filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
This MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements.
ADM is an essential global agricultural supply chain manager and processor; a premier human and animal nutrition provider; a trailblazer in groundbreaking solutions to support healthier living; an industry-leading innovator in replacing petroleum-based products; and a leader in sustainability. The Company is one of the world’s leading producers of ingredients for sustainable nutrition. The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in over 190 countries. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, industrial, and energy uses. The Company also engages in the manufacturing, sale, and distribution of a wide array of ingredients and solutions including plant-based proteins, natural flavors, flavor systems, natural colors, emulsifiers, soluble fiber, polyols, hydrocolloids, probiotics, prebiotics, enzymes, botanical extracts, and other specialty food and feed ingredients. The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for its shareholders, principally from margins earned on these activities.
The Company’s operations are organized, managed, and classified into three reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition. Each of these segments is organized based upon the nature of products and services offered. The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other Business. Financial information with respect to the Company’s reportable business segments is set forth in Note 13 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements”.
ADM’s recent significant portfolio actions and announcements include:
- the acquisitions in January 2024 of Revela Foods, a Wisconsin-based developer and manufacturer of innovative dairy flavor ingredients and solutions and FDL, a UK-based leading developer and producer of premium flavor and functional ingredient systems.
Sustainability is a key driver in ADM’s expanding portfolio of environmentally responsible, plant-derived products. Consumers today increasingly expect their food and drink to come from sustainable ingredients, produced by companies that share their values, and ADM is continually finding new ways to meet those needs through its portfolio actions.
The Company’s strategic transformation is focused on three strategic pillars: Productivity, Innovation, and Culture.
The Productivity pillar includes (1) partnering across various global teams including procurement, supply chain, operations, and commercial to optimize costs and improve production volumes across the enterprise; (2) continued roll out of the 1ADM business transformation program and implementation of improved standardized business processes; and (3) increased use of technology, data analytics, and automation at production facilities, in offices, and with customers to improve efficiencies and customer service.
The Innovation pillar includes expansions and investments in (1) improving the customer experience by leveraging producer relationships and enhancing the use of state-of-the-art digital technology; (2) sustainability-driven innovation, which encompasses the full range of products, solutions, capabilities, and commitments to serve customers’ needs; and (3) growth initiatives, including organic growth with additional capacity to meet growing market demand and strategic objectives.
The Culture pillar focuses on building capabilities and enabling collaboration, teamwork, and agility from process standardization and digitalization and ADM’s diversity, equity, and inclusion initiatives, which bring new perspectives and expertise to the Company’s decision-making.
ADM plans to support the three pillars with investments in technology, which include expanding digital capabilities and investing further in research and development.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Environmental and Social Responsibility
The Company’s policy to protect forests, biodiversity, and communities includes provisions that promote conservation of water resources and biodiversity in agricultural landscapes, promote solutions to reduce climate change and greenhouse gas emissions, and support agriculture as a means to advance sustainable development by reducing poverty and increasing food security. Additionally, the policy confirms ADM’s commitment to protect human rights defenders, whistleblowers, complainants, and community spokespersons; ADM’s aspiration to cooperate with all parties necessary to enable access to fair and just remediation; and the Company’s non-compliance protocol for suppliers. In 2022, the Company achieved full traceability of its direct and indirect sourcing throughout its soy supply chains in Brazil, Paraguay, and Argentina. ADM is committed to eliminating deforestation from all of the Company’s supply chains by 2025. In 2023, after a strategic investigation of the impact of conversion of native habitats in its key supply chains, the Company announced its commitment to eliminate conversion of native habitats in high risk areas in South America for direct suppliers of all commodities by 2025 and indirect suppliers by 2027, with a 2025 cutoff date (a date after which conversion of primary native vegetation renders a given area or production unit non-compliant) for both direct and indirect suppliers.
