ADM - NYSE

Good morning and welcome to ADM's Third Quarter 2024 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent any background noise. As a reminder, this conference call is being recorded. I’d now like to introduce your host for today’s call, Megan Britt, Vice President, Investor Relations for ADM. Ms. Britt, you may begin.

Hello and welcome to the third quarter earnings call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer; and Monish Patolawala, our EVP and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted on the investor relations sections of the ADM website and through the link to our webcast. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These statements and materials are based on many assumptions and factors that are subject to numerous risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation and the materials. To the extent permitted by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available on our earnings press release and presentation slides, which can be found in the investor relations section of the ADM website. Please turn to slide four. I'll now turn the call over to Juan.

Thank you, Megan. Hello and welcome to all who have joined the call. We sincerely appreciate your patience as we work expeditiously to amend the company's fiscal year 2023 Form 10-K and Form 10-Qs for the first and second quarters of 2024. We are pleased to now be able to share more context about our 2024 year-to-date financial results and our outlook. Even that we are holding this call later than usual, we're also in a position to provide qualitative color on how the fourth quarter is progressing. To start, let's recap our financial results for the company. ADM reported third quarter adjusted earnings per share of $1.09 and a total segment operating profit of $1 billion. This brings adjusted earnings per share to $3.61 and our total segment operating profit to $3.2 billion year-to-date for 2024. Our trailing four-quarter adjusted ROIC was 8.8%. Although we made progress on several important initiatives in 2024, this results are not consistent with the high bar that we have set for our team. While we have seen a decline in our total segment operating profit and a decline in operating cash flow before working capital changes, due to lower net earnings relative to the prior year period, discipline management of our balance sheet continues to allow us to invest in our business and return cash to shareholders. In total, we have returned $3.1 billion to our shareholders with $744 million in the form of dividends and $2.3 billion in share repurchases year-to-date in 2024. Next slide, please. Entering 2024, we laid out key priorities for value creation based on the year we saw ahead of us. And as we moved into the fourth quarter, it's clear that certain expectations have not all play out as anticipated. The global commodity landscape has continued to shift. Stronger-than-expected supply has driven commodity prices down further than anticipated. Canola crash margins have been negatively impacted by regulatory uncertainty and higher seed prices. In addition, China has begun to increase local commodity production and has had a slower pace of demand recovery, negatively impacting the trade of certain commodities and uptake of animal nutrition solutions. We're also seeing the trailing effects of inflation in part of our business. Some new nutrition projects have been delayed as some customers look for opportunities to manage costs by simplifying their consumer offerings. We have also seen some softness in demand in other end markets such as pet treats and energy drinks where consumers are prioritizing their discretionary spending. The global regulatory environment has led to additional uncertainties. Programs such as EUDR and the U.S. producers tax credit are still not fully in place, which has left various stakeholders in the Ag supply-chain without the confidence of a clear path forward. Beyond these external factors creating downward pressure, we're also managing through a balance of both positive and challenging results across our own operational environment. In carbohydrate solutions, we've been able to improve production throughout the network, in part due to advancements in automation and digitization at the plant level, as well as by finding synergies across our milling network. We've seen similar improvements in our crush facilities in LatAm and EMEA, but this has been offset today by the fact that opportunities previously identified in some of our U.S. plants have been taking longer-than-expected to be completed. However, in October, we began to see improvements in unplanned downtime in our U.S. facilities. Nutrition has continued to manage through the downtime of our Decatur East facility, where our expected ramp up has been delayed from the end of 2024 to the first quarter of 2025 as safe restoration of operations is a top priority. And while the integration of our most recent Flavor acquisitions has driven positive results, we have experienced demand fulfillment issues due to the complexity of other integration efforts. We believe that our business is well-positioned to grow alongside enduring global trends such as the expansion of functional food and beverage alternatives, the replacement of petroleum-based products across multiple industries and the broader opportunity associated with decarbonization. As we look at the near-term in 2025, however, we anticipate that we could still be managing through a challenging cycle, and we have already begun taking necessary productivity actions with a clear focus on cost and cash management. This slide highlights several of the areas we have already taken action on in 2024, along with additional actions we are aggressively driving at the end of the year. As we manage through the current cycle, we've seen success in delivering expansion across strategic initiatives such as regen ag, BioSolutions and destination marketing, which achieved record volume handled in October, supporting supply and demand needs through increasing capacity. This is example in our Spiritwood facility, which has achieved near full run-rates in the month of October. And in ramping up the drive for execution excellence program, which has already begun to deliver toward our cost-saving goals. Moving forward, as we expand our focus on procurement and execution excellence, we believe that we can double this program's target cost savings over the next few years. In addition, the automation and digitization efforts that have already achieved millions in cost savings are being scoped and accelerated across the other plants in our footprint. Turning to Nutrition's recovery efforts. To-date we have strengthened our operational leadership, driven simplification and optimization opportunities and continued to expand our pipeline and win rates in part of the portfolio such as flavors. These efforts are now being supplemented to increase the pace of recovery. We have placed additional focus on demand generation, supply-chain improvement and rightsizing our production to better flex to the needs of the dynamic demand environment. And finally, from a strategic capital allocation perspective, we have already accelerated our return of cash to shareholders this year in the form of share repurchases and dividends. Going forward, we're being extremely prudent on focusing our attention on cash generation opportunities, while considering specific portfolio optimization efforts to simplify operations, enhance our focus and drive an improvement in ROIC. Along with all these actions, Monish joining as CFO has already brought new perspectives to the team. We are using his experience to help identify and accelerate paths for continuous recovery. With this, let me pass to Monish for a more detailed financial review. Monish?

