ADM expects to report ‘material’ internal control weakness

Dive Brief:

Commodity giant Archer Daniels Midland expects to correct how certain intersegment sales are reported in a footnote to the company’s financial statements and to report a “material weakness” in its internal control over financial reporting related to accounting practices, but does not expect the intersegment matter to impact the company’s statements of earnings or cash flows, the company said in a Friday Securities and Exchange Commission filing.
The Chicago-based company’s filing sheds light on the scope of the ongoing internal investigation, coming a little more than a month after ADM announced an accounting probe was underway and that it was putting CFO Vikram Luthar on administrative leave and appointing Ismael Roig to step in as interim CFO in his place.
While the company said Friday it still needs additional time to file its annual report on form 10-K due to the investigation, ADM expects to file it by March 15, it said, which is within the extension period allowed by the SEC. That suggests the impact of the issue may be narrower, according to Seth Goldstein, an equity strategist with Morningstar Research Services. “I think ADM saying they will likely be able to file within the extension period means this was a more limited issue,” Goldstein said in an email.

Dive Insight:

The company’s shares, though still down about 25% year-to-date in the wake of the initial news of the probe in January, on Friday rose 2.1% to close at $54.23.

The latest filing may ease some concerns. “Based on ADM’s public statements, the problem appears to be limited to intersegment sales in the Nutrition business, which is the smallest of ADM’s three primary segments,” he wrote in an emailed response to CFO Dive’s questions. “As a result, while it is always a serious problem when a company has [to] delay financial statement filings, this issue right now seems to be somewhat limited in scope.”

There remains another cloud still looming over ADM tied to reports based on unnamed sources of a Department of Justice probe into accounting practices at the company, according to a Feb. 5 CNBC report.

ADM and top executives also face a proposed class action complaint filed in January that asserts they concealed “adverse facts” related to its nutrition business, painting a misleading positive picture of the segment as a profit-driver “with the ability to capitalize on healthier eating trends and rising consumer demand for natural ingredients and flavoring,” CFO Dive previously reported.

Luthar, who took ADM’s CFO seat in 2022, was placed on administrative leave in January pending what the company called an ongoing investigation into certain accounting practices related to the company’s Nutrition reporting segment. This week’s filing was silent on Luthar’s status.

During a sit-down interview in 2022, Luthar told CFO Dive that working for a food company resonated with him because, having been born and raised in India, he was keenly aware of the social and economic importance of “good nutrition at an affordable price.” He also described the strategy shift that was tilting the more than a century-old agriculture company better known for corn and grains toward newly developed food products and ingredients that are closer to the consumer.

ADM declined to comment beyond the public release and filing. The DOJ did not immediately respond to requests for comment.