Archer Daniels Sees Bumper Crops -- WSJ
August 03 2016 - 2:03AM
Dow Jones News
By Jacob Bunge
Commodities giant Archer Daniels Midland Co. projected a bumper
North American corn and soybean crop and said a more-stable U.S.
dollar would help revive grain-trading profit after second-quarter
profit fell.
The Chicago-based company is positioning to export an
anticipated wave of U.S. crops, which executives said could outpace
government projections, after damage to South American harvests
stemmed that region's flow of grains in recent months.
Juan Luciano, ADM's chief executive, told investors market
conditions were beginning "to turn" after a challenging year so
far.
ADM and its chief rivals in global grain markets, including
Cargill Inc., Bunge Ltd. and Louis Dreyfus Co., have been
navigating renewed volatility in trading and processing crops such
as corn, soybeans and wheat. The swings, driven by currency shifts
and bouts of uncooperative weather in South America, have created
opportunities for profitable trading but have also crimped some
South American grain exports and dented processing margins.
For the second quarter, ADM reported a 26% decline in net
income, undershooting analysts' expectations. Shares fell 2.8% to
$43.02, but remain 17% higher this year.
Challenges in ADM's grain-trading and ethanol operations
pressured its earnings, and while ADM executives projected
conditions improving, they said the company aims to press ahead in
reducing costs and emphasizing higher-profit businesses. ADM is in
talks with suitors for a potential deal involving some of its U.S.
ethanol facilities, Mr. Luciano said, as the company seeks to
improve its biofuels returns.
ADM, the largest U.S. ethanol producer in terms of capacity, has
made presentations to seven potential partners for a deal that
could involve a sale of the company's three ethanol-producing dry
mills, executives said, and bids are anticipated by the end of
August. ADM could sell the mills, set up a joint venture or pursue
some other structure, ADM Chief Financial Ray Young said, though if
ADM were offered a good price it is "highly unlikely" ADM would
keep them.
The company scaled back its ethanol production in the second
quarter in response to weak profit margins and high inventories of
the corn-based fuel additive, though ethanol stockpiles declined
toward the end of the quarter, Mr. Luciano said.
In ADM's agricultural services division, which trades grain with
food companies and governments around the world, the U.S. dollar's
stabilization against the currencies of rival breadbasket companies
puts ADM in a stronger position to sell U.S. crops on global
markets over the second half of 2016, Mr. Young said. The unit is
ADM's biggest source of revenue.
Weather problems, particularly in Argentina, slowed a wave of
crop exports from South America and global demand remains "very,
very strong, " Mr. Young said. Those factors put ADM on better
footing for the remainder of the year, with U.S. corn, soybeans and
wheat harvests potentially outpacing what U.S. Department of
Agriculture forecasters already have predicted will be a record
U.S. corn crop and the third-largest soybean harvest in
history.
For the second quarter, ADM earned $284 million, or 48 cents a
share, down from $386 million, or 62 cents a share, a year prior.
Excluding gains on sales and other special items, per-share
earnings fell to 41 cents a share from 60 cents a year before.
Revenue slid 9% to $15.63 billion. Analysts projected per-share
earnings of 45 cents on revenue of $16.97 billion.
--Joshua Jamerson contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
August 03, 2016 02:48 ET (06:48 GMT)
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