Q1 2023 Archer-Daniels-Midland Co Earnings Call
This conference call is being recorded.
I'd now like to introduce your host for today's call Megan Britt Vice President Investor Relations for ADM Miss Britt you may begin.
Thank you Bailey Hello, and welcome to the first quarter earnings webcast for ADM, starting tomorrow, a replay of this webcast will be available on our Investor Relations website.
Please turn to slide two.
Some of our comments and materials may 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.
ADM 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.
To the extent permitted under applicable law ADM assumes no obligation to update any forward looking statements as a result of new information or future events.
On today's webcast, our chairman and Chief Executive Officer, Juan Luciano will discuss our first quarter results provide adm's perspective on the current market backdrop and share progress highlights on our strategic priorities for the year, our Chief Financial Officer, Vikram Luther will review the drivers of our financial performance at the segment level and review our.
Cash generation and capital allocation results.
One we will have some closing remarks, and then he and Vikram will take your questions.
Please turn to slide three I'll now turn the call over to Juan.
Thank you Meghan and thanks to all those joining us for the call today.
This morning, <unk> reported a strong first quarter adjusted earnings per share of $2 nine.
We then adjusted segment operating profit of one $7 billion.
Trailing four quarter average adjusted ROIC of 14%.
Our performance demonstrates once again, the advantage of abms uniquely integrated value chain and broad portfolio.
Along with the team's ability to respond nimbly to opportunities aligned to the three enduring trends.
Security health and wellbeing Unsustainability.
All of these was achieved in a fluid economic environment, where ripple effects are being felt from both inflationary and recessionary pressures.
<unk> and global demand and trade activity.
The ongoing war in Ukraine.
Our team continues to find ways to rise above these challenges and meet our customers' needs for consistency quality and innovation at the return across our business units.
We have wrapped up Q1 with a strong balance sheet healthy cash flows and we are on track for our 2023, our long term strategic growth plans.
And we continue to pursue growth opportunities and increase shareholder returns in alignment with our disciplined capital allocation framework.
This quarter, we also announced several exciting milestones in our continued growth and innovation strategy, including the opening of the world's first probiotic impossible aortic production facility in Valencia, Spain, which increases our global production capacity by a factor of five.
Five.
Agreements with ADM ventures partners bride sit in believer means to advanced innovations and gut microbiome in cell based meat respectively.
On our definitive agreement with tallgrass to pave the way for carbon capture from Adm's, Columbus, Nebraska complex furthering our decarbonization agenda.
Beyond the financial highlights of the quarter, we were proud to be named one of Fortune's most admired companies for the 15th year running.
And to receive our fourth consecutive Ethisphere award as one of the world's most ethical companies.
It's an honor to be recognized externally.
It continues to demonstrate that Adm's culture and people are the engine behind our operational and financial success.
As we look back on the quarter I'd like to review it in the context of the 'twenty two 'twenty three framing we discussed in Q4, it's Paul.
Provide a few brief updates.
Slide four please.
In January we reviewed several factors that underpinned our confident outlook for 2023.
And these same factors will continue to shape our performance throughout the year.
The supply and demand situation remains fundamentally solid.
With some normalization of supply.
Long size shift in both the products is driving demand and the origins provide and supply.
Supply and transportation constraints in the Black Sea region.
Severe drought in Argentina.
The record Brazilian crop.
And a resurgence of demand in China post Lockdown have allowed our team to take full advantage of our global footprint.
Broad based food demand remains resilient across key geographies.
And we did we are seeing solid volumes and strong operating margins across visitable oils flavors sweeteners starches and wheat milling.
Demand for biodiesel and renewable diesel is robust driving continued strong gross crush margins.
The strong biofuel demand and continued expectation for growth supports our investment in new crush capacity.
The additional 150000 bushels per day from our spirit with North Dakota facility.
Scheduled to come online in time for the 2023 harvest.
Most recent nutrition growth trajectory for the year remains on course with a double digit increase in our human nutrition pipeline compared to this point in 2022.
As noted we expect this growth to be significantly weighted to the back half of the year as we managed through some destocking impacts in beverage lower margins in amino acids and the broader demand fulfillment challenges we discussed in the last quarter.
It's important to recognize that our team delivered strong Q1 results despite constantly evolving macroeconomic conditions.
Aam's ability to remain agile and apply the principles of productivity and innovation continues to position us well in a dynamic external environment.
Let me take a moment to dig deeper into examples of how we are applying our productivity playbook across the organization.
