Earnings Call Transcript - ADM Q3 2020

Operator, Operator

Good morning, and welcome to the ADM Third Quarter 2020 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Victoria de la Huerga, Vice President Investor Relations for ADM. Ms. de la Huerga, you may begin.

Victoria Huerga, Vice President Investor Relations

Thank you, Amy. Good morning, and welcome to ADM's third quarter earnings webcast. Starting tomorrow, a replay of today's webcast will be available at adm.com. For those following the presentation, please turn to Slide 2, the company's safe harbor statement, which says that some of our comments and materials constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These statements and materials are based on many assumptions and factors that are subject to risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation, and you should carefully review the assumptions and factors in our SEC report. To the extent permitted under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events. On today's webcast, our Chairman and Chief Executive Officer, Juan Luciano, will provide an overview of the quarter and important actions we are taking to meet our strategic goals. Our Chief Financial Officer, Ray Young, will review financial highlights and corporate results as well as the drivers of our performance and our outlook. Vince Macciocchi, Senior Vice President and President of our Nutrition segment, will give an update on our nutrition business and its future growth. Then Juan will make some final comments, after which they will take your questions. Please turn to Slide 3. I will now turn the call over to Juan.

Juan Luciano, CEO

Thank you, Victoria. Last night, we reported third quarter adjusted earnings per share of $0.89, up from $0.77 in the prior year quarter. Adjusted segment operating profit was $849 million, up 11% year-over-year, and our trailing fourth quarter adjusted ROIC was 8.3%. Our strategic initiatives have continued to enable our teams around the world to demonstrate their expertise and skills. I am proud of how our colleagues are supporting customers and driving strong results. The team has done a great job handling the daily and sometimes hourly challenges that have come our way in 2020. That resilience allows us to deliver outstanding results today while we simultaneously continue our strategic work to make our company better and advance our growth and transformation. Let me share with you some of our accomplishments. In our optimize pillar, our Ag Services and Oilseeds team continued its work to enhance returns, delivering another $100 million in invested capital reductions in the third quarter. Since 2017, Ag Services and Oilseeds has improved its capital position by exiting from no longer strategic assets, including 71 grain origination locations, 6 oilseed facilities, 14 Golden Peanut and Tree Nuts locations and 7 ocean-going vessels. We've also seen first-hand how our improvement initiatives have helped drive business continuity. In addition to the pandemic, in recent months, we've seen multiple hurricanes in the U.S. Gulf under the rage of storms that swept across the Midwest. Despite those events, thanks to our teams and our operational excellence, we have continued to serve our customers and fulfill our purpose without significant interruption. In our drive pillar, we are continuing to accelerate our 1ADM business transformation, expanding the deployment of our procurement, contract labor and sales and marketing modules, which are helping us drive efficiencies and growth and will provide us with a trove of data to support enhanced analytics and decision-making. Our Decatur corn complex's ongoing strong performance from grind to gluten and germ meal to workplace safety continues to demonstrate the benefits of our centralized operations organization. Our supply chain center of excellence is delivering as well. Using our enhanced processes and tools as well as integrated planning between commercial, supply chain, and operations, we've recently piloted changes at the nutrition facility that are on track to unlock a 20-plus percent increase in production capacity at that location and have already resulted in enhancements in customer service without additional capital spending. We'll be rolling these kinds of improvements out to other locations. In our expand pillar, we are continuing to harvest our investments. For example, year-to-date, our Algar Agro acquisition has tripled its year-over-year operating profit. In a very short time, Algar has grown to be an important component of the South American business. We've successfully expanded production of high-quality USP grade alcohol in Peoria and Clinton to meet high demand for hand sanitizer. We announced the construction of a new state-of-the-art production facility in Spain that will dramatically expand our ability to meet growing demand for probiotics and other consumer products to support health and wellness. We also signed a long-term agreement with Japanese startup Spiber Inc. This project taps into our innovative spirit and capabilities, creating value from across our supply chain from the corn we buy to the dextrose we make, to the science and manufacturing technology we have invested in. And it meets a critical need in the marketplace for both consumer and industrial products that come from sustainable sources. Our transformation and growth and our confidence in the future will not be possible without readiness. By the end of the third quarter, our team identified and executed on readiness initiatives that unlocked almost $1.2 billion in run rate benefits. And now I am pleased to announce that we are on track to achieve $1.3 billion by the end of the year. Readiness encompasses and supports our entire company. It drives the strategic imperatives that help us fulfill our purpose, such as sustainability. We are advancing our sustainability efforts on many fronts, such as our Strive 35 goals to improve our performance on greenhouse gases, energy, water, and waste. Readiness creates growth enablers. For example, we're continuing to elevate our commercial excellence with innovative tools like our consumer insight programs and virtual customer technologies. And of course, readiness is one of the key elements powering the growth algorithm we laid out at the beginning of the year. Because of its success, along with tremendous progress in our harvest and improved initiatives, we now expect to meet or exceed the high end of our $500 million to $600 million goal for targeted improvement in 2020. So before I turn to Ray, I'd like to say that it's our pleasure to welcome Vince today on this call. In 2014, we started a new journey with the acquisition of WILD Flavors and the launch of a full-service nutrition business, offering customers a broad array of products and services. I could not be more proud of the growth we have seen since then. Nutrition has delivered its fifth consecutive quarter of 20-plus percent year-over-year operating profit growth. Revenue is up 5.7% on a currency-adjusted basis for the first nine months of the year. In the years since we acquired WILD, we have nearly tripled OP in the flavors business. As we've been getting more and more questions about that business and its growth potential, we decided that it was the perfect time to update and explain the business further. But before we get to Vince, though, I'll turn it over to Ray to take us through our business performance. Ray?

