Archer-Daniels-Midland Company (ADM)

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Archer Daniels Midland (ADM)

Q2 2011 Earnings Call

February 01, 2011 9:30 am ET

Executives

Dwight Grimestad - Vice President of Investor Relations

John Rice - Vice Chairman and Member of Strategic Planning Committee

Patricia Woertz - Executive Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Strategic Planning Committee

Ray Young - Chief Financial Officer, Senior Vice President and Member of Strategic Planning Committee

Analysts

Christina McGlone - Deutsche Bank AG

Vincent Andrews - Morgan Stanley

Ian Horowitz - Rafferty Capital Markets, LLC

Ann Gurkin - Davenport & Company, LLC

Terry Bivens - JP Morgan Chase & Co

Robert Moskow - Crédit Suisse AG

Todd Duvick - Bank of America Corporation

Jeffrey Farmer - Jefferies & Company, Inc.

Kenneth Zaslow - BMO Capital Markets U.S.

Bryan Spillane - BofA Merrill Lynch

David Driscoll - Citigroup Inc

Christine McCracken - Cleveland Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Archer Daniels Midland Company Earnings Conference Call. My name is Dianna, and I'll be the operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Dwight Grimestad, Vice President of Investor Relations. Please proceed.

Dwight Grimestad

Thank you, Dianna. Good morning, and welcome to ADM Second Quarter Earnings Conference 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 2, the company's Safe Harbor statement, which says that some of our comments constitute forward-looking statements that reflect management's 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, market conditions, operating efficiencies, access to capital and actions of government. 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 3 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.

Patricia Woertz

Thank you, Dwight, and welcome, everyone, to our second quarter conference call. This quarter, we are hosting our conference call from Europe as we have spent a week with our European team and ADM's Board of Directors reviewing our operations here.

I'll begin as always with safety. During the quarter, we reduced our lost workday injury rate by another 5%, and total recordable incident rate by 15% compared to fiscal 2010. We continue to make important progress on safety.

Turning to our financial results. This morning, we reported net earnings of $732 million or $1.14 per share on a fully diluted basis, a 30% improvement versus the prior year. Operating profit improved by 40%. Excluding the large LIFO charge and other specified items that Ray will discuss in a moment, ADM earned $1.29 per share. I'm very happy to say that the ADM team delivered outstanding performance across the board, resulting in record operating profit. Amid strong demand and regional dislocations, we used our vast global network to deliver for our customers and for our shareholders.

During the quarter, we continued executing our strategy to drive profitable growth. In North America at the end of December, we acquired the remaining 50% interest in Golden Peanut, the largest U.S. handler, processor and exporter of peanuts. This is a business that fits well with our existing U.S. Oilseed and Export operations, and will support our growth objectives in the global oilseeds business. We are enhancing our U.S. origination footprint with the construction of an elevator in South Dakota and two elevators in Nebraska. In South America, we opened the first large-scale fertilizer blending plant in Paraguay. This plant, located on the Paraguay river in Villeta will strengthen ADM's connection to the country's growing agricultural sector. The soybean processing facility that we discussed last quarter is being constructed adjacent to the plant.

Also in January, we founded the ADM Institute for the Prevention of Postharvest Loss at the University of Illinois. This global institute will work with farmers in the developing world to help reduce the 10% to 20% of the global grain harvest lost to mishandling and postharvest operations each year.

Looking ahead, global markets remain dynamic. In this environment, we used ADM's exceptional capabilities, our unique global asset base and the insights of our team to drive value and to serve vital needs.

Now I'll turn the call over to Ray who will review our results.

Ray Young

Thanks, Pat, and hello to everyone on the call today. I'm very happy to be with you to share our second quarter results. Slide 5 lists our financial highlights for the quarter. We will discuss the quarterly results but also list the accumulative six-month results for your reference.

Overall, financial results this quarter were very strong. Segment operating profit was $1.36 billion, up $392 million or about 40% from a year ago. And in a moment, I'll review our results on a segment-by-segment basis. Quarterly net earnings were $732 million, up $165 million from last year's second quarter, and earnings per share we're $1.14 compared to last year's EPS of $0.88.

Looking at our effective income tax rate for the quarter, reported tax is at 27%. Similar to our first quarter and just down over 1% compared to second quarter of last year. As you can see from the waterfall chart at the bottom of the page, we've called out a few items. You'll note that there was a significant change in our LIFO inventory reserves due to sharp rises in commodity prices over the last three months. We recorded a charge of $158 million after tax or approximately $0.25 per share compared to a $0.05 charge in the same period last year. Also we had net gains of other specified items of $64 million or $0.10 per share. These were comprised of: One, a gain of $44 million after-tax or $0.07 per share, as a result of revaluing our prior 50% interest in Golden Peanut to fair value in conjunction with our purchase of the remaining interests; two, mark-to-market gains on interest rate swaps that contributed $34 million after-tax or $0.05 per share; and three, startup cost this quarter of $14 million after-tax or $0.02 per share. We'll discuss these in greater detail when we review our corn segment.

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