ADM reports healthy ethanol margins, overall profitability

By Holly Jessen | November 05, 2014

Archer Daniels Midland Co. reported good overall financial results for the third quarter, which ended Sept. 30, including significant improvements in corn processing. In fact, profit in this segment nearly doubled, going from $180 million to $356 million, an increase of $176 million from the previous third quarter to the third quarter this year. This included $171 million in operating profit in sweeteners and starches and a $185 million operating profit in bioproducts. This was driven by ethanol demand and margins that were solid through most of the quarter.

Juan Luciano, president and chief operating officer, pointed to strong exports and the fact that corn is the lowest cost octane enhancer. (On Nov. 6 he was named the next CEO, effective Jan. 1.) "Our flex capacity gave us opportunities to run differing product mixes and to maximize overall margins,” he said during the Nov. 4 call. Margins for the third quarter were very healthy, he went on to say, but they did drop as ethanol inventories climbed. Despite some recovery, in the fourth quarter, the company expects margins to be slightly lower than margins in the third quarter. “We expect some of this volatility that we described before to continue, but the industry is behaving in a much better way this year than we saw, for example, last year,” he said.

Ray Young, senior vice president and chief financial officer, acknowledged that there are some headwinds facing the ethanol industry, namely crude oil prices and the impact on ethanol prices. However, the company is very encouraged by tailwinds, such as the expected good harvest in the U.S.

Overall, the company reported adjusted earnings per share of 81 cents, an increase from 47 cents in the third quarter of 2013. Adjusted segment operating profit was up 45 percent, settling at $914 million compared to $632 million last third quarter. Net earnings hit $747 million, which is $1.14 per share. “The team delivered very strong results in the third quarter and made significant progress improving earnings and returns,” said ADM Chairman and CEO Patricia Woertz.

During the Q&A portion of the call, an analyst asked about the potential for Mexico importing more U.S. ethanol as an MTBE replacement. “We have seen market after market changing away from MTBE,” Luciano replied. “Obviously Mexico is one of those markets that are still in MTBE, so we see that as a potential opportunity ahead of us, sure.”

Overall, for 2014, the company expects the U.S. ethanol industry to export 800 million gallons. By next year the number is expected to be similar with the possibility of a 25 percent increase to about 1 billion gallons of ethanol exported. “Obviously I would like to see it 1.5 billion and we will drive to try to do that,” Luciano said. “But we think that it continues to climb as the U.S. becomes a more regular and reliable supplier of global markets. So at these oil prices we continue to see exports growing, let's put it that way.”