Archer-Daniels-Midland Company (ADM)

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Archer Daniels Midland (ADM)

Q3 2011 Earnings Call

May 03, 2011 9:00 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

Ryan Oksenhendler - BofA Merrill Lynch

Diane Geissler - Credit Agricole Securities (USA) Inc.

Christina McGlone - Deutsche Bank AG

Vincent Andrews - Morgan Stanley

Ian Horowitz - Rafferty Capital Markets, LLC

Robert Moskow - Crédit Suisse AG

Kenneth Zaslow - BMO Capital Markets U.S.

Jeffrey Farmer - Jefferies & Company, Inc.

David Driscoll - Citigroup Inc

Christine McCracken - Cleveland Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Archer Daniels Midland's Third Quarter Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. 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, Chanel. Good morning, and welcome to ADM's Third 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 the 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 list the matters we'll discussed on 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 good morning, everyone. Welcome to our third quarter conference call. I'll begin, as always, with safety. Through the third quarter, we reduced our lost workday injury rate by 4% and our total recordable incident rate by 13% compared to the full fiscal 2010. We will continue to make -- we have continued to make very important progress on safety.

Turning to our financial results. This morning, we reported net earnings of $578 million or $0.86 per share on a fully diluted basis, a 32% improvement over last year. Segment operating profit was $1 billion, a 45% improvement. And excluding LIFO charge and other specified items that Ray will talk about in a moment, ADM earned $0.92 per share.

The ADM team performed very well against the backdrop of volatile commodity prices, a challenging margin environment and geopolitical instability in the Middle East, North Africa and Côte d’Ivoire. Our team worked smart and hard and delivered strong results.

Since our last call, we've continued executing our strategy to drive profitable growth. In North America, we announced expansions at our barge-loading terminal and elevators in Missouri and Illinois. These expansions totaled 1.7 million bushels of storage. At our Lloydminster, Alberta, canola processing plant, we are doubling our storage capacity. We announced plans to construct a shuttle loader elevator in Hebron, North Dakota. In Decatur, Illinois, we began production at our propylene-ethylene glycol plant. And we announced the acquisition of a soybean crush plant and biodiesel facility in Deerfield, Missouri.

In South America, we announced plans to begin originating and processing sustainable palm, expanding our crop base in that region. And in Europe, we announced the construction of an additional warehouse at our joint venture grain terminal on the Baltic ports of Gdynia in Poland. And after that addition, the facility will have a total storage capacity of 90,000 metric tons, making it the largest grain terminal in Poland.

And also during the third quarter, Fortune Magazine named ADM the most -- the World's Most Admired Food Production Company for the third consecutive year. We appreciate this recognition and believe it speaks to the passion and commitment of our 29,000 employees.

As we look ahead, we are monitoring the planting and growing season in North America and Europe. Overall, global demand for crops and agricultural products remains relatively strong. In these conditions, ADM will use our unique global asset base and our strong balance sheet to serve vital needs efficiently connecting the world's growers with the world's buyers and delivering value for our customers and our shareholders.

Now I will hand the call over to Ray, who will review our financial results. Ray?

Ray Young

Thanks, Pat, and hello to everyone on the call today. I'm happy to be with you to share our third quarter results. Slide 5 lists our financial highlights for the quarter. We will discuss the quarterly results. We also listed cumulative 9-month results for your reference.

Overall, financial results this quarter were solid. Segment operating profit was $1 billion, up $310 million or about 45% from a year ago. In a moment, I'll review our results on a segment-by-segment basis.

Quarterly net earnings were $578 million, up 37% from last year's third quarter, and earnings per share were $0.86 on a fully diluted basis compared to last year's $0.65.

Looking at our effective income tax rate for the quarter. We recorded taxes at 28%, 6% higher than the third quarter last year. Last year's third quarter tax rate benefit from updated estimates to bring the cumulative rate in line with the lower yearly forecast. On a year-to-date basis, we have brought our effective tax rate down from 27.6% in 2010 to 27.2% in 2011. This rate is significantly lower than the 2009 and 2008 effective tax rates of approximately 30%.

I also want to highlight that our return on invested capital on a 4-quarter trailing average basis was 10%, an improvement from the prior year percentage and over 300 -- and over 3% above our 4-quarter trailing average -- weighted average cost of capital for the quarter.

We've cut out a few items in the waterfall chart at the bottom of the page. We recorded a LIFO charge of $27 million after tax or approximately $0.04 per share compared to a $0.04 credit in the same period last year. Also, we had net charges for other specified items of $10 million or $0.02 per share. These were comprised of startup cost this quarter of $14 million after tax related to our BioProducts plants in the Corn segment and mark-to-market gains on interest rate swaps that contributed $4 million after tax.

For simplicity, these specified items are grouped together here on the waterfall chart, and we've broken them out for you in the appendix. Adjusting for these specified items, ADM earned $0.92 per share. I also want to highlight that our diluted EPS calculation was impacted by the accounting for the equity units issued in 2008. These 4 purchase contracts will result in an additional 44 million common shares on June 1. Our remarketing in March of the debt associated with the equity units effectively triggered its converted accounting, resulting in a $0.05 per share negative impact for the quarter for the diluted EPS calculation.

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