Weak demand weighs on ADM Q1 income
November 3, 2009
by Eric Schroeder
— Sluggish demand for crops and ethanol weighed on first-quarter earnings at Archer Daniels Midland Co. Net income in the first quarter ended Sept. 30 was $496 million, equal to 77c per share on the common stock, down 53% from $1,045 million, or $1.62 per share, in the first quarter of fiscal 2009. The $549 million decline in earnings was due in large part to a $402 million decrease in segment operating profit and the reduced impact on corporate results of the change in LIFO inventory valuations.
Net sales were $14,921 million, down 29% from $21,160 million in the same period a year ago.
“Earnings were significantly better than the second half of fiscal 2009,” said Patricia Woertz, chairman, president and chief executive officer. “As we advance our growth strategy, we are using our financial strength to build shareholder value. Looking ahead, we see demand improving in some key markets, and we have the assets and acumen to capture value as the global economy resets.”
Overall operating income fell 34% in the first quarter, as two of the company’s segments posted significantly lower year-over-year results.
Operating profit in the Oilseeds Processing segment was $284 million in the first quarter, down 44% from $510 million in the same period in fiscal 2009. The company said crushing and origination results decreased $204 million for the quarter due to lower production volumes resulting from a short global soybean supply. Refining, packaging, biodiesel and other results fell 34% in the quarter behind lower sales volumes in North America and reduced biodiesel margins in Europe and South America. Oilseeds results in Asia, meanwhile, rose 22% to $79 million, as ADM’s investments, principally the equity interest in Wilmar International Ltd., continued to perform well.
Agricultural Services operating profit was $175 million, down 59% from $428 million a year earlier. The loss was attributed to lower merchandising and handling results.
Corn Processing operating earnings in the first quarter rose to $188 million, up 59% from $118 million in the first quarter last year. Sweeteners and starches increased $129 million, or 198%, due to lower net corn and manufacturing costs and higher year-over-year average sweetener selling prices. Lower ethanol selling prices combined with low lysine selling prices and increased start-up costs related to ADM’s industrial chemicals and sugar businesses to drive a $6 million loss in the division’s Bioproducts division. This compared with operating income of $53 million in the same period a year ago.
The ADM Other segment posted operating profit of $127 million, up 6% from $120 million in the first quarter of fiscal 2009. Improved global wheat milling margins and Gruma S.A.B. de C.V. equity earnings boosted processing operations in the Other segment. Partially offsetting the gains were a decline in cocoa processing margins and sales volumes, according to ADM.
During the first quarter, ADM said it advanced its strategy to expand the size and global reach of its core model through several initiatives, including:
Beginning operations at a new cocoa processing facility in Kumasi, Ghana.
Acquiring five oceangoing vessels, totaling 250,000 tonnes of cargo capacity.
Acquiring an oilseed processing plant in Olomouc, Czech Republic.
Beginning production at a new ethanol plant in Columbus, Neb.
Completing construction of a cogeneration facility in Clinton, Iowa.
Beginning production at the company’s first sugarcane ethanol plant in Brazil.