Good morning, and welcome to the Archer Daniels Midland Company Fourth Quarter Twenty 15 earnings 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. Schweiser, you may begin.
Thank you kindly, Stephanie. Good morning, and welcome to ADM's 4th quarter earnings webcast. Starting tomorrow, a replay today's webcast will be available at adm.com. For those following the presentation, please turn to Slide 2. The company's Safe Harbor Statement which says that some of our comments constitute forward looking statements that reflect management's current views and estimates of future economic circumstances.
Industry conditions, company performance and financial results. These statements are based on many assumptions and factors that are subject to risk and uncertainty. ADM has provided additional information from those in this presentation. And you should carefully review the assumptions and factors in our SEC reports. 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 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 on our scorecard and discuss our forward will now turn the call over to Juan.
Thank you, Mark. Good morning, everyone. Thank you all for joining us today. This morning, we reported 4th quarter adjusted earnings per share of 0.61 dollars. Our adjusted segment operating profit was $599,000,000.
For the calendar year, our adjusted earnings per share was $0.60. Global Dynamics reduced margins across the U. S. Agricultural export sector, the U. S.
Ethanol Industry and in the soybean crushing industry worldwide. Adverse market conditions that impacted many of our businesses earlier in the year continued through the fourth quarter. Despite the challenging conditions, We achieved 2015 adjusted ROIC of 7.3 percent, 70 basis points above our annual cost of cell generating positive EVA. In the fourth quarter, we advanced our strategic plan by expanding our international corn processing footprint with the acquisition of the MedSoft Egyptian joint venture and strengthening our European all the next refined oils joint venture. And today, we are announcing an investment in a controlling stake in Harvest Innovations, a leading producer of non GMO organic and gluten free ingredients.
From a portfolio management perspective, we completed the sale of our global cocoa business. In addition, 2015 was the safest year in the history of ADM with the lowest level of recordable and lost time injuries. I'm pleased with how our discipline, focus and process improvements have translated to these safety results in 2015. With current headwinds likely to persist, We remain focused on the areas within our control. We will continue to implement our pipeline of operational excellence initiatives with an objective of an incremental $275,000,000 of run rate savings by the end of the calendar year.
As part of the evolution of our strategic plan, we're also taking a fresh look at the capital of our operations and portfolio seeking innovative ways to lighten up and redeploy capital in our efforts to drive long term returns. In 2016, our balanced capital allocation framework remains a including a quarterly dividend rate increase of more than and share repurchases of between $1,000,000,000 to $1,500,000,000 subject to strategic capital requirements. With a strong balance sheet, we will also remain opportunistic for investments, especially bolt ons in this more challenged macro environment. I'll provide more detail on our 2015 accomplishments as well as perspectives on 2016 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 $0.61 down 39% from the dollar last year. We've been busy this quarter as we continue to manage our portfolio to drive returns,
which
net quarter was negative 2% compared to 29% in the fourth quarter of the prior year. Our reported tax rate was negative this quarter due to the low tax rates on the gains related to the Cocoa and the E Starts transactions together with a one time favorable $66,000,000 valuation allowance impact. If we excluded specified items that relate tax impacts and the valuation allowance, The effective tax rate for the calendar year was approximately 27% in 2015, in line with 2014. The rate has been slightly lower than the recent historical tax rates due to a more favorable geographic mix this year tax items this year. For 2016, Our trailing 4 quarter average adjusted ROIC of 7.3 percent is down 170 basis points from the 9.0 percent at the end of the fourth quarter last year.
The 7.3% adjusted RIC is above our 6.6% annual WACC for 2015, but below our long term WACC of 8.0%. As you reflect in the graph on Slide 20 in the appendix. Objective remains to earn 200 basis points over our WACC. In the fourth quarter, we did create value based upon our trailing 4 quarter average EVA, which was positive $173,000,000. On Chart 18.19 in the appendix, you can see the reconciliation of our reported quarterly earnings of $1.19 per share to the adjusted amounting to $0.70 per share, primarily related to the Cocoa transaction in E Starch.
We had charges related impairments, restructurings and settlements amounting to $0.24 per share, the largest being related to our Brazilian Sugar operations. We also made an adjustment q4 adjusted earnings to reflect the reallocation of the biodiesel credits to the previous quarters when shipped of about $0.05 per share. And there were 2 tax adjustments in the 4th quarter. The valuation allowance impact of $0.11 per share that I mentioned earlier and the true up of the quarterly tax rates to the calendar year adjusted rate of $0.03 per share. Slide 5 provides an offering profit summary in the components of our corporate line.
Before Juan discusses the offering results, I'd like to highlight some of the unique items impact our company's previously held investment in E Starch, our former European joint venture with Tate and Lyle in conjunction with the acquisition of the remaining interests. This transaction closed in early November. We also recorded impairment and restructuring charges of $102,000,000, primarily related to our Brazilian Sugar operations. In OLC3, we recorded $206,000,000 of gains on sales of assets, primarily related to the sale of our Global Cocoa business, We also had impairment and restructuring charges of $34,000,000 for various underperforming businesses within this segment. In the corporate lines, net interest expense was down due to lower interest rates and the favorable effects of the debt restructuring we affected earlier this year.
Unallocated corporate costs of $89,000,000 were lower than the run rate for previous quarters due to favorable foreign exchange translation, favorable paper related costs and some timing effects in 2015 spend, offset partially by higher project costs. I would also like to comment on a GAAP net revenue number that can be found in the appendix: GAAP net revenues for the quarter $16,400,000,000 were down significantly from last year, driven by large declines in commodity prices and foreign exchange translation. But these factors also favorably impacted our cost of goods sold as our input costs were lower. Turning to the cash flow statement on Slide 6, we generated $2,000,000,000 from operations before working capital changes, lower than the prior year. Total capital spending $3,000,000,000 capital spending guidance we provided earlier in the year.
