ADM sees drop in third quarter financials

By Aerin Einstein-Curtis contact

- Last updated on GMT

ADM sees drop in third quarter financials

Related tags: Archer daniels midland, Generally accepted accounting principles, Us

Compared to this time last year, Archer Daniels Midland Company (ADM) has seen a big drop in its operating profits and net earnings for the third quarter.

Net earnings for the quarter were $252m, down from $747m in 2014, officials said, and gross profit dropped from about $1.47bn in 2014 to $1.09bn.

The Chicago-based company saw a weaker third quarter than the same time frame in 2014 for several reasons said Juan Luciano, ADM CEO during Tuesday’s release of the company’s third quarter financial statement. “Ag services earnings were limited by lower margins and volumes of North American exports, due to the continued strength of the US dollar and ample global crop supplies, particularly from South America.

Sector details

In the corn sector, the company saw challenges from weak ethanol margins, said Luciano. Both sweeteners and starches had tight supplies. Domestic shipping was flat and exports were down with decreased demand for dried distillers grains, he said. 

Corn processing operating profits dropped from about $341m to $165m.

The agricultural services sector saw a decrease of $5m from this time last year, predominately from North American export margins and volumes, company officials said.

"In oilseeds, good global meal demand again supported soy crushing results, and solid origination volumes contributed to our South American operations, while continued weak oil demand, particularly outside the US, weighed on our softseeds business,” ​said the CEO.

However, the operating profit for oilseeds dropped by $72m from last year. 

Additionally, the wild flavors and specialty ingredients (WFSI) division was negatively impacted by "macroeconomic headwinds,”​ said the CEO. These included weak demand from some economies and the strong US dollar.

Industry comparisons

ADM wasn’t the only agri trader that saw challenges this year. In September, Louis Dreyfus reported a 50% drop in first-half profit from lower commodity prices and economic challenges in markets such as China and Brazil. 

Minnesota-based Cargill, however, may be avoiding the trend. The company reported a 20% growth in profits for the first quarter of its 2016 fiscal year, though revenues had slipped.   

What’s next?

However, there is the expectation that some sector results will improve in the fourth quarter, said Luciano.

“We have a large US harvest in front of us, and the US crop will eventually move to the world markets which will benefit our ag services business,”​ Luciano said in a call on the quarter’s results​. “In corn, the sweetener balance sheet should remain tight while ethanol industry margins will move based upon supply and demand dynamics. In oilseeds, global demand for protein remains strong, and we're watching Asia palm and soybean oil production and Brazilian biodiesel legislation, which could improve the global vegetable oil balance sheet.”

The company has opened offices in El Salvador and Guatemala and recently purchased Lyrco Nutrition, a feed business that serves the dairy and swine markets in Quebec, he said.

“We continue to execute our strategic plan,” ​said Luciano. “Among other actions, we've closed on the sale of the global cocoa business, acquired Eatem Foods, and closed the Eaststarch transaction. We're also making strong progress in driving operational efficiencies, which will further enhance our cost position.

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