ADM plunges after placing its CFO, Vikram Luthar, on leave during accounting probe

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January 22, 2024 (Bloomberg) — Archer-Daniels-Midland Co. plunged after the US agricultural trading giant suspended its chief financial officer and cut its earnings outlook pending an investigation into its accounting practices.

The shares tumbled as much as 18% in New York on Monday, the biggest intraday slump since 2005. The Chicago-based company said Sunday afternoon that Vikram Luthar, who had been its CFO since 2022, was put on administrative leave and Ismael Roig will serve as interim CFO. ADM is also delaying its fourth-quarter earnings and the filing of its annual report and Form 10-K for 2023.

The probe was prompted by a voluntary document request from the US Securities and Exchange Commission and is focused on what ADM described as “intersegment transactions” involving its nutrition unit, which makes ingredients for human and animal foods. ADM said it’s cooperating with the SEC.

ADM has spent billions expanding the nutrition business since 2014, when it made its biggest-ever acquisition – the $3 billion buyout of European natural ingredient maker Wild Flavors – in a bid to diversify into value-added products. But profits have failed to live up to initial expectations due to weakening demand, including for plant-based food.

The segment’s operating income was already forecast to drop more than 18% in 2023 to the lowest since 2020, according to analyst estimates compiled by Bloomberg. In November, ADM chose long-time executive Ian Pinner to lead the embattled business.

The investigation is likely to result in a lower margin for nutrition, at a time when investors are already concerned about the risk to earnings, Andrew Strelzik, an analyst at BMO Capital Markets, said in a note. “We would expect ADM to reassess strategic priorities within Nutrition as the new profitability run-rate becomes more clear.

ADM now expects to deliver more than $6.90 per share in adjusted earnings for the year ended Dec. 31, after having forecast in October profits in excess of $7.

The stock was down 16% at $57.25 at 9:33 a.m. in New York, wiping out almost $6 billion of market value. Analysts at Robert W Baird & Co., Barclays Plc and Goldman Sachs Group Inc. were among those to cut their stock ratings on ADM after the disclosure of the probe.

This isn’t the first scandal involving ADM. Back in the 1990s, it was implicated in a price-fixing conspiracy that later became the basis of the 2009 film The Informant!, starring Matt Damon. ADM pleaded guilty to the price-fixing charges in 1996. The company is also responding to a lawsuit over allegations of price manipulation involving its trading of ethanol.

“The board takes these matters very seriously,” Terry Crews, ADM’s lead director, said in the statement. “The board will continue to work in close coordination with ADM’s advisors to identify the best path forward and ensure ADM’s processes align with financial governance best practices.”