Q4 2024 Archer-Daniels-Midland Co Earnings Call
[music].
Speaker Change: Good morning and welcome to the ADM fourth quarter 2020 for Earnings Conference call.
Speaker Change: All lines have been placed on a listen-only mode to prevent background noise.
Speaker Change: As a reminder, this conference call is being recorded. And I'd like to introduce your host for today's call, Megan Britt, Vice President in Restorations for ADM. Ms. Britt, you may begin.
Speaker Change: Welcome to the fourth quarter earnings conference call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer, and Monish Patolawala, our EVP and Chief Financial Officer.
Speaker Change: We have prepared presentation slides to supplement our remarks on the call today, which are posted on the Investor Relations section of the ADM website and through the link to our webcast.
Speaker Change: 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.
Speaker Change: These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties.
Speaker Change: 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 and the materials.
Speaker Change: Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events.
Speaker Change: In addition, during today's call, we'll refer to certain non-GAAP or justice financial measures. Reconciliations of these non-GAAP financial measures to those directly comparable GAAP financial measures are available on our earnings press release and presentation slides, which can be found in the investor relations section of the ADM website.
I'll now turn the call over to Juan.
Juan Luciano: Thank you, Megan. Hello and welcome to all who have joined the call. Please turn to slide four, where we have captured our fourth quarter and full year performance highlights.
Speaker Change: Today, ADM reported fourth quarter adjusted earnings per share of $1.14 and full year adjusted earnings per share of $4.74, in line with the midpoint of our guidance for the full year.
Speaker Change: Total segment operating profit was $1.1 billion for the fourth quarter and $4.2 billion for the full year.
Speaker Change: Our trailing 4 quarter adjusted ROIC was 8.3% and cash flow from operations before working capital changes was $3.3 billion.
Speaker Change: Though 2024 presented a variety of challenges, our diligent focus on improving operations has netted positive impact across the network.
Speaker Change: We achieved strong crash volumes in canola and rapeseed, as well as in our LATAM region.
Speaker Change: We've made progress on addressing challenges in North American soy assets, reducing unplanned downtime, and improving crash volumes in the month of December.
Speaker Change: We achieved a strong year in starters and sweeteners, where improved plant performance led to 3% higher production volume year-over-year, helping several product lines in our North America business set operating profit records.
Speaker Change: We made progress in addressing demand fulfillment challenges in EMEA flavors, while successfully integrating two new flavors acquisitions announced in early 2024.
Speaker Change: We've improved our safety records significantly, with a more than 35% year-over-year reduction in Tier 1 and 2 process safety incidents across our global network.
Speaker Change: In addition, we advance key innovation initiatives in areas such as bio-solutions and health and wellness, continuing to support growing customer demand in these parts of the business.
Speaker Change: And through this, we were able to maintain a strong balance sheet to ensure continued investment in the business and return of cash to shareholders, and earlier today.
Speaker Change: We announce an increase in our quarterly dividends, making our 93rd consecutive year of uninterrupted dividends.
Please turn to slide 5.
Speaker Change: We've entered 2025 knowing that we need to remain agile to manage through shifts in both trade and regulatory policy around the world, along with the related impacts on geographic supply and demand.
Speaker Change: With a global asset base and constantly evolving product innovation, our team is prepared to pivot as needed to support the resiliency of the ag, food, energy and industrial sectors we serve.
Speaker Change: We're taking these factors into account as we define our business priorities for 2025 with an emphasis on continuing to improve in the areas we control.
First, we are focused on execution and cost management.
Speaker Change: Having made progress on the issues that impacted North American soil operations, we are applying that experience to the broader global network to drive further operational improvement and cost reduction.
Speaker Change: Similarly, we are applying what we learned from addressing demand fulfillment challenges in EMEA flavors to drive improvements in similarly challenged areas such as pet nutrition.
Speaker Change: We are actively managing our sourcing efforts to take advantage of lower pricing in many of our core input costs, such as chemicals and energy.
Speaker Change: This cost agenda has also supported realigning our focus on data analytics to identify and assess new savings opportunities quickly.
Speaker Change: We have been diligent in finding ways to prioritize our own organization's work, which has highlighted opportunities to eliminate non-critical third-party spend and structurally align our organization against our most critical efforts.
Speaker Change: As part of this prioritization effort, we announced that we're taking targeted action across both business and corporate functions to reduce approximately 600 to 700 roles, including approximately 150 unfilled positions.
Speaker Change: Decisions impacting our team members are never easy to make, and we are ensuring these colleagues are receiving transition support and an opportunity to apply for other critical roles within the company.
Subs by www.zeoranger.co.uk
Speaker Change: In total, we anticipate the result of these cost actions to deliver in the range of $500 to $750 million over the next three to five years.
with $200 to $300 million in 2025.
Speaker Change: In conjunction with improving our cost position, our second focus is on strategic simplification.
Speaker Change: As a company that has grown substantially over the past decade, we are continually evaluating how our portfolio balances the evolving needs of our customers, our expectations to achieve our returns objectives, and our ability to be the most efficient operators of each part of the business.
Speaker Change: We are considering a phased approach to areas of potential simplification.
Speaker Change: looking at our business through a variety of lenses, with a particular focus on places where we see a history of performance challenges, deteriorating demand, and or excess capacity that do not have a clear path to improvement.
