Good morning, and welcome to the ADM Second Quarter 2023 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent background noise. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s call, Megan Britt, Vice President, Investor Relations for ADM. Ms. Britt, you may begin.

Thank you, Alex. Hello, and welcome to the second quarter earnings webcast for ADM. Starting tomorrow, a replay of this webcast will be available on our Investor Relations website. Please turn to Slide 2. 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 risk 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. To the extent permitted, under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events. On today’s webcast, our Chairman and Chief Executive Officer, Juan Luciano, will discuss our second quarter results, share progress highlights on our first half accomplishment and provide perspective on our outlook for the second half. Our Chief Financial Officer, Vikram Luthar, will review segment level performance for the quarter and first half and provide an update on our cash generation and capital allocation actions. Juan will have some closing remarks, and then he and Vikram will take your questions. Please turn to Slide 3. I'll now turn the call over to Juan.

Thank you, Megan, and thanks to those who have joined us for today's call. Today, ADM reported second quarter adjusted earnings per share of $1.89 with an adjusted segment operating profit of $1.6 billion. Combined with first quarter results, this equates to a first half adjusted earnings per share of $3.98 and an adjusted operating profit of $3.4 billion. Our trailing fourth quarter average adjusted ROIC was 13.8%. The first half of 2023 has probably unfolded as we expected and our financial performance nearly replicates the record results from the first half of last year, even as we face a more challenging macroeconomic and demand environment to start the year. Through active positioning, strong margin management and leveraging our geographically diverse end-to-end supply chain network, we maintain our earnings power and a strong ROIC performance bolstered by key strategic accomplishments across the enterprise. Please turn to Slide 4. Let me highlight just a few across the business. In Ag Services & Oilseeds, our team leveraged past investments in port capabilities to produce record origination volumes out of our Brazilian facilities, expanded our regenerative agriculture partnerships and leverage our ability to flex crush capacity to capitalize on higher canola crush margins. In the latter instance, we flexed more than 300,000 tons of capacity and captured an additional $40 per metric ton of margin. In Carbohydrate Solutions, strategic investments in optimization and modernization allowed our team to manage increased demand for liquid sweeteners, drive growth in BioSolutions revenue and operating profit and produced record results in our milling and international corn businesses. In Nutrition, our unique go-to-market strategy continues to drive a larger sales pipeline and deliver double-digit growth in the Flavors business, thanks to an impressive performance in EMEA and new wins in North America. When you combine all of these…

Thank you, Juan. Please turn to Slide 6. The Ag Services & Oilseeds team continues to deliver exceptional results in a dynamic environment, leading to an extremely strong performance in the first half of 2023, surpassing the outstanding first half of the prior year. Q2 results were strong, but slightly below the prior year period. Ag Services results were in line with the strong second quarter of 2022. South American origination results were higher year-over-year as the team delivered record volumes and higher margins on strong export demand, leveraging our strategic investments to expand port capacity to capitalize on the record Brazilian soybean crop. Results for North America origination was slightly lower year-over-year, driven by lower export volumes due to large South America suppliers. Our execution in destination marketing as well as effective risk management continue to deliver strong global trade results, though lower than the record quarter last year. In our crushing subsegment, results were much lower than the record result from the second quarter last year. Global soy crush margins remained strong but were lower year-over-year in all regions due to softer demand for both meal and oil and a tight U.S. soybean carryout. This was partially offset by strong softseed margins and higher volumes supported by a strong Canadian canola crop and use of our flex capacity in EMEA. Additionally, there were approximately $195 million of negative mark-to-market timing effects in the current quarter that are expected to reverse as the contracts execute in future periods. Refined products and other results were significantly higher than the prior year period, achieving a record second quarter. North America results were higher, driven by strong food oil demand and improved biodiesel volumes. In EMEA, strong export demand for biodiesel and domestic food oil demand supported stronger margins. Additionally, there were…

