Q2 2021 Archer-Daniels-Midland Co Earnings Call
Okay.
Good morning, and welcome to the <unk> second quarter 2021 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.
Sir Senior Vice President head of Investor Relations, Chief Financial Officer Nutrition for ADM. Mr. Luther you may begin.
Thank you Shelby.
Good morning, and welcome to Aam's second quarter earnings webcast Scott.
Starting tomorrow, a replay of today's webcast.
<unk> will be available at ADM Dot com.
For those following the presentation. Please turn to slide 2 the Companys Safe Harbor statement, which says that some of our comments and materials constitute forward looking statements that reflect management's current views and estimates of.
Future economic circumstances industry conditions company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to risks and uncertainties.
<unk> has provided additional information in its reports on file with the SEC concerning.
Assumptions and factors that could cause actual results to differ materially from those in this presentation and you should carefully review the assumptions and factors in our SEC reports for.
To the extent permitted under applicable law ADM assumes no obligation to update any forward looking statements as.
Turning our result of new information or future events.
On today's webcast our chairman.
And highlight some of our accomplishments, our chief Financial Officer Ray Young.
Moments as well as corporate results and financial highlights.
Juan.
<unk> will make some final comments after which they will take your questions.
Please turn to slide 3 I will now turn the call over to Juan.
Thank you Vikram.
I'm pleased to share with you on results that continue to demonstrate our success in delivering strong on a sustained earnings growth.
As a result this morning.
Reports for fifth record second quarter adjusted earnings per share of $1.33.
Adjusted segment operating profit was $1.2 billion.
Up 44%.
Okay.
Trailing fourth quarter adjusted EBITDA.
For us about $4.5 billion on.
Almost $900 million more than a year ago.
And I'm proud to report that our trailing 4 quarter average adjusted ROIC was 9.7%.
They were both significantly higher than the 8.1% of the prior year period and also represent the achievement of our 10% objective.
I am proud of the entire <unk> team for their great results this quarter.
We're moving up to our promises on our purpose.
On the continuing execution of our strategy is delivering impressive ongoing growth for our company our customers on our shareholders.
I'd like to take a moment to highlight some of our accomplishments from the quarter.
Slide 4 please.
For the last decade, we've made cultural technology and process changes that help us revolutionize how we do our work every day.
We started with operational excellence added to that performance excellence and expanded into readiness.
Which encompass a broader array.
Over specific actions within our control to drive value creation, including profitable growth.
Now as we enter the next phase of our strategic transformation. The concepts of readiness will continue to be embedded in everything we do.
But we will categorize.
Ray as our efforts going forward as either productivity or innovation.
Productivity is about using new technologies, and thinking to automate digitize and standardize our processes.
With a levered under our control that allows us to enhanced efficiencies.
On managing costs.
1 Great example of our productivity work.
Digitalization of our procurement center of excellence.
We're implementing best in breed technology, the standardizing processes on reducing costs in on.
Our indirect procurement.
Most importantly, this certain bond cement is unleashing our colleagues to drive even greater volume by transforming the other work from tactical to strategic.
That's just 1 example of the kind of initiatives, we are pursuing under for activity.
Across the enterprise our productivity effort to collect.
<unk> are expected to deliver about $200 million in savings in calendar year 2021.
Yeah.
Please turn to slide 5.
The other pillar of our strategy is innovation.
Innovation is how we are delivering profitable growth.
On 1 of the key ways, we will support on propel our innovation work is through an initiative, we launched this year to call yes.
Yes.
RSV is a fundamental realignment of our human nutrition business commercial organization and go to market approach.
From a product.
You can focus to a more customer centric.
Market services segment, driven a structured focused on 3 global market segments.
Global Foods global beverages global health on loans.
We are now able to move from consumer inkjet.
Relative to concept to prototype to final solution more efficiently than before.
Already.
These enabling us to expand our sales pipelines and reduced our record for wind grades.
And this is only the start.
<unk> is a product.
And ambitious effort.
Encompass in talent development digital analytics, and sales enablement tools and streamline product development processes.
All designed to better match, our robust pantry and technical development capabilities for our customers need and accelerating.
In our speed to market.
Slide 6 please.
For all of ours for the tissue work is being supported and strengthened by our unique opportunity to use adm's integrated value chain to advance the decarbonization of our industry.
For example, late last year, our the case of based carbon captured on the storage partnership.
World's first for large scale project to store carbon from a volume fuel source.
Surpassed 3 million metric tons of carbon dioxide safely on permanently stored more.
More than a mile under the surface.
That's the equivalent of removing about 650000 cars from the road for the full year.
And our efforts are continuing.
We expect to sequester on additional 2.5 million tons million metric tonnes.
Every day.
Over the next 5 years and.
And we have the ability to do even more.
This project is a game changer.
A valuable and unique asset in our efforts to decarbonize, our production footprint and reduce the carbon intensity of our progress as demonstrated by our intention.
Work with <unk> to help build an innovative zero emission power plant that will utilize this carbon capture capability.
Next slide please.
Our decarbonization efforts span the entire AG value chain.
Including transportation.
Plant based liquid fuels will continue to play a growing role in transportation.
Both on the ground on India.
And we are investing to ensure we can meet that expanding demand.
In the second quarter, we were proud to announce the consumer.
<unk> for Charlotte, North Dakota's first ever dedicated soybean processing complex.
We expect our new spirit Wood facility 600 million pounds of annual oil production to help support fast expanding production of renewable diesel.
We've already.
Broken ground on the North Dakota complex and we planned for it to be operational in 2023 in time to meet growing demand.
We expect the demand for U S green diesel to continuous equivalent high rate of growth.
