ADM Profit Misses Estimates as Oilseed Margins Shrink

Archer Daniels Midland Co., the world’s largest grain processor, reported fiscal first-quarter profit that missed analysts’ estimates amid “weak” oilseed-processing margins and tight U.S. corn supplies.

Net income gained 33 percent to $460 million, or 68 cents a share, in the three months ended Sept. 30, from $345 million, or 54 cents, a year earlier, the Decatur, Illinois-based company said today in a statement. Earnings excluding inventory gains and debt-exchange costs were 58 cents a share, trailing the 66-cent average of 13 estimates compiled by Bloomberg. Sales rose 30 percent to $21.9 billion from $16.8 billion a year earlier.

“The first quarter presented a difficult and challenging market environment,” Chief Executive Officer Patricia Woertz said in the statement. “Margin conditions in our global oilseeds segment were generally weak, and net corn costs were high.”

Global corn inventories at the end of the 2011 to 2012 crop year will drop 5 percent to 123.19 million metric tons, the smallest since 2006 to 2007, the U.S. Department of Agriculture said Oct. 12. Oilseed margins narrowed amid excess processing capacity and lower soybean-meal demand, according to BMO Capital Markets.

ADM fell 4.1 percent to close at $27.74 in New York. The shares have dropped 7.8 percent this year.

The oilseed-processing unit’s performance was “a little softer than expected,” said Jeff Farmer, a Boston-based analyst for Jefferies & Co. who rates the shares “buy.”

‘Tighter’ Supply

While volumes at the corn-processing unit rose 5 percent, costs more than doubled amid “tighter” global supply, ADM said. Its operating profit, or sales minus the costs of goods sold and administrative expenses, fell 48 percent.

Oilseed-processing operating profit fell 28 percent as a “weak margin environment” for global soybean and European rapeseed crushing offset improvements in the Americas.

“Oilseeds margins are currently up versus depressed levels that impacted our first quarter results and we are expecting a modest improvement in the oilseeds environment moving forward,” Juan Luciano, ADM’s chief operating officer, said on a conference call with analysts today.

The corn-processing and oilseed units accounted for 12 percent and 33 percent of ADM’s sales in fiscal 2011 respectively.

Global Demand

The agricultural-services unit, which trades and transports grains and other commodities, posted an 85 percent increase in operating profit as rising exports from the Black Sea region countered lower U.S. shipments. The unit is ADM’s biggest by revenue, generating 47 percent of fiscal 2011 revenue.

Global crop and agricultural-product demand continues to be “solid,” ADM said. Global soybean and wheat supplies are “adequate,” it said.

“More of the world’s demand for agricultural commodities will be met from non-U.S. supply,” Luciano said. “ADM will use our global origination and transportation network to help serve growing global demand.”

ADM bought oilseed-processing plants in Poland and India, and expanded its agricultural-services operations with purchases of oceangoing vessels last month.

The gain in the agricultural-services unit was a “positive” after Cargill Inc. said results in its commodity origination and processing segment decreased and Bunge Ltd. reported lower margins in grain merchandising earlier this month, Farmer said.

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