How decarbonization is helping us find paths for both innovation and growth.
Slide five please.
From a productivity perspective, we have continued to focus attention on automation within many of our key operations facilities.
Our automation not only accelerates the modernization of our manufacturing footprint.
<unk> deliver significant savings at the enterprise level.
Whether we are reducing chemical usage delivering yield improvements or supporting operational reliability.
Our automation program now has a plan to scale cost improvements across our most critical operational assets over the next several years.
Eight of our plants are currently underway and we expect that most of these will complete their automation implementation by year end.
And we're seeing operational and financial impact immediately following implementation.
Our most recent implementation Cedar Rapids is already generating millions of dollars inefficiencies in just the first few months.
Chairman the double digit returns, we expect to see from this project.
As a whole.
The impact on operating profit is significant with a target run rate of approximately $200 million per year. When implementations are complete at more than 70 facilities over the next seven years.
This is only one example of productivity measures we are undertaking to ensure ADM maintains agility given the levels of uncertainty in the external environment.
Each of our businesses and functions is identifying opportunities to drive efficiency at the scale wildly.
While maintaining our focus on growth.
Our decarbonization journey continues to move at a rapid pace and.
And it's allowing us to showcase innovation in action.
Our advantaged position in alternative fuels production has prepared us for the demand cycle that continues to rise across biodiesel and renewable diesel.
We continue to explore strategic options to convert ethanol into sustainable aviation fuel.
The multibillion dollar addressable opportunity represented by Scf alone highlights the criticality of access to low carbon feedstocks at the scale exponentially higher than what is available today.
This is why we are prioritizing the decarbonization of our Decatur complex as the first critical step in unlocking significant value.
Last year, we announced one of the worlds first ultra low emissions power plants will be built adjacent to our decades of processing complex.
Supply in ADM with low emission steam and electricity.
This leverages our world class facility that has been successfully sequestering cotwo for more than a decade.
ADM is pioneering carbon capture and sequestration.
And we are extending that expertise with a plan to triple the number of Ccs wells in the Decatur area and sequester up to 7 million metric tons of Cotwo per year.
This positions ADM as a clear leader in the ability to supply customers with low carbon feedstocks and accelerate the decarbonization of their own value chain.
And we think this is just the beginning.
I'll speak more about how we're defining that the next phase as we wrap up.
Now I would like to turn the call over to Vikram to talk about our business performance.
Thank you everyone. Please turn to slide six.
The AG services and Oilseeds team had an outstanding start to 2023 with significantly higher year over year results in Q1.
AG services results were much higher in the first quarter of 2022, and South American origination excellent risk management and higher export demand due to the record Brazilian soybean crop drove significantly higher year over year results in North America origination results were also higher driven by stronger soybean X.
<unk> and global trade solid margins and efficient execution led to strong results.
Crushing results were in line with the first quarter last year in North America, the team executed well capitalizing on historically strong soybean and soft seed crush margins and was supported by robust demand for renewable fuels and.
In EMEA crush margins were lower year over year as trade flows adjust it from the dislocations caused last year by the war in Ukraine.
Additionally, we have approximately $240 million of positive timing effects during the quarter, which included both expected reversals of prior timing losses, as we executed the business as well as a positive impact of about $100 million pull.
Pull forward from future periods as crush margins declined at the end of the quarter.
Refined products and other results were substantially higher than the prior year period.
North America biodiesel results were higher with record volumes and strong margins supported by favorable blend economics and tight diesel stocks in.
In EMEA, our domestic demand for crude oil and export demand for biodiesel drove strong margins.
Equity earnings from Wilma were lower versus the first quarter of 2022.
Looking ahead for the second quarter, we expect <unk> to continue its strong performance crushing is expected to be strong, but lower than the prior year based on current crush margins we.
We do not expect last year significant volatility that impacted energy and grain trade flows to re occur in AG services.
Slide seven please.
Carbohydrate solutions delivered solid results in Q1, though lower than the very strong first quarter of the prior year.
Starches and sweeteners subsegment capitalize on solid demand in the quarter.
North America, starches, and sweeteners delivered strong volumes and margins.
<unk> margins pressured by high industry stock levels were down relative to the same quarter last year.
In EMEA the team effectively manage margins in a dynamic operating environment to deliver improved results.
The global wheat milling business posted much higher margins driven by robust customer demand bias.
<unk> solutions continued on its strong growth trajectory with revenues increasing by over 20% year over year.
Vantage corn processors results was significantly lower due to weaker ethanol margins.