Increasing by about $1 billion per year.
On reaching up to 5 billion gallons by 2025.
<unk> will be a key feedstock to meet that growing demand.
And when you consider that it takes about 7.5 pounds of soybean oil to produce 1 gallon of renewable for green diesel.
You can appreciate the large potential.
Fortunately on it.
Why we are investing to grow our participation both in North Dakota, and with our expanded for refining capacity in Quincy, Illinois.
Yeah.
Slide 8 please.
Another area in which our farm to for capabilities are helping us.
Mid demand for more sustainable products is plant based proteins.
We've made substantial investments in this space from our Campo Grande soy protein complex to our Pea protein facility in North Dakota to our plant plus foods joint venture.
And as the opportunity for.
<unk> based protein accelerates by 12% per year, we're on.
We invest in further to expand our participation.
Yesterday, we announced an agreement to purchase soldier protein sales.
Southern Europe's largest producer of soy based protein products.
So on <unk>.
Our plan is a perfect fit for our growth strategy.
This represents a strategic addition to our global protein production capacity.
It is a successful growing company with 2020 sales of more than $100 million.
And I am extensively for list of customers in 65 countries.
Entries in the meat alternative confectionery protein bar pharmaceutical pet food and animal feed segment.
And it's locally sourced exclusively non GMO products are closely aligned with European consumer preferences.
When I look back on and these accomplishments ICR were ongoing strategic transformation is delivering at an accelerated pace.
Our productivity on innovation focuses on power and performance and growth in large and fast growing market opportunities.
Particularly those being.
Propelled by a strong consumer sentiment around sustainability.
Just painting, a bright future for ADM, which I'll talk more about at the end of this call.
But first I'll turn it over to Ray to talk about our business performance right, yes, Thanks, Juan and good morning, everyone.
Moving to slide 9 please.
The AG services and Oilseeds team followed up on their exceptional first quarter with another outstanding quarter.
AG services results were higher year over year, the North American origination business delivered an outstanding second quarter managing it.
Decisions effectively in a dynamic pricing environment and also achieved significantly higher export volumes driven by corn sales to China.
South American origination was significantly lower than the previous year's quarter, driven by slower farmer, selling and high commodity prices.
Impacted contract fulfillment.
Global trade performance was lower than the second strong second quarter of 2020, when customers were building inventories amid COVID-19.
Results were also impacted by timing impacts that should reverse.
Crushing at substantially higher.
Which over year results the business executed well in an environment of strong vegetable oil demand to deliver higher execution margins in North America, soy and EU soft seeds.
Results were partially offset by weaker soybean crush margins in South America, driven by lower demand for biodiesel.
In addition, there were about $70 million and net incremental negative timing effects, which should reverse in the coming quarters.
Refined products and other results were significantly higher than the prior year period, driven by continued recovery in foodservice as well as positive timing effects in North America.
Erica partially offset by the effects of the reduction in the Brazilian biodiesel mandates.
Equity earnings from Walmart were higher year over year.
Now looking ahead, we expect Q3 performance for AG services, and oilseeds to be higher than the third quarter of 2020 driven.
Driven by stronger results in crushing.
We continue to anticipate full year results that will be significantly higher than 2000, Twenty's very strong performance.
Slide 10 please.
The carbohydrate solutions team did a great job delivering results.
<unk> that were almost double those of the prior year period.
Starches and sweeteners, including ethanol production from our wet mills delivered substantially higher year over year results in a highly dynamic pricing environment, driven by about $90 million in positioning gains.
The ethanol complex as well as more normalized results from corn oil.
Sweetener volumes were higher reflecting the beginnings of a recovery in demand from the foodservice channel.
Ethanol margins improved versus the prior year period, driven by a resurgence in driving miles and.
The United States.
Vantage corn processors results for much higher than the second quarter of 2020 supported by the resumption of production of our 2 dry mills improved fuel ethanol margins and favorable performance in USP grade industrial alcohol from our Peoria complex.
Now looking ahead, we expect tightening corn markets and their effects on ethanol margins to result in the third quarter for carbohydrate solutions that is lower compared to the third quarter of 2020.
Which included strong risk management gains.
However, we expect.
Full year carbohydrate solutions results to be substantially higher than 2000.
On May 20.
Slide 11 please.
Nutrition delivered record sales and profits with 15% year over year revenue growth on a constant currency basis and.
<unk> operating profit of more than $200 million.
In human nutrition revenue was 13% higher than the second quarter of last year on a constant currency basis and operating profits were up 24%.
In North America and EMEA.
Flavors business delivered strong volume.
An improved product mix, particularly in the beverage segment.
Specialty ingredients delivered strong sales growth in specialty proteins. The results were lower due to certain onetime costs mainly in <unk>.
In health and wellness stronger sales and margins in probiotics were offset by.
Higher costs in fibers due to planned facility downtime.
Animal nutrition revenue growth was 17% higher year over year on a constant currency basis, and profits were up 44% as improved demand and margins in the amino acids strength in feed additives and.
On ingredients and better performance in EMEA.
More than offset Covid, 19, and labor related impacts in other regions.
Now looking ahead, we expect nutrition once again to deliver higher year over year results in the third quarter.
And with continued strong demand product innovation.
<unk> and great go to market execution by the team.
We are raising our expectations for full year profit growth to 20%.
Slide 12 please.
So let me finish up with a few observations from the other segment as well as some of the corporate line.
Items other business results were substantially lower than the prior year period, driven primarily by captive insurance underwriting losses, most of which were offset by corresponding recoveries and the other business segments.
As expected net interest expense for the quarter decreased year over year on lower interest rates and the favorable.
Liability management actions taken in the prior year.