The Company’s environmental goals, collectively called “Strive 35” – an ambitious plan to, by 2035, reduce absolute Scope 1 and 2 greenhouse gas (GHG) emissions by 25 percent from a 2019 baseline, reduce Scope 3 emissions by 25% from a 2021 baseline, reduce energy intensity by 15 percent from a 2019 baseline, reduce water intensity by 10 percent from a 2019 baseline, and achieve a 90 percent landfill diversion rate. In 2023, ADM refined two of its Strive 35 commitments to more meaningfully drive progress: ADM aims to reduce its absolute water withdrawal by 10%, from a 2019 baseline, by 2035, and ADM aims to increase its use of low-carbon energy sources to 25% of total energy used by 2035.
Operating Performance Indicators
The Company is exposed to certain risks inherent to an agricultural-based commodity business. These risks are further described in Part I Item 1A, “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The Company’s Ag Services and Oilseeds and Carbohydrate Solutions operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. As a result, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Therefore, changes in revenues of these businesses do not necessarily correspond to changes in margins or gross profit. Thus, gross margins per volume or metric ton are more meaningful than gross margins as percentage of revenues.
The Nutrition businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these operations, agricultural commodity market price changes do not necessarily correlate to changes in cost of products sold. Therefore, changes in revenues of these businesses may correspond to changes in margins or gross profit. Thus, gross margins rates are more meaningful as a performance indicator in these businesses.
The Company has consolidated subsidiaries in more than 70 countries. For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency except for certain significant subsidiaries in Switzerland where Euro is the functional currency, and Brazil and Argentina where U.S. dollar is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil and Argentina, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require remeasurement to the functional currency. Changes in revenues are expected to be correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar. Effective April 1, 2022, the Company changed the functional currency of its Turkish entities to the U.S. dollar which did not and is not expected to have a material impact on the Company’s consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company measures its performance using key financial metrics including net earnings, adjusted earnings per share (EPS), gross margins, segment operating profit, adjusted segment operating profit, earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted EBITDA, return on invested capital, economic value added, and operating cash flows before working capital. Some of these metrics are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. For more information, see “Non-GAAP Financial Measures” on page 43. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, trade policies, changes in global demand, general global economic conditions, changes in standards of living, global production of similar and competitive crops, and geopolitical developments. Due to the unpredictable nature of these and other factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Intersegment Sales - Correction of Certain Segment-Specific Historical Information and Related Matters
As further described in Note 13, Segment Information of “Notes to Consolidated Financial Statements” included in Part I, Item 1 herein, the Company conducted an Investigation following receipt of a voluntary document request from the SEC. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, based on the Investigation, the Company corrected certain segment-specific historical financial information for the years presented in the Form 10-K.
Because each sale to be adjusted occurred between the Company’s reporting segments, the adjustments had no impact on the Company’s previously-reported consolidated balance sheets and statements of earnings, comprehensive income (loss), or cash flows. The Company determined the adjustments are not material to the Company’s consolidated financial statements taken as a whole for any period.
As further described in Note 13, Segment Information of “Notes to Consolidated Financial Statements” included in Part I, Item 1 herein, the Company also corrected certain immaterial errors relating to the classification of certain intrasegment revenues.
Additional information about such error corrections is set forth in Note 13, Segment Information of “Notes to Consolidated Financial Statements” included in Part I, Item 1 herein. Note 13 also includes adjustments to certain corresponding segment-specific historical financial information for the three months ended March 31, 2023 to reflect these immaterial error corrections. The information in this MD&A reflects the corrections to the historical financial information for the three months ended March 31, 2023.
