Archer-Daniels-Midland Company

Good morning and welcome to the ADM Third Quarter 2023 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent background noise. As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's call, Megan Britt, Vice President, Investor Relations for ADM. Ms. Britt, you may begin.

Thank you, Alex. Hello and welcome to the Third Quarter Earnings webcast for ADM. Starting tomorrow, a replay of this webcast will be available on our investor relations website. Please turn to slide two. Some of our comments and materials may 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 and materials 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. To the extent permitted under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events. On today's webcast, our Chairman and Chief Executive Officer, Juan Luciano, will discuss our third quarter results and share some recent accomplishments on our strategic priorities. Our Chief Financial Officer, Vikram Luther, will review segment level performance and provide an update on our cash generation and capital allocation actions. Juan will have some closing remarks and then he and Vikram will take your questions. Please turn to slide three. I'll now turn the call over to Juan.

Thank you, Megan, and good morning to all who have joined for today's call. ADM reported third-quarter adjusted earnings per share of $1.63 with an adjusted segment operating profit of $1.5 billion. Year-to-date, this equates to an adjusted earnings per share of $5.62 that would represent ADM's second-best EPS year achieved in just the first nine months and an adjusted operating profit of $4.8 billion. Our trailing four-quarter average adjusted ROIC was 13.2%. These results reflect yet another strong quarter for ADM. I'm proud of the team's nimble execution against our strategic plan while adjusting our business model in light of both global macro trends and the evolving needs of our customers. The global market is increasingly dynamic with factors that create both opportunities and challenges for ADM to address. Consumer behavior has shown growing variability, spending more in some categories while slowing spending in others. And our team has a proven ability to manage through these and the impacts of geopolitical tensions, inflationary pressures, and the constantly adjusting balances of commodity supply and demand. Within each business, We are focused on navigating these external factors carefully, while we're also building on the momentum we've seen through the year to date. As we look ahead, we are on track to exceed our 2023 previous expectations for the total company. In ag services and oilseeds, we saw the accelerated energy transition support strong demand for vegetable oil, leading to a solid crash environment. We leveraged our flexible logistics footprint to manage Brazil's record crop and our global trade franchise to best match supply to demand worldwide. In car solutions, we delivered a record third quarter on the strengths of solid margins in starches, sweeteners, and flour, as well as robust ethanol demand that helped us drive strong volumes and margins. In nutrition, Flavors growth continued to outpace the market where we both grew and executed on our revenue opportunity pipeline. The deliberate productivity and cost management actions we have taken in animal nutrition are enabling improved performance as we also see market volume recovery. And we continue to navigate pockets of soft demand in certain categories of the nutrition portfolio. Next slide, please. One of ADM's greatest competitive advantages is the breadth and integration of our business model, reaching from farm to fork. 2023 has offered several examples of how we're creating new areas of growth in each business unit. On the farm, ADM has one of the largest and most sophisticated global origination networks, connecting with hundreds of thousands of farmer partners worldwide. We have unique and deep relationships with the people and technologies that are shaping the future of agriculture. So as more of our customers are looking for traceable, sustainable crop sources in their own supply chains, we are a natural connector and influencer. We are proud to have announced partnership with PepsiCo, Nestle, and Carlsberg, and have a target of 4 million regenerative acres enrolled by 2025. the carbon equivalent of powering more than 100,000 homes a year. Moving into production, as the pace of energy transition accelerates, demand for renewable fuel sources is growing rapidly, and ADM is in a leading position to capitalize on this trend. With our Spiritwood JV with Marathon currently being commissioned, we are ready to feed the production of a targeted 75 million gallons of renewable green diesel per year. We have announced the Broadwind Energy Project, delivering a lower-emission power source and a critical part of lowering our carbon emissions used to power Decatur operations. And we're innovating to deliver new low-carbon intensity products within the fast-growing biosolutions portfolio. And as we connect to the consumer, we're working closely with our customers to serve the challenges of their consumers, whether it's sustainable solutions, the latest flavor, or a cost-effective ingredient replacement, or exploring the future of nutrition through work with ADM Ventures partners like Air Protein and Nourished. And we are differentiating our offerings with the next generation of evidence-based health and wellness solutions. With the world's largest probiotic manufacturing facility in Valencia, more than 50 clinical trials underway, and a growing team of deep scientific experts, we are well positioned for the expanding demand for functional foods and personalized nutrition. And to efficiently execute on all areas of growth while maintaining an efficient cost structure, we continue to vigilantly focus on productivity. as well as the culture that lets our ADM colleagues bring their best every day. Across our global organization, we're standardizing processes and systems through one ADM and modernizing our operations through digital transformation, driving greater efficiencies while enabling the best use of our workforce and production capacity. Our plant modernization program continues to deliver impressive operational benefits, including advanced analytics and safety improvements across the 17 operations facilities currently in implementation phase. With more than 70 plants in scope, the plant recurring cost savings associated with automation across our footprint in 2024 is already nearing $20 million per year. Our cultural efforts are the critical foundation for all of these strategic initiatives. We have ramped up our focus on a culture of caring, specifically in regards to the safety of our colleagues. This is our top priority, and our recent performance in this area has not lived up to our expectations. We are committed to taking action to improve and have already begun to do so with the assistance of both internal and external experts. We will do better. By actively managing productivity, innovation, and culture, and aligning work to the interconnected trends in food security, health and well-being, and sustainability, ADM is well positioned for sustainable long-term profit growth across new and adjacent avenues. And with a strong performance in 2023, and a constructive expectation for the remainder of the year, we are again raising our full year earnings outlook. For a deeper look at our Q3 performance, let me hand over to Vikram, who will cover results of operations.

