When Vikram Luthar left General Motors to become treasurer at agricultural giant Archer Daniels Midland (ADM) 17 years ago, the move was more than a step up the career ladder for him: the idea of joining a food company struck a strong personal chord.
“I was born and raised in India, a population of 1.3 billion with relatively low GDP per capita, and I had a very keen awareness of the value of good nutrition at an affordable price in terms of it just lifting people up from a social and economic perspective,” Luthar said, speaking in a conference room overlooking Lake Michigan in ADM’s Chicago headquarters. “I really bought into that. I felt I could participate in helping with that noble purpose.”
In one of his first sit-down interviews with a reporter since taking the finance helm in April, Luthar, 55, reviewed some of the nuts and bolts involved in the move. He recounted a relatively “seamless” transition to his new job, owing in part to his experience holding a number of strategic and financial roles throughout the company. He worked for many years with his predecessor in the CFO seat — also a mentor — Ray Young as well as CEO Juan Luciano, he said.
“I’ve seen the company from very different facets and I was very closely involved with Juan and Ray and other key leaders and the strategic transformation that’s taken place at ADM,” Luthar said. “So I feel like I understand the business very well and I know the people — that’s very important in any company. The people that work there are so vital to making things happen and executing.”
Looking ahead he described some of his topline financial priorities in his new role as he seeks to make sure the company exercises the financial discipline necessary to fund its growth strategy. He said he also looks to ensure his large finance team is recognized as one of the most effective financial organizations in its sector by focusing on developing his people.
In outlining the arc of his career, Luthar is particularly animated when describing the shifting strategy that is tilting the more than a century-old ag company better known for corn and grains toward sustainable products as well as newly developed food ingredients that are closer to the consumer.
Low-carbon wheat flour, probiotics for gut health and plant-based proteins are some of the product areas that ADM has expanded into, he said. At the same time, Luthar asserts the company must continue to explore new ways to grow and develop food through synthetic biology and other methods.
“The population of the world is going to keep growing,” he said. “But the supply of grain and arable land is limited so there has to be other ways to meet the food needs of the global population.”
The A in the four powerhouse agribusiness companies known by the ABCD group acronym, ADM has been reshaping itself through acquisitions and investments to expand its higher profit margin human and animal food products and ingredients business.
A major pivot came in 2014 with ADM’s $3 billion purchase of the Swiss-German natural ingredient company Wild Flavors, according to Seth Goldstein, a senior equity analyst at Morningstar. Since then the company has been investing and making small acquisitions further downstream as the crop merchandising business has faced declining margins, in part because more market participants have leverage and access to pricing information that was once the ABCDs’ purview, Goldstein said.
“I think it’s the right strategy to continue to invest in the nutrition business because it has more levers under management’s control,” in contrast to the grain and crop business that is more volatile, Goldstein said. While the Wild Flavors acquisition was big, the company more recently has grown its downstream businesses by incremental acquisitions and investments, he said. It also has a strong balance sheet and is viewed as a “dividend aristocrat,” he said.
Looking ahead, Luthar is expecting that the company’s human and animal nutrition business, which includes a range of products and ingredients used in everything from plant-based burgers to pet food, will grow from generating $700 million or about 15% of the company’s total operating profit last year to account for as much as $1.5 billion or about 25% of its operating profit by 2025, Luthar said.
Below the radar
The company in the second quarter reported its segment operating profit rose to $1.8 billion from $1.14 billion in the year earlier period. Still, it is not immume to soaring costs and inflation. At a Barclays conference earlier this month ADM CEO Luciano noted that the company was probably seeing energy values in Europe that were ten times what it was paying last year.
This year appears to be a “cyclical peak” for the company’s ag services and oilseeds business, according to a July 26 report from Morningstar’s Goldstein. “ADM's grain merchandising business, likely benefitted from the temporary grain export halt from Russia and Ukraine during the quarter. As customers who would normally import grain from those countries scrambled to secure other supplies, we think there were likely more grain price dislocations,which resulted in more profit opportunities.”
As grain exports from Russia and Ukraine increase over the second half of the year, the report states grain merchandising conditions are expected to moderate. Meanwhile Goldstein expects the company to continue to make more small downstream investments. Will more consumer-oriented food products make ADM a household name? Not likely, Goldstein said. ADM will be there, but “below the radar,” he said.