Good morning, and welcome to the Archer Daniels Midland Company 4th Quarter 2016 Earnings Conference Call. All lines 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 introduce your host for today's call, Mark Schweiser, Vice President, Investor Relations for Archer Daniels Midland Company. Mr.
Schweitzer, you may begin.
Thank you, Lindsey. 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, and company performance 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 in our SEC reports. To the extent permitted under applicable law, ADM assumes no obligation to update any forward looking statements as a result of new information or future events. On today's 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.
Then Juan will review the drivers of our performance in the quarter, provide an update and discuss our forward look. And finally, they will take your questions. Please turn to Slide 3.
Thank you all for joining us today. This morning, we reported 4th quarter adjusted earnings per share of $0.75. Our adjusted segment operating profit was $827,000,000. We capitalized on an improved environment delivering stronger 4th quarter performance after working through difficult market conditions earlier in the year. Ag Services saw strong results in North America and weak results from the global trade desk.
The corn business delivered a good quarter led by sweeteners and starches and saw solid results from Bio Products. Oilseeds results were comparable to last year despite lower global crush margins. In WFSI, wild flavors continued to deliver earnings growth, while some of our Specialty Ingredients businesses faced challenges, which we are addressing. We have continued to take important steps to advance our strategic plan by completing additional acquisitions. Organic growth projects and portfolio management actions, exceeding our 2016 target for run rate cost savings, and progressing in our efforts to reduce capital intensity.
In line with our balanced capital allocation framework, we returned $1,700,000,000 to shareholders in dividends and share buybacks during the year. With expected improvements across all of our businesses throughout the year and additional contributions from recent projects and new facilities as they ramp up, We are optimistic about improving results throughout 2017. With these expectations in mind, the board has approved an increase to our quarterly dividend rate of approximately 7 percent to $0.32 per share. I'll provide more detail on our results later in the call. Now I'll turn the call over to Ray.
Thanks, Juan. Slide 4 provides some financial highlights for the quarter. Adjusted EPS for the quarter was $0.75 up from the $0.65 last year. Excluding specified items, adjusted operating profit was 827,000,000 up $194,000,000 from the year ago quarter. The effective tax rate for the fourth quarter was 32%.
Compared to negative 2% in the fourth quarter of the prior year. Our tax rate is significantly higher this 4th quarter compared to last year due to the geographic mix of earnings, as well as approximately $18,000,000 of discrete tax expenses in 2016 compared to approximately $100,000,000 of discrete tax benefits in 2015, which were a result of portfolio management actions taken in the year ago quarter. This 4th quarter also includes $18,000,000 of additional tax expense related to curing up the 1st 3 quarters of the year to the final year end 2016 effective rate. This true up had a negative impact on both reported and adjusted EPS in Our trailing 4 quarter average ROIC of 5.9 percent is down by 150 basis points from the 7.4% at the end of the fourth quarter last year. The adjusted ROIC is below our 6.6 percent annual WACC for 2016.
Our ROIC has started to improve following the challenging offering conditions that we experienced during the latter part of 2015 and the first half of twenty sixteen. On Chart 18 in the appendix, you can see the reconciliation of a reported quarterly earnings of $0.73 to the adjusted earnings of $0.75 per share. For this quarter, we had per share OPEB curtailment gain in corporate. And certain discrete tax expense is not related to the current year earnings of $0.03 per share. Including valuation allowances on summer in the components of our corporate line.
Before Juan discusses the offering results, I'd like to highlight some of the unique items impacting our quarterly results. In all four businesses, we had some small charges related to impairments and restructurings. In the corporate lines, net interest expense was up modestly due to higher interest rates on short term debt and the issuance Unallocated corporate costs of $132,000,000 were up versus the prior year and slightly higher than the run rate for previous quarters primarily due to an approximately or reduction to our income tax expense for the quarter. Minority interest and other includes a $38,000,000 OPEB curtailment gain related to changes to the U. S.
Tiree Medical Program. Turning to the cash flow statement on Slide 6, we generated $2,100,000,000 from operations before working capital changes during the period down from the prior year's $1,100,000,000 and consistent with our guidance last quarter that CapEx for the year would be below $1,000,000,000. Acquisitions of $130,000,000 in 2016 include harvest innovations, our Moroccan core corn processing facility, the Med Soft Joint Venture And Catarina Foods. The other investing activities line with cash flow statement includes the incremental investments we made in Wilmar less proceeds from divestitures and asset sales, such as our Brazil and sugar ethanol operation. The proceeds from our sale of the Grain Corp shares are reflected in the marketable securities line.
During the year, we spent about $1,000,000,000 repurchase shares consistent with our prior guidance. Our average share count for the year was 591,000,000 diluted shares outstanding down $30,000,000 from this time 1 year ago. At the end of the year, we had 581,000,000 shares outstanding on a fully diluted basis, Our total return of capital to shareholders including dividends was $1,700,000,000 for the year. Slide 7 shows the highlights of our balance sheet as of December 31, 2016 2015. Our balance sheet remains strong.
