n n n ‘. concat(e. i18n. t(“search. voice. recognition_retry”),’n
Ismaël Roig; Senior Vice President and Interim Chief Financial Officer; Archer-Daniels-Midland Company
Juan Ricardo Luciano; Chief Executive Officer and President; Archer-Daniels-Midland Company
Megan Britt; Vice President of RI; Archer-Daniels-Midland Company
Adam Samuelson; Equity Analyst; Goldman Sachs Group, Inc. , Research Division
Andres Strelzik; Senior Restaurant Analyst; BMO Capital Markets Stock Research
Benjamin M. Theurer; Head of Equity Research in Mexico and Director; Barclays Bank PLC, Research Division
Benjamin Shelton Bienvenu; Managing Director and Analyst; Stephens Inc. , Research Division
Dushyant Ajit Ailani; Equity Analyst; Jefferies LLC, Research Division
Manav Gupta; Analyst; UBS Investment Banking, Research Division
Salvador Tiano; Analyst; BofA Securities, Research Division
Steven Kyle Haynes; Research Associate; Morgan Stanley, Research Division
Thomas Hinsdale Palmer; Research Analyst; Citigroup Inc. , Research Division
Operator
Hello and welcome to ADM’s Q4 2023 earnings phone convention. (Operator Instructions) As a reminder, this phone convention is being recorded lately. Now I’d like to introduce you to your host for today’s call, Megan Britt, Vice President of Investor Relations at ADM. Britt, you can get started.
Megan Britt
Hello and welcome to ADM’s Fourth Quarter and Full Year 2023 Earnings Conference. Our remarks today will be delivered by Juan Luciano, our President and CEO; and Ismael Roig, our interim CFO. We have presentation slides ready to complement our comments on today’s call, which are posted in the Investor Relations segment of ADM’s online page and via the link to our webcast. Some of our comments and statements may constitute forward-looking statements that reflect management’s current beliefs and estimates regarding long-term economic circumstances, industry conditions, corporate performance and monetary effects. These statements and arguments are based on assumptions and assumptions that are subject to risks and uncertainties. ADM has provided further information in its reports filed with the SEC regarding assumptions and points that may also cause actual effects to differ materially from those in this filing. To the extent permitted by applicable law, ADM undertakes no legal responsibility to update any forward-looking statements as a result of new data or long-term events. Now I will hand over the land to Juan.
Juan Ricardo Luciano
Ismaël Roig
Thanks, John. Let’s start with slide 7, which shows the segment’s steady revenue source and overall EPS for 2023. Overall, we achieved the second-highest profit in the company’s history, overcoming a challenging and consistent environment. Adjusted consistently with revenue source $6. 2 billion for the full year, down 6% from the prior year. At a higher level, or consistent with the source of income, it basically declined year-over-year in the Agricultural Services and Oilseeds and Nutrition segments. In the other segment, which includes ADMITTED and captive insurance, we saw a significant increase in revenue stream. Percentage-adjusted earnings were $6. 98 for the year. Better prices on carbohydrate and nutrition responses, as well as positive marketing effects. synchronization in AS
Juan Ricardo Luciano
Thank you Ishmael. Go to slide 16. In summary, let me go back once percentage wise to the 3 priorities for next year. We will continue our efforts across the company to drive our portfolio of productivity and innovation projects, leveraging the capacity gains we have achieved and ensuring our groups generate and execute our pursuit of execution excellence. We continue to advance competitively in the nutrition sector to ensure that it can meet the desires of the expansion spaces that we have continued to integrate into our portfolio of opportunities. This includes supporting the operational adjustments we have introduced, driving simplification of our products and brands, and ensuring our business portfolio is tailored to best meet our functionality expectations. And we are also actively managing our balanced capital allocation strategy, both making prudent investment in the business while expanding our dividend and accelerating our percentage buyback program to return more to percentage shareholders in the near term. I strongly believe in the tough role ADM plays as a leader in the agricultural supply chain and that our ability to bring together combined partners across the entire price chain will be imperative to drive the long-term transformation of the human food markets. and animal fuels. and commercial products we serve. I would like to express my gratitude to the ADM team for their dedication, hard work and ingenuity. I am confident in our ability to deliver strong effects as we approach 2024 and continue to chart a path for long-term earnings expansion. Operator, open the line for questions.
