Good morning, and welcome to the Archer Daniels Midland Company Third Quarter 2018 Earnings Conference Call. All lines have been placed on a listen only mode to prevent background noise. As a reminder, this conference call is being recorded. I would now like to turn like to introduce your host for today's call, Victoria Delauerga, Vice President, Investor Relations for Archer Daniels Midland Company. Ms.
Dela Warga, you may begin.
Thank you, Jack. Good morning, and welcome to ADM's 3rd 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 and 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 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 webcast, our Chairman and 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, as well as the drivers of our performance in the quarter and our thoughts on the balance of the year. Then one will discuss our forward look.
And finally, they will take your questions. Please turn to Slide 3. I will now turn the call over to Juan.
Thank you, Victoria. Good morning, everyone. Thank you all for joining us today. This morning, we reported 3rd quarter adjusted earnings per share $9.2, up from $0.45 in the prior year quarter. Our adjusted segment operating profit was $861,000,000, up nearly 60% year over year.
And our 4th quarter trailing ROIC of 8.3 percent is more than 200 basis points above our annual work. Our team continued to capitalize on robust global demand with good execution and great utilization of our global footprint. And while delivering another strong quarter, the team also did a great job advancing our strategic plan. Executed on key growth projects and accelerating our Readiness efforts as we build the foundation to take our performance even higher. Looking back on some of key accomplishments in optimizing the core, our South American origination team manages risk position works well, including the Brazilian freight situation and is up substantially year to date over 2017.
We continued to optimize our North American origination footprint, monetize our investment in Aggregable, And as mentioned last quarter, we completed the divestiture of our Bolivia Oilseeds business during the quarter. In our efforts to drive savings of more than $200,000,000 on a run rate basis over the first 3 quarters of the year. Already meeting our full year 2018 target. We will, of course, continue those efforts. In a strategic expansion, our origination business is making important investments in digital And Innovation capabilities with our just announced GrainBridge joint venture and our work with other industry players to modernize the global agricultural value chain.
In Oilseeds, we announced that we are acquiring certain assets of Algar Agro, particularly to crush refining and packaging facilities in Brazil, which will further strengthen our processing presence in that important region. Our Work Agohydrates Solutions business is working to add industrial starch capacity to several facilities to meet market demand. And we celebrated the opening of our modernized flower meal in Egypt of La Homa this quarter. And in Nutrition, we completed our acquisitions of Rodel and Protexin. We'll close on the Neovia acquisition in the coming months, and opened the latest in our series of high-tech customer innovation centers in Shanghai.
But also moving very quickly in advancing Readiness. Readiness is central to our strategic goals. It underpins and supports each of our pillars of our plan. We're excited about the progress we're making the opportunities we are in on initiatives that are building a foundation for increasing earnings growth in payers to come. Be talking more about Readiness and our outlook later on this call.
Now, I'll turn it
over to Ray to talk about the quarter. Thanks, Juan. Slide 4 provides some financial highlights for the quarter. Was $0.92, up from the $0.45 in the prior $1,000,000, up $320,000,000 from the year ago quarter. Our trailing 4 quarter average adjusted ROIC continued its upward trajectory, reaching 8.3 percent, more than 200 basis points above our 2018 annual WACC.
Thus generating positive EBA of $546,000,000. The effective tax rate for the 3rd quarter was approximately 15%, up slightly from the exceptionally low rate of 13% in the prior year. For the full year 2018, we expect our effective tax rate On Chart 18, the appendix, you can see the reconciliation of a reported quarterly earnings of $0.94 per share to the adjusted earnings of $0.92 per share. For this quarter, we had a $0.01 per share charge related to LIFO, a $0.04 per share credit related to gains on sales of investments and a $0.01 per share charge related to discrete tax items. Slide 5 provides an offering profit summary in the components of our corporate line.
The other segment results increased on stronger ADM investor services earnings due to higher short term interest rates, and improved underlying results from our captive insurance subsidiary. In the corporate lines, net interest expense for the quarter increased due to higher short term interest rates and higher borrowings. Unallocated corporate costs of $161,000,000 were up versus the prior year, due to performance related compensation accruals and higher project spending on information technology and growth related projects. Turning to our cash flow statement on Slide 6. We generate $1,900,000,000 from operations before working cap changes in the 1st 9 months of the year, an increase of more than 19%.
Total capital spending in the 1st 9 months was 5 $55,000,000, in line with our expectation for the year. Acquisition spending amounted $324,000,000 which includes our additions flow to shareholders through dividends. Therefore, we continued our balanced approach to capital spending, acquisitions, and return of capital to shareholders. Slide 7 shows the highlights for balance sheet as of September 30, 20182017. Our balance sheet remains solid.
Our operating working capital of $8,000,000,000 was up approximately $800,000,000 versus the year ago period. Total debt was about $7,900,000,000, resulting in a net debt balance $6,900,000,000. We finished the quarter with a net debt to total capital ratio of about 27%. In line with the year ago quarter. Our shareholders' equity of $19,000,000,000 is up from the $17,600,000,000 last year, primarily due to the at the end of September.
If you add the available cash, we had access to $7,700,000,000 of short term liquidity. One additional item to note. Last week, we complete the transfer of about $500,000,000 of U. S. Salary retire liabilities to an insurance company which will cover the benefits of about 3800 US retiree starting in 2019.
