Soybean crush, grain trade boost ADM second quarter results

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/ Ryan McVay
© GettyImages/ Ryan McVay
Animal nutrition and feed grain sales helped boost second-quarter results for ADM, the agribusiness group is confident about performance for the rest of the year.

The Chicago-based agri-giant released details of the company’s second-quarter performance Tuesday [July 31]. The fiscal quarter ended June 30.

Overall, Archer Daniels Midland Company (ADM) reported an increase in segment operating profit with returns moving from $642m in 2017 to $902m for the just-ended quarter, the company said.

The adjusted segment operating profit grew 40% to $924m for the quarter, said Juan Luciano, chairman and CEO of ADM on an earnings conference call.

“In the first six months of 2018, among the businesses we have targeted for improvements, profitability has gone up $150m, representing about half of our operating profit improvement over the first half of 2017 with global trade, lysine and South American origination all contributing to our improved profitability,”​ he said on the call. “We now have completed the divestiture of our Bolivian oilseeds business.”

In the first six months of 2018, the company has had cost savings of more than $150m, he said. It also is in the process of acquiring Neovia for the animal nutrition business, which is expected to bring in a global animal nutrition business and platform for growth. And two new animal nutrition facilities were opened during the quarter.

Earnings before income taxes (EBIT) were $383m in 2017, which grew to $652m in the just-finished quarter, the company reported. Total revenue increased to about $17bn from $14.9bn for the same quarter last year.  

“We are monitoring the US-China trade situation closely, and are prepared for various potential outcomes,”​ Luciano said. “We believe the situation is manageable in the near term and we are confident of delivering solid execution and strong results.”

Looking forward, the company is anticipating a more favorable end to 2018 than what was forecast during the first quarter earnings call, he said.

Segment results

Total capital spending in the first six months has been $379m, said Ray Young, CFO with ADM on the earnings call. The adjusted operating profit for segment performance in the first half of the year increased 23% to $1.6bn.

Animal nutrition results showed year-over-year growth supported by performance in lysine and pet products, he said.

Second quarter results for the entire nutrition segment improved from $94m in 2017 to $114m, the company said. Animal nutrition saw operating profit grow from $3m to $8m.

Results for origination, merchandise and handling improved from the second quarter of 2017, said Young. “Short crops in South America, as well as increased purchases from that region by China in anticipation of tariffs, offered motivation for other buyers to come to the US – the result was significantly higher volumes and margins for corn, wheat and soybean exports,”​ he added.

The segment reported adjusted operating profit of $189m, up from $57m for the same quarter last year, the company said.

There were solid basis gains, said Young. Global trade also saw improvements.

“The team executed particularly well during the China-sorghum situation, making swift and smart decisions to mitigate some of the negative impacts, which as a result, turned out to be a bit smaller than we expected,”​ he said.

Ocean freight has increased and destination marketing volumes are growing and expected to reach 19m metric tons.

Results for oilseeds were up compared to the second quarter of 2017, he said. Crushing and origination have seen strong global demand for soybean meal.

“In South America, high Brazilian origination volumes and improved margins, largely driven by a more aggressive farmer selling and robust demand from China, contributed to strong results,” ​he said. “The team managed well through the Brazilian trucker strike, limiting its impact on results.”

Oilseed operating profit was $201m in 2017, which increased to $341m for the second quarter of 2018, the company said. Although, within the segment, results specifically for Asia dropped from $85m last year to $52m.

The next six months

Looking forward, the expectation is for higher results in the third quarter for oilseeds, said Luciano. The understanding is based on strong crush volumes and global demand.

“We expect our oilseeds operations to deliver excellent results this year, significantly higher than our expectations at the beginning of the year,”​ he said.

The nutrition segments are anticipated to have sales growth in some areas and a strong end to the year, he said, adding that the company is looking forward to the integration of Neovia. However, the company is not expected to contribute to results this year.

Origination also is expected to see a strong third quarter and end to the year, said Luciano. “The continued impact of the short crops in South America and growing contributions from some of our more value-added businesses like destination marketing and stevedoring should continue to support strong performance,” ​he added.

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