In the corporate lines unallocated corporate costs of $248 million were driven primarily by higher performance related compensation accruals.
Higher <unk> offering and project related costs and transfer so costs.
From the business segment into the into the centralized centers of excellence in supply chain and operations.
In other corporate results included evaluation gain in our ADM ventures portfolio.
Looking at total corporate costs, including net interest corporate.
For the unallocated and other corporate we are still on track for the calendar year to be overall similar to 2020.
The effective tax rate for the second quarter of 2020 was approximately 14%.
We still anticipate our calendar year effective tax rate to be in a range of 14 to 16.
16%.
Our balance sheet remains solid despite a higher commodity price environment with a net debt to total capital ratio of about 29%.
And available liquidity of almost $9.5 billion.
With that I'll turn it back to Juan.
Thank you Ray.
Slide 13 please.
When I look back on our outstanding first half results for.
Following a record joining joining.
I see a team that is executing on high level on this too.
<unk> tissue that is delivering according to our plan.
We have been constantly refreshing.
Portfolio.
Divesting from non strategic businesses and redeploying capital consistent with our strategy.
In doing so we've built industry, leading capabilities to meet customer and consumer needs in high growth categories.
Such as meat alternatives.
On a category, we expect to reach more than $100 billion on sales.
Sales worldwide by 2030.
And in which our plan plus foods joint venture now is participating selling consumer products across Brazil, and readiness is north American launch.
Another example is dietary supplements.
<unk> on track to have $80 billion in sales globally by 2025.
In which we are constantly expanding our product portfolio, including our recently introduced via CT Brighton, which.
Which includes ingredients to reduce.
Cash and fatigue.
And then there is pet food, which is forecast to grow to more than $130 billion globally by 2025.
On an area in which we launched our new premium cut fruit in Mexico earlier this year.
The list goes on.
On renewable Green diesel pharmaceuticals on personal care beverages, all large high growth opportunities.
By macro consumer trends like sustainability and health and wellbeing.
And in each of those segments and more our unparalleled global.
Global footprint fully integrated value chain customer insight broad portfolio and the speed to market on.
Setting us ahead of the competition on fueling our growth.
That's why we're so optimistic about our path forward.
Of course that on.
To be short term factors for us to navigate.
But those are not things that will impact our long term success.
Our confidence is rooted in the transformation, we began a decade ago on.
On which continues with all our work and productivity and innovation.
As well as our <unk>.
With growing participation in large and fast growing market opportunities.
So to conclude we.
We have a great start of the year and we expect to continue on continuing our momentum in the second half to delivered very strong 2021 earnings.
Finally, as we've discussed we are moving to a new phase of our strategic growth plan.
With what we have accomplished over the years on capital discipline.
Targeted cost reductions and cash generation.
And moving through our portfolio transformation and our efforts to optimize <unk>.
Performance drives efficiencies and expanding strategically.
I believe we have successfully increased our base earnings power from $3 a share back in 2015 to a range of 4 to $450. This year.
And now.
As we enter the next stage of our growth.
Leveraging the key macro trends for food security health and wellbeing and sustainability with our continued focus on productivity and innovation.
And with future targeted investments.
We believe our medium term annual earnings trend.
At rate will be in the high single digit percentages from these 4 to $450 per share baseline.
With that operator, please open the line for questions.
At this time, if you would like to ask a question you may do so by pressing Star then.
On the number 1 on your telephone keypad.
Again that is star 1 if you would like to ask a question.
Your first question is from Adam Samuelson of Goldman Sachs.
Yes, Thank you and good morning, everyone.
Good morning, Good morning, I want on maybe just something you just mentioned.
On the growth prepared remarks.
The Florida for 50 baseline of EPS this year in the high single digit.
Growth thereafter, just to be clear is that should we take that asset.
Reasonably for mall EPS range for for 2021, just given the performance year to date I just wanted to clarify the tower.
Good luck.
Yes, Adam.
Listen when we were when we put together the previews phase of the strategy we were looking at.
And as I said before from $3 to land in the 4 to $4.50 area.
And achieve 10% at OFC as we started.
Thank you for those goes inside we started on the on the.
The development of the new face of the strategy. So we took that base of 4 to $4.50, and we created a 5 year plan.
When we put together that plan with all these opportunities that I highlighted and focus on productivity and.
On innovation that plan shows that from that based on $4 to $4.50, we grow over the next 5 years at a rate of high single digit growth per year. So that's what.
We said in a day.
Sure.
To slow our sales underlying.
I'm sorry.
And then just.
Market macro question, if I may just for.
Some volatility in oilseed crush margins around the world.
Of late it seems like especially in China on the soy meal.
Demand has.
<unk> has waned a little bit with fitbit substitution and it seems like the global industry is really crushing for for Venezuela, given all the Rd demand around the world can you just help us think about kind of how that rolls forward.
As we think especially with for you more heavily weighted towards soybeans.
Pressure in terms of soft.
Seed crop availability.
On the oil side as we go through the balance of the year on interest rate too.
Yes, thank you on them.
So listen we are very optimistic about the prospects for crash for the rest of the year.
On into next year.
If I go by geography of February withdrew from.
From a north American perspective margins remains exceptionally strong in North America in the $45 to $50 range.
As you said with a strong vegetable oil demand in part driven by RGB, but we had already a very good for oil demand.
And we see.
More recovery about food services on a more reopening of the economy.
And that continues to weigh on kinds of course, the old shareholder for the cash contribution.
On.
And also the tightening of supply some logistical issues in South America on allowing also U S soybean meal to be a little bit more competitive.
And global market.
We see some compression in European sorry margins.
Maybe to 10% to $20.