This represents an important part of our ongoing efforts to manage expect to take a $110,000,000 to $130,000,000 pretax noncash pension settlement charge in the fourth quarter, which will be an item for adjusted EPS purposes. Next, I'll discuss our business segment performance for the quarter. Please turn to Slide 8. In the 3rd quarter, we earned $861,000,000 of adjusted operating profit excluding specified items, up almost 60% from the $541,000,000 in last year's third quarter. Now I'll review the performance of each segment as well as some thoughts on the fourth quarter.
Starting on Slide 9. Origination results were up substantially year over year, with all businesses showing improvements. Merchandising handling was significantly higher versus a weaker quarter of 2017, as the team did a great job managing through a volatile price environment. In North America, we capitalized on our strong asset base to deliver higher volumes and margins including strong export sales particularly of corn to customers in markets outside of China. In global trade, there was a similar story as team delivered stronger year over year results.
The group did a great job to plan and execute through the Drellt in Europe and Australia, utilizing our global network of origination assets and our expanding destination marketing capabilities to meet increasing demand for crops and products particularly soybeans and meal in those regions. Transportation results more than doubled year over year as the ArtCo team utilizes assets, including the stevidoring capabilities we have invested in, capitalize on strong freight rates and export demand and deliver higher volumes and margins. Looking ahead for origination, we expect North American operations to be pressured by lower elevation margins due to the lack of China Overall, 4th quarter results are expected to be solid, but lower than from insurance settlements and other income. For the full year, we expect origination results to be substantially higher than the prior year and exceeding our expectations at the beginning of 2018. Now to Slide 10.
Oil seeds and results were also up significantly over the prior year period as the business delivered another strong quarter. The crushing and origination team set a new overall record for global crush volumes. The team leveraged its strong global asset base in our growing destination marketing capabilities as robust global meal demand, the short crop in Argentina the continuing U. S.-China trade situation combines to support higher crush margins. Soybean crush was the major driver of earnings growth in the business with North America, EMEA and South America, all delivering substantially higher results year over year.
Soft seat results had a significant improvement from the third quarter of 2017, with particularly good results in EMEA. Refining, Packaging, biodiesel and Other was down versus the third quarter of 2017. Bio Diesel was up substantially year over year and refined oils, including edible oils, continued to perform well. Peanut shelling margins were significantly lower as large peanut inventories amid difficult market conditions resulted in some inventory write downs. Lastly, Asia was higher on strong We expect very strong year over year growth as we continue to capitalize on a good global soy crush environment RPBL is expected to be in line with the prior year as global food and biodiesel businesses should perform well.
We expect continued softness in our peanut shelling business for the fourth quarter as we continue to take actions to improve results. For the calendar year, we expect oilseeds to continue to benefit from the many strategic actions the team has taken from operations enhancements to growth initiatives to portfolio management and deliver excellent results. Significantly higher, both in the prior year and what we had anticipated earlier this year. Slide 11, please. Carbohydrates Solutions results were slightly lower than the year ago period.
Stargest And Sweeteners delivered solid results, slightly below their strong prior year period. We continue to see a solid North American market for liquids we nurse and the group delivered good margins and volumes in the quarter, offset by higher input and manufacturing costs. EMEA sweeteners continue to benefit from recent acquisitions, particularly our Chantor facility in France. Delivering good results despite sugar oversupply in the region as pressuring sweetener prices. Flower milling was higher and strong weak procurement results and timing effects in both the U.
S. And Canada. Bio Products results were down, the team did a good job managing risks in extremely weak ethanol industry margin environment. Beverage industrial alcohols had improved results benefiting from renewed focus after the reconfiguration of our Peoria dry mill. Our North American sweeteners and bioproducts results were also impacted by Decatur downtime issues as we continue to make improvements the long term reliability of the complex.
Looking ahead, we anticipate carbohydrates solutions to have lower results in the 4th quarter than in the comparable period last year, with better results in starches and sweeteners offset by low results in bioproducts. As we discussed last quarter, we will continue to have downtime in our Decatur complex for the rest of the year as we make important upgrades. We expect the underlying starches and sweeteners market to remain solid. The industrial represents an increasingly important part we're expanding our starch production capacity to ensure we can capitalize on that growing opportunity. For the full year, we expect results Decatur downtime.
On Slide 12, nutrition was in line with the prior year period. With a very strong We continue to see good performance across WFSI, with results significantly higher than the prior year period. The business delivered an impressive 10% year over year sales growth on a constant currency basis and profit growth of more than 30%. While EMEA and North American results were substantially higher on portfolio mix and improved volumes, and we continue to add to our portfolio with the completion of the Odell acquisition. In specialty ingredients, emulsifiers and protein continued to perform well with strong year over year growth.
And the health and wellness business continued to grow with the addition of Protexin. In animal nutrition, issues developed during the quarter that constrained lysine production volumes and increased manufacturing costs. Contributing to lower year over year results. Changes in industry vitamin pricing also impacted pre mix margins. For the fourth quarter, we expect to continue to see fundamental underlying strength in the nutrition business.
We anticipate continued strong sales growth from WFSI as customers and consumers continue to seek out healthy and functional ingredients. On the animal nutrition side, premixed margin should return to normal levels, and we'll see some residual lysine production issues. Overall, nutrition results for the fourth quarter should be modestly improved over Q4 of 2017. For calendar year 2018, nutrition results should be substantially higher than the full year of 2017, providing strong momentum for continued growth.
Please turn to Slide 13. As you heard, we're anticipating a strong year. Across the company, we are seeing our team perform well and we're realizing the benefits from our actions. Things are going well, but we can't stand still. We must keep getting better.
