Earnings Call Transcript - ADM Q3 2025

Kate Walsh, Director, Investor Relations

Welcome to the third quarter earnings conference call for ADM. Our prepared remarks today will be led by Juan Luciano, Chair of the Board and Chief Executive Officer; and Monish Patolawala, our EVP and Chief Financial Officer. We have prepared presentation slides to supplement our remarks on the call today, which are posted on the Investor Relations section of the ADM website and through the link to our webcast. Some of our comments and materials may 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 numerous 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 the materials. Unless otherwise required by law, ADM assumes no obligation to update any forward-looking statements due to new information or future events. In addition, during today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available in our earnings press release and presentation slides, which can be found in the Investor Relations section of the ADM website. I will now turn the call over to Juan.

Juan Luciano, Chair of the Board and Chief Executive Officer

Thank you, Kate. Hello, and welcome to all who have joined the call. Please turn to Slide 4. Today, ADM reported adjusted earnings per share of $0.92 and total segment operating profit of $845 million for the third quarter. Our trailing 4-quarter adjusted ROIC was 6.7% and cash flow from operations before working capital changes was $2.1 billion year-to-date. With a challenging industry-wide operating environment, we remain flexible, adapting plans where needed, taking action on what is in our control and investing for long-term growth. A key part of this dynamic environment relates to the status of highly anticipated U.S. biofuel policy. We believe progress on this front will drive significant biofuel and renewable diesel demand and lead to elevated pricing, volumes and margins across several of our key operating areas, which we expect will set up a constructive environment over the long run. But based on the current short-term environment, our AS&O business is significantly impacted. Against this backdrop, we have made good progress with our self-help agenda. We made strides in improving our plant efficiency. We've entered into numerous strategic transactions, which advance our portfolio optimization objectives, and we are accomplishing cost savings through several targeted streamlining initiatives. These actions have generated robust cash flow this quarter and strengthen our business going forward. Our strong balance sheet, driven by a disciplined capital allocation process, gives us flexibility to invest for growth and continue to return value to shareholders. Following our second quarter earnings call, we announced our 375th consecutive quarterly dividend. Please turn to Slide 5. Let me share some specific examples of how our team continues to drive simplification, optimization and execution excellence across our segments through our self-help agenda. For Ag Services and Oilseeds, results for the third quarter were sequentially in line and aligned to the expectations we set out in our second-quarter earnings call. The team continued to focus on operational excellence, which was reflected in crush volumes increasing 2.6% sequentially and 2.2% compared to the third quarter of last year, albeit in a lower-than-expected margin environment. Our Ag Services subsegment executed a robust export program during the quarter, supported by strong corn and meal programs. We achieved the best total export volume for the month of September since 2016, which helped offset some of the weakness we experienced in our crush business. For Carbohydrate Solutions, the business delivered sequentially steady results overall with lower global demand for sweeteners and starches, offset by strength in ethanol pricing and exports. We achieved a key milestone in our decarbonization strategy, connecting our Columbus, Nebraska dry corn mill plant to Tallgrass's Trailblazer CO2 pipeline and are commencing CO2 injections. This marks the second ADM facility that is reducing its carbon footprint by CO2 sequestration. And for Nutrition, the team drove another quarter of sequential improvement, led by our Flavors and Animal Nutrition portfolios. Flavors North America achieved record quarterly revenue in the third quarter and Flavors internationally recently won a notable contract that is connected to a deep AS&O customer relationship. We're engaging directly with major customers of AS&O and Carbohydrate Solutions on our Nutrition portfolio, highlighting the power of our interconnected value chain. Our Specialty Ingredients subsegment is expected to benefit from the Decatur East plant being back online and consistently producing white flake. During the quarter, we announced network simplification in Specialty Ingredients to streamline our production footprint, and we expect results to improve as this takes hold and we build back our third-party sales business. Within our Animal Nutrition portfolio, our turnaround continues to deliver better results with more progress to come. In Q3, we announced plans for a North American animal feed joint venture with Alltech to further transition our Animal Nutrition business into higher-margin Specialty Ingredients, and we expect this JV to commence operations in 2026. Through these efforts and several other initiatives we have undertaken this year, we remain on track to achieve our targeted $200 million to $300 million in cost savings in 2025 as well as our aggregate cost savings of $500 million to $750 million over the next 3 to 5 years. Strong cash management allows us to continue to invest in areas of innovation where we see attractive growth potential. For example, we are developing the next generation of flavor systems for our growing energy drinks portfolio. Our cutting-edge energy emulsion technology provides enhanced product stability, consistent quality and a simplified supply chain. Additionally, there is a strong demand momentum behind our natural colors portfolio, and we are exploring accretive opportunities to expand both products and geographies in this business. Another area of attractive growth for us is postbiotics, where ADM is investing in innovation. Recently, we were honored with an innovation award at a global premier trade event for our proprietary postbiotic formulation designed to support human immunity and digestive wellness. We also launched our second pet-focused postbiotic. These are examples of the diverse in-house research and development expertise we've developed in the biotics space. We're also underway with advancing ethanol production performance improvements. Through close collaboration between R&D and operations, we've implemented advancements that are delivering improved yield gains. Rollout to additional plants is in progress and further enhancements are in testing designed to drive ongoing optimization across our facilities. We're also investing in side stream valorization as part of our continuous efforts to optimize our production processes and add value to our byproducts. As we close out 2025, we will continue to action our self-help agenda while adapting to evolving trade policy and remaining flexible to offset the impact of challenging dynamics to the best of our ability. Given the deferral in U.S. biofuel policy and other global movements, it is difficult to predict the timing of when we will see a structural increase in biofuel demand. As a result, we are lowering our expectations for the full year 2025. We now expect adjusted earnings per share to be between $3.25 to $3.50, down from the approximately $4 per share as we discussed last quarter. Monish will review this in more detail. Overall, the recent progress with the trade deal with China, coupled with our expectation of gaining U.S. biofuel policy clarity within the next several weeks or months is an encouraging setup for next year. We expect 2026 will offer a more constructive environment for both the industry and the American farmer, and that should create both positive economic opportunities and drive additional long-term investment throughout our business and the agricultural sector. With that, let me hand it over to Monish to share a deeper dive into third quarter financial results and our full year 2025 outlook.

Monish Patolawala, EVP and Chief Financial Officer

Thank you, Juan. Please turn to Slide 6. AS&O segment operating profit for the third quarter was $379 million, down 21% compared to the prior year quarter. The deferral of U.S. biofuel policy and the evolving global trade landscape continued to impact demand for AS&O, primarily in our Crushing and Refined Products businesses. In the Ag Services subsegment, operating profit was $190 million, representing an increase of 78% compared to the prior year quarter. The increase was driven primarily by higher export activity in North America with support from our operations in South America. South America improved year-over-year as the prior year quarter was negatively impacted by higher costs related to logistics take-or-pay contracts. Additionally, there were net positive timing impacts of approximately $54 million year-over-year. In the Crushing subsegment, operating profit was $13 million, down 93% from the prior year quarter. Both global soybean and canola crush execution margins were significantly lower than the prior year quarter. Both soybean and canola crush margins were down most significantly in North America, driven by global trade evolution and reduced biofuel production. There were net positive timing impacts of approximately $41 million in the third quarter of 2025 compared to the prior year quarter. Partially offsetting the net timing benefit year-over-year were insurance proceeds of $24 million in the prior year quarter. In the Refined Products and Other subsegment, operating profit was $120 million, down 3% compared to the prior year quarter as positive timing impacts helped offset lower biodiesel and refining margins. There were net positive timing impacts of approximately $12 million year-over-year. Equity earnings from our investment in Wilmar were $56 million for the quarter, down 10% compared to the prior year quarter and excluding specified items. We typically record our share of Wilmar's financial results on a 3-month lag basis with the exception of material transactional events that occur during the intervening period that materially affect the financial position or results of operations. During the third quarter, we recorded a $163 million charge related to the penalty imposed on Wilmar by the Indonesian Supreme Court and for our AS&O segment, have presented this as a specified item. Turning now to Slide 7. For the third quarter, Carbohydrate Solutions segment operating profit was $336 million, down 26% compared to the prior year quarter. In the Starches and Sweeteners subsegment, operating profit was $293 million, down 36% compared to the prior year quarter, primarily due to a decline in global S&S demand, which impacted both volumes and margins. This is a continuation of consumer buying trends we have been experiencing throughout 2025 with softness in demand in sweeteners and a reduction in starches demand primarily from less consumption of packaged goods and corrugated paper. Additionally, in EMEA, S&S volumes and margins continue to be impacted by persistent high corn costs related to crop quality issues we discussed in the last quarter. Global wheat milling margins and volumes were fairly stable in the third quarter relative to the prior year quarter. Additionally, the prior year quarter benefited from approximately $45 million of insurance proceeds. In the Vantage Corn Processor subsegment, operating profit was $43 million, up from a $3 million loss in the prior year quarter, driven by strong export activity, coupled with industry downtime for scheduled maintenance, decreased ethanol inventory stocks and strengthened pricing. Overall, ethanol EBITDA margins per gallon for the quarter were approximately double and the volumes were roughly flat compared to the prior year quarter. Now turning to Slide 8. In the third quarter, Nutrition segment revenues were $1.9 billion, up 5% compared to the prior year quarter, including foreign exchange gains that accounted for approximately 2% of the increase. Human Nutrition revenue increased by 6% and Animal Nutrition revenue increased by 3% compared to the prior year quarter. Foreign exchange gains accounted for approximately 2% of the increase in Human Nutrition revenue and approximately 1% of the increase in Animal Nutrition revenue. Nutrition segment operating profit was $130 million for the third quarter, up 24% compared to the prior year quarter. Human Nutrition operating profit was $96 million, up 12% compared to the prior year quarter as a result of strong Flavors growth and an uptick in biotic demand. The third quarter of 2024 also benefited from approximately $25 million of insurance proceeds as compared to $10 million in the third quarter of 2025. Animal Nutrition operating profit was $34 million for the quarter, up 79% compared to the prior year quarter as a result of the combination of an increased focus on higher-margin product lines, disciplined cost control and progress with ongoing portfolio streamlining initiatives. Turning now to Slide 9. The strength of the ADM model is that we generate strong cash flow through multiple commodity cycles. For the first 9 months of the year, ADM generated cash flow from operations