CHICAGO — Seasonality in the third quarter generally will have a negative effect on results for the Wild Flavors and Specialty Ingredients, Inc. business of Archer Daniels Midland Co. This year in the third quarter, the strong U.S. dollar and soft emerging markets provided headwinds as well, company executives said.
Operating profit for the Wild Flavors and Specialty Ingredients business was $70 million for the quarter ended Sept. 30, which was up 8% from $65 million in the previous year’s third quarter but down 33% from $104 million in the second quarter of this fiscal year.
“It was a tough quarter for the team,” Juan Luciano, president and chief executive officer of Chicago-based ADM, said during a Nov. 3 earnings call.
He said the strong U.S. dollar and weakness in some emerging economies affected results across a number of product lines in Wild Flavors and Specialty Ingredients.
“And while these factors are largely beyond our control, we’re focusing on the levers we can pull to deliver results and strengthen the business,” Mr. Luciano said. “We are seeing improved gross margins on some key product categories, including flavors, polyols and proteins. We’re seeing U.S. domestic business generating good results from solid demand. We are seeing improved volume in our polyols business. We are addressing some inventory management issues in our Specialty Commodities business, and this issue should be behind us by the end of the year.”
ADM expects second-quarter results to be better for Wild Flavors and Specialty Commodities because beverage activity in the summer generally boosts second-quarter results, Mr. Luciano said.
“After the second quarter, you will see declines,” said Ray Young, senior vice-president and chief financial officer, in the Nov. 3 earnings call. “Third quarter will come down because that’s the seasonal pattern.”
ADM formed the Wild Flavors and Specialty Commodities business after completing its 2014 acquisition of Wild Flavors, a supplier of flavors and other ingredients.
“Since the Wild acquisition, the team has implemented about $30 million in annualized run-rate cost synergies, and we are on track to reach about $40 million by the end of this calendar year,” Mr. Luciano said. “We remain confident the team will deliver €100 million of run-rate synergies from the Wild acquisition by the end of year three, which is 2017, and we are still on track toward the lower end of the 10c to 15c per share first-year accretion for Wild Flavors.”
Also in 2014, ADM bought Specialty Commodities Inc., an originator, processor and distributor of ingredients, including nuts, fruits, seeds, legumes and ancient grains. Then in October of this year ADM agreed to buy Eatem Foods Co., a developer and producer of natural and organic savory flavor systems.
“We have bought three companies in the last year with Wild, S.C.I. and Eatem Foods,” Mr. Luciano said. “They are all on trend. They are all on target. So we continue to feel very strong about it. It’s a long-term play that we are building a great company for ADM here, and as long as synergies are on track and products are getting approved from customers, we don’t worry that much about these short-term headwinds.”Companywide in the third quarter ended Sept. 30, ADM posted net earnings of $252 million, or 41c per share on the common stock, which was down 66% from $747 million, or $1.14 per share, in the previous year’s third quarter.