Archer Daniels Midland Company (ADM) — Q1 2015 Transcript

Thank you, Stephanie. Good morning and welcome to ADM's first quarter earnings conference call. Starting tomorrow, a replay of today's call will be available at ADM.com. For those following the presentation, please turn to slide 2, the company's Safe Harbor statement which says that some of our comments constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements are based on many assumptions and factors that are subject to risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation. And you should carefully review these assumptions and factors in our SEC reports. To the extent permitted under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events. On today's call, our Chief Executive Officer, Juan Luciano, will provide an overview of the quarter. Our Chief Financial Officer, Ray Young, will review financial highlights and corporate results. Then Juan will review the drivers of our performance in the quarter and provide an update on our scorecard. And then they will take your questions. Please turn to slide 3. I will now turn the call over to Juan.

Thank you, Mark. Good morning, everyone. Thank you all for joining us today. This morning we reported adjusted earnings per share of $0.77. That's 40% higher than the year-ago period. Our adjusted segment operating profit was $883 million. Adjusted ROIC of 9.5% was 290 basis points above our cost of capital. In the first quarter, the ADM team demonstrated their ability to leverage the strength of our diversified business model. The Oilseeds team capitalized on favorable market conditions and delivered outstanding results with strong performances in each region. In Ag Services, our recently created global trade desk or GTD platform drove higher merchandise volumes. Our new WILD flavors and Specialty Ingredients business was off to a great start toward achieving the cost in revenue synergies we identified last year. Together, this performance has helped deliver a good quarter overall, even as slower industry ethanol margins limited earnings in corn and the strong dollar limited U.S. grain exports. We have continued to advance the strategic plan we shared at our December Investor Day. In the area of optimizing the core, we announced the acquisition of a Belgian oil bottling business, helping us reach a wider customer base and creating a new output for our European crushing assets. And the WFSI team has been working with customers as they develop and launch new products using SCI, WILD, and ADM ingredients. We have more than 200 joint customer engagements building a pipeline of more than 400 projects, resulting already in more than 30 revenue synergy wins across a number of regions and businesses unit in Q1 alone. In the area of driving operational efficiencies, we have already identified more than $200 million in run rate savings opportunities toward our goal of $550 million in five years. And in the area of strategic expansion, the Corn Processing business expanded in high-growth geographies with the acquisition of the remaining stake of corn wet mills in Bulgaria and Turkey and an increased stake in a facility in Hungary. I will provide more detail on our scorecard progress later in the call. Now, I'll turn the call over to Ray.

