ADM Profit Up, but Ethanol Worries Weigh on Stock
Worries that the U.S. government will repeal or soften mandates on blending ethanol with gasoline sent shares of Archer Daniels Midland down 4.7 percent Tuesday, even as ADM posted a 42 percent jump in quarterly profit.
The chief executive of ADM , a leading alternative fuel producer, defended the use of corn to make ethanol as food prices rise around the world, leading to riots and many countries limiting exports. There are growing calls for the United States to cut a tax credit of 51 cents a gallon for ethanol blenders and eliminate a tariff on ethanol imports.
"I actually find it sad, and even a little ironic, that this attack on biofuels is directed to the one alternative we have today," Chairman and CEO Patricia Woertz said on a conference call with analysts.
"Biofuels are a real solution to a real problem. To retreat from biofuels is wrong. It's foolish. It's dangerous. It's an empty gesture. It won't fill anyone's stomach. It won't fill anyone's gas tank," she added.
About 25 percent of U.S. corn is turned into ethanol, according to U.S. Agriculture Department estimates, and corn futures have risen 70 percent in the past year and hit record highs on increased demand to use the grain both as food and fuel.
Earnings jumped to $517 million, or 80 cents per share, for the third quarter ended March 31, from $362.9 million, or 56 cents per share, a year earlier. Analysts, on average, expected 70 cents, according to Reuters Estimates.
The futures trading desk in its agricultural services division helped boost earnings, even as record corn prices hurt profits from selling sweeteners, starches and ethanol.
"The trading desk benefited from a lot of the volatility in the market, and the risk management was in their favor," said Morningstar analyst Ann Gilpin. "The fear is that ADM is a large ethanol producer, and they're making less money on their ethanol sector."
Gilpin cited record high corn prices and government subsidies being in jeopardy.
About 10 percent of its profits this quarter came from ethanol, analyst estimated. ADM said its new ethanol plants will not start production until 2009 and 2010 due to weather problems and delayed steel shipments.
Revenue at the Decatur, Illinois-based company rose 64 percent to $18.71 billion, mainly on increased selling prices from record grain prices. Analysts expected $13.67 billion.
Profit at ADM's corn processing division, which makes sweeteners, starches and ethanol, fell 31 percent to $172 million due to higher corn costs.
Oilseed processing profit rose 28 percent to $237 million due to improved crush margins amid strong global demand for protein meal and vegetable oil.
Agricultural Services had an eightfold increase in profit to a record $366 million as volatile commodity markets presented what the company called "unprecedented opportunities." The division includes revenue from grain storage, transportation and trading.
Other operating profit rose 24 percent to $138 million, primarily due to favorable risk management results in wheat and malt that were partially offset by decreased cocoa processing margins.
ADM shares were down $2.25 at $45.17 on the New York Stock Exchange. Through Monday's close, they had risen 1.9 percent this year, compared with a 0.5 percent gain in the Dow Jones U.S. food producers index.