We have enormous potential and a great opportunity to build on our position of strength and take our performance to a new level through the increasing benefits from the strategic growth investments we have made and through accelerating our readiness efforts. Plan we laid out in 2014 was expanding our portfolio into businesses that had a strong growth potential and more stable earnings. And also growing our geographic footprint. We started by acquiring wild flavors in 2014, and combining it with the significant portfolio of specialty ingredients that our corn and oilseeds businesses already produced to create WFSR provided an immediate global leadership position in the flavor and value added ingredient space. Our approach with Wilde was first to enhance the profitability of the business, resulting in an impressive 20 plus percent compound annual growth rate in OP between 2015 and our 2018 projection.
Then we invested to expand the portfolio even further. We're building revenue synergies with bolt on acquisitions like Eaton Foods, Harvest Innovations and Rodel, we're expanding into the rapidly growing personalized nutrition space with biopolis and protecting. And we are investing in state of the art customer innovation centers in the U. S. Singapore, Australia and China.
Today, we are seeing the results of that strategic approach with top line Q3 revenue growth in WFSI of 10% year over year and 35% OP growth. This same approach of 1st driving profitability improvements and then strong revenue growth. Is the one we plan to replicate with Neovia at our animal nutrition business. We've delivered success and we're excited to do it again. Importantly, even as we have expanded our portfolio, we have continued investing in our traditional businesses.
Around the globe, we've expanded our footprint and capabilities from the construction of new plants, like our animal nutrition facilities in China, or our new Peaprotein plant in Endel in South Dakota to acquisitions like East Arch and Chamtor to joint ventures like MedSoft, industry centers, soybean and ashton. Taken together, we have made more than 5 dollars in growth investments since 2014. We've launched 6 new plants globally, purchased and integrated 17 companies, 4 new joint ventures and added 5 new innovation centers and labs. We have also divested more than $1,000,000,000 in businesses and assets that were less strategic or were not going to achieve our returns objectives. Including our cocoa and chocolate businesses.
We made many of our investments during times of strong industry headwinds, while still returning more than $8,000,000,000 in capital to shareholders, executing our balanced capital allocation framework, and maintaining our solid balance sheet. Have already begun to deliver benefits and be accretive to our results. The full impact of some of the recent ones is still coming. And when you add soon to close deals like Neovia and Algar to that mix, you can see why we are confident that our investment will continue to add to growth in earnings in 2019 and beyond. Next slide please.
Slide 14 shows how Readiness on our strategic plan fit together. Readiness supports each of our 3 strategic pillars is how we are going to take our execution of the plan to an ever higher level. So starting next quarter, when we update on how we are advancing the plan, We'll also update on how we are advancing Readiness. Let me give you some context first on the importance of Readiness. Over the past several years, we challenged each of our business units to be the very best in their respective industries.
And they did precisely that, setting the VARA for performance, which is one of the reasons for our success this year. Now through Readiness, we are taking industry leading practices backed by robust processes, and using them across ADM. So we're not just the best in our individual industries, but the very best company. Readiness is not a cost cutting program and it's not just about operational efficiencies. It's about changing the way we work.
And as a result, further in unleashing our team to deliver revenue growth and margin improvement. More efficient and effective project execution, ongoing sustainable cost savings, and industry leading support to our customers. With Readiness, we're standardizing, centralizing and digitizing how we do business on an enterprise wide level. And we're improving our execution capabilities across the company. We've reached an exciting point in our Readiness efforts.
We moved quickly through the first two phases of Readiness. We started with top down diligence of the overall value potential, And then we ask colleagues to help plan and identify specific initiatives that would meet our goals. Now we are moving into implementation. More than 2000 employees across the company have identified more than 2500 specific initiatives and that number continues to grow. Build on our success.
We are centralizing more activities into Global Business Centers, expanding manufacturing excellence across the enterprise. Moving to the next level service while delivering a superior customer experience. And we're advancing and embracing digital technologies. Like our recent announcements with our with other industry players. Some initiatives will take time to implement while other smaller initiatives are getting underway, opening opportunities for significant value creation and helping to support businesses that are facing headwinds in 2018.
To accelerate and sustain results, we are training all 31,000 of our colleagues around the world through a program called ability to execute. Which will help guide fundamental behavioral change in how we do our work everyday. As we move into the implementation phase of Readiness, we believe we will be able to generate more than $1,000,000,000 of run rate benefits by the end of year 2 or roughly double the rate of operational excellence improvements that we have been achieving over the past few years. In addition to run rate benefits, some readiness initiatives will also contribute towards one time benefits in capital spending and working capital. As I mentioned before, Readiness is about lasting sustainable change it is how we will do our work now.
So the benefits will continue to grow beyond the year 2. They will ramp up over time in conjunction with the cadence of execution, and some will be used to offset inflation and market factors. But a significant portion will fall to the bottom line. It's an exciting time at ADM. Our team has shown you can pull the right levers to deliver strong growth and earnings, and they are fully engaged in taking ABM to the next level.
Between growth and Readiness and with a global demand outlook that remains robust, we expect 2019 to be an even stronger year for ADM.
Certainly. Your first question comes from the line of David Driscoll with Citi Research. Your line is open.
Good morning. This is actually Cornell Burnett in with a few questions for David.
Good morning. Good morning, Cornell.
