Good morning, and welcome to the Archer Daniels Midland Company Fourth Quarter Twenty 18 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Victoria De La Huerga, Vice President, Investor Relations for Archer Daniels Midland Company. Ms. Delaware, you may begin.
Thank you, Jack. Good morning, and welcome to ADM's 4th quarter earnings webcast. Starting tomorrow, a replay of today's webcast 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 the assumptions and factors To the extent permitted under applicable law, ADM assumes no obligation to update any forward looking statement as a result of new information or future events. On today's webcast are Chairman and Chief Executive Officer, Juan Luciano will provide an overview of performance. Then, Juan will discuss our forward look and finally, they will take your questions. Please turn to Slide 3.
I will now the call over to Juan.
Thank you, Victoria. Good morning, everyone. Thank you all for joining us today. Last week, we were in France welcoming our Neovia colleagues to ADM as we closed on that truly transformational acquisition for our animal nutrition business. This morning, we're speaking to you from our Wild Flavors facility in Heidelberg, Germany.
It's a state of the art complex, and we're excited to talk to our colleagues here about the great work they are doing to serve customers and grow our flavors and system business. This morning, we reported 4th quarter adjusted earnings per share of $0.88. Up from $0.82 in the prior year quarter. Our adjusted segment operating profit was $860,000,000. The team did an excellent job to deliver stronger year over year profits in a volatile global environment in the quarter.
And completed an extremely impressive 2018 overall for ADM. Throughout the year, We focused on executing our strategy and pulling the levers under our control. The result was a year in which we delivered. Full year adjusted segment operating profit of $3,400,000,000, 26 percent higher than 2017. Adjusted EPS, 44% higher year over year.
Strong operating cash flows up more than 40% 4th quarter trailing ROIC of 8.3%. 200 basis points above our annual work. Given those extremely strong results, Earlier this morning, we announced a quarterly dividend increase of $0.015 per share or 4.5%. Our Q1 dividend is our 3 49th consecutive quarterly payment and an interrupted record of 87 years. 2018 was a year in which, regardless of market conditions, we continued to execute improve and grow, resulting in a range of impressive our Bolivian Oilseeds business, took important steps to optimize our U.
S. Origination footprint and engineered significant turnarounds in our global trade and South American Origination businesses. In our Drive pillar, for the year, we delivered cost savings of more than $300,000,000 on a run rate basis. Far outpacing our target of $200,000,000. We opened, expanded and enhanced multiple facilities around the globe, including 5 new and renovated ingredient manufacturing facilities and 3 labs and customer innovation centers.
We announced Grainbridge an important joint venture with Cargill in the digital innovation space. We launched the soybean crush joint venture in Egypt, and expanded into the Russian starches and sweeteners market with our Aston joint venture. We grew our Brazilian Oilseeds crash and value added footprint with the Algar acquisition, and we expanded our taste and wellness portfolio with the acquisitions of the and solutions for both production and companion animals. In 2018. This was our 18th consecutive year of reducing recordable injuries and December overall was our safest month ever for our employees, though some incidents at the turn of the year reinforce the importance of continued relentless focus on safety.
We made important progress in our sustainability goals, beating our own deadlines to meet our 15 by 20 objectives for energy, green health gases, water and waste reduction. And we continue to lead the industry on the important issue of diversity and inclusion. Together we grow, consortium ADM began in 2016 to focus on educating recruiting and retaining a more diverse workforce in the agricultural sector was recently recognized with the 2018 Innovations in Diversity Award by Profiles in Diversity Journal. And just last week, we announced our membership in Paradigm for parity, a global coalition of business leaders dedicated addressing the gender gap in corporate leadership. All of these accomplishments have been supported by our accelerating Readiness efforts.
Please turn to Slide 4. One of my goals as CEO of ADM is not just to deliver good results quarter per quarter, but to enact lasting change that will allow ADM to continue improving year after year. That's what our company wide Readiness efforts offers. A reinvention of our business from the bottom up that provides a structure for ongoing continuous improvement and gives us the tools to deliver a consistently excellent customer experience at the lowest cost. Tools like data and analytics, which under our 1 ADM program, we are collecting centralizing and utilizing as a strategic asset that will help us improve our decision making.
We're also conducting systematic reviews and improvements of processes around the company. With an eye to simplification and standardizations, that will make us more efficient and more nimble and reduce waste and defects. Underlying and driving readiness and critical to its long term success is fundamental behavioral and cultural change and more effective and productive employees which are supporting through our ADM ability to execute training or A2E. We are all in on Readiness, and our efforts are accelerating. Last year, our team identified 1000 of initiatives to standardize, centralize and digitize how we do business.