Speaker Change: Assets that may require capital investment that does not meet our expected returns objectives.
Speaker Change: Opportunities for targeted synergy acceleration, including potential closures and divestiture where we see an overlap in capabilities and asset footprint.
Speaker Change: And along with these, we are ensuring our organization, both our colleagues and strategic partners, are aligned and focused on the most critical sources of value.
Speaker Change: We have currently identified a pipeline of approximately 2 billion dollars in portfolio opportunities and we will execute on this over time with the objective of maximizing value for ADM shareholders.
Speaker Change: Please turn to slide 6. We'll talk about two more areas of focus in 2025 associated with capital management.
Speaker Change: First, as we look at the strategic growth opportunities, we will continue to invest in value drivers.
Speaker Change: Our strategy continues to be based on the balance of both productivity and innovation, and growth-oriented organic investment remains part of that equation.
Speaker Change: We've highlighted areas where investments have been paying off over the past year, from our modernization and digitization efforts across our facilities, to the ramp-up of additional capacities such as spirit wood to support renewable diesel demand,
Speaker Change: to the global partnerships we have announced in REGEN-AG supporting farmers' resiliency.
Speaker Change: All of these represent targeted areas where our business segments are evolving with our customers and finding ways to deliver a strong return on our investments.
Speaker Change: Looking now to 2025 and beyond, we will continue to make targeted investments in part of the portfolio where we can drive further growth and differentiation.
Speaker Change: Whether that's continuing plant digitization and upgrading our equipment to enhance operating leverage.
Speaker Change: expanding destination marketing volumes in targeted markets, continuing to build out our decarbonization solution portfolio, or supporting the continued evolution of the biofuels and energy sector.
Speaker Change: The portfolio above represents proven winners that are not only organically improving ADM, but also helping us establish foundations for the next wave of growth.
Speaker Change: We will also continue to return cash to shareholders through our traditional channels.
Speaker Change: In 2024, we kept our focus on returning capital to shareholders through repurchases and dividends.
all while maintaining our leverage ratio at our desired target.
Speaker Change: We've extended our existing share repurchase program by 100 million shares, which we will approach opportunistically and to address dilution.
Speaker Change: We've announced another dividend increase, continuing the cycle of annual increases for over 50 consecutive years.
Speaker Change: And through this, we expect to maintain a leverage ratio of approximately 2.0 times.
Speaker Change: To summarize, looking across the focus areas for 2025, we are committed to continuing to improving the areas we control, and we feel confident that this will allow ADM to deal with external uncertainties and challenges while positioning the company for long-term success.
Speaker Change: With that, I will hand it over to Monish to share a deeper dive on 2024 financial results and our 2025 outlook.
Monish Patolawala: Thank you, Wuhan. Please turn to slide 7. Before jumping into segment performance, let me quickly recap some of the financial highlights for the fourth quarter and full year 2024.
Monish Patolawala: While the fourth quarter played out largely as expected, we experienced negative pressure from market conditions later in December.
Monish Patolawala: For the full year, we finish within our previously guided Adjusted Earnings per Share range.
Monish Patolawala: The team remained focused on key self-help actions to finish the year and enter into 2025 on a stronger footing.
Monish Patolawala: Now, transitioning into highlights on segment performance and starting with ASNO. To start, let me provide some perspective on the broader market environment and the dynamics that shape the fourth quarter.
Monish Patolawala: The operating landscape was challenging in the fourth quarter, with biofuel and trade policy uncertainty at the forefront.
Monish Patolawala: Ample global supplies, higher crush rates from Argentina, and uncertainty in biofuel and trade policy negatively impacted the crush environment.
We also experienced high manufacturing costs.
Monish Patolawala: As a result, soybean and canola crush execution margins were approximately $10 per ton and $20 per ton lower, respectively, versus the prior period.
Monish Patolawala: Also included in the fourth quarter results for our crushing subsegment were $52 million of insurance proceeds related to the partial settlement of the Decatur East and Decatur West insurance claims.
Monish Patolawala: From a food oil perspective, we continue to experience softer demand from customers as they look to cut costs.
Monish Patolawala: The origination environment was supportive in North America, as the logistical challenges related to the U.S. river level eased compared to the prior year.
Monish Patolawala: Overall, against this backdrop, AS&O's segment operating profit for the fourth quarter was $644 million, down 32% compared to the prior year period.
Monish Patolawala: For the full year, ASNO's segment operating profit of $2.4 billion was 40% lower versus the prior year.
Monish Patolawala: Looking at subsegment performance for the full year, AgServices' subsegment operating profit of $715 million was 39% lower versus the prior year, driven primarily by lower South American origination volumes and margins.
in part due to industry take-or-pay contracts.
Monish Patolawala: The stabilization of trade flows also led to fewer opportunities in our global trade business.
Monish Patolawala: Crushing subsegment operating profit of $844 million was 35% lower versus the prior year as ample global supplies drove more balanced supply and demand conditions, which negatively impacted margins throughout the year.
Monish Patolawala: Executed crush margins were approximately $10 per tonne lower versus the prior year in soybean and approximately $15 per tonne lower in canola versus the prior year.
Monish Patolawala: There were net negative timing impacts of approximately $165 million year-over-year.