First question was just kind of going back to something that you said in the press release when you indicated that you expect good momentum to continue in at the end of 2018, but also that you expect better earnings and returns in 2019. I just wanted to be clear, is that you guys basically expressing your confidence that in 2019, we do have all of the pieces in place such that we can EPS grow over what we've done this year?
Yes, Cornell. We do believe so. We believe clearly that 2019, we were we can grow earnings versus 2018. Demand continues to be robust across our businesses, we have a lot of momentum in margins in some of our businesses. And we feel excited about both, both axis of growth of earnings that I described, the strategic growth that we have invested in over the last couple of years.
We have several acquisitions that we're going to have been accretive in 2019 that we didn't have in 2018. We have several projects coming into operations that we're going to have in 2019 that we didn't have in 2018. And we're going to have the benefits of Readiness. That actually will start being accretive, as I described, with about $1,000,000,000 run rate savings by the of the year too, but they're going to be growing in 2019 as well. The other issue that, you shouldn't underestimate is in 2018, not everything went our way as well.
We have issues in the Golden Peanut business that we haven't had in the past. And we are planning to correct those issues for 2019. We have issues in whether it's indicator reliability on elising that are issues that we're going to put behind at the end of Q4. So we're going to have several things that actually were headwinds in 20 18 that will not be there in 2019. So between those things that we're going to fix, but the growth initiatives that are coming to being accretive in 2019 plus Readiness, we feel strongly about in 2019 being better than 2018.
Okay. And just a follow-up maybe on the oilseed crushing side. Just wondering what's your visibility into maybe kind of the crush market environment in the first half, particularly in the first half of next year. And is it safe for us to assume that you've been able to go in and lock in a good portion of your question in Qs 1 and maybe even in Qs 2?
Yes, Cornell. I mean, normally in our hedging programs, we would go out several quarters. So it is fair to say that we do have some portion of the early part of 2019 already hedged. I think it's important to understand also like, I know people are looking at crush margins right now. They're bouncing around a little bit.
It's actually quite bold disjuncture. When we look outside into the future, we're actually seeing continued solid demand for soybean meal. Mean, global demand for soybean meal is probably going to be running at 4% to 4.5%. And so I know there's a little bit of noise right now in terms of crush margins a lot of it driven by the rumors regarding U. S.
And China. But we always look at underlying supply demand. And so from our perspective, we actually believe it's a very healthy demand environment for soybean meal. And also demand for oil remains robust, particularly in the biodiesel side. We actually feel good about where crush margins are heading in the future.
Will it be at the same average level of 2018, maybe not, but it doesn't mean that it's going to drop dramatically. So we believe that we're in a period whereby crush margins, soy crush margins are going to remain healthy. And then with what Juan mentioned in terms of all the different initiatives that we're driving in oilseeds, particularly the acquisitions that we're doing, including Algar, the readiness initiatives, the improvement in Brazil, I mean, the Brazilian freight situation clearly had an impact on a lot of the merchandisers in Brazil, that's going to get behind us at the end of the year. So we feel good about where oilseeds is heading in 2019. And adds to, again, the confidence that Juan had expressed regarding year over year earnings growth.
And then lastly, I guess on the sourcing side, it seemed like you made some comments that softseed crushing the results kind of picked up and strengthened a bit in the quarter. So just wondering kind of what's driving maybe some of the improvement on the softseed side? And is that an area where in 2019 you think you could see better results?
Clearly, the short soybean crop in Argentina resulted in less meal heading to export markets, including over the year. Hence our softseed crushing operations in Europe benefit from a combination of less, less supply out of South America, also just good solid demand, particularly on the biodiesel side. And so that now contributed towards really some very healthy margins that we've seen in the European crush environment.
All right. Thanks a lot. With that, I'll pass it along.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Just wondering maybe 2 things. 1, if you could, to the extent you can right now, give us a little bit more modeling help on Readiness for this year, I'm sorry, for next year, and maybe the year after, just in terms of how we should be ascribing into different line items, and just sort of the pace of that run rate. So maybe we could just start there.
So again, as Juan indicated, we talked about $1,000,000,000 run rate savings at the end of year 2. So that means end of 20 20. So that's a run rate there. It's going to build up over time. It's not a linear progression towards 2020.
And also part of it, it's going to be used to offset inflation. We do have inflation in our business. So part of the benefits will offset inflation and some market factors. And so I think how you should be thinking about it, it's a gradual ramp up, 'nineteen, you're clearly going to have benefits in 'nineteen. But by 2020, you'll get towards the run rate.
It's also important to note that it doesn't stop by 2020. Readiness continues. And so while we've kind of indicated a $1,000,000,000 end of 2020, when you get to 2021, 2022, there's going to be also incremental benefits associate with Readiness.
I think, Vincent, you need to, ramp it up. Think about the process. So we're training our 31,000 colleagues now, we have the initiatives. About half of the initiatives don't require much in terms of either CapEx or IT resources or new people. So, we can start tackling and we can ramp up during 2019.
Some of them require a little bit more capital, a little bit more IT and processes and maybe more into 2020. So I would say soft in the first half, accelerating in the second half and then a bulk of that in 2020. Okay.
And just as a follow-up, could you sort of discuss the farmer selling environment in both the U. S. And Brazil in particular?