Thank you, Juan. First, I would like to take a moment to say how excited I am to be joining the ADM team at such an important point in the company's trajectory. While I've only been on the job for a few months, I have enjoyed the opportunity to personally engage with our teams and learn the company. I want to thank all my ADM colleagues for their warm welcome. Turning to Slide 6. On a year-to-date basis, AS&O segment operating profit of $1.8 billion was 42% lower versus the prior year period as ample supplies out of South America have driven lower commodity prices and margins across the segment. Ag services sub-segment operating profit of $461 was 52% lower versus the prior year, driven by lower South American origination margins and volumes, in part due to industry take-or-pay contracts. The stabilization of trade flows has also led to fewer opportunities in our global trade business, leading to lower results. Crushing sub-segment operating profit of $632 million was 30% lower versus the prior year period. Slower farmer selling and lower crush rates in Argentina, coupled with solid demand has supported soy crush margins leading to a year-to-date executed soy crush margin of approximately $50 per metric ton, which is lower, compared to the prior year. While year-to-date executed canola crush margins are lower by approximately $15 per ton, compared to the prior year, margins have moderated significantly in the second-half of the year so far, as higher seed prices and regulatory uncertainty drove lower margins. There were net negative timing impacts of approximately $120 million year-over-year. In the refined products and other sub segment, increased pre-treatment capacity at renewable diesel facilities and higher imports of used cooking oil has negatively impacted both refining and biodiesel margins, leading to sub-segment operating profit that was 58% lower versus the prior year. There were net negative timing impacts of approximately $360 million year-over-year. As we look forward, we anticipate AS&O fourth quarter results to be lower than the prior year quarter. The seasonal shift to our North American weighted footprint and strong North American crop should be supportive of volumes. But recent elevation margins are below the levels we expected when we put our guidance in place in November. In crushing, the ramp-up of our Spiritwood facility is expected to support high-single-digit volume improvement. However, we expect lower results due to lower soya and canola crush margins versus the prior year. The addition of new pre-treatment capacity has continued to weigh on margins within the RPO business and on the food oil side, margins for free-to-sell opportunities have been under pressure, due to increased competition. Based on the information available today, we also anticipate 100% reinsurance proceeds of approximately $50 million in the fourth quarter related to both Decatur West and East. We continue to monitor the impact of uncertainty related to regulation and trade flows on the operating environment as we look forward to the end of the year. Year-to-date, carbohydrate solutions segment operating profit of $1.1 billion in the year-to-date period was roughly in line with the prior year as lower margins in the EMEA region and ethanol were mostly offset by strong volumes and improved manufacturing costs. As we look forward, a strong North American corn supply and robust export demand is export expected to be supportive of VCP. However, North American ethanol production continues to outpace demand, driving lower margins. We expect to see solid demand and margins in North American starches and sweeteners as we finish the year. Wheat milling margins are expected to moderate from elevated prior-year levels. Based on information available today, we also anticipate 100% reinsured insurance proceeds in the fourth quarter related to both Decatur East and West incident of approximately $35 million. Taken together, we anticipate the carbohydrate solutions fourth quarter results to be in line with the prior year period. Year-to-date, revenues from nutrition were $5.6 billion, up 2%, compared to the prior year. On an organic basis, segment revenue was down 3%. Human nutrition was flat organically as headwinds related to Decatur East and texturants pricing offset growth in flavors and health and wellness. Animal nutrition revenue declined 5%, driven by unfavorable mix, negative currency impacts in Brazil and low volumes due to demand fulfillment challenges. Year-to-date nutrition sub-segment operating profit of $298 million was 32% lower versus the prior year. Human nutrition results of $265 million were 40% lower, compared to the prior year period, primarily driven by unplanned downtime at Decatur East. Animal nutrition results of $33 million were slightly higher, compared to the prior year, due to an improvement in margins. As we finish the year, we expect continued weak consumer demand, lower texturants prices and ongoing operational challenges to be a headwind. And as Juan previously mentioned, we now anticipate the start-up of our Decatur East facility to be delayed until the first quarter of 2025. We expect the impact of prolonged downtime at Decatur East to be partially offset by 100% reinsurance proceeds in the fourth quarter of approximately $50 million based on the information available today. We expect animal nutrition results in the fourth quarter to be better than the prior year with tailwinds from our turnaround efforts and as we continue to work through