Thank you, Juan. Please turn to slide five. The Ag Services and Oilseeds team once again delivered solid results in an increasingly dynamic environment by leveraging our experience, scale, and integrated global footprint. Ag services results were lower than the strong third quarter of 2022. South American origination results were higher year over year as our team delivered significantly higher volumes and margins on strong export demand. Prior investments in port capabilities have enabled us to structurally grow our earnings while capitalizing on a stronger margin environment across the region. North American results were lower year over year as a result of the shift of export demand to Brazil due to the large crop there, as well as low water levels in the U.S. river system, limiting volume and barge capacity. Effective risk management combined with higher volumes and margins in global trade led to strong results, however, much lower than the record quarter last year. The current quarter also included a $48 million insurance settlement related to damages from Hurricane Ida. In crushing, we delivered another strong quarter, but lower than the prior year as global crush margins remained healthy, but lower than the very strong levels of a year ago. Our strong results were led by North America, as the crush margin environment remains well supported by structurally higher demand for vegetable oils. We officially opened our new crush facility in Spiritwood, North Dakota, to meet growing demand. We are currently in the commissioning process and expected to be running at full rates in early November, adding an additional 1.5 million metric tons of crush capacity per year. In EMEA, we continue to optimize our flex capacity to prioritize crush of higher-margin soft seeds in line with market opportunities. In the quarter, there were large net positive mark-to-market timing effects which were lower than the net positive impacts in the prior year quarter. Refined products and others posted another strong quarter, higher than the prior year period. Results were led by solid volumes and margins in North America. In EMEA, robust export demand for biodiesel and domestic demand for food oil drove higher results versus the prior year. In the quarter, there were large net positive mark-to-market timing effects which are expected to reverse as contracts execute in future periods. Equity earnings from Wilmar was significantly lower versus the third quarter of 2022. Looking ahead, for the fourth quarter in ag services and oilseeds, we anticipate strong results that are slightly lower than last year, excluding the $110 million legal settlement in the ag services subsegment from the fourth quarter of 2022. We expect ag services results to be in line with the prior year, excluding the legal settlement. We anticipate similar year-over-year North American export volumes, a competitive South American export program, and continued strong performance from global trade. We forecast our crushing subsegment will deliver strong results, similar to the prior year. We expect robust soy and canola crush margins, and with the ramping of our spirit with operations, higher volumes. We expect RPO to perform well, but be significantly below last year, as positive timing impacts from prior quarters are expected to reverse. Slide six, please. Carbohydrate Solutions delivered an outstanding quarter that was significantly higher than the prior year, enabled by the ongoing optimization of our production and supply chain network. The starches and sweetness subsegment were higher year over year on a healthy demand and strong margin environment across starches, sweeteners, wheat flour, and ethanol. Our team generated new customer wins and delivered double-digit growth year-to-date in our BioSolutions platform. As Juan touched on earlier, we also signed a formal agreement with Broadwing Energy to provide lower emissions power to a Decatur facility, extending our ability to provide low-carbon solutions across the value chain. In the Vantage corn processors subsegment, our team executed well in a strong ethanol demand and margin environment, leading to significantly higher year-over-year results. Looking ahead for the fourth quarter, we expect steady demand and margins for our starches, sweeteners, and wheat flour products. We remain constructive on ethanol margins driven by solid domestic demand and healthy U.S. exports, supported by lower competing exports from Brazil due to higher sugar prices. We anticipate results to be similar to the prior year period, but with upside potential if the current ethanol margin structure holds. On slide seven, in nutrition, strong results in flavors, health and wellness, and recovery in the base animal nutrition business were more than offset by continued lower demand for plant-based proteins and persistent demand fulfillment challenges in pet solutions. Flavors reported impressive results in a complex operating environment, delivering a 29% growth in operating profit on a constant currency basis. Results were led by pricing actions in EMEA and strong win rates in North America. During the quarter, we also implemented a successful go-live of our one ADM project in the EMEA region across 18 locations in 12 countries. This represents a significant milestone as we continue to harness digital across the enterprise to drive productivity gains. In specialty ingredients, weak market demand, particularly in the alternate meat category, inventory adjustments, and unplanned downtime resulting from the recent Decatur incident led to significantly lower year-over-year results. The plant-based protein market has been experiencing destocking and consumer demand softness over the course of the year that will likely persist into next year. Given these recent market dynamics, we have rescoped our Decatur protein modernization investment project to better match the expected lower growth demand environment. Also, we are leveraging our expertise in creation, design, and development to differentiate our product offerings to serve evolving consumer needs. These adjustments will enable a faster pivot to higher growth and more resilient categories, such as specialized nutrition, which has synergies across the nutrition portfolio. And we are rapidly building this revenue pipeline. Health and wellness results were higher year over year due to double digit biotic sales and a favorable impact related to the revised commercial agreement with fiber. During the quarter, we realized a significant expansion in our revenue pipeline, reinforcing the demand for evidence-based solutions. In animal nutrition, we are beginning to see the cost optimization actions and the expansion of offerings in the specialty feed and ingredient space from earlier this year, driving improved performance. However, the recovery in the base business was more than offset by normalized year-over-year amino acids margins, as well as lower profit contribution from the pet solutions business. Looking forward, we anticipate flavors to finish the year strong, driven by growth in EMEA and North America. Health and wellness operating profit is expected to finish similar to last year. Animal nutrition operating profit is expected to continue to recover sequentially quarter over quarter. Specialty ingredients operating profit is expected to be down significantly, impacted by the recent Decade East incident and demand softness. All in, we now expect full year 2023 operating profit for nutrition to be around $600 million. While our results in 2023 have been below our expectations, we expect nutrition to return to growth in 2024. We will continue to build on the flavor's momentum from 2023. Health and wellness should maintain its steady performance. The cost actions and the sharper pivot to higher margin products will enable animal nutrition to drive growth, further reinforced by improved go-to-market capabilities. Lastly, for SI, We will work aggressively to restart operational capabilities at Decatur East to minimize the impact in 2024. Slide eight, please. Other business results were significantly higher than the prior year quarter due to improved ADM investor services earnings on higher net interest income. Captive insurance results were slightly lower on higher claim settlements, partially offset by premiums from new programs. In corporate results, net interest expense for the quarter increased year over year, primarily on higher short-term interest rates. Unallocated corporate costs of $298 million were higher versus the prior year on higher global technology spend to support our digital transformation efforts. Other corporate was favorable versus the prior year, primarily due to foreign currency hedges. We still forecast corporate costs to be approximately $1.5 billion for the year. The effective tax rate for the third quarter of 2023 was approximately 20%, higher than the prior year, primarily due to change in the geographic mix of earnings. For the full year, we still expect our effective tax rate to be between 16% and 19%. Next slide, please. Through the third quarter, we had strong operating cash flows before working capital of $3.8 billion. We continue to invest in the business, allocating $1.1 billion to capital expenditures and have returned $1.9 billion to shareholders through share repurchases and dividends. We have ample liquidity with over $13 billion of cash and available credit, and our balance sheet is very strong. with an adjusted net debt to EBITDA leverage ratio of 0.9. Our Fortress balance sheet gives us the financial flexibility to drive our long-term strategic agenda while also returning capital to shareholders and is also a competitive advantage, particularly in a higher for longer interest rate environment. We have completed $1.1 billion of share repurchases through Q3, and expect to increase the pace of repurchases in Q4. Even with the softness in nutrition and lower-than-expected profit contributions from Wilmar, we are raising our 2023 earnings outlook again and now anticipate full-year EPS in excess of $7 per share. Juan?