Looking ahead for the second quarter, we expect resilient demand and strong margins for our starches and sweetener products.
Ethanol margins, while improving are expected to remain below last year.
Of note. We also recognized a $50 million benefit from a biofuel producer tax credit in the prior year quarter that will not repeat.
On slide eight.
Nutrition results were significantly lower year over year versus a record prior year quarter.
Human nutrition results were in line with the first quarter of 2022 as the business continued to manage demand fulfillment challenges and destocking in certain categories.
<unk> flavors results were slightly lower than the prior year as strong results in EMEA were offset by lower results in North America.
Specialty ingredients results were higher year over year, driven by healthy margins.
Health and wellness was lower year over year.
In animal nutrition results were significantly lower compared to the same quarter last year, primarily due to much lower margins and amino acids.
The animal nutrition business, excluding pet is expected to face challenging demand conditions over the course of the year and we are taking actions to mitigate the impact. These actions include targeted cost reductions refining our go to market strategy with a more customer centric approach optimizing our.
Production footprint, particularly in EMEA.
And refocusing resources on our strongest growth categories.
Looking ahead for the second quarter, we expect year over year profit growth in human nutrition, while animal nutrition will still be lapping the higher amino acid margins from the prior year.
For the full year, we expect to achieve 10% plus constant currency operating profit growth in nutrition.
By human nutrition.
And with continued recovery in demand fulfillment and reduced destocking effects, we remain optimistic about our human nutrition sales pipeline and growth opportunities.
As we noted before operating profit growth will be heavily weighted to the second half of the year.
Slide nine please other.
Other business results were significantly higher than the prior year quarter due to improved ADM investor services earnings on higher interest income.
Captive insurance results were in line with the prior year.
In corporate unallocated corporate costs of $248 million were higher year over year, due primarily to higher financing and centers of excellence cost.
Other corporate was unfavorable versus the prior year due to the absence of an ADM ventures investment revaluation gain partially offset by higher contribution from foreign currency hedges.
We still project corporate costs to be approximately $1 5 billion for the year.
Net interest expense for the quarter increased $27 million year over year, due primarily to higher short term interest rates.
The effective tax rate for the first quarter of 2023 was approximately 16% in line with the prior year for the full year, we still expect our effective tax rate to be between 16% and 19%.
Slide 10 please.
In the first quarter, we had strong operating cash flows before working capital of $1 3 billion.
We allocated $325 million to capital expenditures as well as returned $600 million to shareholders through share repurchases and dividends.
We continue to have ample liquidity with nearly $10 billion of cash and available credit and our adjusted net debt to EBITDA leverage ratio of one two is well below our two five threshold.
Our strong balance sheet and single a credit rating provide a stable financial footing for ADM to pursue our strategic growth initiatives, while also returning capital to shareholders.
In 2023, we still anticipate $1 $3 billion of capital expenditures and $1 billion of opportunistic buybacks subject to other strategic uses of capital one.
Thank you Vikram.
Before we wrap up today I wanted to share some insights into how we're thinking about the remainder of 2023, how we're positioning the company to take on the next phase of opportunities.
We are confident that ADM will be able to deliver on our plans for 2023, despite some pockets of softer demand.
Supply and demand shifts are allowing ADM to flex our integrated value chain in support of another strong year of results.
We continue to advance partnership agreements with major players across multiple industries from regenerative agriculture to alternative proteins for sustainable fuels plant based industrial and personal care products.
All of these partnerships are supporting ADM as we evolve at pace with the external environment to capture new growth opportunities.
We see accelerated upsides emerging from product areas like bio solutions expected to grow at double digit rates again this year.
Significant production capacity coming online within the year across our three businesses to support continued demand growth.
And we are driving forward the broad base decarbonization agenda in our Decatur complex, which is unlock in both near term and a long range value for our customers across multiple industries.
With the combination of solid business performance in the quarter business, along with the strong growth opportunities across our value chain.
We expect that we'll be able to deliver between 6% to $7 in earnings per share in 2023.
And based on the strength of our balance sheet and cash position, we continue to pursue opportunities to deliver both near term value to shareholders, while positioning ADM for its next phase of growth.
We are anticipating an in depth review of the opportunities we see in the past ahead with the investment community in the fourth quarter.
We will share more details on this event in the coming months.
Thank you for your time today, Vikram and I look forward to answering any questions. You may have with that Bailey. Please open the line for questions.
Thank you.
We would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star followed by one as a reminder, if you aren't using a speakerphone. Please pick up your handset before asking your question and please do amendments on mute nicely.