By the end of the year, We had analyzed those initiatives and prioritized about 525 that, as we said quarter will allow us to generate more than $1,000,000,000 of run rate benefits by the end of 2020. Today, we're proud to report that as of the end of 2018, we've already completed 120 of those initiatives, which together have generated CAD300 million in new run rate benefits. We're also continuing to roll out our A2E training, which will help guide fundamental change in how we do our work every day. Approximately, 20 team members have already completed today in person training sessions. By the end of 2019, we expect every ADM colleague to have taken the comprehensive A2E course.
I'll be taking I will talk in more later in the call about the importance of Readiness to our value creation strategy. But now I would like to turn the call over to Ray.
Thanks, Juan. Slide 5 provides some financial highlights for the quarter. As Juan mentioned, adjusted EPS for the quarter was $0.88. Up from the $0.82 in the prior year quarter. Excluding specified items, adjusted segment operating profit was $860,000,000, up 67,000,000 or 8% from the year ago quarter.
Our trailing 4 core average adjusted ROIC closed the year at 8.3%, 200 basis points above our 2018 annual WACC, a significant improvement from the year ago period, and generating positive EDA of more than $550,000,000. The effective tax rate for the full year 2018 was approximately 12% and includes large favorable effects of U. S. Tax reform and the 2017 biodiesel tax credit recorded in the 1st quarter along with certain discrete tax items netting to a favorable $74,000,000. The effective tax rate for the 4th quarter of 2018 was a positive 2%, which includes a favorable true up of the transition tax.
The effective tax rate for the fourth quarter of 2017 reflects a large credit due to the initial implementation of US tax reform. Looking ahead, we're expecting a full year 2019 effective tax rate to be in the range of 17% to 20%. On Chart 18 in the appendix, you can see the reconciliation of our reported quarterly earnings of $0.55 per share to the adjusted earnings of $8.8 per share. The adjustments include a significant non cash pension settlement charge related to the transfer of pension liabilities that we discussed in the 3rd quarter earnings call. Other business results were a negative $14,000,000 but improved versus the prior year period which was impacted by significant unfavorable captive insurance underwriting performance.
Current quarter losses were driven by intercompany insurance settlement, relating to sorghum shipments in early 2018, as well as some other underwriting losses and true ups. ADM investor service results were up year over year. For 2019, assuming no significant underwriting losses, we're expecting other business results to deliver approximately $120,000,000 for the calendar year, with results a bit stronger in the back half. In the corporate lines, net interest expense for and new long $73,000,000 projects. Looking ahead on and fund important projects.
These projects represent investments in our future that will create shareholder value for years to come. Therefore, we're projecting net interest expense rate environment and the $5,000,000 per due to continued strategic investments in IT, business transformation, R And D, and centralization of more activities from the business segment. Turning to our cash flow statement on Slide 7. We generated $2,700,000,000 from operations before working capital changes for the year, an increase of almost 0 point down 20% from 2017 and in line with our target for the 1,000,000 spending in the range of $900,000,000 to $1,000,000,000, slightly below our forecasted depreciation and amortization rate with the expected increase coming from incremental spending to support In 2018, we also returned $835,000,000 of capital to shareholders through dividends and a small amount of share repurchase. Therefore we continued our balanced approach to capital spending, acquisitions and return of capital to shareholders.
At the end of the year, Slide 8 shows the highlights of our balance sheet as of December 31, 20182017. Our balance sheet remains solid and positions us very well for 2019. Our operating working capital of 7 point $5,000,000,000 was up slightly versus the year ago period. Total debt was about $8,400,000,000, resulting in a net debt balance of 6,400,000,000. We finished the quarter with a net debt to total capital ratio of about 25%, down slightly from the year ago quarter.
Our shareholders' equity of translation and net end of the year. If you add the available cash, we had access to $10,900,000,000 of short term liquidity. Our higher liquidity position at the end of 2018 also reflects prefunding to support the Neovia closing in 2019. Next, I'll discuss our business segment performances for the quarter. Please turn to Slide In the fourth quarter, we earned $860,000,000 of adjusted operating profit, excluding specified items, up 8% the $793,000,000 in last year's fourth quarter.
For the full year, our adjusted segment operating profit of $3,400,000,000 is 26% higher than 20 team with origination, oilseeds, nutrition and other, all showing year over year growth in segment operating profit. Now I'll review the performance of each segments as well as some thoughts on the first quarter of 2019. Starting on Slide 10. In the fourth quarter, our origination team performed well considering the extreme small volume of US exports, soybean exports to China. Results were down versus the fourth quarter of 2017, mainly due to changes in non recurring items.
Merchandising and handling results were lower than the prior year period, which included several significant insurance settlements and other income. North American results benefit from weak basis gains due to strong carries as well as solid execution that drove improvements in export margins in comparable year over year volumes. The team did an excellent job offsetting significantly reduced exports to China, by driving North American exports of corn Global Trade benefit from good execution origination and continued growth of the destination marketing business as well as intercompany insurance settlement, offset by timing losses in ocean freight hedges, which are expected to reverse. Transportation results benefit from improved freight rates, offset by increased offering costs. For the full year, origination adjusted operating profit of $46,000 18 of moving swiftly to manage changing trade flows, allowing us to minimize disruptions and capitalize on new opportunities but he also continued to grow our value added services, including destination marketing, which exceeded 20,000,000 metric tons, doubling the 2014 volumes a year earlier than our goal.
