By Michelle Hackman
Archer Daniels Midland Co. said second-quarter earnings fell
more than expected as the grain trader and processor was buffeted
by lower ethanol-production margins and sluggish overseas demand
for North American crops.
ADM, among the world's largest agribusinesses and a major
ethanol producer, said Tuesday that record U.S. production of the
corn-based biofuel curbed profit margins in the second quarter by
pushing down prices. The Chicago company also faced weakness in its
grain-trading business as a strong U.S. dollar and large crops in
South America crimped export demand for North American grain.
Chief Executive Juan Luciano expressed optimism about the second
half of the year, saying favorable weather in much of the U.S. Farm
Belt in recent weeks should lead to large crops this autumn. The
company, which buys grains, oilseeds and other commodities from
farmers, typically benefits from big harvests because they provide
more supplies at lower prices that it can process and sell to food
producers and livestock operations.
"We plan to move a very strong harvest through our facilities,"
Mr. Luciano said on a conference call with investors. "We expect a
very strong second half" in agricultural services.
ADM shares rose 2% to $48.66 in early afternoon trading. The
company delivered a better quarter than rivals like commodity
trader Bunge Ltd. and ethanol specialist Green Plains Inc., both of
which reported sharper profit declines in the past week.
Profit in ADM's corn-processing business declined to $204
million in the three months ended June 30, from $338 million a year
earlier. "Domestic and export demand for ethanol was robust, but
record industry production limited margins," Mr. Luciano said.
"This was partially offset by strong results for our corn
sweeteners and starches business."
Mr. Luciano said on the earnings conference call that ADM is
looking for opportunities to maximize profit margins in ethanol
rather than sales volumes.
Profit in ADM's agricultural-services segment fell to $152
million from $184 million a year earlier. A late-quarter spike in
grain futures prices sliced $25 million from ADM's trading revenue,
though prices quickly bounced back, according to Mr. Luciano.
ADM executives expect the core grain-trading operations to
rebound as benevolent weather is easing concerns about U.S. corn
production this year.
Mr. Luciano said ADM is paying particularly close attention to
recent reports over the past week that the Chinese government will
ease its price-support program for corn farmers after the country's
grain supplies have swelled, a move that some analysts see would
release large supplies of Chinese corn to world markets. That
"would probably bode well for our business," Mr. Luciano said.
ADM's oilseed-processing business marked a bright spot in the
second quarter, posting earnings of $344 million, up from $280
million a year ago. The boost was largely driven by low soybean
prices and large soybean exports from South America, where ADM has
facilities.
Overall, the company posted earnings of $386 million, or 62
cents a share, down from $533 million, or 81 cents a share, a year
earlier.
Excluding special items, per-share earnings were 60 cents, down
from 79 cents a year ago.
Revenue fell to $17.19 billion from $21.49 billion.
Analysts had projected per-share earnings of 66 cents and
revenue of $20.87 billion.
Angela Chen contributed to this article.
Write to Michelle Hackman at Michelle.Hackman@wsj.com