ADM Delays Annual Report as It Warns on Internal Accounting

(Bloomberg) — Archer-Daniels-Midland Co. delayed the publication of its annual report and warned that it anticipates reporting a “material weakness” in the company’s internal financial reporting practices.

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But shares of the US agricultural trader rose as it indicated there won’t be a broad impact on overall earnings, according to a filing Friday.

The brief update is the first from ADM since it stunned investors and the commodities trading world in January with the announcement that it was placing Chief Financial Officer Vikram Luthar on administrative leave pending an internal probe. The US Attorney’s Office in Manhattan has launched an investigation into the reporting of inter-segment transactions, people familiar with the matter said last month.

ADM’s internal investigation centers on accounting practices at its nutrition unit, which makes higher-value ingredients for food and animal feed. The probe has thrown the spotlight on a decade-long push, largely under the leadership of Chief Executive Officer Juan Luciano, to lessen ADM’s dependence on its legacy agricultural commodities trading business.

Read More: ADM Probe Highlights Struggle to Expand Beyond Crop Trading

ADM expanded the nutrition business with its $3 billion purchase of European natural ingredient maker Wild Flavors a decade ago, its biggest-ever acquisition. But profits have so far failed to live up to initial expectations due to weak demand, including for plant-based food and animal feed ingredients.

The unit played an outsized role on recent executive bonuses even as it accounted for a relatively small part of the agribusiness giant’s business.

Read More: ADM Unit Being Probed Helped Make Leaders Over $70 Million

ADM said its form 10-K, which was originally expected in February, will be filed by March 15, within the extension period allowed under US rules.

The company said it doesn’t expect the accounting issues to impact “consolidated balance sheets, statements of earnings” and cash flows. It also anticipates correcting certain inter-segment sales that “were not recorded at amounts approximating market.”

Friday’s statement suggests that a zero-sum outcome to ADM’s investigation “is becoming increasingly likely” while it’s still not clear how much earnings will be shifted from the nutrition unit to the other company businesses, Morgan Stanley analyst Steven Haynes said in a note to clients.

ADM shares jumped as much as 2.9% in New York, the biggest intraday gain since January. Before Friday’s trading, the stock had dropped more than 20% since the accounting issues became public.

–With assistance from Ilena Peng.

(Updates with analyst comment in the penultimate paragraph)

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