CHICAGO – Archer Daniels Midland Co. (ADM) Friday reported weaker-than-expected earnings and revenue on a sharp decline in its corn- and oilseed-processing businesses, sending its stock down more than 17 percent.
The company cited excess capacity in the corn-processing and oil-processing businesses for the declines in operating profit in those sectors.
For example, capacity to produce ethanol (search), a fuel additive made from corn, has increased by about 30 percent in the past year, Todd Duvick, a corporate bond analyst who follows the agribusiness for Banc of America Securities, said.
"That's just really tough to counteract because you have strong demand growth, but the supply growth outstripped the demand side," Duvick said.
The company's corn-processing business, its largest unit, was also hurt by higher energy costs and reduced selling prices for lysine, an additive used in animal feed.
Earnings for the Decatur, Ill., company were $269.1 million, or 41 cents a share, in the fiscal third quarter ended March 31. That compares with $226.8 million, or 35 cents a share, a year earlier.
But excluding an 11-cents-a-share gain from the sale of a stake in British sweetener company Tate & Lyle Plc, earnings were 30 cents a share. On that basis, analysts on average forecast 40 cents a share, according to Reuters Estimates.
Corn-processing profit dropped 23 percent to $178 million in the quarter.
Oilseed-processing profit fell 48 percent to $61 million.
The earnings from operations were in sharp contrast to competitor Bunge Ltd. (search), the world's largest oilseed processor, which posted a 40 percent increase in quarterly profit.
"We were a bit surprised that the Oilseeds Processing segment profits were down so much more on a percentage basis than competitor Bunge," John McMillin, analyst at Prudential Equity Group, said in a research report. McMillin, who rates the stock "neutral," noted that ADM had already warned about difficulties in the corn-processing business.
Bunge has more of its business in South America than ADM. Due to the timing of the harvest there, Bunge was less hurt by the overabundance in oilseed supplies, Banc of America's Duvick said.
Sales and other operating income fell 9 percent, to $8.48 billion, well below the average analyst estimate of $9.46 billion compiled by Reuters Estimates.
"This quarter's earnings reflect the competitive markets in agribusiness and the impact of capacity added in recent years in several sectors," G. Allen Andreas, chairman and chief executive, said in a news release.
Agricultural-services profit was down slightly at $55 million, the company said.
ADM shares were down $3.79 at $17.84 Friday on the New York Stock Exchange (search).
ADM said it will speed up share repurchase activity on the dip in its stock.
"Recently on the dip that we have seen since the end of the quarter, we have accumulated some additional shares and we will accelerate that program," G. Allen Andreas, chairman and chief executive, told analysts during a conference call.
ADM's stock was down almost 10 percent since April 5 before Friday's opening. ADM shares were cut to "sell" April 6 by FTN Midwest Securities, citing overcapacity in the ethanol industry.