Thank you, Bikram. As we close today's call, let me share a few thoughts about how we're seeing our efforts in 2023 position ADM to continue solid progression into 2024. External factors that influence ADM's forward look are closely aligned to the enduring macro trends we have positioned ourselves to be nimble in managing. We continue to see the interconnectivity across food security, health and well-being, and sustainability having an amplifying effect across the industries we serve. More frequent extreme weather, geopolitical events, and the recent pandemic have all highlighted the criticality of food security within those geographies and for the regions that are served by their agricultural exports. Connected to these, we see areas of supply abundance growing, as evidenced by Brazil's record recent crop cycles. and areas of need shifting. In some cases, this has resulted in either more domestic consumption in countries like the US or elevated import demand situations where our unparalleled global asset base and deep experience are critical. Government policies beginning to support new demand patterns, whether based on a move to more renewable energy sources or an effort to increase regenerative agriculture supply. Science continues to accelerate innovation in nutrition with an ever-present consumer interest in turning their food, beverage, and supplement consumption to their personal health and dietary needs. Beyond the challenges and opportunities connected to these external factors, we believe ADM is positioned to leverage productivity and innovation to build momentum in the coming year. a continuation of the strategic efforts we have been driving throughout 2023. We anticipate ag services and oilseeds continue to leverage its extended value chain and deliver structural changes to demand. We anticipate that crash margins will remain healthy while our productivity measures enable us to have a more efficient cost structure. We continue to drive opportunistic extension of our destination marketing scope, grow our regenerative agriculture acres and partnerships, and expand our renewal fuels feedstock production. In carved solutions, the compounding effects of our transformative investments, coupled with early contracting for starches and sweeteners, and what we believe to be a positive ethanol environment, are setting up for another strong year in 2024. For nutrition, we expect continued growth in our revenue opportunity pipeline, with significant conversions continuing as we move past some near-term demand weakness. Our outstanding results in flavors continue to signal acceleration across our broader portfolio. We expect the positive revenue growth trends in health and wellness to drive into next year. And we're already pivoting specialty ingredients towards high potential areas like alternative dairy and specialized nutrition. Our actions in animal nutrition are delivering a positive impact and sustained opportunity growth, which we believe will expand further through the segment in the coming year. And by applying our commercial excellent efforts to this portfolio, We are focusing on the value of innovation in the specialty parts of the business. In closing, I want to express my gratitude to the ADM team for their dedication, hard work, and resourcefulness. With the momentum we have been building upon the foundation for growth we have established, I am confident in our ability to continue to deliver solid results as we move into 2024. and continue to pave a path for long-term profit growth. Thank you. Operator, please open the line for questions.

Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. Please limit yourself to one question. Thank you. Our first question for today comes from Andrew Strzelczyk of BMO Capital Markets. Andrew, your line is now open. Please go ahead.

Hey, good morning. Thanks for taking the question. I guess I wanted to ask about the U.S. crush margin outlook. You commented that you expect crush margins to remain healthy. And I guess this is really a question about 2024, where the U.S. board crush features have come down What's your perspective on what's going on there? Do you think that the crush capacity that's coming on is having an impact or how is that being absorbed? I guess just trying to frame your commentary around momentum with what's going on on crush. Thanks.

Yeah, thank you, Andrew. Listen, our perspective have not changed. If anything, the perspective that we have for the market has been confirmed by by what we're saying. Of course, it's a very dynamic environment with the market trying to balance a lot of issues, whether it's more availability of products, more demand, the Argentine situation. We have seen board crash explode back to near the highs recently, and this is just only a reflection of the incredible demand that is coming for soybean meal into the U.S. This drive of the board crashes, it was meal driven, maybe before it was oil driven, this was meal driven. You see Argentina situation, they are getting to the end of their inventory. There are probably enough beans at this point for crushers to run until November. So what we see, the export book of the U.S. for soybean meal, it's a record export book. from the US, something that is higher than over the last 10 years. So I think that that will continue well into Q1 of 2024. And fundamentally, what has changed, and you have that, if you will, island of strong crash margins in the US, is this demand for oil. We see crash margins have been a little bit lower for soybean, certainly in Brazil or in Europe. And it's because some of the oil prices have declined. But in the U.S., with the new demand for renewable green diesel and all the new capacity coming, we expect that to remain strong for years to come. So we will continue to be very constructive about crash margins in the U.S.