Operator
(Operator Instructions) Our first comes from Adam Samuelson of Goldman Sachs.
Adam Samuelson
I guess my question is about defining perspectives in cyclical terms rather than controlled by ADM. And at Investor Day 2021, the focus was still on returns and gains consistent with participation. partly due to cyclical points in AS
Juan Ricardo Luciano
Thanks, Alain. So let’s take the corporations, each of the corporations in the portfolio. So when we think about agricultural facilities and oilseeds, as you said, we have performed spectacularly in the last few years, taking full advantage of the opportunities in the market. But we predicted in 2021 that margins would moderate but remain above old averages, and we’re seeing it. We are seeing moderation, and we are even seeing downside margins of 35-60% which we hope are consistent with the average. We have not remained silent waiting for the cycle to reverse. We have adjusted our business model. You may have heard me talk about destination marketing, anything that we didn’t have a few years ago and that we continue to develop. This gives us higher margins. And now we anticipate that we will continue to grow and increase those volumes up to 6% this year. And this program continues as we expand into new geographies in the Middle East and Southeast Asia. When you also think about the Regen – Regen Ag program that we have with our consumers, we help our CPG consumers with their Scope 3 emissions. And we work hand in hand with farmers and that program is the leading program in the industry and it continues to grow . We also do everything in the price chain. We are looking for a direct technique with the farmer, which allows us to achieve efficiencies between us and the producer, in the way we acquire grain. Of course, this also gives us merit as a producer. And we plan to increase our volumes by 10%, leveraging the 200,000 farmer relationships we have around the world. Of course, we have increased our capabilities. Crush is approaching in Latin America. We’re coming to Crush in North America with Spiritwood. So, I would say that when we added our consistent national improvements, so to speak, what we called the drive toward excellence, became the productivity and innovation timeline that we were going through to help us get through it. We believe that the 24th is still a strong year for agricultural services and will also be negative, although it will still be a strong year. Of course, the market has priced in much of the additional capacity and increased prices in line with the Argentine harvest to reduce margins, but we still see the market’s ability to absorb all of this capacity with strong plant expansion and demand. . of oil. This takes into account agricultural facilities and oilseeds. As for Carb Solutions, this activity has been very strong in recent years. I was 22 and 23 very intelligent. We expect a very smart 2024, possibly it will go down slightly, but it will still be very, very smart. We had a smart program for smart contract renewals in 2024. We had it and we are happy with the margins. We maintained our maximum margins and gained some volumes. Therefore, volumes are strong. The milling business is doing well, last year it had a record year and continues to grow very strongly. I think both activities have a slightly smaller contribution from animal feed products whose margins have decreased a little. But Bioanswers, as Ismael commented, continues to grow, beyond 15% annually. And with everything we say about decarbonization, we see demand emerging for everything that card answers can do in this area. So we feel really smart about it. The question of the year may continue to be ethanol. But now we see, Adam, ethanol: arbitrage on US exports is open all over the world. So it’s just a matter of adjusting our capacity and the United States’ ability to get more dehydrated ethanol, so to speak, so that we can export and adjust the moisture content, so to speak. So I think with exports way up, it would possibly be 1. 5 million, 1. 6 billion gallons for this year, which bodes well for margin recovery as we go through this year. And then you take Nutrition. Nutrition has been an expansion story for many years, and we will definitely stumble in 2023. I talked about some of the reasons, some of the reasons why there was a significant reduction in inventory after all the COVID and all the chain disruptions . The source that the industry found, the industry stopped, and now we have had a drop in inflation and a liquidation of inventories. So we had to adopt that technique in the beverage space, which drives flavor, which is our main expansion driver, so to speak. Of course, we knew from the beginning of the year that plant proteins were there, we moderated our expansion taking these expectations into account. We will continue to grow, but we will not exceed 10%. So there will still be a single-digit horny expansion, so to speak. We knew it. And