Global grain merchant ADM has a plan to rectify its accounting issues

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

ADM confirmed some employees have received subpoenas from the US department of justice amid an ongoing investigation over its accounting practices, after Reuters reported FBI agents delivered subpoenas in Illinois last week.

They show that a criminal probe into ADM’s accounting, first reported in February, 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 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,” chair and CEO Juan Luciano said in a statement.

ADM shares were up 4.3% though they are down nearly 21% for the year.

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 would not be able to conclude whether the steps it was taking would remediate a “material weakness” in its accounting for “a sustained period of time” as the company tests the new controls.

Luciano spoke publicly after ADM’s fourth-quarter earnings release for the first time since announcing an internal investigation into accounting practices in its Nutrition unit in January that is now the subject of a criminal probe. 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 the investigation, 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 $137m in 2023 in animal nutrition, a lower-margin portion of its Nutrition segment.

The company said on Tuesday it had received a voluntary document request from the Securities and Exchange Commission in June, prompting the internal investigation.

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, after the investigation delayed the release of its financial results for nearly two months.

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 $2bn in share repurchases, including $1bn through an accelerated programme.

ADM said it expects full-year earnings for 2024 between $5.25 and $6.25 per share, down 18% from 2023 due to lower margins and higher costs. In Nutrition, ADM forecast “mid single digit revenue growth” and higher operating income.

Reuters