ADM earnings fall; shares under pressure

by Jeff Gelski
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Juan Luciano, ADM
Juan Luciano, c.e.o. of ADM, said Milling and Other segment results were strong.

CHICAGO – Third-quarter earnings dropped for Archer Daniels Midland Co. as ample global grain supplies and weak industry ethanol margins affected results. Net earnings of $252 million, or 41c per share on the common stock, in the quarter ended Sept. 30 were down 66% from $747 million, or $1.14 per share, in the previous year’s third quarter.

Adjusted earnings per share of 60c in the third quarter were down from 86c in the previous year’s third quarter. Adjusted earnings per share excluded about 19c per share of losses on debt extinguishment, 4c of gains on assets sales, 7c of LIFO credits, 10c of charges related to asset impairments and restructurings, and a 1c charge to update the estimated annual effective tax rate.

Third-quarter revenues of $16,565 million were down 9% from $18,117 million in the previous year’s third quarter.

In early trading Nov. 3, shares of ADM on the New York Stock Exchange fell as low as $41.74 per share, down 9.7% from the Nov. 2 close.

“The ADM team executed well in an environment very similar to the second quarter,” said Juan Luciano, chief executive officer, when third-quarter results were reported Nov. 3. “Ag Services earnings were limited by lower margins and volumes of North American exports due to the continued strength of the U.S. dollar and ample global crop supplies, particularly from South America.

“In Corn, we continue to confront very weak industry ethanol margins, while sweeteners and starches results remain solid amid tight supplies. In Oilseeds, good global meal demand again supported soy crushing results, and solid origination volumes contributed to our South American operations, while continued weak oil demand, particularly outside the U.S., weighed on our softseeds business.”

Operating profit for ADM’s Agricultural Services was $149 million in the third quarter, down from $310 million in the previous year’s third quarter. Within Agricultural Services, operating profit for merchandising and handling fell to $57 million from $64 million.

Also within Agricultural Services, operating profit for transportation fell to $31 million from $35 million as reduced U.S. exports lowered barge freight rates. Operating profit for milling and other rose to $61 million from $55 million due mainly to higher product margins and strong merchandising results.

In ADM’s Corn Processing, third-quarter operating profit fell to $131 million from $348 million. Within Corn Processing, operating profit for sweeteners and starches dropped to $125 million from $158 million. Co-product margins were weaker, and the slower ramp-up of commercial volumes at the sweetener facility in Tianjin, China, limited absorption of fixed costs. Because of the lower ethanol margins, operating profit for bioproducts within Corn Processing in the third quarter plunged to $40 million from $183 million.

“While demand for ethanol domestically and from overseas markets remained solid, industry production levels were also strong, resulting in high industry inventory levels, which kept industry margins considerably lower than last year,” ADM said.

Operating profit for ADM’s Oilseeds Processing increased to $335 million in the third quarter from $317 million in the previous year’s third quarter. Within Oilseeds Processing, operating profit for crushing and origination fell to $175 million from $214 million.

“North American soybean crushing operations capitalized on strong meal demand in the U.S. and nearby export markets,” ADM said. “Weak demand for vegetable oil reduced margins and volumes of softseeds operations, particularly in Europe. In South America, origination and export margins and volumes for corn and soybeans were boosted by the significant weakening of the Brazilian real and contributed to stronger South American results.”

Also within Oilseeds Processing, operating profit for refining, packaging, biodiesel and other fell to $66 million from $78 million. Operating profit for cocoa and other fell to $2 million from $30 million because of lower cocoa press margins and peanut processing results.

Operating profit for Wild Flavors & Specialty Ingredients was $70 million in the third quarter, up from $65 million. Sales to emerging markets declined as those economies weakened. The strong dollar kept dollar-linked input costs high, which pressured margins and volumes.

Through the first nine months of the fiscal year, ADM had net earnings of $1,131 million, or $1.80 per share, which compared to $1,547 million, or $2.35 per share, in the same time period of the previous year. Nine-month revenues of $51,257 million compared to $60,307 million in the same time period of the previous year.
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