Monish Patolawala: The full year also included $76 million of insurance proceeds for the partial settlement of the Decatur East and Decatur West claims related to the incidents in 2023.
Monish Patolawala: Refined products and other subsegment operating profit of $552 million was 58% lower compared to the prior year as increased pre-treatment capacity at renewable diesel facilities.
Monish Patolawala: Higher imports of used cooking oil, aggressive competition among food oil suppliers to serve customer demand, and biofuel policy uncertainty negatively impacted margins.
Monish Patolawala: There were net negative timing impacts of approximately four hundred and thirty million dollars year over year
Monish Patolawala: Equity earnings from the company's investment in Wilmar were $336 million for the full year, 11% higher compared to the prior year.
turning to slide 8.
Monish Patolawala: Carbohydrate solutions unfolded as expected in the fourth quarter as operating profit was largely in line with the prior year.
Monish Patolawala: The results reflected robust demand for ethanol, however, higher industry production drove a lower margin environment.
Monish Patolawala: Results also reflected strong North American starches and sweeteners performance, as well as $37 million of insurance proceeds related to both the partial settlement of the Decatur East and Decatur West insurance claims.
Monish Patolawala: For the full year 2024, Carbohydrate Solutions' segment operating profit of $1.4 billion was flat compared to the prior year.
Monish Patolawala: Starches and sweeteners sub-segment operating profit of $1.3 billion was slightly higher compared to the prior year as strong volumes and margins in North America were offset by weaker co-product values and lower margins in EMEA and ethanol.
Monish Patolawala: The full year also included $84 million of insurance proceeds for the partial settlement of the Decatur East and Decatur West claims related to the incidents in 2023.
Monish Patolawala: Vantage Corn Processors sub-segment operating profit of $33 million was 28% lower compared to the prior year as lower margins due to the higher industry production more than offset robust demand for ethanol exports.
and Ismael Roig.
turning to slide 9.
Monish Patolawala: In the fourth quarter, in the nutrition segment, weaker consumer demand and ongoing headwinds from unplanned downtime at Decatur East drove lower organic revenue.
Monish Patolawala: Operating profit was $88 million in the fourth quarter, higher year-over-year due to improved mix, lapping the negative non-recurring items in the prior year and insurance recoveries of $46 million related to the partial settlement of the Decatur East insurance claim.
Monish Patolawala: The quarter also included a negative impact due to higher cost of goods sold associated with the termination of an unfavorable supply agreement.
Monish Patolawala: Full-year nutrition revenues were $7.3 billion, up 2% compared to the prior year.
On an organic basis, revenue was down 3%.
Monish Patolawala: Human nutrition revenue was roughly flat organically, as headwinds related to the unplanned downtime at Decatur East and Texturance pricing offset improved mix and volumes in flavors and health and wellness.
Monish Patolawala: Animal nutrition revenue declined due to unfavorable mix, negative currency impacts in Brazil, and lower volumes due to demand fulfillment challenges.
Monish Patolawala: Full year nutrition segment operating profit of $386 million was 10% lower versus the prior year.
Monish Patolawala: Human nutrition sub-segment operating profit of $327 million was 22% lower compared to the prior year, primarily driven by unplanned downtime at Decatur East and higher manufacturing costs, partially offset by improved performance in the health and wellness business.
Favorable Mix in the Flavors business and M&A contributions.
Monish Patolawala: The Human Nutrition sub-segment full-year results also included $71 million of insurance proceeds for the partial settlement of the Decatur East claim related to an incident in 2023.
Monish Patolawala: Animal nutrition subsegment operating profit of 59 million dollars was higher than the prior year due to higher margins supported by cost optimization actions to improve mix and an increase in volume.
Please turn to slide 10.
Monish Patolawala: In 2024, the company generated cash flow from operations before working capital of approximately $3.3 billion, down 30% relative to the prior year due to lower total segment operating profit.
Monish Patolawala: Despite the decline, solid cash generation supported our ability to invest in our business and return excess cash to shareholders.
In 2024, the company returned.
and Sherry Purchases.
Monish Patolawala: allocated $1.6 billion to capital expenditures to support the reliability of our assets and cost efficiencies, and approximately $1 billion to M&A announced in 2023 and completed in January 2024. Our strong capital structure remains a critical differentiator for the company.
Monish Patolawala: We will continue to seek opportunities to further strengthen our balance sheet to provide us financial flexibility to organically invest in the business to enhance returns and create long-term value.
as Juan mentioned.
Monish Patolawala: Targeted portfolio simplification actions, including consolidation and divestiture, will help align our focus on value creation.
Monish Patolawala: At the same time, we remain committed to returning cash to shareholders and will look to offset dilution and opportunistically seek share repurchases.
Monish Patolawala: We recently announced an increase in our quarterly dividends as well as an extension of our share repurchase program, which is up to an additional 100 million shares over the next five-year period.
Please turn to slide 11.
Monish Patolawala: We have already touched on some of the external market dynamics that we navigated in December, and several of these dynamics are expected to persist and create pressure on our first half results for 2025, particularly for our AS&O segment.
Monish Patolawala: These include market headwinds related to U.S. biofuel policy uncertainty that have negatively impacted U.S. vegetable oil demand and biodiesel margins.