Market Factors Influencing Operations or Results in the Three Months Ended March 31, 2024
The Company is subject to a variety of market factors which affect the Company's operating results. In Ag Services and Oilseeds, following two years of very favorable market conditions, several headwinds in the agriculture cycle led to more normalized results throughout the entire value chain. Ag Services experienced slow South American farmer selling, low demand for North American exports, along with low margins in all regions with the move to a carry market. Crushing saw strong run rates, the anticipation of a more normal global supply environment, and new capacity suppressing meal values. In Refined Products and Other, oil values in North America were under pressure due to low carbon intensity feedstocks competing in the renewable diesel market. In Carbohydrate Solutions, demand for starches and sweeteners remained solid with margins remaining steady across the entire portfolio. Industry ethanol stocks remained elevated. Solid export demand for ethanol helped minimize the imbalance between supply and demand. In Nutrition, demand was softer in a few food and beverage product categories. Human Nutrition was impacted by inflation which drove lower demand and impacted volumes in alternative proteins. Demand has started to recover in the food, beverage, and dietary supplement segment. In Animal Nutrition, a soft amino acids market driven by price weakness in North America was partially compensated by a slightly improved market in Europe, Middle East, and Africa (EMEA). The global feed and feed additives market remained challenged on the demand side, with weakness in the Chinese beef and pork business and continued subdued global shrimp prices.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Net earnings attributable to controlling interests decreased $0.4 billion from $1.2 billion to $0.7 billion. Segment operating profit decreased $0.4 billion from $1.7 billion to $1.3 billion and included asset impairment and restructuring charges totaling $6 million. Included in segment operating profit in the prior-year quarter was a net charge of $6 million consisting of charges totaling $7 million related to asset impairment and restructuring, partially offset by a gain on the sale of certain assets of $1 million. Adjusted segment operating profit (a non-GAAP measure) decreased $0.4 billion to $1.3 billion due primarily to lower results in Refined Products and Other, Ag Services, Crushing, Human Nutrition, and Starches and Sweeteners, partially offset by higher results in Wilmar, Vantage Corn Processors, Other Business, and Animal Nutrition. Corporate results in the current quarter were a net charge of $426 million and included restructuring charges of $12 million. Corporate results in the prior-year quarter were a net charge of $322 million and included a mark-to-market gain of $5 million on the conversion option of the exchangeable bonds issued in August 2020.
Income tax expense decreased $59 million to $166 million. The effective tax rate for the quarter ended March 31, 2024 was 18.8% compared to 16.1% for the quarter ended March 31, 2023. The increase in the rate was primarily due to changes in the geographic mix of forecasted pretax earnings and the impact of discrete tax items.
Analysis of Statements of Earnings
Processed volumes by product for the quarter are as follows (in metric tons):
| Three Months Ended | |||||||||||||||||
| March 31, | |||||||||||||||||
| (In thousands) | 2024 | 2023 | Change | ||||||||||||||
| Oilseeds | 9,387 | 8,627 | 760 | ||||||||||||||
| Corn | 4,407 | 4,394 | 13 | ||||||||||||||
| Total | 13,794 | 13,021 | 773 |
The Company generally operates its production facilities, on an overall basis, at or near capacity, adjusting facilities individually, as needed, to react to the current margin environment and seasonal local supply and demand conditions. The overall increase in oilseeds processed volumes was primarily related to improved crush rates in the current quarter compared to lower crush rates in the prior-year quarter resulting from weather related issues and reduced capacity due to the Russian-Ukraine war.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Revenues by segment for the quarter are as follows:
| Three Months Ended | |||||||||||||||||
| March 31, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| (In millions) | |||||||||||||||||
| Ag Services and Oilseeds | |||||||||||||||||
| Ag Services | $ | 11,197 | $ | 11,695 | $ | (498) | |||||||||||
| Crushing | 3,327 | 3,683 | (356) | ||||||||||||||
| Refined Products and Other | 2,695 | 3,201 | (506) | ||||||||||||||
| Total Ag Services and Oilseeds | 17,219 | 18,579 | (1,360) | ||||||||||||||
| Carbohydrate Solutions | |||||||||||||||||
| Starches and Sweeteners | 2,156 | 2,737 | (581) | ||||||||||||||
| Vantage Corn Processors | 527 | 800 | (273) | ||||||||||||||
| Total Carbohydrate Solutions | 2,683 | 3,537 | (854) | ||||||||||||||
| Nutrition | |||||||||||||||||
| Human Nutrition | 964 | 936 | 28 | ||||||||||||||
| Animal Nutrition | 872 | 917 | (45) | ||||||||||||||
| Total Nutrition | 1,836 | 1,853 | (17) | ||||||||||||||
| Other Business | 109 | 103 | 6 | ||||||||||||||
| Total | $ | 21,847 | $ | 24,072 | $ | (2,225) |
Revenues and cost of products sold in a commodity merchandising and processing business are significantly correlated to the underlying commodity prices and volumes. During periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins because both revenues and cost of products sold, particularly in Ag Services and Oilseeds, generally have a relatively equal impact from market price changes, which generally result in an insignificant impact to gross profit.
