ADM reports strong Q1 earnings, in spite of weak ethanol margins

By Susanne Retka Schill | May 05, 2015

Archer Daniels Midland Co. reported solid earnings for the first quarter, even though its corn processing segment was down due to tight ethanol margins. ADM’s soybean processing segment experienced extraordinarily good margins in the first quarter, increasing by $153 million and more than making up for the corn processing sector’s reduced earnings of $124 million.

Overall, ADM reported adjusted earnings per share of 77 cents for the first quarter of the year, up from 55 cents in the same period last year. Adjusted segment operating profit was $883 million, up 12 percent from $789 million in the year-ago period. Net earnings for the quarter were $493 million and segment operating profit was $855 million.

“In the first quarter, the ADM team demonstrated their ability to leverage the strengths of our diversified business model,” said ADM CEO Juan Luciano. “The oilseeds team capitalized on favorable market conditions and delivered outstanding results, with strong performances in each region. In ag services, our recently created global trade desk platform drove higher merchandised volumes. Our new WILD Flavors and Specialty Ingredients business got off to a great start toward achieving the cost and revenue synergies we identified last year. Together, these performances helped deliver a good quarter overall, even as lower industry ethanol margins limited earnings in corn, and the strong dollar limited U.S. grain exports.”

Operating profit for the corn processing segment decreased from $251 million to $127 million. Of that, sweeteners and starches results declined $10 million to $85 million and bioproducts results declined from $156 million to $42 million due to lower ethanol production volumes amid weaker industry margins. “Supply/demand imbalances challenged industry ethanol margins most of the quarter,” Luciano said in the May 5 Q1 investor call, “though conditions and margins have been improving since late March.”

In the question period following the investor presentation, Luciano expressed optimism for its ethanol segment for the rest of the year. “Demand in the U.S. is growing due to low gasoline prices at a rate of two to three percent per year. That would put the industry around 13.8 to 14 billion gallons. That, and an increase in exports,” he said, pointing to the January and February ethanol export figures that, when annualized, would be around 1 billion gallons. “We see exports for the year at 800 million gallons and a bit north.” He added that there are several mandates around the world being implemented, “and more than 3 billion gallons of MTBE that needs to be replaced, so we are optimistic. Q2 exports are probably going to be larger than Q1.”

With ethanol plants running softer during the summer and seasonal gasoline demand high, Luciano added, the company expects improved ethanol margins. “The first quarter is traditionally not a strong quarter for us,” he said. “Especially for ethanol.”