Our offering working capital of $7,400,000,000 was up slightly from the year ago period. Total debt was about $6,900,000,000 resulting in a net debt balance that is debt less cash of $6,000,000,000. Our leverage position remains comfortable with a net debt to total capital ratio of about 26%. Our shareholders' equity of $17,200,000,000 was down slightly from the $17,900,000,000 level last year due to returns of capital and changes in the Fumelift Translation account. We had $5,800,000,000 in available global credit capacity at the end of December.
If you had available cash, we had access to $6,700,000,000 comment on some of the key corporate assumptions for 2017. We expect net interest expense to average about $80,000,000 per quarter due to slightly higher interest rates. An allocated corporate cost should average about $140,000,000 per quarter as we invest more in R and D innovation and business transformation. We expect our tax rate to be between 27% 29% consistent with our normalized rates in recent years. Share repurchases should be in a range of $1,000,000,000 to 1 point 5 subject to strategic capital requirements, which means the $565,000,000 $570,000,000 shares.
And we're planning capital spending to be in the range of $1,000,000,000 to $1,200,000,000. Next one will take us through a review of business performance. Thanks, Ray. Please turn to Slide 8.
In the fourth quarter, we earned $827,000,000 of operating profit, excluding specified items. Up from $633,000,000 in the last year's fourth quarter. On the 3rd quarter earnings call, We talked about how some of the challenging conditions we saw in the first half of twenty sixteen had begun to subside. That trend continued in the fourth quarter, and we saw the benefits of our actions we have been taking to improve operational performance in certain parts of the business. As a result, 4th quarter adjusted segment operating profit was up over 30% versus the year ago quarter.
Looking at our full year results, our adjusted segment operating profit is down just over 10% from 2015. Therefore, when we look at our trend compared to 2015, we have seen our results improve throughout the year due to a combination of market conditions and the benefits of our actions. Now I will review the performance of each segment. Starting on Slide 9, Ag Services results were up year over year as the business continued to benefit from the competitiveness of U. S.
Crops. Merchandising and handling results were up over the prior year quarter. The North American team capitalized on strong global demand for U. S. Commodities in an improved margin environment.
Our global trade desk reported a loss for the and the strength of our integrated transportation model in a challenging margin environment where North American freight rates were low. Milling and Other had another strong quarter driven by solid product margins, including with merchandising and handling income, and sales volume. As previously mentioned, the global trade desk had a disappointing quarter and we are introducing a vigorous series of additional actions to improve the results of our international merchandising. We created the global Trade Desk in 2015 to better align our international merchandising and help drive higher merchandised volumes and we saw a solid 2015 as a result. Since then, we have seen some changes in the marketplace that required us to adjust our approach.
In late 2016, we exited energy trading consolidated in certain regions and made some personal changes as well. We believe this will lead to a strong and focused operation that will yield improved results as we move through 2017. Please turn to Slide 10. Corn processing again showed strong results. The sweeteners and the starches team turned in a strong performance, with results up as the group cap off an exceptionally strong year for the business.
Growth in volumes both in North America and Internationally ongoing production efficiency improvements and lower raw material costs, all contributed to good margins for the quarter. Our actions to expand the corn business's global footprint are continuing to show results The former East storage assets that we acquired in Central And Eastern Europe were strong contributors. We are continuing to expand geographically. This quarter, we announced significant expansions at our facilities in Turkey and Bulgaria. The Bio Products team also ended the year strong, up significantly over the year ago quarter, due to production efficiency improvements, strong domestic and export ethanol demand that drove volumes and solid margins through most of the quarter.
Animal Nutrition posted improved results in part due to operational improvements in the company's lease lysine production processes, which were implemented primarily in the first half of twenty sixteen. Slide 11 please. Oilseeds results were relatively weak for the 4th quarter. Which is typically one of the strongest quarters of the year. Our crushing and origination results declined from the year ago quarter.
While global soybean crush margins were more stable throughout the fourth quarter of 2016 compared to 2015, We continue to see ample supplies of alternative proteins competing with soybean meal in the global market. Keeping margins constrained despite a relatively healthy global demand environment. In Brazil, we continued to deal with the short crop, limiting volume flowing through our assets as well as margins. Farmers were less aggressive selling their new crop soybeans, which resulted in lower new crop ownership versus last year. Subsea's performance improved due to higher volumes and margins, driven by more favorable seed supply and better demand for oil as well as utilization of our flex capacity.
Refining, packaging, biodiesel and other results were comparable to the year ago quarter. However, it's important to note that the prior year quarter includes $34,000,000 in Blenders tax credit attributable to previous 2015 quarters. Biodiesel demand was strong globally. Particularly towards the end of the quarter and margins were healthy ahead of the expiration of the blender's credit at the end of the year. Results in Asia from Wilmar, which recovered well from its 2nd fiscal quarter loss.
On Slide 12, WFSI results were down for the quarter. The wild flavors team turning a solid quarter. Strong earnings growth in North America, Asia Pacific, EMEA, and from Teton Foods offset weaknesses from the Latin American business. Results from Specialty Ingredients continued to be weak. We saw ongoing mark softness in hydro colloids and fibroids.
We were dealing with the effect of a short crop in edible beans and we continue to address operational challenges in the Specialty Commodities business. When I look at the 2nd full year of our WFSI business, I continue to see encouraging progress as we are building this new integrated platform. We have been very pleased with the performance from the WildSlables business during 2016, with revenue growing around 9% on forex adjusted basis, and with operating profit growing more than 20% versus 2015, resulting in another record year in profitability. Our specialty proteins and polyols groups were solid contributors to the business as well. We saw some weaknesses in a few of our businesses for the year, weaker demand for fibers and hydrocolloids, lower results in our edible beans business and disappointing performance in our SCI business.
And we did have some significant startup costs related to the Campo Grand, the TMG5 result and omega-three project this year. That also impacted earnings. On our last call, we discussed our plans to reorganize SDI into other areas of the company. Since then, we have moved aggressively to advance those plans. The products we gained with the SCI acquisition represent important additions to our portfolio.
And as we said last quarter, We believe these realignments will result in a business that is more effective at meeting customer needs, achieving synergies an improving performance in 2017. Now on Slide 13. I would like to update you on how we continue to strengthen and grow our company. We've highlighted some of the areas in which we made significant progress I'll discuss a few. In the area of optimization, we achieved almost $700,000,000 of monetizations, included in that equity stake in Grain Corp.
And just last week, we announced the sale of our crop risk services business for $127,500,000, which we expect will close in the first half of the year. Thanks to these and other actions, we are well on our way to achieving our $1,000,000,000 target over 2 years. With respect to our ethanol dry mills, we have evaluated the proposals received today. I have determined they will not deliver enough value for our shareholders. We continue to talk with interested parties and evaluate our various options.
In the area of operational excellence, we implemented more than $300,000,000 of new run rate cost savings actions through the 4th quarter, exceeding our target of $275,000,000 for 2016. Some of our most significant accomplishments in the area of operational excellence include energy efficiencies, processing technology improvements yield improvements and important procurement and maintenance initiatives. In the area of strategic growth, We completed the expansion of our oilseeds facility in Ukraine, almost doubling the plant's sunflower seed processing capacity. We have completed our acquisition of Pet Treat Manufacturers, Crosswind Industries and also announced in the fourth quarter the construction of 2 new state of the art plants for our animal nutrition business. We are completing the construction phase of our Campo Grande complex anti engine fiber facilities, and expect to see increasing contributions from them over the course of 2017 These are just a few of the recent highlights and as always, we'll continue to update you on our progress each quarter.
So before we take your questions, I wanted to offer some additional forward perspectives. As we look forward, what this clear is that some of the most important drivers of future performance are in our own hands. We are aggressively implementing measures to improve results through 2017. And we are expecting increased contributions from new facilities and projects as they ramp up during the year. Combined with our current outlook for market conditions, we are optimistic that we will see improvements across all of our businesses in the year, which give us confidence for much stronger results in 2017.
We anticipate significantly improved performance from Ag Services versus the year ago quarter. Unlike the first quarter of 2016, we expect U. S. Exports for both corn and beans to be competitive throughout the first quarter. Low freight rates compared to the year ago period will contribute to a challenge environment for North American Transportation.
In addition, global trade desk results will remain muted in the first quarter due to lack of merchandising opportunities. More broadly for 2017, we expect an improved operating environment for Ag Services over 2016. Grain Carries are developing in North America, global demand for grain is strong and we are continuing to implement changes for the global expanding our supply chain direct to the customer. Overall, we expect performance in Ag Services in calendar year 2017 to be significantly better than 2016 and better than 2015. We see a significant year over year improvement for corn in the first quarter, particularly in our ethanol and lysine businesses.
Sweeteners and starches will continue to benefit in the first quarter from solid demand and flexibility of our wet mills as well as increased pricing. For 2017 as a whole, we will see increasing contributions from the investments we have made including our international operations in Europe and China as well as recent acquisitions such as Crossroads. We believe ethanol margins are likely to improve throughout the year, resulting in average margins for the calendar year similar or slightly better than 2016. And the operational improvements we have made in our life in business should contribute to results despite the continued challenging lysine pricing environment. For the year, We anticipate our Corn segment results to be significantly higher than 2016 and potentially approaching the $1,000,000,000 level.
That we achieved in the past. At innovative ways to expand our portfolio. Consumers today are increasingly turning to novel ingredients to strengthen immunity and prevent disease and we are continually exploring opportunities to add such ingredients to our portfolio. When we look at the first quarter for oil seats, we see similar results to the year ago quarter. Despite the early plantings, the timing of the Brazil harvest will not be as early as some had expected.
Competing proteins on a global level are continuing to impact soybean meal for the quarter and softseed margins are improved from the first quarter of 2016. For the year, we expect to see stronger results from South America with anticipated larger soybean and corn crops in Brazil as well as increasing global demand for protein meal and feed wheat, clearing by the second quarter. We do have potential risks related to the U S biodiesel business with an certainly around the renewal of the tax credit. Assuming a more normal earnings contribution from our increased ownership stake in Wilbur, We expect Oilsys Performance for 2017 to be much stronger than 2016. Though likely not as strong as we saw in 2015.
We're anticipating a slight improvement in our WFSI business results in the first quarter of 2017 versus the same quarter last year. Including an improved performance from the former specialty commodities business. Both the TMG and Campo Grande facilities will be in a startup mode in first quarter and we will have some startup related costs impacting our first quarter. For the year, we see ongoing improvements due to the specialty commodities reorganization as well as increased contributions as production at our new Campocrand DSTNG facilities ramp up throughout the year. Thus, in 2017, WFSI is expected to show very strong year over year growth and exceed its performance in 2015.
