Good morning, and welcome to the Archer Daniels Midland Company Second Quarter 2015 Earnings Conference Call. All lines recorded. I would now like to introduce your host for today's conference call, Mark Schweitzer, Vice President, Investor Relations for Archer Daniels Midland Company. Mr. Schweitzer, you may begin.
Thank you, Stephanie. Good morning, and welcome to ADM's 2nd quarter earnings conference call. Starting tomorrow, a replay of today's call will be available at adm.com. For those following this 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 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 call, our Chief Executive Officer, Juan Luciano, will provide an overview of the quarter.
Our Chief Financial Officer, Ray Young, will review financial highlights and corporate results. Then Juan will review the drivers of our performance in the quarter, provide an update on our scorecard and discuss our forward I will now turn the call over to Juan.
Thank you, Mark. Good morning everyone. Thank you all for joining us today. This morning, we reported adjusted earnings per share of $0.60. Our adjusted segment operating profit was $724,000,000.
Adjusted ROIC of 9% was 240 basis points above our cost of capital. Our 2nd quarter results demonstrate the strength and value of our geographic and business portfolio diversity. In corn, Domestic and export demand for ethanol was robust, but record industry production limited margins. This was partially offset by strong results from our corn sweeteners and starches business. In oilseeds, good mill demand supported strong North American soybean crushing results.
And South American origination and export volumes were up leading to good throughput at our expanded origination and port network. These combined with the flexibility of our global crush plants helped the Oilseeds team deliver another strong performance. The wild flavors and specialty ingredients team has an excellent quarter and continues to great progress toward achieving their targeted cost and revenue synergies. Ag Services earnings were affected by lower margins and volumes of North American exports as they were less competitive globally and by a sharp upward move in commodity prices as end of the quarter. But within our Ag Services segment, the milling business had record 2nd quarter results.
We've continued to advance our strategic plan that's improving our ROIC and growing our EBA. Among numerous other actions, we closed the sale of our global chocolate business to Cargill, closed the Barcarina port transaction with Glencore in June and we remain on track to close both our Easter transaction and the sale of our global cocoa business later this year. And we're making great progress on our operational excellence initiatives. I'll provide more detail on our scorecard activities later in the call. Now, I'll turn the call over to Ray.
Slide 4 provides some financial highlights for the quarter. Adjusted EPS for the quarter was $0.60 down from the strong $7.9 last year. Excluding specified items and also excluding net timing effects, adjusted segment offering profit was some $124,000,000. The effective tax rate for the second quarter was 27% compared to 28% in the second quarter of the prior year. Our trailing 4 quarter average ROIC of 9 percent significantly improved by 120 basis points from to some 0.8 percent annual WAC for 2015 as well as our long term WAC of 8% as reflected in the graph on slide 9 in the appendix.
Our objective remains to earn 200 basis points over our WACC. In the 2nd quarter, our trailing 4 quarter average EBA was $610,000,000 based upon adjusted earnings and annual WACC up $238,000,000 from the second quarter of 20 14. On Chart 18 in the appendix, you can see the reconciliation of our reported quarterly earnings of $6.2 per share to the adjusted earnings of $0.60 per share. For this quarter, LIFO represented a $0.06 per share after tax charge, We had some gains on sales or revaluations of assets, primarily related to our northeast Brazil port and the Romanian port totaling $0.11 per share. We also had some impairment charges totaling $0.04 per share.
Slide 5 provides an offering profit summary and the components of our corporate line. Before one discusses the offering results. I'd like to highlight some of the unique items impacting our quarterly results. In the last chart and are highlighted in our press release. As a reminder, our Cocoa and Chocolate business remained part of our segment reporting results in oil needs until we have closed on the sales and they're not treated as discontinued operations in our financial statements.
Our new 4th business segment, Wild Flavors And Specialty Ingredients or WFSI for short, is reported as its own segment for the second time this quarter. This segment includes a 2 businesses we acquired in 2014, Wild Flavors And Specialty Commodities, Inc. As well as certain specialty ingredients businesses that were previously recorded in ADM's 3 other segments. For purposes of comparison to prior results, the year ago quarter's segment offering profit for ag services, corn and oilseeds removed the earnings of the businesses are now reported in the WFSI segment. To assist you with your analysis, we've included a chart in the appendix that recast 20 team segment quarterly results to the new segments.