operational challenges in pet solutions. Taken together, we expect nutrition results for the fourth quarter likely lower than the third quarter of 2024, but to be higher than the prior year, which had negative impact of approximately $64 million in non-recurring items. Please turn to slide seven. Year-to-date in 2024 the company has generated cash flow from operations before working capital of approximately $2.3 billion, down relative to the same period last year, due to lower segment operating profit. Despite the decline, solid cash generation has supported our ability to invest in our business and return excess cash to shareholders. Year-to-date, the company has returned $3.1 billion in cash in the form of dividends and share repurchases. Allocated $1.1 billion to capital expenditures and nearly $1 billion to M&A announced in 2023 and completed in January 2024. Our capital structure continues to provide the financial flexibility to invest in our business and return capital to shareholders. We continue to see opportunities to drive enhanced cash generation through operating improvements both in our facilities and through better management of working capital. We believe investing in organic opportunities gives us the best return. While we will always look at opportunistic M&A as a way to enhance return, it is essential that we prioritize maximizing returns from the assets that we have already acquired and also ensuring that we are the best owners of all our assets. Now let's transition to a discussion of guidance for 2024 on slide eight. In early November, we announced that we lowered our full-year 2024 adjusted earnings per share guidance to the range of $4.50 per share to $5 per share. The lowering of our guide takes into account our year-to-date results and headwinds from slow market demand and internal operational challenges. Additionally, we now anticipate our corporate cost to be within the range of $1.7 billion to $1.8 billion, primarily due to lower incentive compensation and our corporate net interest expense to be in the range of $475 million to $525 million. We now expect capital expenditures to be approximately $1.5 billion. We are also increasing our effective tax-rate guidance to the range of 20% to 22%, due to the non-deductible impairment of Wilmar taken in the third quarter. Our expectations for our leverage ratio and D&A are unchanged. Let's turn to slide nine to close the call with a reflection on the key priorities that we are driving with our team to deliver improvement and enhance return. First, my top priority is ensuring integrity and accuracy in our internal controls and financial reporting. I echo Juan's earlier statement and add my particular thanks for the extraordinary efforts of our team to amend and file the restated financials for fiscal year 2023 Form 10-K and Form 10-Qs for the first and second quarters of 2024. We are continuing to focus on implementing enhancements to our internal controls to remediate the previously identified material weakness and are taking action to enhance the integrity and accuracy within internal controls and financial reporting related to intersegment sales. Among other things, the design and documentation of the execution of pricing and measurement and reporting controls for segment disclosure purposes and projected financial information used in impairment analysis have been enhanced and the testing of these controls will continue throughout the balance of the year. Further, training for relevant personnel on the measurement of intersegment sales and application of relevant accounting guidance to intersegment sales has been provided and remains ongoing. In the broader category of improving focus and execution, the team will remain adaptable and focus on items within our control. On the cost side, we are optimizing our cost structure and enhancing operational resilience initiatives. In this vein, we have the opportunity to create a more cohesive digital strategy. Today, we have invested in numerous efforts to improve our systems and enable a more digital footing for our business. However, we have the opportunity to connect these efforts to accelerate outcomes around how we serve our customers, operate our assets and run the enterprise, while also delivering structural cost improvement. Similarly, we have room in our portfolio and broader asset network to optimize through targeted divestitures or rationalization and we are evaluating numerous actions that we could take to improve our footprint performance and generate cash. We will also maintain a sharp focus on working capital management to further strengthen our cash position. Lastly, we'll remain disciplined in capital allocation, seeking opportunities to drive ROIC and enhance returns. I see maintaining our capital discipline as essential to value creation. We will work to ensure that we maintain a healthy balance sheet that continues to create strong cash flow and that we rigor investment opportunities appropriately by applying a stage-gated model to ensure that we are achieving key milestones and meeting our return objectives to continue to invest. In closing, I want to take a moment to thank our ADM colleagues for their hard work and dedication this quarter. I am optimistic that today we can successfully tackle the challenges and seize the opportunities as we continue to execute our strategy and focus on delivering value for our shareholders. With that, we look forward to taking your questions. Operator, please open the line for our first question.

