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ADM Profit Lags Estimates as Sweeteners Earnings Drop

Archer Daniels Midland Co., the world’s largest grain processor, posted fiscal third-quarter profit that trailed analysts’ estimates as lower prices for sweeteners and starches reduced earnings from processing corn.

Net income rose to $421 million, or 65 cents a share, in the three months through March, from $3 million, or break-even on a per-share basis, a year earlier, Decatur, Illinois-based ADM said today in a statement. The average estimate of 10 analysts in a Bloomberg survey was 72 cents. Sales rose 2 percent to $15.1 billion.

ADM, led by Patricia Woertz, is facing lower prices for some products from its corn-processing unit, which were partly offset by a decrease in grain costs. Operating profit from sweeteners and starches fell 69 percent from a year earlier to $45 million, ADM said. The price of the corn-based fuel ethanol has dropped 16 percent this year on the Chicago Board of Trade.

“Falling ethanol and corn syrup prices cloud the picture for ADM for the rest of the calendar year,” Robert Moskow, an analyst for Credit Suisse Group AG in New York, wrote in a report today. “Big mark-to-market losses in the corn syrup and wheat-milling business caused the miss versus our estimates.”

The corn syrup results trailed Moskow’s estimate of $132 million. ADM’s profit of $9 million from processing other commodities, mostly wheat and cocoa, missed his projection of $100 million.

Corn Processing

Corn-processing profit more than doubled to $104 million as ethanol margins improved and sales of lysine, a livestock-feed additive, strengthened. Corn costs were affected by so-called mark-to-market losses and “hedge accounting ineffectiveness” related to corn futures, ADM said.

ADM fell $1.50, or 5.4 percent, to $26.22 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 16 percent this year.

Better-than-expected performance in the oilseeds and agricultural-services segments offset the corn-processing, wheat and cocoa results, David Lagasse, assistant vice president of corporate credit research for Brookfield Investment Management Inc., said in an e-mail today. Profit excluding a $47 million debt-retirement charge was generally in line with expectations, Lagasse said.

Earnings in the oilseeds-processing unit rose 81 percent to $405 million. ADM’s North American operations ran at higher utilization rates, with improved margins and volumes, after last year’s smaller South American soybean crop, the company said. Improved biodiesel demand in Europe and South America helped the segment’s results.

Agricultural Services

Profit in the agricultural-services unit, which includes grain storage and transportation, rose 36 percent to $165 million as demand improved modestly, ADM said. The unit is the company’s biggest by sales.

The agricultural services unit may get a boost as global grain production increases, Ian Horowitz, an analyst for Rafferty Capital Markets Inc. in New York, said in an interview today.

“You have a lot of product to move,” he said. “That should lend itself to the merchandizing and handling segment quite well. Big volumes and solid movement.”

ADM, which posted about $2.1 billion in cash and near-cash items at the end of the quarter, is actively reviewing acquisitions.

“We see some of our growth, a chunk of our growth, coming through M&A and acquisitions, which are a lot harder to predict when they’re going to come on,” Chief Financial Officer Steven Mills said on a conference call with analysts. “That’s one of the reasons we keep a strong balance sheet and proverbial dry powder for those kinds of things.”

Mills declined to provide a timeline for any deal.

“We’re actively reviewing and looking at transactions as we speak,” he said.

Download: Earnings

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