In the corporate line, net interest expense was about flat Unallocated corporate expenses were $19,000,000 higher due to 1 increased GAAP pension expenses relating to changes in discount rates and mortality tables second, increased spending in IT and our ERP project third, investments related to strategic business improvement projects and lastly, unique costs related to specific divestiture activities, including results. Excluding these factors few quarters to be between $110,000,000 to $120,000,000 per quarter. I would also like to comment on our GAAP net revenue number $1,000,000,000. Of goods sold as our input costs are lower. So the key is managing the spread between the revenues and the cost of goods sold, which is core competency of our teams.
This dynamic makes offering profit much in the prior year do not include the revenues and the costs of Wilde And SCI whose transactions closed in the fourth quarter of last year. Now turning here's a cash flow statement $2,000,000,000 from operations before working capital changes into 6 months, slightly higher than the prior year. Total capital spending for the 6 months was $540,000,000, up from the prior year, but consistent with our guidance of $1,100,000,000 year. 15 target of repurchasing $1,500,000,000 to $2,000,000,000 of shares subject to strategic capital requirements. Our average share count for the 1st 6 months was 633,000,000 diluted shares outstanding, down 28,000,000 from the 661,000,000 at this time 1 year ago.
At the end of second quarter, we had 621,000,000 shares outstanding on a fully diluted base For the first half, our total return of capital to shareholders including dividends was over $1,500,000,000. Our 6 months cash flows are consistent with our 2015 calendar year targets of capital allocations, namely CapEx of $1,100,000,000 to $1,300,000,000, approximately $700,000,000 of dividends and $1,500,000,000 to $2,000,000,000 in share repurchases. We have been more aggressive in the pace of stock buyback taking advantage of the recent weakness in our stock price. And all this is consistent with the balanced CAP allocation framework we set forth at our December Investor Day. Slide 7 highlights our balance sheet as of June 30th for 20152014.
Our balance sheet remains strong. Operating working capital of $8,300,000,000 was down $2,700,000,000 from the year ago period. This decrease was comprised about $2,100,000,000 related to lower inventory prices, including the translation impact partially offset about $900,000,000 related to inventory quantities and a decrease of $1,500,000,000 in other working capital, primarily related to reclassification of working capital for our global Coca Cola and chocolate business under held for sale accounting. Total debt was about $6,900,000,000, resulting in net debt balance that is debt less cash of $5,700,000,000, up from the 2014 net debt level of $3,600,000,000 in part reflecting 4th quarter cash flow flows related to our acquisitions of Wild And SCI. In addition, we raised 1,100,000,000 in June into euroDebt markets to take advantage of low interest rates and to serve as a net investment hedge for our grown euro asset base following the Wild acquisition.
We have paid down $800,000,000 of notional debt in July in a U. S. Debt tender settlement and we may pay down an additional $200,000,000 before the end of the third quarter. While we will take a pretax charge of slightly above $200,000,000 in the 3rd quarter related to debt tender premium, we expect Going forward, our ongoing annual interest expense to be lower by about $40,000,000 pretax or $0.04 per share after tax. Through the combination of the transaction had a very positive NPV benefit for ADM.
Our shareholders' equity of 18 point $6,000,000,000 is $1,700,000,000 lower than the level last year with a cumulative translation account down about 0 point $5,000,000,000 due to the strength over $7,000,000,000 of short term liquidity. Next one will take us through a review of our business performance 1,
Thanks, Ray. Please turn to slide 8. In the second quarter, we earned $724,000,000 of operating profit excluding specified items. Our ROIC of 9% was up 120 basis points over last year's second quarter and EVA was up $238,000,000, an increase of more than 60% from last year. 1st half operating profits were similar to the same period last year despite a decline of more than $200,000,000 in operating profits from the ethanol business.
These results demonstrate the power of our business model. Now I'll review the performance of each segment. Starting on slide 9, year. Merchandising and handling results reflected a more significant seasonal decline in North American export volumes and margins. While some global demand was met by increased South American exports that improved our oilseeds segment results.