Thank you. [Operator Instructions] First question comes from Andrew Strelzik with BMO. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking the questions and I appreciate all the color you gave on the outlook and the strategy. I was hoping that you could help reconcile the decline in U.S. crush margins over the last several weeks. You have now a U.S. crush margin curve that's much lower in the nearby than in the spring, which is abnormal. You have soybean meal delivery certificates issued last week by some of the commercials, which I also believe is abnormal. So I guess the question is, what does all of this tell us about where crush margins are headed and how much visibility do you have on crush into next year compared to what you would typically have for this time of year? Thanks.

Yes. Thank you, Andrew. As you said, board crash rallied steadily from the lows in Q3, but has come under pressure in November. And it's basically a combination of things. First of all, demand for the products have been very good. Demand for meal is good, demand for oil around the world is good. But you see during November, we have the Argentine farmers started to sell again. So we've seen higher crush rates in Argentina. There are high crush rates in Brazil and NOPA here in North America, all our plants have been running well, so we have high crush in October. When you combine that with the regulatory uncertainty now we have in the oil side, that has created the problems that we have. The U.S. is exporting oil, the U.S. is exporting mill, but there is more pressure in the system with more crush being put and less regulatory clarity. So that's why overall message, Andrew, is as we look forward here, we think that given the soft markets and the regulatory uncertainty, our focus in ADM is on the things that we can control on the double down on productivity, looking at all our efforts in trying to control cost and cash and certainly portfolio management. So that's kind of our priority for the year. The markets remain robust. Soybean meal is the most competitive feed out there. So demand is strong and oil is needed for the biofuels market and oil is needed for human consumption. So I think that when we clear the regulatory environment or regulatory uncertainty, if you will, I think you're going to see things normalizing a bit.

Okay. And sorry, if I could just quickly follow up. Given all of the internal actions that you guys are focused on as you kind of navigate the cycle, and if I were to kind of exclude some of the insurance dynamics from this year and maybe from next year as well, do you think that this is kind of an earnings base from which you would expect those actions to drive earnings growth in 2025 or do you think about it as still kind of navigating through kind of a muddled environment as we get through the regulatory dynamics, how do you think about kind of this year and actions that you're taking in the ability to grow in '25? Thanks.

Yes. I think it's important never to lose an opportunity to get yourself extra feet. So we are taking this decline in margins as an opportunity to review everything from ADM and accelerate all the decisions that were already ongoing. So I will, you know it's too early in the year. There are too many unknowns, Andrew, to especially on the regulatory front to make a forecast for the year. But we know that focusing on the things we can control continue to drive cash flows, that's an important thing for our shareholders and that will improve returns.

Andrew, I echo what Juan just said, it's back to the basics of cash cost and capital. And that's what we are focused on right now. Lot of opportunities head-down, get 2024 closed and we'll come back when we're ready to discuss 2025. But we know the environment is going to be soft and that's why the teams are controlling what they control.

Our next question comes from Tom Palmer with Citi. Your line is open. Please go ahead.

Good morning. Thanks for the question. I just wanted to enquire on the nutrition side of the business. We've seen some changes in terms of the animal nutrition business, I think from a cost-savings standpoint that's driven some improved profitability. What about on the human nutrition side? Is there just given some of the end-markets maybe haven't progressed the way you once anticipated thought to kind of resizing that business? And maybe how much of an opportunity might that be as we think about the coming year? Thanks.

Yes, thank you, Tom, for the question. Listen, I think I will take it by pieces. If you take human nutrition, you have to separate. We have a big issue with the plant that is down. That plant is a significant cost. It was down for a full-year, now it's going to be down for the first quarter. And so that's an issue that is a little bit of extraordinary that we're fixing, and we thank all the engineers and everybody working expeditiously to bring it back safe. On the rest of the business is the flavors business and the health and wellness business, we continue to see opportunities. We've seen in the positive side, if you will, we've seen growth of flavors -- revenue flavors in Europe of about 7% like-for-like, so organic growth year-to-date. We have seen 5% in North America. These are not the growth rate that we were expected when we started the year because there has been some categories like energy drinks where although still growing, is growing at less -- at lower rates than we expected at the beginning of the year and our customers have expected at the beginning of the year. Some launches has been postponed, but still is a robust category and we still see growth. But as you said, we are adjusting a little bit our supply-chain to make sure we match the new realities. When you look at the other piece of human nutrition, which is health and wellness, the probiotics part, which is the part there that is the future, it is the growth part has grown so far 14% year-over-year on a revenue side, and even higher than that in operating profit side. So I think that there are good signs, but we continue to flex this. This is a year in which, as you understand, nutrition is not where we want them to be, and we are working hard to fix it. But there are on the customer side, there are positive signs that makes us believe that when we put some of these supply issues behind, we're going to see the results coming to the P&L in a bigger way.