Ray Young, CFO

Thanks, Juan. And please turn to Slide #4. As Juan mentioned, adjusted EPS for the quarter was $0.89, up from the $0.77 in the prior year quarter. Excluding specified items, adjusted segment operating profit was $849 million, up 11%. And our trailing 4-quarter average adjusted ROIC was 8.3%, 255 basis points higher than our 2020 annual WACC. Our trailing 4-quarter adjusted EBITDA was about $3.7 billion. Our cash flows are strong as we generate about $2.3 billion of cash from operations before working capital for the first 9 months of the year. The effective tax rate for the third quarter was a benefit of approximately 13% compared to an expense of 19% in the prior year. Our Q3 tax rate was impacted by our debt retirement actions as well as the sale of our Wilmar shares and higher year-over-year Wilmar earnings and U.S. tax credits. Absent the effect of EPS adjusting items, our effective tax rate was approximately 11%. We expect our adjusted tax rate for Q4 to be similar to this adjusted Q3 effective tax rate. As we announced at various points during Q3, we've taken several actions over the last few months to both utilize and enhance our strong balance sheet. These actions were not about cash flow or liquidity as we had cash and available credit capacity at the end of the quarter of almost $10 billion. They were about creating balance sheet optionality for future transactions while maintaining a strong credit rating profile. We monetized a portion of our Wilmar investment through a block sale of Wilmar stock and issuance of bonds exchangeable for Wilmar shares at a future date. As we have indicated, we view our significant remaining Wilmar stake as strategic, and we do not have any intentions to sell additional shares. Leveraging our strong cash position, we also rebalanced our mix between long and short-term debt, economically retiring higher coupon debt through positive NPV transactions and reducing interest payments in the future. Combined, these actions allow us the flexibility to make strategic investments, further bolt-on acquisitions, or buy back shares when it makes sense to do so, all while continuing to make progress in deleveraging our balance sheet and maintaining our single A credit ratings. These actions were also a significant driver of our tax rate. Return of capital for the first 9 months was $724 million, including around $115 million in opportunistic share repurchases, the vast majority of which were executed earlier this year. We finished the quarter with a net debt to total capital ratio of about 27%, down from the 30% a year ago. Capital spending for the first 9 months was about $560 million. We expect capital spending for the year to be around $800 million that we previously indicated and well below our depreciation and amortization rate of about $1 billion. Slide 5, please. Other business results were lower than the prior year quarter, driven by lower ADM investor services earnings and captive insurance underwriting losses, including a $17 million settlement impact for the high water claim with Ag Services and Oilseeds. In the corporate lines, unallocated corporate costs of $196 million were higher year-over-year, due primarily to variable performance-related incentive compensation accruals, which were low in the prior year. Corporate results this quarter also included $396 million related to the early debt retirement charges that I referred to earlier, which is an EPS adjustment item. Net interest expense for the quarter was similar to the prior year period. Looking forward, we expect unallocated corporate expenses to be in line with our initial $800 million guidance for the calendar year and Q4 net interest expense to be slightly lower than Q3. We also expect a loss of about $50 million in other business in Q4 due to anticipated intercompany insurance claim settlements. Please turn to Slide 6. Ag Services and Oilseeds results were higher than the third quarter of 2019. In Ag Services, we saw extremely good execution around the globe. The North American team did well to capitalize on strong industry export margins and volumes, and the global trade team had another strong quarter as they continued their focus on serving customers. Ag Services also benefit from a $54 million settlement related to the 2019 U.S. high water insurance claims, which is partially offset by an expense in captive insurance. The crushing team also did a great job executing in a solid demand environment. Both Ag Services and Crushing saw expanding margins during the quarter resulting in around $155 million in total negative timing effects, which led to lower results. Those timing impacts are expected to reverse in the coming quarters. Refined Products and Other was significantly higher year-over-year, driven by improved biodiesel margins around the globe. Equity earnings from Wilmar were substantially higher versus the prior year period. Looking ahead, we expect to see strong North American exports in global crush margins in the fourth quarter, combined to contribute to a very strong Ag Services and Oilseeds performance, with results significantly higher than the third quarter of this year, though lower than Q4 of 2019, which included a $270 million benefit for 2 years of the retroactive biodiesel tax credit. Slide 7, please. Carbohydrate Solutions results were significantly higher year-over-year. The Starches and Sweeteners subsegment was substantially higher driven by strong risk management and improved net corn costs as well as a balanced ethanol industry supply and demand environment. Reduced food service demand affected sweetener and flower volumes but we're seeing good demand recovery for starches in North America. The Vantage corn processors team did a good job executing on the wet mill fuel ethanol distribution and capitalizing on higher year-over-year industry margins while managing the fixed costs from the 2 temporarily idle dry mills. Increased volumes and margins on USP grade industrial alcohol to support the hand sanitizer market also contributed to higher year-over-year profits. Looking ahead, we expect the fourth quarter for Carbohydrate Solutions to be close to Q3 of this year and substantially higher than the fourth quarter of 2019, driven by improved year-over-year fuel ethanol margins and higher industrial-grade sales. While Sweetener and Flower volumes will still be impacted by weaker food service demand, we expect the year-over-year percentage decline to be smaller than it was in Q3. On Slide 8, Nutrition delivered its fifth consecutive quarter of 20-plus percent year-over-year profit growth. Human nutrition results were substantially higher versus the prior year quarter, with strength across the entire pantry, including flavors, plant-based proteins and probiotics. Animal Nutrition was also higher year-over-year, driven by continued delivery of Neovia synergies, strengthened livestock and year-over-year improvement in amino acids, partially offset by softer aquaculture feed demand as well as negative foreign currency impacts. Looking ahead to the fourth quarter, we expect nutrition to deliver another quarter of 20-plus percent year-over-year operating profit growth with a typically seasonally weaker Q4 in Human Nutrition, offset by seasonally stronger Animal Nutrition. I'd now like to transition to Vince Macciocchi, President of our Nutrition business, for an update and overview of the business. Vince, congratulations to you and your team for not just a great quarter but for consistent delivery of strong growth.

