使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Welcome to the Archer Daniels Midland third quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder this call is being recorded. I would like to introduce your host for today's conference Mr. Allen Andreas, Chairman and Chief Executive Officer. Sir, you may begin.
Allen Andreas - Chairman and Chief Executive Officer
Thank you Karen and good morning to everyone. We appreciate you joining us for this third quarter conference call on our results. I am joined this morning by Doug Schmalz who is our Chief Financial Officer and Bryant Petersen who has recently joined us in the position of Senior Vice President of Corporate Affairs coming from our international operations in Hamburger, Germany. Brian has been with us for a number of years and assuming responsibilities for a number of public relations activities. So with that, Doug, I'll turn over the floor to you.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Thank you, Al. First,I'd like to comment that some of our views today that we'll be giving include estimates of future economic circumstances, industry conditions, company performance and financial results. Any changes and such assumptions or factors could produce different results and we assume no obligation to update forward-looking statements as a result of any new information on future events.
With that I'd like to go ahead and just give you an outline of the financial results for this quarter. Net earnings ended March 31, 2003, $116,805,000 or 18cents a share and that compared to $117,184,000, also 18 cents a share. Our current year's third quarter reflects a 2% reduction in our effective tax rate to 28.5% from 30.5% previously , that's due to increased benefits which we are seeing and being received from the foreign tax planning initiatives which we implemented in the current fiscal year. In addition the current year's quarter contains pretax gains on assets of $15 million, vitamin anti- trust settlement gains of $3 million. There was a lost provision of $11 million related to our global EPA settlement reached recently and also a charge of $4 million for lipo inventory evaluations.
Last year's quarter included a gain from partial settlement of the vitamin anti-trust litigation of $14 million which was $8 million after tax or a penny a share. Our average shares outstanding declined 1% to 645,445,000 average shares for the quarter compared to $653,586,000 average shares outstanding on average last year.
Our net sales and other operating income increased $2.7 billion to $7.9 billion for the quarter due primarily to sales recently acquired Minnesota corn processing businesses and higher commodity price levels.
Our gross profits increased 6% to $414 million due principally to the improved operating results of the corn, cocoa and bioproducts segments offset by lower operating results of the oilseed processing, wheat processing and agricultural services segments and the $4 million charge related to the inventory evaluations. Our total segment operating profit decreased to $12 million to $242 million for the quarter. Oilseed processing results declined 29% to $75 million for the quarter.
Results of the south American Asian operations did remain strong and were comparable to last year; however North America volumes and margins declined from prior year levels as higher seed prices combined with weak meal demand resulted in reduced crush rates in margins. Our corn processing results for the quarter improved to $89 million from $33 million last year. The improvement was due primarily to increased sales volumes and higher average selling prices of both Ethanol and sweetener products.Our net corn cost increased slightly over prior year levels.
Our wheat processing results declined to $6 million from 20 million last year. As prior year's drought related short crop in the United States and Canada and poor wheat quality resulted in reduced run rates and reduced yields which negatively impacted our [INAUDIBLE] processing margins in the U.S. and Canada. Agricultural services results declined to $4 million from $38 million last year as global grain origination suffered. Difficult crop conditions in the United States and Canada due to last year's drought conditions resulted in short crop leading to lowe volumes and margins for both transportation and origination operations. Origination operations in the drought areas have suffered as reduced crop size, negatively affected handling revenues and uncertain prospects of negatively impacted crop input revenues. Higher fuel costs and low water conditions on the rivers also contributed to reduced operating results of the barge transportation operations. Our other segment's result improve 19% to in $68 million for the quarter due primarily to the improvements in the company's cocoa and bioproducts operations, partially offset by poor operating conditions in citric acid. In addition, this year's quarterly results, as I mentioned earlier, included receipts of $3 million form vitamin litigation settlements that compared to $14 million of such vitamin litigation settlements last year.
Our cocoa operations had improved results as good demand for butter and powder, resulted in improved margins from sales volume and selling price increases. Bioproduct results also improved as better licensing demand resulted in improved volume and pricing. These gains were partially offset by the poor operating results in citric acid as selling prices continued to decline due to the industry over capacity and pricing pressures from Chinese producers. Our corporate cost reflected in the segment summary increased to $89 million from $78 million last year, that's due primarily to the EPA settlements which I discussed earlier. Company wide selling general and administrative costs increased $32 million to $231 million for the quarter due primarily to about $27 million costs related to recently acquired operations, principally tougher Minnesota corn processors and also the $11 million related to the EPA settle cents.