So in looking forward, we also of course take into account external factors. We are evaluating how the new administration policies are likely to impact us. And we are encouraged by such priorities as regulatory and tax reform and infrastructure investments. Ultimately, we remain confident about the year. Taken together, the actions we have taken across all businesses and the contributions from new facilities and acquisitions, along with improving market dynamics, will yield a significant increase in profitability and returns in 2017.
With that, Lindsey, please open the line for questions.
Our first question comes from Eric Larson with Buckingham Research. Your
line is
Yes. The, I'll start off with the question that I think on everybody's mind and would appreciate any of your thoughts The question is, there's a lot of talk coming out of Washington, with regarding trade, mostly with Mexico, but then it also goes to China and other places. And could you give us a brief insight as to how ADM would scenario plan, if the borders were closed in any way, shape, or form with Mexico or other countries. And then maybe even specifically with that, Juan, what that might have as impact on CS pricing in that scenario planning if those borders seem to shut down in one way shape or form?
So, obviously, there is a lot of speculation here and it's rather premature. I mean, when you look at the cabinet and the appointees working through their confirmation process, little has happened. And mostly speculation until we can engage at the technical level, the different with the different offices. Going to your specifics about, high fructose corn syrup let me say that we are very optimistic still about our outlook for sweeteners and starches in 2017. We are very pleased with our strategy.
Our strategy, Eric, if you remember about geographic expansion that we've been into Eastern Europe, North Africa and China, the fight for the grind and the operational excellence gives us plenty of optionality. And we feel very good about that. So, I spent time in Washington, I spent time in Mexico. I can tell you, obviously, NASDAQ has served the agricultural industry well for the last 20 years. But I would argue that both teams will that after 20 years, there is room for improving NAFTA.
And there are some considerations that could be taken. So, from there to closing the borders and maybe you referred, we think that that's a big leap But, in our scenarios, as you described, if it were to have a lot of disruptions at the border, the way we tend to think about it again based on our optionality are three ways, if you will. The first one is There are £2,000,000,000 of high fructose corn syrup going south into Mexico but there are also £3,000,000,000 of sugar coming north into the U. S. So you will argue that if that very permeable border was to stop, we will have an opportunity to reposition some of the fruit does consider not going into Mexico to replace some of the sugar, not coming into the United States.
The second thing that we have is our ability to shift some of the production in our wet mills through the fight for the grind that we started 4 or 5 years ago. You noticed that the sweeteners business this year had grew volume, revenue and profits versus last year. And is part of that because of the operational improvements, but also because of the fight for the grounding. So we feel good about our ability to shift and redeploy some of that. The third one is we always have the ability to rebalance our supply and demand.
So I would say, we don't think that it's an that an imminent trade war is there. We think that we're gonna we're gonna talk with our partners in Mexico and we're probably going to modernize enough that. But even if the worst can to happen, we think that we still have a very positive 2017 ahead of us and we have many levers from our strategy that provide optionality for us. So continue to be positive about 2017 in high fructose corn syrup.
Our next question comes from the line of David Driscoll with Citi. Your line is now open.
Great. Thank you and good morning.
Good morning, Louis. Good morning, David.
Wanted to ask my question to focus on ethanol. Can you comment just with a little bit more detail on your views on ethanol in 2017 And specifically, can you just address a couple of things? Can you address your thoughts on supply and demand balance and how tight the 2017 look to you Could you give us your export forecast for Ethanol? And then on Ethanol margins, 1, I think you gave some very color in your concluding comments, but just to be clear, I think you said ethanol and lysine would be up significantly in the first quarter. But you then said that ethanol margins might be similar to better in 2000 versus 2016 Could you just explain that a little more?
The first half of twenty sixteen was very weak for you guys. So I'm surprised that there's a condition where ethanol margins could be similar.
Yes. Okay, David. Let me take that the several parts of your question. So we feel good in general about 2017 for ethanol. We're expecting total demand in the mid-fifteen billion gallons range with continued strong domestic demand.
Probably we're thinking gasoline up 1, 1.5% for the year. So that's about $144,000,000,000 to $145,000,000,000 we will take. Our forecast for exports into 2017 is in the range of 1,000,000,000 to 1,000,000,000 what to 1,200,000,000 gallon level. So 1 to 1.2. Ethanol continues to be competitive and continues to be open market, opening market.
So, and certainly we don't see any imports from Brazil this year. So, if you want to build the scenario, it's about 14,500,000,000 domestic demand $1,000,000,000 to $1,200,000,000 in exports. Today, with the current prices of ethanol, ethanol is about $0.15 per gallon cheaper than MTBE or other oxygenate. So, we see no competition that we can think of from Brazil, from the sugarcane ethanol. And we start in the year with a strong export program.
So I would say, export going to Canada, Brazil, India, UAE, even if you consider China questionable about exports. Probably that's a follow-up question. We think that that could impact about the 100,000,000 gallons and we still don't see that change in the forecast. When we look at the first quarter, certainly looks at first quarter better than the first quarter last year. When we look at the whole year, maybe it's maybe a little bit less visibility and we wanted to reflect that overall.