Vincent Macciocchi, President of Nutrition

Thank you, Ray. Slide 9, please. I'm proud of the team who have delivered in so many ways. When I reflect upon the growth we've made and the journey we are still taking, I keep coming back to our purpose, to unlock the power of nature, to enrich the quality of life. I think it's remarkable how these few words sum up not just what we do but why our work is so important. The global population is growing, and consumer behavior is shifting in ways we couldn't have predicted only 10 or 15 years ago. The scale of the change and the opportunity for ADM is enormous. Global sales of specialty ingredients across both human and animal nutrition are as much as $85 billion and growing at a rate of 5% to 7% per year. These specialty ingredients, which represent the majority of the nutrition portfolio apart from fee, go into the full array of consumer nutrition products for humans and animals, many of which are projected to grow significantly in the coming years. For example, the global market for functional beverages could be as large as $190 billion in 2024. The global dietary supplement market could be worth more than $77 billion in that same time frame. Global retail sales of alternative proteins are already a $25 billion market today, with a projected growth rate of 14% per year. Global retail sales of pet food are projected to grow at 4% per year, reaching $120 billion by 2024. These aren't just numbers. They're indicators of significant long-term trends in how people choose food, drink, and other products, driven by a global population that cares deeply about health and sustainability. And based upon the portfolio, footprint, capabilities, and talent we've built, no other company is positioned to meet these needs and lead in these industries like ADM. Please turn to Slide 10. It's been 6 years since we started on this journey. In that time, we've built or expanded more than 16 facilities, from our pea protein complex in the U.S. through our network of premix plants in China. We've enhanced our science and technology capabilities, invested in market research and consumer insights, and built new interactive ways to engage with customers from our more than 50 global customer innovation centers to daily virtual innovation and tasting sessions. We've made platform acquisitions, and we've added bolt-ons. All in all, we have invested just over $6 billion to build our global leadership position in nutrition. These investments are delivering results. Since 2014, we've increased our annual revenue by $3 billion. And by the end of this year, we'll have grown operating profits by more than $300 million over those 6 years, more than double. Slide 11, please. Our Human Nutrition business can offer customers ingredients, flavor systems, or turnkey product development solutions, supporting them every step of the way to take their ideas from concept to prototype to market in record time. In Animal Nutrition, only 1.5 years after we completed our Neovia acquisition, we can look back on a successful integration in which we exceeded our synergy goals and built a global business that offers a full portfolio of on-trend items, from pet treats to enzymes to ingredients for aquaculture to meet evolving customer needs. In our Health and Wellness business, which is part of our Human Nutrition subsegment, our scientists are expanding the universe of pro-, pre- and postbiotics and other functional products to meet growing demand for stand-alone supplements and ingredients that help enhance our array of human and animal solutions. Taken together, our extremely broad portfolio of ingredients and solutions can add value for customers across both human and animal nutrition. For instance, taste and color are just as important for animal nutrition customers today as they are for food and beverage customers. Functional ingredients matter in both human and animal nutrition and so on across our entire pantry. Then we add the rest of ADM's capabilities. In plant-based protein, for example, we have the unique advantage of ADM's broad and integrated value chain, from sourcing and transporting the soybeans and peas to transforming them into high-protein ingredients at our own facilities, to adding the colors, flavors, oils, and other key elements to create just the right taste, appearance, juiciness, and sizzle for delicious finished plant-based products. Please turn to Slide 12. We're proud to have come this far in 6 short years, but our eye is on the future. We are confident in continuing our growth story. It starts with the global category trends I outlined earlier. It continues with our extensive and ongoing research into consumer behavior and needs. Earlier this week, we released our latest view of the top consumer trends of 2021 based upon research that includes our proprietary outside voice consumer insights program. Our findings show that the events of the past year are accelerating and deepening fundamental market shifts, including consumers taking a more proactive approach to nourishing body and mind, the microbiome as the gateway to wellness, continued growing demand for plant-based foods, sustainability as a key driver of purchasing decisions, and transparency as a building block of consumer trust. The last piece of the equation is how our team brings it all together for our customers, combining unmatched customer support and service with our vast value chain to deliver ingredients, systems and solutions that align perfectly with market trends and needs. These are the reasons we expect to continue to lead the industry, outpacing the market and operating profit growth, and we remain confident in reaching $1 billion in operating profit in the medium-term future. With that, I'll turn it back to Juan.

