ADM reports strong Q1 results for sweeteners, bioproducts down

By Susanne Retka Schill | May 03, 2016

In a tough environment for agribusiness, Archer Daniels Midland Co. reported first quarter earnings per share of 42 cents, down from 78 cents in the same period a year ago. The company said challenging market conditions in Q1 particularly affected its ag services segment, due to low U.S. export volumes and weak margins. Results for corn processing improved compared to Q1 last year, led by a strong performance in sweeteners and starches that offset a loss in bioproducts, where the company’s ethanol performance is reported.

Adjusted segment operating profit was $573 million, down 36 percent from $892 million in the year-ago period. Net earnings for the quarter were $230 million, or 39 cents per share, and segment operating profit was $573 million.

In the corn processing segment, sweeteners and starches results improved $56 million to $141 million as the business continued to perform well, with an improved cost environment driven by strong capacity utilization. Bioproducts results were down from $42 million to a loss of $12 million, due primarily to the continued challenging conditions in the global lysine market, according to the company. “In addition, ethanol margins continue to be impacted by high industry production levels that caused inventories to build throughout the quarter,” the companies earning release reported. The corn segment processed 5.74 million metric tons (mmt) in Q1, compared to 5.3 mmt in the same quarter 2015 and 5.75 mmt two years ago.

“During the quarter, we continued to advance our strategic plan,” said CEO Juan Luciano. “We acquired a controlling stake in Harvest Innovations, enhancing ADM’s plant protein, gluten-free ingredient portfolio. We announced the purchase of a corn wet mill in Morocco that will further expand our global sweeteners footprint. We opened our new, state-of-the-art flavor creation, application and customer innovation center in Cranbury, New Jersey. And, as part of our ongoing portfolio management efforts, we reached an agreement to sell our Brazilian sugarcane ethanol operations. In addition, we achieved almost $50 million of run-rate savings in the quarter and remain on track to meet our $275 million target by the end of the calendar year.”

In the question period of the May 3 investor call, Luciano was asked about the progress with the company’s review of its ethanol assets. The company has an agreement in place to sell its Brazilian ethanol assets, and Luciano said the team continues to analyze its U.S. dry mills. “We made progress in carving out the financial. We’re going to optimize the timing to maximize ADM profits,” he said, adding that no final decisions have been made.

When asked about the ethanol supply and demand situation, Luciano commented that ethanol export markets continue to be strong, there has been growth from new markets in China and domestic demand is up between 2 and 3 percent. “A lot will be determined by the strength of driving season and how producers react,” he said. “Planned shutdowns has cleaned up some excess inventories, but they are still about 4 percent higher than inventories last year. We continue to run for margins and optimize our operations.” He said the company expects margins to improve in the second quarter and a return to profitability for the last half of the year.

With grain storage a big part of the company’s ag services segment another question addressed the large amount of on-farm storage capacity that has been added in the past several years. “We don’t see any more on-farm storage capacity being built,” Luciano responded. “We don’t believe it has created problems for us.” With the growth of the ethanol industry, much of that extra storage capacity absorbed the growth in grain supplies that was consumed locally by ethanol plants.