We see an improvement in margins over the previous year, but a lot of things happened. If you look at 2016, there was a tale of 2 halves. The first half was significantly different to the second half. We expect some of that to happen as well, but this is a very volatile environment. So we are positive about ethanol in 2017 for the reasons I described.
I think that supply demand will be tightened.
Our next question comes from the line of Heather Jones with Vertical Group. Your line is now open. Good morning. Thanks for taking the question. Going back to your comment about as far as the sale potential sale, the ethanol assets, do you think that's something that you could you would revisit once there becomes, greater clarity on the regulatory front?
We're still talking with different parties regarding these ethanol assets. We're also looking at some different structures frankly, as we kind of think about tax reform coming in United States, it does actually open up some different considerations as well in terms of how to structure the transaction, because we've been looking at effectively at some tax restructures And if there's extra form and if the corporate tax rate does come down, it does open up the avenue for us to look at some other mechanisms in order to look towards monetizing these assets.
Our next question comes from the line of Rob Laskow with Credit Suisse. Your line is now open.
Hi, thank you. Ray, can I ask about the forecast for the corn segment to be up I think you said $1,000,000,000 this year, which would be a big increase? Is it your expectation that your pricing on Corn sweeteners is higher year over year. And have you seen any reports of reductions in tolling rates just over the last month or so, that would potentially impact the pricing that you have in your
Yes, Rob, this is Juan here. How are you? Hi. As I said before, we feel very strong about our 2017. Sweeteners and the start is we have a strong 16.
And when we look at the pricing scenario, at least that happened to us, what we can report after the negotiations is that we've been a single digit up versus 2016. So, our forecast for 2017 is for improved margins and improve overall operating profit in the whole sweeteners and starches business. Still positive about. And we haven't seen any evidence in our own business of any declining prices as you described.
Yes. And when we think about approaching, we talk about approaching a $1,000,000,000. And we see improvements in sweeteners and starches, both in North America, as well as international We see improvements in the lysine business based on the operational improvements that we have. And we do also see improvements that price some small improvements in terms of the ethanol as we talked about earlier. So when you add it all together, that's the reason why we're fairly constructive about our outlook for the Corn segment in 2017.
I think that, Rob, if I can add I think something that will surprise people is, volume have been strong for us. I mean, if we look at what happened to us in, in Q4, I mean, volume is up 4% versus last year. And overall in 2016, our volumes are up 6%. So this is a tight industry and our volumes continue to grow. So you see that into pricing.
So we really are very positive about it. So it's the whole sweeteners and starches business is a strong with many, many products, including the sweeteners.
Our next question comes from the line of Evan Morris with Bank of America.
Just a question on the outlook
and Juan, I appreciate a lot of the color and certainly the context that you put around sort framing better than 1 year or better than another year for the particular segment. I guess if I think about this in totality as the year shapes up as I look at the components. Is this 'seventeen shaping up to be similar to, let's say, 2014 from a an operating profit standpoint, if you can just kind of frame in totality how you see the year shaping up and again using a reference point of another year like you did with some of the segments?
Yes, if I have to hand the cap, obviously, I gave it to you by segment. If I need to put everything together in my head, We certainly 'seventeen will be better than 'sixteen, not a big achievement. Certainly, we think it's going to be better than 'fifteen. We might not get to the levels in 2014.
Okay, perfect. That's helpful. Thank you. Good morning.
Our next question comes from the line of Ann Duignan with JP Morgan. Your line is now open.
Yes, thank you. Could you talk about just the general changes that are being discussed with the new administration? As you look internally, I know a lot of it is speculation and I don't want you to comment on speculation. But as you contemplate your businesses, is there anything that is really concerning to management versus Gee, anything that would be really positive, like a border tax might be great. Or stronger dollar would be negative.
And then if you talk about would there be any impact to your outlook, especially for ag services, it we get a big swing in planted acres to beans that spring and away from corn. Thank you.
You're welcome. Good morning, Ann. Listen, as I mentioned, you know, there's a lot of speculation early days, but we see some undeniable positive potentially for ADM in the new administration, which in partnership with the Republican Congress, carry through if they carry it through with their plans for tax reform, for investment in infrastructure, sensible regulation, So if, if they do what they say with at least what we hear in those areas, it will significantly benefit ADM and our shareholders. So probably the economy as a whole in that sense. On the other hand, we've been watching carefully as everybody, the administration statements, whether they are on trade and But we're optimistic that in the end, the President Trump and his senior advisors whenever they are confirmed, we'll recognize that trading agricultural automotive is a has tremendous benefits for farmers and other businesses in the Heartland States.
And so when we're looking at the employment and all that, we were a big part of that. So, so in balance, we are cautiously optimistic given the priority that the government has delineated in their early days.
Our next question comes from the line of Sarah Osman with Stephens. Your line is now open.
Hi, good morning.
Good morning, Perja.
I'm just
asking about sort of the earnings power of ADMs. Could you share with us one what you think a base earnings level is for ADM and perhaps what some of your projects could add, for example, Tien Tsars, specialty starch restructuring, kind of the doubling of capacity in your Eastern European plants that you discussed, if you could lay out your growth projects and what you expect that to deliver over time? That'd be really helpful.
