ADM releases Q2 results, discusses China’s impact on US ethanol

By Erin Voegele | July 31, 2018

On July 31, Archer Daniels Midland Co. released second quarter financial results, reporting strong overall net earnings, but lower results for the bioproducts segments, which includes ethanol.

The company reported $11 million in net operating profit for the bioproducts segment, down from $26 million during the second quarter of 2017. ADM attributed the drop to lower ethanol production volumes and higher costs due to plant downtime. Execution margins for ethanol were lower when compared to the second quarter of last year.

During an investor call, Juan Luciano, chairman and CEO of ADM, said that ethanol inventories could increase if China does not resume purchasing U.S. ethanol, which would put some risks on margins. Looking forward, he indicated the company expects to see weaker results for its ethanol business during the third and fourth quarters.

Ray Young, executive vice president and chief financial officer of ADM, said the company does expect to see some marginal improvements in domestic demand for ethanol due to increased ethanol consumption. He also noted that although China stopped buying U.S. ethanol after the first quarter, ADM expects U.S. ethanol exports to reach 1.6 to 1.7 billion gallons this year. Moving forward, he said it is likely that the U.S./China trade situation will be resolved at some juncture. Once that happens, he said there is a strong probability that China will once again buy U.S. ethanol to help meet its E10 mandate. So, over the medium-term, he said ADM expects that incremental demand from China will tighten up supply-demand balances for U.S. ethanol and allow industry margins to expand towards more normal levels.

Overall, ADM reported net earnings of $566 million, up from $275 million during the same period of last year. Revenues reached $17.07 billion, up from $14.94 billion during the second quarter of 2017. Gross profit was $1.81 billion, up from $892 million. Segment operating profit was $902 million, up from $642 million. Earnings per share reached $1, up from 48 cents per share during the second quarter of last year. Adjusted earnings per share reached $1.02, up from 57 cents per share during the same period of 2017.