Crop Giant ADM’s Nutrition Bet Pays Off With Health in Focus

(Bloomberg) -- Archer-Daniels-Midland Co., one of the world's top agricultural commodity traders, is proving that a move into nutrition is helping boost profits as the pandemic drives consumer to make more healthy choices.

The nutrition division gained 35% from a year earlier on strong sales of products including probiotics, fibers and plant-based proteins, the company said in a statement Wednesday. That, combined with strong farmer sales in Brazil, helped ADM deliver earnings that topped the highest analyst estimate.

Consumers have been loading up on products containing probiotics in an effort to boost their immune systems as Covid-19 continues to spread. The company also saw a boost in demand for food as “as countries looked to secure stable supplies of food amid the pandemic.” The devaluation of the Brazilian real helped ADM to boost exports from South America.

“Healthy eating has significantly accelerated the purchase and consumption of alternative proteins,” Chief Executive Officer Juan Luciano said on a call with analysts. “A focus on nourishment and wellness is pushing microbiome solutions to the mainstream,” driven by Covid as “people think about more health and wellness and immunity concerns.”

ADM has been diversifying away from grain trading, investing in nutrition for animals or humans. That's helped the company, the A in the storied quartet of crop giants known as ABCD, make earnings more stable and predictable for investors even as grain markets are stuck in the doldrums.

“As we advance our strategy, we are increasingly seeing growing benefits flow to our bottom line,” Luciano said in the statement. “We are in a strong position, with great momentum, and we are confident in our ability to continue to deliver strong earnings and returns in 2020 and beyond.”

Record Exports

Results from ADM's core ag services and oilseeds unit jumped 14% in the period, as a weaker Brazilian real drove record quarterly exports and origination volumes, the company said. Rival Bunge Ltd. beat earnings estimates earlier Wednesday, also helped by farmer selling in Brazil.

The company also benefited as countries sought to stock up food on concerns about “the stability of the supply chain and the ability to move product around,” Luciano said. That meant ADM's global trade desk in Switzerland delivered its best second-quarter ever.

ADM shares, down about 7% this year, rose as much as 1.6% Thursday before trading 0.7% higher as of 1:32 p.m. in New York.

“We are encouraged by ADM's significant beat in earnings,” said Vincent Anderson, an analyst at Stifel.

The earnings beat came even as ADM's giant ethanol business faced challenges as the pandemic kept cars off the roads. The company idled production at its dry mill facilities in Cedar Rapids, Iowa, and Columbus, Nebraska.

“While average industry ethanol margins were down versus the prior year, prices and margins improved throughout the quarter as lower production, including two idled ADM dry mills, and some recovery in driving miles led to falling industry stocks,” according to the statement.

The company is encouraged by the drawdown in ethanol stocks and increase in margins, said Chief Financial Officer Ray Young. Driving miles are about 15% lower now following a drop of 40% at the worst of the lockdowns, he said, adding that ADM would use this kind of data to decide when to reopen its idled mills.

ADM said it plans to accelerate a cost-cutting program in the second half.

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• Adjusted earnings came in at 85 cents a share versus the average analyst estimate of 50 cents, and 60 cents for the same period last year
• Click here for the earnings statement

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