Thank you, Vikram. As we wrap up today's call, let me highlight a few opportunities that we're excited about as ADM continues to execute our strategic agenda, where we're seeing value generation today and have plans to accelerate. Let's start with digitization and automation. Our ongoing work to modernize and automate our operations is ramping up. Our eight current implementations across North America and Europe are generating millions in run rate benefits. And we have 10 more starting in Q3 with the expectation of similar scalable benefits. Our 1ADM program is accelerating our decision-making and analytics capabilities across the company, helping us find faster path to productivity. With our HR systems now in place globally, our next milestone is bringing part of the Nutrition flavors business on board. In LatAm, we have implemented technology to optimize trade and commercial processes while digitizing freight and logistics contracting. All of this is helping us reduce costs and make better, faster decisions to deliver value to ADM and our customers. Sustainability and decarbonization have opened new avenues for growth across the enterprise while ensuring we are taking the necessary actions on our own footprint. Our STRIVE 35 program continues to deliver important progress, and our recent sustainability report shows our efforts in greenhouse gas emissions, waste reduction, no deforestation and crop traceability achieving targets ahead of plan. As we continue to support our most significant customers with carbon advantage crop sources, we recently announced regenerative Ag program targets of 2 million acres in 2023 with an additional 2 million acres by 2025. With the recent Tallgrass agreement and permit submissions, CO2 from ADM facilities in Nebraska, Iowa and Illinois is now targeted to be captured and stored safely and permanently underground within our expand indicator CCS well capacity. This helps decarbonize our customers' value chains and our own across important opportunity spaces like BioSolutions and sustainable aviation fuel. And we are continuing to invest in the next phase of innovation. Our new Decatur protein solution center is engaged in ADM's world-class science and technology capabilities to deliver on tomorrow's most important consumer nutrition trends. Collaboration between ADM and our ventures partners take us beyond today's alternative protein sources to help address critical areas of sustainability, wellness and affordability. Leveraging our deep fermentation expertise and capacity is positioning us to scale the next generation of food, feed, fuel, fabrics and other industrial products with key partners. The combination of technology alongside global trends in sustainability, food security and well-being is transforming the food and agriculture industry at the fastest pace since the last century. And ADM is at the forefront of this transformation and connected growth opportunities, which give us even more confidence in our long-range growth plans. Thank you for your time today. Vikram and I look forward to your questions. Alex, please open the line.

Thank you. [Operator Instructions] Our first question for today comes from Ben Theurer from Barclays. Ben, your line is now open. Please go ahead.

Thank you very much. Good morning, Juan. Good morning, Vikram.

Good morning.

Good morning.

So I'd like to -- just a general question on obviously, like the puts and takes. You're raising your guidance at the higher end of what 6% to 7% was now around 7%. And obviously, you had a very strong first half, but then at the same time, you're looking for a little more softness in Nutrition. So maybe help us understand how you feel about just macro picture in general demand? What are the geopolitical assumptions that you have behind your outlook and how you feel about second half and then also beyond maybe into 2024, as it relates to general demand in an environment where we're in right now. Thank you.

Sure, Ben. Yes, of course, first of all, we're very proud of the results we accomplished in the quarter and in the first half. And certainly, we are more confident about the environment ahead of us for ADM. I would say -- let me highlight some of the reasons for that. Certainly, crush margins have started to pick up as we predicted before. They continue to get better. Board crush has been firmer and mill basis has been stronger and BIM basis have dropped in the U.S. as we have anticipated. I think there is a shift in which the world needs more protein, then we need more mill, and we can cover for Argentina shortcomings this year. So that is happening as we predicted. And certainly, it's going to be very good for Q3 and Q4. I think we're seeing these huge crops in Brazil. We see the Brazilian port congestion driving a lower interior basis and allowing us to procure cheaper grains, giving margins to those companies that have invested in the infrastructure to be able to capitalize on that, which we did, both in Santos and in Barcarena in Brazil. So, that's playing very well for us. The last time we talked, ethanol inventories were around 25 million to 26 million barrels. Now we are at the end of June at about 22 million. There is -- we see a strong spot demand for ethanol and corn tough to buy. So that has made margins strengthen, and they are holding. So we are positive about ethanol margins continued in that regard. We continue to see this trend in biofuels and we have a strong book on biodiesel for the quarter. So we feel good about that. We are seeing lower recession challenges and the U.S. consumer very…

Perfect. Thank you, very much.

Thank you. Our next question for today comes from Ben Bienvenu from Stephens. Ben, your line is now open. Please go ahead.

Hi, good morning, everybody. Thanks for taking my question.

Good morning, Ben.

I want to just follow-up just on the -- good morning, on the Nutrition business and maybe to the extent that you can talk a little bit about the cadence as we move through the back half of the year. I appreciate the updated comments on overall results being flat year-over-year. But there's -- with Animal Nutrition expected to be down year-over-year, there's a pretty substantial ramp in the human side of things. Maybe if you could talk a little bit about the visibility that you have into that? And then to the extent you can parse between 3Q and 4Q as you see it today, that would be helpful.

