Investigation into ADM Accounting Procedures

An investigation into accounting practices in Archer-Daniels-Midland's (ADM) Nutrition segment comes as sinking crop prices look to erode profit for its core grain trading and processing businesses this year.

Before news of the accounting issues broke and sent ADM shares tumbling 24% on Monday, the biggest fall since 1929 according to the Center for Research in Security Prices, the company had been forecasting the Nutrition unit it has been expanding for much of the past decade would return to profit growth in 2024.

The recovery in the business segment that generated about 11% of profit for ADM in 2022 would have helped cushion the blow from thinning margins in soybean crushing and ethanol, and from lower crop prices as global supplies of corn and soy rise, analysts said.

"It is now uncertain whether Nutrition operating profits will return to (year-over-year) growth in 2024," said Arun Sundaram, senior equity analyst at CFRA Research.

"We expect the investigation and uncertain outlook to cast a shadow over ADM's shares, as the Nutrition segment was once the fastest growing and most profitable segment," he said.

The Chicago-based company shared that Vikram Luthar, who had been its CFO since 2022, was put on administrative leave and Ismael Roig will step in on an interim basis. ADM is also delaying its fourth-quarter earnings and the filing of its annual report and Form 10-K for 2023. Roig held the president of EMEA & Global Animal Nutrition role at ADM prior to this appointment.

Luthar’s leave is pending the ongoing investigation being conducted by outside counsel for ADM and the Board’s Audit Committee. ADM’s investigation was initiated in response to its receipt of a voluntary document request by the US Securities and Exchange Commission (SEC). ADM is cooperating with the SEC.

“The Board takes these matters very seriously,” said Terry Crews, lead director, ADM. “Pending the outcome of the investigation, the Board determined that it was advisable to place Mr. Luthar on administrative leave. The Board will continue to work in close coordination with ADM’s advisors to identify the best path forward and ensure ADM’s processes align with financial governance best practices.”

CFRA cut its 12-month price target for ADM to $61 a share from $76, one of several analysts that downgraded ADM share targets Monday, reported Reuters.

As well, S&P Global warned that its credit ratings for ADM, including the company's "A" issuer rating, were at increased risk of a downgrade pending the investigation.