Our first question today comes from the line of Tom Palmer from Jpmorgan. Please go ahead, Tom Your line is now open.
Good morning, and thank you for the question.
Morning donor to ask on.
Maybe ask how you're thinking about earnings cadence this year and in the crushing sub segment. So.
Your earnings presentation notes soybean crush margins to dip slightly in several regions of the world, but we also can see right.
Futures curve points to stronger margins in the second half of the year.
So maybe just should we be looking at the second quarter coming in below the first quarter and then a potential balance for the second half of the year or in the second quarter, perhaps looking a bit better for you than industry curves might suggest.
Okay.
I think youre right in your assessment that maybe second quarter will come a little bit lower and then.
Crush margins will race for this for the second part of the year.
In the coming quarter crush is expected to remain strong, but lower than the prior year period.
You said based on current crush margins as well as impacts from Mark to market that pull profits into Q1 remember those 100 million that I mentioned before.
Soy margins will remain solid, but again lower probably than the prior year, while canola crush margins looked to be improved in the upside.
If you think about the whole year.
Crush is positioned for another extremely strong year in 2023.
Fundamentals of the business remain strong and the structural changes are driving increased demand for both vegetable oil and meal.
In 2020 to remember Tom we held significant dislocation around the world.
Likewise 2023 will be influenced by any new dislocations with may or may not happen.
Remember that.
While Argentina, and South America, Scrushy incurred now Argentina will probably run out of beans, given they're smaller crop.
Later in the year and at that point in time certainly.
The market will help too.
Cover for that lack of meal being exported from Argentina, We think that's where the U S.
Crush margins will pick up and Thats, what the curves are showing.
So I think we would record a world soybean production, we expect soybean meal will gain in the inclusions in global fee the Russians.
And we're going to have also on our own side, we're going to have a spirit would come in at the end of Q3.
And also we're going to have Paraguay coming back online at that point in Ukraine also so when you think about this.
Operational improvements and higher refining volumes and strong refining margins.
We our view for a very very strong year in.
In AG services and royalties in 2023.
Bailey any other questions.
Hello.
Hi, Thank you.
Next question today comes from the line of Adam Samuelson from Goldman Sachs. Please go ahead. Your line is now open.
Yes, Thank you and good morning, everyone.
Adam.
Hi, I was hoping to talk a little bit more on nutrition, and maybe get a little bit more color on kind of the confidence level.
The recovery in profits as you see it through the year it sounds like that's pretty heavily skewed towards.
Towards the human side, and I guess I'm, just trying to make sure I understand kind of how much of that is it is a function of the comps getting easier lapping some of the price cost and supply chain challenges late last year.
Actual more end market growth.
Benefits from some of the new capacity and the volume that you can bring you can bring to bear.
And then as well will help us think about on the on the animal side kind of.
The growth in pad versus the pressures youre seeing on <unk>.
Immunoassay.
Some of the legacy Newell businesses.
Yeah, Adam So this is no different from what we signaled in the Q4 call. We have clearly indicated that the first half nutrition is going to be weak and the strength is going to come in the second half so let's break it down in human nutrition as we mentioned we've got a straw.
<unk> pipeline and actually customers are looking for more and more innovation and that plays to our strengths given our broad capabilities and our suite of ingredients. So we see a very robust pipeline double digit increase in pipeline and increasing win rates. So that's point number one point number two is the destocking effects.
Should neutralize we expect inventory levels to come back to regular levels and then the third is also you relate at the demand fulfillment challenges, which we experience mainly in the back half of last year. We are working through that we expect most of these issues to be resolved in the second half of this year.
So a combination of a very strong pipeline less destocking as well as less demand fulfillment challenges gives us confidence for back half loaded growth in human nutrition, we will still have growth in the second quarter. We expect maybe mid single digit growth in the second quarter. So you can see the progress roughly flat in Q1 mid <unk>.
Single digit growth in Q2, and the back half should be significantly higher versus the back half of last year, which was challenged by demand fulfillment.
On animal nutrition on the pet side, we still have double digit growth in pipeline. So we see that category continued to be strong. If you remember we signaled demand fulfillment challenges also in fact, we expect also that can be addressed over the course of this year, mainly in the second half the expecting some new capacity also to.
Come online in the second half Opex, So we feel pretty good about that on the animal nutrition side. That's been challenged because we had significant contribution from amino acids. In Q1 Q2, and also Q3 of last year. So we are lapping those margins. So it's going to take time and Thats why its going to be back half loaded we also see.