As prices basically from South America oil imports are pressuring crush margins.
Especially this is the time of the hearings, which Argentina umbrella.
In Brazil are the most competitive they are in the middle of the harvest.
And of course, they have reviewed their biodiesel mandate until there is more oil.
Exportable.
Although the beauty of our long supply chain is that crush margins have softened in Europe, we get the benefit in biodiesel on the <unk>.
TV.
Given that.
Brazil margins continued to remain solid for domestic plants with maybe 25% to $35.
Despite the beat them by a recent situation.
And they are expected to remain solid as they move to higher beef.
With a blended rate in the future starting I think in September.
China margins are low.
Due to high bean prices and lower soybean meal demand.
On the herd is going through a re balance there.
And at the most.
There is a lot of wheat feed bin bin fed.
And.
But we're going to go through the harvest for Wheaton and I think that's something that we see with optimism going forward is that if you look at on the substitute that we were facing last year, whether it was sort of on lower channel or.
Sun for the week.
They have they have increased their day.
<unk> inclusion in the Russians are now all those things are having is on weather issues or wheat is going to go through.
Through the harvest. So we see now the ability of soybean Midland corn inclusions to grow up.
And thus positively on who we go forward.
As you mention on our watch list is canola margins. They have weakened they were very strong in the first.
During the first half.
For a weekend on concerns of a short crop.
Driven by the dryness in Canada.
Canada margins are probably going to remain volatile.
Until there is more certainty around the Canadian crop side.
So 2 factors that we feel good about it here is.
How valuable our switch capacities in this dynamic environment margins have shifted.
And also how important it is our integration our loan value chain. If you think North America today is capturing it in crush on maybe less so in biodiesel in Europe, we don't capture that much in crush but to recapture it and biodiesel. So all this ability of our footprint will allow us to.
Paul on the margin as it moves through the value chain has been very very beneficial in this very volatile times.
That's incredibly helpful color. Thanks, so much I'll pass it on other maybe maybe on the first question that you mentioned.
Again for 2 to $4.50, as I said before just to clarify.
<unk> is our baseline we will run the exercise because that was the loans in support of our previous strategy and is not a forecast or guidance for this year.
Got it that's helpful.
Thank you.
Your next question is from Ben Theurer of Barclays.
Hi, good morning, Ben.
Hi, Ben.
Ben are you on the line.
We will go to the next question. Your next question is from Luke Washer of Bank of America.
Hi, good morning.
When you look.
So I wanted to ask you a few quick questions on your carbon carbon capture projects I think they're really interesting are.
Are you getting any 45 Q tax credits for the inflammation implementation of that technology and now that it appears that it's commercially viable do you intend to start the permitting.
Luke assets on working with other partners to build out and start capturing carbon at some of your other points.
Yes, so the answer is yes to both.
So.
We have a big permit for 4 for Decatur day, we plan to of course leverage.
And then yes, we are exploring our ability to do so for for other plants.
We've been doing these relatively quietly look since 2017 and as I said before we have a store more than 3 on the 5 million tonnes safely under the underground.
On.
This.
Meaning the ability to start.
Differentiating our products that we can assign some of the credit to some of these products and have those products for bidding low carbon intensity product. So.
So we have again.
Big experience, we've been doing this for 40 years into.
This gives us 2 different facilities.
And we feel very good about the future and this is going to be a growing part of our operations for sure.
And maybe just a quick follow up on that.
Does lower the carbon score that the carbon for Ci scores of your plants right.
Hmm.
For the furnace credit okay.
Sure.
Okay, Great and then maybe just kind of more short term question on Carb solutions. It looks like you really did well this quarter, particularly relative to expectations earlier. This year. So can you talk through the I guess the delta in your expectations and how things progressed through the quarter and maybe talk.
The $90 million and conditioning gains that you had and then you also talked about normalized resorts results for corn oil corn oil prices are really high right. Now. So are you, saying that that is a bit of a new normal because on renewable diesel.
Any other color there would be great.
Yes, let me tell you why when batteries.
Better if you will.
For your question I think that.
This was the quarter that we needed to restart the ethanol dry mills that we have taken down due to lack of demand.
We have from a technical perspective for perfect startup and certainly they hit the ground with better margins than maybe we.
Third weighted before bringing them on.
Second as we explained before we have very good risk management, the team positioned very well on corn.
On the ethanol complex.
Certainly sweeteners volume came back versus last year as customers were preparing for the summer.
And to a certain degree you might have to take both Q2 on Q3 together from a sweetener to perspective, because I think that a lot of customer bought in anticipation of refilling the pipeline given the summer on the openness with Covid that we were going to experience in the U S. So so it was a strong.
Volume months as well.
It was on on your question on corn.
Seen convergence of corn oil was soybean oil again recall last year, you saw a divergence because of the snack foods people staying at home high demand for corn oil, which is used for frying that caused corn oil prices to move up dramatically.
Purged from soybean oil and Thats whats caused evolved on the mark to market issues that we had last year. We've worked through all those issues over the course of the period, we're actually seeing right now corn on soybean oil really converging and so.
For returning back to let's say the normal relationship that we've seen in the past.
Thank you Bob.
Your next question is from Ken Zaslow of bank of Montreal.
Hey, good morning, guys.
Ken again.
You keep on tempting us with this productivity and innovation can you.
Put some color in terms of quantification on how.
How much this is going to.
Cree in not just 2021, but beyond that and how do you frame those 2.
Opportunities.
Yeah, Ken I would say if you look at our past what we have been doing over the last 5 years probably.
And if you think about translating everything we've done in productivity and innovation, we were probably 2 third in productivity and 1 third in innovation. If you will before the savings we were getting as we look at as I said before at our plan going forward.
