The operator introduces the ADM Second Quarter 2024 Earnings Conference Call and reminds participants that the call is being recorded. The host, Megan Britt, introduces the speakers for the call, Juan Luciano and Ismael Roig, who will discuss the company's second quarter results and strategic priorities. Juan Luciano will also provide an update on cash generation and capital allocation. The call will end with closing remarks from Juan and a Q&A session.

ADM reported strong second quarter results, with adjusted earnings per share of $1.03 and a segment operating profit of $1 billion. Despite challenging market conditions, the company's team managed to deliver solid results and saw signs of improvement in key areas. They also focused on managing the cycle through productivity and innovation, resulting in growth in volumes and margins. Additionally, ADM is returning cash to shareholders through share repurchases and dividends.

ADM's regenerative agriculture programs have established the company as a leader in this space, with recognition from Fast Company and the release of their second annual regenec report. The Carbohydrate Solutions segment has seen strong performance, driven by high margins for sweeteners, starches, and flour, as well as increased ethanol margins. ADM is also driving innovation-based growth through sustainability initiatives, such as expanding their BioSolutions platform and partnering with Solugen on a biomanufacturing facility. The company's productivity agenda is also delivering cost-saving opportunities, with plans to reduce costs by $500 million over the next two years. Additionally, ADM's focus on returning nutrition to its growth trajectory has shown positive results, with sequential top-line improvement and strong growth in health and wellness and flavor sales.

ADM is making progress in their targeted areas of focus, including improving demand fulfillment for Flavors in EMEA, optimizing cost in Animal Nutrition, and utilizing their refined M&A playbook for flavor acquisitions. Their innovation agenda is driving growth in Human Nutrition. They have also returned $2.8 billion of capital to shareholders and are confident in their full year expectations. Interim CFO Ismael has shown strong leadership and support for the company.

Ismael Roig, the Interim CFO of ADM, thanks and congratulates the finance team for their accomplishments in the first six months of the year. He is excited to welcome Monish Patolawala as the new CFO in August. In the second quarter, earnings per share on a GAAP basis were $0.98 and segment operating profit was $1 billion. Adjusted segment operating profit was $1 billion, a 37% decrease from the prior year, mainly due to lower pricing and execution margins. Volume improvement and share repurchases partially offset this decline. The Ag Services & Oilseeds Team delivered $459 million in operating profit, facing a challenging operating environment compared to the previous year.

The segment's mark-to-market timing was not as significant compared to the previous year due to strong supplies from South America, which shifted export market competitiveness. This resulted in slower farmer selling and lower commodity prices. Demand for meal remains strong, but oil values were pressured due to increased imports of used cooking oil. Lower results were seen in South American origination due to lower farmer selling and higher logistic costs. North American origination also saw lower volumes and margins due to strong crop yields in Brazil and Argentina. The team performed well and achieved an executed soy crush margin of $45 per metric ton. However, the more balanced supply and demand environment led to lower margins and lower results compared to the previous year.

During the quarter, there were negative timing impacts of $15 million compared to $195 million in the same period last year. Refining margins in North America were lower due to increased pretreatment capacity and higher imports of used cooking oil. The biodiesel margin structure also decreased from record levels due to lower LCFS credits and RIN values. Wilmar's equity earnings were $60 million, lower than the previous year. The Carbohydrate Solutions team had a strong quarter with $357 million in operating profit, driven by strong sweetener demand and an improving starch market. Ethanol demand remained robust, supported by summer driving season and solid domestic blending rates. The Starches & Sweeteners subsegment saw higher margins and volumes in North America, but lower margins in the EMEA region. Operational excellence efforts have helped improve efficiencies and cost positions.

The Vantage Corn Processing subsegment had strong results due to high demand for ethanol, while the Nutrition subsegment saw a 3% increase in revenues. The Human Nutrition subsegment had a 10% increase in revenues, but lower pricing in the texturants market and plant-based protein demand offset some of the growth. The Animal Nutrition subsegment had lower revenues due to pricing and mix, but improved volumes and cost-optimization actions helped support margins. The Other segment saw a 12% increase in operating profit, driven by higher captive insurance results.

The company's allocated corporate costs increased in the second quarter due to investments in technology, legal fees, and securitization fees. Their balance sheet and cash flows remain strong, allowing them to support strategic initiatives and return capital to shareholders. They have also invested in the business, with a focus on asset performance. The third quarter is expected to have lower margins compared to last year, but improved from the previous quarter. Demand for meal and oil is expected to remain strong, and process volumes are anticipated to increase. The prior year period also had a large insurance recovery related to hurricane damages.

The company expects a strong third quarter in Carbohydrate Solutions, but lower than the previous year due to moderation in wheat milling margins. They anticipate solid demand for ethanol and potential opportunities in the export market. In Nutrition, they expect higher earnings in the third quarter due to optimization efforts and increased volumes. For the full year, they predict lower margins in the AS&O segment due to increased crop production in South America. They also expect continued pressure on margins in the third quarter due to slower farmers selling and fewer merchandising opportunities. However, they anticipate robust demand for soybean meal and support for vegetable oil due to renewable diesel production.