Monish Patolawala: Higher global soybean stock levels and an increase in Argentinian crush rate, which have pressured global soybean meal value.
Monish Patolawala: and Trade Policy Uncertainty with Canada and China, which has driven volatility for canola crush margins.
Monish Patolawala: Taken together, these factors are driving significantly lower meal and vegetable oil values, which is reflected by replacement crush margins in North America near $40 per metric ton for soybean and $50 per metric ton for canola.
Monish Patolawala: In both cases, these are well below the levels that we experienced in the first half of last year.
Monish Patolawala: One clear indication is board crush values signaling a carry in the market in the second half.
Monish Patolawala: Additionally, as we progress through the year, we expect policy uncertainty to clear and strong fundamentals to support better crush and biodiesel margins.
Monish Patolawala: In particular, we expect clarity on 45Z guidance to support strong U.S. demand for crop-based vegetable oil.
Monish Patolawala: We also expect expansion of global biofuels policy to support global vegetable oil demand.
Monish Patolawala: Key examples include Brazil with increases in biodiesel mandates and the newly implemented SAF mandates in Europe.
Monish Patolawala: Lastly, we expect improvement in the livestock sector to support robust meal demand.
Monish Patolawala: Overall, with the market set up into 2025, we are focused on operational improvements and accelerating cost savings to partially mitigate the less favorable market conditions and be in an excellent position to capture opportunities in the second half.
Monish Patolawala: Turning to slide 12, we have provided details that support our 2025 outlook for each segment for the first quarter and the full year.
Monish Patolawala: Starting with Ag services and oil sales, in the first quarter, we expect segment operating profits to be down approximately 50% relative to the prior year period, led by declines in crushing and RTO.
Monish Patolawala: On crushing, we anticipate both soybean and canola execution crush margins to be significantly lower than the prior year period.
Monish Patolawala: In RPO, lower biodiesel margins are expected to drive significantly lower operating profits for the subsegment in the first quarter compared to the prior year period.
Monish Patolawala: For the full year, we expect ASNO segment operating profit to be below to similar with 2024.
Monish Patolawala: Operational improvement should support higher volume and lower manufacturing costs, which will partially offset the impact of lower margins for the segment.
Monish Patolawala: For the full year, we expect soybean crush execution margins to range from $45 to $55 per ton, down approximately $5 per ton at the midpoint versus the prior year.
Monish Patolawala: We expect canola crush execution margins to range from $50 to $70 per ton, down approximately $20 per ton at the midpoint compared to the prior year.
Monish Patolawala: We expect insurance recoveries related to the Decatur East claim of $25 million compared to the total recoveries of $76 million in 2024.
Monish Patolawala: In carbohydrate solutions for the first quarter, we expect segment operating profit to be lower by approximately 5% to 15% compared to the prior year period.
Monish Patolawala: In ethanol, robust export demand is likely to support strong volume.
Monish Patolawala: However, higher industry run rates are expected to result in break-even ethanol EBITDA margins.
Monish Patolawala: For the year, we anticipate ethanol EBITDA margins to be in the range of $0.05 to $0.10, down approximately $0.10 at the midpoint compared to the prior year.
Monish Patolawala: We expect insurance recovery of approximately $10 million compared to the insurance recovery of $84 million in 2024.
Monish Patolawala: In nutrition, we expect first quarter operating profit to be down 50% compared to the prior year period.
Monish Patolawala: We expect to face higher raw material costs and negative impacts associated with continued downtime at Decatur East.
Monish Patolawala: We also expect lower demand for plant-based proteins, higher insurance costs, and increased competition in texturants to drive lower margins in the segment.
Monish Patolawala: For the full year, we anticipate nutrition operating profit to be higher compared to the prior year with low to mid-single-digit revenue growth led by our flavors business.
Monish Patolawala: Strong performance from recent acquisitions and improved supply chain execution is expected to support increased volume and an improvement in cost and human nutrition, helping to offset the headwinds associated with the ramp-up of operations at Decatur East.
Monish Patolawala: In animal nutrition, we anticipate continued mixed benefits from cost optimization actions as well as an improvement in profitability of our pet business.
Monish Patolawala: We expect insurance recovery of approximately $25 million compared to insurance recovery of $71 million in 2024.
Now looking at the consolidated outlook on slide 13.
Monish Patolawala: Earlier today, we announced that we expect adjusted earnings per share to be between $4 to $4.75 per share.
Monish Patolawala: In considering this range, it is important to keep in mind the following.
Monish Patolawala: We expect lower margins in ASNO and CARB salt to create a material headwind.
Monish Patolawala: We expect to reverse the negative take of pay impacts in ag services from last year.
We also anticipate less insurance proceeds in 2025.
Monish Patolawala: We currently expect approximately $60 million in 2025, with approximately 60% coming from reinsurance.
Monish Patolawala: This is compared to total insurance recoveries of $231 million in 2024, with approximately $133 million coming from reinsurance in 2024.
Subs by www.zeoranger.co.uk
Monish Patolawala: Looking at our other guidance metrics, we anticipate corporate costs to be within the range of $1.7 billion to $1.8 billion.
Monish Patolawala: We expect the benefit of cost actions and a decline in net interest expense in corporate to be more than offset by the elevated legal cost and the reversal of performance-based reductions in incentive compensation relative to 2024.
