The paragraph is an introduction to ADM's Third Quarter 2024 Earnings Conference Call. The call is hosted by Megan Britt, Vice President of Investor Relations, and features presentations from Juan Luciano, Chair of the Board and CEO, and Monish Patolawala, EVP and CFO. The call includes prepared remarks and presentation slides available on ADM's website. It contains forward-looking statements based on current views and estimates, subject to risks and uncertainties, with no obligation to update them based on new information. It also refers to non-GAAP financial measures with reconciliations provided in their earnings release. Juan Luciano is then introduced to begin his remarks.

The paragraph is a conference call update from ADM regarding their financial performance for 2024. The company announced a third quarter adjusted earnings per share of $1.09 and a total segment operating profit of $1 billion, leading to a year-to-date total of $3.61 per share and $3.2 billion in profit for 2024. ADM's adjusted return on invested capital was 8.8%. Despite some progress on initiatives, their results fell short of expectations, with declines in operating profit and cash flow due to lower net earnings compared to the previous year. However, disciplined management allowed them to invest in their business and return $3.1 billion to shareholders, including $744 million in dividends and $2.3 billion in share repurchases. ADM also noted that global commodities, including canola, were affected by stronger-than-expected supply, regulatory uncertainties, and higher seed prices, impacting their fourth-quarter expectations.

China's increased local commodity production and slow demand recovery are negatively affecting trade and animal nutrition solutions. Inflation is impacting parts of the business, causing delays in nutrition projects as customers simplify offerings to manage costs. There's reduced demand in markets like pet treats and energy drinks due to shifting consumer priorities. Regulatory uncertainty, with programs like EUDR and the U.S. producers tax credit, complicates the agricultural supply chain. Operationally, there are mixed results: improvements in production due to automation and digitization, notably in carbohydrate solutions and crush facilities in LatAm and EMEA, but delays in U.S. plant upgrades. Unplanned downtime in U.S. facilities is improving, though the ramp-up at the Decatur East nutrition facility is postponed to early 2025.

The paragraph discusses the company's recent progress and challenges in integrating new Flavor acquisitions, which have caused demand fulfillment issues. Despite these challenges, the company is optimistic about its position in growing global trends, such as functional food expansion and decarbonization. Looking ahead to 2025, they anticipate navigating a challenging cycle and have started taking productivity and cost management actions, highlighting initiatives like regenerative agriculture, BioSolutions, and destination marketing. They've seen successes, such as reaching near full run-rates at their Spiritwood facility. The company's execution excellence program aims to double cost savings in the coming years, and automation and digitization efforts have already produced significant savings. In Nutrition, they've improved operational leadership, optimization, and pipeline expansion.

The paragraph discusses strategic efforts to accelerate recovery, emphasizing demand generation, supply-chain improvement, and production adjustments. The company has prioritized cash generation and portfolio optimization to improve Return on Invested Capital (ROIC). Monish Patolawala, the new CFO, has contributed fresh perspectives to aid recovery. Financially, there's a reported decline in the year-to-date operating profits across segments, particularly in ag services and crushing, due to factors like lower commodity prices, decreased margins, and reduced trade opportunities.

The paragraph discusses market dynamics and financial performance related to soy and canola crushing, refined products, and other sub-segments in Argentina and North America. Lower farmer selling and demand have supported soy crush margins at $50 per metric ton year-to-date, which is lower than the previous year. Canola crush margins have also decreased by $15 per ton, influenced by higher seed prices and regulatory issues. Overall, there were negative timing impacts totaling $480 million year-over-year. The refined products and other sub-segment experienced a significant decline in operating profit (58% lower) due to increased pre-treatment capacity and higher imports of used cooking oil, which harmed refining and biodiesel margins. Future projections anticipate lower fourth-quarter results than the previous year, with a shift in focus to North America due to the strong crop. Despite increased capacity at Spiritwood potentially improving volumes, crusher margins are expected to remain low. RPO business margins are under pressure from additional pre-treatment capacity and increased competition. The company expects approximately $50 million in reinsurance proceeds in the fourth quarter for Decatur West and East.