We also saw lower global trade desk margins at the June 30 USDA report drove an increase in prices some commodities, which negatively impacted some merchandising positions. While we had this impact at the end of Q2, markets came back a few days after the report. In transportation, we saw lower total U. S. Barge freight volumes and high water increased our costs.
Milling and other results increased due to improvements in product margins, make and strong merchandising results, a great quarter for our global milling operations, record 2nd quarter results there. Please turn to slide 10. Corn processing results improved sequentially and declined year over year. In sweeteners and starches, overall volumes were up about 3% year over year. The tight supply chain for North American sweeteners supported very good margins and volumes.
We also saw good demand for livestock feed. And our Old Mex joint venture in Mexico and our East Starts joint venture in Europe both delivered solid results. And in Bio Products, Ethanol earnings were lower. As I mentioned earlier, demand was robust with increased exports and record U. S.
Driving miles, but margins were limited as the industry ran at record volumes. Our ethanol profitability improved from the first quarter with 2nd quarter ethanol EBITDA margins estimated at around $0.18 per gallon. Now looking forward, on the demand side, we see continued strong domestic and export demand for ethanol. Driving miles are up more than 3% which will help domestic ethanol consumption approach 14,000,000,000 gallons in 2015. We see annualized net exports running at about 800,000,000 gallons.
We expect growth of exports to markets that currently use MTBE. And E15 adoption continues to grow, which will also bolster demand long term. On the supply side, industry production levels will be a function of many factors, including maintenance timing, yields, hot weather, planned and unplanned downtime and the pace of industry capacity creep. In terms of what we're and ethanol adoption in markets abroad. We're also investing to further improve ADMs cost position in this business.
ADM has invested a lot of effort to drive operational excellence and cost reductions in our wet mills. Which represent about 1,100,000,000 gallons of nameplate capacity. And that has translated into strong financial results from these facilities even in challenging environments. We believe there are still opportunities to improve the cost positions of our large dry mills. Which represent about 600,000,000 gallons of nameplate capacity.
We're intensifying efforts across a range of areas to drive this cost improvements. In summary, we continue to believe there is an important place for ethanol in the global fuel supply and we expect that our actions will help drive improved results consistent solid quarter similar to last year. In crushing and origination, large global bin supplies and strong U. S. Mill demand drove great global soy crush results.
In the first half of twenty fifteen, we crushed record volumes of soybeans globally. As part of our strategic plan for oilseeds, we've added switch capacity to more of our North American trash plants. And we profited from our global switch capacity in a weak softseed margin environment this quarter. As I mentioned earlier, our South American Origination And Port operations including our Barcarina port had good throughput at the region's large corn and soy harvest through the world's most competitive supply. In fact, ADM's South American export volumes were up 38% compared to last year's second quarter.
On the softseed side, concerns about seed supply significantly reduced margin volumes and margins and volumes. Refining Packaging Biodiesel and other declined mainly on the absence of biodiesel blenders credits were recorded last year. In Europe And South America, margin were challenged and our Stratas Foods bought a loyal joint venture delivers best quarter yet. Stratas continues to be an leaders in working with customers to manage the transition away from TransFAX. Results from Asia rose primarily in Willmark's improved performance.
Slide 12, please. In their second reporting quarter, the wild flavors and Specialty Ingredients business unit delivered more than 100,000,000 in earnings and excellent performance. While labor had strong results in North America, to provide some context, it's worth noting that in 2014, North America represented slightly more than half of the profits for wildfires globally. And despite microeconomic headwinds, flavor profits in Europe were in line with our plan. And this quarter was one of the best ever for our specialty proteins business.
Among other highlights, a customer launched the first retail product with our Tektura customized inclusions. The WFSI business with products ranging from protein specialties to ancient grains to natural flavors is a key component in ADM's efforts to serve customers with on trend products to grow their business. As I mentioned earlier, WFSI team continued working across all ADM businesses to fuel synergy efforts. In terms of revenue synergies, they continued to grow the pipeline and customer base. In the quarter, they added 175 projects to the pipeline, bringing the total to nearly 600.