then we’ve had continued smart demand in the areas of puppy wellness and fitness, and animal nutrition has advanced in its P&L, doing a lot of self-help – June P&L advanced throughout the year. Unfortunately, we’re getting into the fourth quarter and we had several chances in the fourth quarter. We wanted several specific companies to act in some joint ventures, and we achieved it. We had to reevaluate an investment due to the devaluation of the yen and we did so in the fourth quarter. Then we had disruptions related to our own functionality and we wanted to implement One ADM, but so far we are preparing for it. We had some problems with some modules. It was a successful launch, but some modules related to shipping products caused us disruption during the last quarter of the year. So when you have that total combination, it gave us a really bad quarter. We continue to see 2024 as a year of expansion (or recovery, if you prefer) compared to the price of 2023. And from there, we will have to continue to highlight our commitment to nutrition, our ability to meet or meet the price. The proposition that resonates with consumers continues to be highlighted through our next line of products, whether in animal and human nutrition. And our conversion rate, by comparison, is the highest productive conversion rate in the industry. So we know we are winning. We want to adjust our own internal processes to ensure we achieve this. And we did that massively in the latter part of last year, and we found that in January and February we were consistent with a much larger lineup than last year. So with that, I remain confident in the numbers and the overall corporate number that we have given you for 2025. As I said at the beginning, we are moving forward and what we forecast from an EPS, we are above 10%. in ROIC, and we’ve already acquired over $5 billion in inventory that we’ve estimated for 2025. So it’s never going to get past a straight line to 2025, but we have a resilient portfolio that can help us see that those numbers for the Overall portfolio remains positive, imaginable as was the case in December 2021. Sorry for the long response. It’s a big corporation.
Operator
(Operator Instructions) Next up is Citi’s Tom Palmer.
Thomas Hinsdale Palmer
I tried digging a little deeper into the weighting margins and their overall weighting outlook for soybeans from $35 to $60. Maybe just to illustrate, where were the global weighting margins last year, where are the weighting margins now if we take a look at other parts of the world?And then, as we think about what might be on the high or low end of this year’s range, what are the types of key elements that it falls into?
Juan Ricardo Luciano
Thanks tom. So, as we said before, Ismael commented in his comments, we are forecasting margins of between $35 and $60 for this year, which was consistent with maybe around $70 consistent with last year’s ton. I think it’s fair to say that the market has incorporated absolutely all the bad news into the weight spreads we have today. So, I would say that the carton loading rate has decreased in particular over the last month, as the market has probably gained confidence in the availability of products, namely soy flour, especially considering that Argentina now has sites for a harvest that could be successful. five million tons. and the American weightlifting industry has also performed very well. And the market continues to look towards the second quarter of the year, in which there will necessarily be three offers of grinders, something that did not take place last year. So if last year, after Brazil finished exporting to the United States, it became the only game globally, the only game in town, so to speak. And that has increased the price of soybean meal around the world, making soybean meal expensive, so to speak, for the ration. We see that in the United States, at least for ADM, we have seen five consecutive months of record soybean meal exports to the United States and to the American industry. Very similar situation. So now, with this fix, we expect soy flour to reappear in rations. Of course, feeding without. . . with [meat producers] and without soy meal is not the optimal way to feed. Now that soybean meal has been corrected, we expect this to happen. Ultimately, Tom, the way I think about where the crisis is going to play out globally is going to be in places where there is availability or where there is a domestic oil market. If you think about Brazil, Brazil introduced B14 in March, which helped increase domestic oil margins for us in Brazil. And of course you have a great harvest. Therefore, it will be essential to have the availability of beans and the domestic market. And then it will be the United States where it will want soybean oil to produce renewable green diesel and biodiesel. And of course we have the availability of beans. Therefore, we believe that this favorite will favor those 2 sell options.