Given the more challenging business conditions we encountered in 2015, we're even more prudent in our spending. We made acquisitions totaling $500,000,000 in 2015, which included AOR, the European bottle oil company, Eden Foods, and a remaining interest in the Romanian port, and also East Arch. The other investing activities line of the cash flow statement mainly reflects the proceeds from divestitures, such as our global in the sale of our 50 percent stake in our port in Northern Brazil, less the incremental investments we made in the Wilmar. Or approximately $1,500,000,000 of net divestment proceeds. During the year, we spent about $2,000,000,000 to repurchase shares, finishing up at the high end diluted shares outstanding, down 35,000,000 from the time 1 year ago.
At the end of the year, we had approximately 601,000,000 shares outstanding on a fully diluted basis. Our total return of capital to shareholders, including dividends of almost $700,000,000 was more than $2,700,000,000 for 2015. When I think about our capital allocation framework for 2015, if we take our operating cash flows before working capital plus the net divestment proceeds or approximately $3,600,000,000 in total cash flows, we spent about 30% of that amount on capital spending and returned about 75% of that amount to shareholders. This is in line with the capital allocation targets with a bit more tilted towards capital returns to shareholders in 2015. Slide 7 shows the as of December 31, 2015 2014.
Our balance sheet remains strong. Our operating work capital of $7,100,000,000 was down $700,000,000 from the year ago period. Total debt was about $5,900,000,000, resulting in a net debt balance that is debt less cash of $4,500,000,000, up from the 2014 net debt level of $4,000,000,000, in part, reflecting the issuance this year of 1 point 1,000,000,000 of euro debt or about 1,200,000,000 in U. S. Dollar terms and a subsequent repurchase of $100,000,000 of U.
S. Debt. Our leverage position remains healthy with a net debt to total capital ratio of about 20% Our shareholders' equity of $17,900,000,000 is $1,700,000,000 lower than the level last year due to the shareholder capital return in excess strength of of short term liquidity. Next one will take us through a review of our business performance.
Please turn to Slide 8. In the 4th quarter, we earned $599,000,000 of operating profit. Excluding specified items, down from the $1,100,000,000 results from last year's strong 4th quarter. Operating conditions in the fourth quarter deteriorated from the already challenging conditions we faced earlier in 2015. After last year's large harvest around the world and with a strong U.
S. Dollar, a lack of this location significantly reduced U. S. Export and limited merchandising opportunities in Ag Services. In December, we saw further downward pressure on global soybean crush margins as a result of Argentine government policies.
Also, the dramatic declines in crude oil prices impacted ethanol margins. As a result, full year segment operating profit was down nearly 21%. Now I will review the performance of each segment and provide additional Turning on Slide 9. In the 4th quarter, Ag Services results were down significantly compared to last year's very strong 4th quarter, where we handled record volumes and had record exports from the large 2014 U. S.
Harvest. In merchandising and handling, despite the large U. S. Crop, low commodity prices, limited grain movements, resulting in fewer merchandising opportunities. In addition, strong U.
S. Dollar, along with ample global crop supplies, limited volumes this fourth quarter were down about 20% compared to last year. These declines were partially offset by improved performance and expanded reach at ADMs Global Trade Desk. For example, in Argentina, we benefited from higher volumes and margins with the changes in the export taxes and the depreciation Lower U. S.
Export volumes reduced barge freight rates and volumes. High water levels on the Mississippi river system in the later part of December had some small negative impact on our transportation results for the quarter, but a greater impact will be felt in the first quarter of 2016. Milligan and Other again had another solid quarter. For the year, we generated $684,000,000 of operating profits on an adjusted basis and below our historical levels. There were a number of factors that impacted our results, including a lack of global dislocations and the strong U.
S. Dollar versus the weakening currencies of other major crop growing areas. This reduced both volumes and margins. Please turn to Slide 10. Foreign processing results declined from the year ago period.
Sweeteners and starches continued to perform well. With low input costs and good at our plant in Tianjin. Bioproducts results were lower as steep declines in crude oil prices drove lower ethanol prices This, combined with continued high industry production levels, progressively reduced industry margins through the quarter. Our ethanol profitability reflects 4th quarter ethanol EBITDA margins estimated at around 0.18 dollars gallon. In addition, lysine operating profits were challenged by excess global supply, resulting in declines in pricing and margins and some production starches performed well with solid demand throughout the year in a well balanced supply demand environment for the industry.
On the other hand, lower crude oil prices and high industry production levels created a challenging margin environment for the U. S. Ethanol industry. Despite growth in U. S.
Domestic demand for ethanol brought about by increasing U. S. Gasoline consumption. Slide 11, please. Oilseeds results were down in the quarter versus a very strong quarter 1 year ago.
In crushing and origination, we saw declining global soybean crush margins throughout the quarter as buyers anticipated more competitive South American soybean meal, entering well supplied world markets, following the presidential elections in Argentina. Ample global mill supplies in combination with the strong U. S. Dollar, further pressured U. S.
Mill exports. Brazilian origination results were lower as grain commercialized earlier in the year compared to the prior year. In addition, the very volatile real exchange rate in the fourth quarter slowed grain movement as well. Refining Packaging, biodiesel and other was down in the quarter as declining crude oil prices and weaker global demand pressured global biodiesel margins. Hocco and other results decreased, reflecting the sale of the Cocoa business in October 2015.
Results from Asia fell from the year ago period due primarily to non operating charges, including in Wilmar's Q3 results. The year, there was a strong global and U. S. Demand for protein. And as a result, our global oilseeds operation set the crushing volume record in 2015.
