ADM's Nutrition Division Faces Scrutiny Amid Financial Probes and Restated Results
Source: DairyNews.today
Archer-Daniels-Midland Co (ADM) is grappling with intensified scrutiny following its decision to cut its 2024 profit forecast, delay its quarterly earnings report, and restate past financial results, raising questions about its Nutrition division's performance.
The developments have rattled investors, wiping $1.6 billion from the company's market value on Nov. 5. The turmoil follows ADM’s acknowledgment of accounting "issues" linked to intersegment transactions that inaccurately boosted the Nutrition division’s financial results.
Federal prosecutors from the U.S. Attorney's Office for the Southern District of New York are investigating potential securities fraud and conspiracy, Reuters has learned from subpoenas and sources close to the case. The criminal inquiry, which builds on an earlier probe disclosed in February, marks a significant escalation and comes alongside a parallel investigation by the U.S. Securities and Exchange Commission (SEC).
ADM confirmed its cooperation with authorities but declined to comment further. The SEC and the U.S. Attorney's Office also declined to provide details on the case.
Pressure on ADM’s Nutrition Division
Launched in 2018, ADM's Nutrition division was envisioned as a growth engine, supplying high-value ingredients for plant-based foods and beverages. CEO Juan Luciano championed the unit as a hedge against the volatility of traditional commodities markets. However, the unit has struggled to meet lofty financial targets, raising concerns about internal practices.
Investigators are examining whether ADM manipulated internal transactions to make the Nutrition division appear more profitable. Employees and internal documents reviewed by Reuters suggest that other ADM units, such as its Carbohydrates and Oilseeds divisions, were pressured to provide below-cost goods to Nutrition, artificially inflating its performance.
These intersegment transactions, while common in diversified companies, must adhere to fair market pricing standards. ADM previously told investors that such transactions would reflect market values, but subsequent earnings restatements indicate deviations.
In March, ADM disclosed that some intersegment sales had been priced below cost, prompting a revision that reduced Nutrition’s operating profit by $228 million between 2018 and 2023. The SEC investigation was revealed in June, followed by a criminal probe later in the year.
Broader Implications
The ongoing probes cast a shadow over ADM, a 122-year-old agribusiness titan and one of the largest U.S. companies by revenue. ADM has faced legal challenges before, including a 1990s price-fixing scandal that resulted in substantial fines and prison sentences for executives.
This time, the stakes involve allegations of misleading investors and potential violations of securities laws. Prosecutors are scrutinizing internal communications, interdivision sales practices, and executive incentives tied to Nutrition’s performance.
ADM had tied significant portions of senior executives’ compensation to the Nutrition unit, reflecting its strategic importance. CEO Luciano, who took personal credit for launching the division, oversaw acquisitions exceeding $7 billion to bolster its portfolio.
Despite these efforts, Nutrition’s operating profit peaked at $668 million in 2022, falling well short of Luciano’s once-ambitious projection of $1 billion.
Outlook
Federal investigations remain ongoing, with dozens of subpoenas issued to current and former employees. Witnesses have been questioned on pricing practices for products like soy-based "white flake" and lysine, an animal feed ingredient, as well as broader accounting irregularities.
The probes have highlighted internal tensions, with some employees alleging pressure to “pull levers” to meet unrealistic profit targets. ADM insists that the financial revisions do not affect its overall profitability, but investor confidence remains shaken.
ADM shares have dropped significantly from their 2022 highs, and its ability to reassure markets may hinge on the outcomes of these investigations. While Luciano remains optimistic about Nutrition’s potential, the division’s struggles have become a focal point for scrutiny over ADM’s corporate governance and financial practices.
Federal prosecutors from the U.S. Attorney's Office for the Southern District of New York are investigating potential securities fraud and conspiracy, Reuters has learned from subpoenas and sources close to the case. The criminal inquiry, which builds on an earlier probe disclosed in February, marks a significant escalation and comes alongside a parallel investigation by the U.S. Securities and Exchange Commission (SEC).
ADM confirmed its cooperation with authorities but declined to comment further. The SEC and the U.S. Attorney's Office also declined to provide details on the case.
Pressure on ADM’s Nutrition Division
Launched in 2018, ADM's Nutrition division was envisioned as a growth engine, supplying high-value ingredients for plant-based foods and beverages. CEO Juan Luciano championed the unit as a hedge against the volatility of traditional commodities markets. However, the unit has struggled to meet lofty financial targets, raising concerns about internal practices.
Investigators are examining whether ADM manipulated internal transactions to make the Nutrition division appear more profitable. Employees and internal documents reviewed by Reuters suggest that other ADM units, such as its Carbohydrates and Oilseeds divisions, were pressured to provide below-cost goods to Nutrition, artificially inflating its performance.
These intersegment transactions, while common in diversified companies, must adhere to fair market pricing standards. ADM previously told investors that such transactions would reflect market values, but subsequent earnings restatements indicate deviations.
In March, ADM disclosed that some intersegment sales had been priced below cost, prompting a revision that reduced Nutrition’s operating profit by $228 million between 2018 and 2023. The SEC investigation was revealed in June, followed by a criminal probe later in the year.
Broader Implications
The ongoing probes cast a shadow over ADM, a 122-year-old agribusiness titan and one of the largest U.S. companies by revenue. ADM has faced legal challenges before, including a 1990s price-fixing scandal that resulted in substantial fines and prison sentences for executives.
This time, the stakes involve allegations of misleading investors and potential violations of securities laws. Prosecutors are scrutinizing internal communications, interdivision sales practices, and executive incentives tied to Nutrition’s performance.
ADM had tied significant portions of senior executives’ compensation to the Nutrition unit, reflecting its strategic importance. CEO Luciano, who took personal credit for launching the division, oversaw acquisitions exceeding $7 billion to bolster its portfolio.
Despite these efforts, Nutrition’s operating profit peaked at $668 million in 2022, falling well short of Luciano’s once-ambitious projection of $1 billion.
Outlook
Federal investigations remain ongoing, with dozens of subpoenas issued to current and former employees. Witnesses have been questioned on pricing practices for products like soy-based "white flake" and lysine, an animal feed ingredient, as well as broader accounting irregularities.
The probes have highlighted internal tensions, with some employees alleging pressure to “pull levers” to meet unrealistic profit targets. ADM insists that the financial revisions do not affect its overall profitability, but investor confidence remains shaken.
ADM shares have dropped significantly from their 2022 highs, and its ability to reassure markets may hinge on the outcomes of these investigations. While Luciano remains optimistic about Nutrition’s potential, the division’s struggles have become a focal point for scrutiny over ADM’s corporate governance and financial practices.
