Rising Corn Prices Weigh on ADM

Shares of the ethanol producer sagged Tuesday after it reported lower-than expected profit growth

Agricultural processor Archer-Daniels-Midland ADM has gotten a lot of mileage from the ethanol boom recent months. But the Decatur, Ill. company on May 1 announced disappointing profits, as the cost of corn rose and its agricultural services business suffered.

To be sure, the company's net earnings still increased 4% year over year to $363 million during the three months ended March 31. "We performed well in a challenging quarter," said ADM CEO Patricia A. Woertz said in a press release May 1.

The results include a $33 million gain related to the sale of the company's Arkady food ingredient business. ADM's earnings amounted to 56 cents per share during the March quarter, while analysts surveyed by Thomson Financial had forecast 62 cents.

After the news investors sold the stock 6.3% to $36.26 per share in early afternoon trading on the New York Stock Exchange.

ADM still gets most of its revenue from turning food products like soybeans, corn, and wheat into animal feeds that farmers use. The company's agricultural services operating profits fell 48% year over year to $41 million, after suffering $39 million of losses related to the business units' merchandising and transportation operations.

It could have been worse. The company's sales gained 25% year over year to $11.4 billion in the March quarter. The consensus forecast had been for $9.65 billion revenue.

As the world searches more urgently for alternative fuel, ADM has been trying to also sell things like corn-based ethanol for fuel. In Sept. 2005, for example, ADM announced plans to build two new dry corn milling facilities next to its existing ethanol plants; the company hopes to expand its ethanol capacity by 500 million gallons by 2008. But ADM isn't the only one -- new rivals have been cropping up as the hype on ethanol crescendos. To name just a couple examples, the smaller ethanol outfits VeraSun Energy (VSE) and Aventine Renewable Energy (AVR) have gone public in recent months.

Even as surging demand pushes up the price of corn and ADM's costs, the company has been increasing the prices it charges on products processed from corn like starch, sweetener, and ethanol. ADM's corn processing operating profits increased 15% year over year to $252 million for the first quarter.

CEO Woertz continues to express optimism.

"We are particularly pleased with continued strong performance in our corn processing segment," Woertz said in the press release May 1. She added that her outlook on future opportunities remains "quite strong."

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