Great. Thank you very much.

You're welcome.

Thank you. Our next question comes from Ben Thurow of Barclays. Ben, your line is now open. Please go ahead.

Good morning, Juan, Vikram. Thanks for taking my question. I wanted to follow up on nutrition and the updated guidance calling that roughly $600 million up income for the year. Help us understand, if you can, putting that into context to what Just a while ago, we've talked about the path to make this business a one billion operating income business. What has gone into the wrong direction and what do you still need to correct to bring this business back on track to make it a billion dollar contributor? Thank you.

Yeah, thanks for the question, Ben. So let's take it by different business lines. So in flavors, as I mentioned, Q3 had a very strong performance. And if you actually look year to date, flavors operating profit is up 16%. And I think that's been a very important growth engine. And typically, the sales cycle in flavors tends to be shorter than some of our other product portfolios. So just keep that in mind. That momentum is building. And we see that momentum through our revenue pipeline, which is increasing month over month. We anticipate momentum in Q4 and frankly continuing into 2024. The other aspect is EBITDA margins of flavors is also increasing. It's not just revenue growth. The profit is also as a consequence of EBITDA margin expansion. And finally, flavors contribution year to date overall as a part of nutrition profitability is a little over 50%. So important to keep that at the back of your mind as you think about the future. The second part of the human nutrition business, health and wellness. Health and wellness has been steady. Actually, the dietary supplements market, which was a little bit of a headwind, we see the destocking impacts tend to recede a bit, and we are optimistic about the outlook next year. The other thing that Juan mentioned is the evidence-based portfolio of ingredients is expanding, and our ability to apply that into functional food and solutions gives us confidence in that business to continue growing into next year and beyond. Specialty ingredients. Actually, it's a tale of two cities within specialty ingredients. There's a texturants portfolio that has done exceptionally well because of expansion of margins. We don't talk much about that, but because it's a smaller part of the business, but that has performed exceptionally well this year. The challenge has been on the plant-based protein market. And the plant-based protein is driven by market softness, right? There is a softness in the market, and we've gone down as a consequence of what's happening in the market. What we are doing from that perspective is pivoting the portfolio into some of the more resilient categories, like specialized nutrition, like horticulture. It doesn't happen overnight, but remember, Through our CD&D capabilities, it allows us to pivot our product portfolio into the categories that are growing, and we will do that. We are in the process of doing that. What happened in the interim is the Decatur East incident. What that's created is a challenge in terms of white flake production for specialty proteins in North America. So that's been a drag that we clearly had not foreseen. And that drag is going to continue into 2024. So within human nutrition, flavors performing exceptionally well, outpacing the market, health and wellness steady, SI is kind of in line with market, further exacerbated by the recent Decatur East incident. Then step into animal nutrition. You know what happened with amino acids. We were coming off very high margins in 2022. The good news is we are going to reset into much more normalized margin levels in 2023. So therefore, 24 onwards, we won't have that lapping impact of higher amino acid margins. But if you exclude amino acid margins, the base animal nutrition business, excluding pet solutions, we talked about all the actions businesses are undertaking to optimize costs as well as drive focus on specialty ingredients. That is being recognized in performance. We are seeing the benefits of that. and you'll see sequential quarter-over-quarter growth. So that we feel very good about this in Q4 as well as going forward. Pet solutions, demand creation remains solid. That category has been fantastic. We've had challenges in demand fulfillment in North America, and particularly we talked about that primarily in the recent acquisition that we did in 2021. Those are still lingering, but we have very clear action plans, and we feel confident that by the end of this, here and early next year, we will be able to more than offset that. So all in all, combined with that and new innovation, we feel pretty confident that nutrition will return to growth in 2024, albeit maybe at a slightly lower growth rate than we had anticipated before. But getting to a billion dollars is definitely within the horizon It may not happen in the next year or in the year following, but definitely in the near term or in the medium term.

Thank you. Thank you. Our next question comes from Tom Palmer of JP Morgan. Tom, your line is now open. Please go ahead.

Good morning, and thanks for the question. um the the details on the crush moves um i think andrew's question was helpful but maybe um we could dig a little bit more into what's happening on the oil side i mean we have seen soybean oil prices come down over the past couple months the futures curve does suggest some continued pressure as we move into 24. it sounds like you have plenty of visibility um the demand is very strong on this side but maybe just some color on what might have caused this downward price move and whether it's more temporary in nature in your view.