Our interest expenses increased 5 million to 93 million for the quarter reflecting higher borrowing levels primarily related to increased commodity price levels and new acquisitions. Our investment income also increased $3 million to $30 million for the quarter. Gains from security transactions were $15,000 compared to $2 million last year. Equity earnings of affiliate declined to $19 million reflecting reduced results of the company's CIP investment and the fact that last year's results included the tougher operations which were not included in the consolidated results until April of 2002.
In the third quarter we adjusted our effective tax rate for the current fiscal year to 28.5% to reflect better than anticipated foreign tax benefits realized from foreign tax initiatives implemented at the beginning of the current fiscal year. This reflects approximately a 4% decline from effective rate of 32.5% last year. The decline does reflect the impact of no good will amortization in this current year.
Our cash flow from operations for the first nine months of fiscal 2003 equal to the net earnings plus deappreciation amortization was $830 million for the nine months. Uses of cash include capital expenditures of $310 million. Acquisitions of $480 million, repurchases of company stock of approximately $100 million and dividends of approximately $120 million. Our cash flow from operations as you recall, was supplemented in October when we issued an additional $500 million of 30 year debentures at a cost slightly under 6%. With that I'll turn it over to Brian Petersen who will review some of our statements.
Brian Peterson - Sr. Vice President - Corporate Affairs
Thank you, Doug. Good morning. I'm going to start with our oilseed sector. In this sector operating profits were $175 million versus $105 million, excuse me, $75 million versus $105 million in the quarter a year ago. The results are down primarily due to weaker results in Europe and North America. As you recall perhaps a year ago, results in Europe were exceptionally strong. Results from operations in South America and China continue to be strong. In North America the industry continues to face weak domestic meal demand. Livestock numbers are down on four margins in that industry. We continue to see high domestic soybean prices due to last year's poor crop and low carry out.
With the current wheat crush margin environment we slowed produce production in the North American crushing plant. Overall crushing capacity utilization was around 85% for the quarter and expect this to be lower for the 4-6 month period. We are seeing a good South American crop but rain during the harvest has delayed the crop getting to market and has adversely affected the quality. We continue to implement our strategy of rebalancing ADMs capabilities to fit global market needs.
Soybean production will grow in South America and we continue to expand our capabilities there. ADM continues to be one of the largest exporters of soybeans from Brazil. Protein meal demand will grow in South America and China so ADM continues to expand our crushing capacity in these markets. The U.S. meal demand is currently depressed as the U.S. poultry industry continues to face severe restrictions on imports by Russia. These restrictions, I'm afraid, are a serious concern for U.S. agra businesses.
Moving onto corn processing, we had profits of $88.8 million versus $32.6 million in the year ago quarter. A 172% improvement over the previous year's quarter. We saw substantially improved Ethanol profits as well as modest improvement in sweetener profits. On the sweetener side,with price increases in the upper single digits,we are pleased with the year's contracting results. Net corn costs are up slightly from last year. The increase to net corn costs has to a degree offset the increase in sweetener process. We remain -- returns remains at unacceptable levels. On the Ethanol side for the quarter, profits were up substantially on higher volume and prices. Current prices, however, are down a bit from last quarter but we continue to see profits in Ethanol.
We are experiencing a large increase in demand from California as refiners are replacing MTBE. The switch from MTBE to Ethanol in southern California was very smooth. We didn't see a single supply issue. Northern California markets continue to transition to Ethanol. The California conversion, when complete, should result in an additional 600-650 million gallons of demand. The next large MTBE replacement market is the New York metro area. Current regulations require switching away from MTBE by January of next year. This market would consume an additional 450-475 million gallons of Ethanol. We are confident the Ethanol industry can deliver the needed products of this market and effect a smooth transition away from MTBE. The growth of industry capacity has kept pace with the significantly expanding demand.
On our MCPE acquisition, we are continuing to find ways to use the ADM network to enhance the value of this acquisition. We are constructing a new rail facility at the Marshall facility to expand a reach of products from this plant. Adding these two plants, the ADM network gives us the additional flexibility to maximize the production efficiencies of the corn processing division and better serve our customer base.
