Archer-Daniels-Midland (ADM), one of the world’s largest agricultural processors, sent its shares plunging on Monday after announcing that its Chief Financial Officer Ray Young has been placed on administrative leave pending an internal accounting investigation. The company also lowered its full-year earnings guidance, further spooking investors.
Accounting Irregularities Under Investigation
In a press release on Monday morning, ADM stated that its Audit Committee was conducting an internal review related to certain financial reporting processes and internal controls. While the investigation is still in its early stages, the company has already deemed it serious enough to warrant putting Young, who has served as CFO since 2010, on leave.
ADM has named Ismael Roig, the company’s Controller, as Interim Chief Financial Officer. Roig will take over Young’s responsibilities while the investigation runs its course.
Details remain limited regarding the exact focus and timeline of the audit probe. ADM has stated it is fully cooperating with an inquiry from the Securities and Exchange Commission on the matter.
In addition to the CFO leave and SEC involvement, ADM also warned investors that its full-year 2024 earnings will likely come in below previous guidance ranges. The company now expects adjusted EPS between $6.00-$6.50, down from its prior forecast of $6.50-$7.50.
Share Price Plummets on Triple Whammy of Bad News
Equity markets did not take kindly to ADM’s trifecta of negative announcements. ADM shares plunged as much as 12.3% by midday Monday, wiping out over $2.5 billion in market capitalization.
The swift share decline shows investors are taking the accounting investigation seriously amid fears it could uncover wider problems. Several Wall Street analysts rushed to downgrade ADM stock as well, adding further selling pressure.
In a scathing note, Barclays analyst Alexia Howard cut her rating to Underweight from Overweight while slashing her price target by over 25% to $59 from $79. She sees ADM’s troubles centering around its Nutrition segment that could negatively impact earnings throughout 2024. Other firms echoing that negative outlook included Stephens and Argus Research.
| Closing ADM Share Prices | |
|---|---|
| Friday, January 20 (pre-news) | $67.83 |
| Monday, January 22 | $59.16 |
| Decline | -12.8% |
So in total, ADM stock has shed nearly $10 billion in equity value since last week on the back of the CFO leave, SEC inquiry, lowered guidance and analyst downgrades.
Brewing Crisis for New CEO and Leadership Team
The accounting issues and subsequent fallout couldn’t come at a worse time for recently appointed ADM CEO Juan Luciano. Luciano just took over the chief executive role on January 1 after a 12-year stint leading the company.
Now, barely three weeks into the job, Luciano faces a brewing crisis that threatens ADM’s hard-won reputation for good governance following past bribery scandals and federal investigations.
Restoring financial credibility and accountability has been a prime focus for ADM leadership in recent years. Monday’s news jeopardizes that transparency objective, while also calling into question the company’s financial reporting and controls.
What’s Next for ADM and Suspended CFO Young
In the coming weeks, all eyes will be on the progress of ADM’s internal accounting probe and the parallel SEC inquiry. The depth of any problems uncovered could determine how long CFO Ray Young remains on administrative leave or whether his ouster becomes permanent.
The investigation and potential restatement of ADM’s past earnings could also imperil the dividend if profits plunge. ADM holds Dividend Aristocrat status for consistently raising its dividend annually over decades, so cutting or suspending that coveted dividend would further rattle investors.
For now, shareholders must await the results from the internal and SEC reviews before assessing the real fallout. Regardless of the probe outcomes though, ADM faces a long road to regain investor trust after the triple shock delivered this week. While the full impacts can’t be known yet, the CFO leave, downgraded guidance and stock selloff signal storm clouds on the horizon for the agricultural giant.
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