before working capital of approximately $2.1 billion, down by $254 million relative to the prior year quarter as a result of lower overall total segment operating profit. We continue to maintain a solid cash position and have made good progress in improving our working capital efficiency. For example, we reduced inventory by $3.2 billion year-to-date compared to $1.2 billion during the prior year period, largely driven by sharpening our inventory management practices. We continue to be very disciplined in the areas in which we invest. During the first 9 months of 2025, we invested $892 million and maintain our expectations of full year 2025 CapEx to be in the range of $1.3 billion to $1.5 billion. Year-to-date, we have distributed $743 million in dividends. The last point I'll mention on this slide is that our net leverage ratio as of the end of September was 1.8x, improved from last quarter and in line with our previously communicated year-end target ratio of approximately 2x. Now turning to Slide 10. We have provided details on our revised 2025 outlook. Earlier today, as Juan mentioned, we revised our full year 2025 adjusted EPS expectations. Taking into account our year-to-date results and the continued softness primarily in crush margins, we now expect adjusted earnings per share to be in the range of $3.25 to $3.50 per share for full year 2025, down from the approximate $4 per share guide we provided during our second quarter earnings. I will now provide some color on several assumptions that are underpinning our revised guidance range. First, with our self-help agenda, we remain on track to deliver between $200 million to $300 million in cost savings for 2025. Second, for AS&O, as we have previously discussed, as we move through each quarter, we increasingly lock in our book of business for the upcoming quarter. Based on the portion of our business already booked plus our view of the market, we are expecting continued softness in global soybean crush margins, which is a step down from our expectations last quarter when we were expecting global soybean margins to be in the range of approximately $60 to $70 per metric ton. Our Ag Services subsegment is expected to benefit from the robust harvest season we are having in North America. But given trade dynamics, results are projected to be weaker than we had forecasted at the time of our second quarter earnings, and the team will continue to progress our advancements related to plant uptime, manufacturing efficiencies and working capital improvement. We expect insurance proceeds of $10 million in the fourth quarter compared to $50 million in the prior year quarter. Thirdly, for Carbohydrate Solutions, on the Sweeteners and Starches front, we expect a continuation of the same pressure from softer demand trends that we have experienced throughout 2025 and expect high corn costs to persist in EMEA. Ethanol export flows are projected to drive similar sequential demand throughout the fourth quarter. However, margins are expected to be lower than the highs we experienced during the third quarter. Ethanol EBITDA margins for the fourth quarter of 2025 are expected to be roughly 10% lower than the fourth quarter of 2024 EBITDA margin. We expect insurance proceeds of approximately $20 million in the fourth quarter of 2025 compared to approximately $40 million in the prior year quarter. And lastly, for our Nutrition segment, we continue to take action on our portfolio optimization and are making sequential progress in network streamlining and cost improvements. In Human Nutrition, Flavors typically experience seasonal softness in the fourth quarter given our product concentration in the beverage categories. This is expected to be partially offset by improvement in Specialty Ingredients now that our Decatur East plant is returning to planned utilization rates. In Animal Nutrition, we will continue to pursue our ongoing turnaround actions, which includes the transition into higher-margin specialty ingredients. We expect insurance proceeds of approximately $5 million in the fourth quarter of 2025 compared to $45 million in the prior year quarter. Insurance proceeds at the segment level for the fourth quarter of 2025 are expected to be funded roughly half by a captive insurer and half by third parties compared to third parties funding the vast majority of insurance proceeds in the prior year quarter. As Juan mentioned, we have continued to make good progress on our self-help agenda, focusing on strategic portfolio optimization, cost reductions and improved working capital management, all of which are strengthening our cash flow. Further, we have refined our digital strategy and are pivoting away from large global implementations and are directing our resources to prioritize regional and more agile projects and accelerating our data journey while continuing to invest the appropriate amount in cybersecurity and network and application resilience. To conclude, I want to take a moment to thank all our ADM colleagues for their focus, adaptability and contributions to the company's long-term success. These efforts are integral to our ability to navigate the current dynamic environment. Back to you, Juan.

