Shares of Archer Daniels Midland Company (ADM: Charts, News) closed down -1.40 or -5.09 percent on Tuesday to $26.09 per share, after the company announced second quarter earnings had declined by 25 percent over the same period one year ago. The company cited tighter U.S. crop supplies and lower margins from its ethanol unit as the main culprits in the earnings decline.
Further shortages of soybeans and corn are expected due to the extreme drought conditions the Midwest is currently experiencing. Despite the adverse conditions in the United States, ADM is confident in its global network of storage and shipping facilities to make up for the shortfalls.
Decatur, Illinois based Archer Daniels Midland is one of the world’s largest food processors and commodity trading companies, operating processing plants worldwide. The company also owns storage facilities and trucking and transportation companies.
On Tuesday, the company announced non- adjusted earnings for the company’s second quarter of $284 million or $0.43 per share, versus $381 million or $0.58 per share in the same quarter one year ago. Adjusted earnings declined to $0.38 per share, versus $0.69 per share for Q2 2011.
Revenue for the quarter dropped slightly to $22.68 billion, versus $22.87 billion in the same period last year. Analysts polled by Thomson Reuters were expecting earnings of $0.60 on revenue of $21.75 billion.
In addition to the earnings news, Archer Daniels also announced the purchase of an export terminal in the northern Brazilian state of Para. The terminal, originally used for the export of minerals will be converted by ADM for use as a grain and storage port.
In a conference call with analysts after the earnings release, ADM CEO Patricia Woertz stated that, “In a challenging fourth quarter, solid results from our global oilseeds business, particularly in South America, were more than offset by negative U.S. ethanol margins and weaker U.S. merchandising results.”
Chief Operating Officer Juan R. Luciano stated that, “The South America harvest is beginning. While it will be big, it is forecast to be smaller than last year’s record harvest. This should maintain the current adequate global soybean supply. And in wheat, we see an ample global supply. While we don’t foresee significant crop dislocations, we’re monitoring the harvest in South America and crop conditions in the Black Sea region. Crops in distress in those regions could present opportunities for increased U.S. exports.”
While company brass expressed confidence in their global network of suppliers, the situation in the United States could still be a drag on earnings going forward. In addition, the company’s ethanol unit BioProducts results decreased $486 million to a loss of $206 million for the quarter, which could continue to weigh on future earnings as COO Luciano noted, “we expect poor spot ethanol margins to continue until supply and demand are rebalanced.”
Due to the coming shortages in U.S. corn and soybean supplies and continued lower ethanol margins, some analysts are pessimistic on the outlook for ADM stock. Nevertheless, ADM stock is already down more than 20 percent since mid May.
Other News About ADM
ADM: New Brazil Port Is ‘Faster, More Cost-Effective’ Export Corridor
Article on the acquisition of the port in northern Brazil by ADM.
Archer Daniels Midland’s CEO Discusses Q2 2012 Results
Text of the conference call after the earnings announcement.
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