Juan Luciano, CEO

Thank you, Vince. And congratulations to you and the entire ADM team for another outstanding quarter. Slide 13, please. Across the enterprise, we are continuing to advance our work to enrich the quality of life and meet key needs for consumers around the globe. At the time of heightened concerns around food security, ADM's vast global value chain is helping ensure that countries and families can continue to put nutritious, delicious foods on the table. As consumers focus more and more on proactive approaches to health, we're expanding the frontier in groundbreaking functional ingredients and supplements for people with conditions like migraine and atopic dermatitis, and we're paving the way to a new world of precision nutrition personalized for every individual. And as sustainability becomes a key driver of consumer decisions and business success, we're playing a leading role in the transition to a low-carbon economy for our industry. We are committed to our purpose, and our team is continuing to deliver for our customers, our shareholders, and all who depend on us. And that is why we are confident in a strong finish to 2020 and positive momentum continuing through 2021. With that, Amy, please open the line for questions.

Operator, Operator

Your first question comes from the line of Eric Larson with Seaport Global.

Eric Larson, Analyst

Congratulations on a really good quarter. My first question is for Vince. Thank you for that review of your operation. I'm looking at Slide 11 and considering your complete pantry of ingredients and solutions from nature. There has been significant consolidation in this industry over the last few years, particularly with IFF making large acquisitions at high multiples. Can you provide an overview of your market shares across the different categories in your pantry? I understand it's highly fragmented. Are there additional opportunities for you beyond your usual organic growth? Specifically, could you strengthen your portfolio in those various sectors? Where do you see your biggest strengths, and where might improvement be needed?

Vincent Macciocchi, President of Nutrition

Thank you, Eric. I believe that when we consider our business, we should start by discussing some of our greatest strengths. Our main advantages include the extensive variety of our product offerings, combined with our technical capabilities that provide scientifically backed solutions. Additionally, we align well with global consumer trends, particularly the focus on the microbiome, plant-based foods, sustainability, and transparent labeling. Our portfolio is well positioned, especially in our flavors business, emphasizing natural products as we continue to grow in mature markets and expand into emerging ones. In the specialty ingredients segment, we hold a significant share as a key provider of plant-based proteins, including soy, pea, and wheat, effectively capitalizing on global trends. Our Health and Wellness division boasts a strong portfolio centered around probiotics, postbiotics, fiber, vitamins, and specialty oils, making it comprehensive. In Animal Nutrition, since acquiring Neovia in 2019, we've exceeded our synergy targets and developed a robust global business focused on complete feed additives and ingredients for aquaculture and pets. Our opportunities lie in further expanding our flavors business in emerging markets, exploring technology in our plant-based and specialty ingredients sectors, and enhancing our presence outside the Americas. In Health and Wellness, we aim to leverage the microbiome and expand our capabilities, exemplified by the expansion of our facility in Valencia, Spain, which will significantly boost our capacity to meet growing demand. Lastly, in Animal Nutrition, we will complete our integration, grow organically, improve margins, and continue unifying our portfolio to deliver scientifically backed solutions.

Eric Larson, Analyst

Okay. Great. My follow-up question is for Juan and it's more general. I believe most people on this call are aware of the recovery in the global agricultural markets. The question we all have is regarding the sustainability of this recovery, especially considering the fits and starts we've experienced over the past several years. Can you share your thoughts on the sustainability of the recovery in the global agricultural markets, beyond just the current strength? It's clear that it will be sustainable in the early part of next year, but what is your perspective on sustainability for the next one to two years or even further?

