ADM shares plunge 22% as accounting probe begins and CFO goes on vacation By Reuters
© Reuters. The Archer Daniels Midland Co (ADM) logo is shown in this image taken April 10, 2023. REUTERS/Dado Ruvic/Illustration
(Reuters) – Archer-Daniels-Midland shares fell 22% on Monday, the steepest decline in decades after CFO Vikram Luthar was placed on administrative leave as the company investigated accounting practices in its nutrition division.
The global grain trader cut its 2023 profit forecast in response to a voluntary document request from the U.S. Securities and Exchange Commission (SEC) and said its fourth-quarter results would be delayed due to investigations related to certain cross-sector trading.
The investigation brings more uncertainty to ADM’s high-margin nutrition segment, which is under pressure from declining demand for meat substitutes and other products and downtime at its large soy processing facilities.
The SEC did not respond to Reuters’ request for comment. ADM said it was cooperating with the SEC.
ADM’s stock price fell to $53.03, its lowest since February 2021.
Luthar joined ADM nearly 20 years ago and served in a variety of leadership roles before being appointed CFO in 2022.
The company posted consecutive record profits due to favorable crop processing margins and strong demand for food, animal feed and biofuels. However, the nutrition segment has not performed well in recent quarters.
This segment supplies ingredients such as plant-based proteins, natural flavors and emulsifiers to the food, beverage and nutritional supplement industries.
Recent large investments in animal feed and pet nutrition also fell short of expectations, analysts said.
At least four brokerage firms downgraded ADM’s stock following the SEC’s request, and the company cut its adjusted earnings forecast for the fiscal year ending December 2023 to $6.90 per share from “over $7 per share” previously.
“First and foremost, it will be important to understand the true extent of the potential accounting irregularities and their impact on nutrition segment revenues/margins,” said Goldman Sachs analyst Adam Samuelson.
As one of the world’s largest grain traders and processors, ADM has been growing its flavor and nutrition business with the goal of providing better protection from commodity price volatility.
It first acquired WILD Flavors in 2014 for $3 billion, and most recently said it would acquire UK-based flavor and ingredients company FDL in late 2023.
“If the issue is simply transfer pricing (tax avoidance), the 2024 EPS outlook should not change. ADM is likely to continue share buybacks despite the investigation and close on recent acquisitions,” BMO analysts wrote.
Until investors have more clarity on what exactly went wrong with the accounting of ADM’s nutrition division, UBS analysts said traders could turn to shares of Darling Ingredients (NYSE:) and shares of rival grain traders. address (NYSE:) Global.
ADM has appointed Ismael Roig, who has been with the company since 2004, as interim CFO.
