidance into the into the different segments, but could you elaborate the first on.
Of the Ax service piece within and ASML and how you think about that turning turning and into <unk> and particularly in light of what we're seeing in your appendix of the cumulative crush deferred timing gains because I remember last call. You said the vast majority of close to 300 of millions.
The reverse within the first half and we haven't seen much and <unk>. So how do we think the shall we think about those timing gains and how shall we think about the underlying business within the App services, particularly from the second quarter.
And for AG services seasonally Q2 will be lower in Q1, and Thats, what happens, Maine and North America, We had a very strong Q1 in terms of North American exports again, partly as Juan indicated of delayed South American harvest and allow the export window of North America to really benefit and then we just had.
The significant demand pool, which resulted in very strong elevation margins and the first quarter. So second quarter for AG services will revert back to a more of a normal level here the demand environment still good the back of the of stellar as what we saw and the first quarter.
Your question on timing differences remember this is question right I mentioned in my prepared remarks that Theres, a bulk of 75 million related to global trade.
And ocean freight that will reverse over the course of the year and the appendix the timing effects refrigerant and <unk> are related to crush.
And just a reminder.
And the first quarter, we didn't see much of a reversal and the first quarter. Despite the fact that we had at the end of 2020 about $295 million and timing of effects and the reason being is that while we're seeing some reversals of occurring we're also building up new timing effects as you know the.
Cash and crush remains extremely strong so some of the new contracts, we're putting on and we're actually creating new timing effects and so I.
Just wanted to just kind of caution people that in this type of environment.
Even though there is about $265 million of timing effects, yet unwind because the new timing effects that will likely occur over the course of the year. We may not see the full unwind occurred this year. So that's just my only caution that want to provide.
Listeners to the call on the timing of FX. Thank you.
Okay, and then just right.
Not pushing much of your but how do you think about the extra week in the year over year basis, not on the sequential basis, just compared to the second quarter of last year, because there was obviously.
A lot of lot of things going on and some structure and some of the plants just to understand how we should put the second quarter of 21 in the context for the second quarter of 'twenty.
Yes, so and my prepared remarks, I did say that we will likely going to have lower AG services results. This year second quarter compared to last year right. So.
And don't forget and remember last year, we were benefiting a lot from the South America farmers selling side and that was extremely strong last year first quarter, but particularly the second quarter. So we're not going to see that impact. This year. So that's going to be the primary driver as to why AG services. This year Q2 will be lower than last.
<unk> Q2.
Okay perfect. Thank you very much and leave it to you. Thanks.
Okay.
Your next question comes from Eric Larson of Seaport Global Securities.
And so.
Yes, thank you congratulations to everyone and.
Thank you Ernie I'll make sure I'll make it really quick I have a couple of <unk>.
Questions debt.
One of the real near term question kind of exports over the next couple of quarters.
The USDA is way behind and I think and.
And what they are what they are giving China credit for for corn exports through the year or something like six or 7 million metric tons and.
And yet we're seeing we're seeing the cash markets.
The futures are strong, but the cash markets are nothing short of astonishing so.
Are we trying to fill some of those on price maybe.
China contracts from U S. Farmers are they are the just holding back.
I guess I'll tie it really is the U S corn market and we knew.
And the renewable oil markets are really tight candidates importing right seed from the Ukraine. So we know that the north American royalty, Mark and start tight but <unk>.
What type of is the U S corn market right now given cash prices.
Yeah, Eric listen.
We think as I said before that.
The U S continues to be competitive and the second quarter for the corn exports. So we're going to see some of those exports.
As Ray was saying before service is probably the elevation margins will not be the same because we want and perhaps the same but over time of soybean and on top of that China continues to be buying.
Everything they can they are buying corn, but theyre buying wheat as I said before from several other places.
We have sort of thing.
Whether a.
Sports and the world.
Kind of.
Part of our two goals and to dry.
Yes.
And that's got to put some pressure on wheat with all of this demand.
Plenty of infrastructure trying to recover from the cyclone and so the next day of export of ability of with dairy social.
A little bit of limited for low the index has created some pressure.
So for the moment.
Corn continues to be competitive the U S export and Gordon, but pretty soon and it will become landed in China, a little bit more expensive and weak and then.
But then weakness of getting tighter because of the by the weather. So we're looking at all of those dynamics. So it's very difficult to answer the question of specifically, but that's what our our theme and vessel day is looking at all of those done and the dynamics and making sure we.
All of our product flows.
And to fit the best origin.
Okay. Okay. Thank you, yeah, while China and flying every bushel of borrowing and sort of building I think the around the world of everywhere, but epsilon.
So the.
And the final question.
It's the longer term question that I'm really.
And what concerned about we've seen the by the administration now.
Talk about a 30%, 30% conservation plan meeting they want to put 30% of USA.
All U S land and 30% of all.
Water into conservation programs.
At the same time increase the CRP program.
Does that mean that we're on and a land grab Peter I know we're in early stages. The if the fed by land do we encourage people to put it aside because the take more farmland out of production now at the time when.
We really actually need the production of how do you. What are you what are your initial reads of the Bidens.
Recently announced conservation plans.
Yeah listen I think the administration has shown from the beginning of the core fighting climate change, we're going to be one of their priorities with the.
The board.
And we have a strong sustainability program I think that we need to start working.
And it's important the word of very closely with the farmers to try to listen.
And the farmer and.
The standard of responsibility.
At the moment, and maybe 25% of acre through and precision agriculture, which I think when the increase yields without needing more land and.
And I think that there will be of discussion with the administration and it.
And it will be of pressure between environmental and long term goals and and short term funding needs of the world the.
And the world needs the U S capacity as they need the Brazilian capacity. So this price did show that we need those acres, so I think that.
This cannot be out domestic and something that we will have the workout balancing all of the stakeholders people the needs of food.
With the long term needs for conserving the planet.
Alright, Thank you everyone.
Thank you Eric.
And then sort of final question for today I'll now return the call from just over <unk> for final remarks.
Slide 13 notes coming investor events in which we will be participating.
Before we close I wanted to note and I will the transfer transitioning to a new position as president of our seafood and dairy products and the.
And the ADM human nutrition debt.
And we'll be transitioning my Investor relations role to take from Lou third we will also continue to be the CFO for our nutrition business.
I'd like to thank our analysts and shareholders for all of their insight and support over the past three years.
And as the OE. Please feel free to follow up with me if you have any questions.
Good day, and thanks for your time and interest in ADM.
Thank you for your participation and this concludes today's conference call you may now disconnect.
Good day.
The revenue.
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