Sector News

ADM eyes ethanol asset sales

August 4, 2016
Consumer Packaged Goods

U.S. grain trader Archer Daniels Midland Co is pulling back in ethanol and exploring sales of its corn dry mills that produce the biofuel, the company said Thursday after reporting a lower second-quarter profit due partly to weak ethanol results.

Chicago-based ADM, one of the world’s top ethanol makers, has made presentations to seven potential buyers and expects bids for the ethanol assets by the end of August, the company said during a earnings-day call with analysts.

“We’ve been very open-minded in terms of what alternatives we would consider, whether it be a sale, whether it be joint ventures or whether it be some other structures there,” said Chief Financial Officer Ray Young.

Any deal would mark a shift for the ethanol industry pioneer capable of producing 1.8 billion gallons annually, nearly half of that at its three dry mills. The once lucrative business has seen U.S. ethanol demand plateau and inventories rise, while significant export market growth remains uncertain.

ADM’s second-quarter earnings fell short of analysts’ expectations as volatile grain prices and weak trading and processing margins, including for ethanol, dragged down results.

But ADM forecast improved market conditions in the second half of 2016 as U.S. farmers are expected to harvest bumper corn and soybean crops this fall, which should boost margins and exports from the United States.

“The first half of the year was very challenging. However, with improved fundamentals, we anticipate a more favorable second half of the year,” Chief Executive Juan Luciano said.

Still, ADM warned that losses at Singapore-based vegetable oils processor Wilmar International Ltd, in which ADM holds a 22 percent stake, would result in $50 million in equity losses in the third quarter.

The losses will reduce ADM earnings by 17 cents a share, said CFO Ray Young.

ADM makes money by buying, selling, transporting, storing and processing grains and oilseeds around the world.

The company, along with rivals Bunge Ltd, Cargill Inc and Louis Dreyfus Corp, makes up the so-called ABCD firms that have traditionally dominated the flow of agricultural commodities.

Net earnings attributable to ADM fell to $284 million, or 48 cents per share, for the quarter ended June 30 from $386 million, or 62 cents per share, a year earlier.

Excluding items, profit was 41 cents per share, below the average analyst estimate of 45 cents, according to Thomson Reuters I/B/E/S.

ADM shares fell about 2.6 percent to $43.07.

By Karl Plume

Source: Reuters

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