Juan Luciano, CEO

Yes, thank you, Eric. I’m very proud of the team's execution and our consistent track record in that regard. Over the past few years, we have built a business aligned with key trends in food security, health and wellness, and sustainability, which we believe will continue into the future. As we plan ahead, we feel confident about achieving our 10% return on invested capital and our goals for earnings and reducing invested capital. The pandemic has highlighted trends we've been developing with consumers, and governments are increasingly focused on food security, recognizing our role in connecting surplus and deficit areas globally. We are actively positioning our portfolio towards healthier trends and have seen positive reactions in plant-based proteins, probiotics, and functional foods. The growing demand for biomaterials sourced from plants to replace fossil fuel-based materials reflects this trend in food security and sustainability. We are finishing the year strong and entering Q1 with positive momentum, which gives us optimism for 2021. Demand remains robust, and China's recovery has exceeded expectations as they rebuild their herds amid economic recovery. At this moment, Brazil has completely sold off its pipeline of beans, which has diminished Argentina's incentive to sell. For the first time in a long while, the world is relying on U.S. supplies of both soybeans and corn. We are examining this situation from multiple perspectives and feel positive about it. The crush margins are being supported by both sides now, whereas traditionally they leaned more towards the mill side. There is a significant oil story unfolding globally that includes various aspects like biodiesel and renewable green diesel, as well as the recovery of food services driving oil demand. Therefore, we are optimistic about the future and have great confidence in our team's ability to follow through on these opportunities.

Operator, Operator

Your next question comes from the line of Ben Kallo with Baird.

Ben Kallo, Analyst

Could you provide more details on ASF and when we might see it as a positive factor? Additionally, regarding Wilmar and the liquidity from that, where do you anticipate the investment will be directed, and could you provide a ranking? Lastly, we've been hearing a lot about renewable diesel. Can you share your perspective on how your company is positioned regarding that trend?

Juan Luciano, CEO

Thank you, Ben. Regarding ASF, we have been monitoring this situation for several quarters, and it has unfolded as we anticipated. Initially, there was a significant protein gap in China that was filled by protein imports, which we noticed in the strong crush margins. Now, China has managed to control the situation and is in the process of rebuilding its herd, which had faced substantial losses. This rebuilding effort is focused on more professional animal production, leading to increased rations that require more soy meal and corn. This explains the high demand for imported corn from China. Additionally, the poultry industry in China is on the rise, helping to offset some of the deficit in pork protein. We believe it will still take a couple more years for China to fully recover its herd. Furthermore, there are efforts toward achieving self-sufficiency, which we expect will sustain the strength in crush margins and overall demand. The shift towards professional animal husbandry is contributing to greater inclusion of soybean meal and corn in animal diets, leading to improved feeding and nutrition. This development aligns with our previous positive outlook on crush margins for the latter half of the year, confirming our expectations. China plays a significant role in this scenario. Your second question was about Wilmar and our capital allocation. We are very proud of our ownership and long-term relationship with Wilmar. They are a strategic partner for us, and we received great results from them recently. The team continues to perform well, especially as China rebounds from the pandemic, and Wilmar plays a significant role in that. We made a decision to reallocate capital but we will maintain our 20% share in Wilmar, which we are committed to for the long term. This decision was made to strengthen our balance sheet following our acquisitions of WILD Flavors and Neovia. We are comfortable with this decision and want to support Vince with necessary bolt-on acquisitions and organic investments. We are also increasing our capacity at Biopolis by five times due to growth in that area. Vince has plans for additional bolt-ons and organic growth as we expand our successes in North America and Europe. There is nothing more to it, and we will continue to support research and development. You heard Vince discuss our focus on science-based functional products and nutrition, which is crucial and requires investment. We are happy to invest in this area as we see returns. Not every business in our segment achieves consistent growth like ours, with more than 20% operating profit growth for five consecutive quarters, and we take pride in that. Your third question was about renewable green diesel. Yes, we participate as a supplier of feedstock. The tightening in the market has been generated because we have stable volumes and strong margins from the biodiesel we supply. Additionally, as the food service sector has recovered, we've observed a tightening in oil consumption. We are closely monitoring this as it adds to the strength of crush margins, providing a positive short-term tailwind. However, we need to see how this industry develops, considering the various factors at play. There have been many positive announcements that could create pressure on feedstocks. We'll observe how many states or countries adopt these initiatives, how many investments materialize into actual plans, and which feedstocks are permitted. Currently, the feedstock environment is somewhat constrained due to fewer restaurants generating used cooking oil and reduced production on the ethanol side. Still, we have the potential to incorporate canola, which has a good carbon index. There are many dynamics at work, but in the short term, we are participating as a supplier of soybean oil and benefiting from the crush margins we are experiencing.

Operator, Operator

Your next question comes from the line of Ben Theurer with Barclays Bank.