Thanks, Juan, and good morning, everyone. Slide 4 provides some financial highlights for the quarter. Adjusted EPS for the quarter was $0.77, up 40% from the $0.55 last year. Excluding specified items and also spoon net timing effects, adjusted statement operating profit was $883 million, up $94 million. The effective tax rate for the first quarter was 29% compared to 27% in the first quarter of the prior year. For calendar year 2015, we expect our effective tax rate to be in the 28% to 30% range. Our trailing four-quarter-average adjusted ROIC of 9.5% improved from the 9.0% at the end of the fourth quarter and also significantly improved by 250 basis points from the 7.0% at the end of the first quarter last year. The 9.5% adjusted ROIC is above our 6.6% annual WACC for 2015 as well as our long-term WAC of 8.0% as reflected in the graph on slide 19 in the Appendix. Our objective remains to earn 200 basis points overall WACC. In the first quarter, our trailing four-quarter-average economic value added or EVA was $742 million, based upon adjusted earnings in the annual WACC, up $581 million from 2014. On chart 18 in the Appendix, you can see the reconciliation of our reported quarterly earnings of $0.77 per share to the adjusted earnings of $0.77 per share. For this quarter, LIFO represented a $2 million pretax credit or less than $0.01 after-tax. There are no other adjustments for the quarter. Slide 5 provides an operating profit summary in the components of our corporate line. Before Juan discusses the operating results, I would like to highlight some of the unique items that impacted our quarterly results. Corn Processing adjusted operating profit of $127 million excludes approximately $14 million hedged in the effectiveness charges, split relatively evenly amongst file products in sweeteners and starches. In oilseeds, adjusted operating profit of $483 million excludes approximately $14 million of cocoa hedged timing effects in this quarter. As a reminder, we will also continue to have our cocoa and chocolate businesses as part of our segment reporting results in oilseeds until we have closed on the sales sometime later in 2015. They are not treated as discontinued operations in our financial statements due to the lack of materiality of the operations to our overall results. Our new fourth business segment, WILD Flavors and Specialty Ingredients or WFSI for short, is reported as its own segment for the first time this quarter. The segment includes the two businesses we acquired in 2014, WILD Flavors and Specialty Commodities Inc. or SCI as well as certain specialty ingredients businesses that were previously reported in ADM's three other segments. For purposes of comparison to prior results, the year ago quarter's segment operating profit for Ag Services, Corn, and Oilseeds remove the earnings of the businesses now reported in the WFSI segment. To assist with your analysis, we concluded a chart in the Appendix that recasts 2014 segment quarterly results in the new segments. In the corporate lines, net interest expense was down due to lower interest rates and allocated corporate costs were higher due to increased GAAP pension expenses relating to changes in discount rates and mortality tables and increased investments in our ERP program, as well as very strategic projects and M&A and divestment activities. In addition, I want to point out that a strong U.S. dollar and weakness in other currencies such as the euro and the Brazilian real do not have a material impact on ADM's overall first quarter net earnings. On one hand, the strong U.S. dollar did have some negative impact on the competitiveness of our U.S. export programs and our WFSI segment also had some negative impacts in terms of export competitiveness and earnings translation from Europe. On the other hand, the weaker euro and real had a positive impact on our fixed costs around the world, relative to revenue streams we're receiving. Also, the weaker real motivated Brazilian farmers to sell, thereby benefiting our origination business in Brazil. So, on balance with the puts and takes, the net impact was not material. Going forward, we do not expect the currency impact to have a material impact on our overall results for the rest of the year. I would also like to comment on our GAAP net revenue number that can be found in the Appendix. GAAP net revenues for the quarter were $17.5 billion, down from last year's $20.7 billion. This significant reduction was driven by large declines in commodity prices that impact our revenues. But this decline also impacts our cost of goods sold as our input costs are lower. So the key for us is management spread between the revenues and cost of goods sold, which is a core competency of our teams. This dynamic makes operating profit much more relevant when analyzing ADM. I also want to highlight that the GAAP statements in the prior year do not include the revenues and the cost of WILD and SCI which transaction closed in the fourth quarter of last year. Turning to cash flow statement on slide 6 which shows the cash flows for the three months ending March 31, 2015 compared to the same period the prior year, we generated $577 million from operations before working capital changes in the quarter, significantly higher than Q1 last year. Total capital spending for the quarter was $244 million, up from the prior year. For 2015, we're estimating capital spending in the range of $1.1 billion to $1.3 billion. This range is higher than our $0.9 billion spending in 2014, which you may recall we reduced after the WILD acquisition to assess capital spend avoidance opportunities. As a result, some of 2014 spending shifted into 2015. We also have some additional spending for our ERP program and cost reduction projects, as well as our ramp-up of our specialty protein projects spending in Brazil, our Fibersol projects in China and the U.S., our lecithin projects in Germany and India. During the quarter, we spent $566 million to repurchase about 12 million shares towards our 2015 target of $1.5 billion to $2 billion of share repurchases subject to strategic capital requirements. Our average share count was 639 million diluted shares outstanding, down approximately 24 million from the 663 million at the same time one year ago. Our total return capital to shareholders for the quarter, including dividends, was over $700 million. Our first-quarter cash flows are consistent with our 2015 calendar year targets of capital allocations, namely CapEx of $1.1 billion to $1.3 billion, approximately $700 million of dividends and $1.5 billion to $2 billion in share repurchases. And all this is consistent with the balanced capital allocation framework we set forth at our December Investor Day. Slide 7 shows the highlights of our balance sheet as of March 31 for both 2015 and 2014 which remains very strong. Our operating working capital of $8.1 billion was down $3.4 billion from the year-ago period. This decrease was comprised of about $1.6 billion related to lower inventory prices, including the translation impacts, about $1.4 billion related to lower inventory quantities and a decrease of about $0.4 billion in other working capital, primarily related to the reclassification of working capital for our global cocoa and chocolate businesses under the held for sale accounting. Total debt was about $6.4 billion, resulting in a net debt balance that is debt less cash of $5.1 billion up from the 2014 net debt level of $4.1 billion, in part reflecting the fourth-quarter cash flows related to our acquisitions of WILD and SCI. Our shareholders' equity of $18.8 billion is $1.3 billion lower than the level last year, with the cumulative translation account impact of about $1.6 billion lower due to the strength of the U.S. dollar. We had $5.7 billion in available global credit capacity at the end of December. If you had available cash, we had access to $7 billion of short-term liquidity. Next, Juan will take us through a review of our business performance.