Juan Luciano, Chair of the Board and Chief Executive Officer

Thanks, Monish. Let me wrap up by saying, overall, we will continue to drive operational excellence and strong cash flow through our focus on manufacturing efficiencies, portfolio simplification and cost streamlining. In AS&O, our team is positioning our asset network to maximize opportunities from the expected improvement in market conditions, primarily as a result of global trade evolution and the pending U.S. biofuels policy. In Carbohydrate Solutions, we will continue to drive operational excellence and closely monitor softening consumer demand trends and broader economic signals while maintaining momentum around our decarbonization strategy, which we expect will open value opportunities in low carbon solutions. And for Nutrition, we expect steady progress across our portfolio with additional opportunities in natural colors. With that, we'll take your questions now. Operator, please open the line.

Operator, Operator

Our first question for today comes from Ben Theurer of Barclays.

Benjamin Theurer, Analyst

So first of all, on crush and the outlook, obviously, a lot of things have changed. But can you help us reconcile a little bit the sequential decline in the third quarter for crush versus what you had in the second quarter and to a degree in the first quarter when actually the crush environment was, I would say, lower, but I mean, more stable, but at a lower level. So just help us reconcile like how much was like maybe locked in, carried into it and how we should think about crush sequentially, just crush on a stand-alone basis into the fourth quarter, just given the uncertainty that you've mentioned on biofuel. And then I have a very quick follow-up on those insurance numbers.

Juan Luciano, Chair of the Board and Chief Executive Officer

Sure, Ben. Listen, as you remember, soybean board crush rallied sharply post the RVO announcements. And if you recall, at the time of our last earnings call, board crush was about like $2.25. Then after that, it has moved lower because of a variety of factors. We had a little bit of a decrease in acres in the U.S. Then there was this chatter about the trade deal with China that made a pickup in beans basis here. And certainly, we have the uncertainty about biofuels policy. There was a large amount of SREs granted in the period with the supplemental proposal to at least partially relocate that, but it is in common period until the end of October and now a little bit delayed because of the government shutdown. So then in the period also, Argentina has a tax holiday that create the potential for increased crush in October, November, December period. So we saw that $2.25 turning into something like $1.20 and now currently bounce back to about $1.50. So in Q4, we expect board crush to remain in the current range, if you will. And as we are here today, we're probably booked about 80% of Q4. So certainly, the $4 range is out of range right now with no extra policy. And so that's what we're seeing at the moment. So the plants are ready to crush harder. We still see with optimism 2026. The team has executed well in everything they could do in this environment, especially in the inventories when Monish reported $3.2 billion lower in inventory helping our cash position. That was basically a lot of that is the heavy lifting of the AS&O team trying to make improvements out of a difficult condition. So we still feel very strong about 2026. All these things that are under in motion right now, whether it's the RVO finalization, the RVO is positive for domestic feedstocks and certainly, the trade deal potentially to have more sales to China is also positive. But all those things need to be finalized during the next 60, 90 days or something like that, then we will have more clarity about where margins will move.

Benjamin Theurer, Analyst

Okay. And then, Monish, just real quick on those insurance gains, you said half and half to come from. So that half that's kept us that's somehow then reflected in the other segment. Just wanted to confirm that.

Monish Patolawala, EVP and Chief Financial Officer

That's right, Ben. And similar to last year. So last year, our total insurance proceeds in the fourth quarter were $135 million. Most of that was funded by third-party insurance. This year, it's, give or take, $35 million. Half of it right now is funded by captive, and we assume that the other half will be funded by third party.

Operator, Operator

Our next question comes from Manav Gupta of UBS.

Manav Gupta, Analyst

My first question is on your September announcement of forming a JV with Alltech. Help us understand how this came together and help us understand the benefits of this JV and how it helps ADM.

Juan Luciano, Chair of the Board and Chief Executive Officer

Yes. Thank you, Manav. Listen, if you recall, our strategy in Animal Nutrition has 2 phases, if you will. One is what we call fit for growth, and that has been driving operational improvements. And we have seen, I think, sequential improvements in operations for the last like 8 consecutive quarters in Animal. But the ultimate objective was to execute a pivot toward more specialties in Animal Nutrition. And so we basically combine here the compound feed businesses of ADM, one of the leaders of the market, which is Alltech and combine really 2 powerhouses here, combining decades of experience and unparalleled capability with production expected to come in 2026. And with that, the ADM part that remains is more concentrated on Specialty Ingredients or premixes. And basically, we're going to be playing a little bit the Human Nutrition playbook, which is to have a specialty pipeline that can grow faster than maybe the big commodities that we have put in the joint venture. So we expect big synergies from that joint venture, big operational improvement, and we expect then the remaining Animal Nutrition in ADM to be a high-margin, high-growth type of segment, if you will.

