Good morning. Notable accounting errors and a federal investigation have kept the U.S. agricultural giant Archer-Daniels-Midland Co. (ADM) in the spotlight for most of this year. Now more financial mismanagement has caused ADM to abruptly postpone its third-quarter earnings call that was scheduled for Tuesday.
The company announced on Monday that while testing internal controls, it identified additional misclassified transaction sales for each of its Ag Services and Oilseeds, Carbohydrate Solutions and Nutrition segments. Following a dialogue with the U.S. Securities and Exchange Commission (SEC), ADM will amend its Q1 and Q2 2024 and 2023 financial statements. Its stock price fell by 8% at market opening on Tuesday and down about 6% at market close.
ADM has repeatedly violated Generally Accepted Accounting Principles, which have forced the company to restate its financial statements, according to Rick Warne, a professor of accounting at the University of San Diego’s Knauss School of Business. “A series of accounting errors indicate that ADM has fundamental problems in its financial reporting processes that need to be resolved,” Warne said.
For Q3, ADM projected earnings per share at $1.09, down 33% year over year from $1.63, below Wall Street’s expectations. The Ag Services and Oilseeds and Nutrition businesses delivered results below company expectations. ADM lowered its full-year earnings outlook range to $4.50 to $5 per share from $5.25 to $6.25.
In January, ADM's struggles with financial integrity surfaced when outside counsel investigated accounting issues tied to the nutrition segment, which produces ingredients for both human and animal food. The inquiry was sparked by a voluntary document request from the SEC. Vikram Luthar, ADM’s CFO was placed on administrative leave and later stepped down. Monish Patolawala became EVP and CFO on Aug. 1. He was previously CFO at 3M.
ADM’s troubled nutrition business is related in part to its biggest-ever acquisition in 2014—the $3 billion buyout of European natural ingredient maker Wild Flavors. The goal was to diversify from row-crop grains and oilseeds into processed products, according to reports. But, due to weakening demand, profits have not lived up to initial expectations.
ADM has a checkered history when it comes to accounting. In the 1990s, the company was implicated in a price-fixing conspiracy. This was documented in a nonfiction book titled, “The Informant” published in 2000, and the 2009 film The Informant! is based on the book.
ADM is evaluating its remediation measures, continuing to focus on making enhancements to its internal controls, and providing training for “relevant personnel,” the company said in its announcement.
A top priority for ADM's CFO and management team is to regain investor confidence by providing accurate financial statements, Warne told me. “Investors don't like accounting surprises or mistakes, and SEC investigations are highly concerning," he said.
Sheryl Estrada
sheryl.estrada@fortune.com
