ADM Drops After Profit Disappoints for Fifth Straight Quarter

Source: By Shruti Singh, Bloomberg • Posted: Wednesday, August 3, 2016

Archer-Daniels-Midland Co. fell after the world’s largest corn processor reported adjusted profit that missed analysts’ estimates for the fifth straight quarter.

The shares fell 2.6 percent to $43.07 at 12:32 p.m. in New York. A close at that price would mark the largest decline since June 27. Excluding one-time items, profit in the second quarter fell to 41 cents a share as U.S. grain margins weakened. The average estimate from 10 analyst forecasts compiled by Bloomberg was 45 cents.

“We expect share price under-performance today,” Vincent Andrews, a New York-based analyst at Morgan Stanley, said in a report. While ADM indicated second-quarter results would be weak, “expectations were likely raised” after rival Bunge Ltd. topped analysts’ profit estimates on July 28, he said.

Net income fell to 48 cents a share from 62 cents a year earlier, Chicago-based ADM said Tuesday in a statement. Sales were $15.6 billion, below the $16.9 billion estimate. A year earlier, revenue was $17.2 billion.

“The first half of the year was very challenging,” Chief Executive Officer Juan Luciano said in the statement. “However, with improved fundamentals, we anticipate a more favorable second half of the year.”

Prices in agricultural markets have posted wide swings, which can affect profit from trading to ethanol processing. After jumping in April and May, corn futures and the margin for crushing soybeans slumped in June. ADM buys and stores agriculture commodities and processes crops such as grain and oilseeds into food, livestock feed and fuel.

In agricultural services, the largest segment by revenue, crop merchandising and handling profit dropped mainly “due to compressed margins across the U.S. grain-handling network,” the company said. While it has elevators and plants around the world, most assets are domestic, and results often are linked to the U.S.

A $14 million loss excluding certain items in merchandising and handling curbed operating profit from agricultural services. “Strong improvements” in the unit were forecast for the third quarter, Luciano said Tuesday on a call with analysts.

Transportation results declined on weak barge demand and lower freight rates. Ethanol margins continued to weaken amid high industry inventories, spurring ADM to cut production. The company cited “progress in the strategic review” of its ethanol dry mills, a move announced in February.

Mill Bids

ADM has provided presentations on the dry mills to seven parties and expects bids by the end of August, Luciano said.

The milling business had a “strong” quarter on “solid volumes and margins,” the company said. Sweetener and starch results improved partly as volumes and pricing rose.

In the third quarter, ADM expects a per-share loss of about 17 cents linked to the holding in Wilmar International Ltd. In July, the Singapore company said it expects a net loss of about $230 million in the second quarter. ADM, which records Wilmar results on a one-quarter lag, has a 22 percent stake.

Through Monday, ADM’s shares climbed 21 percent this year. Bunge fell 7.7 percent, and Wilmar climbed 5.4 percent.