The paragraph discusses the current financial performance and outlook for a company's carbohydrate solutions and nutrition segments. The carbohydrate solutions segment showed a steady operating profit of $1.1 billion year-to-date, with North America's strong corn supply and robust export demand expected to support future performance. However, low ethanol margins remain a concern. The company anticipates fourth-quarter results to align with the prior year, aided by $35 million in insurance proceeds from incidents at Decatur East and West. In the nutrition segment, revenues grew by 2% to $5.6 billion, although organic revenue declined by 3%. Human nutrition revenue remained flat, affected by pricing and operational issues, while animal nutrition revenue decreased by 5% due to various challenges. Overall, the nutrition segment's operating profit dropped by 32% year-to-date, with human nutrition significantly impacted by downtime, despite a slight improvement in animal nutrition margins.

As the year ends, the company anticipates weak consumer demand, lower texturants prices, and operational challenges to persist. The Decatur East facility's start-up is delayed to Q1 2025, with expected reinsurance proceeds of approximately $50 million in Q4. Although Q4 animal nutrition results are forecasted to improve, overall nutrition results may be lower than Q3 2024 but higher than the previous year, which faced a $64 million hit from non-recurring items. Year-to-date 2024, the company generated $2.3 billion in cash flow before working capital, lower than the previous year due to reduced operating profits but still robust enough to support business investments and shareholder returns. The company has returned $3.1 billion to shareholders, allocated $1.1 billion to capital expenditures, and nearly $1 billion to M&A. The capital structure remains flexible, with plans to enhance cash generation through operational improvements and organic investment opportunities.

The paragraph outlines the company's focus on maximizing returns from existing assets and addressing operational challenges. They have reduced their 2024 adjusted earnings per share guidance due to slow market demand and internal issues. Corporate costs are expected to be $1.7-$1.8 billion, with net interest expenses between $475-$525 million. Capital expenditures are projected at $1.5 billion, and the effective tax rate is increased to 20%-22% due to a non-deductible impairment. The company prioritizes integrity and accuracy in financial reporting and is improving internal controls to address previously identified weaknesses. They commend the team for amending and filing restated financials for fiscal year 2023 and the early quarters of 2024.

The paragraph outlines several strategies the company is implementing to improve its financial performance and operational efficiency. Key measures include enhancing pricing and measurement controls, providing ongoing training on intersegment sales accounting, and optimizing the cost structure. The company aims to develop a more cohesive digital strategy to better serve customers, operate assets, and improve structural costs. Additionally, opportunities for portfolio optimization through divestitures or rationalization are being evaluated to boost performance and generate cash. A strong focus on working capital management and maintaining capital discipline is emphasized, with a stage-gated model applied to investment opportunities to ensure returns and continued investment.

The paragraph features a discussion during a conference call where Andrew Strelzik from BMO questions the decline in U.S. crush margins and the issuance of soybean meal delivery certificates, which he finds unusual. Juan Luciano explains that although demand for meal and oil is strong globally, U.S. crush margins have declined due to increased crush activity in Argentina and Brazil, as well as in North America. This is compounded by regulatory uncertainty in the oil sector, despite the U.S. actively exporting oil.

The paragraph discusses ADM's strategy in response to current market conditions and regulatory uncertainties. Due to soft markets and unclear regulations, their priority is to focus on controllable factors like productivity, cost management, and portfolio management. Despite robust markets for soybean meal and oil demand, the company is cautious about earnings growth predictions due to regulatory uncertainties. Juan Luciano mentions using current challenges as opportunities to review and accelerate ongoing decisions, though it's too early to forecast earnings growth for 2025 due to these unknowns. Andrew Strelzik inquires about the potential for earnings growth amid these conditions.