Revenues decreased $2.2 billion to $21.8 billion due to lower sales prices ($5.0 billion), partially offset by higher sales volumes ($2.8 billion). Lower sales prices of oils, corn, soybeans, and meal and lower sales volumes of alcohol, rapeseed, and farming materials, were partially offset by higher sales volumes of corn, soybeans, wheat, and meal. Ag Services and Oilseeds revenues decreased 7% to $17.2 billion due to lower sales prices ($4.3 billion), partially offset by higher sales volumes ($3.0 billion). Carbohydrate Solutions revenues decreased 24% to $2.7 billion due to lower sales prices ($0.7 billion) and lower sales volumes ($0.2 billion). Nutrition revenues of $1.8 billion was comparable to the prior-year quarter.
Cost of products sold decreased $1.8 billion to $20.2 billion due principally to lower average commodity costs. Manufacturing expenses decreased $86 million to $1.8 billion due principally to lower energy costs, partially offset by higher salaries and benefit costs and commercial service fees.
Foreign currency translation increased revenues by $64 million and cost of products sold by $64 million.
Gross profit decreased $0.4 billion or 20% to $1.7 billion. Lower results in Ag Services and Oilseeds ($363 million), Starches and Sweeteners ($58 million), and Human Nutrition ($48 million) were partially offset by higher results in Vantage Corn Processors ($18 million), Animal Nutrition ($17 million), and Other ($17 million). These factors are explained in the segment operating profit discussion on page 42.
Selling, general, and administrative expenses increased $70 million to $951 million due primarily to higher legal and professional fees, increased amortization of intangibles, and higher salaries and benefit costs.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Asset impairment, exit, and restructuring costs increased $11 million to $18 million. Charges in the current quarter consisted of $3 million of impairments related to certain long-lived assets and $3 million of restructuring, presented as specified items within segment operating profit, and restructuring of $12 million in Corporate. Charges in the prior-year quarter consisted of $3 million of impairments related to certain long-lived assets and $4 million of restructuring, presented as specified items within segment operating profit.
Equity in earnings of unconsolidated affiliates increased $38 million to $212 million due primarily to higher earnings from the Company’s investment in Wilmar.
Interest and investment income decreased $11 million to $123 million due primarily to a valuation loss related to an investment in alternative protein and precision fermentation, partially offset by higher interest income driven by higher interest rates.
Interest expense increased $19 million to $166 million due primarily to increased short-term rates on customer deposit balances in ADM Investor Services. Interest expense in the prior-year quarter also included a mark-to-market gain adjustment of $5 million related to the conversion option of the exchangeable bonds issued in August 2020.