On the wheat milling side of the business, the results were $6.4 million versus $20.4 million in the year ago quarter. This is down 69%. Poor quality wheat from last year's short crop has adversely affected flour milling yields, which coupled with low operating rates, had a dramatic impact on costs. Low carry out of wheat has also affected storage revenues as there are no carrying charges in the market. Capacity utilization was 80% for the quarter. We see per capita consumption of flour down for the second year in a row. We believe that the baking industry will rationalize capacity. Clearly the flour millers need additional capacity rationalization as well. The government is purchasing flour for aid which should help the business a bit. As a matter of fact, just last night the CCC announced a very large tender for flour as well as other commodities so we are seeing this move forward on this part of the business. In the U.K., the acquisition of the six mills from associated British foods has been completed. We are very pleased with the initial results.
In our agricultural services sector, results were $3.5 million prophet versus 38 million a year ago. Which is down 91%. We faced extremely challenging conditions due to the continued effects of the short harvest in North America. As mentioned last quarter, short crops caused transportation and grain origination results to be down. Both volumes and margins have been affected. Low water levels on the Mississippi also caused lighter loadings and shorter tows. These poor shipping conditions coupled with high fuel prices resulted in losses in the transportation operation. Storage income, barge and trucking income will continue to be hurt by the short crop. Planting intentions are encouraging however, and the recent rains have produced drought conditions in the regions. The return to a more normal size crop, ag services should improve.
On the other category, we saw results of profits of $68.1 million versus 57.4 million in the year ago quarter. This was up 19% with the improved results coming primarily from cocoa and bioproducts operations. On the cocoa side, results as industry consolidation in capacity utilization has improved the fundamentals of this business. Our chocolate sales in chocolates were up and we continue to pursue opportunities to move closer to the consumers and provide additional value to our chocolate customers. Butter and powder demand has been strong and margins have been solid. The Ivory Coast is still a concern but the social and political conditions seem to be more stable. 40% of the world's cocoa crop comes from the Ivory Coast and this area is vital to all cocoa processors. In the bioproducts sector,our profits improved on record volumes and higher selling prices. U.S. slicing prices are relatively stable but prices outside the U.S. have come down slightly from competition from Asian producers. Citric results continue yo be unacceptable due to overcapacity in that industry. We have successfully grown our food grade business from our recent plant expansion. Food grade demand is strong.
On the health and nutrition side, the division in Chicago started February 15. It will take several months to determine the success of this market. We will start another test market in Atlanta by June. As I'm sure you recall they help maintain weight and Q-and-A.
Operator
If you have a question at this time, please presses 1 key on your telephone. If your question has been answered or you wish to remove yourself from the queue, press the pound key. Our first question is from Bill Leech with Banc of America.
Bill Leech
You said there was a capital gain of $15 million, vitamin gain of 3 and offset by EPA gain of 11?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
That's correct.
Bill Leech
Where do they get reported?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Yeah, the EPA settlement is in corporate, the fixed assets is in corporate. There's some adjustments of some medical type expenses and costs in corporate off setting map.
Bill Leech
And the vitamins in corporate, too?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Vitamins are up in the other with the animal costs in corporate off setting map. Vitamins are up in the other with the animal nutrition group. lypo is in corporate, too.
Bill Leech
I know you don't like to give guidance, but when you look at the volatility in this quarter, can you give us some help as to how these might check out in the fourth quarter particularly when you look at the other segment that kind of carried the ball in this quarter. That only made $10-11 million in the fourth quarter last year. Is that business seasonal or can that give you lift in the June quarter year over year?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
One thing you can look at is look at it on a year to date basis for the nine months. As you will see there, that segment is up 157 versus 126. So consistently at 68 for the quarter and 157 for the nine months and doing on average in that segment in the 50 million-60 million range.
Bill Leech
It did 20, 33, 68. All three of those are different. When you look at the fourth quarter last year that segment [INAUDIBLE] at 68 for the quarter and 157 for the nine months and doing on average in that segment in the 50 million-60 million range.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Cocoa is in that and cocoa was just coming into the strength as the year was going on so numbers have gotten better this year. A seasonal drop-off in the June quarter or just kind of move that 6 forward. No, the cocoa is not and the bioproducts come over this year as prices have improved there. So that should bow a [INAUDIBLE] swing factor? Yes. I'm not going to comment directly to the fourth quarter. You got to remember last year had vitamin settlements in it.
Bill Leech
Right, I'm talking that out. Looks like it only made like $11 million.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Actually I think it was a loss in the fourth quarter last out. Looks like it only made like $11 million.
