CHICAGO – Agribusiness group Archer Daniels Midland Co. (ADM) Tuesday said quarterly profit rose 17 percent on lower corn costs and improved ethanol prices, and shares surged on the news.
U.S. farmers harvested bumper corn crops in the last two years, which has depressed grain prices. A renewed interest in the crop-based fuel ethanol, sparked by higher gasoline prices and government mandates, has increased demand for alternative fuels and powered much of ADM's recent growth.
The company's shares were up $2.81, or 9.78 percent, to $31.55 on the New York Stock Exchange.
ADM, the largest U.S. food processor, said earnings increased to $368 million, or 56 cents per share, in the second quarter ended Dec. 31, from $314 million, or 48 cents per share, a year earlier.
The earnings include a $36 million credit for the adjustment of state and federal income taxes. Net earnings for the 2004 quarter included a gain of $45 million from the sale of ADM's interest in Tate & Lyle, a maker of sweeteners.
Earnings in the most recent quarter also include a Food and Feed Ingredient asset impairment charge of $31 million and a charge of $15 million related to shutting down a citric acid plant.
On a comparable basis, ADM's earnings were 55 cents per share, beating analysts' average estimate of 42 cents per share, according to Reuters Estimates.
Revenue rose 3 percent to $9.30 billion, boosted mainly by increased profit from ADM's corn processing division, which makes sweeteners, ethanol and citric acid. The average forecast from analysts polled by Reuters was $9.18 billion.
Profit in corn processing, ADM's largest division, jumped by $105 million to $237 million on lower net corn costs, which were partially offset by lower selling prices for lysine, an animal feed additive, and higher energy costs.
Oilseeds processing profit increased by $9 million to $128 million for the quarter due to improved results in North America, South America and Europe.
Operating results fell in Asia, which has seen lower demand for animal feed following the culling of millions of poultry because of bird flu.
Agricultural services profit rose $6 million to $94 million due to improved results from transportation operations.
Other segment operating profit, which includes food and feed ingredients, fell $80 million to $66 million due primarily to the impairment charge of $31 million and a $45 million decline in earnings from ADM's private equity funds.
ADM shares rose 10 percent in 2005, compared with an 8 percent drop in the Dow Jones U.S. food producers index
ADM trades at about 20 times forecast fiscal 2006 profit, compared with about 16 times future earnings for the index, of which it is the most heavily weighted stock.
ADM, based in Decatur, Ill., takes commodities such as corn and soybeans and processes them into ethanol, sweeteners and animal feed.