Third quarter delivers lower results for ADM

By Aerin Einstein-Curtis contact

- Last updated on GMT

© iStock/PaoloBruschi
© iStock/PaoloBruschi
Archer Daniels Midland Company sees rocky third quarter reflected in earnings, but slight boost from animal nutrition, says CEO.

The Illinois-based company announced the results for its third quarter, which ended September 30, on Tuesday. The overall net earnings for the quarter were $192m, ADM reported.

The adjusted segment operating profit was $541m, which was a drop of about 17% from the third quarter of 2016, said Juan Luciano, ADM chairman and CEO on a conference call. The third quarter was more challenging than what was previously expected.

Total segment operating profit was $485m down from $645m for the same period in 2016, the company reported. The adjusted segment operating profit was $541m a fall from $650m for the earlier period.

“Our third quarter results were below our expectations, as the operating environment in our ag services and oilseeds businesses was more challenging than anticipated,”​ said Luciano. “Through the quarter, we took several actions to be even more competitive in the future, including: restructuring our global workforce; reconfiguring the Peoria ethanol complex; working to complete several operational start-ups; driving additional asset monetizations; and further reducing costs through our Project Readiness initiative.”

Ag and animal nutrition focus

On the segment level, corn processing saw positive development with operating profits moving from $214m in 2016 to $253m in 2017, said the company.

“Sweeteners and starches had a solid performance with strong margins bolstering the North America business and our international operations continuing to provide solid contributions to overall results,” ​said Luciano. Bio-products also had results that were improved from the same period in 2016.

“Animal nutrition was up over the previous year with specialty feed ingredients benefiting from an improving cost position despite lower amino acid prices,” ​he said.

However, results were not as positive for other areas, said Luciano. Agricultural services saw the operating profit fall from $195m in 2016 to $87m for the quarter that just ended.

The segment was negatively altered by a global lack of competitiveness for US corn and soybeans, he said. The lack resulted in a reduction in margins and a fall in export volumes.

Global trade had better results with positive earnings, though results did drop from the third quarter of last year, he said. There also was some benefit from international origination margins and destination marketing.

However, results for transportation fell from the previous year, influenced by a slow start to the harvest in North America and reduced barge freight volumes and margins, he said. The milling areas also saw declines from lower volumes. 

Similarly, in the oilseeds processing segment, operating profit was $145m for the third quarter of 2016 but was reduced to $119m in 2017, the company reported.

Reduced results were influenced by the operating environment, said Luciano. Global crush margins were compressed for oilseeds and there continued to be tight origination margins coming out of South America with large supplies of meal.

North America was influenced by weak canola margins and higher seed costs, he said. European efforts also dropped with competition from an increased amount of mill imports from Argentina.  

Q4 and beyond

Looking forward to the next quarter and into the start of 2018, the company is expecting to see investments made in several acquisitions and new facilities transition and start providing financial benefits to the company, said Luciano. It also should be a time of reduced capital spending.

These efforts include an expansion of capabilities in Germany to address increased demands for non-GMO soybean products and upgrades to milling facilities in the Midwest, he said.

“In ag services, we expect solid North American soybean exports and improved results in global trade, partially offset by continuing challenges to North American corn exports due to the competitiveness of the South American corn crop in export markets,”​ he said on the call. “We think ag services Q4 performance should be similar to the prior-year period.”

There also is an expectation for stronger results in animal nutrition, he said. However, the fourth quarter likely will be lower than what was seen in 2016.

Global conditions are expected to play a similar role for oilseeds going forward, but crush results are anticipated to pick up in the fourth quarter, said Luciano. Overall, oilseeds is forecast to have a similar quarter to last year.

“In terms of market conditions, while we expect some of the conditions that have impacted recent results could persist into next year, we are beginning to see green shoots of indications that point to some improvement in the margin structures of our origination and oilseeds crushing businesses,”​ he said. These include that stocks of feed grains are starting to drop and competition among feed proteins and soybean meal appears to be dropping, he added.

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