Archer-Daniels-Midland Co. (ADM) experienced a historic 24% plunge, marking its steepest decline on record, after the US agricultural trading giant suspended its Chief Financial Officer (CFO) and revised its earnings outlook pending an investigation into its accounting practices. The Chicago-based company announced on Sunday that CFO Vikram Luthar, in the role since 2022, has been placed on administrative leave, with Ismael Roig stepping in on an interim basis. ADM is also postponing its fourth-quarter earnings release, along with filing its annual report and Form 10-K for 2023.
The investigation was initiated following a voluntary document request from the US Securities and Exchange Commission (SEC) and is centered on what ADM referred to as “intersegment transactions” involving its nutrition unit, responsible for producing ingredients for human and animal foods. ADM stated its cooperation with the SEC in this matter.
ADM, which has invested significantly in expanding its nutrition business since 2014, is facing challenges as profits fail to meet initial expectations due to weakening demand, including for plant-based food. The nutrition segment’s operating income was already anticipated to decline over 18% in 2023, according to analyst estimates compiled by Bloomberg.
The investigation is expected to impact the margin for the nutrition segment, raising concerns among investors about potential earnings risks. Analyst Andrew Strelzik from BMO Capital Markets noted that ADM might need to reassess its strategic priorities within the nutrition business as the new profitability run-rate becomes clearer.
In light of the probe, ADM now anticipates adjusted earnings for the year ending December 31 to be over $6.90 per share, down from the October forecast of profits exceeding $7. The stock closed at $51.69 in New York, resulting in a market value decline of approximately $8.8 billion. Major financial institutions, including Robert W Baird & Co., Barclays Plc, and Goldman Sachs Group Inc., downgraded their stock ratings following the disclosure of the investigation.
This isn’t the first scandal involving ADM, as it faced a price-fixing conspiracy in the 1990s, which later became the basis for the 2009 film “The Informant!” ADM pleaded guilty to the price-fixing charges in 1996 and is also addressing a lawsuit related to allegations of price manipulation in ethanol trading.
ADM’s board emphasized the seriousness of the matter, pledging to work closely with advisors to identify the best path forward and ensure adherence to financial governance best practices. Ernst & Young has been ADM’s auditor since 1930.
