Dive Brief:
- Archer-Daniels-Midland Co. is downsizing its nutrition unit as the grains trader confirms some employees have received subpoenas from the U.S. Department of Justice amid an ongoing investigation into the company’s accounting practices.
- ADM slashed two-thirds of its nutrition brands and reduced its product offerings by 17%, according to an investor presentation. The company also has reduced more than 20 production lines in the animal nutrition segment.
- The grain trader delayed its earnings report by nearly two months in response to a criminal probe over its financial reporting for the nutrition segment. ADM said it has completed an internal investigation into its accounting practices and revised sales numbers for the past three years.
Dive Insight:
ADM's nutrition unit, once a source of profit for the company, is under scrutiny as a criminal investigation escalates. The commodities giant recently revealed that it has discovered a "material weakness" in its financial reporting, specifically relating to the intersection of its nutrition and oilseeds units.
The company's internal investigation found and corrected certain sales that were not recorded at "amounts approximating market," according to a statement. The commodities trader is implementing a remediation plan to ensure strong internal controls over its financial reporting, adding that previous accounting lapses have no impact on its consolidated balance sheets.
“We remain committed to strong internal controls,” Chairman and CEO Juan Luciano said in a statement. "We look to continue our focus on execution and remain steadfast in delivering on our purpose of unlocking the power of nature to enrich the quality of life.”
ADM hopes to rebuild its nutrition segment, which recorded an operating profit loss of $10 million during the fourth quarter of 2023 — down 110% from the previous year. Among other things, the company plans to implement new operational leadership and enhance its M&A integration approach, according to the investor presentation.
Still, the accounting scandal has created significant cost headwinds for ADM that could linger over the company for years. The grain trader reported a $137 million goodwill impairment charge in its animal nutrition unit and is facing a series of investor lawsuits over the investigation.
ADM's credit has also been put at risk of being downgraded over the probe. Two of ADM's credit ratings have been placed on watch, and a downgrade could impact the company's ability to fund capital expenditures or even pay day-to-day expenses.
