A daily grind is the secret to Archer-Daniels-Midland's (ADM) success. One of the world's largest processors of agricultural commodities, the company converts corn, oilseeds, wheat, and cocoa into products for food, animal feed, industrial, and energy uses at some 270 processing plants worldwide. The company is also a leading manufacturer of protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients. ADM operates an extensive US grain elevator and global transportation network that buys, stores, transports, and resells feed commodities for the ag processing industry, connecting crops with markets on six continents.
ADM's businesses -- agricultural services (the largest, accounting for about 45% of sales), oilseeds processing (about 40%), and corn processing (about 15%) -- can be best understood in the light of changing agricultural commodity prices. Commodity prices impact sales and the cost of products sold. And, in ADM's corn and other food and feed processing operations, commodity prices raise (or lower) the cost of raw materials. Energy prices, weather events, crop health, as well as government programs and shifts in population, can also influence ADM's performance.
The US is ADM's largest market, accounting for about 45% of total sales. Switzerland and Germany each represent just more than 10%, with more than 140 other countries contributing the rest. ADM currently owns or leases about 270 processing plants and some 475 procurement facilities, nearly 40% of which operate on international soil.
In 2013 ADM's sales fell slightly (1%) to $89.8 billion. Higher corn processing sales (on higher ethanol sales volumes) was not enough to offset declines in the other two segments, particularly agricultural services. That segment declined 4% year-over-year, driven by lower sales in the US on drought-related decreased crop availability and lower average selling prices of corn and soybeans.
Net income declined 2% that year, hitting $1.3 billion, primarily because of a rise in selling, general, and administrative expenses. Cash from operations has been on an upward trajectory in recent years, and more than doubled in 2013, jumping to $5.2 billion. Lower prices reduced inventories by some $2 billion year-over-year, a key reason for the increase in cash flow.
ADM's strategy is focused on geographic expansion and increasing its product portfolio. In 2013 the company increased its soybean processing capacity in South America with the opening of a plant in Paraguay. It also expanded a facility in Brazil and in 2014 announced plans for a sweetener and soluble fiber manufacturing facility in China. Also in 2014 ADM announced the formation of a new operating division called WILD Flavors and Specialty Ingredients, which will include specialty proteins, edible beans, soluble fiber, and other product lines.
As the company adds new products to its portfolio, it is keeps an eye on operations that fail to meet expectations. To that end, in 2014 ADM agreed to sell its chocolate business to Cargill for about $440 million.
Mergers and Acquisitions
In November 2014, ADM acquired Specialty Commodities, a processor and distributor of nuts, fruits, seeds, and other healthy ingredients, for $191 million. The purchase followed the acquisition of Germany's WILD Flavors, a supplier of natural ingredients such as fruit juice concentrates, mint oils, and seasonings.
Looking to grow its share in the services and oilseeds business -- particularly in the fast-growing markets of the Middle East, Africa, and Asia -- ADM was seeking to acquire the 80% of Australia's GrainCorp. that it didn't already own for about $2.3 billion. The cash deal, which would have been ADM's largest acquisition to date, was blocked in late 2013 by the Australian government.
The company did make four purchases that year, however, for a total of $44 million. In 2012 the company completed nine acquisitions for a total cost of $241 million in cash. In 2011 ADM completed four acquisitions for a total consideration of $218 million.