Archer-Daniels-Midland Company (ADM)

ADM 
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Archer Daniels Midland Co. (ADM)

F1Q10 (Qtr End 9/30/09) Earnings Call

November 3, 2009 9:00 am ET

Executives

Dwight Grimestad - VP IR

Pat Woertz - Chairman and CEO

Steve Mills - EVP and CFO

John Rice - EVP, Commercial and Production

Analysts

Christine McCracken - Cleveland Research

Vincent Andrews - Morgan Stanley

David Driscoll - Citi Investment Research

Kenneth Zaslow - BMO Capital Markets

Christina McGlone - Deutsche Bank

Diane Geissler - CLSA

Robert Moskow - Credit Suisse

Ian Horowitz - Rafferty Capital

Bryan Spillane - Bank of America-Merrill Lynch

David Driscoll - Citi Investment Research

Christine McCracken - Cleveland Research

Presentation

Operator

Good day ladies and gentlemen and welcome to the Archer Daniels Midland Company Q&A conference call. (Operator Instructions) I would now like to turn the presentation over to Mr. Dwight Grimestad, Vice President, Investor Relations. Please proceed, sir.

Dwight Grimestad

Thank you, [Merisel]. Good morning and welcome to ADM’s first quarter Earnings Call. Before we begin, I would like to remind you that we are webcasting this presentation on our website adm.com. The replay will also be available at that address.

For those following the presentation, please turn to slide two for the company’s Safe Harbor statement, which says that some of the comments constitutes forward-looking statements that reflect managements current views and estimates of future economic circumstances, industry conditions, company performance and financial results.

Statements are based on many assumptions and factors, including availability and prices of raw materials, markets conditions, operating efficiencies, access to capital and actions of governments. Any changes in such assumptions or factors could produce significantly different results. To the extent permitted under applicable law, the company assumes no obligation to update any forward-looking statements as a result of new information or future events.

Slide three lists the matters we will discuss in our conference call today. And I will now turn the call over to our Chairman and Chief Executive Officer, Pat Woertz.

Pat Woertz

Thank you, Dwight and good morning everyone. I will begin with safety first. During the first quarter we reduced our lost workday entry rate by 36%, and our total recordable incident rate by 7% compared to the full-year fiscal 2009. And we continue our program to implement values based safety at our facilities globally.

Turning to our financial results, this morning we reported quarterly net earnings of 496 million or $0.77 per share. I believe the ADM team executed well delivering strong sequential earnings growth. Earnings were significantly better than the second half of fiscal 2009. And as we said during our last call, we did see overall operating conditions in the quarter improving. Declines in demand for food, feed and fuel seem to be bottoming. And in this environment our team executed well capturing and maximizing opportunities.

Now our segment results were mixed compared to last years first quarter, which as you will recall was ADM’s best quarter ever and Steve will report on those results in just a moment.

So let me turn to strategy. Since our last call we have executed on our growth strategy. In July we began operations at our new Cocoa processing facility in Kumasi, Ghana. This facility will improve our access to a key growing region in West Africa. We have taken delivery of five ocean going vessels, enhancing our flexibility and efficiency by adding 250,000 metric ton of cargo capacity to our transportation network.

We acquired an oilseeds processing plant in Olomouc in the Czech Republic. This will improve our access to the central European market and expand our origination footprint. Just this week we began production at our new Columbus, Nebraska ethanol plant. This plants scale and integration with the company’s existing infrastructure gives at a cost efficient position as the industry meets the increased 2010 ethanol mandate.

Our Clinton, Iowa cogeneration facility is up and running, it provides cost effective process team and electricity to our facility there. In Brazil we began production at our first sugarcane ethanol plant, creating capacity to meet the growing Brazilian demand for renewable fuel.

We completed repairs and brought back online our Galveston grain export terminal that was damaged last year by Hurricane Ike. And we reorganized our commercial and production group in their core clearly defined business units and we named new presidents to lead these units. As we advanced our growth strategy you can see we are using our financial strength to build shareholder value.

Looking ahead we’ll talk in a moment about each segment and we do see demand improving in some key markets and I truly believe we have the assets and acumen to capture value as the global economy resets.

Now I’ll hand the call over to the Steve.

Steve Mills

Thanks, Pat and good morning, everyone. Turning to slide five, slide five reflects our financial highlights for this quarter. Segment operating profit was 774 million, compared to just under 1.2 billion a year ago. And we'll discuss in more detail in a moment those results on a segment-by-segment basis.

Quarterly net earnings and earnings per share decreased 53% and 52% respectively from last year's record levels, due to lower segment operating profits and to reduce LIFO credits. Our tax rate for the quarter was up just slightly from last year's first quarter rate with no unusual items. And as you can see from the waterfall chart, we didn't have any notable items this quarter other than LIFO, which had a 47 million or $0.07 after tax favorable impact on earnings and EPS.

I also want to call your attention to the fact that we've had to restate our prior period financials due to the adoption of a couple of new accounting rules. The first change relates to how we account for the convertible debt securities we issued back in 2007. Under this new guidance these securities need to be bifurcated into a debt component and an equity component.

Each of those have a different accounting treatment. The restatement resulted in a decrease in long-term debt and increase in shareholders equity on the balance sheet, and we've had to book additional interest expense through the income statement going back to the inception of the debt.

And the other much less significant change for us deals with the introduction of a different presentation format, that involves less than wholly owned consolidated subsidiaries, which are now referred to as non-controlling interest and have to be broken out separate in the financial statement. A little more information these changes were fully described in note 1 of our last 10-K and will be described in this quarter's 10-Q.

Turning to slide six, we show the summary of our operating profit by segment, detailing the changes in operating profit for the quarter.

Let's turn straight to slide seven to begin a review of each individual segment in more detail, starting with Oilseeds Processing. After an exceptionally first quarter a year ago operating profits this quarter were $284 million on comparatively lower margins and volumes, but still a very good quarter. Last year, we benefited from unusual basis opportunities that have not repeated themselves.

Read the rest of this transcript for free on seekingalpha.com