However, with more ample global supplies of meals through the year, in combination with the strengthening of the U. S. Dollar, we saw our soy crush margins begin softening in the third quarter with a more substantial drop in the 4th quarter, costs in part, but the impact of the Argentine LCC changes. Slide 12 please. In the 4th quarter, WFSI earned $47,000,000 with positive contribution from wild flavors, SCI And ItEM Foods.
As a reminder, The fourth quarter is generally the weakest quarter of the year for WFSI due to seasonality impacts. This results help offset declines in some of our legacy specialty ingredients businesses, where we saw weaker sales overseas and some Forex hedging costs related to our Brazilian specialty protein project. Since the Wilde acquisition, the team has implemented about $40,000,000 in annualized run rate cost synergies. We remain confident that the team will deliver 1,000,000 of run rate synergies from the Wilde acquisition at the end of 2017. And in its first full year as part of ADM, wildflavors contributed $0.10 of earnings accretion to ABM.
Now on Slide 13, I'd like to update you on how we're strengthening growing our company. This is the scorecard we presented the actions we were taking to help grow our business and our returns. We have highlighted some of the areas in which we have made significant progress in 20 15. I'll discuss a few. In Ag Services, for example, we've seen the benefits of our global trade desk we created after we acquired Tufour.
We advanced our global port strategy with actions in Romania and Argentina, and we're growing destination marketing with our MedSoft's joint venture in Egypt. In corn, continued our geographic diversification in Europe with the East Starz acquisition and in China with the Tianjin sweeteners and soluble fiber plants. And with the Fried premix plants. In oilseeds, we sold our global cocoa and chocolate businesses, allowing us to improve forward return. We created a joint venture to quadruple the size of our port in Northern Brazil.
We acquired the AOR oil bottle in this in Belgium and IBM and Wilmar agreed to turn OLENX into a full fledged joint venture, helping us to drive additional efficiencies into that business. And in WFSI, we acquired Itum Foods, a leading developer of savory flavors adding deep expertise in savory flavors and ethnic cuisines. Controlling stake in harvest innovations, a leading producer of non GMO organic and gluten free ingredients that consumers are demanding in increasing numbers. We'll continue to update you on our scorecard progress each quarter. And over time, you should expect to see the result of these actions in improved earnings and returns.
Now before we take your questions, wanted to offer some additional perspective as we look forward. The global microeconomic situation has been extremely volatile. We continue to face headwinds related to currencies, crude oil, Argentine policy changes and a growing supply of commodities. Barring any material changes to the half of twenty fifteen. Whatever the conditions will remain focused on driving improvements in the business.
For Ag Services, we expect the strong U. S. Dollar to continue through 2016. The large South American harvest that's forecast would add to already strong global crop supplies and Argentine exports will be more competitive in the near term following the recent policy changes. All of this presents continued challenges for our US export business though it will support our Argentine export business.
We do expect an improvement from ARC Services in 2016, but it's not likely the segment will reach a historical operating profit range this year. For corn, sweeteners and a target will benefit from the improved pricing environment, the flexibility at our wet mills, solid demand, and low input costs. And e start will be accretive to earnings. In ethanol, industry margins remain uncertain with low crude prices and high industry production levels. While we continue our efforts to reduce costs at our corn dry mills.
We are now also undertaking a study of the strategic options for them. We do expect overall corn operating profits to improve from 2015 levels. Though this will depend on ethanol industry conditions, in the back half of the year. For oilseeds, with current global soy cash margin down significantly from 2015 levels, the continued strength of the U. S.
Dollar and with low crude oil prices impacting global biodiesel margins, We expect 2016 to be lower than 2015. We continue to take actions to improve our oilseeds operations around the world. For WFSI, with the robust pipeline, continued realization of synergies and accretion from recent acquisitions we expect double digit percentage growth in operating profit in the 15% to 20% range in 2016. We are pleased that wild flavors contributed to results in 2015, despite microeconomics and ForEx headwinds. In this challenging environment, we remain focused on the areas under our control.
We continue to execute our strategic plan to grow our earnings power, which will translate into stronger earnings when conditions normalize. From a cost management perspective, we have made significant progress on our operational excellence initiatives. By the end of 2015, we had achieved more than $200,000,000 of run rate savings. We continue to execute on our pipeline and have an objective of $275,000,000 in additional run rate savings implemented by the end of 2016. As part of the continued evolution of our strategic plan, we are taking a fresh look at the capital intensity of our operations portfolio.
We will be seeking innovative ways to license and redeploy capital in our business. I like the $1,000,000,000 challenge launched in 2012, where we look at unlocking value from non core assets or from waste or inefficiencies in working capital, Now we're embarking on a multi year program to examine which assets are underutilized or where the ownership structured could be more efficient while maintaining an appropriate level of operational control. In some instances, a partner may be able to help us better utilize the asset. We started this process by selling a 50% interest in our Brazilian port in 2015. We believe we can reduce the asset intensity in various businesses which will help improve our long term returns even We have set the preliminary target of reducing the invested capital of our businesses by at least $1,000,000,000 over time.
In 2016, our balanced capital allocation framework remains a priority. In terms of returning capital to our board recognizes the importance of the dividend to our investors. We also plan to repurchase 1 to 1.5 $1,000,000,000 of shares at current levels and through strong cash flow generation, monetization of assets and a strong balance sheet we continue to look at the strategic growth opportunities. Our priorities are growing our geographic footprint and expanding our Specialty Ingredients business. With our strong balance sheet, we will be looking for opportunistic acquisitions around the world including bolt ons, with investment decisions driven by a hard look at the returns and inherent risks.