Bill Leech
Well, anyway. And in general doesn't sound like anything else is going to change much quarter to quarter, does it?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
The quarter will tell, Bill. Not sure.
Bill Leech
Thanks.
Operator
Thank you. Our next question is from David Driskell of Smith Barney.
David Driskelll
Good morning, everyone.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Good morning.
David Driskelll
In the other expense category, there is an other item in there and it was a gain of like $15 million. If you said this I apologize, but what is in there? What is that one?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Sales of redundant assets that we had, fixed assets.
David Driskelll
Okay. When you were saying a moment ago to Bill's question where that fixed asset that shows up there and also shows up in your prepared comments, you said it showed up in the corporate line when you give that fixed asset that shows up there and also shows up in your prepared comments, you said it showed up in the corporate line when you give your operating profit by segment breakdown.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Correct.
David Driskelll
Thank you. Next on the wheat processing results, was there any charges in here that related to U.S. facility closures or integration charges related to the U.K. mill acquisitions?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
No.
David Driskelll
And is there any effect, should I think about Easter where that holiday fell last year versus this year ? Last year it was in the fiscal third quarter but this year it was not. Does that matter?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
No.
David Driskelll
Very good. Can we switch to corn processing. I had a question here on just basically how many gallons of Ethanol did you sell in the quarter and really specifically what I'm trying to get some type of understanding on was what level of quote/unquote one-time in nature where you're getting the California refiners started with ie. an initial inventory and then into city/state. Is that reasonable or is there a number to track with that division?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Our capacity is a billion one for the year and that is proportional throughout the quarter. And the second question? Inventories are about the same. They haven't changed much.
David Driskelll
Okay. Last question, if I might, just wanted to ask kind of qualitatively why South American oilseed crushing is doing better than specifically European oilseed crushing. What is the difference in the dynamics between those businesses?
Brian Peterson - Sr. Vice President - Corporate Affairs
Let me comment on part of that, anyway. Included in the European crushing operations which have been faced over the past crop year which still hasn't finished has been faced with an extreme shortage of grape seed around the world and this year which still hasn't finished has been faced with an extreme shortage of grape seed around the world and this has impacted operating results and time at our plants. In addition, we've seen some adverse affects on meal demand year which still hasn't finished has been faced with an extreme shortage of grape seed around the world and this has impacted operating results and time at our plants. In addition, we've seen some adverse affects on meal demand in Europe. Generally has been from time to time, been some problems if in the food situation we are seeing.
Allen Andreas - Chairman and Chief Executive Officer
David, there's a substantial increase in the production of oil seeds in south America again this year, as you know. We've strengthened our activities there, our interior elevation. Increasing the capacity of our processing units there. We only went into South America in 1997 in a substantial way with our investments and origination system and later in the Padilla processing facility. That portion of our business is a smaller portion of oilseeds than what it is for some of our competitors. We continue to strengthen our business there and in South America, they are able to be very competitive not only in providing raw materials for the European and Asian markets but in addition to that their cost levels are substantially lower than they are on the U.S. and issues over the quarter on biotech and genetically modified raw materials caused the Asians to come into the U.S. to purchase more of their materials where they co could get close identification of where they consisted of so that put pressure on U.S. margins. If you look at the results, much better performance in the South American areas than North America America primarily due to those factors.
David Driskelll
Fundamentally is the U.S. in trouble because the dynamics in south America are just that good?
Allen Andreas - Chairman and Chief Executive Officer
I don't think you would say we're in trouble, we have land and our infrastructure is still far superior than in Brazil and in Paraguay Argentina and those areas. They are spending a lot of money improving their rail systems, transport systems, roads, trucks, becoming increasingly competitive but the United States is still a low cost producer with the exception that our land values are very high here. Some adjustment will have to be attributable to the differences in cost of production due to that factor. United States remains competitive, I think our business which is the processing of those oilseeds is substantially over -- in a position of overcapacity so there will have to continue to be rationalization on the part of ourselves and probably the entire industry in order to make certain that the most efficient facilities remain in production and the least efficient ones are taken out. There needs to be a better balance between the demand for meal and oil in the U.S. and production capabilities. As Brian pointed out in the review, the steps taken by the Russians to reduce their import of poultry has reduced the numbers in this country which accordingly, requires less meal to provide the protein requirements for those animals. As a result we continue to have challenges here in the U.S. By the same token Russia has restricted to a certain extent some of the poultry production coming from Brazil because they are interested in getting their domestic production up. Very significant differences in soybean meal demands coming out of South Americas as opposed to North America in the current markets in the current circumstances.