Operator
Next up is BMO’s Andrew Strelzik.
Andres Strelzik
I guess at the end of the day, my question is about 2025 and if we look at 2024 as kind of a sluggish year from a cash attitude in terms of cycles, what if I’m just following the fact that you possibly made some comments at the end of the reaction to Adam about 2025, I’m not sure if that refers to nutrition metrics or past cash forecasts from the who spoke. If you can also explain your way of thinking about this. Is 2024 a profit figure from which growth is expected? And then 2025 comments on that.
Juan Ricardo Luciano
Yes, Andrew. Yes, first of all, my comment before Tom’s inquiry was about the headline number we gave for the company for 2025 in 2021, we still believe that number is there. I think this number was never a destiny for ADM, it was a milestone, so to speak. And as we review our five-year plan as we do every year, we see that number being exceeded. So in that sense, I expect 2024 to be a negative year compared to 2023, and I expect 2025 to be a positive year compared to 2024. There is a cycle here that wants to take place, AndrewArray, which I think I describe below. Soy flour will be cheaper. All petroleum activities related to B14 or RGD must be developed. All of this wants to happen and how long will that adjustment take, how long will it take for food to be low enough to increase demand. And so that the ongoing costs are low enough to maybe inspire the farmer to correct his plantings a little bit and this whole procedure that we know happens historically. When exactly this is going to take place, whether it will take place within the calendar year, whether it will take place in 6 months, whether it will take place in a year, it is difficult to say. But we continue to build a business that delivers more. options and is more resilient for the future. So, as the cycle moderates, we continue to have more capacity to contribute more to the income stream. So we thought that with that, I’m sure that the 25th will be greater than the 24th.
Operator
The next one comes from Ben Bienvenu of Stephens.
Benjamin Shelton Welcome
I need to ask the question as we reflect on 2024 for the Nutrition segment. You indicated that you expect cash expansion of about 5% and higher operating profit year-over-year. I think the fundamental takeaway would be that the operating source of expanding cash has increased by less than 5%, representing mid-single-digit expanding cash. Is that true? And then, as you referred to a kind of cadence in your expectations for the first quarter, this is a recovery trajectory that will expand the year into 2024. Are there still residual discontinuities similar to the Decatur Complex headwinds in the first quarter?Help us think about the sequence of progression from return to expansion in nutrition.
Juan Ricardo Luciano
Yes. Good question, Ben. Let me give you a nutrition update, so to speak, heading into 2024. So, as Ismael said in his keynote, a lot of the headwinds we faced last year were due to the market. That means that some of them were in the other two categories, non-recurring events, so to speak. And we hope that through nature we may not want it in the future. And then. . . and I think Ismael called them around $60 million, give or take, and then the other ones were like some of the call compliance issues that I explained how we work competitively to correct them, and we’ve noticed some indications intelligent. adding the first 2 months of this year. So I would say the positive is that we don’t expect any of this to happen in 2024. It adds up to that mid-digit earnings expansion, mid-digit earnings expansion because of the portfolio that we have. we have and the conversion of that pipeline, and that tends to happen every year. So, as you described, we will have to face a correction in texturizer costs, which were exceptionally high last year. We probably wouldn’t have that. So that will be part of the negative side, so to speak. And certainly, as the year progresses, we still want to get the Decatur plant back up and running. And what we have will have an enormous cost. So I would say the year will be driven by a strong recovery in animal nutrition, flavors and hopefully pets, with some tailwinds in specialty ingredients. This is how we see.
Operator
Next up is Ben Theurer of Barclays.
