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 265 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 is buying Australia's GrainCorp.
The US is ADM's largest market, accounting for slightly more than half of its total sales. Switzerland and Germany each represent about 10% of sales, with more than 135 other countries contributing the rest. ADM currently owns or leases about 265 processing plants and some 390 procurement facilities, about one-third of which operate on international soil.
ADM's businesses -- agricultural services (the largest in terms of sales), oilseeds processing, and corn processing -- 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.
ADM also invests in numerous joint ventures that combine its strengths with those of other companies. Already a top producer of corn-based ethanol, it has an alliance with ConocoPhillips to develop and commercialize the process of converting biomass from crops, wood, and switchgrass into biocrude. Biocrude, a nonfossil renewable feedstock, can be processed into fuel, including substitutes for gasoline used in automobiles.
In addition to agricultural services and commodities, ADM owns about 20% of Mexico's Gruma, the world's largest producer of corn flour and corn tortillas. ADM has a love for chocolate, too. It sources, transports, and processes cocoa beans and produces cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds, for the food processing industry.
In fiscal 2012 (ended June) ADM's sales grew by about 10% versus the prior year to top $89 billion, an all-time high for the company. Net income declined by 40% over the same period. Following two years of flat or negative annual sales comparisons in fiscal 2009 and 2010, the company's sales growth has rapidly accelerated. Indeed, in fiscal 2011 earnings increased more than 5% over the prior year on a 30% jump in net sales.
ADM navigates the swings in commodity prices, in part, by investing in growth through construction of new plants and expansion, or acquisition, of existing ones. Funding is also dedicated to transportation equipment. The company's capital expenditures in fiscal 2012 amounted to $1.5 billion (up from $1.2 billion in the prior year). Reflecting its growth strategy, about half of ADM's investment is targeted outside the US. Growth in the world's population and rising incomes is driving global demand for agricultural products. Looking to capitalize on that increased demand, ADM is growing organically, and through acquisitions and the formation of multiple joint ventures.
Most of ADM's joint ventures are in the oilseeds processing business. Its 50-50 joint venture with Princes, called Edible Oils Limited, makes and sells edible oils in the UK. Stratas Foods is another 50-50 joint venture (with Associated British Foods) that sells edible oils in North America. In an instance where solid returns were generated, ADM in early 2011 bought out its 50-50 joint venture with Swiss international trading company Alimenta SA. The move gave ADM 100% control of Golden Peanut Company, the largest US handler, processor, and exporter of peanuts and peanut-derived ingredients. It is also the #1 peanut sheller and peanut oil refiner in the US.
Mergers and Acquisitions
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 is seeking to acquire the 80% of GrainCorp. that it doesn't already own for about $2.3 billion. The cash deal, announced in 2013, is ADM's largest acquisition to date.
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.