Weakness generally in feed demand as as a feed customers are looking at reformulation and consumers are going from higher value protein to lower value protein, but we are taking actions, while volume as anticipated and anticipated to be flat to slightly lower we are working to improve margin by.
Very very targeted cost actions and as well as go to market actions that I referenced so we feel good about the back half on animal nutrition for Mcdonough round perspective. So thats. The reason why nutrition is shaping up to be a second half story for the reasons I cited but we feel strong and good about the 10% plus.
Constant currency op growth in nutrition for 2023.
The next question today comes from the line of Ben Sierra from Barclays. Please go ahead, Ben Your line is now open.
Perfect. Thank you very much and Vikram.
Congrats on the results.
Thank you Beth.
So my question is just coming back a little bit too to the AG services in all seats business and I wanted to dig in a little more detail if you could share your outlook.
As it relates to the service piece of the equation, which obviously has been a very strong performer and we continue to see like the global disruption, but are you seeing some signs of improvement. So I just wanted to understand how you feel about the renewal of the Russia Ukraine.
Green deal, but also in context with everything that's shaping up in the world the demand versus supply side, and where you see pockets of opportunity maybe some market share gains and what are the risks, particularly.
To your comp.
To your current outlook. Thank you.
Thank you Ben.
Full question there.
So listen AG services delivered another very very strong quarter this year.
Got.
It was a strong in South America. It was strong in North America. It was a strong global trade through all of our destination marketing facility. So.
When you look at the Q2 of course.
In Q1, we were able to export a little bit more than maybe Brazil couldn't do it because of some of the rains and the delays we think that in Q2.
Brazil will probably take over being the large crop that they have and the cheapest origin.
Destination marketing, we're still holding margins there.
It is an important activity around the world you described the risk associated when we think about the year to year changes a lot in the recovery of demand in China box.
Lockdowns.
Sure.
The ups and downs of the crops around the world, we still have to deal with an Argentine disaster in terms of crops and with the Brazil that that has.
Very strong.
<unk> crop that is creating changes in the in the trade flows so all of a sudden.
We are sending beans from the U S to two.
To Europe to transform into biodiesel and bring in the biodiesel back, but also Brazil listened in billions to Argentina, Brazil, maybe spending a little bit both of beans. Here. So there is a lot of changes in that in that.
ADM normally takes advantage of our huge footprint.
<unk>.
Normally our footprint and our ability to.
And execute on those trade flows will become or advantage, so youre going to see that in AG services around the year.
There are two people doing things this year one is again John .
China demand coming out of Lockdown. The second is the ability of Ukraine too to continue to export as we have been doing during the since August last year of course, the corridor has been renewed at ADM, We will always do our best to make sure that that continuous on export source for the.
Ukrainians remember that that part of the world owns 25% of all the black rich soil in the world. So it's a very important.
Conditions, but very important production area.
So the.
The Colorado has been renewed but of course, there are differences between Ukrainians view in Russia views at this point in time and Unfortunately, we have seen over the last weeks instead.
Inspection of vessels being reduced or maybe a few days per week. So.
So we remain hopeful and we remain ready to help to do this I think that what we need to think fundamentally the corridor is all about the availability of bringing that production what I worry.
The accessibility.
As I said, we're sorry worries about the availability of the crop. This prolonged conflict is hurting the Ukrainian farmers and as Curt in the Russian farmers, both are dealing with issues and I think that the expectation should be the conflict not resolve for production out of this area too.
Lower over the coming years, regardless of the export corridor. So I think again short term accessibility issue long term or medium term are worried more about availability and creating the pocket substantially again.
Thank you.
The next question today comes from the line of Andrew <unk> from BMO capital markets. Andrew. Please go ahead. Your line is now open.
Hey, good morning, Thanks for taking my questions.
My first one is on the refined products segment, which came in much much stronger than we anticipated and when I look at the dynamics that you called out on <unk> on some of the other things. It seems like a lot of those are still very much in place is it possible that that is a more sustainable I.
I guess not run rate, but more achievable again in the second quarter, the things that have changed.
Thanks.
Yes, Andrew.
I think we feel pretty good.
That we will.
Execute very well in this segment and probably exceed last year's performance.
<unk>.
We have good visibility given the book that we have.
So demand continues to be there are strong and we continue to execute well.
We see the margins.
<unk>.
They continue to be there with us so there has been some.
Comments about maybe a slower ramp up of sand facilities is very.
Difficult to predict.