Other income-net decreased $18 million to $26 million. Income in the current quarter included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, net foreign exchange gains, and net other income. Income in the prior-year quarter included gains on disposals of individually insignificant assets in the ordinary course of business, the non-service components of net pension benefit income, net foreign exchange gains, and net other income.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Segment operating profit (loss), adjusted segment operating profit (a non-GAAP measure), and earnings before income taxes for the quarter are as follows:
| Three Months Ended | |||||||||||||||||
| March 31, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| (In millions) | |||||||||||||||||
| Earnings before income taxes | $ | 885 | $ | 1,397 | $ | (512) | |||||||||||
| Corporate results | 426 | 322 | 104 | ||||||||||||||
| Segment Operating Profit | 1,311 | 1,719 | (408) | ||||||||||||||
| Specified Items: | |||||||||||||||||
| Gains on sale of assets | — | (1) | 1 | ||||||||||||||
| Impairment and restructuring charges | 6 | 7 | (1) | ||||||||||||||
| Adjusted Segment Operating Profit | $ | 1,317 | $ | 1,725 | $ | (408) | |||||||||||
| Ag Services and Oilseeds | |||||||||||||||||
| Ag Services | $ | 232 | $ | 348 | $ | (116) | |||||||||||
| Crushing | 313 | 427 | (114) | ||||||||||||||
| Refined Products and Other | 170 | 327 | (157) | ||||||||||||||
| Wilmar | 149 | 109 | 40 | ||||||||||||||
| Total Ag Services and Oilseeds | $ | 864 | $ | 1,211 | $ | (347) | |||||||||||
| Carbohydrate Solutions | |||||||||||||||||
| Starches and Sweeteners | $ | 261 | $ | 313 | $ | (52) | |||||||||||
| Vantage Corn Processors | (13) | (34) | 21 | ||||||||||||||
| Total Carbohydrate Solutions | $ | 248 | $ | 279 | $ | (31) | |||||||||||
| Nutrition | |||||||||||||||||
| Human Nutrition | $ | 76 | $ | 138 | $ | (62) | |||||||||||
| Animal Nutrition | 8 | — | 8 | ||||||||||||||
| Total Nutrition | $ | 84 | $ | 138 | $ | (54) | |||||||||||
| Other Business | $ | 121 | $ | 97 | $ | 24 | |||||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Ag Services and Oilseeds operating profit decreased 29%. Ag Services results were lower than the first quarter of 2023 due to the stabilization of trade flows leading to lower global trade and risk management results. Crushing results were lower than the prior-year quarter as increased imports of used cooking oil and the anticipation of large South American supplies negatively impacted North American soy crush margins. Significant positive mark-to-market timing impacts that contributed to the prior-year quarter results also drove lower results in the current quarter. Refined Products and Other results were lower than the prior-year quarter as the increased imports of used cooking oil negatively impacted refining margins in North America. Negative mark-to-market timing impacts affected current quarter results versus positive impacts in the prior-year quarter. Equity earnings from Wilmar were higher versus the first quarter of 2023.
Carbohydrate Solutions operating profit decreased 11%. Starches and Sweeteners results were lower year-over-year as strong starches and sweeteners margins were offset by lower domestic ethanol margins due to strong industry production and elevated stocks, as well as moderating margins in the EMEA region. Vantage Corn Processors results improved year-over-year as strong demand for sustainably certified exports of ethanol supported volumes and margins.
Nutrition operating profit decreased 39%. Human Nutrition results were lower than the first quarter of 2023 as impacts related to unplanned downtime at Decatur East and a normalizing texturants market negatively impacted margins. Animal Nutrition results were higher compared to the same quarter last year as cost optimization efforts and lower input costs bolstered margins.
Other Business operating profit increased $24 million. Captive insurance results were higher due to higher program premiums and lower claims. ADM Investor Services results improved on higher net interest income.