Looking ahead into the first quarter of origination, we We expect positive caries in the North American grain business and improved year over year results for Art Coal, partially offset by normalized margins in global trade. Overall, we expect first quarter 2019 origination results to be significantly higher than the first quarter of 2018. Now to Slide 11. Oilseats results were outstanding as the team delivered adjusted operating profits that were more than double the year period. Crushing and Origination results were up significantly year over year.
Crushed volumes for the quarter were among the highest ever as the business continued to leverage its global asset footprint to capitalize on solid demand for soybean meal and strong crush margins. South American origination results were solid as the team did a great job managing a more conservative risk position on soybeans in a very volatile market. Refining, packaging, biodiesel and other was up on strong biodiesel volumes and margins well as higher year over year Asia was higher on strong Walmart results. For the full year, team. The team demonstrate their capabilities by managing risks in a volatile market and by utilizing our global asset base flex capacity and incremental expansions to set a record for crush volumes.
Simultaneous They continue innovating to expand the value added business, such as finding new solutions and product streams for customers. Looking ahead to the first quarter of 2019, we expect results to be lower Excluding the impacts of the biodiesel tax credit in the first quarter of 2018, first quarter 2019 results would be significantly higher year over year. Crushing and Origination should see continuing strong volumes and contributions from our investments in Elgar, soy bin and North American plant expansions. We expect margins to be in line with the first quarter of 2018 when timing impacts from that quarter are taking into account. We expect good performance from RPBL, though year over year results will be lower due to the first quarter 2018 benefit of the retroactive biodiesel tax credit.
Slide 12, please. Carbohydrates solution results were lower than a year ago period. Despite solid overall fundamentals in the starches and sweetener businesses. In starches and sweeteners, North American volumes remained solid with comparable volumes year over year. Overall results were driven by higher costs in North American liquid sweeteners in part due to lower production rates at the Decatur complex and lower co product income.
Bio product results were lower than the fourth quarter of 2017 when trading results were very strong. Ethanol margins and volumes were down in a continued weak industry pricing and margin environment caused by continued high industry run rates and inventories. Despite full year results for carbohydrate solutions being down versus 2017, the team did a great job managing through difficult conditions. The business delivered a higher year over year volumes in sweeteners showed the value of innovation and superb customer service by working with customers to formulate new solutions for sweetener needs and moved quickly to increase starch production to capitalize on margins and a growing demand environment. With the completion of starches and sweeteners remain solid.
Overall results for Carbohydrates solutions will be somewhat lower versus the first quarter of 2018, on European sweetener and North American ethanol industry margins and lower production rates at the Decatur complex. On Slide 13, 4th quarter nutrition profits were down overall versus the prior year period. With strong performances in which was impacted by the production issues that compressed margins in amino acids. WFSI sales were up 14% versus the prior year quarter Looking at revenue growth, while continued to deliver customer wins and the recent Rodell acquisition began contributing. Health and wellness benefit from the Protexin addition, and Specialty Ingredients saw 9% year over year sales growth, driven by proteins and lecithin.
For the full year 2018, nutrition operating profit was up 9% versus 2017. With WFSI operating profit up more than 14%. In addition to its strategic additions, the business continued to expand its portfolio, announcing further advancement in food service concepts as well as individual innovative products such as diversity use protein for companion animals and ona Vida, algae, DHA Powder, a new omega-three product solution. We expect stronger profits for nutrition in the first quarter of 2019 versus the first quarter of 2018. Driven by sales and margin growth, operational improvements and contributions from Protexin Rodell and of course, our just close Neovia addition.
In summary, for the first quarter of 2019, For all of our business units combined, we expect overall segment offering profit to be significantly higher year over year you exclude the $120,000,000 of benefits from the retroactive biodiesel tax credit recognized in the first quarter of 2018, Now, I'd like to turn the call back over to Juan.
Thank you, Ray. Please turn to Slide 14. So we have closed on an excellent 2018 for ADM. Now we are already well into 2019, and we remain focused on pulling the levers under our control to deliver another great year. We start with improving performance in certain businesses.
Our team performed extremely well in 2018, but there were some select businesses that did not deliver against our expectations. Which means to help those businesses around turn those businesses around. For example, in the midst of industry overcapacity and compressed margins, We've announced a rationalization of our peanut and tree nut origination and processing footprint. We also made some organizational changes in that business to ensure it is structured properly to succeed among new market realities. Across the company, we've identified other businesses that we believe can do better.