Thanks, Ray. Please turn to slide 8. In the first quarter, we earned $883 million of operating profits excluding the specified items. This 12% year-over-year increase in underlying segment operating profit demonstrates the strength of our diversified business model and the team's ability to leverage that model. In the first quarter, the team capitalized on great opportunities when they continued to advance our strategic plan. Sequentially, of course, the quarter follows a very strong fourth quarter and with normal seasonality, underlying segment operating profits decreased. Now I will review the performance of each segment. Starting on slide 9, in the first quarter, Ag Services results improved 37% over the last year. Merchandising and handling saw limited U.S. export competitiveness more than offset by continued improvement in international merchandising where we saw the benefit of our GTD with merchandise volumes increasing. In Transportation, we saw an increasing demand for northbound U.S. bar trade which mostly offset the decrease in southbound demand. Milling and other results improved due to our strong margins for flour, grain, and feed. Please turn to slide 10. Corn Processing results declined in the quarter. In sweeteners and starches, our underlying North American business is doing well with higher margins and volumes in Q1. This was offset by lower contributions from core products, reduced equity earnings from joint ventures, and the start-up costs related to the TNG sweetener facility. And in Bioproducts, earnings were lower due to lower ethanol production volumes and weaker industry margins. Supply and demand imbalances challenged industry ethanol margins most of the quarter though conditions and margins have been improving since late March. Let me explain our corn results a bit further. We said before that we make decisions that will achieve the best overall results for ADM. This quarter, with low industry margins, we made a decision to run our ethanol operations for margins rather than volumes. That helped our earnings in Bioproducts. It also had the effect of reducing our production of core products which limited our earnings in sweeteners and starches. Bottom line, the impact to our overall core business was positive. Slide 11 please. The Oilseeds team delivered an outstanding quarter. Crushing and origination had great performances in each region. In North America, the team demonstrated the value of our strong footprint and our expected destination supply chain. Eight to ten months ago, they determined Q1 will see an extended North American export window. They got maintenance out of the way and positioned soybean suppliers so when the margins arrived, they were able to run hard until the seasonal shift to South America came. In Europe, the team demonstrated the value of the swing capacity of our crush plants; when soybean crush margins were more than double canola crush margins, we would run the plants hard and crush a lot of beans. And in South America, the team prepared our network for a large, fast harvest and when the strong dollar drove Brazilian farmers to sell their beans, we were ready to handle the growth of strong margins. In refining, packaging, biodiesel, and other, lower biodiesel margins in North America and weaker European demand limited results. South American biodiesel results improved with these seven implementations. And in North America, our Stratus bottle oil joint venture generated strong results with good volumes. Results from Asia rose primarily on well market improved performance. Slide 12 please. In their first reporting quarter, the WILD Flavors and Specialty Ingredients business unit delivered a great start. As I mentioned earlier, the team has been working with a wide range of customers as they develop products using ingredients from all of ADM's business units. Globally, the Flavors business is off to a strong start for the year. On a constant currency basis, while EMEA business performed particularly well, this is a quarter in which demand is seasonally slower and results were limited by Forex headwinds. We also had mark-to-market losses on currency hedges for future capital purchases for the specialty protein plants in Brazil. The project itself is benefiting from the weakened real versus the dollar. This is an exciting business with an energetic team and they are off to an absolutely great start. Now on slide 13, I would like to update you on how we're strengthening and growing our company. This is the scorecard we presented at the invested in December. It lists the actions we're taking to help grow our business, our earnings, and our returns. We highlighted some