We continue to believe that by executing our strategic and capital plans, we can achieve $1 to $1.50 per share of earnings improvement over the medium term. And we are encouraged by the fact that global demand for grains, oil seeds and proteins remain solid. What we don't know is when the macro and business conditions will improve returning our earnings base to more normalized levels. And so we continue to focus on what we can control to grow earnings and create value for our colleagues, our customers and our shareholders. With that, operator, please open
Your first question comes from the line of Farr Aslan with Stephens. Your line is open.
Good morning, Carter.
Good morning, Tara. 3 questions from me starting with Ag Services. 1, last quarter you'd highlighted, slow farmer selling and I noted that there's much of the 2015 crop that still needs to sold. Could you highlight kind of when you expect that to come to market and how ADM could and when it could benefit from that?
Sure. Let me talk a little bit. The North America, Farga, grain movement continues to be slow. Behind the pace of last year, slow prices are not incenting farmers to commercial our dairy crops yet. So, movements of soybeans was obviously a little bit more brisk maybe in late Q4 and continuing into Q1.
Mainly maybe due to farmer cash flows. We have seen in the past that, U. S. Stocks will be commercialized through the year either through a strong demand for U. S.
Products and cash flow needs from the farmers or spikes in board prices. That's how we're seeing it right now. Right now, we're seeing it farmer selling in board rallies. If you go to Brazil or Argentina, we've seen a strong dependency on what's happening with the currency. We've seen in Brazil, we have a day in which the dollar is for 2018, and we see a lot of farmers selling it most back to 4.11 or 3.97 and we see a farmer selling is slowing down.
Seeds a little bit of that in Argentina. We saw a little bit more farmer selling of corn and wheat, a little bit less soybeans as the farmer maybe was not that happy with the reduction in export, retention that they have over there. So, still, I would say with at least low prices subdued and customer farmers will sell through rallies on when they have cash flow needs.
Okay. So deep selling. And then when you look at crushing and origination, you had highlighted that 2016 looks tough. And we've seen crush margins continue to deteriorate here in the first quarter. Should we count on hedges for ADM as we model forward or just think about whatever we see in the crush margin is kind of what we should in earnings throughout the year?
Yes, maybe let me give you some perspective here. So in the U. S, we have seen a big deterioration during Q4 and some deterioration also into January. And now we've seen the industry adjusting operating rates and things starting to ease off from the lows, if you will, that that we hit in January. Obviously, this is the low season in the U.
S. Anyway. So there is a shift to crush margins into South America. South America still have an expanded crush margin because they haven't been, having had the benefit of the harvest, but we'll get that soon in, in, in Brazil. Europe, we see it, okay, kind of stable until maybe March, April, and then we have the dynamic we probably see more exports from South America, but also we have the grape seed harvest in Europe and we have the ability to switch our assets a little bit between soybean and raves.
It's over there. So that's kind of how we see the evolution of crush margins at this point in time.
That's helpful. And finally on ethanol, Today, you marked a change in your commentary regarding your dry mills. Historically, you thought that they were sort of an integral part of ADM's operations. Can they be run independently? Given that they're so integrated in ADM, could just share with us a time horizon of how you're going to evaluate those assets?
Sure, Farka. Yes, what we thing here is that we continue to be implementing our cost reductions in the dry mills that we have seen. But margin continues to be stubbornly low and even with our improvements in cost, we are concerned about the long term fundamentals of the dry mill ethanol part of the industry, if you will. So we have asked the team to undertake a strategic review of that. They have an advisor helping them on that.
And we're going to run through the different scenarios all the way from one extreme to the other when we will explore all the scenarios. So we have no rush for this. We the whole operation is having positive cash flows, positive contributions. So there's no need to panic. We just want to be prepared to look at the industry long term and see can this industry present the returns that we expect and what are the options to maximize our return for ADM.
So there is not a clear timeline or a clear direction and what we really want to see. We want to see the analysis of the options that the team will bring. In the meantime, the improvements in costs continue. And we have seen in 2015 improvements in enzymes, improvement yields, improvements in corn oil recovery. So we're very pleased with what the teams are doing in that.
It's just we have an industry problem and we want to see how we can participate in addressing those strategic options.
That's helpful. Thank you.
Welcome.
Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
So maybe first one, I want the comments on the capital intensity of the portfolio. I want to dig a little bit deeper there in terms of the targets. And opportunity set. And understand, is that separate from the discussion about the dry mills, first? And second, parts of the portfolio that you were looking after, is this maybe taking a more rent and lease versus own on your transportation logistics assets, or taking a fresh look at different processing assets for what you want to have full ownership of in the company?
Yes. Listen, Adam, if you look at our evolution and our focus on returns. I mean, we're very pleased with the pipeline we have in operational excellence. We have we think we have a very good cost position in the company. We have addressed the portfolio with the divestitures of cocoa, fertilizer and chocolate.
We have set up a lot of growth engines through M and A or CapEx project. The next evolution these is that we look at our, at the way we operate and we see we are very productive from a people perspective. We make north of $600,000,000 earning this quarter with 33,000 people. So we feel we're very productive a people intensity perspective. When we look at the asset intensity, we don't feel that great about that.
We think that there is still some ability to flex our assets be better. Part is the nature of the industry, which is has some seasonality and you need to have some assets for some peak periods But we have under we have started to undergo an analysis of all our businesses and value chains. You have to realize sometimes we keep asking we think about them as cost centers, if you will. And we're trying to look at them more as businesses in itself and having to provide turn. So, also technology is providing some tools.