In the quarter, they work across all ADMs business units to deliver more than 50 more revenue senior synergy wins. One interesting note here, the SCI team and their customer relationships have proved to be a valuable engine for driving collaboration and delivering these wins. So so far this year, the WFSI team has implemented $24,000,000 in annualized run rate cost synergies. That's more than halfway toward the 3 year target. We remain confident that the team from the Wild acquisition by the end of year 3, which is 2017.
I would still expect the Wild business to deliver 10% to 15 turns earnings accretion in the 1st full year of operations despite some ForEx headwinds. Now on slide 13, I would like to update you on how we're strengthening and growing our company. This is the scorecard we presented at the Investor Day in this December. It lists the actions we are taking to help grow our business, our earnings and our returns. We've highlighted some of the areas in which we made significant progress.
I'll discuss a few. In Ag Services, we expanded our farmers services offering with an investment in Agribol, a leader in on farm analytical and casting tools. We announced the expansion of our porta porta canals and Martin in Argentina enhancing our export capability from the region. And our port services JV acquired a Brazilian port and shipping agency. In corn, we are on track to close the Easter's acquisition in the second half of the year.
We contributed our liquid fit business into a joint venture to achieve greater scale without additional capital intensity. And in May, we announced an agreement to acquire a small sweetener manufacturer in Central China, but unfortunately, that transaction fell through. In oilseeds, we closed the sale of a 50% stake in our Barcarina port to Glencore. We closed the sale of our global chocolate business to Cargill and we remain on track to close the global cocoa sale to Olam by the end of the year. And in WFSI, we acquired a tree nut and seed processing facility in California, adding processing to support strong sales growth.
We remain on track to deliver synergy and accretion targets and we continue to advance our construction projects India and the U. S. And with respect to our operational excellence initiatives, $1,000,000 of run rate savings by the end of year 5. By the end of the second quarter, we have realized already about $125,000,000 of this run rate savings. We'll update you on our scorecard each quarter.
And over time, you should expect to see the result of these actions in improved earnings and returns. So before we take your questions, I wanted to offer some additional perspective as we look forward. We continue to feel good about 2015. Large U. S.
Harvest should help drive utilization of our storage and transportation sweetener balance sheet and continued global sweetener demand should support margins and volumes in our sweeteners and starches business. As I mentioned earlier, in ethanol, in the near and medium term, we expect demand both domestic and export to remain very strong. Production levels should also be robust and industry margin should evolve based on the supply demand balance as we move through the year. We're intensifying our work on the cost position of our dry mills. Over the medium term ethanol remains the cheapest octane cancer in the world and we're growing toward domestic and international demand.
Good global demand for meals should continue to support capacity utilization at our global soybean processing assets. And the WFSI team is well on track to where their cost and revenue synergy targets for 2015. We continue to see great collaboration across all of ADM's business units as we partner to serve a growing customer base. Overall, we continue to advance our clear and aggressive strategic plan. We'll continue to see contributions from that effort throughout the year and we remain focused on growing EBA.
With that, operator,
Your first question comes from the line of Far Ozlem with Stephens. Your line is open.
Hi, good morning.
Good morning, Farah.
Could you just walk us around the globe, for global crush margins, 1? Clearly, soy crush margins are very, very strong. How will ADM position itself for that? And can that be adequate to offset the weakness in softseed margins?
Yes. So margins in North American continued to be very, very good, very strong domestic demand. And if you remember, we announced earlier in the year that there are 2 facilities in the U. S. Where we have added switch capacity to soybeans.
So that's helping us to offset a little bit the weakness that we expect in softseed. South American margins continue to be solid. European margins were very solid in in soybeans in second quarter. We took advantage again of our swing capacity and we maxed that soybean crushing capacity in Europe, we see now a little bit more softness as more North American, South American soybean meal is arriving And in China, we saw some recovery of that. It's not where where it used to be at the beginning of the year, but it's much better than last year.
So overall, we see a strong continued demand and we foresee good crushing margins for the rest of the year.
That's helpful. And are you concerned Argentine capacity coming back online this year or early part of next year?
Ethan, I think that at one point in time, we will have to deal with this predicated in many factors at this point what the farmer will do in Argentina. There are upcoming elections and all that. But we are very bullish given the domestic demand in the U. S. And the global demand that continues to grow for soybean meal.
