ADM sees support from nutrition business in third quarter

By Aerin Einstein-Curtis

- Last updated on GMT

© GettyImages/ipopba
© GettyImages/ipopba

Related tags Adm financial returns ASF

Nutrition returns help balance challenging trade, ethanol and crush environment for Archer Daniels Midland Company (ADM) in the third quarter.

The Illinois-based company announced its financial results for the quarter ending Sept. 30 on Thursday [Oct. 31].

Overall, total earnings before income taxes for the quarter were $503m – a drop from earnings of $632m reported last year.

Net earnings fell from $536m in 2018 to $407m. However, gross profit for the quarter showed a slight increase moving from $1.06bn in 2018 to $1.08bn this year, reported ADM.

Segment operating profit for the quarter was $758m and adjusted segment operating profit was $764m, said ADM. The adjusted operating profit for the third quarter of 2018 was $861m.

The company spent the quarter focused on the “levers we could control”​ while facing a challenging environment, said Juan Luciano, ADM CEO. The company has been consistent in terms of the perspective it provided last quarter and had good year-over-year growth for its nutrition business, he added.

“North American grain export volumes and margins remained limited,” ​he said during an earnings conference call. “Crush margins were far off their record high 2018 levels and ethanol industry margins remained challenged.”

At the start of the year, ADM said that this would be a “breakout year”​ for its nutrition business. So far, the segment has had $316m in adjusted operating profit – close to the total of what was returned last year, he said. 

Looking forward, however, external headwinds are anticipated to continue, Luciano stressed.

Although longer-term, there also could be increased demand in 2020 related to the growth in global protein production outside of China to address the decline in its swine herd following the outbreak of African Swine Fever (ASF), he said.

“We thought the acceleration of growth of production outside China was going to be faster – it’s taking some of these countries, whether it is Brazil and all that, a little bit of time to grow their chickens. So, I would say, we didn't see right now the extra impact."

ADM is taking “extreme care” ​to watch that feed does not go from areas with the disease to areas without the disease, Luciano said. “We have extreme measures [in relation] to that."

Segment results

Within the company’s businesses, several segments showed a decline from levels of performance in 2018, ADM reported.

In ag services and oilseeds, adjusted segment earnings were $417m, a drop from the $478m reported last year, according to company information.

There was an improvement in merchandising results in North America and an ownership position in corn and soybeans helped offset the US export environment, said Ray Young, CFO with ADM. 

“South American results were higher as we capture better origination margin opportunities in Brazil compared to the previous year and export volumes from Argentina increased.”

“Crush results were down year-over-year,”  ​continued Young. “Global crush margins have come down from the record-high levels of last year.”

The continued Chinese demand for soybeans from Brazil has put pressure on margins in South America, he said.

Carbohydrate solutions also saw a drop with earnings of $288m in 2018 falling to $128m this year, ADM reported.

However, the company’s nutrition segment saw an improvement for the quarter moving from $67m to $118m this year.

“Animal nutrition results were up substantially year-over-year as our Neovia acquisition continues to contribute.”

“Vitamin additives were another strong performer, particularly coming off the year-ago period when margins were significantly compressed,”​ he said. “Lysine production is showing improvement, though market pricing has been negatively impacted by the lower global demand due to the effects of the African swine fever in Asia.”

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