Monish Patolawala: In other, we expect lower results in ADMIS compared to the prior year due to lower interest rates.
Monish Patolawala: We expect capital expenditures to be in the range of 1.5 to 1.7 billion dollars, and we expect DNA to be approximately 1.2 billion dollars.
Monish Patolawala: We expect our effective tax rate to be higher in 2025 in the range of 21 to 23% due to the sunset of the biodiesel tax credit, a shift in geographic mix of earnings, and an expansion in the global minimum tax.
Monish Patolawala: Lastly, we expect diluted weighted average shares outstanding to be approximately 483 million shares and our leverage ratio to be approximately 2 for the full year.
Monish Patolawala: To conclude, I want to take a moment to thank our ADM colleagues for their focus, adaptability, and contributions through the close of 2024.
Monish Patolawala: These organizational efforts have been critical in driving progress and meeting challenges head on.
Monish Patolawala: As we navigate 2025, our focus will remain on what is within our control.
Monish Patolawala: A full commitment to remediating the material weakness and making strides to strengthen our internal control.
Monish Patolawala: Driving execution to improve operational performance and lower cost, while sustaining functional excellence.
Monish Patolawala: Unlocking additional capital to drive value and position the company for long-term success.
Monish Patolawala: These efforts position us in our ability to navigate the current dynamic environment and reinforce our confidence in delivering on our commitments.
Speaker Change: Before I turn it back to Kwan, I wanted to briefly mention a leadership transition we announced last week and that officially will take effect on March 1st.
Monish Patolawala: Kerry Nichol is joining us as our new Vice President and Chief Accounting Officer.
Monish Patolawala: She joins us from Cargill, where she served as Senior Vice President, Chief Accounting Officer, and Global Process Leader.
Monish Patolawala: I am excited to make this important addition to our leadership team and I look forward to working with her.
Back to you, Juan.
Juan Luciano: Thanks, Monish. I'll briefly close by recapping our focus as we continue the path into 2025.
Juan Luciano: With the uncertainty we've noticed in the external environment, ADM is prioritizing an internal focus on the areas we can best control.
Juan Luciano: While administering this self-help, we'll remain agile and ready for opportunities that may present themselves along the way.
Juan Luciano: Our focus on execution and cost management will drive savings to the bottom line, while ensuring that we're managing our assets and overall network as effectively as possible.
Juan Luciano: Our focus on strategic simplification will deliver opportunities to optimize our portfolio and organization around those areas that deliver strongest returns and where we are the strongest operators.
Juan Luciano: Our focus on strategic growth will allow us to organically invest in proven winners while also ensuring our business is ready for the future.
Juan Luciano: and our focus on capital discipline will position us to continue the return of cash to shareholders through dividends and selective share repurchases.
Juan Luciano: We are confident that this equation sets ADM up for success in 2025 and ensures we have necessary optionality in both the short and medium term while keeping our eyes on longer term opportunities ahead.
Juan Luciano: With that, we'll take your questions now. Operator, please open the line.
Speaker Change: Thank you. As a reminder, if you'd like to ask a question, please press star 951 on your telephone keypad.
Speaker Change: Our first question for today comes from Tom Palmer of City. Your line is now open, please go ahead.
Good morning and thanks for the question.
Morning, Tom. Just trying to get the trick.
Speaker Change: On the nutrition segment, I wanted to make sure I understood the expected profit recovery. It implies a pretty big inflection as the year progresses.
Speaker Change: You noted one cue has some maybe heightened headwinds, sounds like...
Speaker Change: at least for the second quarter. I wasn't sure if it was second quarter or for the full year. The startup at Decatur's noted as a headwind.
Speaker Change: And then you've got the insurance headwind, especially in the second half. So just trying to understand what really drives that inflection. Is it the belief that end markets get better? Is this cost savings plan maybe more concentrated in this part of the business? Thanks.
Speaker Change: Yeah, thank you Tom for the question. Listen, nutrition has a big self-help story inside themselves as we have in ADM, of course.
Speaker Change: There is one bucket that is the Decatur East plant, which is a specialty ingredient that is a big headwind, and until we can bring the plant back, that will continue to be. So that is going to happen in the first quarter. Hopefully the plant will be back in the second quarter, we expect, and that will naturally bring an improvement to the results.
Speaker Change: The other bucket is a bucket that continues to go very well, which is, if you think about flavors and if you think about biotics.
Speaker Change: Those businesses are going very well, they have grown 7% and 10% respectively in revenue in 2024. So that's going to continue and that's basically execution of their pipeline and their pipeline is very robust and very good.
Speaker Change: And I would say the third bucket is you have this steady improvement month over month, quarter after quarter of animal nutrition.
Speaker Change: which is not a revenue story, but it's a margin improvement story. So you have three different things, and when you put them all together, we see a strong recovery in the last half of the year for nutrition.
Speaker Change: Tom, just to add, and I know you already picked it up, but just for math, you know, when you look at it sequentially, so you're right, Q1 starts softer. Sequentially, after adjusting for the insurance recovery, which you have 46 million, we expect those results to be pretty much in line, Q1 equals Q4.
Juan Luciano: And as Juan mentioned, the manufacturing cost, all the self-help starts kicking in.
in the second quarter, the fourth quarter. Okay.