Monish Patolawala, EVP and Chief Financial Officer

Manav, I want to build on what Juan said. You mentioned the joint venture, but I also want to acknowledge Ismael, Ian, and the team for the progress they have made in Animal Nutrition. The operational results reflect the fit for growth that Juan discussed. Overall, the team has made excellent progress in execution.

Manav Gupta, Analyst

Perfect. Sir, my quick follow-up is, and I understand there's a lot of policy non-clarity here. But the pieces which are on the table and not fully solved are a much higher RVO, a scenario in which there is no production tax credit for imported renewable diesel only 50% RINs for imported feedstocks and the possibility of removing that indirect land use penalty clause, which will make soybean oil very competitive in terms of production tax credits with tallow and other waste oil. So when you put all these things together, eventually when the policy comes around, you see a very, very strong '26 and '27, whereby you will have to make more renewable diesel in the U.S. and make it more with domestic feedstocks and more like domestic soybean oil. If you could talk about all those policies which are on the table, I understand they're not finalized, but they create a very strong momentum for you if they do come together. If you could talk about that.

Juan Luciano, Chair of the Board and Chief Executive Officer

Yes. I think that you highlighted it correctly. All those pieces came very favorable, as I said in my initial remarks to domestic feedstock. So we expect as these policies are enacted and finalized. And again, there are many aspects of that, that needs to be finalized. We need to have the final RVO numbers. We need to have the treatment of the SREs. So there are many of those things that needs to be enacted. But when all that is finalized, you can see a scenario in which RINs will probably pop first. So it's going to be a gradual improvement. But the way we have seen it in the past is RINs need to climb to allow renewable diesel plants to have margins for them to run. That in line will pull on more demand for soybean oil. That, in turn, will demand for us to crush more and to run our assets harder, which increases crush margins. And then as demand stabilizes and times go by, you can see margin coming up into biofuels as well. So that's kind of the way we see it running through our P&L. You have to remember that in crush, the big problem we have is this oil leg that is relatively soft right now that will be addressed by the RVOs whenever they are ready. In the other leg, meal has been very strong. Growth in meal has been like globally like 8.5%. We're expecting at about a very strong 6% still for next year. U.S. continues to be very competitive meal and meal continues to buy themselves into Russia. So most of the customers of meal in the protein sector are showing profitability and good times. So that side of the leg is strong. If we can strengthen the RVOs and bring more clarity there, we expect strong crush margins going forward. And that's why I think if you remember last quarter, we said that we were setting up our footprint of plants to make sure that we will be able to run harder, and we are demonstrating that. So we are pleased with the setup. It's just from here to there, there is a lot of clarity that needs to happen that doesn't depend on us. We like to talk more about the things that we can do to improve. We have improved the company in terms of cost, in terms of cash, in terms of portfolio. We've been running this CCC that we call it cost, cash and capital since 2014 when we launched it. And I think the organization has this memory that we need to act into that. They quickly go and help us with the cost reduction targets, with the cash targets. And certainly, we make consistent and steady improvements in our portfolio optimization. So we look at '26 with optimism. We just don't know if it's 12 months of '26 with optimism or 9 months of '26 with optimism because that depends on the government.

Operator, Operator

Our next question comes from Heather Jones of Heather Jones Research.

Heather Jones, Analyst

I wanted to revisit the topic of crush, Juan. I understand everything you mentioned regarding the crush curve. However, in the U.S., the real basis remained quite strong throughout Q3 and has exceeded expectations in early Q4. Based on our data and anecdotal observations, cash margins were robust for much of Q3 and into early Q4. Considering your Q3 performance and the outlook for Q4, I'm curious if you could explain where you think the significant differences lie. Did you have most of your physical meals sold before the rally? Were you short on beans? I would appreciate any insights to help clarify this for us.

Juan Luciano, Chair of the Board and Chief Executive Officer

Yes. I think it involves a bit of both factors. Generally, by the time we reach the earnings calls for the next quarter, we're around 75% sold for that period. So we likely had most of our sales completed before the recent rally. However, the rally itself wasn’t sustained for long. Currently, our bookings in Q4 are quite similar to what we achieved in Q3, so I don’t observe a significant improvement. There's quite a bit of variability. Looking at the commercial team's performance, they've performed very well overall, so I can't identify a specific regret in the business. I would mention that Ag Services was slightly softer, but not by much. We have a strong meal and corn export program from the U.S. Although we didn't have any soybean exports to China, our volumes remained steady. In contrast to last year, we missed the take-or-pays in Latin America, which somewhat compensated for the lack of exports to China. In terms of our crush business, we are experiencing an environment in Q4 that resembles what we saw in Q3. Perhaps Monish can provide more detailed insights on the numbers.