Benjamin Theurer, Analyst

Yes. Congrats on the results. I tried to get you back on schedule, ask only one question, and that one is for Vince. So when you nicely showed how you've basically increased the nutrition business since the bigger acquisition some 6 years ago, and if we look at it on a trailing basis, we're basically at about $550 million in operating profit, call it, somewhere halfway through of where you want to get. But we've clearly seen a significant acceleration in the last 2 to 3 years. So how should we think about your path to the $1 billion going forward? Is this going to be a 6-year time to get there? Is it going to be accelerated just because of the flexibility? And as Juan just said, he's going to give you a little bit more capital and opportunities as you have a long list for bolt-on M&A. So how should we think about the growth performance, M&A versus organic? And when do you think that medium-term target can be achieved?

Juan Luciano, CEO

Yes. Maybe if I start, and I'll let Vince complete that with some more granularity. But when we look at our strategic plan, and we plan in 5-year increments, so the last one we did in 2019, so 2019 to 2024, we see our $1 billion OP that Vince described being achieved in that planning cycle. So let's say, by 2024, if you want to say it that way. In order to get there from here, you can see the nutrition approximately needs to grow around 15% per year compounded to get to that number. So that number is excluded any major M&A. That number is in the current strategy, which is organic growth and bolt on. So about the ratio that you're seeing right now going. So maybe then I pass it to Vince to provide more granularity on where that growth comes from.

Vincent Macciocchi, President of Nutrition

Thank you, Juan, and thank you, Ben. I think it's important if you just take a pause and see where we're at. If you look on a year-to-date basis through 3 quarters, we're at $448 million, whereas we did $419 million all of last year. So to Juan's point, it's a good growth story and a good growth trajectory from an organic basis. And what we've done is we've really taken the approach of let's grow organically. Let's expand our customer base. We've made significant investments in our key account management program and our approach to the customers and really expanding that base on a worldwide basis. As I mentioned in my remarks that we've invested over $6 billion in this business. So yes, we've done platform deals that we've integrated and then grown organically, and we've done a series of bolt-ons. But additionally, we've invested in our own facilities. We built a greenfield pea production facility in Enderlin. We built a soy protein complex in Campo Grande in Brazil. We've done acquisitions in the citrus space, the vanilla space, the food-based space, the bioactive space. And so obviously, we're harvesting those investments right now and continuing to take those businesses and grow those businesses and add them to our portfolio of capabilities. So I think that's what gives us some optimism. And we look at our win rate in the marketplace as well. And we look at our pipeline of opportunities. Again, when you take these capabilities and the size of the pantry which we depicted earlier, and you marry those with the technical capabilities we have on a worldwide basis from a science and technology perspective and a creation, design, and development perspective, that translates to a very high win rate against customer opportunities that actually launched in the marketplace. Therefore, we have an organic growth road map as Juan identified within the time horizon of the strategic plan that will get us to that $1 billion aspiration. And again, we'll continue to search, as Juan indicated earlier, for smart bolt-ons and perhaps platform deals if and when they make sense.

Juan Luciano, CEO

And then we're going to keep pushing Vince to get there faster.

Operator, Operator

Our next question comes from the line of Robert Moskow with Crédit Suisse.

Robert Moskow, Analyst

Juan, the environment looks great. I totally agree. I'm trying to think of things that might derail that situation. One investor asked me about Argentina and the possibility of devaluation. Would that be a catalyst for farmers selling, crushers crushing and leading to a glut in the market that might cause crush margins to fall? Can you comment on that possibility?

Juan Luciano, CEO

I’m not going to predict a devaluation in Argentina because I hope to return one day. However, the current global market is tight with high demand, particularly from China. Even if Argentina were to devalue, which might incentivize farmers to sell, it’s unlikely that more than about 5 million tons would be added to the market. The market actually needs that amount and would absorb it quickly. I don’t anticipate this being a significant issue. I am not sure what might derail the situation, but I don’t have major concerns about it. The market conditions are sufficiently tight. Brazil's crop is delayed by a couple of weeks, and we still need to see how the La Niña effect will impact yields. While I expect Brazil to have a substantial crop, I doubt it will reach 140 million tons given the current circumstances. At this moment, I am more concerned about the future supply of beans and where the mill will source them rather than the potential flooding of the market by Argentina. We do not view this situation as an opportunity. Unfortunately, I cannot visit Brazil or Argentina at this time, but from discussions with Brazil, I understand that they are currently facing food inflation and are importing beans from Paraguay and Uruguay. There is a clear need, especially among our customer base, which is significantly underserved. These customers are purchasing on an as-needed basis due to strong demand, and it is our responsibility to meet that demand. However, my primary concern is ensuring a steady flow of supplies from farmers so we can continue to operate and contribute to feeding the world.

Operator, Operator

Your next question comes from the line of Pooran Sharma with Stephens.

Pooran Sharma, Analyst

This is Pooran filling in for Ben. I just wanted to ask you how you're thinking about your dry mills. Does it seem like it makes more sense to just keep them offline until post-COVID? What do you think is best for that business? And can you talk about any growth you have or could see in USP grade alcohol?