We have today's software for if I give you an example, ADM because it's a large company, we have many, many warehouses around the U. S. And around the world. Today, we have softwares that allows us to look at the freight rates, look at the inventory needs and look at the number of warehouses and can provide a significant optimization to our warehouses network if you will that could end up in selling some of those properties. You mentioned some of the transportation, we do believe that we have a very tax efficient ownership of our transportation asset, but there may be aspects of that maybe in ports that where we have opportunity to do something better.
So, again, this is a multiyear process and we're going to be looking several parts of our operations. But we have looked at that with a target of about $1,000,000,000 and we believe that is a realistic target over time, in looking at what I just described.
Okay. That's some helpful color. And then maybe just focusing in on 2016 a little bit. And you gave some numbers on on cost savings, both the exit run rate in 2015, what you're targeting to exit 2016 at. I was hoping tell us kind of or give us a sense of the year over year cost savings that you're assuming in the plan in 2016 versus 2015?
As well as the kind of net impact of M And A 'sixteen versus 'fifteen there is obviously a number of divestitures as well as some bolt on M and A scattered throughout the portfolio and maybe a net M and A number would be helpful as we think about kind of the bridge year over year?
Yes. When we look at the to give you an idea of the operational improvements, when we finished 2015 with $200,000,000 of run rate savings, we approximately realized in 2015 about $90,000,000 of those 200 just because the way the projects are implemented during the year. So as we are talking in 2016 about $275,000,000 in our pipeline that will be executed during 2016 run rate, say, points of $2.75, we should expect about $100,000,000,000, give or take, that will be realized during 20 team, if that helps. And I will let Ray talk a little bit about the accretion of some of our M and A.
Yes. Just on the M and A question, year. It was just a couple of things. Our I mean, this year, as you know, we actually had a lot in terms of net divestment proceeds from the Coca Cola business. I mean, as you know, those businesses were not really generating much profitability.
They're being extremely volatile. We actually believe that and we did some analysis that it actually is going to be positive towards our forward ROICs by divest those businesses in taking the proceeds and we bought back shares reduce our invested capital base. So that's going to be actually positive towards our ROIC going forward. In terms of 2016, you asked about what does M and A divestment kind of look like? Generally, as you can as you expect, I mean, we are budgeting or planning CapEx around $1,000,000,000 for 2016.
On M and A front, we always have a little bit in terms of just bolt on acquisitions, probably a couple of $100,000,000. Net divestment proceeds divestitures, we've achieved a lot already in terms of divestitures. And so at this point, I'm not planning for our large divestiture number there. But in general, when I think about the impact of our recent M and As that we did into 1015 as an example. And we did quite a few bolt ons, including e starts.
I mean, those have been accretive, and we'll continue to be accretive to our earnings going forward. It's part of the our bridge towards $1 to $1.50 of improvements. And if you recall, these types of project over a 3 year period will add probably around $0.30 a share towards our earnings power over a 3 year period when you kind of accumulate what we've already announced plus some of the projects that we're working on right now.
And just to be clear there, I was kind of really targeting on the net earnings in impact of the M and A actions both sale and purchase in 2015 and what year over year benefit or headwind that represents to 2016 profit number?
Yes. I mean, when you take a look at it for 2016, approximately on a net basis, you probably pick up around $0.05 this year.
Your next question comes from the line of David Driscoll with Citigroup. Your line is open.
One, I wanted to go to one of the, I think, was the last statement you made in your prepared script. I think you said that over the medium term, you expected to see a dollar to $1.50 in EPS improvements. Should I take that off of this year's base of $2.60, thus, you're given kind of long term EPS algorithm of $3.60 to $4.10?
Yes. You heard the second part of my commentary was that really the base had reduced. And the base probably have reduced a little bit more than the 2 60 you describe, the 2 60 has already probably between $0.20 $0.30 of that dollar to dollar 50 of the new strategy that's bringing. So maybe the base it's more like, you know, 230, 240 something in that range. We feel good that as I described before in my comments, and I think I just mentioned about the progression towards this dollar dollar 50, we have a little bit less visibility on when the basic will cover because it's more impacted by macro factors that we really don't control.
We control many more of the factors in the strategy.
Okay. Understood on that. I had 2 specific questions, one on ethanol, one on crush margins. So just ethanol, Farah asked it a little bit here, but I am taking it back a little that you'd put these assets up for review right now with oil at $30 What's your view here on this one? What's your view on what kind of oil price do we need for these ethanol assets to make sense?
Remember, when we were talking, I think you asked me this question before when we were at about 5 bucks and we said that $50,000,000, this is this was going alright. And at $40,000,000, we were still doing relatively good. I don't think that part is the oil prices, but part is, to be honest, the behavior 3. The demand continues to be solid, David, domestic demand has increased because of low, oil prices and high gasoline consumption. Export demand has been very good and we expect it to be even better to 2016.
It's just a matter of that the production in the industry has kept this industry margins very, very low And we are really surprised by that. We've been running our plants for yield. As I said before, we see improvements in our operations based on that. But this margins continues to be stubbornly low. So we want to analyze what happened at lower oil prices, what happened if these things recover.
So, we have an internal review to see the different scenarios. What do we do under those different scenarios. So it's just a matter that you look at how much can you improve your cost position. We have a good view now into how much we can improve our cost position. And we want to test that against lower oil prices or higher industry rates if they don't go down.
Okay. Last question for me. It's just back to soy crush. When you look at what's really changed, because margins, I think as a previous caller mentioned, they've really plummeted, but what seems to have changed is the South American currencies, but then maybe if we really, really zone in on here, it's Argentina, would you agree that that's been kind of the major change in terms of what's disrupted these markets so much so that we've seen crush margins go from 1.10 dollars, $1.20 down to $0.40. Is it Argentina?
And then the process here is that as this capacity gets absorbed into the market, that would be the recovery process in global crush margins?