Yes, I would say in the U. S. Recently, there's been a little bit of slowdown over the last couple of weeks in farmer selling. It has been more, obviously, the farmer keeping their soybeans thinking about potential resolution of the trade dispute and whether that good top North American soybeans in Brazil, it's been a little bit more driven by more than currency and numbers by the freight tables and the uncertainty that I generated I think with the recent results in the election, there's going to be much more optimism that the freight table will probably be corrected or eliminated at beginning of the year. So maybe that changed a little bit, but that has been the biggest factor there.
Your next question comes from the line of Heather Jones with Vertical Group. Your line is open.
Good morning, Chris. Thank you. Thank you, Heather.
A couple of questions. I guess I wanted to start first with Q4. So if I heard correctly, you're expecting origination to be down year on year carbohydrates down, oil seeds up strongly and nutrition in line. But if I remember correctly, Q4 2017, there was about a $80,000,000 benefit in merchant handling, but it was essentially like an inter companies transfer. So I would think we would get some of that back on the other line this Q4.
So I guess I'm trying to get a sense of the for the your view consolidated for Q4, do you think the improvement adjusting for that intercompany thing, do you think the improvement in oilseeds year on year is going to be enough to offset the reduction in carbohydrates and origination?
So, Heather, let me see if I can if I build that picture for you. So, in Q4, in origination, certainly, we're not going to have the China demand pool, the rest of the world will be coming to us, particularly for corn. So we still expect destination marketing to offset some of the ports that we have lost with China. And we have already, if you will, almost 70% of that book with all we already know the volume and the margins. So I would say origination without those $80,000,000 would probably be line with last year.
So I think that the team has done a good job of offsetting some of the China impact in the business. All seats, as you mentioned, and we mentioned before, I expect it to be very, very strong and much improved versus last year. Healthy crush margins and volumes that, that will continue. Carbohydrates Solutions the issue is starches and sweeteners are continued to be very solid. The issue and milling.
The issue continues to be at all. And recently, we have seen people taking some capacity down or but probably still not enough because obviously we're getting into the low end of the season from a driving perspective. And nutrition results, although we're still going to have some impact of lysine on the Q4, they're going to be the be stronger. So we feel we're going to cap a very, very strong year for ADM with a very good quarter for us.
And Heather, just on your question on your question on other. Yes, last year, we had a big negative on other because of the insurance payment. So this year, we're not going to expect that have a big negative in other.
Okay. That's my thought. Now moving to 2019. So I mean, listening to if I go back and look at the commentary on Decatur earlier in the year and then clearly, I don't remember the last time I heard y'all talk about Peanut it must be a big issue. With that and what's going on with lysine, am I wrong in thinking those are sizable tailwinds assuming they're resolved, sizable tailwinds going into 'nineteen?
Yes, that's what I explained to Cornell question before. The peanut was a combination of difficult merchandising situation in North America, but we also lost pretty much the peanut crop in Argentina that produced a loss in Argentina that we normally don't have. So that was a loss due to the dry weather in Argentina. So So peanut was a very strange situation that normally will not happen to us. As I said, you never heard about peanut before.
Then the Decatur plant is a plant that, listen, based on the integration of that plant the great cost position. It's a plan that we normally run very, very aggressively. And we're getting into some mechanical reliability issues over the summer, especially with the cooling tower, that has impacted that facility. It's a very integrated facility as you can imagine from a corn wet mill that we produce more than 20 and that feeds the bio products facility where we produce some of our specialties. So that goes into life seen that goes into some of the polyols that or hydrocolloid that we have in nutrition.
So, all the units are very intertwined. So you see the impact over spilling a little bit in nutrition. And that's what nutrition being a smaller division, it was hit the heart this quarter just because, so, you know, in sweetener, in searches and sweeteners, we have larger volumes. We can absorb that a little bit better. So, but those issues, you know, we are diligently addressing them.
We have seen some improvement already in October So, we foresee that all those issues will be behind us. And hopefully, we don't pick up new ones in 2019.
And if I think about origination in 2019, and let's just assume there's no resolution to the U. S.-China issue, However, there clearly were numerous issues around the globe with wheat crops. And I would it seems intuitive that wheat export demand would wheat export demand would be good in 2019, but just Can you give us a sense of how 2019 is shaping up in your mind for the origination business, even if there is no help on the China side?
Yes, Heather. So a couple of things here in origination that you have to think about. First of all, we are utilizing very much our storage. We have tenants for every stories that we have and we have good ownership position. So we're going to continue to get carries as basis appreciate.
We're certainly going to have a if, you know, in the premise that China disputes are not resolved, we're going to have an ability to export a lot from the U. S. As our products will be very competitive. Destination marketing continues to do very well, open up new markets for us. So we can offset the decline in China exports.
And although we don't offset it 1 per 1, but we the team has done a very good job of that. Global trade will continue to match this, origins with destination. As you said, with the bad weather in Australia and the bad weather in Europe, wheat in the U. S. Will become competitive and we will see growth in that we didn't have, particularly this year.
This year, obviously, we have dropped in soy exports and wheat and we have an increase in corn. So we expect some of that to change for next year. And then we have some of the businesses that have been growing a steady in our business, in our origination business, whether it's a fertilizer business, transportation, doing very strong and also the stevidoring business that continue to provide solid year over year growth. So overall, we feel strongly about how origination is positioning itself. And now, you know, ADM with other key players in the it has taken the lead on bringing digital into the relationship with the farmer.
And it's not only the benefit in the relationship with the farmer and our sales and purchases to the farmer, but also in the cost that can, that can alleviate to us. These are a lot of manual work, there's a lot of paperwork, a lot of waste very antiquated technology. And we think that there is an advantage there to get into blockchain or or new digital. So we feel very good about the origination for 2019 actually.