Benjamin M. Theurer
I tried to keep up with Carb Solutions because, as you pointed out, last year it performed very well. Even the outlook still looks very promising compared to perhaps some of the other segments for 2024. And I tried to perceive where it is in their asset bases, whether it’s on the ethanol side, but also on specific starches and sweeteners to, for example, want to invest in the business. What is your situation in terms of capacity and what do you want to potentially allocate cash to keep this business where it is or potentially grow it further as it has gained prominence in ADM’s consolidated results?
Juan Ricardo Luciano
Yes Ben, I’m glad you’re highlighting Carb Solutions. They had an impressive year. They deserve to be recognized. And they have done the task of transforming their business into a very resilient and solid business. The assets, let me take them in pieces. The milling sector is an old activity. So there are some legacy assets and in the last few years we have done – the team has done a consistent task with the last of some assets and consolidated them into new amenities like Mendota that we introduced last year, it is the most productive and last plant of grinding in the world. So we’re pleased with the way they’ve done it and continue to do it. Therefore, this company is in good health. When we look at rainmills, we continue to invest in rainmill components, it is unlikely that we will build a new rainmill, as you can understand, but the business continues to reinvest, it is a business that is a giant corporation, it has a footprint of giant assets. And right now there is a lot of capital related to decarbonizing all of those assets. As you may have heard, we are putting a lot of effort into getting pipelines and looking to monetize some of our CO2 from biogenic CO2 from the ethanol plant. So, and I would say Marshall grew because Biosolutions is growing at 15% year over year. So we needed capacity. So the Marshall expansion represents about a 50% expansion of the maximum starch capacity that we have there and that will help us a lot. I would say it’s an exciting year because it’s developing. It has forged margins. He has falsified volumes so far. January was a bit complicated due to bad weather. We have ice in the factories and freezing weather, and yet in February and March things are going well. And we think this company has an opportunity to take advantage of tailwinds from declining energy and, in line with, perhaps, chemical prices as the year progresses, and is a big consumer. of energy, this corporate matrix. So this may just be a credit and a tailwind later in the year.
Operator
Next up is Manav Gupta of UBS.
Manav Gupta
I just had one quick question. When we take a look at the recent proposals from Carb, and then the 45Z, we see, either at the federal level or at the state level, a willingness to reduce the amount of renewable diesel produced from vegetable oil, and I’m just looking to understand Do you see this as a kind of headwind that would ultimately minimize the demand for soybean oil from the diesel industry or renewable biodiesel in the future? compared to what we’re seeing?Or do you think it’s just temporary and demand will eventually increase?backwards as we go along.
Juan Ricardo Luciano
Thank you Manav for the question. Look, I think the path is transparent for RGD, that RGD is going to want vegetable oils. When do you think about the scenario in Europe? Europe doesn’t have (inaudible) this. Europe wants cooking oil, used oil, and it will take care of it. The United States will have to feed itself with soybean oil and canola oil, and we will follow that commitment for years to come. Many of those features are being built, they can’t be completed with anything else. So we think this is a strong trend coming up.
Operator
Next up is Bank of America’s Salvator Tiano.
Salvator Tiano
I just need to get back to the 2025 target of $6-$7 earnings per share. I mean, this is obviously a double-digit expansion of earnings per share and I sense that buybacks play a role in that. But considering the comments about controllables vs. cyclicals, it seems as if their margin of return is outdated. Can you provide us with a little bit of some of the key parts and key categories that you think will get you there in terms of each segment and the express numbers as detailed as possible?
Juan Ricardo Luciano
Yes, Salvator. A little bit of what I explained earlier, about Alan’s question. I think we’re going to see how the cycle plays out in AS.
Operator
Next up is Steven Haynes of Morgan Stanley.
Steven Kyle Haynes
Maybe just to get back to nutrition. I think in your remarks, you talked about a portfolio upgrade that’s going on. And I wonder if maybe you could assess the extent of that. Are you contemplating a more targeted product diversity here?Or is it more of a business point where you’re perhaps looking to monetize something?