Yes, David, if you compare last year with the year. Last year, North America came into the export season with a big book of export on nontraditional destinations. Which we didn't have this year. In soybeans have been disappointing for what everybody was expecting. So crush has improved, but not that much.
But I think has created the expectation in a lot of the buyer that maybe Argentina will increase crushing will become a bigger player in meal worldwide. And maybe it was wise to wait a little bit and wait for all that to come to market. Again, it hasn't come yet. If you look at what crushing rates in Argentina is about 3,000,000 tons per month. Capacity is maybe 4.5 or something like that.
We're still thinking about, about 40,000,000 tons of crushing for next year. So haven't seen the explosion, but I think it has been the psychological impact in all the buyers of, nontraditional destinations for the U. S. So we continue to supply the traditional destinations to the U. S.
We have lost that ability to to sell aggressively to non traditional destination, partly the U. S. Dollar, partly the expectations that Argentina will to that. So long winded answer to your question is probably yes, although not yet because of increased production, more for psychological impact their ability to produce more.
Very helpful. Thank you.
Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is open.
Hi, thank you. I guess two questions. The first one is about the strength of the U. S. Dollar and and how damaging it's been to your business this year.
I covered the company for a long time and there's been periods where the dollar has been strong before. And it appears that it's having more of an adverse effect this time around than in the past. Hurting your merchandising programs out of the U. S. Can you explain to me why it's so much worse this time around?
And then I had a follow-up about the a situation?
Yes. Rob, a couple of observations. Just, I mean, there's different currency impacts, the impact I mean, if you look at just pure translation impact, Rob, over the calendar year, I mean, this is the classical accounting translation impact on our operating profit was about a roughly $130,000,000 negative impact for us, okay? This pure currency translation. So therefore, it was an impact.
I would say that's not a dramatic pack. The bigger issue is really the competitive issue and the competitiveness issue is really driven by not just the strength of the U. S. Dollar, but also the fact that two other factors. We've got large crops around the world, right?
So the fact that you got well supplied inventories of crops around the world had an impact. And then secondly, for the major crop grown areas, their currencies actually devalued far more than what the basket of currencies that the U. S. Dollar is weighed against. When you saw what happened this year, you saw the AI because of the political situation, really depreciate.
You saw the Argentine policy changes you've seen what happened with Russia and Ukraine. So what happened was for the major crop grown areas, their currencies actually devalued significantly relative to the basket of currencies. And then you also have just a lot of, supply around the world. Because under normal situations, Rod, when the U. S.
Dollars strengthens, let's say, under our normal cycle of U. S. Dollar strength. And when there's a more balanced supply of crops around the world, it will still come to the U. S.
For the crops.
But
so that's what, in my mind, that's what really changed this year. And I don't believe this is structural. I mean, this is temporary. I mean, we're going to go through this cycle here. I mean, I do believe at some junk I mean, the U.
S. Dollar will correct itself, timing could be determined, but I don't think that I don't think this is structural issues. Cyclical issue that we're going to have to manage through here.
Right. And then that leads to the next question is the inventory situation, like do you have sense of how long it's going to take for all that excess inventory in Argentina to move through. It sounds like the farmers aren't that eager to sell, they're kind of being more opportunistic. So what do you think?
Yes, I think it's not going to be an immediate flush of all those soybeans. Obviously, Argentina will try to consume those soybeans as much possible through crushing. So I think it could take a big part of 2016, almost all 16 to do that. If you think that they have take your peak between 12,000,000 tons, something in that range. And again, if the delta between what they they crush 3,000,000 tons per month and there is capacity of 4.5 and the farmer not that interested in selling.
Situation is not going to change that much in Argentina in the short term. So I think it's going to be a gradual period in which we might have to suffer with increase in North America suffer with increased crush margins from Argentina for a while until they evacuate all this inventory.
Right. So this is the bigger issue, above and beyond the U. S. Dollar getting strong. Is the oversupply situation?
That's correct.
Your next question comes from the line of Ken Zaslow with Bank of Montreal. Your line is open.
Hey, good morning, everyone.
Hey, Ken. Good morning, Ken.
So a couple of questions. One is, are you is there any interest for you guys to buy or bid on the ports in Brazil are being privatized. Is that something that interests you in terms of trying to diversify and be able to capitalize on the South American markets?
Yes, Ken, ports are important in Brazil, as you will know, we one of the reasons we are expanding our terminal in Santos and we created this port in the northern part of Brazil. We have to be careful though that, there is a lot of capacity being created. And as we see it in North America, in order for you to get good elevation margins, there need to be some tightening that capacity. It continues to be a supplydemand game. So, yeah, we're evaluating our teams are evaluating, but we need to make sure that we look at the the potential for overbuilding in certain areas.
So we continue to be with our focus on returns and looking at that. We're building a port in Argentina because in San Lorenzo, because if we think it makes sense, we build a port in the northern part of Brazil. We saw it made a lot of sense. The other ports we continue to analyze, there's a lot of activity in some places, maybe even too much activity.
Okay. The second question is, what do you think is the path for ethanol margins recover? Like, what are we looking for? Do we need just oil prices to do better or would it be better if the industry entered into such extreme losses that they would have to be production cuts. And just on following up on that, what is the our ethanol exports, call it, Mexico, India, in China?
Yes. So, the first part is I think there are 2 ways at this point in time to improve ethanol margin. 1 is expand export markets. I mean, I think we know what the domestic markets will be. So is expanding export market.
Thankfully, and the second is probably cutting in rates. Domestically. And I think that as people, as we are seeing it ourselves, when we run these things for yield, our cost position becomes better. So when you have seen margin you want to be able to have your lowest cost position, your best cost position and it's not necessarily through volume that you that. And we have proven that in our own facilities.
