Bloomberg News

ADM Earnings Trail Analysts’ Estimates on Ethanol Loss

July 31, 2012

Archer Daniels Midland Co. (ADM:US), the world’s largest corn processor, reported fiscal fourth-quarter profit that missed analysts’ estimates as its ethanol business swung to a loss and the U.S. drought increases corn costs.

Net income (ADM:US) fell to $284 million, or 43 cents a share, in the three months through June from $381 million, or 58 cents, a year earlier, the Decatur, Illinois-based company said today in a statement. Profit excluding an inventory credit was 38 cents a share, less than the 58-cent average of seven estimates (ADM:US) compiled by Bloomberg. Sales declined 0.9 percent from a year earlier to $22.7 billion.

Profit fell in all three of ADM’s main units. (ADM:US) Bioproducts, part of the corn-processing unit, had an operating loss because of “negative ethanol margins,” ADM said. Profit in the agricultural-services segment, which buys, stores and sells crops, dropped 64 percent to $123 million because of lower U.S. supplies and exports. Drought in the Midwest has cut the potential size of the country’s coming corn harvest, ADM said.

“We expect the challenges to continue,” Ann Gurkin, a Richmond, Virginia-based analyst at Davenport & Co. who has a buy rating on the shares, said today in a telephone interview. “Raw-material costs definitely create cost pressures for ethanol. The drought is going to create challenges for agricultural services in the next couple of quarters.”

Ethanol Losses

The ethanol industry has been losing money this year with inventories at the end of June that were 4.2 percent more than a year earlier. Rising corn prices will keep ethanol margins in the red, Diane Geissler, a New York-based analyst for Credit Agricole Securities, said in a July 16 report.

ADM fell (ADM:US) 5.1 percent to $26.09 at the close in New York, the most since Sept. 22. ADM has declined 8.8 percent this year.

Four analysts in the past four weeks have reduced profit estimates for ADM’s fiscal 2012 and 2013 largely because of rising corn costs. Most-active corn futures in Chicago have gained more than 50 percent since mid-June, and surged to a record today, as the worst U.S. drought in five decades cuts crop conditions and threaten yields.

Earnings in the corn-processing segment unit fell 39 percent to $74 million as ethanol losses offset profit in sweeteners and starches. The unit uses the grain to make 24 different food, feed and fuel products while ADM’s oilseed- processing division crushes soybeans, canola and palm.

Oilseed-processing profit declined 26 percent to $331 million partly because of lower North American soft-seed crushing margins, the company said.

ADM’s agricultural-services unit is its largest (ADM:US) by sales while oilseed processing is the biggest by profit.

ADM today announced an agreement to purchase a port in Brazil’s Para state that will increase its capacity to export grain from western and northern parts of the country.

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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Companies Mentioned

  • ADM
    (Archer-Daniels-Midland Co)
    • $46.74 USD
    • -0.83
    • -1.78%
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