A ADM office in Chicago. Feb. 6, 2017.(Minghe Hu/MEDILL)

ADM earnings beat expectation

By Minghe Hu
Medill Reports

Archer-Daniels-Midland Co. (Nasdaq: ADM) reported net earnings boomed 86 percent to $788 million, or $1.39 per diluted share, in its forth quarter ended Dec. 31, 2017, from $424 million, or 73 cents per diluted share, a year earlier, helped by $379 million, or 73 cents per share, from the U.S. tax reform.

Without the tax benefit, the Chicago-based company reported $463.30 million in net income, or 82 cents per diluted share, up 6 percent compared with $437.25 million, or 75 cents per diluted share, a year earlier, exceeding the Wall Street expectation of 70 cents per share. However, revenue decreased 2.6 percent to $16.07 billion from $16.50 billion in the same quarter a year ago.

Revenue of ADM from 2015 to 2017. Source: Bloomberg. Feb. 6, 2018(Minghe Hu/MEDILL)
Quarterly revenues of ADM are no higher than three years ago. Source: Bloomberg. Feb. 6, 2018(Minghe Hu/MEDILL)

Agricultural services operating profits increased $56 million to $301 million from the prior-year quarter, attributed to a lack of competitiveness of U.S. grain exports in the merchandising and handling segment, which increased 75 percent.

“The beat vs. our estimates was largely driven by the Agricultural Services segment,” Vincent Anderson and Paul S. Forward of Stifel Equity wrote in a note. “We believe trading results may have had an outsized impact on the segment’s results and and may warrant some discounting of its performance in 4Q17.”

The operating profit in transportation decreased 28 percent due to lower barge loadings and freight values; icy conditions also impacted river traffic.

Corn processing operating profit increased to $261 million, a $6 million gain from a year ago, as higher sales in sweeteners and starches, particularly in the North American liquid sweeteners business, outweighed decreasing margins in the ethanol industry.

Oilseed processing operating profit fell 15 percent to $202 million because of weakness in South America and weak margins globally, even as the processing volume increased 5.5 percent to 9.13 million metric tons. Improving global demand for soybean meal diminished the demand for oilseeds.

“Archer-Daniels-Midland remains a well-positioned industry leader in grain and oilseed processing. We believe the firm’s strategy of leveraging its scale and logistical network into downstream integration will add long-term value and reduce earnings volatility, though the timeline for the successful integration of the recent value-add ventures remains unclear,” Anderson and Forward wrote.

The profit in Wild brand Flavors & Specialty Ingredients, or WFSI, increassed to $56 million from $38 million, though sales declined.

“WFSI decline in sales in 4Q17 and for the full year overshadows margin improvement, in our view, given the segment’s role as a source of growth for the firm,” Anderson and Forward wrote.

ADM Chairman and CEO Juan Luciano said in a conference call that the corn processing segment will have a strong growth this year, because of increasing demand for ethanol in China and Brazil.

“When you put up on top of that our cost improvements that we continue to execute on and the benefit of lower rates, we see a very, very strong 2018 and another year of growth earnings for us,” said Luciano.

Full-year revenue was $60.83 billion, down 2.4 percent from $62.35 billion a year ago, while annual earnings were $1.60 billion, or $2.79 per diluted share, up 25 percent from $1.28 billion, or $2.16 per diluted share a year earlier.

The annual return on invested capital was 6.4 percent, 40 basis points above its 6.0 percent of weighted average cost of capital, meaning invested capital has been used efficiently, the company stated in the press release.

“We expect that near-term risks to the company’s core businesses will remain elevated due to subdued processing spreads and global competition for U.S. crop exports amidst high crop stockpiles and a strong U.S. dollar,” Anderson and Forward wrote.

ADM shares closed at $42, up $1.40 or 3.4 percent in NASDAQ trading.

ADM office in Chicago. Feb. 6, 2017.(Minghe Hu/MEDILL)