The ramp up of specific facilities, but when you look at all the data you see you see OLED material coming.
Soybean oil will continue to be.
A key feedstock for this is impossible to develop all these industry without the participation of soybean oil now we have a path for.
For canola oil.
To get to that source.
U S biodiesel production was up 8% in Q1.
Renewable diesel production was up like 61% versus the previous year.
We continue to flex our system to be able to bring biodiesel from from Europe to benefit the U S industry and as I said before we expect a year that will be better than last year.
And given the affordable book that we have we have visibility into that so we feel very confident about this.
Andrew.
Thank you.
Our next question today comes from the line of Ben <unk> from Stephens. Please go ahead Ben Your line is now open.
Hey, Thank you so much for taking the question good morning, everybody.
Morning, Ben.
I wanted to ask I wanted to ask about the starches and sweeteners business you called out strong core results.
Good volumes and good margins, obviously the segment was weighed on by weaker ethanol results.
Could you talk a little bit about the overall backdrop that you are seeing for the balance of the year.
And.
Operating profit has been up in the first quarter, excluding the headwinds from ethanol.
Well, so on southern sweeteners Youre right.
Let's break it down the liquid sweetener part of the portfolio, we see resilient demand and strong margins.
Given the good contracting we had last year.
And we also see increased volumes from Mexico, which helps the business. The other thing that should help over the course of the year is higher sugar prices. While you know we don't have a lot of spot business, but to the extent, we do that should be supportive of margins in the liquid sweetener side of the portfolio.
The specialty side, we are seeing strong margins, but some softness in the volumes. That's also part of sweeteners and starches in the bio solutions. When you think about the mix of the portfolio, we are moving more and more towards a bias solutions business and that has had very strong performance consistently over the last few years and again in Q1.
With 20 plus percent growth in revenue and anticipated to continue at that clip for the course of this year. So at a high level sweeteners and starches, good volumes and robust margins sort of should give us confidence that we will have a very good year again in 2023.
Now with respect to ethanol that remains the most volatile part of our portfolio of Q1 was soft.
We think Q2 is going to be a little better although lower than Q2 of last year, we had the biofuel tax credit, which we referenced which will not repeat but we also see some green shoots on the ethanol side.
We are more constructive about the outlook of ethanol for the rest of the year, Hawaii for a few reasons. One is we see ethanol stock levels coming off the peaks from earlier in Q1, two we continue to see good export demand think about what's happening even in Japan, and India. So export demand should be in the one.
$101 4 billion gallons, which is consistent with what we saw last year. We also see higher blending rates that can blend rates have trended slightly up gasoline demand continues to be strong given the strong blend economics.
So in short, while we think ethanol will likely be low from an absolute margin perspective versus last year, we still constructive generally for the rest of the year. So overall, we see a pretty strong year for carbohydrate solutions business.
Okay.
Thank you.
Our next question today comes from the line of Eric Larson.
From Seaport Global Securities. Please go ahead. Your line is now open.
Yes, good morning, everybody and congratulations on a good quarter.
Thank you Eric good morning.
So.
This probably comes.
Can't remember the last time, you actually absent.
Question, but my one of my questions today Hugo on ethanol.
<unk>.
The outlook.
Going into 'twenty four.
We look better because we now have.
We now have.
Youre potentially hopefully year end, our year round blending which.
I know, it's a disappointment it's in 'twenty four 'twenty starting in 'twenty three but.
With that that could that could consume another one and a half or 2 billion bushels of corn.
So the outlook for ethanol.
This year.
Appreciate that comes comments, but wouldn't you expect maybe that your demand would be better starting in 'twenty four and now youll have some confidence that the retailers can put infrastructure in to put the pumps.
<unk> so.
Is that is that too optimistic on my on my part.
Yes, Eric.
Let me take you a little bit higher.
The gyrations of ethanol up and down sometimes get confused it but we invest for the long term here. So fundamentally if you think about the last IPCC report.
It is strongly argues that theres going to be difficult for humanity to stay in the one and a half.
Degree.
Hitting that we should try to achieve based on the Paris agreement.
If you think about that then adaptation is what all companies and all governments are thinking about biofuels and bio products like biomaterials, our bio solutions are a key part of that adaptation so well.
Weather is ethanol, whether its ethanol getting in the pathway to scf, where there is renewable or green diesel with the recent biodiesel thats going to be a big part of the future and Adm's strong position in that competitive advantage will shine through we see the same thing as we position ourselves for.
Bio solutions volume materials again this is just.