Sure. Thank you, Fario. Farca, we have in the VAT from our original framework that we defined to our investors, maybe a couple of years ago with the dollar to dollar 50 and the 4 pillars. Let me walk through some of those 4 pillars. 1, we're operational excellence and you heard us every year put the target out there.
Last year, we put the target of $275,000,000 run rate and we deliver north of $300,000,000. So, we've been beating those and we may continue to make our company more efficient, more productive in those in that sense. So that bucket, I would say, we continue to achieve that bucket. The second bucket is, coming from wild flavors. Wild flavors have been spectacular over the last 2 years.
The things I look into well flavors, the things in which I I look to control if we are doing a good job is they need to grow faster than the industry. Last year revenue growth was about 9%. So, I would say if you look at the food and beverage industry, it's very difficult to find even a customer that grew at that level. So, they've done very well. Then when we look at EBITDA margin on sales, they increase EBITDA margin from sales from 1 year to the other.
And they basically grew profits by 20% setting a second consecutive record. So my second bucket, so the 1st bucket operational with demonstrating expertise. 2nd bucket wild flavors, we demonstrated 2 consecutive years of record double digit OP performance and growing faster on the industry. So we feel good about that. The 3rd bucket was about many of these projects that you hear us launching or coming to operations every quarter.
Now we have 2, one very large specialty proteins project in Brazil to provide globally to the growth in specialty proteins, in vegetable proteins worldwide. We used to have only one source of product from United states that sometimes when the U. S. Dollar was very strong, restricted our ability to be competitive in export markets. Now when another leg of our strategy in Brazil that will provide over time significant profitability.
We have also expanded the corn business from being mostly a North American business to now having a big position in Europe with these starts and that has been very, very robust and very, very good profits in 2016 and we we are expanding both of those facilities. And we also created that plant in Tianjin, China. So, And we have in that bucket more than 10 projects, and I'm just highlighting some of them. But so, we feel good about these projects. Listen, some of the projects maybe a little bit more in the tail end of our forecasted period just because you need to ramp up.
Normally, 1st year in a project you are driving for capacity utilization. So what we call selling out the plant So PNG, for example, last year, it ran at about 50% as you qualified all the customers. This year, it's going to run more about 75 percent or north of that. And as we finish to that with the sellout, if you will, in 2018, we're going to evolve more into the sell up going into higher margins. So, you have that ramp up, but we feel good about the process we finished the overall most of the projects under budget slightly maybe delays because of some of the geographies that were complicating geographies for us.
But all of them under budget. So we feel good about the process. We feel good about that bucket in general. And the 4th bucket was basically buybacks and some growth opportunities and you know, we continue to redeploy funds to shareholders to return funds to shareholders. Thinking in the range of $1,000,000,000 something 1,500,000,000.
So, we feel good about those 4 that will provide dollar to $1.50. And we're looking at the base that we always talk about that base and that base shrunk in the past. And we we have seen some recovery. And at this point, we probably think, we're going to recover something around 70% to 80% of that base. On the same basis.
And there are other products, other initiatives that we're going to bring further improvements or or drive earnings into the businesses. So I think we have a very rich platform of initiative of self help. So when we look at 'seventeen, we always face the year with a lot of uncertainties because it's volatile environment a global company and we're exposed to a lot of things, but our plan for 2017 is very rich in things that are under control. So are we going to be able to with these things offset every potential scenario? Probably not.
But we feel very comfortable that we have enough weapons there to predict that we're going to grow earnings over 2017 and probably over over 'sixteen and probably over 'fifteen as well. Hope that helps.
That is helpful. I just want to confirm. So your last comment was that, your base earnings was $2.30 to $2.40 and that you plan to add about $1 to $1.50 to that base by late 2017 early 2018 run rate. Are you reaffirming that today?
What I said first, I was that we saw the we still believe in the dollar to $1.50 add into the base. What we saw in the base is that the base dropped with that level that you described. And what I see is that in the medium term, that base will recover probably you know, 70% of what we lost in that base. And then to that recovery over time, you need to add the dollars or a 50 in a couple of years and that creates the picture of what we're looking in the future.
Our next question comes from the line of Brett Wong with Piper Jaffray. Your line is now open.
Great. Thank you. Thanks for taking my question. Just wondering, farmers have been holding more and more grain as you've really seen from the grid stock support. Can you talk about grain movement in 2017?
What do you expect there? And why farmers in the U. S. Will need to move grain this year?
Yes. I couldn't hear very well, but I think it's about farmer selling. If it's about farmer selling, I will try to answer that. You didn't come, but is that okay, good. So Pharmacylin, let me tell you what we're seeing.
Certainly, if I look at the Argentina, Brazil, in South America, we've seen farmer being reluctant sellers, are they betting on their currencies to drop we had this past week, actually, decent selling in Argentina, but in general, I would say they've been reluctant sellers. We probably see more selling as harvest picks up. In Brazil, I would say, if you're in Mato, but also the farmers that are the farther you had in collecting their crops are more concentrating on harvesting the crop between rain been raining a lot. So every time there is a good day to go that more than just in commercializing the crop. But as I said, I think the farmer selling will pick up with the harvest that is usually that.
