ADM down 8% as more accounting errors arise, profit forecast cut

By Karl Plume and Mrinalika Roy

CHICAGO (Reuters) -Archer-Daniels-Midland shares fell 8% on Tuesday after the global grains merchant cut its 2024 profit outlook and said it would amend previous financial statements due to the discovery of fresh accounting irregularities.

The drop wiped away more than $2.3 billion of market value off one of the world’s biggest crop traders as shares dove to the lowest since January 2021.

The accounting woes are likely to heap more pressure on ADM’s leadership team headed by CEO Juan Luciano after the company was forced to correct six years of financial data in March. An internal investigation found sales between ADM’s nutrition business and other core units were not recorded properly.

ADM will amend its fiscal year 2023 annual report and results for the first and second quarters of this year following discussions with the U.S. Securities and Exchange Commission, according to a statement. The company does not expect any material impact on the company on a consolidated basis, it said.

An SEC spokesperson declined to comment.

The latest accounting errors rattled investor confidence in the 122-year-old agribusiness, which has seen profits decline and margins erode as prices for staple crops like corn and soybeans have slid to near four-year lows.

“If ‘not material’ turns out to be ‘material’, then it certainly would be harder and might put more pressure on the board to consider a leadership change,” said Seth Goldstein, equity analyst with Morningstar.

ADM under Luciano has invested heavily in its nutrition business over recent years in a strategy aimed at bolstering its legacy grain trading and processing businesses and shielding earnings from commodities market volatility. Profits from the smaller nutrition segment, however, have not lived up to expectations.

“Investor faith in the strategy is greatly shaken and there are concerns that greater capital may have to be deployed to get the legacy businesses back to prior relative performance standards,” said analyst Heather Jones, founder of Heather Jones Research LLC.

ADM’s accounting irregularities have sparked several government investigations and led to the departure of CFO Vikram Luthar in September. The company postponed its earnings call, which was scheduled for Tuesday, and now expects to hold a webcast after it has filed the amended statements.

“Investors will undoubtedly be disappointed that this accounting overhang has returned,” CFRA analyst Arun Sundaram said.

CFRA cut its 12-month ADM share price target by $10 to $56 after lowering its earnings-per-share outlooks for 2024 and 2025.

The restated filings, which ADM said would be released as soon as “reasonably practicable”, will include some newly identified errors concerning intersegment sales for all three of its main units.

Per SEC guidelines, ADM has until around Nov. 12 to report its results, but can file for an extension, analysts said.

ADM cut its 2024 adjusted earnings forecast to $4.50 to $5 per share, from $5.25 to $6.25 it had estimated earlier, due to government policy uncertainty, slow market demand and “internal operational challenges.”

The company reported adjusted profit per share of $1.09 for the third quarter ended Sept. 30 in a preliminary filing that the company said was subject to change. Analysts expected $1.25, according to data compiled by LSEG.

ADM’s operating profit from its Ag Services and Oilseeds segment, its largest by revenue, slumped 43% from a year earlier.

The company also paid $96 million in partial settlement claims in the quarter tied to safety incidents at its Decatur East and West facilities.