We have established specific year over year improvement targets for each of them. We'll rigorously monitor their performance throughout the year and take further actions We're anticipating $150,000,000 to $200,000,000 in benefits in 2019 from our efforts to improve performance. The second area that will help deliver strong profits and returns in 2019 is Readiness. 2018 was the year in which we launched Readiness and embedded the change within the whole organization. 2019 is when Readiness accelerates as we take our current bank of 525 prioritized initiatives and deliver projects and cultural change that taken together will permanently change how we run our business.
Creating a lasting structure under which we will be more efficient and more effectiveness effective. Resinist will improve performance by helping us isolate problems and implement effective solutions, help to sustain our high performing businesses and ensure we avoid pitfalls and power us to make more effective thanks to better and more timely data and analytics allow us to participate and service customer needs more quickly and more effectively and support growth efforts by improving the processes we use to identify and evaluate opportunities and enhancing the efficiency of our integration efforts. As we mentioned earlier, we have already delivered $300,000,000 in run rate benefits from Readiness at the end of 2018. By the end of 2019, we expect Readiness to contribute $200,000,000 to $250,000,000 to our bottom line. Growth efforts are our 3rd focus area for 2019.
Specifically, ensuring that the growth investments Since 2014, we have dramatically expanded our portfolio and our geographic reach with both organic growth projects and M and A activity. Taken together, we made more than $7,000,000,000 in growth investments over the last 5 years. Including key investments like wild for taste, biopolis for health and wellness, neovia for animal nutrition, Algar in South America and Chamtor in Western Europe, as well as other bolt on additions and organic investments. Now with an unparalleled portfolio of products and ingredient solutions in key growth markets around the world, 2019 is the year we focus on harvesting increasing returns from those investments, which we believe will deliver about $150,000,000 Our path to success continues to be pulling the right levers and controlling what we can control, improving business performance, readiness and growth. And by focusing on these 3 drivers and executing well, we are well positioned to deliver continued profit and cash flow growth in 2019 and beyond.
With that, Jack, please open
Thank you. Your first question comes from the line of Eric Larson with Buckingham Research. Your line is open.
Good morning, Eric. Good morning, Eric.
A couple, one, just a little follow-up, just on your last your last comment on harvesting growth investments. Obviously, you've got Innovia that you just closed on a few days ago, etcetera. Can you give us a little bit more, thoughts on Innovia? Will this be contributing immediately to earnings? Or is this, is this, will it be accretive, let's say, in your 2 how should we be thinking about the recent acquisition here?
Yes. So we're very excited about these think, as I said before, Neovia, establish us as an overnight leader in the animal nutrition business as we combine both our businesses the way to think about it in terms of the quantification of the impact, Eric, if you think about my announced $150,000,000 coming from growth initiatives, About 50% of those, of those $150,000,000, about $75,000,000 belong to nutrition. So they're going to be accrued to nutrition. And in nutrition, Neovia will be the largest of the acquisition are coming to compose those $75,000,000. So with that, you can get the feeling for how much will Neovia contribute and will start in 2019.
Okay. Okay. Good. And then, obviously, you had an amazing year in oilseeds. And Obviously, you've got more difficult comps going forward, but I think you also were able to build a pretty strong book I think, and believe in the first half of this year, based upon some crush margins that we saw throughout the second half of last year, Can you give us a better flavor for how you think, the oilseed division should look for the full year?
Yes, sure. Listen, I think that you said it before, probably the crush environment in 2019 will not be as spectacular as maybe 2018. But we still believe given global demand, strength that we have around 3% outside China, that this business will still maintain crush margins, well above the average that we have seen over the last 5 years. On top of that, I think you need to consider about, all the incremental contributions that our business will get from the Brazilian acquisition, Algar, the soybean joint venture in Egypt, and some of the expansion that we have done to Agua on capacity and improvements in that capacity. On top of that, I would say, you will have to add the turnaround.
We are planning see in the peanut and tree nuts business in 2019, that was a little bit of an expected headwinds in 2018. We are not planning to have the same in 2019. So overall, I would say probably a little bit softer than 2018. But it's still a very solid performance by the oilseeds in 2019.
Your next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open.
Thank you and good morning everyone. Juan, just on the corporate expense, I mean, it's getting pretty sizable compared to the overall profitability of the business. And I'm just I'm just wondering the centralization of it, versus of allocation to the segments. I mean, what are sort of the pros and cons to doing that? Maybe I'm a little bit more on the cons of maybe centralizing it and not allocating it by segment doesn't sort of could potentially send wrong signals in terms of capital allocation investments in those businesses.
So how are you thinking about it?
Yes, I think, Vincent, it's Ray here. I think one of the important initiatives on Readiness is this aspect of getting of 2018, we did centralize more of the purchasing activities, the procurement activities, right. So we took some of the activities out of the businesses and centralized it. Same thing for marketing activities. And so therefore, it's actually important as part of our whole Readiness initiative to actually get these groups together in order to kind of drive standardization and the common processes.