Monish Patolawala, EVP and Chief Financial Officer

Yes, certainly. Heather, what Juan mentioned is completely accurate. There was a time when we reported earnings last, and both replacement margins were high then. As the quarter moved forward, which is when we prepare a lot of our bookings for Q4, we noticed that replacement margins decreased. Currently, crush margins are flat to slightly increasing, depending on the region. In North America, crush margins are expected to be a bit higher than in Q3. However, we must consider that we operate on a global scale, so various regions will influence the overall numbers. When we look at everything collectively, we estimate that margins will be about flat or slightly increased, but we will see where it ultimately settles. As Juan mentioned, we have a substantial amount of bookings heading into Q4. There are also spot deals available for the remaining balance. I know Greg and the team are focused on seizing every opportunity. The main focus remains on creating value, managing inventory, and reducing costs. As Juan indicated, when the crush happens, our plants are prepared. We're also noticing improvements in plant operations. Hopefully, as all these factors align, the team can continue to execute and achieve more than our current position. That’s our outlook at the moment, and that's why we've expressed it this way.

Juan Luciano, Chair of the Board and Chief Executive Officer

Yes, Heather, one thing that I noticed, and I've been running ADM for like 10 years, is that right now, both farmers and customers are very reluctant to book long. So farmers are kind of selling reluctantly and buyers are kind of hand to mouth, if you will. So that doesn't allow for a full orderly flow of the chain, if you will, that we normally see. And because of all this uncertainty, nobody knows exactly what's going to happen with soybean basis and all that based on the trade deal and nobody knows exactly what's going to happen with the oil leg because of the policy uncertainty. So everybody is like trying to go hand to mouth. And that makes it a little bit more difficult for us to reflect some of the conditions in the P&L. That may be one thing I noticed from the past.

Heather Jones, Analyst

That's helpful. And just my quick follow-up is just as we extrapolate forward, I know the hope is that we get a finalized RVO before the end of the year, but I think prudence would say it's probably coming in Q1. So just wondering how are you thinking about replacement margins for Q1? And like you said, farmers and customers are hand in mouth. But as much visibility as you do have, what are you seeing on that front?

Monish Patolawala, EVP and Chief Financial Officer

Yes. So Heather, I'll take a stab at this. So Juan, when Manav asked the question on how he sees policy play out, again, it depends on timing of clarity. So whether it's a 6 months or 9 months. But sitting today, since we still don't have clarity, the book that we are booking at for Q1 right now is, I would say, flattish to Q4. But again, we are open. So it's not like we have already booked all of our Q1. But I think the timing of when the policy comes in will actually have an impact. You're seeing right now, I think, the oil leg leaking with the current where soybean prices have gone up, but let's see how that plays itself out. So to answer your question succinctly on Q1, right now, we haven't seen a big pop in margins. But hopefully, post regularity clarity, you will start seeing that to move up. The question is whether you see it for the first quarter, you see it for 2 quarters. It will all depend on the timing of the policy and also what's in that policy.

Operator, Operator

Our next question comes from Andrew Strelzik of BMO.

Andrew Strelzik, Analyst

I wanted to start by asking about your outlook for Ag Services. And the third quarter was stronger than we anticipated. You mentioned the trade deal with China, but you're talking about 4Q maybe being a little bit softer than you had originally anticipated. So I guess, was there a timing dynamic in the third quarter? What else has changed for the fourth quarter? And as you think about maybe that bit more subdued outlook, is that really a 4Q issue? Or does that linger as well into '26?

Juan Luciano, Chair of the Board and Chief Executive Officer

Ag Services experienced an increase in Q3, as you may have noticed. Compared to last year, we achieved good volumes in North America, particularly with our exports of meal and corn, and our systems performed well. Last year, we dealt with the take-or-pay issue in Brazil, which we resolved this year, creating a difference in performance. Looking ahead, the current market is focused on our effective destination marketing operations and our global trade, both of which are performing well. However, margin opportunities are proving to be more challenging at this time. We require clarity on the trade deal, which appears to be beneficial for ADM and the grain sector overall, though we have yet to see a joint document detailing the agreement. The timing of the 12 million tons of soybeans—whether it will occur in the calendar year or marketing year—makes a significant difference, as well as how that material is counted in terms of sales versus shipments and pricing. Much is still uncertain. Many farmers are currently selling on a hand-to-mouth basis, and globally, sales by farmers have slowed compared to historical averages, except in Argentina due to their tax holiday as they await further developments. At this moment, the two key events that will influence commodity prices are clarity on the China trade deal and the biofuels policy regulations. Until we have this information, conditions will likely remain precarious.

Monish Patolawala, EVP and Chief Financial Officer

Andrew, I want to highlight the execution across AS&O and the rest of the business. In the third quarter, Greg and his team did an excellent job with cost control and inventory management, as reflected in the results. This focus on cost management and the self-help initiatives mentioned by Juan were evident in all areas of the business. This comprehensive effort contributed to our adjusted EPS of $0.92, and we intend to maintain this self-help approach into the fourth quarter. As for your other question about whether this is just a fourth quarter issue, I believe we executed well in the third quarter. With policy clarity anticipated in 2026, we are positioned well for 2026 and 2027, as Manav noted. This quarter serves as a transition period, and the team will persist in pursuing every operational improvement to enhance our performance.