In North America, we estimate that farmers have sold something in the range of 80% of the old crop beans and about half of that, 40% of the old crop corn. So the farmer has his has is holding to his corn probably thinking that is a little bit cheap. Also sometimes they see that corn tend to spike a little bit in price. Traditionally, maybe in April May when people get concerned about the weather. I would say our sample in the U.
S. Farmers seems to be relatively okay from a financing perspective, they have sold their beans and maybe getting a check from the government and they are holding to their corn to be sold later on. That's probably what I characterize, farmer selling
Our next question comes from the line of Kenneth Staslow with BMO. Capital Markets. Your line is now open.
Good morning, everyone.
Good morning, Ken.
Hey, I just want to look at Ag Services a little bit. So since the Analyst Day Act Services may not have delivered exactly as expected relative to your expectations. Over the last couple of weeks last month or so, we've seen a fair bit of changes in personnel. Can you talk about what actions ADM is actually taking Can you talk about what the earnings potential is and how will the shift towards trade to South America affect the outlook for this year and beyond?
Yes, thank you again. So, please, in Q4 for Ag Services, it was we saw good volumes, actually, good loadings from the U. S. Assets, margin was okay, not great. I would say the biggest delta and that's why we highlighted on that was the global trade desk and know, the global trade desk is suffering from there is an environment of very ample stocks.
So, on the supply side, there are, as I said, ample stocks and margins have been squeezed. We didn't have a lot of dislocations to play with And so when you have an environment of very low margins, you don't have enough profitability to offset some issues in hugeian and you need to you need to tighten up what you're doing. So we've been looking at a potential good weather for 2017 that creates that, you know, a building in the stock. So we foresee that probably the lack of opportunities could continue into 2017 and we wanted to make sure that we are equipped to handle that better than what we did in 2016. So, So we've been refocusing the team.
We've been, touching about everything. You know, when we look at our businesses and we analyze and I've said this before, we look at industry structure, we look at our competitive position and we look at our own execution based on the team. So trying to address all those things. So we have narrow our focus. So we exited energy, for example, trading late last year.
We've been looking at our competitive position. So our costs, we've been consolidating offices. We've been looking at trading more around our assets that that was that's something that we can defend our profitability a little bit more. And certainly as we look at reducing our cost and reducing our people in general, we we've taken decisions on people across the scale and some of those were more, higher level people and others more, more general in terms of cost reduction. So we think that we have addressed the focus on trying to stay in the places where we can we can have a strongest competitive advantage.
We think that the team is more focused, more competitive and we have addressed the team itself. So We believe that heading into 2017, the team is more confident about their focus, their strength, their competitiveness, and we should obtain better results than 2016. We've done before, if you look at 2015 numbers, after we made some adjustments, we have a very good fifteen But then as I said before, I mean, some of the margins squeeze that happened in 2016, put in evidence some of the issues we had in, in terms of execution. We also have to remember that part of the Ag Services business is looking at destination marketing focusing on end to end businesses from the farmer to the end customer, we are we have nice growth of that activity in 2016 and we are expecting to extend our we did MedSoft and we did many other opening of facilities or offices and we're expecting to grow that volume in 2017 by another 10%. So overall, we feel good about all the things that that Ag Services is doing to come back from a period of low profitability for a couple of years.
Great. Thanks.
Our next question comes from the line of Vincent Anderson with Stifel. Your line is now open.
Good morning. Thanks for taking my question. I just want to dig into capital allocation for 2017, with your outlook for a an improving base earnings across your operations, share prices, you know, reasonably reasonably strong. The decision for $1,000,000,000 to $1,500,000,000 of share buybacks when you expect global processing to be at a trough. Kind of walk me through why maybe not more M and A and more specifically what your priority is for increasing your stake in Wilmar?
Yes, I think, if you recall, the 1,000,000,000 to 1,500,000,000 range is all subject to strategic capital allocation. So in that respect, to the extent that we find that there are opportunities for us to redeploy capital for our shareholders that makes more sense in terms of a strategic transaction, then we will reduce the amount that we buyback and we'll redeploy that amount towards acquisitions. Remember, our capital allocation framework was roughly 30% of the cash flows would go towards CapEx. And about 70% will go towards strategic M and A and or, buybacks. So therefore, we are going to follow that framework.
With respect to Walmart, you've seen us kind of increase steadily our stake in Walmart. We've been opportunistic about that. We've increased our stake in taking advantage of pullbacks in terms of share price. We haven't paid consistent with book value. So we've been very careful in terms of how we increase our stake in Walmart, which we believe is a very important strategic partner and frankly, a very important part of our Asia and emerging marketplace.
So at the current level, which is about 23.9%. We feel fairly comfortable will we increase further in 2016? It'll be a function of whether we believe there's an opportunity for us to pick up the shares at an attractive price. So Again, we'll just kind of monitor the market, take a look at our cash flows, take a look at how we're deploying capital and make decisions as we move through the course of the year.
Thank you.
Our next question comes from the line of Michael Piken with Cleveland Research. Your line is now open. Hi.
Yes. This is Mike Henry in for Mike Pike. Thanks for taking my question. Just was wondering if you guys could talk through a little bit of the impact, if you saw any from the higher U. S.
