ADM reports Q4 earnings of 61 per share, down from $1 a year ago

By Susanne Retka Schill | February 02, 2016

Archer Daniels Midland Co. reported net earnings for the fourth quarter were $718 million, or $1.19 per share, and segment operating profit was $900 million. The company reported adjusted earnings per share of 61 cents, down from $1 in the same period a year ago. Q4 adjusted operating profit was $599 million, down 47 percent from the $1.13 billion in the same period a year ago. “Global dynamics reduced margins across the U.S. agricultural export sector, the U.S. ethanol industry and in the soybean crushing industry worldwide,” the company said in its 4Q financial report.

Corn processing operating profit decreased from $281 million to $126 million, with solid sweetener results being offset by lower ethanol returns. Sweeteners and starches results improved $48 million to $102 million as the business continued to perform well, with lower input costs and good demand. Bioproducts results declined from $227 million to $24 million as steep declines in crude oil prices drove lower ethanol prices. This, combined with continued high industry production levels, progressively reduced industry margins through the quarter.

Other segments had challenging years as well, with agricultural services earnings lower by $207 million compared to the very strong quarter a year ago amid lower North American export volumes and margins. Oilseeds processing results were lower as well, as soybean crush margins declined significantly during the quarter. The company’s Wild Flavors and Specialty Ingredients segment earned $47 million, “with WILD Flavors achieving its first-year accretion target of 10 cents per share,” according to the financial release.

Juan Luciano, ADM chairman and CEO said in the Feb. 2 investor call that despite the challenging conditions, the company achieved 2015 adjusted return on invested capital of 7.3 percent. The company has announced a 7 percent increase in quarterly dividends to 30 cents per share in 2016, plus planned share repurchases of between $1 billion and $1.5 billion.  

He reported the company realized $200 million in run-rate savings in 2015 and expects to increase the cost savings by another $275 million in 2016. Roughly half that has come from savings in its corn processing segment.

In corn processing, corn sweeteners and starches will continue to see improved returns, Luciano said. “In ethanol, industry margins remain uncertain with low crude prices and high industry production rates. We continue to reduce costs at corn dry mills.”  He reported an 18 cent-per-gallon ethanol margin in the fourth quarter, saying the company is seeing cost reductions from improvements in enzymes, yields and corn oil recovery. 

“We are concerned about the long-term,” Luciano added in discussing the successful cost reductions in its dry mills. “We have asked our team to undertake a strategic review and run through different scenarios.” The whole operation is seeing positive operations and cash flow, he stressed, but the team will be testing scenarios should oil prices go lower or if the high industry run-rates don’t go down.

“There are two ways to improve ethanol margins. One is to expand export markets, the other to cut run-rates domestically,” Luciano said in response to another question, adding, “When we run for yield, our cost position is better.” ADM expects exports to grow in 2016, with net exports to be between 50 and 100 million gallons higher. Exports have been growing, he added. “We see places like India and China that are dealing with smog and increasing their use of ethanol to fight their air pollution issues.”