David Driskelll
Super. Thank you very much.
Allen Andreas - Chairman and Chief Executive Officer
So we continue to really work hard to build a better balance here at ADM of our capabilities so we can be one of the lowest producers in the most profitable regions of the world. Thank you.
You're welcome, David.
Operator
Thank you. Our next question is from John McMillan of Prudential.
John McMillan
If you want better balance, why do you close some plants?
Allen Andreas - Chairman and Chief Executive Officer
We've done a substantial commitment to see a better rationalization of those factories in the U.S. We closed a number of plants and cut back capacities of several others in the United States and we continue to increase our capacities down there. Everyone in this industry needs to share some of the responsibility and generally will come down to who has the plants and best located for future business that will be available in the domestic market and what the export demands will be. I think we've done more than our share and continued to review our operations long-term and what is the proper supply and demand balance.
John McMillan
That's fair enough. Doug, you said your tax rate in the quarter was 28.5% but I calculated --
Doug Schmalz - Chief Financial Officer and Sr. Vice President
I said we adjusted it at 228.5. We were at 30.5 through December so we picked up 2% in the first six months which would have been about $6 million.
John McMillan
But that's why the reported tax rate was 24.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
That's correct. Just adjusting the nine months down to the 28.5
John McMillan
That's correct. Is that a tax rate of 28.5 you expect to persist going forward?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Yes, we do.
John McMillan
As we sit here and model next year?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
You can model it. There's going to be times in all this as profits shift between foreign, domestic and so forth that can affect that rate because of where you are getting your benefits and so forth. As it stands now, we think that's a good rate.
John McMillan
And not just pulling these rabbits out of your hat. Only added a penny or two to earnings. People sometimes worry in the food industry about companies that suddenly pull lower tax rates out of their hat.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
We didn't pull it out of our hat.
Allen Andreas - Chairman and Chief Executive Officer
The public accountants as well as internal group led by Doug Schmalz were very, very persuasive. More appropriately reflects what we need to show and was not just a matter of boosting the earnings for this period and disclosure of all that information complements the way in which we treat these items. I think going forward with the exception of this issue still outstanding with the EU on the foreign sales corporation, we do not see any reason for continuing to accrue taxes at the 32% level. We dropped it to what we felt was appropriate for the coming period that was reasonably predictable.
John McMillan
I have no a problem with this. Never even see Doug wear a hat. Can I just go through again what was said in the beginning that in the quarter, the prosecutors release did not -- it gave --
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Basically offset, John.
John McMillan
But what was the $11 million loss? What was that for?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
We made recently a global settlement on our EPA environmental issues here. With that, there was a fine of $4 million, I think, and another $6 million which is an expense item, contributions toward improvements in the environment and so forth.
John McMillan
So you absorbed it.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
We absorbed it all.
John McMillan
$11 million hit and basically if you want to count Lypo, but even so you left with a 7-8 million net gain and not that big of a deal. Okay. Thanks a lot.
Operator
Thank you. Our next question is from Leonard Tidlebaum of Merrill Lynch.
Leonard Tidlebaum
Just a couple of things on the outside and a couple of questions on operations. You want to update us on your prediction on this renewable fuels act trying to work its way through the house that the senate included Ethanol in other renewable fuels in other types of legislation. Can you tell us where you stand on that or what you're hearing on that?
Allen Andreas - Chairman and Chief Executive Officer
I would like to make a couple of comments on that. We don't know if this is going to get passed or discussed for a substantial number of years as you know. They were unable to get their package passed last year. President Bush has indicated his administration is strongly supporting the Ethanol business. They continue to try and find legislation that will implement the end of the oxygen standard and the termination of the use of MTBE and then fixed amounts of required consumption of renewable fuels. We believe there's enormous support for the house and the senate and legislation is likely to be passed in the near future on this issue. As you know the legislation contemplates a total requirement of $5 billion gallons per year. We are producing about $1 billion now and we don't have plans over the next ten years to step that up. The front end is still under discussion as to precisely what they will mandatein what years. We currently have production of about 2.7 billion gallons in the United States. Still ten plants under construction. As those are completed, we expect by the end of the year the production will be up to about 3.2 billion. I don't expect that the legislation is going to mandate any amount by 2004 or 2005 that will be in excess of that. It means that the business will be competitive. We have ,as you know, a highly deappreciative system in the Ethanol bussiness. We continue to have very low costs and very effecient network of transpotation facilities and storage. We expect there will be a change if there is not, if the legislation does not get inactive we remain with a standard and strong markets will continue to open up. We are relatively optimistic, although price levels will remain price competitive. During the last quarter they have come down somewhat. So our profitability was better this past quarter than perhaps it will be in the coming months.