Youre going to see governments youre going to see companies youre going to see everybody having to work together to achieve this energy transition if you will and to be able to to keep climate change to a level that is manageable, but you.
You have to think.
By your fields will be an important part of our future U S will be a key player in biofuel and ADM will be absolutely.
In a strong position to deliver on that thank.
Thank you.
Thank you.
Our next question today comes from the line of Manav Gupta from UBS. Please go ahead Manav. Your line is now open.
A quick question guys.
I'm, just a little bit what cost of crush margins to come in so sharply. We entered this year thinking a lot of new RV capacity will startup and soybean prices will actually move up that actually move down was it like too much pre buying happening in full Q1 cost this pullback in soybean oil prices and then.
So as you look at the rate stabilized prices refined product prices are still at a significant premium to one refine the technical benefits youll not see our outlook for the spread between refined and finally stabilize thank you.
Yes, so on the.
Crush margins as one noted clearly as you can also see in the.
In the curve right now Q2 look soft and the reason is because of the expectation a certain delay in renewable green diesel capacity just to be clear, we remain confident that renewable green diesel capacity is going to increase by about 1 billion gallons in 2023. The timeline has just been pushed back to the <unk>.
Second half of this year. So therefore, you see a little bit of softness in the nearby as a consequence of that the other aspect is also related to what's happening in Argentina in Argentina.
Theres more beans, given what's happened with the <unk> dollar for at least part of Q2 Theres more crush capacity. If you may that is coming online and that's also helping reduce a little bit of the nearby crush what's going to happen in Argentina by May or June timeframe, we're going to run out of beans, So that export is not.
<unk> be available so that should be supportive of crush margins beyond Q2, and that's why you see the slight inverse in the curve in the nearby and then recovering in the back half of the year. So that's really all that happened. It was transitory nothing nothing that is.
More than that is a delay delay in renewable green diesel capacity as well as what's happening in Argentina.
In Argentina.
Yes.
Thank you.
The next question today comes from the line of Steven Haynes from Morgan Stanley . Steven. Please go ahead. Your line is now open.
Hey, Thanks for taking my question.
Wanted to ask on the carbon capture.
A discussion earlier in the call and the plans to kind of triple the well capacity.
Do you know kind of timeline for when that might be completed and how much capital you are going to be putting behind that initiative.
Okay.
Yes, so at the moment we operate.
One world.
We're going to activate the second well and then bring five new wells each well.
From a capital perspective is not a big burden is something about.
$15 million to $20 million per well.
Depending on the on the cost of metals and all that so we probably are in the high end of $20 million in the low end of something like $12 million to $15 million.
<unk>.
The timeline every time, we need to have a well.
Finished is about three months so it's a relatively quickly there.
Issue is you need to go through regulatory approvals.
And that's where we are working our government affairs.
Team is working heavily with.
Dedicated area and with some of the farmers in the area. So.
So again it could happen relatively quickly probably within the next couple of years. If you will note a big burden from.
From a capital perspective, but will significantly increase our ability to pump seal to.
Underground as I said today, we have about a million tons give or take per year. This will take us to $7 million and it will be a significant boost to the decarbonization of Decatur indicate are becoming through supplier of low carbon intensity feedstocks for many industries.
Thank you.
Next question today comes from the line of Ben <unk> from Baird. Please go ahead Ben Your line is now open.
Alright. Thank you guys for taking my question.
Maybe could you touch just going back to.
Renewable diesel.
Crush capacity coming online could you just remind us about the North Dakota facility.
If theres off takes there or.
So you get to a position when it comes online.
For the 23 harvest, where youre going to have excess.
Crush capacity out there with others coming online.
Further delays and then maybe could you touch on just RVO and any kind of expectations around timing there.
Thoughts around portfolios. Thank you guys.
Alright, Thank you and thank you for the question.
Yes, as you said.
Coming along with the development of the industry ADM was to be present, bringing crush capacity.
We're doing that as you know in a partnership with an oil company.
They have the ability to move that product to make it into.
Into the fuel markets, we have the responsibility to move of course, the meal for which we've been working on the plant is coming thankfully on on time and on schedule.
To be to be with us by the harvest. So about the Q3 as I said in my remarks is 150000 tons.
1000.
Bushels per.
Per day of crush capacity.
We look at the industry.
As mentioned or I mentioned before that we look at this plant and project for two years to make sure that.
That capacity was coming on the stream prudently, we see now the industry. We see all the capacity that is coming is always needed to be able to supply. These I think the in the renewable diesel industry is still going to have an issue how to get fit for that so that will be the issue for a while I think that will make.