of the areas in which we made significant progress in the quarter; I'll discuss a few. In Ag Services, we launched ARTCO Stevedoring, adding a wide range of services to our ARTCO barge operation. With ADM's logistical expertise and global reach, we provide customers along the lower Mississippi a range of services that nobody else offers. As I mentioned, we saw the benefit of our GTD platform that we developed following the top four acquisitions. And today, we're announcing that we have agreed to acquire full ownership of our joint venture complexes at Konstantin Romania, a Black Sea port at the mouth of the Danube. This acquisition builds on the investments we have made in our Danube River network since 2011 and further strengthens our origination and transportation capabilities in Eastern Europe. In Corn, we sold our lactic acid business, exiting a business for which we didn't see a path to acceptable returns in a reasonable time frame. And we acquired the remainder of the Bulgarian and Turkish wet mills and expanded our stake in the Hungary plant, positioning ourselves well for when EU sugar production quotas are lifted. We continued construction of our feed premix plant in Nanjing and this morning we're announcing plans to build a fourth feed plant in China in Zhangzhou, as well as one in Minnesota. In Oilseeds, we're working with Cardell and Olin on the divestitures of our chocolate and cocoa businesses. We're targeting closing both in Q3, subject to final approvals and completion of transitional activities. We agreed to acquire an oil bottling business in Belgium. This acquisition will provide another demand stream for our Oilseeds Processing operations, reducing our reliance on biodiesel and growing our packaged oil business. And as we mentioned on the last call, we're creating a joint venture to quadruple the size of our port in northern Brazil, improving our ability to export from this increasingly productive region. In WFSI, relating to the WILD acquisition, we remain on track to deliver €100 million in synergies over the next three years. And we're on track for $0.10 to $0.15 accretion in 2015, although this will likely be in the lower end of the range due to the strong dollar. And we continue to advance our construction project in Brazil, China, Germany, India, and the U.S., and in the area of driving operational efficiencies, as I mentioned, we have identified more than $200 million in run rate savings toward our goal of $550 million in five years. As part of this effort, we launched a global improvement initiative involving colleagues across all regions and businesses, evaluating every aspect of our business for improvement opportunities. In the first quarter, we implemented projects that will achieve about $60 million in annual run rate savings. We will update you on our scorecard each quarter, and over time, you should expect to see the results of these actions in improved earnings and returns. So before we take your questions, I wanted to offer some additional perspective as we look forward. We continue to be excited about 2015. We came into the year with a lot of positive momentum which we expect to continue through the year. With early plans in progress and long-term weather forecasts suggesting a good likelihood for excellent U.S. growth, a large harvest combined with big carryouts of corn, soybeans, and wheat could give us opportunities for very good carriers at the end of the year. Those, combined with expected solid global demand, point to very high utilization of our storage, transportation, and processing assets in North America and Europe later this year. U.S. gasoline consumption continues to improve. That will translate into stronger domestic demand for ethanol. These, combined with strong exports, will keep our assets running hard, especially as we move through the summer driving season. Demand for sweeteners and flavors will benefit from the seasonal pickup in Northern Hemisphere beverage consumption. The WFSI team is off to a great start. They will continue to deliver synergies and we're confident they will meet the 2015 accretion goals. We're also excited by our customer engagements. Every business unit has been working with existing customers, as well as new customers who are collaborating across the organization more than ever before, working on new types of projects, delivering wins, improving margins. And the team will continue to deliver our clear and aggressive strategic plan. The plan that is already contributing to our bottom line, a plan that returned 9.5% this quarter, a plan that will continue to grow our EVA. With that, operator, please open the line for questions.