So therefore, the part of the increase year over year is due to this type of centralization The other part even though they're spending, we do view these things like investments, right, in terms of better the company for the future. And so it's really those are the 2 main drivers in terms of year over year costs. When we actually look at our core central staff costs, they've actually gone down year over year, right? So I mean, normally, when people think about
firm,
you think of a core cost and those costs are actually being driven down. So you can think that we're trying to drive down that cost, take some of the savings, there's some shift in terms of some costs moving towards
corporate
as we centralize activities. And we are investing more in terms of the innovation R and D and business transformation.
Okay, thank you. And just to follow-up, in the quarter in oilseeds, were there any mark to market reversals?
The net impact on mark to markets in oilseeds for the quarter was now material. So therefore, normally, we'll call out if it was something above $50,000,000. The fact that we're not calling out anything indicates that it was not a material impact for the
But it could have been 49.
It wasn't material. Understood.
Okay. Thanks very much guys.
Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
Thanks. Good morning, everyone. So I wanted to go back to some of the pieces on 2019 that you've laid out, make sure that thinking about these properly. So I believe you called that $150,000,000 tailwind from some of the growth investments in M and A that you've done. You talked about recovering $150,000,000 to $200,000,000 from some of the operational challenges at Decatur and the net processing that you experienced in 2018.
There's about an 80,000,000 or so headwinds on interest expense, if I was doing that right, a $20,000,000 to $40,000,000 headwind on corporate, the biodiesel tax credit. If it doesn't come back, that's $120,000,000 headwind year on year? And the tax rate is up a little bit. And so after that, which the net the net still modestly positive at the net income line. The question is kind of how much do you net realized from the cost savings relative to kind of broader cyclical dynamics in Oilseedcrush, ethanol and origination.
Is that the right framework?
Yes, I think that's the right algorithm. So what we're thinking is you have the margins, the ups and downs of every year. Then we have the things that we can control and we laid them out and I think you repeated them very well is the improved performance, which is 150,000,000 to 200,000,000 is the Readiness activities, which is 200 to 250. We have rolled into Readiness, all our previous operational excellence activity, we're not going to have that bucket anymore. It's part of this readiness.
And then we're going to have the $150,000,000 from all the, accretion of growth investment that we have recently done. So, you take that minus the headwinds that you described. Plus or minus your view of the market conditions in 2019. And that's what we can see there is still that despite maybe some a modest reduction in crush margins versus the previous year, we expect that we're well positioned to grow profits in 2019.
Yes. And, Adam, don't forget, on the other segment, again, this year was burdened by a lot of underwriting losses. We're assuming 2019 would be more of a normal year. So I gave guidance of $120,000,000 in other versus this calendar year. It was more like a $58,000,000 number.
So don't forget that delta. It's kind of build up the model as well.
Okay, that's helpful. And then so just maybe going into some of the underlying kind of business and cyclical dynamics a little bit. On the crush margin side, mean, still strong. I'm just trying to make sure, I mean, where we were in 2Q and 3Q with board crush that was 150 plus relative to board crush that's been hovering around $0.90 to a dollar since November. I'm just trying to make, is it just Europe is better soft seed Brazil.
Just help me think about the different geographies and how that plays into what you see on the board crush, which suggest a big headwind in the middle of the year?
Yes. We continue to see Adam strong utilization in North America. We have a good book through Q1. We've seen gross margins $30 to $35 per ton in Q1. So utilization rates continue to be high.
We continue to export mill and domestic offtake continues to be robust. Actually, our customers are reporting and if you talk to the 3 customers are reporting, that they believe that poultry demand has not peaked and they see through low pricing and some of the new, retail options that they're being offered right now that we're gonna continue to grow per capita consumption. So we're optimistic there. In canola, in the U. S, margins are 25 to 40 maybe the dollars per ton for Q1.
And we had profitable export oil flows there. So, if you think about Europe, in Europe, markets are at the carry, so customers are a little bit more hand mouse. So maybe we don't have in Europe the same book forward than we have in North America. But meat proteins, meal, seems to be in good demand from Europe itself, but also some replacement in China. So that's supporting grape seed meal prices.
So in general, margins are near $35 per tonne in Europe. If we go to South America, there is a wide range in Brazil, whether we have some $10 to $15 per ton crush margins growth in export facilities, and where we have maybe 25 $30 per ton in gross margins in facilities at our geared toward domestic market. Maybe domestic market facilities as little bit better ownership of beans. And we have a domestic meal premiums, but also some opportunity to export meal while Argentina still get to the, to their harvest. Paraguay, we're facing a little bit of a smaller crop in Paraguay, maybe 10%, 12% lower because of the drought there.
So we expect to run about the high 80s in terms of utilization there. So maybe a little pressure there. My understanding is that crush margins have proved recently in, in China for Q1. They are about something between $10 $15 per ton. So that's kind of going around the world a little bit on the crush side.