Anderson. Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Andrew Strelczyk of BMI. The lights are open, please go ahead.
Speaker Change: Hey, good morning. Thanks for taking the question. I wanted to ask now that we've got, you know, the 40.
Speaker Change: Hey, how are you? I wanted to ask about your view on vegetable oil demand, soybean oil demand in particular, now that we have the 45Z guidance kind of, you know, behind us to a certain extent.
Speaker Change: and, you know, the imported UCO that's not going to qualify for tax credits.
Speaker Change: You know, in kind of your first half, back to half summary there at slide, you gave what I would say is a reasonably constructive outlook for vegetable oil demand, and so I guess, you know,
Speaker Change: I'm just curious for how you think about the puts and the takes around that because I know there's a lot of concern in the market and then kind of subsequent to that, you know, if you think about all the uncertainty that's impacting the first quarter, is there a way to think about kind of the first half back half?
Speaker Change: earning split relative to what is typical for you guys. Thanks.
Yeah, thank you, Andrew. A lot to unpack there.
So, yes, we received guidance from 45Zs.
Speaker Change: in January, and I think it was constructive, but there's still a lot that's in the air. We still need to finalize that guidance.
Speaker Change: Probably it's not going to happen until the end of Q1, and by that time we might have solved already Q2, so we have to see how that evolves, so we have to be cautious with that.
Speaker Change: On the other hand, when you do the math, that probably implies an extra maybe half a million tons.
of
Speaker Change: of oil demand by Yuko that is not going to qualify for this. Our team anticipates that soybean oil share will be up from 35 to 40 percent and maybe Yuko down from 20 to 14 percent.
So I think that this is a year in which...
Speaker Change: Right now, the ag services and oil industry is trying to digest this extra capacity, if you will, extra production, because we have North America, we have Brazil, and we have Argentina producing, crushing a lot.
and also this big uncertainty not only on tariffs.
for imported products, but also the policy uncertainty around biofuels.
Speaker Change: We think that as these policy uncertainties start to clear through the year, we're going to see margins improving. And you can see that in the currency in the market for cash.
going forward.
Speaker Change: We are excited about the manufacturing improvements we're going to have.
Speaker Change: And we are excited about the fundamental demand that when these clouds of uncertainty, regulatory, will clear, you will see that...
Speaker Change: The livestock area is very strong, and soybean meal continues to be the most beneficial.
Speaker Change: mandates that are coming around the world. I think Monish referred before in his previous remark about SAF in Europe, but also it's Indonesia, also it's Brazil increasing their biofuels.
Speaker Change: And when we clear 45Z, we're going to have that extra demand from the U.S.
Speaker Change: So, we see a first half, second half, different pattern than other years, and very hard to quantify what else on one or the other, because it will depend more on governments and clarifying the regulatory environment, which...
We can only adjust to, but we cannot manage.
Subs by www.zeoranger.co.uk
Great. Thank you very much.
Speaker Change: Thank you. Our next question comes from Ben Thurow of Barclays. The line is now open, please go ahead.
Ben Thurow: Perfect, thanks. Thank you very much and good morning. Just wanted to follow up on your guidance, Cadence for Act Service and All Feeds, similar to what Tom had on nutrition, but
Speaker Change: If we look at it, obviously, Q1 is a very tough comp, and you already indicated that to be 50% down. But then in order to get to just slightly below 25 levels, as your guidance indicates,
Speaker Change: That would mean that 2Q onwards, we should see improving trends on a year-over-year basis. And I just would like to understand if you can help us reconcile that with lower insurance...
Speaker Change: proceeds but then at the same time you assume canola and soybean crush to be lower for the year. So I just wanted to understand what is else in there that helps us to get those profits to in line to below versus 24 with such a tough start in 1Q.
Speaker Change: Yeah, I think part of the tough start in the queue is because although you see some canola margins maybe rebounded recently, when we put our book, we put our book at lower numbers because we put it here in Q4. So maybe our Q1 is even lower than maybe what current conditions are.
may indicate. When we think about
Crash margins approximately around $40 in Q1.
Speaker Change: We are expecting full year grass margins in the range of 45 to 55.
Speaker Change: dollars per ton for soy, that's about five dollars lower than the average of last year, and canola 50 to 70, that's probably 20 bucks lower than last year.
Speaker Change: And again, you have to include here all the improvements that we expected in manufacturing for the business.
Speaker Change: If you recall last year we were doing a lot of
Speaker Change: Project Automation and Digitization in the CARB Solutions area, and I mentioned before
Speaker Change: that we have run an experiment with the oilseed plant in Brazil, and now we have the result of that experiment that we are bringing.
Speaker Change: some of those learnings. So we expect a lot of self-help coming to AgServices and OSIT, and we also expect destination marketing to grow, our direct farming procurements also to improve or to grow.
Speaker Change: and soybean oil should become significantly better in the second half of the year.
Juan Luciano: And then I would add to Juan's comments just, you know, when you think about RPO or biofuels and what clarity that gets.
Juan Luciano: That should allow the second half to be far stronger than the first half.
Juan Luciano: and Juan already mentioned, when you look at the forward curve, the carry is pretty strong in the second half.