The contribution between productivity and innovation.
Asian is equal it's about 50.50.
And.
<unk>.
And it's mainly driven by all these opportunities as I mentioned not only in nutrition, but all the other things that we're seeing whether it's by your materials.
Sure.
Renewable or green diesel and on the other things that we've done.
Again, when we look at our plan.
We start from this again theoretical $4 to $4.50 range.
We apply all these projects that are included in productivity on innovation, we see our program of that over the next 5 years growing in the high single.
Digit.
Tentage every year in operating profit so we feel pretty good about that we will be having Ken in Q4 on Investor day, where we will be disclosing much more details on much more granularity volatilities, but you can see.
See some of the things that we're doing already whether we are invested in the speed of the mood or the acquisition of soy protein.
Sure.
Or the.
Expansion of our plant in Valencia with bio please.
On the microbiome.
These areas are receiving organic growth.
<unk>.
This will be as we go forward.
And you look at this plan. This is more an investment plan that may be the previous period was so you will see a little bit more capex and a little bit more investments.
So on the size of the opportunities when I was mentioning some of the sizes of this addressable market. We have if you added some of the things I was saying.
These are market north of $300 billion in which we have positioned ourselves.
Very very well and we think that we're going to capture a nice share of.
So the opportunity ahead of us.
Let me just follow on.
Thinking about the high single digit growth rate.
To what extent do you think that is associated with the improvement and on a structural improvement in R&D.
Over the next couple.
Given how much of that is internally create.
Yes.
Let me say when I look at the 3 businesses and we move them forward through the 5 years, we see AG services on oilseeds.
Growth moderately but it.
It grows we see.
<unk> solutions being flat.
Flat to slightly declining in our forecasting and then we see a strong growth in in nutrition.
That's kind of the.
The if you will the algorithm for how the businesses move.
The AG services on oilseeds.
Part of that has been our own improvements part of that has been the industry. There has been some consolidations in the industry.
Margins are strong.
And this has been a strong demand and we trust that this is going to continue to be strong demand there are 400 million.
People in the Middle class in China that are consuming very much like U S type of consumer and thus driving sales.
San Juan is that driving improving diet.
Then there is sustainability that is driving a lot of the things that we're doing not only.
RGD, because remember that before RGB, we would already have in a very tight oil market based on on food for doing so.
<unk> parties.
Partners are structural issues.
On parties, our own improvements that we have done over this year.
Thank you very much.
The work.
Your next question is from Michael <unk> of Cleveland Research.
Yes, good morning.
Maybe you can dive a little bit deeper into nutrition and it seems like that's a good chunk of where the increase came from but maybe 20% growth.
Right should we expect for 2022 to expect 15% year on year growth from on top of this 20% level and then also on what categories are you seeing the most growth on besides plant protein.
Yes.
Michael listen when we look forward on nutrition.
Provision is going to grow somewhere in that range between 15 and 20%. So we said 15% this year.
Half into the year, we have moving to 20% so.
On something in that range.
The business is growing very strong.
We have been able to.
<unk> little debt.
Revenue during this quarter and we've been able to maintain margins.
He has been a very good job of controlling gross margins on the EBITDA margin on sales.
Our enthusiasm is not only for the categories in which we are.
Position.
But also.
On the win rates on the cash customer engagements our customer engagements.
In 2021 Cup doubled our customer engagement last year on.
The economies reopen on foodservice become more active.
Customers are more.
Willing to launch new promotions on new products something that they were not doing before.
So we see that acceleration, whether its in beverages or health and wellness for alternative proteins.
So so again I think you should think.
Conservative at least 15% per year more aggressively 20% per year, but in that range, we will be growing over the next few years.
Great and then a follow up question just shifting gears on could you talk about the impact of the recent.
A Supreme Court ruling.
Theres been some talks.
Talks about possible changes to non renewable fuel standard maybe your thoughts on the growth potential.
Or lack thereof for U S ethanol market moving forward in light of some of these policy uncertainties.
Yes, Mike It yes, there's been a lot on news regarding the recent Supreme Court.
And some of the comments from the EPA.
When you kind of cut through all the headlines and trying to understand like what's fundamentally have fundamentally happening we still believe the buying administration and the EPA has committed to fighting climate change.
And also decarbonize the economy in Biofuels frankly.
We're always in a very important part of that agenda.
So the buying administration has made it very clear that they don't intend to grant <unk> ease or the small refinery exemptions like in the prior administrations.
And as President <unk> himself instead, he said that we should be insisting on exempting. So we do expect.
<unk> Biogen EPA to take a very balanced approach towards for granting future Srs.
So when you look at supply demand balances going forward when you take a look at the <unk> balances.
And you think about the recovery of driving miles as we move through the pandemic our expectation is.
At supply demand for for ethanol for gasoline and then which translates to ethanol. We believe that it is going to result in a reasonably constructive ethanol environment for the industry over the medium term.
Now at the same time, Mike It is important to note that in the case so far.
We made a strategic decision to monetize our dry mills and so we kind of halted that process. During the pandemic frankly, because ethanol demand was very weak, but during that period, we did look at alternatives.
We took advantage to frankly explore other options and there is frankly as Juan talked about.
We've made a sustainability there is growing interest in sustainable materials and sustainable solutions and it appears that there may be some opportunities for us to explore non vehicle uses of ethanol and leveraging ethanol as a sustainable feedstock for other products and so 1 other promising areas.
Sustainable aviation fuel, our SaaS with the airline industry moving towards effectively a low carbon or net zero future SaaS appears to be an important component of how they will get there.
And just for perspective, the U S airline industry before the pandemic consumed 30 billion GAAP.