Yes, Ben. So I think let's just take a few minutes to talk about why our guide has gone from 10% growth to flat. Animal Nutrition cyclical weakness is persisting for longer than we anticipated. Consumers continue to trade down from higher value, more feed intensive to lower value, less feed intensive proteins. Reformulation to reduce feed cost is also impacting volumes. Plant-based proteins, particularly in the alternative meats continues to be softer than anticipated. The destocking actually is still continuing in that category. And the broader market growth has also moderated, which we had signaled before. Third, the demand fulfillment challenge in pet solutions are taking longer than anticipated resolve. The delay was driven primarily by slower than anticipated integration of the recent small business acquisition that we made in North America. And if you remember, we had COVID, and that delayed also the integration. So we're working through that. But what are we doing? And that's important as you think about the back half as well as the future. Flavors. Strong pipeline and win rates. We talked about the largest ever pipeline we've had. Flavors actually grew profits in the first half 9%, 20% in Q2. So that's a very good sign of the recovery we are seeing in parts of the Human Nutrition business. The other thing that's important to note, Flavors actually contributed almost 50% of the overall operating profit for Nutrition in the first half. So that's an important signal as you think about the future growth of Nutrition. Yes, that was primarily driven in the beverage category, but we see green shoots of opportunity in the food category as well. In the SI side, we are leveraging our CD&D capabilities to accelerate penetration into some of the faster-growing categories. I mentioned alternative spaces, alternative…

Listen, Ben, as Vikram said, we continue to be very positive. We look at this -- remember, when we started the Nutrition business, which we're still trying to build into the best nutrition company in the world, we ask our team that we're going to measure them by two factors. One was growing faster than market and in markets where the customers are still moving and innovation is coming, like in Flavors, we've seen that we're growing faster than market, and you can see it by the double-digit growth that we have so far. And then the other thing that we said was EBITDA margin on sales growing, and we grew EBITDA marginal sales in Flavors. So I think that in the others, I think Vikram has -- this industry is going through a difficult destocking year and there has been some self-inflicted things like the integration of this small facility in Pet. So I think we're working through some of our growing pains as we build the portfolio. But I think the important thing is our innovation system, our value proposition to bring new recipes to customers faster than anybody else continues to outperform the industry and that we're seeing in the results. When customers have projects like in beverage and all that, we excel. When customers are flat or destocking, it takes a little longer. We still expect the trajectory to be similar in that regard.

Okay. Very good. My second question is on Starches and Sweeteners. You noted similar volumes and margins in the second quarter. You did have a plant that was down unexpectedly. Could you talk about the impact of that that's discrete to the second quarter? And then you point to solid margins for sweetener, starches and flour in the back half of this year, would you expect -- would you characterize that more specifically as similar margins and volumes again? Or do you expect an improvement in the back half of the year? Thank you.

Sure. So Ben, let's talk about the germ crush facility outage. In April, we had an incident at one of our grain elevators at the West plant within ADM's processing complex indicator. This negatively impacted the Carbohydrate Solutions Q2 results by a significant amount. Germ was actually sold into feed markets as our wet mills were slow to reduce the overall exposure to germ, lowering also ethanol production volumes at a time when ethanol margins were strong. We anticipate this to come back in Q4. So yes, Q2 was impacted. I won't get into the specifics but the fact that it was significant enough for us to call it out means it was a meaningful number. But it is going to come back in Q4. So therefore, based on that, you can expect some seasonality, some shift from Q2 to Q4 as a consequence of that. But for the full year, we still remain very -- the outlook for the full year still remains very strong. The sweeteners and starch and actually also the growth of milling volumes have been very resilient. We've seen some softening in the specialty side of the portfolio, but that's been more than offset by mix and margins. So I'd say, overall, the outlook is solid. And yes, we did have a material impact, a significant impact due to the corn germ in Q2.

Okay. Thanks and congratulations.

Thank you.

Thank you. Our next question comes from Tom Palmer of JPMorgan. Tom, your line is now open. Please go ahead.

Good morning, and thanks for the question.

Good morning.

Perhaps we could just talk through the moving pieces as we migrate to the North America harvest. We've seen crush margins in the U.S. strengthen, especially in the past month or so. Looks like we've seen maybe just a little bit of a beginning in other regions of the world. I think often, when you see our weaker-than-expected supply coming out of the country, other regions of the world often benefit. And at least up to this point, and I know we're ahead of the harvest, we haven't seen that necessarily in margins. I mean, how do you guys think about as we think about the balance of the year, kind of regional expectations for crush progressing?