Yes, thank you, Tom. Listen, North America refining margins are lower in this quarter. I think if you look at last year, the high price always were impacted by supply chain disruptions from the Russia-Ukraine war. So I would say this is a more normalized environment. We have also some positive timing impacts due to the pronounced rain and HOVO market movements pulling forward some of those gains. I would say when we look at the forward quarter, We see refining margins to remain strong, but maybe decline from the elevated highs we saw in 2022 and the early part of this year. Biodiesel margins are also coming out of the highs, as maybe the ring value component of margin has declined as the industry is building a bank of rings. We still have not seen a significant pull from the RD demand that has been building, but we maintain our expectation of how much is going to be built there. So we think that is coming. The other thing you need to think about oil is that demand for food oil is very strong and has rebounded. And there are expectations now that with El Nino, we might have, and with the natural maturity of the plantations in all Southeast Asia, that we might have a little bit less supply of palm oil and all that. So although we're coming off the highs, we continue to be constructive about margin stabilizing at a strong level in the RPO area. Great. Thank you.

thank you our next question comes from adam samuelson of goldman sachs your line is now open please go ahead uh yes thank you uh good morning everyone um i was hoping to maybe maybe dig in on on the the carb solutions uh outlook and maybe if you could just parse the non-ethanol pieces a little bit more and i think in the in the prepared remarks you'd alluded to kind of a favorable start to contracting in North America, sweeteners and starches, and maybe elaborate on what you are actually seeing there. Um, maybe better frame kind of the incremental capital investments to come in that business. Obviously there's a lot of transformation work happening in that business. That's not all mature kind of come to fruition in the near term, but, but better contextualize kind of what, what the actual level of investment that you've already committed to there there is. And, If I could just ask a clarifying question on the last point on RPO, how much was the timing benefit in the third quarter?

About $95 million. Okay.

Thank you.

So on the comp solutions question, Adam, I think it's important to just frame it. The liquid sweetener volumes have been steady, and this has happened throughout this year. Almost every quarter we've said that. So the demand has been pretty resilient, and the margin structure has been strong. The other thing that's actually helpful is strong exports to Mexico, as well as higher sugar prices. The specialty volumes in North America have been a bit soft, but with the improved mix and pricing, our margins have actually expanded. The biosolutions market, we're actually extending into newer applications, and that revenue growth year-to-date is 23%. Wheat flour demand has been resilient. The optimization I referred to in my comments has actually helped improve the cost structure and expand margins. Ethanol, you know what's going on in ethanol. The margin structure there is very supportive given domestic demand, blend economics, strong U.S. exports, as well as the fact that we've got significant, actually higher domestic driving miles. Now, when you think about next year, I mean, we well set up the Q4 of 23, and I already talked about that. It's a little early to say, but based on the strong finish that we anticipate in 2023 and early 24 contracting in North America, sweeteners and starches, we are optimistic for solid volumes and our ability to actually maintain and potentially even expand margins in our core starches and sweeteners portfolio. We'll tell you more in our February call, but going in, the outlook is constructive, and similarly for ethanol. You know that tends to be volatile, but right now, the general trend is to be supportive of a higher for longer ethanol margin environment.

Thank you. Thank you. Our next question comes from Ben Bienvenu of Stevens. Ben, your line is now open. Please go ahead.

Thanks so much. Good morning, everybody. I have kind of a two-pronged question. One is, one, you've kind of hit bits and pieces, and Bikram as well, with the nutrition commentary of the overall business outlook into 2024. The kind of implicit takeaway is we should still expect kind of very strong and above what I guess we would think of as mid-cycle earnings power in 2024, albeit it's early to make that call in 2024. So correct me if I'm wrong there. But two, when you think about allocating capital at this point in the cycle, how does that change, if at all, with what you've been doing over the last several years? And you've been picking up your buyback activity. How should we be thinking about that as we move through this period of time as well? Thank you.