Juan Luciano: And, you know, we are open for business quite a lot in the second half, so hopefully we are positioned to take advantage, to capture as that goes. So all that put together, why you start pretty soft in Q1.
Juan Luciano: and then you move yourself up, but you're right, it's a second half story and that's what we'll have to watch. Multiple factors, you're watching, we're watching the same.
Juan Luciano: whether it's weather, whether it is crop yields, et cetera. So as we know more, we'll keep you posted, but that's how we see it right now.
Thank you. Thank you.
and Michael. Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from Heather Jones of Heather Jones Research. Your line is now open, please go ahead.
Good morning. Thanks for the question.
I wanted to ask,
Speaker Change: Good morning. Just wanted to, first of all, clarify that your guidance doesn't include any expected impact from tariffs. And then secondly, even if it doesn't include it, if you could just
Speaker Change: Flesh out how that would look for you guys, how you have to be thinking about it, the impact on your operations, you know, particularly in North America. Thanks.
Speaker Change: Thank you, Heather, for the question. Yeah, our guidance doesn't include any impact on tariffs, as is so difficult to predict at the moment. Tariffs imposed by the U.S. government tend to have a slightly positive benefit to us, whether it lies in, you know,
Speaker Change: barriers or something. The issue is that the retaliatory measures, if you will, that others may apply to us.
Speaker Change: As you saw, you know, of course, Mexico and Canada have been postponed for a month. The China retaliatory measures doesn't include agricultural products at this point in time.
is difficult to know. I think in the short term.
Our teams are making sure that
Speaker Change: They are doing everything possible to avoid the short-term impact. I think medium-term and long-term trade flows seem to stabilize. But of course, we saw in 2018 how the corn imports from China were reduced by almost like 9 million tons from the U.S.
Speaker Change: Whether that's going to be something that's going to happen again or not, we'll have to see.
Speaker Change: Again, when you think about the power of ADM in terms of our origination in so many parts of the world and our destination marketing in so many parts of the world, it provides an optionality that few companies have in order to be able to capitalize on any environment.
Speaker Change: We don't know if net-net it will be a positive or a negative, but we will go through as we went in 2018.
Thanks so much.
You're welcome.
Speaker Change: Thank you. Our next question comes from Stephen Haynes of Morgan Stanley. The line is now open, please go ahead.
Good morning and thank you for taking my question.
Speaker Change: Why don't you come back to Argentina and their recent export?
Speaker Change: Tax Revision across the Soy Crush Complex, and if you could just briefly, I guess, talk about, you know, how you think that's going to impact your businesses and then
Speaker Change: How maybe you see that policy evolving after after June because I think that's kind of when they had framed
you know, the current revision period for. So, thank you.
Thank you for the question, Stephen. So let me...
Speaker Change: This policy was implemented, as you said, effective until June 30. Pretty difficult what's going to happen after that, predict, because it depends more on microeconomics of Argentina, so it will depend on many, many factors. I would say, until then, we haven't seen a big impact yet, mostly because...
Speaker Change: they are still going through the harvest and through the planting. Second, because
Speaker Change: You know, and I'm a farmer in Argentina, we're all worried about...
Speaker Change: The weather in Argentina and the crop in certain places doesn't look terrific. We need rains that are expected to come, but those rains may just stabilize the yields, but not being able to turn around that.
Speaker Change: And then there are details about the implementation of this regulation that we need to be observing. Before all these...
Speaker Change: You needed to bring the dollars into Argentina 30 days after your shipment.
Speaker Change: Right now, if you want to qualify for this reduction in exports, you need to commit that you're going to bring the dollars of 95% of all the amount within 15 days of issuing the license.
Speaker Change: So, before you have 30 days from shipment, now you have to bring the money 15 days after you get the export license. So, that's a big financing charge, a change in the thing that I don't know how it's going to impact. So, we will have to see in April with the farmer's seeds on top of their harvest, and they have from April to May to...
Speaker Change: to June to be able to play this, how much it's going to be. At this point in time, we haven't felt much.
Thank you.
Welcome.
Speaker Change: Thank you. Our next question comes from Uran Sharma of Stephens. Your line is now open, please go ahead.
Great, thanks for the question.
Uran Sharma: I wanted to see if we could unpack 45Z guidance a little bit. I know there's been...
Uran Sharma: So, we've seen some smaller operators already seize shutter production, we just weren't sure about the larger producers, so wanted to kind of get your take on 45Z guidance and then the State of the Union on the biofuels industry.
Uran Sharma: Yeah, let's see if I can provide some clarity to that. First of all, this is preliminary guidance and of course it needs to be ratified after the comment period and then we need to see what the Trump administration will decide on this. So...
Uran Sharma: This still needs to be played out. I would say, with the removal of the Blender tax credit,
Uran Sharma: Margins have been significantly impacted, so you may see some small producers that, in the absence of all these, when they are not integrated, are isolated plants.
Uran Sharma: They have shut down. We were expecting to do that. Our integrated facilities, all our facilities are integrated.
Uran Sharma: have allowed us to continue to operate, although we see the impact in the Q1 margins that we're going to have as we have Q4 margins. So, the industry definitely needs
Uran Sharma: need to bring some margin back into it. More importantly, we need to bring clarity because lack of clarity has pulled people off the market.
