ADM announces plan to address accounting issues, posts earnings miss

By Karl Plume and Sourasis Bose

(Reuters) -Global grains merchant Archer-Daniels-Midland announced a plan to fix accounting issues that caused it to correct certain transactions in six years of financial results on Tuesday, though the plan will take time to implement.

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.

The subpoenas show that a criminal probe into ADM's accounting, first reported by Reuters last month, is escalating fast and directly relates to accounting issues that the company said in January were the subject of an internal probe.

ADM said some sales between business units within the company were not recorded at amounts approximating market value and corrected certain segment-specific financial information for previous financial statements from 2018 to 2023. The filing showed that ADM had overstated the Nutrition segment's annual operating profit by as much as 9.2% in that time.

ADM shares were up 4.9% though they are down more than 20% for the year.

"The update provided today on the intersegment accounting issue was better than feared, which we believe will remove a major overhang on the shares," said Arun Sundaram, analyst with CFRA Research, which upgraded its ADM rating to "buy."

The company said the adjustments made to previous statements had no impact on consolidated financial statements as a whole for any period as they were made to sales between business segments.

"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," Chairman and CEO Juan Luciano said in a statement.

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.

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

Luciano spoke publicly following ADM's fourth-quarter earnings release for the first time since announcing an internal investigation into accounting practices in its Nutrition unit in January. He declined to answer questions on the investigations.

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 the unit took a goodwill impairment charge of $137 million in 2023 in animal nutrition, a lower-margin portion of its Nutrition segment.

Government investigations are not evidence of wrongdoing and do not necessarily result in charges.

The investigations have brought more uncertainty to ADM's Nutrition segment, which has struggled to meet lofty revenue targets and faces slowing demand for meat alternatives and supply chain problems.

Touted by executives to be the future of ADM, the Nutrition division, ADM's smallest, had seen explosive growth until profits began to erode in late 2022.

The company reported an adjusted profit of $6.98 per share for 2023, in line with guidance lowered in January.

Adjusted earnings came to $1.36 per share for the fourth quarter, while analysts had expected earnings of $1.43 per share, according to LSEG data. ADM also announced an additional $2 billion in share repurchases, including $1 billion through an accelerated program.

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. In Nutrition, ADM forecast "mid single digit revenue growth" and higher operating income.

(Reporting by Karl Plume in Chicago and Sourasis Bose in Bengaluru; Editing by Bill Berkrot, Tomasz Janowski and Nick Zieminski)