That's helpful. Thank you. And just one follow-up on Ag Services, in your prepared remarks, you'd highlighted that you expect strong performance in the second half from that business due to a good U. S. Crop.
Could you just share with us kind of what you've seen so far from the farmers as they've prepared for, harvest and kind of what you think your elevator utilizations are going to be and how that's going to affect earnings going forward?
Yes. So obviously Ag Services, 1st half was softer than than what normal is the 2nd half. We saw it last year. It doesn't surprise us that much. If you look at the performance year to date, for Ag Services is in line with the same the first quarter last year.
So as last year, as the U. S. Comes into the harvest, it becomes more competitive in export. We plan to move a very strong harvest through through all our facilities. So we expect a very strong second half.
We expect the U. S. To are more competitive in export. We haven't been so far, but we expect that demand to come to our elevators very fast and being able to increase elevation margins towards the end of the year. So at this point, we are very bullish second half for Ag Services
Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
Yes, thanks. Good morning, everyone.
Good morning, Adam. Good morning, Adam.
Maybe the first question in ethanol. And, Juan, I heard you expressed some confidence that the margin outlook, would have prove from here. And I and I guess I'm trying to reconcile the supply demand with exports where they are seems reasonably balanced, although it's not clear stocks are actually going to draw as you move into the second half. But with the sharp decline in oil prices, how do you see do you become incrementally concerned about the pricing of ethanol relative to gasoline, both domestically and overseas, just keeping keeping that margin kind of contained over the near to medium term?
Yes, I think, listen, We have to separate the analysis in certain pieces. From a demand perspective, we continue to feel very good about ethanol. As I said before, domestic demand with low gasoline prices has increased 3%. And that pattern should continue with the normal seasonality between summer and winter in the U. S.
Export demand continues to be very solid in those countries that are already customers. And we have many, many new countries trying to become new customers and our team are out there trying to develop those markets. So the issue always become the in this relatively new industry, what's happened with the supply. And the supply has been strong during so far during this year because we have a very mild start of the summer from a temperature perspective. We expect that, right now, we've seen that even in June July, over the last 3 weeks inventory has been flat or slightly declining for the last 2 or 3 So the industry can produce that 15,000,000,000 gallon, but not more than for a very, very few weeks.
And then I would say it's relatively balanced. What do we see right now in in ethanol. And even at this oil prices, we are money in our in all our mills. And if you think about the oxygenate values, MTV continues to be at about $2.85 versus a methanol of about $1.50 $1.60 and the other alkylates are about 250. So we continue to be the most competitive, obtained enhancer out there.
And so without even thinking about E15 growing in the background. So I think overall, I cannot call it through the months or through the quarter because as I said, this is a relatively volatile industry as we grow into our capacity. But I think medium term, we're very optimistic about the balance of turn it into the favor of ethanol.
Okay. That's very helpful. And then on you expressed confidence in ag services in the second half, principally in the in the US. Do you A, was there a loss on the global trading desks late in the quarter that provides some could cushion to the third quarter. And if so, can you quantify it?
And second, how do you think about the mix, the breakdown of that Ag Services second half between next support volumes against the very competitive South American crop versus domestic merchandising and origination, domestic transportation, and the offshore business?
Yes. It's a complex question, Alan. Let me see if I can split it a little bit So, the first part, the loss on the global trade desk. As you know, June 30 report created a big volatility and basically brought prices up. So when we mark to market that, I think the loss was around $5,000,000, Alan, so maybe not that significant.
And the price is corrected like by July 2nd or 3rd they will back to. So, part of that will has already come back in those positions. Regarding second half, I think maybe the export season will start a little bit later this year for the U. S. As North South America continue to extend their window a little bit.
But we believe that that demand will come to the U. S. And will come all of a sudden altogether. So that will bode well for elevation margins. We think that our transportation Our transportation business also will be very strong and we need to move a very, a very large crop I think that we're going to see the comeback of the normal caries that we see in the U.
S. So, we believe that a very strong crop and a very big carryout bodes very well for our footprint in North America. So, I think it's going to be heavy 4th quarter loaded, and I cannot call it, Adam, whether it's all exactly 4th quarter or slip a little bit into Q1, but we are prepared to manage a very large crop.