Welcome.
Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is open.
I might not have caught it, but are there any mark to market, benefits in 3rd quarter in crushing And if so, does it kind of roll over into 4th quarter and make 4th quarter a little tougher? And then I guess what I'm also asking about fourth quarter for crushing and origination is, obviously, it's going to be a lot better than next last year, but is it sequentially improving also or is it kind of, I mean, I kind of have it flattish, versus third for crushing and origination?
Hey, Rob. It's Ray here. So normally in these calls, we would outline any timing effects specifically if it's over $50,000,000, we've been very consistent about that. So we didn't outline any timing effects on this call. What's happened this year, Rob, is that we did enact a new cash flow hedge program for U.
S. Soybean crush. We started the beginning of the year, we phased it in with the new hedges. So it actually allows us to actually start deferring a lot of these mark to market impacts on so being crushed that really causes a little bit of volatility in our quarterly results. And so we started the program in the beginning of the year.
We phased it in And so in this quarter, what's interesting is we did have some favorable some reversals from the prior quarters. So there was a positive impact there. There were some positive impact related to timing effects on the hedges that didn't qualify for cash flow hedge accounting. We also had negative timing effects related to the cash positions that are not eligible for this type of deferral. So on balance, Rob, on balance, we actually had a slight negative timing effect for the quarter.
And that will add towards the cumulative negative effects that we had to end of the 2nd quarter. And so we are carrying into the 4th quarter and into the new year. Negative timing effects that will reverse out as we move through frankly the next three quarters.
Well, complicated answer, but at the end of the day, it's a slight negative, not a positive in 3rd quarter.
The way I kind of look at it, it's a clean quarter that we had in the 3rd quarter results.
Yes. And so just sequentially, just in terms of the volume you crush maybe in fourth quarter. Is the volume higher than in 3rd? And therefore, we should expect 4th quarter to be a even better than 3rd?
No, normally that's the case, Rob, right. And with the harvest, normally the 4th quarter crushing volumes would be higher than the 3rd quarter crushing volume Although I just remind you, we had exceptional 3rd quarter crushing volumes, right, just because of strong global demand. So the delta from 3rd quarter fourth quarter in terms of increased volumes. This year will be less than the normal, normal patterns just because of the strong third quarter.
Okay. And then the spot margins are kind of moving a little bit lower, but may or may not accurately reflect what's happening? Is that what you're saying?
Yes, and don't forget, we had we had a lot of hedged already, too, right. Right.
Okay. Okay. And then a follow-up question. You mentioned as part of Readiness that a lot of processes have been standardized and centralized And I think it's kind of hard for the street to get a sense of what that means. So can you give us a couple of examples of of processes that, that have gone through that and how it impacts your bottom line?
Yes, sure. So when we designed the company, you can replicate the company in about 12 global processes. Process is like, for example, prospect to cash is the process from when you get to prospect being a customer all the way you convert it to customer and you get it to the final cash. And basically, what we do with that is we analyze the process. We look at the number of steps.
And then we optimize the process to try to determine how many steps can we reduce or simplify your standard And basically, what that does is 2 things is eliminate errors, eliminate waste or low value work and basically free up people to be out in the street selling more or actually growing the company with the same amount of people. So if you think about our company, about 60 something $1,000,000,000 with 31,000 people, I think that constantly looking at that and the productivity of our employees is how can we continue to grow and handle more complexity and more variety with the same number of people, if you will. And that's what we're trying to do. And that's what we're and redeploy them as we grow and as we achieve more efficiencies. So this is happening across the company.
Got it. Thank you. You're welcome.
Your next question comes from the line of Ann Duignan with JP Morgan. Your line is open.
Yes, a lot of my specific questions have been answered, but maybe one, just looking into 2019, I mean, if we look at states like North Dakota and South Dakota, between them, they planted about 12,000,000 acres of beans this year. About 60% to 70% of those beans were exported probably mostly to China. What's your company's thoughts on what happens in these states next year? And how much incremental corn could we see or weak or other crops could we see being planted next spring and What might the ramifications of all of that be on ADM's business as we go through 2019? And assuming that the car stay in place and we get a big swing out of beans in the Midwest.
But first of all, I think it's still too early to speculate what the planning intentions will be of the farmers in 2019. I think when you read a lot of the analyst reports from economic research, it would suggest that you're going to be down on being acreage and up on corn acreage, right? And so, and also up on wheat acreage. Now, so on balance, the amount planted will probably be very, very similar, just the mix will be a little bit different. Now how much lower in terms of soybean plantings compared to this year?
That's to be determined. I mean, I think there's a lot of factors that will play frankly, over the next several quarters, before we get towards a number. But I think the implications for ADM is, like, there's still going to be strong demand for U. S. Products.
I mean, even if you take a scenario that U. S.-China trade tensions continue, the rest of the world is actually coming to United States for its products. And we anticipate that will continue in 2019 here. So as Juan indicated, our outlook for origination in 2019 remains very robust, based upon strong global demand and based upon the actions were taken and based upon the growth of our global trade business, destination marketing based business, EBITDAR and all the other businesses there.