<unk> of aviation fuel a year.
So we are looking at the possibility of leveraging on our Decatur carbon sequestration site, which Juan talked about with our corn processing output at the feedstock for SaaS to get towards a low carbon SaaS product.
In addition to looking at potential.
Addition of dry mills, we are looking at the Saf concept, which frankly may give us on our option for finding another use of the dry mills and then taking those ethanol gallons off the vehicle market.
Okay.
Our next question is from Thomas <unk> of J P. Morgan.
Good morning, Brian Good morning, everyone.
On the following up on the soy protein acquisition yesterday can you provide some more color around how your strategy for cash approaching varies by region.
Yes, I think that.
The strategy.
On the specialty proteins is.
Sure.
Stay close to our customers on <unk>.
Chop with capabilities and supply.
So on and it's moving fast in terms of the products the products continued to be improved over the quarter.
So we have a strong position in North America, our heritage position in so the relative then we build our position in South America, which is very strong.
I'll remind you that that was a quarter of a billion dollar investments so significant.
Then we build the pea protein capacity in North Dakota, and now we're expanding that capacity to Europe, we have a small capacity in Europe now with these we have we have bought we have acquired.
For the largest producer in Europe, which again have.
And great footprint.
In the middle of.
Of the non GMO soybean.
Harvest area, but also has a very nice set of products.
Day sales to 60.
Different countries in many many applications. So we continue to build the capabilities. This will not be the last 1 that youre going on here in terms of announcements for our specialty protein again. This is this is these are early days, but this is a fast growing market in which we have a leadership position and we pretend to we intend to extend.
That's helpful. Thank you.
A question on China, the USDA, China's soybean and corn forecast. This month, what are you assuming for that trade in the near to medium term and how impactful crushing footprint.
Yes, listen I think that we are.
Maybe more optimistic about China Museum.
<unk> term debt than maybe with the news.
And right now.
China hasn't diamond an exceptional job of controlling COVID-19 and as such they cover recovery from that very successfully so there is a lot of economic activity on demand.
We have done a terrific job.
We embarked from the ASF pandemic day have recover so they have the consumer and they have the animals.
To actually consume.
For us they are very strategic in their purchases right now is not the time to be buying a lot of things because.
Things are expensive.
There is a crop in the U S coming on we think that that's where when they are going to come you also have to remember a couple of things.
So over the last 2 or 3 weeks, we lost 15 million tons of production around the world due to weather issues, whether it was.
The.
We pumped in Canada.
That impacted canola wheat, whether it was Russia, whether it was the impact was on sign on in wheat on whether it was the.
Corn crop in Brazil, because of drought all these products are competitive products in the Russian to soybean meal. So.
Browse product will not be available to compete with soybean meal, which will do for soybean meal at Hyatt inclusion in duration.
In our estimate given the small canola crop and you in Canada, We think that China will have to probably for 2 million tons of export of soybean.
Soybeans.
2 to offset that canola.
GAAP that they have right now so all in all we feel that we're still going to have a strong exports.
Export volumes in Q4 of this year from North America.
Okay.
Thanks very.
I'll pass it on.
Your next question is from Robert Moskow of Credit Suisse.
Hi.
And probably 1 other question good morning, I had a question about the new <unk>.
Earnings base that Youre, putting out there.
On.
Historically external factors.
Can change quickly and can have a big impact on your earnings.
And I want to know.
What do we have to believe about the external environment to feel comfort that the earnings base.
As credible that it can that you can achieve the earnings basis.
<unk> under a variety of different external environment.
Yes.
On the way, we thought about it when we put together the plan is.
I think I expressed.
Some of that before is of course, we look at.
The.
Things that we can see for the future.
You can argue the magnitude, but we give our forecast for work and we have inflation for that and we say some of these things may.
Come back to the Midland If you will.
As to the means or whatever you want to call. It so let's put the negative side.
Good day, so we consider some of that and then we look at our productivity on innovation and we said.
Can we build a robust enough agenda in productivity on innovation that actually kind of offset some of those heads.
Headwinds, whether they are headwinds on ethanol, whether or whatever your favorite crush margin into the future of where there is inflation.
And we look at that and the result of that exercise is that productivity and innovation, earning stream coming forward.
All.
On a river potential decline that we have estimated on them.
Set it on giving US a result.
High single digit growth rate in profits over the next 5 years. So that's the way we think about it. So this is not the scenario in which everything goes perfect on.
Mark.
James.
Peak level for 5 years.
In our scenario margins normalize we have inflation.
Then we are able to offset a lot of that through growth and for the productivity. That's where we are seeing in terms of our new base.
Right and in terms of things.
That are going to normalize.
Carbohydrates would be.
The first for the most.
The biggest degree of normalization, but it looks like it's kind of on a $1 billion for sure.
Yes, I would say.
Maybe.
When I was answering Ken I think.
When we look at the 3 businesses nutrition provides.
A lot of the growth in that scenario of course, you have to remember when we started.
Reporting nutrition yearly they were reporting about 300 on something million this quarter.
Order they crossed the barrier of $200 million so now.
So it is significant and you will see that in crescendo of course over the next few years as we reach a billion dollars on beyond.
Carve solution as you said.
Is.
Basically declines over the period and then we.
We have a healthy but not exuberant growth rates for AG services and oilseeds. So all in all when you look at our numbers.
It doesn't look too farfetched minority on the contrary, it's a scenario that we're very confident that's why we are making it public today.
And on a.
Without being something that our control to be on.
And last question you said that there has been consolidation in the soy crush industry and that.
As part of the reason for your confidence.
But you are opening up a new crush plant now.