Yeah, thank you, Ben. Good question. Listen, we see 2024 with a lot of optimism. We're working through the plan right now, as you can imagine, at this time of the year. We continue to see the strength of Ag Services and Allseeds and CARB solutions continuing. Ag Services and Allseeds, we have seen some fundamental structural changes, and I think that that's a multi-year trend, so we're going to see higher crash margins, at least in the United States for quite a while. And our services business continued to grow around the world with the strength of destination marketing. And that exacerbated concern about food security that brought by all the geopolitics and the weather events and the pandemic and all that continues and continue to enhance margins for us to the service we provide around the world. So we see that business being very solid and very strong contributor. CARB solutions, I think that Vikram touched a little bit on the dynamics of the contracting for next year. But beyond that, I think that you have to remember that we are having different uses we are finding new demand for those products that will do two things. Will grow us revenue into new categories like we're seeing in bio solutions that is growing double digits. But it's also going to tighten up the supply for the existing products. So that will be constructive to margins over time. And we've seen that already. So those are the two. And I think nutrition and Bikram went into a lot of detail into that and all the different pieces. And we're very confident we're going to go back to growth next year. This year, maybe you call it the pause that refreshes. We took a pause this year. But the fundamental innovation engine that we have, that's our differentiation, that continues to resonate strongly, whether it's in health and wellness, in what we're seeing in flavors, or the specialty pieces of animal nutrition, or the demand generation in pets. where the markets are normal and we apply that properly, we are winning more than our fair share and we're growing faster than the competitors. So we see that with a lot of optimism for next year. When we think about how that correlates to our thinking on how to deploy capital, the priority to deploying capital is in our investment plan, and we have been doing that both in OPEX and in CAPEX. Unfortunately, CAPEX continues to be higher inflationary pressure there, whether it's manpower or supply of raw materials, it makes us take a second look at a lot of the capital. And I think that Bikram has reflected on some of the adjustment that we made, maybe to specialty ingredients and others. So we're taking a look at that. And we're reviewing, as always, in our capital discipline on every project. But we have many opportunities in front of us, and we're going to continue to fund them. We have increased our return to shareholders. Certainly our cash flow generation is very strong. And to be honest, when we see some of the people that we are doing, even in CARB solution with some of these opportunities, they are not hugely loading our capex, if you will. Some of these things, whether it is the pipeline for decarbonization is with partners, whether it is the LG Chem or other joint ventures are also partnerships. It's not that taxing in our capital, in our capex budget, if you will. So we think that we're going to continue to increase the return to shareholders. And we've been opportunistic looking at, of course, the M&A environment. And to be candid, we participate in many. We have many items on the fire. But the reality is that valuations have not come down, and we plan to continue to keep our discipline in that regard. So we continue to be opportunistic in that, and we look at that. I think Vikram will make a comment as well.

Yeah, I think also in terms of buybacks, good to remind everyone that if you remember in our 2021 investor day, we talked about $5 billion of buybacks over the next four years through 2025. If you combine what we've done last year and this year, we've done almost about $2.6 billion of buybacks. So we are ahead of that pace. And as I mentioned in my comments, and as Juan said, if we don't see compelling valuations and given our discipline, we probably, at these trading levels, price levels, we probably are going to buy back a little more aggressively, and you probably will see stronger pace of buybacks in Q4 as a consequence of some of those factors.

Okay. Very good. Thanks so much. Thank you, Ben.

Thank you. Our next question comes from Salvatore Tiano from Bank of America. Your line is now open. Please go ahead.

Yes. Thank you very much. I want to ask a little bit about decarbonization and the work you're trying to do at Decatur. And I think when you were talking about the 7 million tons of CO2 you're trying to sequester per year, the idea is that some of this will come from other facilities where you probably need to build pipelines. I'm just wondering, we're seeing a lot of issues with permitting and other issues with CO2 pipelines in other regions. Could you face similar issues and could this affect the total amount you'll be able to sequester and decatur? Or on the other hand, Could this actually be an opportunity and people that were relying on some other pipelines, like the Navigator one, may come to you and use your Navigator wells for sequestration?

Yeah, thank you, Salvador, for the question. You know, this is a very important initiative for ADM. And it's something that, as you know, we have started like 10 years ago, so it's something that we have a lot of experience in. And we're leveraging that experience and that head start, if you will, in our ability to inject carbon into the lower surfaces in our facility at Decatur. We have a couple of wells there, and we're planning, as you said, to create five more injection wells over the next few years. It is true part of that will be bringing biogenic CO2 generated by our ethanol plants through pipelines, and we are working already in two of those pipelines. We have already submitted permits for all that. Those permits have been accepted, so they are complete. They are in the process of being studied and analyzed. And we are reviewing also with our partners the right-of-way and acquisitions and all those type of agreements. Of course, as any industry that is breaking ground, the pioneers suffer sometimes with the regulatory environment and having to adjust all that. So we're working closely with the authorities across the different states. in terms of trying to align the regulatory framework to the needs of decarbonization and to the desires of the Department of Energy and the Department of Agriculture to have a smart agriculture in the U.S. and decarbonize that. So, work in progress. As you said, we have seen the news, as you do, and you can take two tacks. We might suffer similar fate or that we will have less competition, as you described, at this point in time. We don't have any bad news to report other than we continue forward with our efforts and we will update you in the next call.