Okay. And then just a point of clarification there on the carries. Is that corn or corn and wheat or both?
I think we're seeing both at this point in time.
Your next question comes from the line of David Driscoll with Citi Research. Your line is open.
Good morning, Juan. This is Cornell Burnett on with a few for David Trisco.
Hey, Cornell. All right.
All right. Just wanted to give a few on ethanol just wanted to see what was your take on where export rents would be at the end of 2015. It appears to us that the number could be something greater than 1,000,000,000 gallons. And so putting that together with the fact that you're seeing somewhat of oversupply currently in the ethanol market. Just was wondering kind of what prevents margins from continuing to be soft if that is indeed the case?
Yes, we expect this balance to be like $1,800,000,000. I think I said it before when I answered to Adam in the ethanol, it's difficult to call it in the short term. In the short term, there are risks to our forecast, certainly, Brazilian ethanol could be coming into the U. S. But we continue to see markets being developed outside the U S and the U S domestic market being robust consider this.
And I think we said it before, Cornell, that are out there at least 6,000,000,000 gallons of MTBE capacity that we're working very hard to replace. And these products, again, ethanol is the most sustainable and the lowest cost obtaining cancer. So I like to be positioned in a product that is very sustainable and lower cost and their alternatives. So there is a big market out there. And here, we're going to go through ups and downs through all these regulations.
Again, I said it before, it's a relatively new industries and industry that started in 2007, it needs to go through freight phases of consolidation. We're going to have creep capacities some producers will become better, better producers, more cost efficient that will push some of the marginal producers into more travel water that will, to a certain degree, modify the industry. So we're watching this industry development But at this point in time, we continue to be very excited about the potential we find in our own plants to improve our competitive advantage and the potential for this market to grow in front of us.
Okay. And then just to follow-up, I mean, over the remainder, of 2015, we're looking at on the fuchsia market petroleum prices under $50 a barrel and some concern that there may be some oversupply in the market. When you talk about kind of the ethanol profitability, perhaps finning going forward from what you saw in the 2nd quarter, is that predicated on us seeing some type of rebound in petroleum and that kind of what levels of petroleum think you can get there?
Yeah. No, at this point in time, I refrain from forecasting oil for obvious reasons, but I would say in the current environment. When I make this comment are in the framework of the current oil price it the current corn prices, if you will. So I'm not forecasting that they're going to go anywhere.
Okay. Very good. Thank you.
Thank you, Cornet.
Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is open.
Hi, Juan and Ray. Just in general, it looks like the first half came in below internal expectations for the year. And judging from market trading benefit would only be $25,000,000 in third quarter. It just looks like the year as a whole is going to below what your internal expectations might have been. And I just kind of want to get a sense from that sense of that from you.
Is there still a chance that you can hit kind of your internal targets for the year as you set them?
Yes. Let me walk you through the different businesses, Rob. Oilseeds is a way ahead last year. And we continue to see upside in oilseeds granted we're coming against the strong comps that we have in Q3 in Q4 last year, but oilseeds is coming very strong on very strong demand. So that's ahead of last year.
And as continue to be over the year. Ag Services, as I told you, is online for the first half And last year, we had a second half that allowed us to deliver in the range of 850 to 900 and we see this year again, the possibility to be in that range if we can repeat the second quarter, the second half. And with this kind of crops, we have the potential to So I would say those businesses are on par or ahead of last year. WFSI is having very good performance. We'll hit within the range And so that's an addition of last year.
And then we have in sweeteners and stargets that are going very, very strongly. And it needs to offset the weakness in ethanol. I think ethanol was obviously started the year very very soft in Q1. It's improving Q2. It has improved a little bit over the last 3 weeks.
So I think the issue is we have one business that we think it will deliver, which is Ag Services. We have 2 businesses: WFSI and OOCE that will probably outperform and that needs to offset a little bit the softness in ethanol. So all in all, at this point, we still believe we still feel good about 2015.
Okay.
So from a returns perspective, I mean, we feel good about our ROIC. Our ROIC focus and we continue to be running our plans pretty aggressively in managing invested capital. We're buying back shares also to reduce invested capital. So we feel good in terms of our progress towards ROIC as well.