I have a question about ethanol. You mentioned that the margin outlook has improved since late March. Our analysis and discussions indicate that the industry is currently operating with profit margins around the mid-20s. Could you provide insight into whether this aligns with ADM's current performance? Additionally, based on your projections, how do you anticipate margins will trend for the remainder of the year, especially in the next couple of quarters?

We're constructive on ethanol margins. You think about it, April has been a relatively big month for shutdowns as people saw some of the margins were relatively low in March. Some people anticipated some of the seasonal shutdowns. So we see margins improving since the late part of March. We see this with optimism; we see a demand in the U.S. growing, due to lower gasoline prices about 2% to 3% per year. That would put the industry around 138 billion, 140 billion gallons of gasoline, and the increased exports. We exported very well in Q1. If you look at the January and February export estimate, they are annualized around 1 billion gallons because we exported in those two months, 152 million gallons. If you take the last week of April, that export annualized was around also in the billion range. So we see exports for the year between 800 million and maybe a little bit north of that for the year. Plus maybe 13.8 billion to 14 billion gallons of domestic gasoline demand. We see very high-capacity utilization so we face this season with a lot of optimism in regards to ethanol.

Are you seeing that ethanol margins in the industry right now seem to be around the mid-20s? Is $0.20 per gallon on an operating profit basis pretty consistent with what you're seeing right now within ADM?

It's in the ballpark. It's moving, but it's in the ballpark, yes.

Okay. You mentioned the record crop in North America last year, and South America is looking strong. Early indications for North American planting suggest another substantial crop. While many factors could quickly alter industry dynamics, you expressed a positive outlook for the fourth quarter given these trends. As you assess how the rest of the year is likely to unfold, can you provide more insight into whether you expect this year to be significantly larger than last year? Things seem to be progressing well, so any details about the potential scale and strength of this year would be appreciated.

We began the year with strong performance, as Ag Services achieved 37% higher profits compared to the same quarter last year. With favorable planting conditions and abundant crops worldwide, we are well-positioned for the next crop cycle with ample inventories. This presents significant opportunities for carriers, and there is a considerable amount of business ahead of us. The Oilseed and Ag Services teams, along with the Grain team, are actively preparing our assets and commercial strategies for this. We anticipate a robust second half for them.

Maybe first on Oilseeds which was truly a tremendous quarter, can we talk through the forward outlook there? As we wind down the North American crush, how much of that can shift to South America? Presumably, it's a bit of a one-time exceptional beat, but thoughts about how sustainable the oilseed outlook is as you move through the balance of the year, considering where soft seed margins are in Europe and your South American exposures?

I would say, Adam, the Oilseed teams that you described have an outstanding performance but not everything was hitting on eight cylinders. As you described, oilseed was kind of not very profitable and biodiesel has some headwinds as well. So, most of the profits were concentrated in soybean that has very high-capacity utilization around the world. As you describe the shift starts from North America to South America, so South American crushing margins still are good and we crush a lot of soybeans in Europe, taking advantage of our swing capacity and we're going to see a little bit of softening of that as we see every year with the enormous seasonality of that. But the business is running very, very well, it implemented a lot of improvements and we're seeing those improvements coming through in the P&L. So overall in the year, we continue to feel very strongly about the year that Oilseeds is going to have.