Thank you very much.

Thank you. Our next question comes from Davis Sunderland of Bears. Davis, your line is now open. Please go ahead.

Hey, good morning, team. Thank you for the time and thank you for taking my question. You're welcome. Juan, you already talked about it a little bit, but I just wanted to ask if you could expand a little bit more on the ethanol and renewable diesel supply and demand environment, maybe what you're seeing for 24 and beyond, and if you anticipate any incremental changes in consumer behavior over that time. Thank you very much.

Yes, David. Listen, in ethanol, we think ethanol is going to have a very constructive environment. you know very high sugar prices are driving brazilians to produce a lot of sugar versus ethanol so we're going to have less imports of ethanol biofuels mandates are growing around the world whether it's more ethanol or more biodiesel so we see brazil going up one percent per year in that regard and um We see ethanol continues to have very good export. It has a very good value to other oxygenates that normally they go for like $2.50 per gallon. So we have a big advantage around the world. And for people that want to increase the octane in their gasolines, ethanol is a very cheap oxygenate around the world. So the US is the best producer of that. We'll continue to increase. You can see export having maybe a floor of 1.4 billion gallons going into 1.5. So that's very good. When we look at the renewable green diesel, there has been no changes on how we see renewable diesel growth in the medium term, which is to get to around 5 billion gallons in the US by 2025, 2026. Of course, we're a global company. We see that becoming 7 to 8 billion gallons. by maybe 14, 15 billion gallons of renewable green diesel and SAF online by 2026 and 2027. So we are at the very early innings of all these biofuel demand that is coming, whether it's again for renewable green diesel or the promise of decarbonization that SAF brings to aviation, that it doesn't have any other valid options right now. So again, we're going to be a player. The Spiritwood shows that. We're going to bring 1.5 million tons of capacity that will feed 75 million gallons of RGD. So we expect the others will deliver as we have delivered Spiritwood. So this is an industry we're building and we're excited about.

Thank you very much. Thank you. Our next question comes from Steven Haynes of Morgan Stanley. Steven, your line is now open. Please go ahead.

Hey, thank you for taking my question. I wanted to just ask a question on the guidance. I think previously you were kind of saying $7 with some upside, and now you're saying in excess of $7. So maybe if you could just kind of help us I don't know, maybe quantify the difference in the two guidances and size the upside piece would be helpful. Thank you.

Well, so I think the first thing to note is when in Q2 we said around seven with potential for more upside. And what we are seeing right now is that potential upside is coming through. And that's why we're raising our guidance in excess of seven. But if you step back, Stephen, Think about what's happened within Q2 and Q3. One is clearly nutrition has been softer. We have guided towards similar in Q2. Now we are going to around $600 million. So you know by definition there's a compensation in other parts of the business. And when you think about the compensation relative to our Q2, that's probably going to come partially from ASNO and partially from CS. And we gave some guidance on ASNO for Q4 and also some guidance for CS. CS to be relatively flat versus Q4, barring any continued expansion in ethanol margins. So that could be upside in CS. And in ASNO, we have some puts and takes. In RPO in particular, and Juan went through this, we expect that to be weaker than Q4 of last year, just because we expect these mark-to-market timing gains we realize in Q3 to be rolling off. And then in ag services, it's going to be generally flat, excluding the legal settlement. That was a one-time thing in Q4 of last year. And then in crush, it's going to be strong. And I think Juan talked about that we are continuing to be constructive about the crush outlook, particularly in the U.S., going forward, given some of the structural demand changes related to renewable green diesel in particular.

Thank you.

Thank you. At this time, we currently have no further questions, so I'll hand back to Ms. Britt for any further remarks.

Thank you for joining us today. Please feel free to follow up with me if you have any other questions. Have a good day, and thanks for your time and interest in ADM.

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