Don't forget, Rob, that when we divest Cocoa and chocolate, when you consider we are 9% ROIC today, we are divesting basically $1,200,000,000 of invested capital that for us represent very, very low returns. So our implicit return when all that is gone is to get the boost.
I totally agree. No doubt. I just think that your stock, whether just side or not is going to hinge on forward projections for EPS and it just looks like the ethanol business is it would require a pretty heroic recovery to improve off of the first half. So, I just think that that's what's holding back your stock. Good.
And let me ask a follow-up. On share repurchase, Ray, did you say that you're shooting more towards the $1,000,000,000 now in that range of share repurchase guidance. Is that what you said?
Yes. I mean, given the pace that you seen in the first half of the year, we've been fairly aggressive, especially when our stock pulled back. So I have to say that we're probably on the higher end of the range there for sure.
Okay.
And our balance sheet remains strong. So we've got a lot of, a lot of capacity to buy back share.
Certainly. Okay. Thank you.
Your next question comes from the line of Michael Piken with Cleveland Research. Your line is open.
Yes. Hi. Good morning. Just wanted to dig
a little bit deeper into the Wild flavor Specialty Ingredients segment and maybe you could talk about the cane some earnings for the back half and what type of growth rate we might be looking for from an EBIT standpoint or a revenue standpoint as we look ahead maybe to some of the outer
Yes. Sure. So there is some seasonality in this business as you know, because there's a lot of juices and there's a lot of products that are sold in the summer. So the second quarter is, it's a slightly higher from a seasonal perspective than Q3 3, if you will. Margins continue to be very strong in the high teens EBITDA margins for this business.
The ingredients growth that we continue to see are in the range of 3% to 5%. And when you take natural products, natural flavors products are more the 5% to 6% range. We feel very excited about the reaction of our customers have had to to our product mix into these segments. And we've been expanding the customer base to make our business even much more robust. Just to give you some examples, the number of customers driving 80% of sales have increased by 47%, which showed the robustness of our pipeline going forward.
And as I said in my prepared remarks, the pipeline of new wins or projects that the customer that compose our revenue synergy portfolio calcadac quantum leap of 75 percent from Q1 to Q2. So all the prospects, all the products are on trends. Those trends are strong and are reacting very well to innovating with us. So we feel very good about it.
Okay. So, I mean, I guess, just as a follow-up, Do you have any sort of, you know, quantification that I'm I understand the seasonality part, but in terms of, like, do you have a revenue target or, you know, in terms of next year, what could that 10 to 15¢ maybe turn into from accretion standpoint? Thanks.
To be honest, Michael, this is such a new business for us and this is a combination for us of 9 different business that we group together. So we don't have a strong comps, so we don't have a lot of history too. And since a lot of these growth are the product of combination of new synergies of new solutions for customers is difficult to put the target. We know we are ahead of schedule in terms of synergies and we know we're going to deliver the accretion next year. We just haven't developed the robustness of comps going forward since this is a new business for us.
Operator, do we have more questions or
Your next question comes from the line of Ann Duignan with JPMorgan. Your line is open.
My question is more kind of big picture. And there was some press releases over the weekend that the Chinese government is considering changing. It's corn pricing policy and that, if it did do so, the world might be awash in Chinese corn. Just curious if you've, heard anything about that and what could that do to your business if they did indeed change their pricing policy?
Yeah. You know, there are two things, Ann, that everybody says, bring, excitement to our lives in the green One is whether the other is government intervention. So, we are very used to follow that, to track that it always presents opportunity for discontinuity. Obviously, we hear the rumors that China finding more difficult to sustain these subsidies to the farmers. But we don't know at this point in And I rarely bet against the Chinese government.
They seem to be very prudent and very strategic about their moves. So we're just paying attention. Obviously, a release of inventories or a drop in price could mean a decline in prices for corn. I would probably bode well for our business.
Okay. I appreciate that. And not to beat a dead horse on the ethanol side, but you were very clear at the end of q 1 that you were running the ethanol business for profits, not for volumes. The tone of your and seems to have changed a little bit. Am I reading too much into that, or, you know, are you just running for volume now not returned?
