ADM Slumps as Ethanol Margins Shrink Along With Corn Exports

  • Ethanol industry margins fell after inventories expanded
  • Stronger dollar curbed competitiveness of U.S. grain exports

Archer-Daniels-Midland Co., the world’s largest corn processor, tumbled the most in more than four years after reporting third-quarter earnings that missed analysts’ estimates as ethanol margins shrank and the stronger dollar curbed U.S. exports of the grain.

The stock slid 6.8 percent to $43.15 at the close in New York, the biggest drop since Aug. 8, 2011. ADM was the fourth-biggest decliner on the Standard & Poor’s 500 Index.

“ADM shares are weak, reflecting the third-quarter earnings miss, as well as anticipation that the fourth-quarter results will continue to be hampered by slow farmer selling, weak export demand for U.S. grain and lackluster ethanol profits,” Farha Aslam, a New York-based analyst for Stephens Inc., said in an e-mail.

Earnings excluding one-time items were 60 cents a share, Chicago-based ADM said in a statement Tuesday, trailing the 70-cent average of 11 analysts’ estimates compiled by Bloomberg. Sales fell to $16.6 billion from $18.1 billion a year earlier, less than the $17.5 billion average estimate.

Reduced Competitiveness

ADM said corn-processing operating profit dropped 62 percent as its ethanol business suffered from “strong” industry production and high inventory levels. “We continue to confront very weak industry ethanol margins,” Chief Executive Officer Juan Luciano said on a conference call with analysts.

The company is focused on improving the competitiveness of its dry mills, which produce ethanol, and it’s constantly reviewing the future of those operations, Luciano said on the call. If ADM can’t improve its costs or compete in the U.S., it will “look at various alternatives to maximize shareholder value,” he said. ADM is the country’s largest ethanol producer.

“We will probably need to make a decision,” Luciano said. “At this point, we are not there yet.”

Among the company’s other businesses, oilseeds posted higher earnings. However, within that segment, crushing and origination profit was down. In agricultural services, which is ADM’s largest unit by revenue, profit slid 52 percent, primarily because of a one-time $156 million gain a year earlier. The unit also saw slightly lower income from the merchandising and handling of agricultural commodities.

Ample Supplies

North American corn and wheat exports were less competitive in the period. Ample global grain supplies and Brazilian farmers motivated to sell because of the weaker real limited the competitiveness of North American exports. That also lowered barge freight rates in North America, reducing ADM’s earnings from transportation.

While ADM has tried to expand its geographic footprint in recent years, particularly to serve growing markets in Asia, most of its long-term assets are still located in the U.S., according to data compiled by Bloomberg. Exports of corn from Sept. 1, when the 2015-2016 marketing year began, through Oct. 22 fell 28 percent from a year earlier, according to the U.S. Department of Agriculture.

ADM’s per-share profit was 41 cents in the quarter, down from $1.14 a year earlier.

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