ADM Archer Daniels Midland Company

By Jacob Bunge 

Archer Daniels Midland Co. posted steeper-than-expected declines in quarterly sales and profit as the grain giant struggled against weak commodity prices and slowdowns in some emerging markets.

ADM shares tumbled 9% in midmorning trading Tuesday following the disappointing results, wiping out about $2.5 billion in market value.

ADM, among the world's top grain traders and a major ethanol producer, is grappling with lower oil prices that have slashed profit margins for the corn-based fuel additive. The U.S. dollar's rise against overseas currencies also has softened demand for ADM's exports of U.S. corn and other crops, Chief Executive Juan Luciano told investors on a post-earnings conference call.

Ethanol makers like ADM, which maintains the largest U.S. production capacity for the biofuel, over the past year have seen profit margins dwindle after a sharp drop in the price of crude oil. That decline has made gasoline cheap and limited the premiums that ethanol producers can charge for the fuel additive, which typically accounts for about 10% of gas content at U.S. fuel pumps.

ADM, which warned investors earlier this year about tougher conditions in the ethanol business, reported that third-quarter operating profit in its ethanol-producing division dropped 78% to $40 million, the biggest decline among ADM's units.

Slowing overseas economies buffeted ADM's grain trading and oilseed divisions. The sliding Brazilian real encouraged farmers there to sell their grain, Mr. Luciano said, which provided a boost to ADM's Brazilian crop traders but diminished the competitiveness of its U.S. grain exports. The Chicago company maintains its biggest grain-terminal and shipment network in the U.S.

Operating profit in ADM's oilseeds business fell partly due to diminished European demand for vegetable oils, and the strengthening U.S. dollar dampened profits in ADM's newly set up division focused on flavorings and specialty ingredients.

"The macroeconomic [impact] was greater than we expected," said Mr. Luciano, who took over as ADM's CEO in January.

ADM and other big commodity-trading firms are trying to navigate economic turbulence in developing parts of the world, which has driven rapid shifts in currency values and commodity demand. Bunge Ltd. last week reported a steeper-than-expected decline in quarterly profit due to weaker results in vegetable oil and grain milling. Cargill Inc. posted a 20% increase in profit, boosted by well-timed trading in agricultural commodities, the company said.

Mr. Luciano said ADM is working to make its ethanol plants more efficient and hopeful that foreign buyers such as China will buy more U.S. ethanol, helping to lift overall demand for the biofuel by an estimated 1% to 1.5% next year.

ADM is focused on improving the efficiency of its two dry mills--which process corn into ethanol and byproducts used as animal feeds--and Mr. Luciano said that if ADM discovers the plants can't "compete in a more challenging U.S. ethanol environment," the company would "look at various alternatives to maximize shareholder value."

"At this point we are not there yet," he said.

Overall, ADM posted earnings of $252 million for the quarter ended Sept. 30, or 41 cents a share, down from $747 million, or $1.14 a share, a year earlier. The quarter included $65 million in impairment, exit and restructuring costs.

Excluding those charges and other special items, per-share earnings fell to 60 cents a share from 86 cents a year earlier.

Revenue slid 8.6% to $16.57 billion.

Analysts had projected per-share earnings of 70 cents a share on revenue of $17.77 billion.

Chelsey Dulaney contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com

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(END) Dow Jones Newswires

November 03, 2015 12:16 ET (17:16 GMT)

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