Bloomberg News

ADM Profit Misses Estimates After U.S. Grain Exports Decline

February 01, 2012

(Updates with closing share price in fifth paragraph.)

Jan. 31 (Bloomberg) -- Archer Daniels Midland Co., the world’s largest grain processor, reported an 89 percent drop in second-quarter profit, missing analysts’ estimates, after a slump in U.S. grain exports cut earnings at its trading unit.

Net income fell to $80 million, or 12 cents a share, in the three months ended Dec. 31, from $732 million, or $1.14, a year earlier, the Decatur, Illinois-based company said today in a statement. Earnings excluding inventory costs and a charge related to ADM’s decision to quit a bio-plastics business were 51 cents a share. The average of 12 estimates compiled by Bloomberg was for 76 cents.

ADM, led by Chairman and Chief Executive Officer Patricia Woertz, has missed analysts’ estimates for three straight quarters. Operating profit at the agricultural-services unit, the company’s largest segment by revenue in fiscal 2011, fell 63 percent to $158 million after U.S. grain exports declined because of a smaller domestic crop and “adequate” global supplies, ADM said.

“The big miss was in agricultural services,” Ann Gurkin, a Richmond, Virginia-based analyst for Davenport & Co. who has a “buy” rating on the shares, said in an interview. “This miss pressures management and raises questions of really communicating clearly with investors and analysts.”

ADM dropped 3.6 percent to $28.63 at the close in New York. The shares have declined 12 percent in the past year.

Rising Grain Costs

ADM is the latest trader and processor of basic foodstuffs to report declining earnings. Cargill Inc., the largest closely held U.S. company and a competitor of ADM, said earlier this month its fiscal second-quarter profit fell 88 percent as the European debt crisis and political uncertainty weighed on commodity markets.

Sales at ADM rose 11 percent to $23.3 billion from $20.9 billion, beating the $23.2 billion average of six estimates.

The company’s corn-processing unit had a $133 million operating loss, compared with $399 million in operating profit a year earlier. Grain costs increased at a faster pace than prices and sales of sweeteners. The unit also took a $339 million impairment charge on the bio-plastics business, a joint venture with Metabolix Inc.

The oilseed processing unit’s operating profit fell 22 percent to $253 million on “continued weakness in global oilseeds crushing margins, particularly in Europe,” ADM said.

‘Pessimistic View’

“It was a tough quarter,” Woertz said in the statement. “Ongoing weakness in global oilseeds margins, lower results in corn and poor international merchandising results hurt our second-quarter profits.”

Investors have taken a “very pessimistic view” of grain processors, with the group trading as much as 50 percent below its 10-year historical average valuation, David Driscoll, a New York-based analyst for Citigroup Global Markets Inc. who has a “buy” rating on ADM shares, said in a report Jan. 24.

Cash prices for corn for immediate delivery to grain terminals in south central Illinois are fetching a premium over futures in January for the first time since at least 1975, according to a University of Illinois study on Jan. 27.

Growers holding on to their grain in on-farm storage bins or at local elevators have created a strong basis, the premium paid for immediate delivery over futures, Craig Huss, ADM’s chief risk officer, said during a conference call with analysts.

Strong Results

“The farmer has had fairly strong financial results over the past few years and he’s capable of holding and he’s been bullish,” Huss said.

Amid a “challenging environment,” ADM is taking actions to improve its long-term performance, Woertz said during the conference call. Efforts include a dividend increase in November and share repurchases.

ADM said Jan. 11 it will reduce its workforce by about 1,000, or 3 percent, to cut annual pretax expenses by more than $100 million. The company is allocating $1.4 billion for capital spending and $300 million for acquisitions in fiscal 2012, down from a previous forecast for a combined total of $2 billion.

--With assistance from Jeff Wilson in Chicago. Editors: Jessica Resnick-Ault, Steven Frank

To contact the reporter on this story: Shruti Singh in Chicago at ssingh28@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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