This MD&A should be read in conjunction with the accompanying unaudited
consolidated financial statements.
ADM is a global leader in human and animal nutrition and one of the world's
premier agricultural origination and processing companies. It is one of the
world's leading producers of ingredients for human and animal nutrition, and
other products made from nature. The Company uses its significant global asset
base to originate and transport agricultural commodities, connecting to markets
in 200 countries. The Company also processes corn, oilseeds, and wheat into
products for food, animal feed, chemical and energy uses. The Company also
engages in the manufacturing, sale, and distribution of specialty products
including natural flavor ingredients, flavor systems, natural colors, proteins,
emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition
products, and other specialty food and feed ingredients. The Company uses its
global asset network, business acumen, and its relationships with suppliers and
customers to efficiently connect the harvest to the home thereby generating
returns for our shareholders, principally from margins earned on these
The Company's operations are organized, managed, and classified into three
reportable business segments: Ag Services and Oilseeds, Carbohydrate Solutions,
and Nutrition. Each of these segments is organized based upon the nature of
products and services offered. The Company's remaining operations are not
reportable business segments, as defined by the applicable accounting standard,
and are classified as Other Business. Financial information with respect to the
Company's reportable business segments is set forth in Note 13 of "Notes to
Consolidated Financial Statements" included in Item 1 herein, "Financial
The Company's recent significant portfolio actions and announcements include:
•the announcement in March 2021 of a new ADM policy to protect forests,
biodiversity and communities, furthering the Company's commitment to
sustainable, ethical, and responsible production;
•the announcement in April 2021 of the resumption of dry mill ethanol
•the announcement in May 2021 of ADM's participation as a signatory to the
German Charter for Diversity in the Workplace which aims to advance the
recognition and inclusion of diversity in companies;
•the announcement in May 2021 of a plan to build a dedicated soybean crushing
plant and refinery in North Dakota to meet fast-growing demand from food, feed,
industrial and biofuel customers, including producers of renewable diesel, which
is expected to be open in 2023;
•the announcement in June 2021 of ADM Ventures, the corporate venture capital
arm of ADM, joining the Genesis Consortium, a global alliance of venture capital
firms and corporations dedicated to supporting startups that leverage biology to
promote human and planetary health; and
•the announcement in July 2021 of an agreement to purchase, subject to
regulatory approvals, Sojaprotein, a leading European provider of non-GMO soy
The next phase of the Company's strategic transformation is focused on two
strategic pillars: Productivity and Innovation.
The Productivity pillar includes (1) advancing the roles of the Company's
Centers of Excellence in procurement, supply chain, and operations to deliver
additional efficiencies across the enterprise; (2) continued roll out of the
1ADM business transformation program and implementation of improved standardized
business processes; and (3) increased use of technology, analytics, and
automation at production facilities, in offices, and with customers.
Innovation activities includes expansions and investments in (1) improving the
customer experience, including leveraging producer relationships and enhancing
the use of state-of-the-art digital technology to help customers grow; (2)
sustainability-driven innovation, which encompasses the full range of products,
solutions, capabilities, and commitments to serve customers' needs; and (3)
growth initiatives, including organic growth to support additional capacity and
meet growing demand, and mergers and acquisitions opportunities.
ADM will support both pillars with investments in technology, which include
expanding digital capabilities and investing further in product research and
development. All of these efforts will continue to be strengthened by the
Company's ongoing commitment to Readiness.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Environmental and Social Responsibility
The Company's new policy to protect forests, biodiversity, and communities
includes provisions that promote conservation of water resources and
biodiversity in agricultural landscapes, promote solutions to reduce climate
change and greenhouse gas emissions, and support agriculture as a means to
advance sustainable development by reducing poverty and increasing food
security. Additionally, the policy confirms ADM's commitment to protect human
rights defenders, whistleblowers, complainants, and community spokespersons;
ADM's aspiration to cooperate with all parties necessary to enable access to
fair and just remediation; and the Company's non-compliance protocol for
suppliers. By the end of 2022, the Company expects to achieve full traceability
of its direct and indirect sourcing throughout its soy supply chains in Brazil,
Paraguay, and Argentina. ADM aims to eliminate deforestation from all of the
Company's supply chains by 2030.
In 2020, ADM announced new environmental goals, collectively called "Strive 35"
- an ambitious plan to, by 2035, reduce absolute greenhouse gas emissions by 25
percent, reduce energy intensity by 15 percent, reduce water intensity by 10
percent, and achieve a 90 percent landfill diversion rate, as part of an
aggressive plan to continue to reduce the Company's environmental footprint.
Operating Performance Indicators
The Company is exposed to certain risks inherent to an agricultural-based
commodity business. These risks are further described in Item 1A, "Risk Factors"
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2020.