But anyway, so those are the 2 main factors. In terms of growing exports, we do see places like India and China that are dealing with environmental issues due to smog that how they are increasing the use of ethanol to fight their environmental, their air air pollution issues. So we see that demand growing. We see how demand has grown in China. And we expect for next year to be even bigger.
So we expect 2016 net exports from the U. S. To be probably between 50,000,000 to 100,000,000 gallons higher than what they were in 2015. Driven by all these two main markets.
So if that's the case, then why wouldn't ethanol margins in a year from now or 2 years from now be a 10% return on invested capital business?
Again, if you have asked me last year with the volumes of this year, I would have guessed that margins will be better. And yet we continue to stubbornly run at high rates and maybe people bring in creeping their plants and producing as much as they can. So this is a commodity industry and you really need very, very tight capacity utilization. So maybe low 90s doesn't make it. You need to be like 96%, 97% on that.
And if every time that we get to that level, somebody brings a little bit more capacity, we continue to to hover in this level that doesn't benefit anybody. So, So to me, I mean, we continue to be optimistic as we were before. We continue to improve our operations. It's just that one point reality needs to match our optimism. And so far he hasn't done it.
Your next question comes from the line of Sandy Klabin with Vertical Research Partners. Your line is open.
Good morning. Just a follow-up on your comment that ethanol ports will likely increase this year. I was wondering what type of crude oil prices embedded in your assumption because despite that sort of discount to other and enhancers, it seems that exports could be challenged to rise if crude prices remain at current levels.
At this point, we are forecasting this type of level, if you will, $30 if you want. In the up of any more information than that in a very volatile environment. We still believe that, as I said, the from an alkylates perspective, and as you said, from some old season 8s, we're still cheaper. And we still see continued demand from our destinations, we see, as I was answering to Ken, gladly that there are new markets like again, India and China that are increasingly taking based on air pollution issues and the benefit of ethanol to do that. So At this point, we are estimating on a flat crude oil environment, if you will.
Okay, great. Thank you. And then on WFSI, you discuss the pipeline and has the current economic environment done anything to push back your longer term targets for the segment?
Yes, I would say 2015, was kind of a noisy year or a dirty year for WFE SI, we integrated the acquisition. We put several businesses together. We have a couple of bolt ons. And then we have emerging market issues that that move our demand. And even our seasonal high periods, they move a little bit.
So it was a very unusual year with also a lot of customers focusing much more sometimes in cost reductions than in revenue enhancement opportunities. We are very pleased though with the way, the customers have reacted to our value proposition. And we see that in the engagement that we have in our customers. So our expectations for the pipeline and the deliverance of synergy have not changed maybe has changed a little bit the composition of that in the short term. I think if we are going to be talking in the year 3 of these, we probably be re working a little bit higher cost synergies than we originally expected.
And we will still be targeting the same amount or more of revenue synergies may be a little bit longer in the timeline just because we continue to incorporate products to our product line and our value proposition. And that continues to open doors with customers, but the customer projects are normally a little bit slower or less in our control from a timing perspective than the cost But the response to customers to our value proposition has been very, very good. We have when we originally target this, Sandy, we had $94,000,000 originally targeted in revenue synergies. We have built the pipeline of already 67 to 70,000,000. And we have, more than 700 projects in the pipeline.
So we feel very, very good about having created this pipeline that we're turning into execution and into wins. And you will see that accelerating in 2016.
That's very helpful. Thank you.
Your next question comes from the line of Ann Duignan of JP Morgan. Your line is open.
Hi, good morning.
Good morning, Ann.
Most of my questions have been answered, but I'd like to just take a step back to the currency discussion If currencies remain about where they are today, could we see additional downside pressure around the world just from places like South America, Eastern Europe, all the various countries that are concerned about deflation of their own currencies, just getting more crops just because they need to get their hands on dollars versus the world needing more crops. So I guess my question is could things get worse before they get better if currencies main as is?
Well, I mean, as you know, Ann, I mean, it's difficult to forecast currencies, right? I mean, It's just a lot of factors that enter it. There's the political factors are also impacted presumably the Brazilian currency at this point in time. You also have to remember that in some respects, a lot of these countries are getting a windfall right now in terms of the competitiveness of the crop. Because they've got the devaluation that occurred this year, yet the input costs was prior to the currencies devaluing.
So they were able to still get competitive input costs in terms of whether it be seed or chemicals. That's going to change as you go into 2016. What will happen is they'll have to buy that at a higher cost because a lot of this is actually denominated more in U. S. Dollar terms.
And so a lot of these countries are going to have to grapple with higher input costs in terms of their grains going forward, whether it be seeds, chemicals, etcetera, etcetera. So We'll have to see. I mean, is the worst behind us? It's difficult to predict. What we do know is currencies go through cycles.
And so from our perspective, we're going through a cyclical downturn with some of these currencies political influences have some impact. Our job is just to manage this. And we'll continue to focus on expanding our footprint in South America as for example. I mean, we've made investments down there. And we're going to continue to manage our costs.
The other factor is really the balancing to global supply demand of grains. And oftentimes low prices solve a lot of issues. And so with the current low prices, expectations that you should see a lot more consumption around the world. And that could probably help us in terms of the global supply demand balance will also be important in terms of getting the situation back to normal.
I appreciate the color. And then just one follow-up on ethanol. Could you comment on the Chinese government's latest round of anti something charges against U. S. DDGs.
Is that impacting your business already on the dry mill side or is that yet to come?
