Valero, ADM report decreased income in ethanol business segments

By Holly Jessen | August 02, 2012

Although both companies reported overall net income or net earnings for shareholders, the ethanol businesses of Valero Energy Corp. and Archer Daniels Midland Co. showed significantly decreased earnings in the ethanol business segment the last quarter. Both companies held conference calls on July 31, with ADM releasing the financial results of their fourth quarter and Valero reporting on its second quarter.

For the fourth quarter, ADM’s net earnings were at $284 million, or 43 cents per share, which is down from 58 cents per share in the same time period a year ago. For the fiscal year, which ended June 30 for ADM, net earnings were $1.2 billion, or $1.84 per share.

ADM’s corn processing segment brought in a profit of $74 million, which is $48 million down from same time period last year. Specifically, bioproducts decreased by $172 million to a loss of $61 million. “Significantly weaker ethanol results more than offset improvements in other bioproducts businesses,” the company said in a news release. “Industry ethanol replacement margins were negative throughout the quarter, as the industry supply continued to exceed demand.”

Overall, the fourth quarter was challenging, said ADM Chairman and CEO Patricia Woertz. While the company’s global oilseeds business brought in solid results that was more than offset by negative ethanol margins. “As we look ahead, while drought has reduced the potential size of the U.S. corn crop, we are tracking the development of other crops in North America and Europe,” she said. “While U.S. crop carryouts are expected to be low, we have an experienced business team to manage through this environment.”

In addition, the current drought has reinforced the vital role of the company’s global agribusiness business. “As weather has regional effects on crops, we respond by working with our customers to provide the best alternatives to meet their needs from all growing regions of the world,” she said.

Valero reported that, overall, stockholders realized net income of $831 million, or $1.50 per share, in the second quarter. That’s an increase from $745 million, or $1.30 per share, for the second quarter of 2011.

The company’s ethanol segment earned $5 million in operating income, a huge drop from the $64 million earned in the same time period last year. The company attributed it to lower gross margins, held in place by oversupply of ethanol in the marketplace.

Valero has significantly cut its ethanol production rates, announcing in July that it was temporarily idling the 120 MMgy plant in Linden, Ind., and the 120 MMgy plant in Albion, Neb.

The remaining Valero ethanol plants are operating, but not at full run rates, putting the company’s ethanol plants operating at about 50 percent of capacity. In all, the company owns and operates 10 ethanol plants with a combined total capacity of 1.2 billion gallons per year.