All right. I really appreciate all that color. I'll pass it on. Thanks.
Okay. Thank you, Adam.
Your next question comes from the line of Ann Duignan with JP Morgan. Your line is open.
Yes, hi, good morning.
Good morning, Ann. Good morning Ann.
Maybe two questions. 1, first, with kind of missed the export opportunity now for the season for U. S. Soybeans to China. So can you talk about what that damage has done, what it might do and what a bit structural now that at least Argentina is back producing more than it did last year.
And then secondly, we're just talking again about Argentina on the crush side. What would you anticipate they'll do when they export more beans with trying to pull more beans from them or will they export more meals, which they generally do? I'm just curious what driveluck is there.
Yes. So, I would say regarding the U. S. Exports, as I think Ray mentioned in his prepared remarks, we were able, thanks to our global trade group, but also our destination marketing group to offset in last Q4, probably 70% of the volume that we were thinking China was going to take, part with, corn export that grew significantly year over year, in part by sending it to either our own crash in Europe or other destinations, maybe Thailand and other places. So that, again, boots on the ground in destination market, it was very helpful to move those bins around.
In our scenario planning, if you will, 2019, we are expecting at least the trade dispute with China is resolved during the year in the trade aspect. Whether we continue to discuss other issues with China later on, but we think that the trade will be part of the solution during 2019. So we're still counting with maybe smaller than other years, but there's still sizeable exports from the U. S. In Q4 from soybeans.
That is our predominant scenario at this point in time. The second part of your question, sorry, Ann?
Argentina. Oh,
Argentina and whether the export beans or with. I think, 1st of all, this is going to be the full season of Argentina operating without the DET. So it will be interesting to see how they behave, whether they are a little bit more disciplined seller out there. I think there's still Argentina's year to sell more meal And so I will expect that Brazil or the U. S.
Will take the brunt of the export of soybeans and Argentina will export the meal.
Okay. I'll leave it there and get back in queue. I appreciate it.
Thank you, Len.
Your next question comes from the line of Heather Jones with The Vertical Group. Your line is open.
Good morning. I just had a follow-up question on the operational issues you guys had in 2018, specifically on Decatur. And Lysine. So you all talked about those issues meaningfully impacting Q4. So I was wondering if that's been resolved, But the second part of that is the explosion you had earlier, this calendar year, like, so when should we start to see the giveback, of Decatur normalizing?
Yes. So Heather, I think you need to think about the Decatur process as a revitalization process, if you will, Decatur is a plan that traditionally has been the low cost operations for us. And so as such, we have put a lot into Decatur. It's a very integrated complex, but it's also a very complex, complex, if you will. And So in 2017, we have outages related to electrical infrastructure And in 2018, we reduced the unplanned outages because of that by 90%.
So we made significant progress Now we are, continue to revitalize some of the equipment in the facility, with planned outages this time to improve the reliability of the plant. This effort, of course, will yield long term operational stability and especially as high utility sensation rates. That's what we try to do normally from this plant at very high. I think the issue on licensing is a slight different in which lysine, we introduced a lot of new technologies in both fermentation and downstream processes. Basically to improve the cost position.
And we've seen the we've seen already evidence of those improvements. The problem is we need a stable source of dextrose from the corn plant. So lysine is receiving a little bit of the shocks of the planned outages that we're having indicator as we try to fix the case. So I would say you're still going to see some of that in this quarter. And then they will start tapering off and we should be completely out of all this by the second half of the year and you will see the improvement.
But the impact in 2018 was significant. It was probably in the tune of $30,000,000 to $40,000,000 in each of the businesses in carbohydrate solutions and nutrition. And we expect that number to be significantly reduced for 2019.
And then going back to your comment about soybean meal demand, you mentioned that you're expecting it to be I thought you said up 3% for the year. And you mentioned China in that statement. Is that y'all's estimate based upon where soybean meal is from a price positioning basis, but also taken into consideration the impact of ASF in China?
Yes, no, my comment was that 2.5% to 3% outside China, outside China. China is difficult to call at this point in time. I think that, we hope that the ASF situation is is getting a little bit better. We've seen the government lightening up a little bit in some of the vans in transportation between the provinces. So hopefully that's an indication that they see this as slightly getting better.
But as you know, it takes it takes an animal 18, 20 months to get to breathing stages. So the rebuilding of the herd is going to take a while. So we expect that to drive in the short term to supply the demand of China, to drive imports of either pork or chicken. And we think that that's going to also support the demand in the other places where we produce. So, creating the exact demand in China is going to be difficult how do they come back from Chinese New Year?
I mean, how much of a psychological impact all these ASF situation has had in the Chinese consumer?
We will have to look at that.
So just to push back on that a little bit, what is driving your lower view on the demand outside China, because 2.5% to 3% is a pretty significant slowing. So what's driving that view?
We've been close to customers and all that. And so, that's kind of where the team is assuming at this in terms of demand to be.