Okay. Thank you. And just on the capital allocation, it sounds like there was some mention in the prepared remarks of maybe some focus on discipline, but there was also some commentary maybe on the crush side about some unexpected downtime. Is there may be an elevated maintenance CapEx cycle needed in the crush operation to kind of get it to the operational levels that you desire? And if so, might we expect maybe less of a step-down in CapEx next year just given that or maybe I'm overstating it? A - Juan Luciano No, listen, CapEx for next year will be solid CapEx, if you will. We have many plants, we have grown the company and we need to make sure those plants stay in good shape. But also there are opportunities for automation and digitization that we are adding to that. If you look at the oilseeds plants, Europe and Latin America have been operating very, very well. We have a handful of plants in North America that have given us problems over the summer, and I'm happy to report that they are doing better in October, they are doing better in November. But we have some issues that took a little bit longer to fix than we thought and we put the resources to do so.

Our next question comes from Ben Theurer with Barclays. Your line is open. Please go ahead.

Yes, good morning, and thanks for taking question. Good morning. So just wanted to like kind of get a little bit maybe your sensitivities around the implied guidance for the fourth quarter and taking a little bit of an advantage that we're early in December and already two months have gone past. Clearly, if we look at it implied low-end versus high-end, it's very widespread? So maybe help us understand and frame a little bit what are the risks getting closer to the lower end, which would be implied a little less than $1 versus the higher piece closer to $140, just to kind of understand where we're shaking out and where you think things are going out considering that two months are in?

Yes. Thank you, Ben. So let me give you the puts and takes for the quarter and you can build it from there. I think in -- if you think about the grain business ag services, of course, this is the quarter in which the volumes come to North America for exports. And we see good volumes. China is buying for Q4, beans, Europe is buying corn for Q1. But we have -- although we have good volumes, we have not seen the margin expansion that maybe we have forecasted a couple of quarters or a couple of months ago. River logistics are good for December. We will have to monitor the weather for Q1, but so far so good. And calories in the market should help our interior assets. On a global trade perspective, volumes are strong and lower commodity prices are supporting feeding animals globally. So destination marketing margins are holding. On the crush side, I described before the decline in crush margins, you know, a lot of uncertainty about biofuels policy, of course. This margin compression could create timing depending on where prices are at the end of the year, we could see positive timing. So we will not be able to call that until we see the end of December. We have been selling our biodiesel book, but of course, it goes out to December. Unfortunately, with the lack of clarity over next year, you know, you could think that if we continue to crush at these levels, maybe oil inventories will climb and something we'll have to give for next -- for the first quarter. At this point, there is not a lot of margin for independent non-integrated plants to run in the first quarter. So you know, we may see a spike of RINs later in the quarter and we might have to maybe as industry slowdown crash in the first quarter. On a carb solutions perspective, it's kind of steady, if you will. Margins are good, volumes are good, manufacturing is operating well, so we get -- we are cranking on all the cost savings. We have implemented some of the automation projects that's given us benefits to that. So I would say we should see a little bit ethanol margins are always the variable here. They are slightly on the breakeven side. So hopefully, we finish the year strong there. And then on the nutrition side, we certainly, as Monish was saying in the outlook, we've seen improvements in animal nutrition, we've seen a balance of some revenue growth, but also some one-offs that we needed to address in the human side. So I will say better than last year, slightly lower than maybe the previous quarter, and we are putting all our efforts in finishing that plant, so we can have a 2025 cleaner of all those extra costs.

Just a couple more for you Ben is -- can I just add a couple more?

Yes, yes.

For insurance proceeds that is a partial settlement right now. If you add the three segments I gave you, in the fourth quarter, there is an assumption that we will get 100% reinsurance proceeds of $135 million. So that's the other variable. And then back on nutrition, what Juan said just for disclosure, currently based on where the team is seeing, we think with M&A, it's low-single-digit growth in the fourth quarter. And on an organic basis, it's low-single-digits negative growth. And so that's the other piece. I just wanted to add to what Juan said. Thank you.

