Tough market conditions weigh on ADM earnings

by Eric Schroeder
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ADM's earnings fell 53% while sales slid 18% in the first quarter.

CHICAGO — Challenging market conditions contributed to lower earnings at Archer Daniels Midland Co. in the first quarter of fiscal 2016. Net income in the first quarter ended March 31 totaled $230 million, equal to 39c per share on the common stock, down 53% from $493 million, or 77c per share, in the same period a year ago. Revenues fell 18% to $14,384 million from $17,506 million.

Juan Luciano, ADM
Juan Luciano, president and c.e.o. of ADM

“Challenging market conditions continued in the first quarter, particularly affecting ag services,” Juan Luciano, president and chief executive officer, said during a May 3 conference call with analysts. “Low U.S. export volumes and weak margins continued. And, in the quarter, poor results from the global trade desk impacted results for ag services. Results for corn improved, compared to the first-quarter one year ago, led by strong performance in sweeteners and starches. For oilseeds, global protein demand remains solid. However, first-quarter results were impacted by weak global crush margins. Wild Flavors and Specialty Ingredients results were in line with expectations.”

Mr. Luciano said ADM continued to advance its strategic plan during the quarter, including acquisitions and facility openings.

“We acquired a controlling stake in Harvest Innovations, enhancing ADM's plant protein, gluten-free ingredients portfolio,” he said. “We announced the purchase of a corn wet mill in Morocco that will further expand our global sweeteners footprint. We opened our new, state-of-the-art flavor creation, application and customer innovation center in Cranbury, N.J.

“And, as part of our ongoing portfolio management efforts, we reached an agreement to sell our Brazilian sugar cane ethanol operations. In addition, we achieved almost $50 million of run rate savings in the quarter, and remain on track to meet our $275 million target by the end of the calendar year. We repurchased about $300 million of shares in the quarter and paid dividends of about $200 million, as we continue to execute on our balance capital allocation framework.”

Mr. Luciano noted that the first half of fiscal 2016 will continue to present “a challenging environment,” but the company is cautiously optimistic that reduced South American soybean and corn production may bring improved soybean crush margins and merchandising opportunities in the second half of the year.

Operating profit in the Oilseeds Processing unit was $260 million in the first quarter, down 45% from $469 million in the same period a year ago. Crushing and origination profit decreased to $120 million from $334 million.

“Crushing origination declined from last year’s high levels,” Mr. Luciano said. “While global protein demand remains solid, global soybean crush and origination results were down significantly, due to lower global margins resulting from increased Argentine soymeal exports. U.S. crush volumes were down primarily due to reduced U.S. mill exports. In addition, lower soft seed crushed volumes and weaker Brazilian commercialization that has slowed throughout the quarter negatively affected results. Refined oils, packaged oils and biodiesel were down, with stronger results from North America and Europe partially offset by weaker results in South America. North American biodiesel demand was strong, with the extension of the biodiesel credit through the end of the year.”

Agricultural Services operating profit fell 61% to $75 million from $194 million, as milling and other results fell to $48 million from $55 million, and transportation plummeted to $4 million from $32 million.

Solid performance from Wild Flavors and higher results from specialty proteins helped spur a 3% increase in operating profit at Wild Flavors and Specialty Ingredients to $70 million from $68 million. ADM said results included operational start-up costs for the Tianjin Fibersol facility in China and the Campo Grande specialty protein complex in Brazil.

Operating profit within the Corn Processing unit increased 16% to $131 million from $113 million. Sweeteners and starches results improved $56 million to $141 million as the business continued to perform well, with an improved cost environment driven by strong capacity utilization. Bioproducts results were down from $42 million to a loss of $12 million, due primarily to the continued challenging conditions in the global lysine market.

Mr. Luciano said ADM remains on track to achieve its 15% to 20% operating profit growth target for 2016. In the second quarter, the company expects some modest underlying growth on a year-over-year basis, and ADM plans to continue to see some additional start-up costs.

“Our growth will be more concentrated in the second half, based upon the pattern of new business and synergy realizations, the startup of Campo Grande, as well as the avoidance of some unique, one-time costs incurred last year,” he said. 
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