Operator, Operator

Our next question comes from Pooran Sharma of Stephens. I would say we continue that journey on self-help, including in the fourth quarter. To answer your second question, this is not just a fourth quarter issue. We had good execution in the third quarter. Once we have policy clarity in 2026, that will position us well for 2026 and 2027, as Manav also mentioned. This is just a transition quarter, and the team will continue to implement every self-help idea they can operationally to keep improving.

Pooran Sharma, Analyst

I apologize for dwelling on this, but I wanted to clarify some aspects of the biofuel policy. The comment period for the SRE is behind us, and although there's some disruption due to the government shutdown, we've heard that the EPA is focusing on the RVO during this time. There’s a possibility that the OMB could receive this information by early to mid-December, which might establish the compliance date for 2025 by the end of the first quarter. Considering this, obligated parties would need to prepare their 2025 documentation. Do you see this as likely to occur in early to mid-first quarter, or how should we interpret the current situation?

Juan Luciano, Chair of the Board and Chief Executive Officer

Thank you, Pooran. Listen, let me tell you what we know. We know that EPA is aligned with the agricultural industry to support American agriculture and energy dominance through strengthening of the domestic demand for domestic feedstock and prioritizing that. I don't want to speculate on who's working on what at the EPA. I think that the EPA is committed to that. And as quickly as they can, they're going to resolve that because they know the industry needs that and the agricultural industry needs that. So our role is to be prepared, and we will be prepared. You will see, as I explained before, in the gradual improvement of these, whenever the market will detect that there is movement, you're probably going to see RINs popping up. And then eventually, we're going to see crush margins popping up. And so we're ready to do that. Other than that, I will be speculating and I have no basis to do that, Pooran. So I will leave it there.

Pooran Sharma, Analyst

I appreciate the information provided. As we approach contracting season for Starches and Sweeteners, I am curious about the current dynamics. There seems to be pressure from buyers for lower prices, especially with a larger carryout, and many in the industry have noted some softness in demand. However, on the export side, volumes appear strong. Could you provide insights on how negotiations are progressing? Do you anticipate that this contracting season may extend, similar to last year?

Juan Luciano, Chair of the Board and Chief Executive Officer

We expect to have a clearer understanding of the contract season in about 20 to 30 days, as negotiations are currently underway. I won't go into specifics at this time. However, I can confirm that corn supplies are abundant, and the U.S. is projected to have a substantial crop due to favorable yields and increased acreage. Brazil is also anticipated to harvest a record crop, while Argentina is expected to produce around 50 million tons. Overall, raw materials will be in good supply, but there is still strong global demand for corn, which is being utilized not only for feeding but also in biofuels. The U.S. remains competitive in ethanol production against Brazil, which has an E30 blend, while various governments are moving towards E10 for the coming year. In California, we have E15 available year-round. Ethanol continues to be the most cost-effective oxygenate. This year, we anticipate about 2 billion gallons of exports, with potential increases to 2.2 or 2.3 billion next year. Although there is a large corn supply, demand remains strong. Generally, we've noticed some softening in our products, particularly in sweeteners and starches due to the corrugated box and cardboard market. Our team produces over 20 products from corn and will manage this as we enter contract negotiations. We feel optimistic about these negotiations, and progress is being made. We typically provide an update in February after wrapping up the annual cycle. Historically, we've avoided the issue of all our contracts expiring simultaneously, allowing for a more balanced portfolio. This alleviates concerns for ADM at this stage. Overall, I believe the contracting season is proceeding normally, and we'll have more updates in February.

Operator, Operator

Our next question comes from Tom Palmer of JPMorgan.

Thomas Palmer, Analyst

I wanted to ask on the Nutrition business. You cited seasonality is, I think, the main quarter-over-quarter headwind to think about. But at the same time, I think previously, you had a bit more of a sequential improvement embedded in the outlook. So curious about what might have shifted and to what extent seasonality is normal versus maybe there are some extra factors this year?

Juan Luciano, Chair of the Board and Chief Executive Officer

Sure, Tom. I think we are seeing sequential improvement in the operational capabilities of the Nutrition business. We've been making repairs, and we're pleased that the East plant is now operational again. Animal Nutrition continues to show sequential improvement as well. Flavors is a significant part of our business, and we are focused mostly on beverages, which tend to sell more in the summer. As the Northern Hemisphere transitions into winter, we usually experience about a 15% drop in volumes as we approach Q4. However, this will be somewhat balanced by the full operational capability of the East plant, which should reduce our costs as we produce white flakes rather than purchasing them from competitors. We're also working on recovering our customer base. Overall, the business is on a path toward operational improvement.

