ADM Shares Surge on Better-Than-Expected Profit

Archer Daniels Midland, a major food processor, reported higher-than-expected quarterly profit on Tuesday, overcoming weakness in the ethanol business and sending its shares up as much as 9 percent.

Earnings rose on strength in sweeteners, starches, oilseed processing and grain merchandising. Those divisions offset a 48 percent drop in profit from bioproducts, which includes ethanol.

Ethanol plants around the country have seen profits plummet due to higher prices for corn and lower prices for ethanol, an alterative fuel made from corn in the United States.

"ADM's performance provides greater evidence that ADM is not simply an ethanol company or a one-trick pony, but an agriculturally diversified business that should generate sustainable growth, albeit lumpy on a quarterly basis," analyst Kenneth Zaslow of BMO Capital Markets wrote in a research note to investors.

ADM's net income in its fiscal first quarter ended Sept. 30 rose to $441 million, or 68 cents per share, from $403 million, or 61 cents per share, a year earlier.

The latest results included a charge of $23 million for an organizational realignment and job cuts in management that will save $22 million a year going forward.

Excluding special items, earnings were 71 cents per share, beating analysts' average forecast of 59 cents, according to Reuters Estimates.

Revenue rose 36 percent to $12.83 billion. Analysts on average had expected $10.65 billion.

Commodity Prices Boost Results

ADM said a sharp rise in commodity prices accounted for about 75 percent of the sales increase, with the rest coming from higher volumes of vegetable oil and wheat.

In September, wheat futures at the Chicago Board of Trade reached an all time high of $9.61-3/4 a bushel in the spot contract, more than double year-earlier prices. Meanwhile, corn futures have risen about 50 percent.

For the first time, ADM disclosed the volumes of oilseeds, corn, wheat, cocoa and malt that it processed in the quarter.

Volumes totaled 13.77 million tonnes in the first quarter, up 1.1 percent from the prior quarter. No year-earlier comparison was given.

Ethanol Struggles with Corn Costs, Competition

ADM, the second-largest U.S. ethanol producer behind privately held POET, has struggled with higher corn prices and competitors opening new plants.

U.S. ethanol production capacity has risen 30 percent this year to more than 7 billion gallons and is expected to grow to nearly 13 billion gallons next year.

Ethanol prices have tumbled by about $1 per gallon over the past seven months, hitting a low of about $1.65 a gallon in mid-October and pushing margins for producers to near break-even or worse. Prices have since rebounded to about $1.75.

ADM Chief Executive Patricia Woertz told analysts on a conference call that southeastern states such as Florida, Georgia and Tennessee should start blending more ethanol with gasoline going forward.

ADM shares were up $2.62 to $37.14 in midday trade on the New York Stock Exchange after rising as high as $37.67 earlier in the session.

ADM has outperformed the food-processing sector this year.

At Monday's close, ADM shares had risen 8 percent this year, compared with a 1.7 percent rise in the Dow Jones U.S. food producers index.