Leonard Tidlebaum
Along that line, are you pricing Ethanol off the rack price for gasoline or what's your current formulation for pricing?
Allen Andreas - Chairman and Chief Executive Officer
We have a number of ways in which we sell it, some fixed price, some indexed off the futures but your point is well taken that it is competitive now based on the rack price of gasoline so we continue to sell at levels that are very competitive as an octane booster in that market. Everyone, of course, will have their own difficulties making efficient operations and profits at those levels as we construct new plants.
Leonard Tidlebaum
Unless my numbers are wrong, we ought to be selling significantly more Ethanol in the June quarter this year than the June quarter last year. Isn't that correct?
Allen Andreas - Chairman and Chief Executive Officer
Yes. Just the mere fact and so forth, that is correct.
Leonard Tidlebaum
Our job is to figure out volumes up versus margins flat to down. Is that the trick here? Absolutely. Let me turn to bioproducts. Someone has been waiting a long time to see this business return, make a decent return on investment and citric is always mentioned as an area that is sticking here. John had indicated and behind all of our questions is capacity. If we had to do it again I don't think we would build citric plants as large as we have. Are there plans to convert those plants over into other products or to reduce capacity to increase return on that asset?
Allen Andreas - Chairman and Chief Executive Officer
We bought our citric divisions from [Fizer] years ago and consists of two major facilities one in South Park and one is in Ireland. We didn't build those plants but we are operating them. It is a difficult competitive market. The Chinese continue to increase their production. I would like to say on the positive side that we see very solid growth figures in the consumption of citric across the world. If the industry can get into the proper balance, we haven't discounted this business. It's the same customer base as those in the food industry so we continue to do it. We are looking at all times at all of our bioproducts businesses with a view toward finding the most efficient utilization of those facilities and we're shifting product mix from one produce to another from time to time with exactly in mind what you talk about which is to find better utilization of those assets on a more productive cost basis and variety of markets. So that exercise is an ongoing exercise every day at ADM.
Leonard Tidlebaum
Let me try and answer I think what bill was talking about at the beginning as well. The major divisions, if we've got to make an assumption and it's a fair one that our transportation division doesn't look like it's going to do better, soybeans may be down some what but corn should certainly be up, versus last year. Wheat about the same as this quarter and tax rate down from 40% last year to about 28.5. I mean, what's didn'ting to change markedly from that scenario in Q4 versus Q3 and why shouldn't we on a trend basis be looking at 17 in terms of earnings next quarter?
Allen Andreas - Chairman and Chief Executive Officer
We just can't put a number down.
Leonard Tidlebaum
You got to give us some kind of a break here.
Allen Andreas - Chairman and Chief Executive Officer
We've got challenges coming up.
Leonard Tidlebaum
All right, look. We know froctose, were the heck we should be too far off this coming quarter than the last quarter.
Allen Andreas - Chairman and Chief Executive Officer
Well, we've got the same drought conditions until the new crop comes in. Some of our agricultural industries, I think you have to keep in mind that's going to be tough. Well located plants, a good spread of business. Diverse across the product line as well as the geographics of the world and continue to squeeze out every dollar of profit that we can from our businesses across the world and hopeful this quarter will bear as much fruit as we can in these businesses but we are faced with challenges. It's a difficult environment, Lenny.
Leonard Tidlebaum
One last question, is SARS having any impact on imports of exports out of Asia?
Allen Andreas - Chairman and Chief Executive Officer
Not that we have been able to notice in today's marketplace. I hope that that continues to be the case. We don't have any reason to believe. People are still consuming food and the meal demand and oil demand, our factories running efficiently, we've cut back on the travel of executives but optimistic it won't have an diverse affect on our business.
Leonard Tidlebaum
Thank you.
Operator
Thank you. Ladies and gentlemen, once again if you have a question please press the 1 key. Our next question is from Christine McCracken from again if you have a question please press the 1 key. Our next question is from Christine McCracken from Midwest Research.