Thomas Palmer, Analyst

I have a clarification question regarding Ag Services. There was an export window in Argentina late in the third quarter. How much of a benefit did that provide in the third quarter? Also, I'm curious about how the booking process works, particularly with shipments versus arrivals. Should we expect a boost in the fourth quarter from that as well?

Monish Patolawala, EVP and Chief Financial Officer

We received part of the export license, and I'll need to verify some details, but we did have some shipments in Q3, and you'll notice some of that in Q4. This is already included in our export numbers and the guidance we provided you, Tom. So there isn't any change regarding that.

Juan Luciano, Chair of the Board and Chief Executive Officer

And I would say we continue to watch that, Tom, in Argentina because, of course, after this holiday and after the election success, farmers have not been selling that much as there has been no devaluation in Argentina. So we will have to see how the commercialization will happen. We think it's going to be tight commercialization until the end of the year. So we're watching that closely.

Operator, Operator

Our next question comes from Steven Haynes of Morgan Stanley.

Steven Haynes, Analyst

I was hoping you could maybe put a finer point on the crush outlook for 4Q. I think you mentioned before that the margins are going to kind of be stable and that volumes might be higher quarter-over-quarter. Maybe just to frame it versus last year would also help in terms of the actual segment dollars. I think it was around $200 million. Would you expect the fourth quarter to be above that or in line or maybe a bit below? If you could just help frame it that way, that would be helpful.

Monish Patolawala, EVP and Chief Financial Officer

And just so I get your question right, Steven, you're talking about AS&O or crush? You're talking about crush, right? So if you look at crush, crush margins are going to be lower on a year-over-year basis. Just based on where we've talked about already about all the factors impacting it, where it's flat to slightly up from Q3, but still down on a year-over-year basis. So based on that, we would expect that crush on a year-over-year basis would definitely get impacted. Secondly, just remember that in our results, we normally mark-to-market our derivative positions at the end of every quarter. So depending on where crush margins or basis ends up being on 31st December, you could see a positive mark or a negative mark. At the end of the day, all that mark is doing is moving money between quarters, but it doesn't change the overall economics. So that's how we'll have to figure out and then figure out how board crush timing goes because that also has an impact. But if you just look at pure execution margins on a year-over-year basis, it is lower. And therefore, as a result of that, execution margins in crush will be lower in dollars also on a year-over-year basis, even though Greg and team are continuing to drive higher volume in the factories as can be evidenced by the work that you saw in Q3, where we have managed to have production greater than 2% on a year-over-year basis. I would also add canola into that same complex, Steven, just so that you know it's the same dynamic. Even canola is down on a year-over-year basis. So that will also have an impact. So both of those show up in crush.

Operator, Operator

Our final question for today comes from Salvator Tiano of Bank of America.

Salvator Tiano, Analyst

I'm curious about the questions regarding next year's crush margin and what might happen. Specifically, with regard to trade dynamics and potential higher demand, assuming the RVOs are approved as currently proposed, could we see the U.S. transition into a net importer of soybean oil in Q1 or Q2? If that occurs, considering we have several tariffs in place, what kind of impact could we expect on domestic soybean oil prices that would affect your profitability as a domestic producer?

Juan Luciano, Chair of the Board and Chief Executive Officer

Yes, there's a lot of speculation in your question. We continually analyze different scenarios and many factors could influence the outcome. Let's break it down. Regarding Renewable Volume Obligations, we know that once the policy is implemented, there will be increased demand for crushing more soybeans and soybean oil. We currently have the necessary beans to meet this demand. However, the potential export of 12 million to 25 million tons to China changes the situation significantly. If the 12 million tons is based on a marketing year calendar, it affects the pipeline and carryout in the U.S., compared to if it all needs to be shipped in 2025. All of these factors need to be considered. Typically, markets adjust accordingly. Argentina and Brazil are expected to have high crushing activities. Should the U.S. demand exceed our internal supply, prices will rise, potentially leading us to import soybean oil. Right now, we are exporting soybean oil, so this would signify a considerable change, driven by policy and the rise of RINs and other factors mentioned earlier. It's a possibility, and in the meantime, we are well-prepared to crush as much as necessary to meet domestic needs before any imports come in. I want to emphasize that our operations have been enhanced to handle this type of environment. Our Ag Services and Oilseeds divisions are capable of fulfilling whatever commitments arise from the U.S. or China regarding exports, and ADM controls a significant portion of those exports with the facilities ready to produce at scale to meet the supportive domestic policy from the EPA. We are well-prepared for this situation. The company is financially stable and continuously adjusting our portfolio, and we approach 2026 and 2027 with great optimism.

Operator, Operator

At this time, I'll now hand it over to Kate Walsh for any further remarks.

Kate Walsh, Director, Investor Relations

Thank you all for joining the call today. If you have additional questions, please feel free to reach out directly to me. We appreciate your continued interest and support and wish you a great rest of your day.

Operator, Operator

Thank you all for joining today's call. You may now disconnect your lines.