You mentioned a strong March for your South American origination business in Oilseeds as the real weakened, but it has appreciated through April. Has farmer selling continued in South America, or are you observing a slowdown? Can you provide similar insights about farmer selling in the U.S.?

Yes, the situations are somewhat different. In the U.S., farmers are currently focused on planting, which has resulted in limited commercialization. In South America, as Ray mentioned in his commentary, the situation is influenced by the fluctuating real-dollar relationship, which has been quite volatile in recent weeks. This volatility affects farmers' decisions to sell, especially with the current state of the real. Therefore, we are likely to experience continued volatility at this time.

If I can squeeze one more just on biodiesel, U.S. and Europe. Any thoughts or signs that could improve as you go through the balance of the year or expectations for that business moving forward?

Normally, as we get into the summer weather, we see a little bit more activity, obviously. Brazil was good with the D7 that helped our profitability a little bit there and in the U.S., a lot will depend on the expectations of June 1 and RVOs and all that, that announcement. So at this point in time, both businesses are challenged.

Could you dig a little bit deeper into your revenue synergies on the WILD Flavor side? You said 30 revenue synergy wins in the quarter. Just give us some examples of what those actually are.

Yes, it's challenging to provide specific examples because we prioritize our customers' confidentiality, and these innovations are designed to help them increase their revenue and stand out in the market. However, we are thrilled about our two pipelines. One is the robust pipeline we inherited from WILD, which continues to show growth in earnings and revenue each year. The other is the synergy pipeline created by integrating the ingredients provided by ADM. We contributed $1.5 billion in revenue worth of ingredients to this new division. Additionally, SCI and WILD bring their own products, and we have held several innovation conferences where our teams collaborated closely with customers, generating the described pipeline. We measure this in terms of customer engagement, potential revenue, and margins. This is the first quarter of operating this business, so our top priority is to maintain our customer momentum. Our team is focused on two main areas: cost synergy and customer engagement. We are pleased with our interactions with customers and the cultural integration of SCI, WILD, and ADM has been very positive. Teams are collaborating seamlessly, benefiting our customers. We wanted to share that we're off to a great start, with customers recognizing new opportunities, and we're eager to offer more of our products in our solutions.

And then switching gears a little bit, could you comment on the rail car spenders? I know that your ethanol non-jacketed probably don't need to be retrofitted until 2023, but does the slowdown on the speed or any of the other rules have any impact on your ethanol business in the near term?

Yes, this is a recent proposal that we are still evaluating. While it doesn't fully align with our public stance, we are glad to see that we might have a longer timeline than crude oil. However, we have some concerns about the reduction in speed, as it could slow down not just the transportation of oil and ethanol, but the entire system. We hope to continue discussions with the government on this matter.

I wanted to ask about the oilseed crush margins again. Juan, right now we're seeing CBOT crush margins around $0.69 per bushel, that's down from like well over $1.00. Put into perspective just how good the Q1 margins were on crush and then what I'm really trying to get after is it feels like ADM should be down quite substantially in the second quarter on Oilseed Processing simply because moving from Northern Hemisphere to Southern Hemisphere and Q1 was just a remarkable result on the crush side. Can you give me your comments?

Yes, I would say the thing that you noted the strength of the crush margins in North America. And our team played very well. But I think what also happened is that normally during March, you see a transition already to South America. And I think in this case what we had is probably the full March that you see here in the North American result. So yes, there is a shift that we normally see and we're going to see a little bit of a slowdown in the earnings of oilseeds in the second quarter as we shift to South America. South America, both Paraguay and Brazil, we don't have crushing in Argentina, but Paraguay and Brazil continue to be a good crushing margin. And then we're going to have, we're going to pick up a little bit of the exports from the grain origination part that we'll report in oilseeds. So I would say yes, with the normal seasonality from Q1 to Q2, not a significant or spectacular decline, I would say.