I think, Ann also, as Ray said, I mean, it's almost it's impossible to forecast changes in policies So what we work very heavily is in to get our team being very agile and very well connected between global trade and the processing businesses and also to keep our asset base very flexible. This business is look stable, but under the water, there is a lot rationalization and optimization of elevator and interior houses in our origination business as we make some of these, some of these scenario planning you will. So, so I think that the team has done very well of adjusting to all these conditions in in very volatile ears and difficult ears. So, so we have just continued to be very close to our customers, our farmers continue to have our operations very flexible to be able to react to that quickly.
But you didn't call out during the commentary that you had lower elevator margins in Q3. Could you just expand on that and what is the outlook for elevator margins going into 18, assuming all things remain as is?
I would say going into Q4, we have seen a compression of the cease to fall spread, of course, as we have less exports from China. Going into, in 2019, we feel good about the ability of the U. S. To export corn, soybeans are going to be very cheap continue to be in the U. S.
And wheat could come into play, as we said before, due to the low productions of Australia and Europe. So I think in general, we feel good. It's just, sometimes, we would like that, that pop in Q4 that at this point, maybe we're not going to have.
Okay. Helpful to get the color. And then just a quick follow-up on European soft seed. I mean, given the drug conditions over there and the lack of feed for life stock from things like grass and hay. Would you anticipate maybe soft seed margins in Europe being stronger next year, year over year, just until we get through
should continue being strong over in Europe as we go into 2019. And again, a lot is driven by good biodiesel demand. And, and just with oil values that we're seeing in that part of the world.
But more on the oil side, not meal side?
Well, the meal side is also a contributing factor, but we've seen some strength on the oil side as well.
Okay. I'll take it offline. I appreciate the color.
Your next question comes from the line of Eric Larson with Buckingham Research. Your line is open.
Yes, good morning, everyone. Nice quarter. Let me just switch gears a little bit here. And I'd like to give a little more flavor on the Wild And Nutrition business. Right now, that business is about a $400,000,000 OP business.
And, I think the visibility for that to be $1,000,000,000 of OP in the next, let's just say, several years for lack of a better word, let's say 2 to 3 years. Is really high. Could you talk a little bit more about that one? You've got a couple of new plants there, one in Brazil that just coming online. They haven't generated a return yet, but it's a very high return business.
And I think the visibility for that $1,000,000,000 OP and WILD is actually quite high. And I'm not sure that, that point has come across well here this morning.
Yes, thank you, Eric, for the question. You know, I touched it a little bit on my remarks. I mean, we are very excited about it and If you look at our trajectory, when we started with wild flavors, we started the business of nutrition, if you will, with some special is that the basic processing businesses were expanding into. So the oilseed business is expanded into specialty proteins. The the, carbohydrates of the corn business expanded into polyols and into fibers like a fiber sole And we needed to be able to provide a better solutions for our customers.
And needed to be able to formulate those solutions that way we get into flavors. While flavors was spectacular story, wealth labor's profit in 2014 were $78,000,000 before we took it over. And this year, they're going to be around 107 So I mean, so it certainly has been, more than 20% compounded annual growth rates in profitability in those. But when we started to, to get to the revenue synergies with wild flavor and specialty ingredients, But we can see now how, that portfolio is resonating with our customers. We've been saying for the last 2 or 3 quarters, 2 or 3 quarters, our portfolio is very successful with our customers.
And we see now revenue growth of around 10% for WFSR. Which is the combination of those, the formulation of all that flavor with the special ingredients and operating profit growth of 30% year, more than 30% year over year. And if you take that nutrition team with that WFSI, And you think about adding into that the oils portfolio, we have, the starches, we have, the sweeteners, we have, the acidulants and the flowers, we have there isn't any other company out there with such a broad portfolio on technical expertise. And that's the interesting discussion that happened at the customer base. So we have all that, which is about $2,500,000,000 revenue, if you will, at this point in time, but growing aggressively at about that 10%.
Then we're going to do the same with animal nutrition with the neovia. Neovia is another wild flavor, if you will, for this. That's about $3,500,000,000. And then we have, we have all the area of health and wellness and the person as nutrition with protecting biopylies and all that in CPN. So we have those 3 main axis and we see our way into delivering what you just Drive getting into maybe a $1,000,000,000 over the next few years.
So, it's just it takes a while like it happened with Wilde, you go into profitability improvement, then you develop the revenue synergies. The same is going to happen with the animal nutrition. But it's been very successful so far and we plan to replicate that model into animal nutrition. And at the in the meantime, we're building our health and wellness and Alliance Nutrition Portfolio. So all very good, all very affordable, all within the financial discipline of our returns.
And the cadence If you look at what we have done, in order to assure execution, we've done wild flavors in October 20 team, and we didn't do Neovia until 2018 until we make sure that we have proven that model we make in the money and the business is working. So now we are ready to move to Neovia and we're going to continue with that discipline at that cadence to guarantee, to the shareholder that we are investing wisely.
Okay, good. Thank you. One quick follow-up question here. And it's on the oilseed market, particularly to U. S.
Soybeans. Obviously, we know where the pricing is. I also have looked at this and we've probably got the widest basis on soybeans that I've ever seen. You can go by soybeans, a dollar under board. Your cash prices are a dollar plus consistently over the last 2, 3, 4 months, below board.
So we have the cheapest soybeans in the world. We're trading, we're trading 25 percent even a little bit more below Brazilian prices. And I can't understand, I think China has to come in and buy beans sometime in December January, despite all the rhetoric that they've found new sources for this and that. But I tend to take a little bit more bullish outlook on soybeans on U. S.
Soybean market here, but maybe I'm have some irrational exuberance here. Could you help me out with that thought process, Juan?
