UPDATE: Archer Daniels Midland 2Q Net Down 89% On Writedown, Oilseed Margins
January 31 2012 - 10:07AM
Dow Jones News
Archer Daniels Midland Co.'s (ADM) fiscal second-quarter
earnings plummeted 89% as the grain handler posted a large
writedown related to a bioplastics joint venture and trading
profits declined amid global market volatility.
Overall revenue rose, but the company saw earnings fall in three
of its major segments. The company's shares fell 2% to $29.08.
"It was a tough quarter, particularly for comparisons," Chief
Executive Patricia Woertz said. "The operating environment was
challenging.
The Decatur, Ill., grain trader and processor reported a 63%
drop in its agricultural services division, which buys, stores and
sells grain around the world. ADM and other grain merchandisers,
particularly privately held Cargill Inc., have struggled due to
volatile global financial markets, fueled in part by Europe's debt
crisis. The volatility has at times caused commodity prices to
disregard underlying supply and demand dynamics, undermining a key
advantage for large grain traders.
The company also noted that U.S. exports were weaker, and noted
its agricultural services segment had an "exceptionally strong
period" a year earlier.
The weakening grain merchandising results added to the
challenges ADM has already been facing with excess oilseed
processing capacity, which has depressed margins across the
industry, and higher net corn costs.
The oilseeds processing segment's profit fell 22% versus a year
ago amid weak global oilseed crushing margins, particularly in
Europe, while processing volume grew 4.6%. Chief Operating Officer
Juan Luciano said the company is reducing its oilseed processing
rates in Europe in response.
The corn-processing business swung to a loss of $133 million,
due to a $339 million writedown related to its announcement that it
was pulling out of an Iowa bioplastics joint venture with Metabolix
Inc. (MBLX).
Earlier this month, ADM said it would cut 1,000 jobs, or 3% of
its work force, highlighting the challenges faced by the
agribusiness sector as market volatility cuts into trading profits.
The layoffs, the company has said, are expected to save about $100
million annually and help boost its international
competitiveness.
Woertz said Tuesday she was optimistic that the operating
environment would improve, but the company also noted that ethanol
margins, which had been strong in the second quarter, eroded amid
excess production and reduced exports. Luciano said that producers
ramped up their output after seeing strong margins early in the
quarter, creating excess supply.
For the quarter ended Dec. 31, the company posted a profit of
$80 million, or 12 cents a share, from $732 million, or $1.14 a
share, a year earlier. Revenue increased 11% to $23.31 billion.
Analysts surveyed by Thomson Reuters expected earnings of 76
cents on revenue of $22.82 billion.
Adjusted earnings excluding an accounting method called LIFO and
other items fell to 51 cents from $1.20.
--By Ian Berry, Dow Jones Newswires; 312-750-4072
--Ben Rubin contributed to this report.
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