Corporate results for the quarter are as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Interest expense-net | $ | (110) | $ | (103) | $ | (7) | |||||||||||||||||
| Unallocated corporate costs | (304) | (248) | (56) | ||||||||||||||||||||
| Gain on debt conversion option | — | 5 | (5) | ||||||||||||||||||||
| Restructuring charges | (12) | — | (12) | ||||||||||||||||||||
| Other income | — | 24 | (24) | ||||||||||||||||||||
| Total Corporate | $ | (426) | $ | (322) | $ | (104) |
Corporate results were a net charge of $426 million in the current quarter compared to a net charge of $322 million in the prior-year quarter. Interest expense-net increased $7 million due primarily to lower capitalized interest. Unallocated corporate costs increased $56 million due primarily to increases in legal and professional fees, global technology spend, incentive compensation accruals, and financing costs. Gain on debt conversion option in the prior-year quarter was related to the mark-to-market adjustment of the conversion option of the exchangeable bonds issued in August 2020. Other income in the current quarter includes foreign exchange gains of $15 million and the non-service components of net pension benefit income of $5 million offset by an investment revaluation loss of $18 million. Other income in the prior-year quarter included the non-service components of net pension benefit income of $4 million and foreign exchange gains of $22 million.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Non-GAAP Financial Measures
The Company uses adjusted net earnings, adjusted earnings per share (EPS), adjusted EBITDA, and adjusted segment operating profit, non-GAAP financial measures as defined by the SEC, to evaluate the Company’s financial performance. These performance measures are not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Adjusted net earnings is defined as net earnings adjusted for the effects on net earnings of specified items. Adjusted EPS is defined as diluted EPS adjusted for the effects on reported diluted EPS of specified items. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, adjusted for specified items. The Company calculates adjusted EBITDA by removing the impact of specified items and adding back the amounts of income tax expense, interest expense on borrowings, and depreciation and amortization to net earnings. Adjusted segment operating profit is segment operating profit adjusted, where applicable, for specified items.
Management believes that adjusted net earnings, adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are useful measures of the Company’s performance because they provide investors additional information about the Company’s operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted net earnings, adjusted EPS, adjusted EBITDA, and adjusted segment operating profit are not intended to replace or be an alternative to net earnings, diluted EPS, net earnings, and segment operating profit, respectively, the most directly comparable amounts reported under GAAP.
The table below provides a reconciliation of net earnings to adjusted net earnings and diluted EPS to adjusted EPS for the three months ended March 31, 2024 and 2023.
| Three months ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| In millions | Per share | In millions | Per share | ||||||||||||||||||||
| Average number of shares outstanding - diluted | 514 | 551 | |||||||||||||||||||||
| Net earnings and reported EPS (fully diluted) | $ | 729 | $ | 1.42 | $ | 1,170 | $ | 2.12 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Gains on sale of assets - net of tax of $0 million (1) | — | — | (1) | — | |||||||||||||||||||
| Gain on debt conversion option - net of tax of $0 million (1) | — | — | (5) | (0.01) | |||||||||||||||||||
| Impairment and restructuring charges - net of tax of $0 million in 2024 and $2 million in 2023 (1) | 18 | 0.03 | 5 | 0.01 | |||||||||||||||||||
| Certain discrete tax adjustments | 3 | 0.01 | (18) | (0.03) | |||||||||||||||||||
| Total adjustments | 21 | 0.04 | (19) | (0.03) | |||||||||||||||||||
| Adjusted net earnings and adjusted EPS | $ | 750 | $ | 1.46 | $ | 1,151 | $ | 2.09 | |||||||||||||||
(1) Tax effected using the U.S. and other applicable tax rates.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The tables below provide a reconciliation of net earnings to adjusted EBITDA and adjusted EBITDA by segment for the three months ended March 31, 2024 and 2023.
