ADM's stock sees biggest-ever one-day decline on news of accounting issue

By Steve GoldsteinCiara Linnane

Bonds sell off as spreads gap wider after CFO is placed on leave

Archer Daniels Midland Co. shares tumbled on Monday as the agribusiness giant said its chief financial officer has been placed under administrative leave amid an investigation into accounting practices in its nutrition segment.

ADM shares (ADM) fell 22%, putting the stock on track for its worst-ever single-day percentage decline, according to Dow Jones Market Data that goes back to Jan. 21 of 1972. On Black Monday in 1987, the stock dropped 19.9%. It was the worst performer in the S&P 500 SPX on Monday.

The company's outstanding bonds, meanwhile, also came under selling pressure as spreads widened by 15 basis points to 20 basis points, making them one of the worst performers in the high-grade bond sector on Monday.

ADM said CFO Vikram Luther was put on immediate administrative leave following a Securities and Exchange Commission "voluntary" request for documents. The Chicago-based company said outside counsel and the board audit committee are looking at accounting practices at its nutrition segment, including intersegment transactions.

Ismael Roig, a 56-year-old executive who was president both of Europe, Middle East and Africa operations as well as president of animal nutrition, has been named interim CFO.

Baird analysts downgraded the stock to neutral from outperform and said it expects the issue to present downside risk until the matter is resolved.

"The investigation is a result of a voluntary document request by the SEC," wrote analysts led by Ben Kallo. "We believe this investigation will remainas an overhang for the stock until cleared."

Through the first nine months of the year, nutrition accounted for $468 million of the company's $4.67 billion of operating profit. The unit produces flavors and colors, specialty ingredients and nutritional supplements.

This year it has faced a struggling plant-based protein market, an explosion at a soybean processing plant that's been impacting production and a restructuring of the animal nutrition unit.

ADM said all forward guidance on that segment was withdrawn as it delays publishing its fourth-quarter and full year 2023 results.

The company said it expects to deliver above $6.90 in adjusted earnings per share for the fiscal year, which compares to the $7.27 expected by analysts. ADM said its ag services and oilseeds and carbohydrate solutions units will report results in line with expectations it gave in the third quarter.

The following charts from data solutions provider BondCliQ Media Services show the performance of spreads so far on Monday.

The company has almost $8 billion in outstanding bonds, with $1 billion worth maturing in 2026.

The bonds were seeing net selling on Monday.

CFRA said it's sticking with its hold rating on ADM stock. But analyst Arun Sundaram lowered his stock price target to $76 from $90.

"We believe the nutrition business will return to growth in 2024, but also think this business is still many years away from generating $1B+ in operating profit," the analyst wrote in a note to clients. "We keep a Hold rating, as EPS looks to continue to normalize after a few years of robust growth between 2020 and 2022. We forecast EPS falling 6% in 2023 and another 6% in 2024 to $6.93."

The stock of rival Bunge Global SA (BG) fell in sympathy with ADM and were last down 4%.

-Steve Goldstein -Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

01-22-24 1431ET

Copyright (c) 2024 Dow Jones & Company, Inc.