The paragraph discusses the prospects for ADM's interior elevator network and processing plants in the second half of 2024, with a large crop in North America expected to increase opportunities. The company's expected crush margin remains unchanged, and their 2024 earnings per share range remains unchanged as well. The company remains optimistic about their ability to execute priorities and manage their global footprint in an evolving environment. Demand for meal and oil remains strong, and ADM's processing capacities are improving. The company expects solid demand for AS&O in 2024 and potential upside in this part of the business.

The company has implemented various initiatives to navigate through the current economic cycle and is seeing positive momentum in its nutrition business. They expect a significant portion of planned cost savings to be realized by the end of the year, with potential for further growth in 2025. The company remains confident in its full-year guidance and is seeing strength in crush margins, but may have tempered language on the AS&O side. They are unsure about the visibility of crush margin strength for the rest of the year.

Juan Luciano addressed the performance of the three businesses, stating that Ag Services is facing a challenging year, but they have navigated well and expect improvements in the second half. Carb Solutions and Nutrition are both showing improvements, with the potential for upside in ethanol margins. The company is optimistic about the second half, but did not change their guidance due to heavy weighting towards Q4. On the Nutrition side, they reiterated their outlook for a second profit to increase year-over-year, even after adding back the write-down in the fourth quarter. The key drivers of these improvements are expected to be seen in the next couple of quarters, with the implication that 3Q will be up year-over-year.

The speaker is responding to a question about the increase in sales in the third quarter compared to the second quarter. They confirm that there will be a significant improvement in the third quarter compared to the second quarter, with Flavors, Specialty Ingredients, Health and Wellness, and Animal Nutrition all performing well. However, there are some challenges in the Pet Solutions sector, particularly in Brazil and North America.

The company is making improvements in Q3 and their B2C business in Mexico is strong. The only weak part is specialty ingredients, but they expect significant improvements sequentially and year-over-year. There were no one-time issues with oilseed process volumes, and the company is on track to reach their mid to high single-digit growth outlook for the year. They have a target of $500 million in savings by the end of 2025, with some already realized in 2024. The savings are expected to come from cost and productivity initiatives across the portfolio.

Juan Luciano expresses appreciation for a question about their $500 million initiative, which is on track to be completed in two years. The projects and ideas are accelerating and will have a significant impact on the P&L and bottom line. The distribution of the initiative is expected to be evenly spread across the four geographies and three businesses, with Carb Solutions and Nutrition seeing more opportunities initially. The Ag Services & Oilseeds business may pick up momentum in the second half. The Nutrition business will see an increase in production with the reopening of the Decatur East plant.

The speaker explains that the company expects to recover the $25 million higher fixed cost in the fourth quarter of the year. They anticipate an acceleration of revenue growth in the second half of the year and a mid-single digit growth overall. They also mention a strong rebound in ethanol margins, driven by increased exports and domestic demand. They believe this will position them well in the Sweeteners and Starches business in the second half of the year.

The speaker discusses the strong blending of ethanol in the U.S. and the competitive price of ethanol encouraging blending. They mention record exports and expect a strong Q3. The Sweeteners and Starches business also has good volumes and margins, aided by lower natural gas prices. The low corn crop in Mexico has also boosted exports to that country. In response to a question, the speaker clarifies that soybean crush margins were $45 per ton in Q2, but EBITDA may not be fully comparable.

Juan Luciano is clarifying the $45 per ton crush margin they made this year and explaining that it is similar to margins around the world. He also mentions that their margins improved in the last quarter due to increased demand for soybean milk. They have some of Q3 sold at $60 to $70 per ton and expect a large crop in Q4. Demand for soybean milk remains strong due to low prices.

The demand for soybean milk in Russia is increasing, which is driving demand for poultry. Crush margins are expected to improve in North America due to more RGG plants coming online in the second half of the year. The company's CapEx has increased by $300 million, driven by maintenance and safety needs, cost projects, and growth projects. In Argentina, farmer selling has been slower than expected, but there is uncertainty about how this will evolve for the rest of the year.

In Argentina, there was an expectation for the unification of the exchange rate, but it hasn't happened yet. The government's priority is to fight inflation, so they may not have the ability to change the exchange rate. This could present a problem for farmers trying to sell their crops. The Chinese UCO situation is slowing down, and there is a possibility that China may shift more of their UCO to Europe due to anti-dumping duties.

The speaker discusses the recent moderation of adulterated UCO coming into the U.S. and the influence of Europe's restrictions on raw crops. They also mention that the North American feedstock market is more balanced now and that higher palm oil prices may benefit soybean oil going forward. The speaker then addresses the ethanol outlook and notes that while the starches and sweeteners segment has lower margins, the dry meals segment has higher margins, potentially due to exports. They also mention that ethanol margins are currently better than they were at the beginning of the quarter.

The company is taking advantage of premium export markets and focusing on logistics to meet demand. Plants are running well and costs are decreasing, leading to optimism for Q3. The impact of upcoming biofuels policy changes is uncertain, but more clarity would be beneficial. Despite potential changes, the company remains optimistic about the future due to a higher mandate and deficit in 2024.

The speaker believes that vegetable oil will play a role in meeting the mandate, and the overall policy is positive for the industry. However, short-term fluctuations make it difficult to predict future demand. The call has now ended.

This summary was generated with AI and may contain some inaccuracies.