ADM Battles Weak Prices, Strong Dollar
November 04 2015 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 11/4/15)
By Jacob Bunge
Archer Daniels Midland Co. posted steeper-than-expected declines
in quarterly sales and profit as the grain giant contended with
weak commodity prices and slowdowns in some emerging markets.
ADM's stock tumbled 6.8% on Tuesday, wiping out about $2 billion
in market value.
ADM, which besides being one of the world's top grain traders is
a major ethanol producer, has seen profit margins for the
corn-based fuel additive shrink in the face of lower oil
prices.
The U.S. dollar's rise against overseas currencies also has
restrained demand for ADM's exports of U.S. corn and other crops,
Chief Executive Juan Luciano told investors on a post-earnings
conference call.
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. The drop in oil
prices has made gasoline cheap and limited the premiums that ADM
and other ethanol producers can charge for the fuel additive, which
typically accounts for about 10% of gas content at U.S. fuel
pumps.
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 crimped the competitiveness of
its U.S. grain exports. The Chicago-based 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 damped profits in ADM's newly established
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, which maintains the largest U.S.
production capacity for ethanol, is working to make its plants more
efficient. He also expressed hope that foreign buyers such as China
will buy more U.S. ethanol.
ADM is taking a close look at 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."
Overall, ADM posted third-quarter earnings of $252 million, 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 from 86 cents a year earlier. Revenue
slid 8.6% to $16.57 billion. Analysts had projected per-share
earnings of 70 cents on revenue of $17.77 billion.
---
Chelsey Dulaney contributed to this article.
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(END) Dow Jones Newswires
November 04, 2015 02:47 ET (07:47 GMT)
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