Ray Young, CFO

Yes, this is Ray. First, we have effectively managed the stranded costs of our two temporarily idle dry mills. Additionally, the industry has done well in balancing supply and demand in the ethanol sector, which is evident in the current EIA inventory figures showing stocks below 20 million barrels. This balance has led to a favorable ethanol margin environment and has positively impacted our results in the Starches and Sweeteners segment, as well as in our VCP segment, which includes industrial-grade alcohol from our Peoria facility. As we approach the winter season, when driving miles typically decline, we plan to keep these dry mills temporarily idled due to the reduced gasoline and ethanol demand. This approach is sensible. Looking ahead to the new year, we will assess various data points regarding the U.S. economic recovery, seasonal changes in driving miles, and industry utilization rates. Many of the ethanol mills currently idled may remain so permanently, which is crucial for our analysis. We will also closely monitor the Tenth Circuit Court ruling on special refinery exemptions and whether the Supreme Court will address the case. Moreover, there have been emerging discussions about China potentially importing ethanol from the U.S., with at least one shipment already made. All these factors will be significant in determining when we might restart these dry mills. If conditions align favorably, particularly in the spring when the industry usually ramps up ethanol inventories for the summer driving season, we could consider restarting the dry mills then. However, this will ultimately be a decision informed by data, as we understand our role in maintaining supply and demand balance in the industry. Currently, the outlook suggests a possible path toward a restart in the first half of next year.

Pooran Sharma, Analyst

Got it. And then also, could you just maybe provide a little bit more color on the prospects for USP grade alcohol?

Ray Young, CFO

It's been a good news story, right? I mean, we started the year with 1 plant, our Peoria plant, 85 million gallons a year. Demand shot through the roof for industrial-grade alcohol. And so we actually combination ran the plant hard plus we've expanded the capacity of that plant. So we'll be up to 100 million gallons very shortly. And then secondly, we also made some investments into another facility, Clinton, and we're going to actually expand production of industrial-grade alcohol in that facility as well. So by the end of this year, our run rate in terms of industrial ethanol production would have increased by over 50%. In addition, the quality of the ethanol that we produce is very, very high. I mean, you've probably read many stories about hand sanitizers in whereby the quality of the alcohol within the hand sanitizers is poor. And frankly, a lot of them have been pulled out of the market. The customers are looking for a high-quality industrial alcohol. And that's what ADM is able to deliver. That's the reason why we've expanded capacity in order to meet the demands of these customers.

Operator, Operator

Your next question comes from the line of Kenneth Zaslow with Bank of Montreal.

Kenneth Zaslow, Analyst

As you see the oil seed markets developing, is there any thoughts that there may be some additional capacity being built anywhere that would be alarming? Or any thought that you would think that would come about? And what are your plans? Is it more of a debottlenecking procedure? Or would you think that there would be some thought that you might find some capacity expansion opportunities?

Juan Luciano, CEO

Yes, Ken. At this point in time, again, it's a very positive environment from a margin and demand perspective. So I think that we're all looking through readiness and everything, how to expand capacity with as little capital as possible, of course, to debottleneck every facility. We are very prudent in thinking about new staff that cannot be integrated. I think we're very proud of the integration of our facilities that help a lot the integration with grain, the integration with refineries. So at this point in time, going to the earlier part of your question, we don't see any major announcement that worries us. I think that in reality, the industry needs some of that extra capacity that we heard about. And I think that we continue to have our plan. As I said, we put together our 5-year plan from '19 to '24. That includes some expansions to maintain our position there. But this is a very disciplined market in which we follow demand and we follow what our customers and the final consumers are doing. So we are looking at that, and we have flexibility. I don't think this is an industry that goes like other industries that maybe build a lot of capacity, and then it takes many years for them to build, to grow into that capacity. This is an industry that tends to grow in manageable chunks. And I think that we've been a player in that, and we know how to do it. So I don't worry that much about that, not at this point in time, Ken.

Kenneth Zaslow, Analyst

I understand the question has been asked, but I want to rephrase it for clarity. Can you elaborate on how the opportunity related to renewable diesel impacts your margin structure or earnings potential? How significant is this impact? Is it a slight enhancement, like a cherry on top of ice cream, or is it more substantial, akin to the ice cream itself? What are your thoughts on this?

Juan Luciano, CEO

I believe that even if we consider 70% of the announced capacity being utilized, it represents a significant opportunity for us. We'll definitely have a role in this market. We are well-equipped with our biodiesel facilities that are integrated with our refineries and crushing plants, which puts us in a strong position when vying for soybean oil. However, we need to monitor how this situation evolves since this is part of the broader effort to decarbonize the economy. There are various factors that could influence long-term developments, including the rise of electric vehicles and other innovative solutions. Just a year ago, we weren't even discussing renewable green diesel, and new solutions may emerge over time. While we're being cautious, it's not due to any pessimism; rather, we recognize that numerous players and technologies are exploring ways to reduce carbon emissions in transportation and beyond. Thus, the outlook seems positive, and we intend to be an active participant. If the projected capacity materializes, it will have a significant impact. However, in the coming years, we anticipate that this will create tightness in the oil market, which will likely enhance margins and keep crush margins strong. Forecasting in the energy sector is challenging due to the rapid pace of technological advancements, which can lead to sudden shifts, as we're currently witnessing with renewable green diesel. However, we need to assess how sustainable these changes will be over time.

