In late 2020, Archer-Daniels-Midland, one of America’s oldest and most profitable food companies, predicted customers’ preference for foods with “bright and exciting” colors and “familiar, nostalgic” flavors would “shape the food industry.”
ADM seemed poised to capitalize.
Over the next few years, it purchased two companies specializing in crafting tastes. One creates savory dairy flavors for snacks and frozen meals.
But the division spearheading ADM’s new flavor forays, Nutrition, was not as healthy as it seemed. It missed revenue expectations — prompting internal, government and shareholder scrutiny.
In January, ADM placed its chief financial officer on administrative leave as company lawyers reviewed accounting practices. In one day, the company’s stock dropped from about $68 to $51, or a 24% decrease — its worst trading day since the Great Depression, according to Reuters.
The U.S. Department of Justice is now probing ADM’s accounting practices. It has requested documents and subpoenaed current and former employees, according to company filings. A shareholder also sued the company, alleging executives mischaracterized Nutrition’s financial performance. ADM’s “accounting practices misrepresented its true financial results and prospects,” the lawsuit alleges.
On March 12, ADM said in business filings that “certain” sales information was not recorded at “amounts approximating market” value. However, that information had “no impact” on the company’s overall balance sheets, ADM said. The company also said it is cooperating with the Justice Department.
When Investigate Midwest asked about the Justice Department probe, ADM declined to comment.
The situation with its nutrition division is the most recent time ADM has faced accusations of alleged wrongdoing.
Late last year, a judge ruled it must face a lawsuit in which competitors accused ADM of manipulating ethanol prices. Competitors claim ADM sold the commodity at artificially low prices. Simultaneously, according to Bloomberg, ADM bet on low ethanol prices on the Chicago Mercantile Exchange, one of the main arenas for trading agricultural commodities.
The case is reminiscent of the company’s infamous price-fixing scandal in the 1990s. The federal government found high-level executives fixed prices in markets around the world. Matt Damon played the whistleblower in the movie about the scandal, called “The Informant.”
Recently, authorities have also found serious worker safety issues at ADM, according to the newsroom CU-CitizenAccess. Last year, police responded to its facilities in Decatur, Illinois, its North American headquarters, dozens of times, and the Occupational Safety and Health Administration investigated a death at the facility. ADM has been fined more than $300,000 stemming from the death.
Founded in 1902, ADM, a publicly traded company, now operates on six continents with about 41,000 employers. It has tens of billions in sales internationally, according to its website. For decades, its headquarters was in the small town of Decatur, Illinois, but now its international headquarters is in Chicago.
One of ADM’s primary roles is as a middleman between farmers and consumers. It takes corn, for example, and turns it into different kinds of sweeteners. Some sweeteners may contain less sugar but retain the same level of sweetness. Using ADM’s sweeteners, companies sell name-brand beverages to consumers. Coca-Cola, for example, sources high-fructose corn syrup from ADM.
“We don’t own farms by and large, and we don’t have brands on the grocery store shelf,” a company executive told FoodNavigator in 2021. “We’re the bridge between the two.”
In the past decade, it has invested heavily in its Nutrition division, which includes its different sweeteners and flavors. In 2014, it purchased WILD Flavors, a Swiss-German company, for $3 billion, which remains the company’s largest acquisition, according to the shareholder lawsuit.
At the time, the flavor business was seen as less volatile than the grain business, which was ADM’s primary focus, according to a 2014 Reuters story. Weather conditions around the world can affect prices of agricultural commodities. But an analyst Reuters spoke to said ADM might struggle to find value after paying so much.
In January, Raymond Chow, a stockholder of ADM, filed a lawsuit in federal court, accusing the company of misrepresenting the financial performance of its Nutrition division. As of early April, the lawsuit was ongoing.
In early 2020, ADM signaled to investors that its Nutrition division was an area of growth for the company. Traditionally, ADM focused on soybeans and corn, but it was looking to diversify, according to the lawsuit. It now planned to increase its investments in flavor.
“Nutrition continued its growth trajectory with record results,” an ADM executive said in an April 2020 earnings call, according to the lawsuit.
In an earnings call in July 2020, another ADM executive said Nutrition was poised to become central to ADM. “That’s a business that could get easily to 25%, 30% of our profits, and it continues to move into that,” he said, according to the lawsuit.
In the dozen years before early 2020, ADM’s stock price was consistently trading around $30-$40 per share. But in the summer of 2020, it started to climb, according to stock data.
In January 2021, ADM said Nutrition’s profits would average 15% increases each year, according to the lawsuit. Later that year, an executive said in an earnings call, “We expect Nutrition to continue on its impressive growth path.”
In late 2022, ADM’s stock price hit a high of about $93 and stayed around $70 for the next year, according to stock price data.
But, according to the lawsuit, there were signs of trouble. In 2022, Nutrition only made a 7% profit — far from the amount predicted by ADM executives.
In January, ADM placed its chief financial officer, Vikram Luther, on administrative leave. Its stock price plunged.
In the lawsuit, Chow’s lawyers contend ADM executives “recklessly” disregarded facts as they talked up the Nutrition division. ADM “lacked a reasonable basis for their positive statements” on Nutrition’s financial health, and the company’s accounting practices did not provide “an accurate impression of ADM’s performance and future prospects,” according to the lawsuit.
