Archer Daniels Midland Earnings Fall on Record Ethanol Production

Source: By Michelle Hackman, Wall Street Jornal • Posted: Wednesday, August 5, 2015

Archer Daniels Midland reported its latest earnings fell Tuesday on record ethanol production.

Archer Daniels Midland reported its latest earnings fell Tuesday on record ethanol production. Photo: Daniel Acker/Bloomberg News

Archer Daniels Midland Co. said second-quarter earnings fell more than expected as the grain trader and processor was buffeted by lower ethanol-production margins and sluggish overseas demand for North American crops.

ADM, among the world’s largest agribusinesses and a major ethanol producer, said Tuesday that record U.S. production of the corn-based biofuel curbed profit margins in the second quarter by pushing down prices. The Chicago company also faced weakness in its grain-trading business as a strong U.S. dollar and large crops in South America crimped export demand for North American grain.

Chief Executive Juan Luciano expressed optimism about the second half of the year, saying favorable weather in much of the U.S. Farm Belt in recent weeks should lead to large crops this autumn. The company, which buys grains, oilseeds and other commodities from farmers, typically benefits from big harvests because they provide more supplies at lower prices that it can process and sell to food producers and livestock operations.

“We plan to move a very strong harvest through our facilities,” Mr. Luciano said on a conference call with investors. “We expect a very strong second half” in agricultural services.

ADM shares rose 1.5% to $48.41 in 4 p.m. trading. The company delivered a better quarter than rivals such as commodity trader Bunge Ltd. and ethanol specialist Green Plains Inc., both of which reported sharper profit declines in the past week.

Profit in ADM’s corn-processing business declined to $204 million in the three months ended June 30, from $338 million a year earlier. (Pictured, ADM’s corn-processing plant in Peoria, Ill.)

“Domestic and export demand for ethanol was robust, but record industry production limited margins,” Mr. Luciano said. “This was partially offset by strong results for our corn sweeteners and starches business.”

Mr. Luciano said on the earnings conference call that ADM is looking for opportunities to maximize profit margins in ethanol rather than sales volumes.

Profit in ADM’s agricultural-services segment fell to $152 million from $184 million a year earlier. A late-quarter spike in grain futures prices sliced $25 million from ADM’s trading revenue, though prices quickly bounced back, according to Mr. Luciano.

ADM executives expect the core grain-trading operations to rebound as benevolent weather is easing concerns about U.S. corn production this year.

Mr. Luciano said ADM is paying particularly close attention to recent reports over the past week that the Chinese government will ease its price-support program for corn farmers after the country’s grain supplies have swelled, a move that some analysts see would release large supplies of Chinese corn to world markets. That “would probably bode well for our business,” Mr. Luciano said.

ADM’s oilseed-processing business marked a bright spot in the second quarter, posting earnings of $344 million, up from $280 million a year ago. The boost was largely driven by low soybean prices and large soybean exports from South America, where ADM has facilities.

Overall, the company posted earnings of $386 million, or 62 cents a share, down from $533 million, or 81 cents a share, a year earlier.

Excluding special items, per-share earnings were 60 cents, down from 79 cents a year ago.

Revenue fell to $17.19 billion from $21.49 billion.

Analysts had projected per-share earnings of 66 cents and revenue of $20.87 billion.