The paragraph discusses the focus on controlling cash flow to drive profitability, with emphasis on cash costs and capital management, given a predicted soft business environment. Tom Palmer from Citi asks about the nutrition side of the business, particularly improvements in animal nutrition and challenges in human nutrition. Juan Luciano addresses the issue of a significant plant being down, which affects costs, and mentions ongoing growth opportunities in the flavors and health and wellness segments, highlighting notable organic revenue growth in flavors in Europe and North America.

The paragraph discusses adjustments in growth expectations, particularly in the energy drink sector, which is seeing slower growth than anticipated. Despite this, there is optimism in the probiotics segment of human nutrition, showing a 14% year-over-year revenue increase and even higher growth in operating profit. Supply chain adjustments are being made to align with current realities, and there are positive signs from customers. On capital allocation, Juan Luciano mentions that although there have been some unexpected downtimes, next year's capital expenditures (CapEx) will remain strong, focusing on maintaining plant condition and investing in automation and digitization.

The paragraph discusses the performance and outlook of an unspecified company's oilseed plants and grain business. In the oilseeds sector, plants in Europe and Latin America are performing well, while some North American plants experienced issues over the summer but are now improving. Juan Luciano addresses Ben Theurer's question about fourth-quarter financial guidance, noting a wide range between the low-end and high-end estimates driven by several factors. Luciano highlights good export volumes in the grain business, with China buying soybeans for Q4 and Europe sourcing corn for Q1. However, anticipated margin expansion has not occurred as expected. River logistics are favorable, and weather conditions need monitoring for Q1, with the market situation potentially benefiting their interior assets.

The paragraph discusses the state of global trade and various industry margins. Despite strong trade volumes and supportive commodity prices, there is uncertainty in biofuels policy affecting crush margins. This may lead to increased oil inventories and a potential industry slowdown in the first quarter if current conditions persist. RIN prices might spike later in the quarter due to these challenges. Meanwhile, the carb solutions sector is stable with good margins and operations, though ethanol margins remain a variable. On the nutrition side, improvements have been noted in animal nutrition with balanced revenue growth, despite some challenges in human nutrition. Efforts are underway to reduce extra costs and improve next year's performance.

In the paragraph, Monish Patolawala and Ben Theurer discuss financial aspects, including reinsurance proceeds and nutrition segment growth. Monish clarifies that they expect to receive $135 million in reinsurance proceeds as a partial settlement for Decatur East, contrasting with the previous quarter where the captive insurance was paying. They also talk about expected low-single-digit growth in the nutrition segment for the fourth quarter, both in terms of M&A and organic growth, with the latter being slightly negative. Heather Jones from Heather Jones Research asks about the challenging cycle and potential recovery factors for 2025, specifically inquiring about the impact of take-or-pay hits in 2024 and unplanned downtime costs.

In the conversation, Juan Luciano discusses the company's approach to managing "take or pay" contracts and the effects of external factors like weather in Brazil on crop projections. Luciano mentions that there is little exposure to these contracts until 2025 and highlights manufacturing issues primarily experienced in the third quarter, citing shutdowns in locations like Paraguay and Ukraine due to low margins and permit delays in places like Des Moines, Iowa. Monish Patolawala quantifies the year-to-date impact of "take or pay" at approximately $40 million and notes that while costs have increased, it's not ideal to quantify downtime costs yet, as they fluctuate based on operational variables. Heather Jones seeks clarification on these issues.

In the paragraph, Juan Luciano discusses the positive outcomes of automation projects initially tested in the carb solutions business and now implemented in an oilseeds plant in Brazil, resulting in improved yields and energy savings. They plan to expand these automation efforts across 15 projects by 2025. Monish Patolawala adds that their approach is grounded in lean principles, focusing on root cause analysis and equipment optimization, to ensure operational excellence and sustainable operating leverage. Heather Jones inquires about estimated reinsurance proceeds for 2025 and 2026, to which Patolawala responds that the estimates are still preliminary.