This is obviously the second time that we've gone through this with the Chinese government. And Yes, there's been more there's been less activity obviously going of ddgs into China. So they are staying domestically. And they are adjusting prices to find their way into Russia. So a little bit hurting soybean meal in that sense.
And, but I would say, yes, obviously, not the positive for ethanol. But we're seeing the impact already.
Your next question comes from the line of Michael Piken with Cleveland Research. Your line is open.
Yeah, hi, thanks for the question. I just wanted to get an update on HFCS, probably think to the extent you can talk about that as the negotiations are nearing conclusion?
Yes, thank you, Michael. Yes, as you said, the negotiations have concluded. We are very satisfied. The industry is very tight. So, I think we concluded with pricing across the portfolio of products in the high single digits, I would say, for 2016.
So we believe that 2016 will be sent an opportunity for us to, expand margins and seeing even increasing volumes for us. So we are very bullish about that segment for 2016.
Great. And then you talked in the past about trying to optimize your grind on the wet milling operations. Would it be fair to assume that maybe you're shifting some of that Brian away from Ethanol toward other products at this point in time? Or how should we sort of think about the amount of swing capacity have, to move away from up and up given the current market conditions?
Yes. If you look at, for example, how much ethanol we produce in 15, we produced less than in 2014. And if you look at high fructose corn syrup overall, our sweeteners and starches, actually, we grew our volumes. So there is a shift that we normally place, the guys optimize the assets and the fight for the grind is not only between those two things, but we also continue to introduce new products, sometimes too small to mention But we continue to see that fight for the grind. Yeah.
Great. And then last question is, if you could kind of classify with that $275,000,000 bucket of cost savings, roughly how much is going into corn versus from the other segments that would be call? Thank you.
Yes. I don't know the $275,000,000 top of my head, but traditionally corn takes about 50% of all our operational improvements. And that might change over time as we run out of some opportunities here or there. But I would say that a rule of thumb, you take 50% applied to ethanol, to corn, I'm sorry.
Thank you. You're welcome.
Your last question comes from the line of Eric Larson with Buckingham Research. Your line is open.
Yeah, good morning, everyone.
Good morning, Eric.
Again, most of my questions have been answered, but I want to actually talk a little bit about kind of the global supply situation. We're seeing in the U. S, estimates coming out that corn and soybeans will be $174,000,000 acres, which is not demonstrably different from what it was last year. So, I think the U. S.
Banks will probably have more to determine what how much farmers get to plant and that might an impact on planting numbers, but it doesn't seem like these low prices have at least started to discourage production in the U. S. And then you've still got about 200,000,000 metric tons sitting China, they don't know what to do with it. I guess, time with China would be with China, they have such poor storage maybe at all this goes bad, which would be a good scenario. But can you kind of wrap up your thought you wrap up your thoughts on global supply as we put all these factors together?
South America, the U. S. Planting season might look like on the acreage. What China might do with their corn? We're putting a lot of variables in there, but this is really kind of key to what I think is going to be a turnaround for your industry fundamentals?
Take that by pieces. In the U S, we expect probably acreage of corn and soybeans to go up a little bit and maybe at the expense of wheat acres. You said it well, the globe have increased their stocks this year in the tune of maybe 20,000,000, 25,000,000 tons. So the world is well supplied. And yes, China is sitting on inventories, although we never know the quality of those inventories.
So, at this point in time, given that the South America is probably not having any major threatening weather events. And the U. S. Seems to be forecasting a wet spring and we have good soil moisture. So we probably expect that there continue to be ample supply going into next year.
There has been some dislocations. We shouldn't forget, and Nino created some problems in, and that's why we are exporting so much soybean oil India, for example, or we are exporting now more corn to South Africa because of the drought there. But probably this location were regional in nature and didn't get to a global level. So at this point in time, the scenario is for still plenty full supplies as we see it forward.
Okay. Thank you. And then just your comment that you're looking kind of at 20 16, we should sort of begin our thought process that it might be similar to second half 2015, obviously, those were 2 pretty difficult quarters. And I see exactly where you're coming from on that. What would be what would change it so that you'd look more like the first half of twenty sixteen?
Eric, let me take that. I mean, when you take a look at what we've done in the back half of 2015, we've been running $0.60 a quarter, right, in terms of a run rate. And so, I mean, you can't necessarily multiply by 4, but on what we're saying is that conditions are not going to be at least what we see in terms of visibility at this point in time, not materially different. As we kind of move through the year, I mean, clearly, you've got to have certain benefits there. As you would expect, we are going to start off low in the first quarter.
I mean, this is, based on the conditions that we end up at the end of Jan end of December, where ethanol margins have ended up. And I mentioned to you, the high water impacts that we had in the Mississippi River, that will hacked us in January in the first quarter. We'll start off slower in the front half of the year. We'll start off slower in the first quarter. And then we expect some gradual recovery as you kind of move through the year.
We will get accretion from the investments that we've made. That we're doing. Well, again, as Juan indicated, we expect the margin environment for ethanol should improve as we kind of move through the year. But again, that's going to be a variable that we're going to analyze very, very carefully. And so as you kind of look at how we think the year will play out, again, as Juan indicated, we do expect Ag Services to be a little better.
We expect to be a little the global crush margins right now to be worse off. And then WFSI should have a good year. So with all those puts and takes, I think we make a judgment in terms of how we end up overall. But at least based upon what we see in terms of visibility, the front first quarter front will be tougher than what we think the second half will look like.
Okay. Yes, I think that's a very fair perspective. Thank you very much of that.
Thank you, Artie.
There are no further questions. I'll turn the call back over to Juan DiCiano for closing remarks.
Thank you for joining us today. Slide 15 notes some of the upcoming investor events where we will be participating. As always, 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.
And this concludes today's conference call. You may now disconnect.