Your next question comes from the line of David Driscoll with Citi. Your line is open.
Good morning, Lou. Hey, David.
Wanted to ask a little bit more about project readiness. I believe Juan, the goal is $1,000,000,000 of savings in 2 years And I think you said on the call here that 2019 will deliver $200,000,000 to $250,000,000 of incremental savings for year 2019. Is that to then say that the subtraction then would be that all the balance of this shows up in 2020?
Yes, just so for clarification, so the $1,000,000,000 run rate by the end of 2020 is a run rate, right? And as we've talked out, not necessarily everything on the run rate will flow through the bottom line because there's going to be some offset in terms of either inflation or just reinvestment of some of the savings. What Juan indicated in terms of $200,000,000 to $250,000,000 savings in 2019 represents the year over year improvement from Readiness. So therefore, this would be additive towards the 20 results. And that reflects the combination of the run rate savings that we're going to generate this year, but also some of the run rate savings that we generate at the end 2018 flowing through and net of inflation here.
So this is a net number that we're talking about in terms of improvements in 2019 compared to 2018 from Readiness. Just for clarification.
What's the remaining net number then after you complete 2019 So I'm getting lost here between this gross number of $1,000,000,000 and the net number that you're calling out to the bottom line. What's the residual that would be left over for 2020 2021?
It's probably in the range of 500,000,000. Okay. It's
still very sizable. Okay. Okay. That's very helpful.
I think you have to say, David, you have to see, we have a quick start in 2018 with the 3 $300,000,000 because there were a lot of ready to implement opportunities that actually require less capital or less changes in processes. So you do more of those at the beginning. Then 2019, we'll have more foundational things that are related to processes or technologies. Then you're going to see again an acceleration as all those projects are implemented into 2020. So I think that that's a little bit the case We did the easy ones at the beginning.
Now we're doing the more fundamental ones that take a little bit more work and then you're going to get the benefit of all that infrastructure into 2020. That's why the $300,000,000 $200,000,000 or $250,000,000 500 kind of cadence, if you will.
Very helpful. Last question for me is just a clarification on some of the answers you guys gave to a few other questions as it relates to China. The potential for a deal with the U. S. And China on trade.
Is it all the numbers that you've given on the call? Is the base assumption that we get a trade deal with the Chinese by the end of February. Is that the base assumption when you've laid out all these various numbers? And then can you give us some sensitivity of if we don't get a trade deal what happens to your thoughts, Juan, on the outlook for the ADN business? How much volatility could we or should we expect if the outcome does not occur for the base assumption?
Yes, David. So, our assumption is not that the trade deal is resolved now in the first quarter. We have it more like half of the year. We're thinking if there are any benefits come, it will come in origination in the last quarter of 2019. I would say whether the different scenarios, whether we have a resolution or not, it depends on what kind of what kind of end, deal we, the both or end state both governments end up into this.
If he's a portrayed word or complete dispute, I think it's going to be bad for everybody. I think it's going to for the global economy and then it's difficult to forecast what's going to happen. I would say in a scenario in which we continue like this, which is a negotiation and with trade, especially in agricultural products could be used as a token, if you will, or as a contribution to towards a bigger agreement. I think that we can handle the different scenarios. In a scenario in which we have no agreement, probably beans in the U.
S. Are continued to be cheap, crush margins will continue to be high, like maybe they were last year. And we will have lower exports of soybeans from North America. In a scenario in which we get an agreement and China try to buy more agricultural products from the United States we probably have higher origination, elevation margins in Q4. We probably have, hopefully, some ethanol flowing into China that could help ethanol margins.
And we probably have a slowing down of crush in North America, at least a reduction in margins versus 2018. So we are in the middle of kind of those scenarios and we manage those scenarios. And I'm not saying they are neutral to us, but we can manage through both of them and see still us maintaining our forecast for 2019.
Great. Thank you. I'll pass it along.
Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is open.
Hi, thank you. This is more of a modeling question, but I think you guided net interest expense. Is it going to be up $200,000,000 year over year. Is that correct?
I think we indicated that, we're going to be $100,000,000, per quarter. So $400,000,000 for the calendar year. That's what we're seeing. That should be for 2019.
Okay. Am I adding the difference correctly though? I mean, you had only $200,000,000 in 2018 because I think that's math, isn't it? So it's $200,000,000 incrementally year over year of interest expense
net? We were higher in 2018 We're actually I think we're higher than that. I think we're just we're going to be higher, but I think $40,000,000 or something like that. But we can just follow-up with you on a one on one afterwards.
Maybe I'm modeling this wrong, but what I'm really trying to get at is you have higher interest expense. Does the operating income from your, from your acquisitions offset the higher interest expense I'm really kind of and what does that mean for dilution in 2019?
No, it does. It does. I mean, and so, more than offsets in terms of the impact. So we can follow-up one on one with you on the ending mental year over year on a managerial basis.