The paragraph involves a financial discussion about projected losses for Decatur West and East, amounting to $100 million and $300-$400 million, respectively. The company recorded $95 million in Q3 and anticipates $135 million in Q4, aiming to reduce losses to $50-$100 million by 2025. These projections are based on current information and ongoing work with actuaries and insurers. Manav Gupta from UBS asks Monish Patolawala about his priorities for making ADM a stronger company. Monish, who has been with the company for over 90 days, highlights his focus on improving financial integrity, addressing material weaknesses, and enhancing processes, internal controls, and systems, collaborating with IT and finance teams to support accurate reporting and pricing.

The paragraph discusses the company's strategic focus on controlling costs and optimizing capital investment. It highlights efforts to enhance productivity, simplify operations, and capitalize on procurement savings within a potentially deflationary environment. The company is employing a zero-based approach to evaluate costs and a stage-gate model for capital expenditure, ensuring investments yield returns and are reassessed based on progress. Additionally, there's an emphasis on leveraging digital tools and data analytics to drive business outcomes. The paragraph concludes with a mention of the continuous evaluation of the company's portfolio strategy.

In the paragraph, the speaker discusses their strategy for simplifying the company's portfolio by evaluating market presence and ownership rights while emphasizing cost management amidst challenging commodity cycles. They highlight efforts on portfolio optimization in collaboration with a colleague, Juan, and stress the importance of self-help strategies. The discussion shifts to a question about potential shifts in Chinese export taxes on UCO (Used Cooking Oil) and possible U.S. tariffs under President Trump. The response notes that an increase in UCO imports into the U.S. led to a decline in the market share of soybean and canola oils, raising concerns about the origins of UCO, particularly from palm oil producing countries.

The paragraph discusses the reasons behind the increase in SG&A expenses for the company. Key drivers include higher litigation costs due to a material weakness and increased spending on digital transformation efforts, particularly for ERP systems. There is also a mention of normal merit increases, which are somewhat offset by lower incentive compensation due to the company's current performance.

The paragraph discusses a company's strategy for managing costs and growth. It highlights the need for continued investment in digital transformation and scrutinizing zero-based budgeting exercises to ensure value is being added. The company is also dealing with added costs from mergers and acquisitions, which impact SG&A expenses, and emphasizes the importance of realizing synergies from these acquisitions. Overall, the focus is on cost reduction, particularly in SG&A and manufacturing, to drive long-term efficiencies. Following this discussion, Tami Zakaria from JP Morgan asks about expected growth in crush volumes, noting the company's projection for high single-digit growth in the fourth quarter, and inquires if this expectation is a good baseline for the next year, absent any policy changes.

In the paragraph, Juan Luciano discusses the impact of regulatory uncertainty and potential tariff changes on their business. He mentions that if the regulatory uncertainties, specifically around the blender tax credit and producer tax credit, are resolved, the current production level, including the addition of Spiritwood running at full capacity, is reasonable under normal conditions. Luciano also addresses potential impacts from a new administration imposing tariffs on foreign imports. He highlights that ADM is prepared, as scenario planning is a key part of their strategy. This agility allows them to adjust trade flows to meet global demand effectively. Lastly, Tami Zakaria and the operator transition the discussion to Salvator Tiano from Bank of America, who brings up China's increased commodity production affecting trade.

The paragraph discusses the impact of China's domestic agricultural policies on global trade, particularly focusing on corn and soybeans. Juan Luciano notes that China has decreased its corn imports to boost local production, while maintaining soybean imports likely due to strategic stockpiling in anticipation of potential tariffs. The conversation then shifts to the recent depreciation of the Brazilian real. Luciano explains that currency devaluation in Latin America affects farmer behavior, with Brazilian farmers becoming more reluctant to sell their crops in times of devaluation. Overall, the currency changes influence how farmers market their grains, impacting the company's bottom line. The discussion ends with the operator noting no further questions.

The paragraph concludes a call featuring Megan Britt, who thanks participants for their interest in ADM and invites them to contact her with further questions. The operator then announces the end of the call and instructs participants to disconnect.

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