Christine McCracken
Good morning.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Good morning.
Christine McCracken
I wonder if you could, back on Ethanol, you mentioned you didn't plan on adding any additional capacity, do you have any plans to convert the MCP plants given the current high fructose environment over to Ethanol.
Allen Andreas - Chairman and Chief Executive Officer
We are very interested in the MCP addition for a number of reasons. Expanded our geographic base more broadly across the United States, added excellent facilities and did increase somewhat our position in the Ethanol market. MCP was producing about 140 million of gallons of Ethanol when we purchased them. That set very nicely into our approximately 950 million of capacity, and we knew that the geographic spread would be of considerable benefit to us because of freight rates in different regions particularly in the growing demand of the California market. We could redirect where our flows came from in a more efficient manner. We have no current plans to add grain to any of our plants so as a result we don't see a substantial increase in Ethanol. Ethanol production is not balanced quite as efficiently at the MCP facilities as it is at some of our other units. We are de-bottle necking that process which will slightly increase our production. We have no major plans for a substantial increases in Ethanol production in the coming years and expect as the new plants come on stream, our percentage will continue to decline.
Christine McCracken
And just on crushing, wondering if you're seeing, then, any impact on prices from the strike? It seems as though there's a lot of pressure from the livestock industry but at the end of the day, you're really seeing very modest drops in chicken and pork productions. I'm wondering do you see any impact from the strike or in fact are you creating your own problem by throwing off this bi-product from Ethanol.
Allen Andreas - Chairman and Chief Executive Officer
We're not in the dry milling business. We are to a large extent, we have a little production of it but not adding significantly to the DDG production but the farm co-ops and smaller groups are adding significant capacity, almost 1 billion gallons of additional Ethanol capacity and that has increased the availabilities. It has two impacts, one is that it reduces the amount of requirements for feed and soybean meal and other parts of our business and that is part of the rationalization process we need to go through. I would like to point out we had a strong quarter this last quarter on lysine pricing and volumes and that is very directly related to the increased use of DDGs. In order to get the proper amino acid balance in your feed, you need to add amino acids to DDG because it doesn't contain the same levels as soybean meal. That has allowed us to enjoy a stronger business on the lysine side. We are in a position where deteriorating somewhat the feed demand as DDGs continue to decrease in numbers.
Christine McCracken
Sure. I see the offset. I'm wondering, do you know how much of the industry iit's impacting or what percentage of crush might happen to come out to offset this new supply? We've some capacity, it seems now we based Ethanol capacity for a while, maybe. There wouldn't be that much incremental coming through on the feed side. Wondering do you know the displacement?
Allen Andreas - Chairman and Chief Executive Officer
We don't know how this is going to work out. Everyone is seeing formulas but our rough calculations when we give consideration to going to work out. Everyone is seeing formulas but our rough calculations when we give consideration to what we'll have to do in rationalizing our industry, we know there's going to have to be a reduction in capacity in order to reach a better balance. Our numbers would be roughly in the areas of 50 million bushels of soybeans displaced and that's, of course, out of 1.5 billion bushel crop so not significant but on the other hand it is real when it comes to the grind and the crush.
Christine McCracken
And one final question, markets were volatile in the quarter, at least commodity markets, wondering why we didn't see more of an impact in the trading side.
Allen Andreas - Chairman and Chief Executive Officer
Running as prudent a hedge business as they can and sometimes they have better opportunities as a result of market but they struggle hard. It's a difficult business that they're in as you know. The number of players in the international origination of grains has declined but we continue to build that business and we have good results across the board in our activities in South America and continues to make every effort to increase their returns on investment.
Christine McCracken
Sure. All right, thanks.
Allen Andreas - Chairman and Chief Executive Officer
You're welcome.
Operator
Thank you. Our next question is from Eric Katzman of Deutsche Banc.
Eric Katzman
Hello. Good morning, everybody. Can you hear me?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
We're here.
Eric Katzman
Okay. Never sure. In the past you've kind of identified where your ROE was for the business versus a target of 1%. Where were you on a consolidated business this past quarter?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
On an annualized basis under 8.
Eric Katzman
Under 8? 12% still the target?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
That's still --
Eric Katzman
Normalized, how you want to define it.
