Archer Daniels Profit Tops Analysts' Estimates as Asian Grain Demand Rises

Archer Daniels Midland Co., the world’s largest grain processor, posted a fourth-quarter profit that topped analysts’ estimates after demand rose in Asia and earnings from bio-products such as ethanol improved.

Net income increased to $446 million, or 69 cents a share, in the three months through June, from $58 million, or 9 cents, a year earlier, the Decatur, Illinois-based company said in a statement today. Analysts predicted 53 cents, the average estimate in a Bloomberg survey. Cash and cash equivalents at the end of the quarter fell 0.9 percent from a year ago to $1.05 billion, ADM said.

ADM, led by Chief Executive Officer Patricia Woertz, said agricultural services benefited from “modestly improving” demand, particularly from Asia, and the oilseeds-processing unit saw higher volumes in South America and Europe. The agricultural-services unit had an operating profit of $178 million, compared with a $17 million loss a year earlier.

“We expected a strong agricultural-services number from the quarter and frankly the company did even better,” Ian Horowitz, an analyst for Rafferty Capital Markets Inc. in New York who recommends buying the stock, said in an e-mail today. “A surprise for us was also the continued solid performance from the bio-products division.”

ADM rose 17 cents, or 0.6 percent, to $28.49 at 4:15 p.m. in New York Stock Exchange trading. The shares have fallen 9 percent this year.

Ethanol, Lysine

Corn-processing operating profit was $140 million as ethanol and lysine profit margins increased, compared with a loss of $11 million a year earlier, ADM said. Operating income is the total amount of money a company makes through its earning assets and services.

Oilseed-processing operating profit rose 58 percent to $359 million on higher volume in South America and Europe, beating the $148 million estimate by Vincent Andrews, an analyst at Morgan Stanley in New York.

“ADM beat our segment operating-profit estimates in every segment, with oilseeds processing making up the largest portion of the beat,” Andrews, who rates the stock “overweight,” said in a report today. “We expect the stock to perform strongly today due to the clean and material beat.”

Sales dropped 5 percent to $15.7 billion.

Crush Volumes

The company plans to increase overall oilseed crush volume 7 percent to 10 percent annually over five years through internal growth and acquisitions, Woertz said on a conference call with analysts.

“They are basically telling the world they are going to be gaining market share,” Paul Resnik, an analyst for Olympia Capital Markets Group in New York, said in an interview. “The plan shows the intention to be a powerful player in the industry.”

Resnick recommends buying the stock.

ADM expect capital expenditures excluding acquisitions to be $1 billion in fiscal 2011, Chief Financial Officer Steve Mills said on the call. The company has the capacity for acquisitions of $500 million to $1 billion in the fiscal year, he said.

“The pipeline easily supports that level of acquisition, just depends how many are out there,” Mills said.

To contact the reporter on this story: Shruti Singh in Chicago at ssingh28@bloomberg.net

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