Archer Daniels Midland Q3 2010 Earnings Call Transcript - TheStreet

Archer Daniels Midland Q3 2010 Earnings Call Transcript

Archer Daniels Midland Q3 2010 Earnings Call Transcript
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Archer Daniels Midland (ADM)

Q3 2010 Earnings Call

May 04, 2010 9:00 am ET

Executives

Steven Mills - Chief Financial Officer and Executive Vice President

Dwight Grimestad - Vice President of Investor Relations

John Rice - Executive Vice President of Commercial & Production

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

Analysts

Christina McGlone - Deutsche Bank AG

Vincent Andrews - Morgan Stanley

Christine McCracken - Cleveland Research

Diane Geissler - Calyon Securities (USA)

Robert Moskow - Crédit Suisse First Boston, Inc.

Ann Gurkin - Davenport & Company, LLC

Bryan Spillane - BofA Merrill Lynch

Ian Horowitz - Soleil

Kenneth Zaslow - BMO Capital Markets U.S.

David Driscoll - Citigroup Inc

John Roberts - Buckingham Research Associations

Alec Patterson - RCM

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to Archer Daniels Midland Company Third Quarter Earnings Conference Call. My name is Regina, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Dwight Grimestad, Vice President of Investor Relations. And you may begin, sir.

Dwight Grimestad

Thank you, Regina. 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 statement as a result of new information or future events.

Slide 3 lists the matters we will discuss in our conference call today, and I will now turn the call over two our Chairman and Chief Executive Officer, Pat Woertz.

Patricia Woertz

Thank you, Dwight, and good morning, everyone. Thank you for joining us. I will begin with safety. Through our third quarter, we reduced our lost work day injury rate by 33% and our total recordable injury rate by almost 10% compared to the full year fiscal 2009. Safety remains an important priority for us.

Turning to our financial results. This morning, we will reported quarterly net earnings of $421 million or $0.65 per share. And this third quarter, the ADM team did a good job managing our large flexible origination and processing network to meet global demand.

On the growth front, many of our large projects are finalized, and the rest are wrapping up construction. We competed this quarter our startup of our Columbus, Nebraska ethanol dry mill. We began shipments from our renewable plastics plant at Clinton, Iowa. And we are commissioning our propylene glycol plant in Decatur, Illinois. And construction of our Cedar Rapids, Iowa ethanol dry mill is on pace to wrap up this summer. I might also note that yesterday, we took possession of a seventh ocean-going vessel, the Harvest Rising.

On the policy front, the EPA is considering a request to allow increased blending of ethanol up to E15. A positive decision on E15 would lay the framework for improved demand in the future. However, with an E15 waiver, some significant challenges to widespread adoption would remain. We believe, as the RFA [Renewable Fuels Association] and others do, that an increase to E11 or E12 would be an additional, easier to implement next step on the path to E15 and future higher blends. We're hopeful this is the pathway that EPA takes.

Now I'll turn the call over to Steve, who will review our financial and segment results.

Steven Mills

Thanks, Pat, and good morning, everyone. Turning to Slide 5, we list out our financial highlights for the quarter. Segment operating profit for the quarter was $696 million, up $442 million from a year ago. As a reminder, last year's segment operating profit number included a loss of $212 million, reflecting our share of currency derivative losses of our equity investee. In a few minutes, I will review results on a segment-by-segment basis.

Quarterly net earnings were up $418 million from last year's break even third quarter, and earnings per share were $0.65. Looking at our effective income tax rate, we've reduced our estimated tax rate for the full fiscal year to approximately 27% based upon a more favorable outlook of geographic mix earning. Therefore, we reduced our tax rate for the quarter to about 22% to bring the year-to-date rate in the line. Last year's extremely high tax rate for the quarter included a $97 million deferred tax charge related to changes in the holding company structure of our equity investee, Wilmar.

As you can see from the waterfall chart for the quarter, on the bottom left of the page, we've called out a couple of items. This quarter, we incurred an after-tax charge of about $47 million or $0.07 per share related to our recent long-term debt repurchase where we bought back $500 million in higher interest bonds.

Based on current assumptions, this buyback will save ADM about $0.01 a share after-tax each quarter ongoing interest. LIFO had a positive impact this quarter of $27 million after tax or approximately $0.04 per share due to falling commodity prices.

Turning to Slide 6. Slide 6 shows the quarter and year-to-date summary of our operating profit by segment. You'll note that for the quarter, each of our segments showed an increase in operating profit.

Let's turn to Slide 7 to begin a review of each segment in greater detail. We'll start with Oilseeds Processing. Oilseeds operating profit this quarter was $405 million, up significantly from last year's third quarter operating profit of $224 million.

Crushing and origination results increased at the $272 million for the quarter. With South America having a short soybean crop last year, our North American operations were able to run at higher utilization rates and realize both higher volumes and margins. Globally, our crushing volumes for the quarter were up about 10% as compared to last year's quarter with North American operations accounting for more than half of that increase. Volumes in Europe were also up principally due to acquisitions over the last 12 months.

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