2nd UPDATE: Archer Daniels Midland's 2Q Earnings Fall Sharply
January 31 2012 - 1:57PM
Dow Jones News
Archer Daniels Midland Co.'s (ADM) fiscal second-quarter
earnings fell sharply on weakness at its grain-processing and
trading businesses and a charge from the shuttering of a
bioplastics venture.
The grain processor and merchandiser reported a decline in
earnings at its corn-and-oilseed-processing and grain-trading
units. The results were hurt by global volatility fueled by
Europe's debt crisis and weakness in oilseed processing due to
excess plant capacity.
The weak results echoed recent performance by privately held
Cargill Inc., and could be a harbinger of difficulty for others in
the industry. Bunge Ltd. (BG), another large grain merchandiser,
reports earnings Feb. 9.
"It was a tough quarter," Chief Executive Patricia Woertz said.
"The operating environment was challenging."
The company's shares were down 4.9% to $28.26 recently Tuesday
afternoon as its earnings came in well below analysts' expectation
for the quarter.
ADM reported a 63% drop in earnings in its agricultural-services
division, which buys, stores and sells grain around the world.
"We haven't seen the opportunities that we have in the past,"
said Craig Huss, ADM senior vice president and chief risk
officer.
Large grain merchandisers typically benefit from some
volatility, as it gives them a chance to take advantage of their
storage capacity and price differences around the globe. But when
price swings are driven by factors such as Europe's debt crisis
rather than underlying grain supply and demand fundamentals,
merchandisers lose one of their key advantages.
The weakening grain-merchandising results added to the
challenges ADM already has been facing with excess
oilseed-processing capacity, which has depressed margins across the
industry, and higher net corn costs. ADM's oilseed profit fell 22%
compared with a year earlier on weak global processing margins,
particularly in Europe, while volume rose 4.6%.
The corn-processing business swung to a loss of $133 million,
due to a $339 million write-down related to ADM's announcement
earlier this month that it was pulling out of an Iowa bioplastics
joint venture with Metabolix Inc (MBLX). Chief Operating Officer
Juan Luciano said ADM recently concluded that potential returns on
the venture, formed in 2006, didn't justify continued
investment.
Woertz said she was optimistic the operating environment would
improve. But the company said soybean-processing margins aren't
likely to rebound soon and ethanol margins, which had been strong
early in the second-quarter, are now weak thanks to excess
production and reduced exports.
Still, ADM's struggles may be a sign of broader strength in the
agricultural economy rather than weakness, according to analysts at
Goldman Sachs. They wrote in a note to clients last week that
profits for ADM and Bunge typically climb when the farm economy is
weak, as processors "benefit from less competition and are better
able to flex their scale advantages." Currently, the farm economy
is "extremely flush," Goldman Sachs said.
Earlier this month, ADM said it would cut 1,000 jobs, or 3% of
its work force, following a similar announcement from Cargill.
ADM's job cuts, the company has said, are expected to save about
$100 million annually and help boost its international
competitiveness.
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 Fox Rubin contributed to this article.
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