ADAMA in Q1: reported profit jumped, but earnings quality still needs proof
ADAMA's reported Q1 net profit jumped to $76.5 million, but adjusted net profit was lower and adjusted EBITDA declined. The gap came mainly from a $36.5 million capital gain and tax income, so the next test is recurring operating profit rather than one-off reported items.
The original Q1 article put ADAMA in an uncomfortable place: sales returned to growth, but working capital and cash flow still needed proof. This continuation isolates a narrower layer, earnings quality. Reported net profit jumped to $76.5 million, but adjusted net profit was lower at $52.4 million, and adjusted EBITDA declined to $120 million.
That is almost the mirror image of the story we analyzed after 2025. The prior follow-up on adjusted profit focused on how a reported loss became a small adjusted profit. In Q1 2026 the direction reversed: the reported line looks stronger than the adjusted line, mainly because of a capital gain from the sale of a logistics center in Israel and tax income. The operating improvement has not disappeared, but it is less clean than the reported profit headline suggests.
The positive point is that restructuring and advisory costs fell to $3.2 million, from $13.4 million in the comparable quarter. That suggests part of the Fight Forward transition cost is shrinking. The yellow flag is elsewhere: once the capital gain is removed, and once adjusted operating expenses and adjusted EBITDA are separated from the reported figures, the quarter looks more like a strong accounting headline than full proof of recurring profit improvement.
Reported profit was stronger than adjusted profit
The core gap is simple: reported net profit was $76.5 million, while adjusted net profit was $52.4 million. In other words, adjustments reduced profit by about $24.1 million. In 2025, and in the prior continuation article, adjustments added to profit because they removed impairments, closures, remediation and transition costs. This time they reduce it because the largest item is income.
The capital gain is not a small footnote. A wholly owned subsidiary sold a logistics center in Israel, received total consideration of about $49 million, and recorded a capital gain of about $36.5 million. The asset is leased back for the first two years after closing. The transaction can make sense as part of asset-base optimization, and it also brought cash through investing activities. But for earnings quality, it does not say anything about better crop-protection pricing, utilization, or recurring operating earning power.
The impact is visible in operating expenses. Reported operating expenses declined to $189 million, or 19.9% of sales. After adjustments, operating expenses rose to $214 million, or 22.5% of sales, compared with $188 million and 21.4% of sales in the comparable quarter. The reported profit benefited from income that reduced net expenses, while the adjusted expense base actually increased.
| Q1 metric | Reported | Adjusted | What it means |
|---|---|---|---|
| Operating expenses | $189 million | $214 million | The capital gain masked a heavier expense base |
| EBIT | $97 million | $73 million | The reported improvement was stronger than recurring operations |
| EBITDA | $153 million | $120 million | Reported EBITDA rose 34%, adjusted EBITDA fell 5% |
| Net profit | $76.5 million | $52.4 million | Adjusted profit remained positive, but below reported profit |
Tax income also lifted the bottom line
Tax also helped the reported picture. Profit before tax was $54.6 million, while net profit reached $76.5 million because the company recorded tax income of $21.9 million. The explanation given was higher tax income recognized under the accounting method for tax assets related to unrealized profits.
That gap changes how the bottom line should be read. Net profit above profit before tax is a legitimate accounting result, but it is not the same as a quarter in which the business itself generates higher operating profit and pays a normal tax charge. In this quarter, a meaningful part of the profit jump came from two layers that do not prove recurring earnings power: a capital gain on an asset sale and tax income.
The adjusted picture is not weak, but it is less shiny. Revenue rose 8% to $950 million, mainly from a 7% increase in volumes and positive currency impact, while prices fell 4%. Adjusted gross profit rose to $287 million and the adjusted gross margin remained at 30.2%. The problem is that this improvement did not fully flow into adjusted EBITDA because adjusted operating expenses increased.
What still works, and what still needs proof
The quarter does not contradict the operating improvement built during 2025. It does make the proof harder. If sales rise and adjusted gross margin holds, but adjusted EBITDA falls from $127 million to $120 million, the conversion from sales to profit is not strong enough yet. At constant exchange rates, the adjusted EBITDA decline was sharper at 25%, which sharpens the exposure to sales quality, pricing, product mix and the costs that come with renewed growth.
Management framed the pressure directly: sales increased, but a less favorable mix and higher expenses, including currency, salary, logistics and growth-support spending, weighed on EBITDA. That is not a dramatic weakness, but it is a reminder that sales growth has to pass an earnings-quality filter. More volume in a weak pricing environment is not enough if it comes with higher expenses and less price support.
The comparison to 2025 matters here. Last year it was relatively easy to argue that adjusted measures showed the right direction, while reported profit still absorbed the cost of restructuring. In Q1 2026 the argument needs more care: the heavy 2025 adjustment items declined, which is positive, but reported profit received a large one-off boost. Earnings quality will improve only if the next quarters show three things at once: growth that does not rely mainly on volume in a weak pricing environment, operating expenses that do not grow faster than sales, and net profit that does not need capital gains or tax income to look strong.
How the next quarter may be read
In the short term, the strong reported net profit headline can support a positive reading. But readers who break down the quarter will move quickly to the adjusted line. If adjusted EBITDA returns to growth in the next quarter, and the capital gain naturally does not recur, Q1 can be viewed as a transition quarter with a positive one-off item. If adjusted EBITDA remains under pressure, Q1 reported profit will look more like an attractive snapshot helped by an asset sale.
The second checkpoint is tax. An earnings-quality thesis cannot be built on tax income. As long as the bottom line benefits from positive tax items, reported profit has to be separated from operating earning power. In the next quarters, the relationship between profit before tax, actual tax and net profit will matter almost as much as gross margin.
The third checkpoint is transition costs. The decline in restructuring and advisory costs to $3.2 million is encouraging. If that line remains low, the argument that part of Fight Forward's cost is now behind the company becomes stronger. But if impairments, closures, remediation or other transition items return in meaningful size, the reported-versus-adjusted gap will remain central in 2026.
Conclusion
Q1 does not weaken ADAMA's recovery story, but it prevents it from becoming too clean. Sales rose, pricing still pressured the business, adjusted gross margin held, and net financing expenses declined to $42.9 million. Still, reported profit received significant help from a $36.5 million capital gain and $21.9 million of tax income, while adjusted EBITDA declined.
The practical read is not to dismiss reported profit, but not to let it replace the recurring earnings test. The next quarters need to show that the company can grow sales without eroding adjusted EBITDA, keep transition costs low, and produce positive net profit without asset disposals or tax benefits. That will decide whether 2026 is a continuation of the 2025 improvement, or a first quarter helped by reported figures that looked better than the recurring business justified.
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