And then just to follow on that, Q4 last year and Q1 this year were terrific because of how tight the conditions are in oilseed crush. Is there any reason that would it reoccur in the fourth quarter of this year and first quarter of next year on just the basic presumption that the crops are good? So assuming the crops are good, the crush margin that we saw these last couple of quarters were terrific, but I would expect those to repeat. Is that a reasonable thought process?

Yes, David. I believe there is limited capacity as this industry continues to grow, and not much capacity has been added. Therefore, you will continue to observe those dynamics where strong exports combined with robust domestic demand result in favorable crush margins. This is a global demand situation, and protein consumption is still on the rise. Additionally, we shouldn't overlook that significant exports of DBGs to China have increased our domestic demand for soybean meal, which has led to excellent crushing results, and we expect that trend to continue throughout the year.

Just wanted to go back to the comment you made about how your sweeteners and starches results were impacted by running the ethanol at a lower rate during the quarter. Just wondering in the past, you talked about shifting grind capacity. Was this the dry mills that were rushed down or the wet mills? Thanks.

Yes, we look at the overall pool of assets that we have and so I'm not going to disclose granularity around what assets we take down or not, but I think as I said, I think it's important for you to consider that we're always going to look at both to maximize the margin coming out of every bushel that we grind. So sometimes, that benefits buyer products to the detriment of sweeteners and starches like in this case. It doesn't happen that often, but in this case, we thought it was material enough that we should mention it.

One of your competitors had described the specialty protein market in the U.S. as a bit more competitive in the first half. Would you agree with that comment? And is this, I think, a situation where maybe whey protein prices have come down? As dairy production has increased, are you seeing increased price competition or flexibility in that space?

Yes, Tim, let me explain what happened to us. I'm not sure about our competitors, but we utilized a significant portion of our North American capacity to meet global demand. Due to the strong dollar and some weaknesses in emerging markets, we exported less. This may have led to more volume remaining in the domestic market, which could have exerted some pressure on domestic margins. The most significant impact we experienced was the lack of demand from exports this quarter. We are addressing this issue, and part of the situation was that customers worldwide were observing decreasing soybean prices and opted for a more cautious approach to purchasing. However, we are starting to see improvements now. That's the impact we encountered, Tim.

It's good to know that lactic acid isn't considered untouchable. I think that's a fitting title for a note. I'm curious about the demand for HFCS. While it's clear that the domestic market isn't performing well, I understand that supply has been reduced, which has tightened the spot markets significantly. Although your profit results for the quarter weren't very strong, how do you see this affecting the future? Do you believe you can achieve better results in upcoming periods, particularly as contracts renew?

I think I said it in my remarks, we posted an increase in profitability and the underlying business in sweeteners and starch, driven by good volumes and profit margins. It was offset by part of this lack of controller credits because of the decisions we made to run ethanol for margins and also decrease earnings from the joint ventures and the one times from the Tianjin and the start-up costs. Think about the Tianjin plant. We have a full world-scale plant waiting to get approval, so you have all the fixed costs and some of the variable costs that we're making product. No revenue, no cash flow from that plant. So that's impacting the business. But I agree with you, margins for the spot business are a little bit tighter and a little bit higher and we have a combination of contracts. Contracts that were done before the announcement of some of the shutdowns, that were done at previous years' margin on some businesses that were performed after that which are at better numbers. But we expect the profitability of sweeteners and starches from now on to improve as some of these one-offs will be eliminated.

I think it's fair to say for major transaction, we're going to be very open with you, just like the WILD transaction. We were very open with you in terms of returns and accretion. I think you've raised a good point. We got a lot of smaller bolt-on acquisitions which, traditionally, on this bolt-on acquisitions or small acquisitions, we never really have given that much guidance on, but the pace of this is probably increasing. So you raise a good point. We may elect to actually fund them all up together and give you some direction so it'll help you in terms of your modeling.

Thank you all for joining us today. Slide 15 notes our upcoming investor events where we'll see each other. As always, please feel free to follow up with Mark if you have any other questions. Have a good day and thanks for your time and interest in ADM.