Can you give a little more color about how much consolidation there has been.
What do you think crush capacity it looks like today compared to a few years ago, and where do you think it's going in the next few years from an industry perspective.
Yeah listen I think that.
There has been consolidation in the smaller regional players which has been important.
We have the example of olive.
A lot of in Brazil, We also did the soybean joint venture with Cargill and Egypt.
So.
Has been others.
Around the industry.
It's important to note is that.
We've been working.
We've been working in this expansion.
Regarding <unk> for the last 2 years. So we just announced it now but this is capacity that of course. This 1 is held by our JV, but when you think about soybean meal in North America, we need about.
2 to 3 to have said, 2% to 3% growth in demand every year.
So we need a full time.
On flex plant every couple of years, just to keep up with demand and to be able to supply. The growth. So we don't think that we don't think that any of these appeal is.
A successive on the contrary, we think that is needed to allow demand.
Demand to be fulfilled.
Okay. Thank you.
In the interest of time, please limit yourself to 1 question.
Again, please limit yourself to 1 question.
Your next question is from Ben Theurer of Barclays.
Alright, good morning.
Corn right now would try it again.
Thank you very much and congrats on the results on.
Brian bench.
Just 1.1 question if you could elaborate a little bit on the iOS $90 million on efficiency gains across ethanol and what's been driving that throughout the quarter and if that's something you're seeing.
Thank God.
Is something recurring is this a 1 off how should we think about it because it was obviously sizable within the segment. Thank you.
Hey, Ben.
Our teams do.
Do an excellent job managing risk right and when you talk about managing risks as both managing the risks of the inputs and the outputs.
And so the physician to gains that we had in the quarter.
In the second quarter and $90 million, it's a combination of what I call. The ethanol complex right. So it's a combination.
How they're managing the corn, how theyre, making ethanol how theyre managing rins all of these positions.
And as you know it was a very volatile quarter.
When you look at the prices of corn and ethanol.
And the Rins, it, but they've managed exceptionally well and so on $90 million.
Normally they would generate risk management gains we highlighted this quarter because this was an exceptional quarter.
And by the way it wasn't just an exceptional quarter. It was an exceptional first half of the year.
Because when you take a look on the first half of the year.
They probably had sufficient gains relative to similar amount in the first quarter as well. So so therefore, the carb solutions team really hit it all of the ballpark in terms of risk management in the first half of this year.
So for the future.
Here, we should expect some of it but maybe not at the same magnitude that's a fair assumption.
Yes.
I would never say.
Never ask the carb solutions team as the whole back but.
Again, they will always manage the positioned extremely well and I would say this is probably.
On an exceptional performance for the first half.
For the year.
Okay perfect I'll leave it there. Thank you very much for squeezing me in again.
Thank you Lynn.
Your next question is from Vincent Andrews of Morgan Stanley.
Hi, This is Steve Haynes on for for Vincent.
Hey, Brian.
A quick 1 in on the violence solution.
Our business portfolio, you talked about some of the other growth things.
And you've announced you've made some announcements already in terms of some some partnerships and agreements, but can you I guess can you just help us think about going forward, where you're going here.
Specific.
Trying to target growth areas would be within that.
<unk>.
Yes listen that is for business.
For a certain degree it started from customers globally.
We discovered a 1 day that the lot of the products that we were selling <unk> solutions were finding their way into non food applications non.
On the beverage application.
So now we have started with the new team.
On.
On a more proactive approach to that so we have a market based approach, where we're targeting things like construction on <unk>.
<unk> and cosmetics and on other products.
We've been very.
Successful this team has been growing.
They have been growing.
Sales of about 7 for at a 10% clip.
These are very profitable opportunities and opportunities is at this point in time required no capital because these are existing products going into new applications.
We have hired expert marketing experts on technical experts to be able to sales this into new applications and were feeling an incredible customer pool every day.
Our company out there that is announced in this decarbonization goals for 2040 or whatever needs to shift to plant based materials.
Sales from oil base in order to Decarbonize and we are the largest company in that space with the ability to provide the broadest footprint of products.
So you will continue to see growth there.
Sure.
And we are just getting started that will be my my comment.
We cannot talk a lot about as you can understand about our customer engagement. Because these are these are confidential agreements that we have on a lot of these the customers don't want to disclose what they are doing.
Thank you.
Youre welcome.
Your next question is from Ben <unk> of Baird.
Hi, Thank you very much taking my question.
The first 1 is just on <unk>.
South America gross margin.
Could you just talk about.
If there is a.
Structural change on the temp.
Brian change as it relates to the biodiesel.
Headwinds.
The second question is on M&A.
For the deal so congratulations on that.
But on.
On larger acquisition front for you.
Your experience.
1 is are there targets out there too.
Is it easier for the heavy lifting of integrate.
<unk> to do a large acquisition.
The small tuck in ones like you did you announced yesterday.
Thank you.
Yes. Thank event, so let me address South America for so.
Of course, our biggest participation is Brazil.
It has been.
Year for Brazil, This first half of the year.
In general we expect second half of the year to have the possibility to be a little better.
Biodiesel is B 12, now index has been confirmed we will have to see the first.
Auctions there.
Total cash margins are better domestic margins.
Our 25% to $30 per ton on exports about $10.
Total oil and gas.
Volumes and prices are better.
In the last 2 months, we started the year tough there.
This is a society that is going through the tougher parts of Covid.
So demand is difficult there but.
But we have seen an improvement domestic meal market is also paying for the higher for the higher soybean so.
On that group we have.
Remember, Brazil has reviews.
Exports of corn of course because.
<unk>.
Because of the drought, but the domestic market is paying the premiums so Brazil is not going to run out of corn.
