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Agriculture Earnings US

ADM reports lowered Q3 results amid challenging market conditions, substantial investment

Global food processing and commodities trading corporation Archer Daniel Midlands (ADM) reported lower than expected quarterly earnings, while announcing a reallocation of funds from the struggling Oilseed segment to more high-value projects moving forward. Chief Executive Juan Luciano highlighted elevated levels of capital expenditure in the quarter that will allow future profitability, such as the global workforce restructure and the reconfiguration of the companies Peoria-based ethanol complex. ADM expects the fourth quarter to feature much less capital spending as these investments begin to produce.

The company aims to reduce total capital spending by as much as 20% in 2018, down to $800mn.

Quarterly profitability took the largest hits in the Ag Services segment as well as oilseeds Processing. Ag Services profit margins suffered due to a surprising lack of competitiveness of domestic corn and soybeans within the global market, reporting a 55% drop in profit from 2016’s Q3 results. Tightened global crush margins and weakened South American origination margins were to blame for a 17% fall in profit YoY in the Oilseeds segment.

ADM reported an adjusted segment operating profit of $541mn, representing a 16% drop from previous year levels of $650mn.

The slow start to the U.S harvest was attributed to lowered transportation results as barge freights experienced falling volumes. The Merchandising and Handling segment fell from $92mn profit in 2016’s third quarter to $20mn, following the effects felt by other segments in what ADM calls an “extremely challenging operating environment.”

Corn processing was a bright spot for the quarter, with results up YoY. Higher margins for ethanol helped boost the Bioproducts segment to substantially higher profit figures compared to 2016.

Luciano highlighted diminishing global soybean and corn supplies in 2018 as market headwinds lessen, but admitted to forecasting a similar Q4 for oilseeds as effects of excess supply begin to wane in the beginning of the New Year. While noting that external market factors played a significant role in depressed Q3 profits, Luciano predicts 2018 will begin to show real profits from recent investments and restructuring.

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