The Wall Street Journal-20080205-Earnings Digest- At ADM- Crop Prices Cut Both Ways

Return to: The_Wall_Street_Journal-20080205

Earnings Digest: At ADM, Crop Prices Cut Both Ways

Full Text (335  words)

A WSJ News Roundup

Higher crop prices were a double-edged sword for Archer Daniels Midland Co. in its fiscal second quarter.

Its ethanol production continued to be squeezed by lower prices for the biofuel and higher corn costs, but the company posted a 7% profit rise as bumper U.S. crops helped it capitalize on higher prices for grains, including corn, through its grain-handling services.

Operating profit in its agricultural-services business, which stores and moves a host of commodities, more than doubled to $315 million from $131 million in the quarter ended Dec. 31 on handling North American crops as the rest of the world experienced shortages.

"The size of the crop this year," Chief Executive Officer Patricia Woertz said, "has been something that has given us tremendous opportunity."

The Decatur, Ill., company's revenue jumped 50%, but its gross profit margins slipped to 5.7% from 8.3% as the cost of products sold surged.

Profit in ADM's corn-processing business slipped 18% to $275 million in the recent quarter, hurt mainly by lower ethanol prices. Profit for sweeteners and starches, such as high-fructose corn syrup used in soft drinks, slipped 3% to $147 million.

ADM's oilseed-processing profit grew 14% to $219 million due to strong global demand for protein meal and oil. In the company's "other" segment, which includes a handful of businesses, the operating profit rose 3.5% to $146 million.

The company also said corporate charges related principally to inventory valuations more than doubled to $225 million in the recent quarter from $107 million in the year-earlier period.

Its shares were down $1.30, or 2.9%, to $44.20 in 4 p.m. New York Stock Exchange composite trading. Shares have had a strong run over the past year as government incentives for biofuels helped increase planted acres and raise crop prices, while emerging-market demand for staple grains, particularly in China, has been growing.

Recently, however, it has seen the profitability in its corn- processing business slip due to high corn costs and a rapid bulking up of ethanol-production capacity.