Archer-Daniels-Midland reported before the market opened on January 26, 2021 it earned $1.22 per diluted share in the quarter that ended on December 31, 2020, up 36 percent from earnings of $0.90 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Adjusted earnings, a non-GAAP figure, fell 15 percent to $1.21 per share from $1.42 one year earlier, a much worse change than the GAAP percentage. The exclusions responsible for the $0.01 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Impairment, restructuring, and settlement charges [$0.03 per share], Tax adjustments [($0.04) per share], and Acquisition and divestment [$0.00 per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by ADM to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by ADM's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Chicago-based ADM is a global agribusiness that purchases, transports, stores, processes, and merchandises agricultural commodities (including oilseeds, corn, and wheat) and products (such as vegetable oils, flour, other food ingredients, livestock feed, and biofuels). In the first quarter of 2019, ADM acquired Neovia and Florida Chemical Company as it seeks to become one of the world’s "leading nutrition companies." Separately, ADM is creating an independent ethanol subsidiary that it may eventually sell or spin-off.
The following table is a simplified version of ADM's Income Statement for the December 2020 quarter, with company-reported along side my predictions. Data from the year-earlier quarter are also provided.
Revenue in the December 2020 quarter totaled $18.0 billion, 10 percent more than last year's $16.3 billion. The Agricultural Services and Oilseeds business was responsible for 80 percent of overall revenue, and this unit's revenue grew by 16.3 percent compared to the year-earlier result. The Carbohydrate Solutions business contributed 12 percent of revenue, and this unit's revenue decreased by 16.1 percent. The Nutrition unit supplied 8 percent of revenue, and this business's revenue rose by 1.9 percent.
I was expecting ADM to report revenue of $16.3 billion for the December 2020 quarter. The actual amount surpassed my estimate by $1.6 billion (10.0 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $16.6 billion in the latest quarter, which translates into a Gross Margin of 7.5 percent of revenue. Since it was higher than the 7.2 percent Gross Margin achieved in the year-earlier quarter, it signifies that ADM sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 6.7 percent in the December 2020 quarter, and ADM exceeded that prediction by 0.8 percent.
Sales, General, and Administrative expenses totaled $749 million in the December 2020 quarter, up from $654 million one year ago. SG&A expenses increased from 4.0 percent to 4.2 percent of quarterly revenue, which shows ADM spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 4.2 percent of revenue, and ADM spent less than that percentage.
The last operating expense line on the Income Statement is for other operating income and expenses, such as restructuring. This line amounted to a $19 million loss in the latest quarter. I was expecting a net loss of $22 million.
ADM's Operating Income was $584 million in the quarter, up 41.7 percent from the year-earlier period. Operating Income exceeded my $388 million estimate by $196 million.
Interest and other non-operating items summed to a net expense of $4 million. My estimate was $72.0 million.
The effective income tax rate rose by 11.5 percent to 10.9 percent, which had a negative effect on net income. I expected the tax rate to be 10.0 percent.
Net income in the quarter attributable to ADM was $687 million, $1.22 per share. The figures for the year-earlier quarter were $504 million, $0.90/share. My earnings estimate for ADM in this quarter was $413 million ($0.73/share).
In summary, Archer-Daniels-Midland earned in the December 2020 quarter much more than I had expected. The company had better than predicted: Revenue growth, Gross Margin, Operating Income growth. The company did worse with: Income tax rate.
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#adm #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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