Uran Sharma: and having an output for the farmers' production. And I think that in that sense, a strong biofuel policy, a strong export policy, a strong biosolutions type of product are all going to be very supportive.
Britt, appreciate the color.
Thank you
Speaker Change: Thank you. Our next question comes from Manav Gupta of UBS. The line is now open, please go ahead.
Speaker Change: Good morning. I'm sorry. I dropped off briefly. So if somebody has already asked this, I apologize. But Monish, your key priorities when you took over, your focus was one on operational rigor and second, ensuring there are no material weakness in financial reporting. And what's the progress been on those two fronts? Thank you.
Speaker Change: Yeah, thank you, Manav. I would say on both, and I'll start with the material weakness. As I said at the end of my prepared remarks, that is one item that we are very heavily focused on.
Speaker Change: which I'm focused on and the progress on that and I'll start by just saying you know when we talked to you three call and you're asked the question I'd said the company had enhanced the design and
Speaker Change: controls and documentation of intersegment sales. So we have continued to do that this quarter. We have continued to provide a lot of training to our personnel around the reporting and recognition of intersegment sales.
Speaker Change: We have enhanced and tested a lot of controls, and we need to continue to make sure that that is sustained for a period of time before we can lift the material weakness.
and that's what the teams are focused on.
Monish Patolawala: We also made an announcement where we've got Kerry Nickell, who's joining us as the Chief Accounting Officer, who was from a similar role in Cargill, and I'm excited to have her on board and my partner to help me continue this journey that we have started on remediating our material weakness.
Thank you.
Monish Patolawala: So, to answer your question on operating rigor, you can see that we've made progress in Juan's comments. You can hear that some of the items where we have done root cause in our manufacturing facilities have given...
yielded results.
Monish Patolawala: In December, we saw good outputs in some of our plants in North America.
We also saw progress in EMEA in our flavors business.
in Nutrition.
Monish Patolawala: And as a part of that whole thing, Manav, and as we look at the opportunities, Juan and I announced that we have a plan to get $500 million to $750 million of cost out over the next three to five years.
It's going to come from multiple places. Number one is...
Monish Patolawala: driving efficiencies in our manufacturing facilities. Number two is going after costs with our third parties. And number three is controlling SG&A and some of the actions we're going to take there.
Monish Patolawala: Adding on to that on the other side is the simplification agenda. So as we continue to drive portfolio simplification.
Monish Patolawala: We see an opportunity to continue to drive margin enhancement in there, too, as some of these facilities, whether you talk about consolidations or targeted divestiture, should allow us also benefit in there.
Monish Patolawala: We're going to do all of this while at the same time battling a lot more around the inflationary environment, whether it's the energy complex as well as labor inflation or general inflation that continues.
Monish Patolawala: and the team is quite confident that we can execute this cost out plan that we've got over the next three to five years.
Thank you so much for the update.
Speaker Change: Thank you. Our next question comes from Salvatore Tiano from Bank of America. Your line is now open, please go ahead.
Speaker Change: Yes, thank you very much. I want to go back to nutrition specifically for Q4. So your commentary, you know, was pretty positive in that human nutrition had higher volume and pricing versus last year. But if we adjust for last year's write down, I think you would have made 39 million human nutrition, whereas this year without the insurance, you would have made only 15. So it looks like the performance or even with MNA was quite worse. So I cannot reconcile.
Speaker Change: Can you provide a little bit more color on why margins were so lower and perhaps quantify the impact of this contract cancellation in Q4?
Speaker Change: Yeah, I think, you know, when you look at it, yes, we've made progress on the growth in human nutrition, but the biggest piece that still continues to be a headwind is the specialty ingredients business.
Speaker Change: When you look at the continued inefficiencies from the downtime at Decatur East, the higher insurance premiums that we are seeing.
Speaker Change: as well as the lower pricing for tax returns and demand all put together is where we landed up for the fourth quarter. And going into 2025, you know, we look at the same and say, when you look at Q1 and we say it's sequentially flat when you adjust for the insurance proceeds.
Speaker Change: The biggest driver there, again, on a year-over-year basis is the specialty ingredients, and so getting that plant back online in Q2 2025 and then doing all the self-help actions that Ian and his team are doing in nutrition will help us continue to grow nutrition's P&L in 2025.
Speaker Change: Thank you. Just to understand though here, the fire indicator happened I think August or September last year, meaning that you should have lapsed, at least in my understanding, you should have lapsed the inefficiencies and the problems already in Q4. So that shouldn't have been an issue versus Q4 of 24, or it shouldn't be an issue in Q1 of 25 versus, you know, what you posted this year.
Speaker Change: Well, we had inventory going into Q4 of 23, and that allowed to reduce some of the impact that was there on a year-over-year basis.
Speaker Change: but also prices and the kind of text that has come out.
and Ismael Roig, Monish Patolawala, Megan Britt and Ismael Roig.
Okay, perfect. Thank you very much.
Speaker Change: Thank you. Due to time, we'll take no further questions, so I'll hand back to Megan Britt for any further remarks.
Megan Britt: Thank you so much for joining the call today. If you have additional questions, please feel free to reach out directly to me. Have a wonderful rest of your day.
Megan Britt: Thank you all for joining today's call. You may now disconnect your lines.
and many more. Thank you. Thank you.