Allen Andreas - Chairman and Chief Executive Officer
We're still in the middle of drought conditions and low carry-outs and low volatility and element that is impact the business. We're not doing what we think we should be doing in terms of shareholders invested capital. No question about it. We're in the 7% area and that is less than satisfactory and as Brian previously indicated, even in the areas that are performing well, for example in sweeteners, we don't think we are getting the returns we need from that investment so across the board we have a lot of challenges ahead of us. We continue to work to get back to those historic levels of double digit returns on invested capital.
Eric Katzman
Then, I guess as part of that, it's clear, Allen, that you are signaling that either your assets are somewhat out of balance between North America versus South America in oilseed production. How much do you think overtime is it going to cost to move the assets and either the Cap Ex required to build down in South America as that market grows versus the cost of shutting stuff down or moving it aroun here, can that effect materially how much the Cap Ex is going to spend over the next years.
Allen Andreas - Chairman and Chief Executive Officer
That is difficult to quantify it specifically. Our businesses are, we have more than 1,000 business locations with some 300 factories across the world. We are constantly until process of managing those assets in a way in which we are maximizing the efficiency of the plants and the location of those plants in relationship to a changing environment where we have weather conditions, politics, tariff trade rules, lots of other factors that is infringe on our business. All we continue to say is that we are moving our strengths in every location to the level at which we think we can maximize the efficiencies of our investment. We added some flour mills in the U.K. because it gave us more size and structurely improved our size in that market.
We are reducing capacities in oilseed production in the United States because we do not see the proper balance between supply and demand for our products here. In South America we continue to grow. We continue to look not only for expansion and de-bottle necking of our facilities there, we also are continually engaged in discussions about acquisition that is strengthen our overall position.
I would like to say that we currently in the judgment of our management have a very good mix of assets across the world and it's not necessary that we add a lot of assets to make this system work. We have an excellent network transportation, communications and a good fleet of barges and railroad cars in the U.S. and all those work together in each location in which we have them to maximize returns on our invested capital. That's the challenge and we don't need to expend substantial amounts of money and less than the cash flows we are generating to continue to improve the efficiencies and profitability of this country.
Eric Katzman
Should I take from that the capital expenditures should remain in a fairly low level and that even, the acquisitions that you consider spending on would have to be pretty niche oriented or pretty accretive in order for you to take that capital and spend it.
Allen Andreas - Chairman and Chief Executive Officer
That's absolutely correct. We have a balance sheet now that is solid a-rated credit. It is very important for our over all activities that we keep a strong liquidity in our businesses in order to be as competitive as we can in all our environments in which we are located. Our Cap Ex is running around 350-400 million and our cash flows i f you look at profit plus deappreciation and amortization around $1 billion. We have -- if you take the Cap Ex out and our dividend requirements, we have good liquidity building in the company and we do not have a structure that requires us to be up to make substantial investments to increase our competitiveness in the marketplace.
Eric Katzman
And the last question in terms of the wheat processing business was weak and you, I guess, explained a lot of that due to the crop conditions. What about f rom a competitive standpoint there, has capacity rationalization slowed? Is 90% of the short fall tied to weather as opposed to crop yields as opposed to, you know, something competitive that doesn't look good or something like that.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Probably most heavily influenced by the crop conditions. The lack of charges in the market that is inverse markets all contributed to high costs in the area. I would think that the major portion of the reason for the poorer results were crop conditions rather than capacity conditions although that still is a concern.
Eric Katzman
Okay. See you in about two weeks in New York. Thanks.
Operator
Thank you, and our final question is a follow-up question from Bill Leech.
Bill Leech
Can you tell us what percent of your soybean capacity is in South America now?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Geographically if you take the full capacities of what we are grinding across the world or crushing across the world in oilseed, it's about 50% in the United States, about 25% in Europe, and about 15% in China and about 10% in South America so that's roughly our skew in today's if you take 100%. We only own about 30% of the investments in the Asia pacific region mostly in China. Depending on how you look at where our crush is whether you look at 100% of it or less. Based on full crushing rates in all those areas, that's approximately the breakout.
Bill Leech
So Latin America about 10%?
Doug Schmalz - Chief Financial Officer and Sr. Vice President
That's correct.
Allen Andreas - Chairman and Chief Executive Officer
Thank you.
Operator
Thank you. And I am showing no further questions.
Doug Schmalz - Chief Financial Officer and Sr. Vice President
Thank you very much. We appreciate all of you joining us. We look forward to talking to you after the close of our fiscal year in July or August. Thank you.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and you may disconnect at this time. Have a nice day.