Yes. Thank you, Tom. As I said before, I think that when you see the world needs more protein and certainly, we can see that given the Argentine GAAP , which is they produce probably 20 million, 25 million tons less soybeans and maybe the world was expecting them to produce, that's reallocating crush, we are locating crush to two places; we are locating crush to Brazil and reallocating crush to U.S. So of course, the time of that is different. And so we see that in the margins that we see for the U.S. coming into Q3 and then Q4. Demand continues to be strong for meal. There won't be so much protein that is not going to just be soybean meal, but there's going to be other types of protein feed, whether it's feed wheat and all that. So when you take that, combined with the increased demand from fuels, but also oils for food consumption. If we expect soybean oil demand to go up like 8%, it's like about 6% coming from food and maybe 2% coming from fuel. But my point is crush margins are supported from everywhere. Of course, as the world gets to try to cover for these soybeans, the margins will be where you are closer to the physical product to have access to the physical soybeans. And that's where ADM footprint and ADM combined with origination and global trade where we excel. So I think the team had a great first half, and they are expecting a great second half. And we don't see anything that can derail this for quite some time. I hope that provides some perspective.

Thank you. Our next question comes from Manav Gupta of UBS. Your line is now open. Please go ahead.

Hi. My quick question here is we are in the second phase where a number of new plants on the R&D side will start up in the second half of this year including one of your partners, which is starting up a bigger plant on the West Coast. So I'm just trying to understand from the demand perspective of soyabean oil, do you expect a much stronger demand environment than what we saw in the first half of this year?

Yes, I think that we have all these plants that are coming that have been announced. And of course, we're looking all the time at the probability of those plants coming. Sometimes when you build in an industry, not everything comes at the right time. But as you said before, there are two or three large plants coming now in the second half, and that will continue to increase the demand. Of course, our plant in - from our partner comes with our crush capacity as well that we're building, this 1.5 million tons per year. So -- but Manav, when we look at these we believe that, at the end of the day, that demand will come through. At the end of the day, we will have enough crush for soybean oil to participate being maybe 60% of the overall pool of feedstock needed. And we think that the industry will continue to grow, but we continue to need to attract other feedstocks for us to fulfill this potential. So the industry is going to get tight. You're going to need capacity, technology and capabilities, if you will, in order to deliver that, but that's the way you make progress, building a new industry and going through an energy transition. But that's very favorable for ADM. And I think that we're very pleased to bring in Spiritwood on time for the harvest, on budget. So we are very pleased the way the team has managed that implementation.

Thank you. Our next question comes from Adam Samuelson of Goldman Sachs. Adam, your line is now open. Please go ahead.

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

Hi.

Hi. So I guess my first question, maybe coming back to Nutrition. As I think about the revised outlook for the year, profit now flat. How should we think about the pathway 2024, 2025 and kind of the achievability of the prior 2025 target, I believe, $1.2 billion of OP in that segment? And maybe the split between human and animal within that, clearly animal has been more pressured than Human Nutrition. So just help me think about kind of as we think about the 2023 targets, kind of where you are relative to what was implied in your plans to get to the 2025 goals? Thanks.

Yes. So when we put the 2025 goals, let me go back on the comments I made before. When we look at our plans, we look at how do we grow faster than market and how do we implement projects and target applications to continue to grow EBITDA margin on sales. The two businesses, Animal Nutrition and Human Nutrition had different profiles and different goals in that regard, so when you see the final number is a combination of all those plans roll out. In the Human Nutrition, margins are much higher and is continue to make it better and more stickier to customers as we develop better solutions. In Animal Nutrition was a margin up story since they were coming from lower margins. So when you think about our numbers are a combination of applying our growing faster than market and our EBITDA margin on sales to a market number. Of course, this industry, as you can see by ourselves and our competitors is having through tough times, whether it is because customers are either not innovating fast enough or destocking at this point in time and making sure they have their supply chains in order. So to the extent that those projections are going to be reduced, our percentages of applied to those numbers will be a smaller number. So we haven't gone through that because, to be honest, we are looking at how do we address our current challenges. So we're not that worried about 2025 right now, we want to make sure we make all the adjustments that we need to make. And maybe as we talk about the adjustment, let me talk about the adjustment, let me talk a little bit about Animal Nutrition. Animal Nutrition, as we become more into the business, if you…

Thank you. Our next question comes from Andrew Strelzik from BMO. Andrew, your line is now open. Please go ahead.

Hi, good morning. Thanks for taking the question. I wanted to ask about your view on the Ag Services strength durability. It seems like we've got tighter global grain supplies than we maybe thought we were going to Refined oils premiums that are out record. Crush margins, obviously, in the U.S. that are very strong. I know maybe Argentina comes back next year. But it doesn't feel like these are things that even though you guide for just 2023 things that would end just because of the calendar flips. And so how long do you think the strength in Ag services can continue for? What I guess, maybe are the risks because it seems like the setup should extend. So curious for your perspective there. Thanks.