Dollar in each of your businesses, and kind of how that's baked into your expectations going forward into 2017, as well? Thank you.
Businesses. Obviously, we saw it early on in 2016 in Ag Services. And And we also saw it in specialty ingredients. 1 of the businesses that, grew a lot in exports over the previous years has been the specialty proteins business. Remember, I reflected on the fact that we had only one plant in the U.
S. While we're bringing Campo Grande in Brazil. And that business was impacted by the strong dollar. So At this point in time, we have planned for a strong dollar to continue, if you will, in our assumptions going forward. So we don't expect a big relief from that.
We also have to remember that when you talk about strong dollar, you have to talk about what the currency pair is. Because a lot of people kind of focus on a dollar versus the euro. But when you actually look at versus the Brazil and on peso, a year ago at this call, the HAI was trading at 4. Right now it's trading at 3.1. So the HAI has actually strengthened when you take a look at versus the Russian ruble, your current in red cloud, like, again, crop growing regions, those currencies actually strengthen versus the dollar.
So we just have to be careful when we talk about the strength of the dollar, I mean, yes, generally there's a trend towards strengthening dollar. But Relative to a lot of the crop growing regions of the world over the past 12 months, we've actually seen those currencies strengthen relative to the dollar. So just want to make sure that there's a balance perspective when we talk about the currency here.
Our last question comes from the line of Adam Samuelson with Goldman Sachs.
Great. Thanks and thanks for squeezing me in this morning. Maybe going to oilseeds, I mean, the market environment in fourth quarter and the outlook for the first quarter is fairly sluggish. And I'm just trying to maybe get some regional differentiation there. U.
S, Europe, Brazil, soy versus soft seed. And then also in the refining biodiesel business, can you talk about how much of 2016, how much value of your lender's credit was in the 2016 numbers and your thoughts on that portion of the business into 'seventeen, which seems like a much more uncertain kind of outlook. Thanks.
So when we look at the if I have to since we haven't spoken about the oilseeds yet, if I talked about Q4, Q4, we saw North American probably a little bit better than our forecast. Europe in line and South America a little bit worse. So remember that South America for us includes the grain part. And obviously, we suffered a little bit with lower volumes as we didn't have a big drop. When we look at the Q1, In general, going back to Q4 and last year, our volumes were normal.
We're solid. Our margins drop in Q4 and mostly because we were making room for all these alternative proteins, whether it's feed wheat or whether it's ddGs. So we expect the feed wheat would probably be competitive until 2nd quarter and we will be eliminating all those stocks as the year go by. When we look at Q1 and 2017, we continue to be to see good demand. We see U.
S. Utilization in the mid-80s. We still see gross margins have weakened maybe to $15 to $20 per ton, right now, still not great. This is a slow time of the year for biodiesel traditionally these. In Brazil, we see crush margins $10 to $20 per ton for domestic margins.
Margins should pick up as the harvest picks up this time of the year. In Europe, meal consumption remain slow, if you will, and there is a lot of cheap feed weed. So we shifted now to using more grape seed in our crush, you know, that we have that swing capacity. So, I would say, we've seen better margins in general in rate. Obviously, there is a smaller rate crop that may lead to overall lower crush in general, but the food demand has been okay.
We've seen some increase in biodiesel mandates in Europe in 2017, whether it is in Germany or Spain. So, that's kind of how I see globally. And I don't know, Ray, if you want to talk a little bit about the biodiesel that was in our B.
I think the biodiesel tax I think we've been indicated over the years, it's been roughly around $50,000,000, plus or minus. And so So therefore, that's a number that it's in our plan. We believe there's a good chance the biodiesel tax rate being renewed. But we don't forget, I mean, it's very possible that the biodiesel tax spread may get wrapped up in the whole aspect of corporate tax reform as well. And from our we believe that any type of corporate tax reform would be positive for ADM because as you know, in the agricultural sector, being a U.
S. Domiciled company, we pay the highest tax rates of in the industry. So bringing our statutory tax rates from a 35% level to either the 15% level that Mr. Trump has talked about or the 20% level that the republican blueprint is talking about is very, very positive. And then they've also talked about the broader adjustment tax, which for exporters, agricultural exporters like ADM, that would be a positive too for us.
So there's a lot of dynamics when you think about implications of tax reforms of biodiesel tax credit, we're all monitoring this very, very carefully, but in general, we we feel very positive about the direction that the administration is heading towards looking at improvements to our corporate tax system.
And, Adam, if I can summarize in oilseeds, we continue to see demand growth. So we continue to see a strong demand. And we are more positive this year about canola and rape to be bigger contributors than last year. And remember that we don't foresee to have the same issue in grain in Brazil that impacted us in 2016 because we're going to have a bigger corn crop we're going to have a bigger soybean crop that we have last year. So overall, all those things, I think, will make oilseeds have a better year next year than in 2016.
Oh, you're welcome, Alan.
And there are no further questions at this time. I'll turn the call back over to Mr. Juan Luciano for closing comments.
Thank you, Lindsey. Well, thank you everybody for joining us today. Slide 15 notes some of the upcoming investor events where we will be participating As always, please feel free to follow-up with Mark if you have any other questions. Have a good day and thanks for your time and interest in ADM.
This concludes today's conference