Archer-Daniels-Midland Co. faced a significant downturn following the suspension of its chief financial officer and a downward revision of its earnings forecast while an investigation into accounting practices unfolds.
The company’s shares plummeted by as much as 18% in New York on Monday, marking the most substantial intraday decline since 2005. The Chicago-based firm announced on Sunday that Vikram Luthar, serving as CFO since 2022, has been placed on administrative leave, with Ismael Roig appointed as interim CFO. ADM has also opted to postpone the release of its fourth-quarter earnings and the filing of its annual report and Form 10-K for 2023.
The investigation was triggered by a voluntary document request from the US Securities and Exchange Commission (SEC) and focuses on what ADM termed “intersegment transactions” within its nutrition unit, responsible for producing ingredients for both human and animal foods. ADM assured its cooperation with the SEC in this matter.
Since 2014, ADM has invested billions in expanding its nutrition business, notably with the $3 billion acquisition of European natural ingredient maker Wild Flavors in 2014, aiming to diversify into value-added products. However, profits have fallen short of initial expectations due to weakening demand, including for plant-based food.
Analysts had already predicted a more than 18% drop in the nutrition segment’s operating income for 2023, reaching the lowest since 2020. In November, ADM appointed Ian Pinner, a long-time executive, to lead the challenged nutrition business.
The investigation is anticipated to result in a reduced margin for the nutrition segment, adding to existing investor concerns about earnings risks. Andrew Strelzik, an analyst at BMO Capital Markets, noted that ADM may need to reassess strategic priorities within Nutrition as the new profitability run-rate becomes clearer.
ADM now anticipates delivering adjusted earnings of more than $6.90 per share for the year ended Dec. 31, a downgrade from the previously forecasted profits exceeding $7 in October.
As of 9:33 a.m. in New York, the stock had dropped by 16% to $57.25, wiping out nearly $6 billion of market value. Following the disclosure of the investigation, analysts at Robert W Baird & Co., Barclays Plc, and Goldman Sachs Group Inc. were among those downgrading their stock ratings on ADM.
This is not the first time ADM has been embroiled in a scandal; in the 1990s, it was implicated in a price-fixing conspiracy, forming the basis for the 2009 film “The Informant!” ADM pleaded guilty to price-fixing charges in 1996. The company is also grappling with various lawsuits related to allegations of price manipulation in its trading of cotton and ethanol.
Terry Crews, ADM’s lead director, emphasized the board’s serious consideration of these matters, expressing a commitment to working closely with advisors to identify the best path forward and ensure ADM’s processes align with financial governance best practices.
