ADM Broadens Revamp After Weather, Trade Challenges -- Update
April 26 2019 - 12:22PM
Dow Jones News
By Micah Maidenberg
Archer Daniels Midland Co. is expanding restructuring efforts as
the agricultural company works to rebound from challenges due to
bad weather and trade tensions.
The Chicago-based company on Friday said it plans to close aging
flour mills, cut production of high-fructose corn syrup and prepare
ethanol operations for a potential spinoff. Previously ADM had said
it would reduce staff and streamline global operations.
Biting cold and damaging floods cut ADM's first-quarter
operating profit by $60 million, the company said, disrupting rail
traffic, temporarily shutting a Nebraska corn plant and boosting
costs for other facilities.
Overall, ADM's quarterly profit fell 41%. Shares fell more than
2% in recent trading.
ADM and other global agricultural companies have faced several
years of low crop prices that have slimmed commodity-trading
margins. Over the past year, trade disputes have also disrupted
agricultural export flows. In February, ADM reported a 60% drop in
its prior quarterly earnings, after Chinese tariffs on U.S. crops
reduced soybean exports and pushed down ethanol processing
margins.
ADM Chief Executive Juan Luciano on Friday reiterated optimism
that the U.S. and China would resolve their trade dispute this
year. He said Chinese grain importers already were preparing to
resume purchases, as they drew down existing supplies and reviewed
purchase contracts with ADM.
"Everybody is inching toward a deal in the summer," Mr. Luciano
said.
Rival grain merchant Bunge Ltd. is pursuing its own revamp,
evaluating its portfolio for potential divestitures and replacing
executives, including its CEO. Other agricultural companies,
including Cargill Inc. and Louis Dreyfus Co., have shuffled grain
and supply chain executives in recent weeks. ADM last week
appointed a new grain-trading head.
ADM executives said the company plans to reduce capital spending
by 10% this year. It is creating an ethanol subsidiary that will
report results as an independent business unit, allowing the
company to potentially spin off the business to existing
shareholders. Profits from the corn-based fuel additive have
slumped by about 25 cents a gallon in recent months as inventories
climbed and foul weather increased production costs, executives
said.
ADM plans to cease high-fructose corn syrup production at its
Marshall, Minn., plant, shifting instead to starches and other food
and industrial products for which Mr. Luciano said demand is
stronger.
ADM also said it would close several century-old wheat mills,
sell some grain-storage facilities and overhaul its peanut
operations. Overall, ADM aims to save $1.2 billion in annual
expenses.
China's eight-month struggle with African swine fever, prompting
the destruction of millions of hogs in the world's largest
pork-producing nation, is set to boost ADM, Mr. Luciano said. Hog
farmers in the U.S., Europe and Brazil are preparing to expand
their herds to supply pork to China, requiring more corn, soybean
meal and other feed ingredients that ADM supplies, he said.
ADM reported a first-quarter profit of $233 million, or 41 cents
a share, down from $393 million, or 70 cents a share, a year
earlier.
After adjustments, the company recorded earnings of 46 cents a
share, weaker than the 60 cents a share analysts predicted.
Sales fell 1% in the quarter ended March 31 to $15.3 billion.
Analysts expected $15.57 billion in sales, according to
FactSet.
--Micah Maidenberg contributed to this article.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
April 26, 2019 12:07 ET (16:07 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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