ADM Overstated Nutrition Profits by Up To 10%
The Financial Times’ Stephen Foley reported Tuesday that “Archer Daniels Midland, the global agricultural commodities merchant, overstated historical profits at its fast-growing nutrition business by up to 10 percent, it said on Tuesday, setting out for the first time the details of an accounting probe that led to its chief financial officer being put on leave.”
“The misstatements did not affect the company’s reported profits or cash flows overall, but flattered the profits of the nutrition business, often significantly,” Foley reported. “Executive bonuses since 2020 were tied in part to the performance of the business, but the company said payouts were not affected by the misstatements.”
“In 2022, the most heavily affected year, the profit of the nutrition business was cut by $68 million to $668mn and the profits of the agricultural services and carbohydrates divisions raised commensurately,” Foley wrote. “In 2023, the real profit of the nutrition business was $427mn instead of $458mn, it said. The company took a $137mn impairment charge to reflect the lower value of the business.”
The Accounting Investigation
In late January, the Associated Press reported that “an accounting investigation is under way at Archer Daniels Midland and the top financial executive at the agribusiness giant has been placed on administrative leave. The company postponed the release of its annual and quarterly financial reports that were scheduled for Tuesday and shares of the Chicago company tumbled 24% Monday.”
“Archer Daniels Midland Co. said it’s working with outside counsel and the audit committee of the company board to complete an investigation of accounting practices within its nutrition business and it pulled guidance for the unit,” the Associated Press Reported in January.
Then in early February, Bloomberg’s Tarso Veloso, Isis Almeida, and Ava Benny-Morrison reported that “the US Attorney’s Office in Manhattan has launched an investigation into the accounting practices at Archer-Daniels-Midland Co., according to people with direct knowledge of the matter.”
Finally, this week, “ADM confirmed some employees have received grand jury subpoenas from the Department of Justice which is investigating its accounting practices, after Reuters reported FBI agents delivered subpoenas in Illinois last week,” Reuters’ Karl Plume and Sourasis Bose reported.
ADM Plan Moving Forward
Plume and Bose reported Tuesday that ADM Chairman and CEO Juan Luciano said in a statement that “Looking ahead, we have developed a remediation plan with respect to the identified material weakness to enhance the reliability of our financial statements with respect to the pricing and reporting of such sales.”
“ADM said that it would gradually implement enhancements to internal controls and will be more transparent about how it values goods bought and sold by one company segment from another,” Plume and Bose reported. “It said, however, it will take time to determine whether the steps it is taking will remediate the issues in its accounting, as the company tests the new controls.”
Fourth Quarter Earnings
The announcement of the details of the accounting investigation came as the company announced its fourth quarter 2023 profits.
Plume and Bose reported that “ADM reported a lower-than-expected fourth-quarter profit as oilseed processing and crop origination margins fell and as the company’s Nutrition unit, the subject of internal and government investigations, posted a quarterly loss in an earnings statement delayed by nearly two months by the investigation.”
“ADM said it expects full-year earnings for 2024 between $5.25 and $6.25 per share, down 18% from last year due to lower margins and higher costs,” Plume and Bose wrote. “In Nutrition, ADM forecast ‘mid single digit revenue growth’ and higher operating income.”
