ADM delays annual report as it warns on internal controls

Archer-Daniels-Midland Co. delayed its annual report and indicated that a “material weakness” in its internal controls won’t have a broad impact on earnings. 

The Chicago-based company, one of the world’s top agricultural commodity traders, said the issue with internal controls relates to the way it reports sales between segments, according to a regulatory filing Friday. As a result, it doesn’t expect an impact on balance sheets, earnings statements, income or cash flow.

The brief update comes after ADM stunned investors and the commodities trading world earlier this year by placing its Chief Financial Officer Vikram Luthar on administrative leave pending an internal probe. The U.S. Attorney’s Office in Manhattan has launched an investigation into the reporting of inter-segment transactions, people familiar with the matter said last month.

The company’s accounting investigation is centered around its nutrition unit, which makes higher-value products including flavorings and pet-food ingredients.

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

ADM’s shares rose as much as 3.1% on Friday, but are still down almost 25% this year.

The probe has also thrown the spotlight on the 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. 

ADM expanded the nutrition business with its $3 billion purchase of European natural ingredient maker Wild Flavors a decade ago, its biggest-ever acquisition. It also spent almost $1.8 billion buying out French animal feed maker Neovia. 

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

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. It anticipates correcting certain inter-segment sales that “were not recorded at amounts approximating market.”

ADM also said it’s working to remediate the material weakness, which will be explained further in its annual report.