The Company's Ag Services and Oilseeds operations are principally agricultural
commodity-based businesses where changes in
selling prices move in relationship to changes in prices of the commodity-based
agricultural raw materials. As a result, changes in agricultural commodity
prices have relatively equal impacts on both revenues and cost of products sold.
Therefore, changes in revenues of these businesses do not necessarily correspond
to changes in margins or gross profit. Thus, gross margins per volume or metric
ton are more meaningful than gross margins as percentage of revenues.
The Company's Carbohydrate Solutions operations and Nutrition businesses also
utilize agricultural commodities (or products derived from agricultural
commodities) as raw materials. However, in these operations, agricultural
commodity market price changes do not necessarily correlate to changes in cost
of products sold. Therefore, changes in revenues of these businesses may
correspond to changes in margins or gross profit. Thus, gross margin rates are
more meaningful as a performance indicator in these businesses.
The Company has consolidated subsidiaries in more than 70 countries. For the
majority of the Company's subsidiaries located outside the United States, the
local currency is the functional currency except certain significant
subsidiaries in Switzerland where Euro is the functional currency, and Brazil
and Argentina where U.S. dollar is the functional currency. Revenues and
expenses denominated in foreign currencies are translated into U.S. dollars at
the weighted average exchange rates for the applicable periods. For the majority
of the Company's business activities in Brazil and Argentina, the functional
currency is the U.S. dollar; however, certain transactions, including taxes,
occur in local currency and require remeasurement to the functional currency.
Changes in revenues are expected to be correlated to changes in expenses
reported by the Company caused by fluctuations in the exchange rates of foreign
currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian
real, as compared to the U.S. dollar.
The Company measures its performance using key financial metrics including net
earnings, gross margins, segment operating profit, return on invested capital,
EBITDA, economic value added, manufacturing expenses, and selling, general, and
administrative expenses. The Company's financial results can vary significantly
due to changes in factors such as fluctuations in energy prices, weather
conditions, crop plantings, government programs and policies, trade policies,
changes in global demand, general global economic conditions, changes in
standards of living, and global production of similar and competitive crops. Due
to these unpredictable factors, the Company undertakes no responsibility for
updating any forward-looking information contained within "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Market Factors Influencing Operations or Results in the Three Months Ended June
The Company is subject to a variety of market factors which affect the Company's
operating results. In Ag Services and Oilseeds, North America origination
benefited from strong margins due to solid execution amidst a volatile market.
South American origination volumes were impacted by low farmer selling activity.
Ocean freight rates are at a multi-year high due to increased global demand and
supply chain bottlenecks. Crushing margins benefited from tight soybean and
canola/rapeseed stocks. Refined oil margins were driven by strong demand,
declining global oil stocks and increased biofuels consumption. In Carbohydrate
Solutions, margins in starches and sweeteners remained solid while demand showed
some seasonal and post-COVID-19 strengthening. Flour demand remained softer than
pre-COVID-19 levels, but with continued strong margins. Co-product prices
increased during the quarter. Ethanol demand and margins strengthened on higher
domestic demand. Nutrition benefited from overall strong demand in various
product categories. In Human Nutrition, demand for flavors, flavor systems,
specialty proteins, bioactives, and fibers were strong. In Animal Nutrition,
weak demand and higher input costs as a result of COVID-19 in South America were
partially offset by the growing demand in complete food for petfood and
livestock. Amino acids pricing and margins improved due to a tighter global
supply environment. Favorable product mix also contributed to improved margins.
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Net earnings attributable to controlling interests increased $243 million from
$469 million to $712 million. Segment operating profit increased $332 million
from $813 million to $1.1 billion. Included in segment operating profit in the
current quarter was a net charge of $15 million consisting of asset impairment
and restructuring charges of $37 million, partially offset by gains on the sales
of assets of $22 million. Included in segment operating profit in the prior year
quarter was net income of $9 million consisting of a gain on the sale of certain
assets of $23 million, partially offset by asset impairment and restructuring
charges of $14 million. Adjusted segment operating profit increased $356 million
to $1.2 billion due primarily to higher results in Ag Services and Oilseeds,
Carbohydrate Solutions, Nutrition, and higher equity earnings from the Wilmar
investment, partially offset by lower results in Other Business. Corporate
results were a net charge of $320 million in the current quarter compared to a
net charge of $261 million in the prior year quarter. Corporate results in the
current quarter included a pension settlement charge of $82 million, a
mark-to-market gain of $30 million on the conversion option of the exchangeable
bonds issued in August 2020 and a restructuring adjustment of $1 million.
Corporate results in the prior year quarter included early debt repayment
expenses of $14 million.
Income tax expense increased $33 million to $113 million. The Company's
effective tax rate for the quarter ended June 30, 2021 was 13.7% compared to
14.5% for the quarter ended June 30, 2020. The change in rate was driven
primarily by certain favorable discrete tax items.
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