ADM’s a number of accounting errors and SEC probe are ‘extremely regarding’ to traders

The company announced on Monday that while testing internal controls, it identified additional misclassified transaction sales for each of its Ag Services and Oilseeds, Carbohydrate Solutions and Nutrition segments. Following a dialogue with the U.S. Securities and Exchange Commission (SEC), ADM will amend its Q1 and Q2 2024 and 2023 financial statements. Its stock price fell by 8% at market opening on Tuesday and down about 6% at market close.

ADM has repeatedly violated Generally Accepted Accounting Principles, which have forced the company to restate its financial statements, according to Rick Warne, a professor of accounting at the University of San Diego’s Knauss School of Business. “A series of accounting errors indicate that ADM has fundamental problems in its financial reporting processes that need to be resolved,” Warne said.

For Q3, ADM projected earnings per share at $1.09, down 33% year over year from $1.63, below Wall Street’s expectations. The Ag Services and Oilseeds and Nutrition businesses delivered results below company expectations. ADM lowered its full-year earnings outlook range to $4.50 to $5 per share from $5.25 to $6.25.

In January, ADM’s struggles with financial integrity surfaced when outside counsel investigated accounting issues tied to the nutrition segment, which produces ingredients for both human and animal food. The inquiry was sparked by a voluntary document request from the SEC. Vikram Luthar, ADM’s CFO was placed on administrative leave and later stepped down. Monish Patolawala became EVP and CFO on Aug. 1. He was previously CFO at 3M. 

ADM’s troubled nutrition business is related in part to its biggest-ever acquisition in 2014—the $3 billion buyout of European natural ingredient maker Wild Flavors. The goal was to diversify from row-crop grains and oilseeds into processed products, according to reports. But, due to weakening demand, profits have not lived up to initial expectations. 

ADM has a checkered history when it comes to accounting. In the 1990s, the company was implicated in a price-fixing conspiracy. This was documented in a nonfiction book titled, “The Informant” published in 2000, and the 2009 film The Informant! is based on the book. 

ADM is evaluating its remediation measures, continuing to focus on making enhancements to its internal controls, and providing training for “relevant personnel,” the company said in its announcement.

A top priority for ADM’s CFO and management team is to regain investor confidence by providing accurate financial statements, Warne told me. “Investors don’t like accounting surprises or mistakes, and SEC investigations are highly concerning,” he said.

Sheryl Estrada
[email protected]

Leaderboard

George Cardoza was appointed CFO of cloud software company SOPHiA GENETICS (Nasdaq: SOPH), which operates in the healthcare space, effective immediately. He will succeed Ross Muken, who was promoted to president of the company. Cardoza arrives from molecular diagnostics company Biocartis, where he served as CFO and head of service delivery. He previously spent over 12 years at NeoGenomics Laboratories in several executive positions, including the CFO role. 

Vinay Shah was appointed CFO of Adial Pharmaceuticals (Nasdaq: ADIL), which is focused on therapies for addiction treatment and prevention, effective Nov. 16. He will succeed Joseph Truluck, who is resigning from the position to pursue other opportunities, according to the company. Shah most recently served as CFO of Virpax Pharmaceuticals and arrives with over 25 years of experience in the pharma and healthcare sectors.

Big Deal

Donald Trump, the 45th president of the United States, has become America’s 47th president having crossed the 270-vote threshold necessary to clinch the presidential election. Trump locked down battleground states including North Carolina, Georgia, Pennsylvania, and Wisconsin.

Although some CEOs have been vocal about their support for presidential candidates, Warren Buffett made clear he would not publicly back either Kamala Harris or Donald Trump in the race for the White House. A new Fortune report looks into why Buffett chose to remain on the sidelines, and he also hinted that he’ll explain why at Berkshire’s next shareholder meeting in May. According to scholars researching the implications of CEO activism, his choice to stay quiet makes perfect sense.

“I think he’s sort of seen the writing on the wall,” Vanessa Burbano, an associate professor of business in the strategy area at Columbia Business School, told Fortune. “We’ve seen backlash for a lot of companies and CEOs that have taken political stances.”

During a recent virtual discussion hosted by Collective[i] and Rapport, Kim Seymour, an HR expert consultant, and former CHRO of Etsy, talked about how C-suite leaders should approach politics in the workplace. Seymour’s advice is to create a framework for what you will speak about and what you won’t. “We are just at a point in time where it is the expectation that companies are going to speak about all the things, and, most of the time, I just don’t think that’s warranted,” she said. 

Leaders, however, must also be sensitive to the reality that younger employees want a culture of authenticity and expect to bring their whole selves to work. “Everything that I am needs to be reflected in where I work,” as Seymour puts it. She also says that, if there is post-election division in the office, bosses should first bring people together and rally them around the company’s mission. 

Going deeper

Morgan Stanley announced it has launched a generative AI-based assistant for its investment banking, sales and trading, and research staff. AskResearchGPT will be able to draw from more than 70,000 proprietary reports published annually, according to the firm. 

“Our most important objective is to provide our clients with world class analysis and information to help them generate alpha,” said Katy Huberty, global director of research and co-chair of the bank’s AI steering committee. “AskResearchGPT boosts our employees’ ability to support our clients with just that—better and at scale.”

Overheard

“We absolutely eviscerated this quarter.”

—Palantir’s CEO Alex Karp said in Monday’s earnings release.. Beating Wall Street’s expectations, Palantir’s revenue increased by 30% in just one year. The morning after third-quarter earnings were released, shares rose by over 20%, Fortune reported.