Mil U S meal very competitive in the world markets.
The U S is planning to take share we are part of that plan as well. So we feel comfortable about the cadence at which the plants are coming maybe some of our renewable diesel plants or come in a little bit slower than expected.
Every project is issues thankfully ours is not delayed but others are I think is going to facilitate a little bit.
The digestion of all this capacity that is coming because we need to get the feedstock for that.
I think vikram will come in and cover the second part of your question on <unk>, Yes.
As you know Ben in December the RVO proposal that came out was largely constructive for the biofuels industry and we appreciated the multi year proposal as well as the strong support for conventional ethanol. We however did not in our testimony and written comments to the EPA the opportunity for improvement in the advanced category.
Of biomass based diesel.
And it is important to note that does not in any way change our assessment of the strong renewable diesel capacity growth this year and beyond.
And this is going to come out in June we expect that the EPA is going to consider the feedback <unk> got from the industry and we are constructive about what that outlook is going to look like but nevertheless, we are confident about the growth of the renewable diesel capacity and the ongoing benefit and impactful crush margins going forward.
Thank you.
Your final question today comes from the line of Salvator Tiano from Bank of America. Please go ahead, Sir your line is now open.
Yes, thank you very much.
Wanted to go back to the <unk> services segment and understand a couple of things. So firstly when I go back to the transcript last quarter.
Your initial expectations were for earnings to be down versus last year, if I remember correctly and said they were up 35%. So.
You mentioned a lot of dislocations, but I just want to understand what actually differed sure January expectations. Firstly for Q1, and secondly, you made the comment that Q2 earnings for AG services will be lower year on year, and I think thats pretty much what everybody expected given Australia, Ukraine last year.
Just want to frame it there will be with regard to Q1, where you made.
Profits, how do you expect Q2 services to be versus Q1, and especially given the Brazil.
Selling farmers have some sold far less soybeans from last year does this mean that you can see a very big boost in Q2 from this.
From this.
Great.
Thank you very much.
Thank you sell well over for the question.
Hello.
Said our services is a very very good first quarter. This team continues to deliver and outperform some things on our own expectations.
If you think about the global trade and all the issues around the world sometimes is difficult to estimate if you will but our theme with there.
Our ability to.
To connect if you will origins with destinations and especially with the investments that we have made over the years in destination marketing allow us to capture more volume at higher margins than maybe in the past.
They have had also a very disciplined risk management and very effective one which.
We expect from them, but sometimes it's not that easy to deliver in this volatile world.
Great execution in Australia, great execution on the Black Sea origination program.
Again solid margins of destination South America, we're probably another bright points for us.
Capture higher volumes and margins.
We we were very well positioned on a crop that was very large in a farmer there was undersold, so we position ourselves properly.
And.
We got the rewards from that.
North America benefited from strong risk management, and a strong bean export programs again, Brazil was a little bit.
Delay.
Some of the range on all of that in terms of their harvest. So the U S extended the window a little bit more.
Now, Brazil, we think if you think about second quarter, and what were predicting it to be a little bit lower.
Sure.
<unk>.
No going to have if you think about second quarter last year. The same volatility that we have because of Ukraine at that point in time and that was the starting in the world was a little bit funds on what do we do we do now now we know what do we do we have channels to export the product is flowing for the most part.
So I want my previous question I think we're more worried about the productivity of the farmers of Ukraine.
Russia. Eventually later on but I think for this year, we have the ability to export that.
We expect.
Robust north American corn exports until Brazil second corn crop is available and then I think that North America will lap until.
Brazil run out of core.
We have lower North American soy exports expected in the second quarter, because Brazil will take that play so it's a little bit the shift if you will and the degrees of the shift to be honest always or sometimes are marked by the logistics issues, Brazil has a large corn crop and soybean crop and it needs to be able to move.
Add that to the board and being able to ship. It and then you have the Ukraine issue, we discussed before so.
Those are the puts and takes in general as I said.
The unit is performing very well performed exceptionally well in the first quarter.
We expect them to perform a stronger in the second quarter, but maybe not as a stronger second quarter last year.
Yeah.
Thank you. This concludes today's question answer session. So I'd like to pass the conference over to Megan Britt for closing remarks.
Thank you for joining us today, please feel free to follow up with me. If you have any additional questions have a good day and thanks for your time and interest in ADM.
Yeah.
This concludes today's conference call. Thank you for your participation you may now disconnect your lines.
Yes.