| Three months ended | |||||||||||||||||
| March 31, | |||||||||||||||||
| (In millions) | 2024 | 2023 | Change | ||||||||||||||
| Net earnings | $ | 729 | $ | 1,170 | $ | (441) | |||||||||||
| Net earnings (losses) attributable to noncontrolling interests | (10) | 2 | (12) | ||||||||||||||
| Income tax expense | 166 | 225 | (59) | ||||||||||||||
| Interest expense | 115 | 100 | 15 | ||||||||||||||
| Depreciation and amortization | 280 | 259 | 21 | ||||||||||||||
| EBITDA | 1,280 | 1,756 | (476) | ||||||||||||||
| (Gain) loss on sales of assets and businesses | — | (1) | 1 | ||||||||||||||
| Impairment and restructuring charges | 18 | 7 | 11 | ||||||||||||||
| Adjusted EBITDA | $ | 1,298 | $ | 1,762 | $ | (464) | |||||||||||
| Three months ended | |||||||||||||||||
| March 31, | |||||||||||||||||
| (In millions) | 2024 | 2023 | Change | ||||||||||||||
| Ag Services and Oilseeds | $ | 959 | $ | 1,301 | $ | (342) | |||||||||||
| Carbohydrate Solutions | 325 | 358 | (33) | ||||||||||||||
| Nutrition | 158 | 203 | (45) | ||||||||||||||
| Other Business | 119 | 97 | 22 | ||||||||||||||
| Corporate | (263) | (197) | (66) | ||||||||||||||
| Adjusted EBITDA | $ | 1,298 | $ | 1,762 | $ | (464) |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
A Company objective is to have sufficient liquidity, balance sheet strength, and financial flexibility to fund the operating and capital requirements of a capital-intensive agricultural commodity-based business. The Company depends on access to credit markets, which can be impacted by its credit rating and factors outside of ADM’s control, to fund its working capital needs and capital expenditures. The primary source of funds to finance ADM’s operations, capital expenditures, and advancement of its growth strategy is cash generated by operations and lines of credit, including a commercial paper borrowing facility and accounts receivable securitization programs. In addition, the Company believes it has access to funds from public and private equity and debt capital markets in both U.S. and international markets.
Cash provided by operating activities was $0.7 billion for the three months ended March 31, 2024 compared to a use of $1.6 billion for the same period last year. Working capital changes decreased cash by $0.2 billion for the three months ended March 31, 2024 compared to a decrease of $2.9 billion for the same period last year. Segregated investments increased $0.2 billion due to increased trading activity in the Company’s futures commission and brokerage business. Trade receivables decreased $0.1 billion due to lower revenues. Inventories decreased $0.3 billion due to lower inventory prices and volumes. Trade payables decreased $0.7 billion primarily due to lower payables related to grain purchases. Brokerage payables increased approximately $0.3 billion due to increased trading activity in the Company’s futures commission and brokerage business.
Cash used in investing activities was $1.2 billion for the three months ended March 31, 2024 compared to $0.3 billion for the same period last year. Capital expenditures for the three months ended March 31, 2024 of $0.3 billion was comparable to the same period last year. Net assets of businesses acquired in the three months ended March 31, 2024 were $0.9 billion compared to none in the same period last year.
Cash used in financing activities was $2 million for the three months ended March 31, 2024 compared to cash provided of $0.6 billion for the same period last year. Long-term debt payments were immaterial for the three months ended March 31, 2024 compared to $2 million for the same period last year. Net borrowings on short-term credit agreements for the three months ended March 31, 2024 were $1.6 billion compared to $1.3 billion for the same period last year. Share repurchases for the three months ended March 31, 2024 were $1.3 billion compared to $0.4 billion for the same period last year. Dividends were $0.3 billion for the three months ended March 31, 2024 compared to $0.2 billion for the same period last year.
At March 31, 2024, the Company had $0.8 billion of cash and cash equivalents and a current ratio, defined as current assets divided by current liabilities, of 1.5 to 1. Included in working capital was $6.7 billion of readily marketable commodity inventories. At March 31, 2024, the Company’s capital resources included shareholders’ equity of $23.2 billion and lines of credit, including the accounts receivable securitization programs described below, totaling $12.8 billion, of which $8.8 billion was unused. The Company’s ratio of long-term debt to total capital (the sum of long-term debt of $8.2 billion and shareholders’ equity of $23.2 billion in 2024 and the sum of long-term debt of $8.3 billion and shareholders’ equity of $24.1 billion in 2023) was 26% and 25% at March 31, 2024 and December 31, 2023, respectively. The Company uses this ratio as a measure of the Company’s long-term indebtedness and an indicator of financial flexibility. The Company’s ratio of net debt (the sum of short-term debt of $1.7 billion, current maturities of long-term debt of $1 million, and long-term debt of $8.2 billion less the sum of cash and cash equivalents of $0.8 billion and short-term marketable securities of none in 2024 and the sum of short-term debt of $0.1 billion, current maturities of long-term debt of $1 million, and long-term debt of $8.3 billion less the sum of cash and cash equivalents of $1.4 billion and short-term marketable securities of none in 2023) to capital (the sum of net debt of $9.2 billion and shareholders’ equity of $23.2 billion in 2024 and the sum of net debt of $7.0 billion and shareholders' equity of $24.1 billion in 2023) was 28% and 22% at March 31, 2024 and December 31, 2023, respectively. Of the Company’s total lines of credit, $5.0 billion supported the combined U.S. and European commercial paper borrowing programs, against which there was $0.9 billion of commercial paper outstanding at March 31, 2024.
