ADM posts profit, but shares plummet on margin squeeze

Archer Daniels Midland Co. repPhoto from Archer Daniels Midland Co.orted a 37 percent profit increase for its third quarter Tuesday, boosted by strength in its oilseeds division. But the company faced headwinds with high commodity prices that compressed profit margins on its sweeteners and agricultural products.

The Decatur, Ill.- based company reported net earnings rose to $578 million, or 86 cents per diluted share, for the quarter ended March 31, compared with $421 million, or 65 cents per diluted share, for the same period last year.

Earnings nearly matched the analysts’ consensus expectation of 85 cents per share, according to a survey by Zacks Investment Research.

Patricia Woertz, ADM chairman and CEO, said the company performed “very well” in light of volatile commodity prices, “a challenging margin environment” and  political instability in the Middle East, North Africa and cote d’Ivoire.

But investors were apparently not satisfied with profits at the giant grain processor and ethanol producer, with shares of the company falling 6.7 percent Tuesday to close at $34.51.

“The drop on corn processing was the main reason for profits to disappoint,” said Min Tang-Varner, securities analyst for Morningstar Inc.

The company’s operating profit of $46 million for sweeteners and starches was flat even though there were some price and volume increases in the quarter, plus demand remained high.  But ADM did not successfully pass off rising corn prices onto consumers, she said.

The company also delivered a dismal bump in the operating profit for its agricultural services, its largest unit, with only a 3.6 percent increase from the same quarter last year.  This was mainly because of volatile commodity prices, the tsunami in Japan, which is a major grain importer, and unrest in Cote d’Ivoire.

ADM’s sales received a boost from increased global demand, rising 32.6 percent to $ 20.08 billion in the quarter from $14.15 billion a year ago.  The company’s oilseeds processing unit delivered the strongest results with a 26 percent profit jump to $512 million.

Looking forward, the company will continue to face volatile commodity prices and low ethanol margins, said Min Tang-Varner. But ADM does have price increases taking effect in the upcoming quarter, which will help absorb high commodity prices.

ADM expects global demand to remain high and continues to monitor the planting and growing season in North America and Europe.

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