And to clarify, those insurance just similar as in the third quarter that will basically then be deducted in other, correct?

No, these are all 100% reinsurance proceeds, Ben. So they will -- so our captive insurance has reinsurance cover. And so we expect to get $135 million as a partial settlement for the Decatur East. And this will continue into '25 and '26 as we -- yes, it's different than 3Q where the captive was paying for it. Now we are expecting reinsurance proceeds.

Okay. Perfect. That explains a lot. Thank you.

We now turn to Heather Jones with Heather Jones Research. Your line is open. Please go ahead.

Good morning. Thanks for the question.

Good morning, Heather.

So you guys talked -- good morning. So you all have talked a lot about the challenging cycle we're in and as far as looking to '25, but wanted to get a sense of, I mean, what are some things that could be givebacks in '25. So I was just wondering if you could quantify how much take or pay hit you guys in '24? And then the cost impact of all the unplanned downtimes that presumably as you've gotten these plants running better, you should get back that's separate from the crush curve. So I was just wondering if you could first quantify those couple of things for me.

Yes, I would say, I'm not sure I have all of them top of my head for the full year, Heather. But let me say the following. I agree with you. I think and on the take or pay, first of all, we learned our lesson. So we're going to act differently, I think as ourselves and you know maybe even the whole industry. I think also the weather in Brazil is very good. So we expect to have probably 170 million tons type of crop next year that will avoid these issues. I will say all these resets in 2025, so we still have very little exposure of our take or pay. But I don't have top of my head what was the whole thing. And then on the manufacturing side, we have issues mostly in the Q3, I would say. Some of the plans when we look at our capacity, when we were down, sometimes it was things like Paraguay because we didn't have margins, so we shut it down ourselves. And then sometimes it was Ukraine or other plants like that. We had a plant in Des Moines, Iowa that we were a little bit waiting for a permit, so we couldn't bring it back. So there are improvements there. I don't know if Monish you have some numbers in your head. I will hesitate to quantify them myself. But...

Yes, so I would just on take or pay, Heather, it's year-to-date, it's approximately $40 million of impact. We'll have to see what 2025 brings and what the volume and what the revised take or pay contracts look like. And then on the downtime, again, it comes down to the teams are focused on trying to get that up. The cost has gone up per cost per ton, but I would not quantify that right now. I would just wait through as we get to, there should be upside as these plants start running, but I would not quantify because it's not like a systemic down of X over months, it's puts and takes of downtime.

Right.

One thing, Heather, that you need to consider, sorry, in the manufacturing is we implemented our automation projects in the carb solutions business first because we run a pilot and it was good return. So we extended that. Now we have finished our first pilot in the oilseeds plant in one plant in Brazil, and the results are very encouraging. Based on those results, we might do the same thing than now that we did in automation in carb solutions into the oilseeds plant. That had given us improvements in not only yields, but also energy savings and you know, ex-same losses and things like that. So there is an upside there as well as we go into -- we're going to implement all of these in -- I think we have 15 projects going into 2025 for this. So I think that you should see that as a positive for us.

And Heather, I would add to Juan's piece on this is everyone looks at downtime and says cycle up or cycle down. What the team is actually doing is a very good lean-based approach. So they're actually going into deep root cause, looking at what equipment caused the failure, why did it caused the failure? Is there a way to automate? Is there a way to digitize? So in the long run, I put this under the pillar of operational excellence. Our factory should continue to run better in the longer term, and we'll put in the right appropriate of CapEx needed to make sure that we can over the long-term have sustained operating leverage from our factories.

Okay. Thank you. My follow-up is just, do you have an estimate of how much reinsurance proceeds will be in '25 and '26? I think you said it will continue into '26. So just give us a sense of what those just rough numbers, what those numbers will look like?

Yes. So I'll start with just the overall possible loss that is there. And again, this is very preliminary. The teams are still working it through. But we believe Decatur West should be approximately in the $100 million of loss and Decatur East should be in the $300 million to $400 million of loss. We've got $95 million in Q3. We expect to get $135 million, give or take in Q4. We expect that in 2025, we should be somewhere in that $50 million to $100 million range and then and the rest will work over the next. Now all of this is based on information we have right now, all of this is based on still working through with the actuaries, with the insurance companies, et cetera. And our goal is to continue working it and we'll keep you posted as we get to know more, but this is truly based on what we know as of right now.

We now turn to Manav Gupta with UBS. Your line is open. Please go ahead.

My question specifically is to you, Monish. You have been in the seat for some time, but looking at the next 12 months to 24 months, Monish, what are your key priorities? What are you going to be most focused on for the next couple of years to make ADM a stronger company?

Yes. First, Manav, I'll just say, yes, I've been here slightly over 90-days and it's been a blast to be here. It's a fantastic team. I've got a chance to go see some farms, I've got a chance to go see our operations. I've got a chance to go meet the teams in the field and it's a very exciting time to be here. I would tell you on my priorities, as I think about it, as I said in my prepared remarks, my first priority is the integrity and -- of our financial statements and remediating the material weakness. The team has already done a lot of work, but there's a lot more we can do in improving our processes, our internal controls and our systems. And that's what I'm focused in with the IT team and the finance teams to make sure that we have systems that can support all the reporting and all the revised pricing et cetera for intersegment sales. So that's one item. Then I come to the second piece, which is driving cash cost and capital. As Juan mentioned and I have said, there is a lot of opportunity here to control what we control and therefore, we are doubling down on our productivity efforts. And I'm working with the teams on multiple areas that we can simplify our business, reduce our cost, take advantage of our procurement savings as we should be getting into a slightly deflationary environment, while at the same time making sure that we are having functional excellence, which is we are delivering from the center what really the businesses need. So we are following a zero-based approach in certain of our functions. We are looking at all the cost and saying, what are we doing? Do we get the value for it or not. Similarly, when it thinks about capital, you've heard about capital allocation. When you think about CapEx, it's a stage-gate model. So making sure that we are investing in areas because there are tremendous opportunities for investment available to us, but at the same time, making sure that we're getting a return and we're going to follow a stage-gate approach, which means we'll fund you a little bit, we'll see what the return looks like at that point in time. If you hit the milestones, you get the next funding, otherwise, the money goes to somebody else. So create some internal tension to make sure that everyone is fighting for the last dollar of CapEx that's available. Then I go into digital and I think there's tremendous opportunity for you. The Kristy and team who's our CIO has done a really nice job. The company has done a nice job of improving the infrastructure that we have. We still have a long way to go in that, but I feel there's also a chance here to accelerate some of the ability to use data and data analytics to drive business outcomes. So that's another priority of mine. And then I would tell you back to portfolio. The company has always said they will look at portfolio. I've said that too in my prepared remarks in my three-month plus year, I've seen there are opportunities here that we are working on to make sure we simplify our portfolio. And I look at it from a simple lens of do I have a market and do I have a right to win first. And if I do, am I the rightful owner of that asset and what return are we getting. And Juan and I have spent quite some time together on talking about this. He has always been open to portfolio, and we are going to continue working on that. So Manav, I don't know if I answered your question, long answer to your short question, but lot of priorities. And then I'll end with where I started, which is back to the basics. You got to drive cost, cash and capital in this environment where we know that the commodity cycle may not be our best friend. So self-help is truly our best friend and that's what the teams are working on. So hopefully answered your question.

No, you absolutely did. My very quick follow-up and this is more on the policy side. We saw some news that there are some changes to China export taxes as it relates to UCO and maybe Chinese UCO will make its way less to the global markets. There's a little bit of possibility that President Trump might impose some tariffs on anyways UCO coming into the U.S. So I'm just trying to understand from the perspective of ADM, if China exports less Yuko to the global markets, how does -- how can that help ADM?

Yes, thank you. Well, you see Manav what happened when the flood of UCO came into the U.S., so then basically soybean oil or canola oil lost percentage, it lost share as a percentage of feedstocks, if you will. And there were a lot of concerns on the origin of some of these UCO. And there have been a lot of questions by people about making sure we verify that origin, especially when you start seeing big palm oil producing countries being big exporters of UCO also. So I think part of that is to make sure that whoever is playing here is playing with the right rules. So I don't know about the regulation. There are a lot of speculation at this point in time about regulations. We just want a level-playing field. We just want to work on products that are real what they say they are. And I think that's what we aim for is transparency in the rules. Then we play by the rules.

Our next question comes from Steven Haynes with Morgan Stanley. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my question. Maybe just coming back to the cost side of things. I think your SG&A is up quite a bit this year and accelerating a bit, maybe more than kind of what would be implied by normal inflation. So I guess when we're thinking about that kind of ramp-up this year, what are some of the key drivers there? And then how are we supposed to think about that going into next year pairing with your comments about you know more focus on controlling cost. Thank you.