And is important in a little bit from Brazil, So I would say in general.
Yes.
With oil domestic oil being supported on the volumes being there and with biodiesel going back to the 12, we expect the second half of day is to be a little bit better than maybe where the first half for us.
And the.
The second question on NIH on targets on the appetite for larger deal.
The integration of smaller deals versus non smaller deals versus the large loans.
Yes.
You know that.
We've been relatively quiet we continue.
To be very selective about these because valuations are in general for some properties.
It'll be too high so.
This needs to be a perfect fit into our portfolio.
<unk>.
And.
The perfect combination of things.
With soy protein is in terms of the footprint.
Complementarity of the of the geographic nature of it and the quality of management on the assets on the product.
In terms of what is <unk>.
On to integrate.
Think that.
I think that sometimes bolt ons added a little bit this year.
We find they fit better in a business that is already structured when you bring a large company.
You need more.
More adjustments on both sides. If you will if you think about.
The company's cash continue to operate in ADM almost like with the same agility. They were operating before whether you take protecting biopolymers and some of this company. So I think that the smaller companies have probably says tuck in.
Dan maybe large companies large companies take.
Some of it will be longer.
Yes.
Okay, great. Thank you very much.
Youre welcome.
Your next question is from Ben <unk> of Stephens.
Hey, Thanks, Good morning, everybody I appreciate you squeezing me in.
Hi, Brian 1 quick 1 for me.
You talked about.
Cash and operational flexibility to shift and flex.
Thanks for your crushing and oilseed crushing when you think about the backdrop for oil.
Question on margins across all your geographies, but in North America in particular, where things are are quite strong.
Strong driven by.
Yes.
Maybe on oil this go round.
I think for the market is able to digest appropriately switching from higher oil yields for higher meal yield.
Given the kind of relative softness in EMEA market and just how do you think about toggling between those 2.
On crush capacity in a market like this.
Listen at this point in time, we are seeing good <unk>.
Good demand for both products so.
Of course as you know.
No.
Recipe for from.
From oil day has been a big pull for <unk> and then.
RGD.
Is increasing a little bit on that but our ability to place the meal.
Given our our footprint on our commercial operations is very strong so.
That gives us a lot of confidence for North America for the second half.
Listen let me let me on the.
Yeah.
The oilseeds and AG services business will have a very strong year much better than last year, and we expect a strong second half as well that will drive the company to earnings that.
We never had before.
Clearly uncertainty will be probably on the higher side on maybe outside the range of 4 to $4.50 that I mentioned before.
Was the previous Lumpiness both of our strategy.
That's where we're seeing at the moment so.
The year to start with a strong and.
So I think that the second half will be a very strong.
Okay very good thank you Juan and best of luck on the back half.
Your final question is for Eric Larson of Seaport Research partners.
Yes, good morning, everyone and hope everybody is doing well.
Eric Thank.
Thank you Eric.
So on the I.
I know we're short on time here I'll make this question.
Pretty pretty quick and pretty direct.
It's really going back and think a little maybe Adams first question, maybe drilling down on some demand functions here in the near term.
Obviously, you've addressed the.
The global biodiesel markets whats going on there the U S ethanol all the jawboning of RFS and all that stuff, but.
People are talking about.
Some chinks in the armor and some of the Chinese demand at least in the near term.
They have walked away from a little bit of a corn imports in July which has brought.
On a thimble full and I think it spooked the market, but I.
I think the real issue here is.
As ASF in China.
Have they had a major setback in that end.
We just don't know what to kind of believe was coming out of there and now you've had the floods in Chile.
That's impacted about 10% of other growing areas killed a lot of hogs.
Is that is that is some of the near term demand function.
A piece of the Chinese pest problems that theyre having.
Okay.
Think that.
Of course as you describe.
There are many issues going on and there is a little bit of a transition here, but the reality is that corn prices have come down does real incentive a demand.
But you also need to understand that in the during day yourself people got to eat more poultry as well and we have seen the.
On the growth, we think that when when we have a better supply on cheaper supply of soybeans.
Thinks will come back a little bit more to norm, when we check with our customers over there.
Fundamentally nothing has changed.
And.
If you look at.
As I said, the Midland class in China, and you look at the indicators of Dod, which is the consumption of the big for propane.
At all higher than pre pandemic levels. So.
The consumer is there down the most out of there to be had and I think that the rest is just a month.
The tactical approaches whether you know that.
We had the big run up in corn prices in China than the government intervened to try to control that now they are lower they said more wheat I think desk on a shift to include more soybean in the portfolio in the.
The inclusion so we think that at the end of the day there may be many.
Monthly gyrations, but over time drop.
And consumption continues to grow up and they will import more soybeans.
To actually satisfy that demand so we feel we feel.
Very confident.
That all future off the demand in China.
Yeah, Yeah. Thanks, Yeah, we do seriously have issues, we have small grid issues right now withdrawals areas and now theyre going to have to supplement it with meal at some point so yes. Thank.
Thank you. Thank you everybody appreciate it.
Thank you.
There are no other questions in queue I'd like to turn the call back to Mr. Luthor for any closing remarks.
Thank you.
Slide 14 notes upcoming investor events in which we will be participating.
As Juan has already mentioned in the Q&A, we'd also like to announce that we will be hosting on global.
Global Investor day in the fourth quarter of this year during which we will be talking more about the next phase of our growth.
Particulars, including the specific date and format will be forthcoming.
As always please feel free to follow up with me. If you have any other questions have a good day and thanks for.
Time on interest in ADM.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Yes.
Yeah.
Yes.
Okay.
Allen.
Your line is open.
Thank you.
[music].
On that.