As of March 31, 2024, the Company had $0.8 billion of cash and cash equivalents, $0.7 billion of which was cash held by foreign subsidiaries whose undistributed earnings are considered indefinitely reinvested. Based on the Company’s historical ability to generate sufficient cash flows from its U.S. operations and unused and available U.S. credit capacity of $5.2 billion, the Company has asserted that these funds are indefinitely reinvested outside the U.S.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has accounts receivable securitization programs (the “Programs”) with certain commercial paper conduit purchasers and committed purchasers. The Programs provide the Company with up to $3.0 billion in funding against accounts receivable transferred into the Programs and expands the Company’s access to liquidity through efficient use of its balance sheet assets (see Note 15 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information and disclosures on the Programs). As of March 31, 2024, the Company had $0.7 billion unused capacity of its facility under the Programs.
As of March 31, 2024, the Company has total available liquidity of $9.6 billion comprised of cash and cash equivalents and unused lines of credit with a well-diversified group of primarily investment-grade institutions.
For the three months ended March 31, 2024, the Company spent approximately $0.3 billion in capital expenditures, $0.3 billion in dividends, and $1.3 billion in share repurchases. The Company has a stock repurchase program. On March 12, 2024, the Company entered into an ASR Agreement with Merrill Lynch International, an affiliate of BofA Securities, Inc., to repurchase $1.0 billion of ADM common stock as part of ADM’s existing share repurchase program to repurchase up to 200 million shares through December 31, 2024. On March 28, 2024, the Company received an interim delivery of 8,880,986 shares at an average share price of $60.596 or $538 million. Under the program, the Company had 38.5 million shares remaining as of March 31, 2024 that may be repurchased until December 31, 2024. On April 15, 2024, the Company received a final delivery of 7,325,733 shares as final settlement of the ASR transaction (see Notes 11 and 18 of “Notes to Consolidated Financial Statements” included in Item 1 herein, “Financial Statements” for more information). As of the final settlement date, the Company had 31.2 million shares remaining that may be repurchased under the program until December 31, 2024.
In 2024, the Company expects total capital expenditures of approximately $1.3 billion and additional cash outlays of approximately $1.0 billion in dividends and up to $2.3 billion in share repurchases, subject to other strategic uses of capital and the evolution of operating cash flows and the working capital position throughout the year.
Contractual Obligations and Commercial Commitments
The Company’s purchase obligations as of March 31, 2024 and December 31, 2023 were $12.2 billion and $14.0 billion, respectively. The decrease is primarily related to lower energy commitments and obligations to purchase agricultural commodity inventories at lower prices. As of March 31, 2024, the Company expects to make payments related to purchase obligations of $11.6 billion within the next twelve months. There were no other material changes in the Company’s contractual obligations during the quarter ended March 31, 2024.
Off Balance Sheet Arrangements
There were no material changes in the Company’s off balance sheet arrangements during the quarter ended March 31, 2024.
Critical Accounting Policies and Estimates
There were no material changes in the Company’s critical accounting policies and estimates during the quarter ended March 31, 2024. For a description of the Company’s critical accounting policies, estimates, and assumptions used in the preparation of the Company’s financial statements, see Part II, Item 7 and Note 1 of “Notes to Consolidated Financial Statements” included in Part II, Item 8, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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