Yeah, I would say, we can get into the same thinking. The reality is that, the window is getting shorter and China is finding ways not to use U. S. Beans. There is also early planting in Mato Grosso in Brazil.
It could lead to early harvest. So, and maybe China will holding to buying beans until they can, they can overlap with Brazil. So I think that we have that upside potential beans into the from the U. S. In Q4, early Q1.
But on the other hand, it may not happen. So Again, early harvest in Brazil could make them able to not to touch a USB Listen, we're going into Q4, with a strong momentum. It's just that so fundamentally Q4 is going to be a strong Q4. It's just that a lot of things could happen with either basis or mark to market that could make some profits go into Q4 or Q1. That is difficult to forecast.
What we know is our operating rates are strong. We have a lot of our books already locked, as I've said, even with the export in our origination business. So we're going with a strong momentum into Q4. We don't foresee any strange things into Q4. It's just that some of the mark to market and the end of the year movement could be that some of the profits end up in Q4 or some of the profit end up in Q1.
That doesn't change the fundamental nature of our solid businesses at this point in time.
Your next question comes from the line of Ken Zaslow with Bank of America Montreal. Your line is open.
Good morning everyone.
Good morning, Ken.
Good morning, Ken. Just a couple of, tidbit questions. One is, when you think about 2019, which divisions do you think will show the greatest growth and which ones will be the greatest stability? Are you looking for a rebound in ethanol? Just kind of some parameters to that.
My second question is, does that, does your divisional outlook reflect or would change If China does get resolved or not, is it one way better than the other? Can you just frame those 2 kind of questions? And I just have a quick follow-up.
Sure. I would say the division that will grow the most in 2019 versus 2018 will be nutrition. Nutrition will have the biggest jump that they ever had in percentage basis. So, if and all could be an upside, of course, this year was pretty bad in ethanol. And we expect that next year, there are a couple of things at ethanol that it could make you more optimistic.
One is the fact that the price is so low of ethanol that I think as an oxygenate or as an octane booster, it could find their way into more gasoline producing countries, if you will, And the second is that we may not have as many expansions or the bottlenecks to absorb next year. And this was part of the issue this year. But I would say Nutrition will be the biggest business. In terms of the second part of the question was about
China, which
What about China? Yeah, I would say, I would say, listen, for companies like us that are trying to match origin with the innations, having the most optionality is the best. So, I think in the long term, having those issues solved and having free trade around the world is the best. The same for the farmer, if you are producing, you want the most optionality to place your production everywhere. So I would say, no doubt that from a long term perspective, we want the resolution to that.
Okay. And there's a lot of discussion about potential assets coming to sale over the next 6 to 12 months as a company under review. Would you be willing to participate in the consolidation agribusiness? You haven't really mentioned it. There was probably 3 or 4 calls ago.
You guys were a little bit more more discussed in a little bit more. Can you talk about where you're positioning now? Would you be willing to participate in consolidation? And I'll leave it there.
Listen, we like our strategy and we are implementing that and we've been very transparent on that. Of course, we look at every option and we always review our standalone plan. So, we normally look at that. We are participating in the consolidation. You see our acquisition of Algar, our joint venture in Egypt.
So We're going to look at every deal on their own merits. We're going to keep our returns objective. We're going to keep our strong value creation mindset. And if something makes sense, we may look at that. At this point in time, our strategy is clear and I think we've been articulating it and we continue to execute that and grow earnings and returns.
So we're very pleased with that so far.
Thanks a lot.
Your final question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
Yes, thanks. Good morning, everyone.
Good morning, Adam. Good morning, Adam.
A lot of ground's been covered. I'll try to keep the 3 just on the Readiness program, the $1,000,000,000 of savings in 2 years. And I think there was an illusion to there being some in place offset this, do you have a net savings target that you're willing to share at this point? Or how much do we think about the conversion from gross to net savings? Similarly, your productivity programs in the past, there's been gross numbers.
I just want to make sure we're all reasonably calibrated on that point.
Listen, Adam, no, we don't have a precise number like that. I understand they need to create the model our focus, of course, is to keep making the company better. So, we know, and we know that 2500 initiatives there has a lot of, has a lot of meat and a lot of profits that will come to the stream. Exactly how they're going to come. We're going to get more proficient in that as we start executing.
At this point in time, we are prioritizing all those 2500 initiatives. We know because we have committed with you that we wanted to come at this meeting with with an idea of the bulk of it. How much are we going to pull through to the P and L at this point in time? A little bit premature for us to give more guidance on the one that we have provided already.
Okay, that's helpful. And then just quickly, the corporate expense this year. It's up a pretty decent amount. I think there was some readiness program costs and expenses in there, some of the ERP stuff as well as you talked about effective competition given the performance this year. Is there any reasonable expectation that you could provide on 2019 corporate at this point?
I mean, I think the run rates that we're seeing right now, probably a little higher than where we're going to end up but it's not going to be totally, out of line kind of where what we're running for the group, maybe it's just slightly lower on a run rate basis.
Okay. I appreciate the time. Thank you.
There are no further questions at this time. I would now like to turn the call back over to our presenters.
Thank you, Jack, and thank you, everybody, for joining us today. Slide 15 now some of the upcoming investor events where we will be participating. As always, please feel free to follow-up with Victoria. If you have any other questions and have a good day and thanks for your interest in ADN.
This concludes the Archer Daniels Midland Company Third Quarter 2018 Earnings Conference Call.