ADM profit increases on strong corn, ethanol profits

By Holly Jessen | May 05, 2014

Archer Daniels Midland Co. recently reported its corn processing and bioproducts division experienced strong operating profit increases in the first quarter of the year. “Continued strong performance in corn was supported by the robust ethanol market,” said Pat Woertz, chairman and CEO of ADM in an April 29 call.

Overall, the company reported adjusted earnings per share of 55 cents, up from 46 cents in the same time period last year. Segment operating profit increased by 10 percent from the previous year to $691 million.

Looking specifically at corn processing, operating profit increased $64 million to a total of $261 million. The bioproducts division had operating profit of $154 million, an increase of $77 million. The company pointed to a combination of strong export demand and lower production volumes across the industry, which drove a margin environment that steadily improved during the first quarter of the year.

Ray Young, senior vice president and chief financial officer, said the company was again separating out its net timing effects. “In this first quarter, we had a combination of hedge ineffective gains and mark-to-market losses on our ethanol hedging program,” he said. “The net impact was a loss of $65 million in timing effects or 6 (cents) per share, which we expect to recover in the second and third quarters.”

Juan Luciano, company president and chief operating officer, said segment results were mixed. While oilseeds performed as the company expected agricultural services had a weaker than expected performance. Corn performance was better than expected, delivering a strong quarter. “In our ethanol business, logistical challenges and weather conditions kept some industry production offline,” he said. “At the same time, economics drove strong export demand. This combined to create the steady, rising prices and margins through the quarter. We worked every logistical angle and ran our plant hard, delivering large volumes amid record industry margins. We also took advantage of the very favorable forward pricing environment and locked in good ethanol margins. Overall, a really strong performance here.”

In answer to a question about increased ethanol exports, including to some unexpected places, like Mexico, Luciano pointed to the fact that prices drive energy markets. “I think when we saw this kind of pricing, ethanol from the U.S. was basically the most competitive fuel in the world,” he said, “and, as such, it made it into a lot of formulations.” Businesses like ADM, that run refineries, are always working to optimize and produce the cheapest possible product, he added. As a result, U.S. ethanol will be priced competitively from time to time, and extremely competitively sometimes. “I think that the good thing is that this has opened several markets to us that we will be able to come back frequently,” he said.