By Jason Simpkins
Soaring sales in its oilseeds businesses helped Archer Daniels Midland Co. (ADM) overcome fiscal-first-quarter sluggishness in its traditionally strong ethanol business, enabling the worldwide-food-processing powerhouse to surprise Wall Street.
The Decatur, Ill.-based ADM saw its shares soar Tuesday after reporting that profits for the quarter ended Sept. 30 were $441 million, an increase of 9.4% over profits of $403 million reported for the comparable quarter the year before. The company earned 68 cents per share – a stunning 15% better than the Wall Street consensus of 59 cents.
Net sales and other operating income increased 36% to $12.8 billion. The worldwide commodities boom which increased ADM's selling prices accounted for about 75% of the increase, while higher sales volumes – principally vegetable oil and wheat – accounted for the remaining 25%, .
Increased sales were spearheaded by the company's oilseed-processing business, which more than compensated for sluggishness in the ethanol market where ADM has been such a strong player. Oilseeds processing sales reached $209 million, a jump of 22.9% from sales of $170 million in the comparable quarter last year. The division processes oils and fats from plants, which in turn can be used in food and fuel. An increased demand for protein meal and oil has driven demand worldwide.
"Where excellent first quarter earnings of a year ago reflected steep growth in the ethanol market, our record first quarter earnings this year demonstrate our strengths in sweeteners and starches, oilseed processing, and our global capabilities in grain merchandising and handling," said ADM Chief Executive Officer Patricia Woertz.
An increase in the price of corn has coincided with a decline in the value of ethanol, doing significant damage to a once profitable market. Corn, which traded as low as $3.09 a bushel earlier this year, now trades for over $3.70.
"In the United States, the federal government is the market-maker for ethanol, utilizing tax credits, sugar tariffs, and mandates for ethanol use," said Ann Gilpin, an analyst at Morningstar.
Added Gilpin: "As a result of these incentives, a rush of ethanol producers have come online, and the influx has led to a glut, which has pulled down ethanol prices."
Shares of ADM closed down 42 cents each, or 1.14% , $36.47 yesterday.
News and Related Story Links:
- Money Morning:
Third-Quarter Earnings Seesawed By Commodity Spikes, Credit Woes, International Growth
- Money Morning:
Agri-Biotech Monsanto Buys Brazilian Corn-Seed Company
- PR Newswire: