Archer Daniels Midland Profit, Revenue Slide -- Update
04 November 2015 - 4:31AM
Dow Jones News
By Jacob Bunge
Archer Daniels Midland Co. posted steeper-than-expected declines
in quarterly sales and profit as the grain giant struggled against
weak commodity prices and slowdowns in some emerging markets.
ADM shares tumbled 9% in midmorning trading Tuesday following
the disappointing results, wiping out about $2.5 billion in market
value.
ADM, among the world's top grain traders and a major ethanol
producer, is grappling with lower oil prices that have slashed
profit margins for the corn-based fuel additive. The U.S. dollar's
rise against overseas currencies also has softened demand for ADM's
exports of U.S. corn and other crops, Chief Executive Juan Luciano
told investors on a post-earnings conference call.
Ethanol makers like ADM, which maintains the largest U.S.
production capacity for the biofuel, over the past year have seen
profit margins dwindle after a sharp drop in the price of crude
oil. That decline has made gasoline cheap and limited the premiums
that ethanol producers can charge for the fuel additive, which
typically accounts for about 10% of gas content at U.S. fuel
pumps.
ADM, which warned investors earlier this year about tougher
conditions in the ethanol business, reported that third-quarter
operating profit in its ethanol-producing division dropped 78% to
$40 million, the biggest decline among ADM's units.
Slowing overseas economies buffeted ADM's grain trading and
oilseed divisions. The sliding Brazilian real encouraged farmers
there to sell their grain, Mr. Luciano said, which provided a boost
to ADM's Brazilian crop traders but diminished the competitiveness
of its U.S. grain exports. The Chicago company maintains its
biggest grain-terminal and shipment network in the U.S.
Operating profit in ADM's oilseeds business fell partly due to
diminished European demand for vegetable oils, and the
strengthening U.S. dollar dampened profits in ADM's newly set up
division focused on flavorings and specialty ingredients.
"The macroeconomic [impact] was greater than we expected," said
Mr. Luciano, who took over as ADM's CEO in January.
ADM and other big commodity-trading firms are trying to navigate
economic turbulence in developing parts of the world, which has
driven rapid shifts in currency values and commodity demand. Bunge
Ltd. last week reported a steeper-than-expected decline in
quarterly profit due to weaker results in vegetable oil and grain
milling. Cargill Inc. posted a 20% increase in profit, boosted by
well-timed trading in agricultural commodities, the company
said.
Mr. Luciano said ADM is working to make its ethanol plants more
efficient and hopeful that foreign buyers such as China will buy
more U.S. ethanol, helping to lift overall demand for the biofuel
by an estimated 1% to 1.5% next year.
ADM is focused on improving the efficiency of its two dry
mills--which process corn into ethanol and byproducts used as
animal feeds--and Mr. Luciano said that if ADM discovers the plants
can't "compete in a more challenging U.S. ethanol environment," the
company would "look at various alternatives to maximize shareholder
value."
"At this point we are not there yet," he said.
Overall, ADM posted earnings of $252 million for the quarter
ended Sept. 30, or 41 cents a share, down from $747 million, or
$1.14 a share, a year earlier. The quarter included $65 million in
impairment, exit and restructuring costs.
Excluding those charges and other special items, per-share
earnings fell to 60 cents a share from 86 cents a year earlier.
Revenue slid 8.6% to $16.57 billion.
Analysts had projected per-share earnings of 70 cents a share on
revenue of $17.77 billion.
Chelsey Dulaney contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 03, 2015 12:16 ET (17:16 GMT)
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