Juan Ricardo Luciano
Yes, Stephane. Look, let me give you my take on this and how we technique those things. So we’re hunting – every time we do our five-year plan, we take a look at those sets to see if they’re not going to come back – given our expectations of coming back today, we don’t anticipate that going to go down. in the future. medium term. And it is on them that we tend to act. So we’ve taken steps to create some joint ventures, as I mentioned. And then we take a look at a drive that performs poorly. What we do first is check that they work. So we pledge that if the tied things are self-inflicted, so to speak, we fix them. Once we have those things consistent and we have visibility into what might happen in the next 2 or 3 years, we make a decision as a component of the portfolio whether they belong in nutrition or whether they belong in some other component of ADM. or if they belong to the open air ADM. So it is a normal procedure that we follow. We have done it in the past with fertilizers in Latin America. We have done it in the afterlife. We gave up Bolivia, we gave up cocoa and chocolate. So we did it and now we have done it with some joint ventures. We did it-Ismael also did it in the picture of him beyond him as a leader in animal nutrition with some of the animal nutrition lines that we were eliminating in about 20 lines around the world. We very rarely leave countries. So it’s a normal procedure that infrequently, maybe when you have a stumble like we had in nutrition, you look a little bit deeper because now all of a sudden you have more underperforming companies. So we really need to see if some of them are worth investing in. So we are in this procedure. So there is nothing to announce today, but we continue to think about it very carefully.
Ismaël Roig
Just a few more comments, because not only did we have some old experience, as Juan mentioned with coca and fertilizers. But in fact, animal nutrition has been a smart precursor to some of the ideas that we now have in mind for our entire Nutrition business in that generally when you get those businesses, they come with footprint allocations, laboratories and farms in our sector. instances and warehouses that when you organize them together, you start organizing them into various other acquisitions, you realize that they overlap. And what we saw was that there was a significant opportunity in animal nutrition to particularly simplify the portfolio by reducing the number of laboratories and the number of plant references. And we’ve seen those benefits since the second part of 2023. And I think some of that thinking as we build this organization through a multiplicity of acquisitions now lends itself to pausing and reflecting in light of the successes we’ve had with this to apply it more widely across the portfolio. So this is where our capital prudence will come into play, ensuring we maintain our asset base while returning liquidity to our shareholders.
Operator
The next one comes from Dushyant Ailani of Jefferies.
Dushyant Ajit Ailani
I just wanted to temporarily communicate to you about the margins of biodiesel and turn your attention to the system, whether it’s in the U. S. or the U. S. Whether it’s the U. S. or internationally, how can we focus on that and also on capacity?
Juan Ricardo Luciano
Well, as I said, the oil used for the production of biofuels is expected to grow in Brazil. We’re moving on to B14. So there are a lot of countries that are expanding their mandates, whether it’s Indonesia and all that. When we take a look at global balances, we see that plantations in Southeast Asia are aging, trees are aging, and therefore less palm oil production. And the competitive pressure decreases, so to speak, for palm oil. So we’re moving on to look at the pressure on vegetable oil. So we believe this will continue to be a vitally important milestone. Biodiesel, in particular, biodiesel margins are higher lately for us in Europe. They have moderated significantly in the U. S. I’m going to go to the U. S. and I will; we expect them to be smart, though not as smart as they used to be in the U. S. U. S. So there will be a bit of a headwind for us in 2024, but the margins are higher in Brazil and Europe.
Operator
With that, we have no more questions. I will therefore leave it to the control team to make conceivable final comments.
Megan Britt
Thank you for being here today. Please feel free to reach out to me if you have any additional questions. Have a great day and thank you for your time and interest in ADM.
Operator
Ladies and gentlemen, that concludes today’s call. Thank you for us. Now you can disconnect your lines.