And we don't make a statement for the full quarter, so we don't commit to reposition. It's very much tacked based on what we see in the supply and demands and what we see in the unplanned capacities and the temperature and the weather and all that. So So the team remains very flexible. I guess what we wanted to say is like we're trying to maximize earnings in into our business. It depends during the quarter, we may move from one position to the other.
So I wouldn't make a statement for the full quarter at this point.
Okay. I'll get back in line and take my questions offline. Thanks.
Thank you.
Your next question comes from the line of Ken Zaslow with Bank of Montreal. Your line is open.
I had just two questions. One is on the Ag Services, what are the keys that we have to be looking for for you to have the recovery. Is it the basis? Is it the farmer moving? And what are the concerns that are associated with when the farmer is going to be selling and how you think about it?
And then my second question is, can you give us an update on the cost savings programs? Are you finding more is it coming in as expected? And just give us an update on that as well. Thank you.
Yes. So one key thing is in In Ag Services is the rate of exports and how competitive the U S is. Obviously, the U S have shown some competitive out of the P and W this year, but still the Gulf continues to be, second or third in terms of bids versus other So that will be probably the key aspect that will drive our earnings in the second have. But every year, the Ag Services business find different ways to make money. Sometimes it's through better usage of our footprint, sometimes it carries, sometimes it's through export.
So we will adjust. The large crop gives us a lot opportunities. The second point was cut costings. Oh, the cost savings program. Yeah.
We are at this point in time $125,000,000 run rate of that promise of 500 in 5 years. I would say, Ken, that we have probably identified enough opportunities that we know already that we can implement that are close to 3 to $400,000,000 of those 500. And since we are 1 year into this 5 year program, we feel that we are ahead of schedule. So we continue to find you heard me saying about our intensifying focus on dry mills. The wet meals are larger and older, so rightfully so when we started this program, we focus a little bit more there because we thought the opportunity was bigger.
Now when we look at the difference we have in costs between the wet mills and the dry mills, we feel that there are opportunities there, whether it's enzymes or yields or things like that. So we continue to find ADM is a large company. And as much as we cut cost, we continue to find new technologies that bring us new promises.
Thank you very much.
Welcome.
With Vertical Research. Your line is open.
Thank you. Return to ethanol, you highlighted E15 as a positive driver and I know the near term is hard to forecast but I think flex fuel vehicles currently about 6% to 7% of the total vehicle fleet. I was wondering where you see this going over the long term and how quickly do you see us getting there?
Yeah, when we started with the E15, we said that we were expecting the implementation to take about 5 years And, I think at the end of the day with, we would like to thank Secretary Vilsag for making available some funds to invest in infrastructure. The industry has a coalesced around that and is gathering money and is putting together projects to be able to participate in this program. And at the end of the day, there's going to become a tipping point. And I don't know exactly how when to call it, but we think that by the by 20 17, 2018, this will become a more meaningful part of our free field supply. And we feel very good what I will do to supply the balances for the ethanol industry.
Okay. Thank you. And then just to shift to biodiesel, if you could tell us how you're thinking about the near to medium term outlook and do you see further opportunities to reduce your dependency on biofuels in Europe or, or, you know, have you already done what you needed to do on that front?
Oh, no, I would say, 1st of all, in the medium term situation is tough for biodiesel. In the absence of a more clear RFS biodiesel will struggle no doubt. I would say in the in our strategic intent to reduce the dependency on biodiesel, we are just getting started. You heard us about you heard us about AUR, which is an acquisition we did in Belgium on a bottle oil producer. So there are 3 elements to our program.
1 is to crush more soy in Europe that produces less oil. The second is to grow our share in food industry, which AOR is one of those elements. And the third one is to increase the use of, of oil into industrial uses and that's growing as well. But I would say you're not going to feel an impact until probably 2016 from our perspective.
That's helpful. Thank you.
You're welcome.
I would now like to turn the call back over to Juan Luciano for closing remarks.
Thank you, Stephanie. So thank you for joining us today. Slide 15 knows our upcoming investor events. As always, please feel free to follow-up with Mark. If you have any other questions, have a good day and thanks for the time and interest in ADM.
This concludes today's conference call. You may now disconnect