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ADM Profit Tops Estimates on Soybean-Processing Gains

October 30, 2012

Archer-Daniels-Midland Co. (ADM:US), the world’s largest corn processor, reported fiscal first-quarter profit that beat analysts’ estimates because of improvements in its soybean-processing business.

Net income (ADM:US) fell 60 percent to $182 million, or 28 cents a share, in the three months through September from $460 million, or 68 cents, a year earlier, the Decatur, Illinois-based company said today in a statement. Profit excluding a charge for a planned divestment of Mexican tortilla-maker Gruma SAB and other one-time items was 50 cents a share, exceeding the 44-cent average of eight estimates (ADM:US) compiled by Bloomberg.

“The biggest driver is the more balanced oilseed environment,” Ann Gurkin, a Richmond, Virginia-based analyst for Davenport & Co. who rates the shares a buy, said today in a telephone interview.

Operating profit at the unit that processes soybeans and other oilseeds almost tripled to $336 million.

The company’s domestic soybean operations “delivered very strong results” on U.S. demand and meal exports in the first quarter and European soybean and rapeseed crushing earnings improved, Patricia Woertz, ADM’S chairman and chief executive officer, said in the statement.

While the oilseed unit is ADM’s second-biggest (ADM:US) business by revenue, it was the largest contributor to profit in the fiscal year through June.

U.S. Drought

Sales declined 0.4 percent to $21.8 billion, still topping the $21.4 billion average estimate. Net income dropped from a year earlier on losses in ethanol and smaller crops as the worst U.S. drought in five decades reduced merchandising and handling volume. The drought cut the corn crop to a six-year low and increased average prices in the calendar third quarter by 12 percent from a year earlier.

Operating profit in the corn-processing segment fell 63 percent to $68 million, and declined 76 percent in the agricultural-services segment to $78 million, the company said today.

“Our first-quarter segment results were mixed,” Woertz said. “Oilseeds performance was strong, the ethanol industry experienced sustained negative margins, and agricultural services managed well through a complicated quarter, challenged by the drought.”

The company, which got 52 percent of sales (ADM:US) from the U.S. in fiscal 2012, is trying to expand overseas to tap new sources of grain to meet rising demand in Asia.

Asian Demand

ADM, which has 74 percent of its long-term assets in the U.S., increased its stake in GrainCorp Ltd. (GNC), the biggest grain handler in eastern Australia, to 15 percent this month and said it was seeking talks with the company to reach an acquisition agreement.

ADM said last week it reached a preliminary agreement with Mexican businessman Fernando Chico Pardo to sell its 23 percent stake in Gruma.

The company is “doing the right things” for the long term by increasing its footprint overseas to rely less on North America and selling assets such as Gruma that aren’t core to its business, said Bryan Agbabian, a San Francisco-based portfolio manager and sector head of agricultural equities for RCM Capital Management LLC, which owns 4.33 million ADM shares. RCM is a unit of Germany’s Allianz SE. (ALV)

Allocating Capital

Still, ADM needs to be disciplined in allocating capital and focus on shareholder returns, Agbabian said today in a telephone interview.

ADM is reviewing the timing of its share repurchases given the potential GrainCorp acquisition, ADM Chief Financial Officer Ray Young said today on a conference call with analysts.

“As a shareholder, you’d like them to continue repurchasing shares,” Agbabian said. It’s too early to know what returns ADM may see on GrainCorp, he said.

ADM rose 0.2 percent to $27.05 in New York on Oct. 26, the last day of regular trading since U.S. equity markets were closed because of the approach and impact of Hurricane Sandy. The shares (ADM:US) have declined 5.4 percent this year.

To contact the reporter on this story: Shruti Singh in Chicago at

To contact the editor responsible for this story: Steven Frank at

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