Operator, Operator

Your next question comes from the line of Steven Haynes with Morgan Stanley.

Steven Haynes, Analyst

This is actually Steve Haynes on for Vincent. The operating environment clearly firmed up nicely for you guys. I wanted to just come back to kind of some of the self-help things you have going on. And if you got kind of $500 million to $600 million of controllable benefit this year, do you have any kind of target as we look into 2021, so what a like-for-like number could look like?

Juan Luciano, CEO

Yes. We will provide more details during the Q4 call regarding our 2021 targets as we are currently in our planning season. If you have been following our progress, you will notice a consistent approach in our offerings. These programs are not isolated; they include critical elements like readiness and improvement, and we are actively refining our portfolio. Our aim is to focus more on harvesting in the future rather than just improvements. The mix will inevitably change over time, as some situations, like the storms we encountered in 2019, do not repeat with the same level of impact. While some factors may fluctuate, we have strong trends in areas like readiness that we are building upon. We will share more detailed information in the upcoming earnings call, but I believe investors are familiar with our pattern by now. Our portfolio is extensive and manageable, so you can expect to see efforts around harvesting, improvements, and readiness, even if the numbers vary somewhat.

Operator, Operator

Your next question comes from the line of Adam Samuelson with Goldman Sachs.

Adam Samuelson, Analyst

So maybe the first question is about the balance sheet and capital deployment. Ray, you mentioned the Wilmar proceeds and the debt optimization actions from last quarter. Can you help us understand your commentary on balance sheet optionality? Specifically, can you discuss the available resources for mergers and acquisitions right now and what that pipeline looks like? What should we consider if there's any small-scale M&A that could help us gauge the scale of our plans?

Ray Young, CFO

Yes. To remind everyone, during the Wilmar equity block transaction and secondary offering, we enhanced our balance sheet flexibility by strengthening our capital base. This was not a liquidity move, as we had sufficient liquidity; it was primarily aimed at further reducing our debt. Following the Neovia acquisition funding earlier this year, our goal has been to bring our balance sheet metrics down to the low 2s by year-end. The actions we've taken are intended to help achieve this target, and I am confident we will reach the low 2s. This improvement in our balance sheet provides us with the flexibility to pursue bolt-on acquisitions, and Vince is continuously exploring opportunities. It is our responsibility to ensure we can support these opportunities when they arise. Additionally, we have the ability to conduct share repurchases if the equity markets experience a correction due to various macroeconomic factors, allowing us to capitalize on significant value gaps relative to our intrinsic value.

Operator, Operator

Your final question comes from the line of Tom Simonitsch with JPMorgan.

Thomas Simonitsch, Analyst

So maybe one last question on the $1 billion nutrition operating profit, and apologies if I missed this, but what range of revenues do you need to meet that target? And in the near term, when do you expect the top line in nutrition to return to growth?

Vincent Macciocchi, President of Nutrition

Thanks, Tom. Well, the top line in nutrition is growing. When you look across the broader nutrition business on a year-to-date basis, where we've grown at approximately 6% FX adjusted. So we have a very aggressive growth plan from a revenue perspective. And obviously, there are some puts and takes. There's been some headwinds related to COVID affecting some of our sectors as well as some FX issues. But at the same token, we've realized significant revenue growth in certain areas of our portfolio. When you look at the Flavors business, primarily in North America and Asia Pacific, we look at our Specialty Ingredients business, primarily in North America, South America, and the growth of plant-based meat alternatives. We look in Health & Wellness. Obviously, very important growth across that space, really in terms of the bioactives, our specialty oils, our fiber portfolio. So with our fixation on customers, we're growing top line revenues. It's one of the key tenets of our organic growth opportunities in our plan. And then look at animal nutrition. So obviously, there's some things that have affected aquaculture and some other FX things related to the Brazilian real and the Mexican peso. But at the same token on a year-to-date basis, we're up 7.5% FX adjusted. So we do have a very aggressive plan to drive the revenue. We're focused on revenue. I mentioned pipeline earlier. That's a key barometer to how we measure our opportunity for future success and to drive revenue growth. So it's a heavy emphasis. And obviously, at the same time, while we're growing revenue and we're growing our businesses across the portfolio, if you look at our margin performance, it's increased as well. So we're focused on price, we're focused on profitability, and we're focusing on margining up all of our businesses across the portfolio.

Operator, Operator

This concludes our question-and-answer session. I will now turn the call back over to Victoria de la Huerga for closing remarks.

Victoria Huerga, Vice President Investor Relations

Thank you for joining us today. Slide 14 notes upcoming investor events in which we will be participating. As always, please feel free to follow up with me if you have any other questions. Have a good day, and thanks for your time and interest in ADM.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. On behalf of ADM, thank you for your participation. You may now disconnect.