Archer-Daniels-Midland Company (ADM)

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Archer Daniels Midland (ADM)

Q4 2011 Earnings Call

August 02, 2011 9:00 am ET

Executives

Dwight Grimestad - Vice President of Investor Relations

Juan Luciano - Chief Operating Officer and Executive Vice President

Ray Young - Chief Financial Officer and Senior Vice President

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

John Rice - Vice Chairman

Analysts

Horst Hueniken - Stifel, Nicolaus & Co., Inc.

Thomas Graves - S&P Equity Research

Diane Geissler - Credit Agricole Securities (USA) Inc.

Amon Wilkes - Gabelli & Company, Inc.

Christina McGlone - Deutsche Bank AG

Vincent Andrews - Morgan Stanley

Ann Gurkin - Davenport & Company, LLC

John Roberts - Buckingham Research Group, Inc.

Robert Moskow - Crédit Suisse AG

Kenneth Zaslow - BMO Capital Markets U.S.

Christine McCracken - Cleveland Research Company

Bryan Spillane - BofA Merrill Lynch

David Driscoll - Citigroup Inc

Presentation

Operator

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

Dwight Grimestad

Thank you, Carmen. Good morning. Welcome to ADM's Fourth Quarter Earnings Conference Call. Before we begin, I would like to remind you that we are webcasting this presentation on our website, on 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, it says that some of the comments constitute forward-looking statements that reflect management's current views and estimates for economic circumstances, industry conditions, company performance and financial results.

Statements are based on many assumptions and factors, 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.

On Slide 3 is a list of matters we will discuss on the conference call today. And now please turn to Slide 4 as I turn the call over to our Chairman and Chief Executive Officer, Pat Woertz.

Patricia Woertz

Thank you, Dwight and welcome and good morning, everyone our fourth quarter for conference call. I will begin, as always, with safety. During our fiscal year 2011, we reduced our lost workday injury rate by almost 7% and our total recordable incident rate by 17% compared to fiscal 2010. However, we're still not at 0 incidents, 0 injuries, or even fatalities so we must, and we will, continue to make meaningful progress on safety.

Turning to our financial results. This morning, we reported fourth quarter net earnings of $381 million or $0.58 per share on a fully diluted basis. Segment operating profits were $888 million, up 11%, excluding LIFO and other specified items, particularly some tax items, which Ray will discuss in a moment, ADM earned $0.69 per share.

Despite a challenging environment in several key markets, ADM delivered solid operating results across all of our businesses for the quarter. We earned a record operating profit for the fiscal year with our growing global asset base, diversified product portfolio and the acumen of the ADM team.

Since our last call, we've continued to execute on our strategy should drive profitable growth and shareholder return. I'd like to recap 7 expansions, acquisitions or projects from the quarter.

In North America, we announced expansion of our lysine and threonine production capacity to meet animal producers' growing demand for amino acids. Second, we acquired Cattleman's Choice Loomix, a liquid animal feed supplements business, making our entrance into the business and complementing our broad line of dry feed offerings.

And we are adding 2 new joint ventures, shuttle train loading elevators in the Dakotas, as well as an ADM-owned facility in Minnesota. These will primarily serve the export market to Asia.

In South America, we announced plans to construct the port facility in Nueva Palmira, Uruguay to enhance our ability to connect South American crops with the global market. In Asia, we opened our feed premix plant in Tianjin, China, the third to growing Chinese market for animal nutrition products. And 2, in Europe. We acquired a grain elevator on the Elba River, in Riesa, Germany extending the reach of our origination capability.

And today, we are pleased to announce this morning with a later press release, a network project we've been working on for some time. It will increase our origination and transportation capabilities along the Danube River. We're adding 12 river elevators, one inland elevator, an export elevator on the Black Sea port of Constanta. And this seamless origination and export link is similar to our other networks. Those along the Paraguay River or in fact, in the North America, along in Mississippi.

We've also continued to work to strengthen the ADM organization to drive this profitable growth. This is the first call this morning in which Juan is joining us. Since he came to ADM in April, Juan's been learning our business and perhaps the best way visiting our operations around the world, meeting with people and working with his team to develop our fiscal year 2012 business plan.

For today's call, I've asked him to highlight a few of the key areas of focus for this new fiscal year. Those areas are driving operational excellence, accelerating growth and sustaining ADM's outstanding risk management performance.

So after Ray reviews our financial results for the quarter and the year, Juan will provide an update on current market conditions and discuss those fiscal 2012 focus areas.

Looking ahead, we are confident in our people, our assets and our financial strengths to deliver profitable growth and value for our shareholders as we serve the vital needs of the growing world.

Now I'll turn the call over to Ray.

Ray Young

Thanks, Pat, and hello to everyone on the call today. Let me share with you our fourth quarter and fiscal year results.

Slide 5 lists our financial highlights for the quarter and the full fiscal year. For the full fiscal year, segment operating profit, was $4 billion, a 24% increase from fiscal year 2010. And our return on invested capital, on a 4-quarter trailing average basis, was 9%, representing a 30 point year-over-year increase over our 4-quarter moving average flag.

This quarter financial results were good,, despite the weak underlying margin environment in many of our businesses. Segment operating profit was $888 million, up 11% from a year ago. And in a moment, I'll review those results on a segment-by-segment basis.

As you'll see on this slide, in the fourth quarter, we recorded additional tax expenses to bring our cumulative effective tax rate for the full fiscal year to 33% . This additional tax expense caused our quarterly net earnings to decline 15% to $381 million. This resulted in quarterly earnings per share of $0.58, on a fully diluted basis, compared to last year's $0.69.

During the first 3 quarters of our fiscal year, we estimate our full year tax rate. In the fourth quarter, we determined the actual tax rate for the year and we adjust the fourth quarter tax rate accordingly. As you know, we generate earnings in multiple jurisdictions around the world. Our geographic mix of earnings varies quarter-to-quarter and year-to-year. And our respective tax rates vary by jurisdiction. Last year's fourth quarter tax rate was reduced after the reconciliation, while this year's fourth quarter tax rate increased significantly.

This fiscal year's rate was atypical and was impacted by: one, the geographic mix of earnings more tilted to the U.S. including, as you'll hear later in our fourth quarter earnings; two, a higher U.S. effective tax rate as a result of type of earnings generated and the availability of various deductions and credits; three, higher tax expenses due to a stronger-than-estimated Brazilian real currency on June 30, generating remeasurement gains that our tax affected.; and four, true-ups of various deferred taxes that resulted in higher tax expenses in the current period.

For fiscal year 2012, based on current estimates, we expect our effective tax rate to be in the 28% to 30% range.

Slide 6 is a chart that we've added to highlight adjusted earnings per share where we have called out certain unique items we believe will help you better understand our results.

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