Yes. Thank you, Andrew. We have had two great years of crops in Brazil, and we're probably going to have a strong crop in the U.S. Volumes are good for us. So we like when there are volumes. But of course, the world has become, as you said, more complicated place where is geopolitics and we can see, unfortunately, what is transpiring in the Black Sea or the weather that has become more violent and more volatile. So we go from a very dry La Nina that impacted a lot of locations around the world and then we may go into a more extreme El Nino, and you can see the temperature, record temperatures that we are dealing with right now. So I would say all that volatility and all that uncertainty increases the value of our investments. When we invest more ports in Brazil, we see the leverage that, that has today. Of course, we're going to probably export a little bit less from the U.S. because we're going to export more from Brazil. And that probably is not going to offset each other perfectly. So maybe Ag Services earnings will be down a little bit based on that. But on the other hand, the big availability of crops in the U.S. will help our processing businesses. If you look at the strength in oils, it is because soybean basis are lower as soybean mill bases have strengthened. So, that's where we get the margin expansion. The world also is going into decarbonization, and that's affecting also the grain industry. The grain industry -- and we are leading that with our regeneration program in regen Ag, but more and more people want crops grow in a certain way. And the claims for deforestation limits are also increasing. So I…

Thank you. Our next question comes from Salvator Tiano from Bank of America. Your line is now open. Please go ahead.

Yes. Thank you very much. On the crush margins, can you provide a little bit more color on why -- in setting aside, of course, Argentina, why Brazil and Europe, the margins have come down recently. And also, now with the crush margin curve having gone up, at least the U.S. substantially, where do you stand in your forward hedging book for the balance of the year? And what's kind of your approach going forward?

Okay. Yes, Salvator. So as you said, crush margins have weakened maybe in recent weeks to maybe $20 to $30 in Europe, especially this is a good transition through all to new crop in the U.S. and global oil basis maybe have weakened a little bit with firmer U.S. oil. We continue to bring biodiesel from there. So that continues to add value to the European businesses. But maybe the protein industry is a little bit weaker in Europe. In Brazil, I think Brazil, if I have to say something, maybe Brazil is trying to figure out how to accommodate all the production of soybean and corn, that they have. So there are a lot of logistics challenges in Brazil. And I think that has made -- has pressure the beans basis country side. And soybean oil, I would say, is pressure in Brazil because of lack of domestic demand. Brazil is one of those places where you have export market, but you also have a domestic market. And I would say right now, domestic market, maybe for soybean oil is a little bit weak. And without the huge benefit that we have with the biofuels policies here in the U.S. and Brazil may be a little bit weaker. But I would say, realistically, those are the two places that will pick up the slack that Argentina or the gap that Argentina left. So those are where the beans are. So we expect high crushing rates for both Brazil and the U.S.

Thank you. Our final question for today comes from Steve Haynes of Morgan Stanley. Steve, your line is now open. Please go ahead.

Hi. Thanks for taking my question. Just maybe two quick ones on Nutrition. First, are you able to maybe put a dollar amount to the cost savings the various kind of actions you're taking on the animal side of things in regards to kind of what's baked into the 2023 guide. And then secondly, could you just -- maybe just a quick -- a little bit more detail on what some of the inventory losses were on the Pet Solutions? Thank you.

Yes. So on the Animal Nutrition side, yes, we've taken a lot of the actions over the course of latter part of last year as well as ongoing this year. I'm not going to call out specific numbers, but I'll tell you the vast majority of those results should be realized in the back half of the year. So it's going to be obviously analyzed as you think about it. But -- so the full benefit would likely come in 2024. So you should see an uplift as a consequence of those actions coming on a full year basis in 2024, but you'll see a partial benefit clearly in 2023 as well. On the inventory losses related to Pet that we called out, it was, again, some of the acquired inventory as part of the integration of this facility that we had referenced, where we've had some integration challenges with the small business that we acquired in 2021. So it is related to some of that acquired inventory and some contamination that we saw. So that's -- it was it was material enough to Pet solutions. That's the reason we called it out, clearly not material from an overall ADM perspective.

Thank you. At this time, we currently have no further questions. So I'll hand back to Megan Britt for any further remarks.

Thank you for joining us today. Please feel free to follow-up with me if you have any additional questions. Have a good day, and thanks for your time and interest in ADM.

Thank you for joining today's call. You may now disconnect your lines.