Do you have an operating income number for how much the acquisitions add in 2019?
Well, I think one was talking about growth in general, right, was going to contribute about $150,000,000.
Okay. All right. I'll go offline. Thank you.
Your next question comes from the line of Michael Pike with Cleveland Research. Your line is open. Yes. Hi. I was wondering if you guys could provide us
a little bit more of
an update on how high fructose corn syrup contracting going and your expectations for 2019?
Yes, sure. Michael, good morning. Listen, contracting is done. Of course, we started earlier the process last year And I would say, we finished with volumes and margins overall consistent with last year. So, we've been able to hold margins and volumes in of course, there were some pickup of both year end losses there up and down.
But in general, I would say consistent with 2018 for both margins and voyage,
Okay, great. And then shifting over to origination, could you give us any idea in terms of how much more room there is for growth in terms your destination marketing volumes and what the cadence might look like over the next couple of years there? And which markets you're targeting?
Yes, I think the team continues to look for more opportunities. As you saw, the numbers have grown dramatically, but more doubled over the past 5 years. I think the rate of increase that you're going to see going forward volume wise going to be probably lower in terms of the rate of increase because we've gotten to a lot of the markets that we are initially targeted. But clearly, there's still markets, for example, in Southeast Asia and parts of Central America, parts of the Middle East that we still view there's opportunities for further growing that business. So I would say there's still going to be growth, although it's not at the same rate that we've seen in the past few years.
Your next question comes from the line of Ken Zaslow with Bank of Montreal. Your line is open.
Good morning,
Ken. Hi, Ken. Two questions. One is one in the opening comments, you said that you improved your origination in the U. S.
What'd you do? And what was the process to which you did that?
Yes, we did several swaps and closure of elevators, just adjusting our footprint basically to where our production is and making sure that they are we have the right elevators to our export facilities or plants. So normal pruning and improvement of that. But we also grew our North American fertilizer distribution business, our steeper ordering business. So many, many good things have been doing the grain guys in the U. S.
Also more digital tools, better marketing, thanks to the you're going to provide better marketing tools to the farmers. But I will say specifically to the footprint, I mean, we normally we have like, I mean, 200 by station. So normally there is some churning and I think the team was very aggressive in making sure that we shut down the ones that we needed to shut down and we moved personnel to others that maybe have more volume opportunities.
My second question, it starts out as an observation, but but it'll probably lead to a question. One is, if you think about your competitors in both high fructose corn syrup and crushing, You made 2 interesting observations. 1 is your risk management in South America on crushing saved you and was successful. And then to the last question you answered, yes, asked and answered was, the way that you're thinking about your high fructose corn syrup margins is that the pricing was actually fairly successful and that you're able to continue to do that. That is both in contrast to your competitors.
So the question that I'm asking is, is there a process that you undergo that's differentiated than your competitors And would you actually benefit from a greater sizable asset in either parts of the world?
Hard to know how our process compares to our competitor. Of course, we I think one of the big advantages that I always pride ADM for having is, 1st of all, a great team, but also think the fact that we keep the company relatively tight, I mean, before the acquisition of Neovia, we were at 31,000 people, which we handled about 60 something $1,000,000,000 of revenue help us to, not only the agility, but the sharing of information, I think, we have every Monday morning, we have a risk meeting where like 20 or 30 people are in that call and And I think these are people that work very well together. They know what they do very well. And in general, you know us, we're trying to hedge our margins, maybe to do some basis trading, but fundamentally, we try to leverage our asset base because we believe the asset base of, a company like ADM is replaceable. So we take advantage on that, and that's where we make the money.
In terms of, we would like to get bigger anywhere, I think that our objective is always trying to get better. And I think that as we get better, we could be a bigger one day. But I think that the most important thing through Readiness and everything we do is that we are very honest and despite we have a very good 2018, we're still not satisfied. We probably left a couple of $100,000,000 on the table on things that we should have done better. And Readiness is tackling that is how do we continue to get better before we get any bigger?
So even from a capital allocation perspective, you heard us doing Neovia and we did Florida Chemicals and we might conclude maybe another small deal that could be negotiating here or there. But in general, 2019 was a year of pausing in terms of our M and A. And actually consolidate all these, get the returns from all these. And again, continue to think about getting better versus getting bigger. I think when we get better, eventually, we will get bigger because we will be the best operators of assets out there.
Well, you're starting to differentiate yourself. Well, well done. Thanks.
This concludes the Q And A portion of the call. I would now like to turn the call back over to Juan Luciano for closing remarks.
Hi, it's Victoria. Thank you for joining us today. Slide 15 notes some of the upcoming investor events where we'll be participating And as always, please feel free to follow-up with me if you have any other questions. Have a good day, and thanks for your time and interest in ADM.
This concludes the Archer Daniels Midland Company 4th Quarter 2018 Earnings Conference Call. We thank you for your participation. You may now