So I'll just start with answering the question on what's driving the increase in SG&A, there are couple of drivers here. One is the higher litigation costs that we have in defending the or sorry, the higher litigation costs that we have with the material weakness that we have. So that's number one. Number two is the company has invested in digital transformation over the last few years and that's the cost that is increasing there to support the transformation of our ERPs. Number three is we got higher interest cost that we have, which is also reported -- sorry, you were just asking SG&A, not corporate. So those are my two big drivers that drive it, which is GT and then some litigation costs. We also have normal merit increase that goes into that, but that's partially offset by the lower incentive compensation that as we see the results of the company right now, you're going to see lower. So when you look at all of that back to your question also what are we going to do about all of this, as I said, a couple of things is, we need to continue investing in digital transformation as we go through that. Secondly, I would tell you that as we work through some of the zero-based budgeting exercises that we have here, we need to make sure that where there is opportunities, there is value being added for those activities, that's what we are working on. And then the third piece that is an add to the cost, which is M&A, so as we have bought four companies that closed in 2024, you get added cost that of course comes through into SG&A, but that's also where we have to keep looking at and saying making sure the synergies for those M&As are coming through too. So I would say in the long-run, when I look at this, this is where we clearly have an opportunity to continue driving our focus on cost. And I would do cost in two places. One is cost in SG&A. The second cost is our manufacturing cost, which Juan has already talked about and I've talked about where we should be able to keep driving efficiencies, which should help us reduce cost.

Okay. Thank you.

We now turn to Tami

Hi, good morning. Thank you so much. My question is on crush volumes. I think I saw on your slide you expect high single-digit percent type volume growth in the fourth quarter. So I'm just curious, is that a good starting point for next year barring any policy developments or can you share any initial thoughts on how you're thinking about volumes?

Yes, I would say, as you said, if you take the regulatory uncertainty out and what's going to happen with people adjusting their crush because of their blender tax credit to producer tax credit issue, whenever that's going to be solved, I think that, that level that we are disclosing is probably a reasonable level on normal conditions, if you will, yes. And that basically is just the addition of Spiritwood -- is the addition of Spiritwood that is running at full capacity basically, almost full capacity.

Understood. That's helpful. And then just following up on that tariff question from earlier, are you preparing for any either positive or negative impacts should the incoming new administration slap tariffs on foreign imports maybe starting in January, do you see any immediate opportunities or even risks to your business when initial tariffs go into effect?

Yes, of course, our business is running a lot of scenario planning for what could happen. Normally, what we see in these circumstances is the trade flows adjust. At the end of the day, you continue to have certain demand in the world, is just satisfied in a different way. So that's where in those situations is where the footprint, the global footprint and the team of ADM normally shines because it allows us with a lot of agility to repurpose those trade flows to take advantage of the conditions. So we are remaining agile, and again doing a lot of scenario planning to be ready.

Understood. Thank you.

You're welcome.

We now turn to Salvator Tiano with Bank of America. Your line is open. Please go ahead.

Yes, thank you very much. You did make a comment early in the call about China increasing production of certain commodities that is impacting trade. And I was just wondering if you can talk a little bit more about that, what are these commodities you're talking about, and whether this is something that's more cyclical like higher crop production because of favorable weather or something more structural certainly more policy, I guess driven that could impact global trade in the longer-term?

Yes, I think that China has shown this year that they wanted to encourage or incentivate their local corn production. And as such, they have reduced their -- they have to reduce their imports of corn. I think in -- that's probably what I was referring to, their imports of corn this year are going to be lower. I think in terms of soybeans, the situation is slightly different. I think they are preparing for the eventuality of having to or having to have, you know, tariffs or whatever. So they've been buying and they've been refreshing their reserves. So I think that in that sense the amount that they imported has been about the same. I would say it was more the corn comment.

Okay, perfect. And just want to follow-up a little bit on to ask about the depreciation in the Brazilian reis recently. And I'm just wondering what impact could this have most of your bottom line in Q4, but especially in 2025, given that's now under -- it's now over six.

I think, Salvador, the biggest impact that happened with devaluations in Latin America is how they impact farmer selling. You see it in Argentina now that the currency and/or the spread with the you know the two exchange rates is just 10%, the farmer is a more normal seller, if you will, when they need cash and more a steady seller. In Brazil, now with the devaluation, the farmer has been more reluctant seller, if you will. So I would say when you look at Latin America, that's probably what impacts us the most is the ability of the farmer to be pressed to be a commercializer of grain.

We have no further questions. I'll now hand back to Megan Britt for any final remarks.

Thank you so much for joining the call today and for your interest in ADM. Please feel free to follow-up directly with me if you have any additional questions.