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ADM Beats Q2 Earnings Estimates

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Archer Daniels Midland Company’s (ADM - Free Report) adjusted earnings of 46 cents per share for second-quarter 2013 handily surpassed the Zacks Consensus Estimate of 41 cents and surged over 21% from the year-ago comparable quarter’s adjusted earnings of 38 cents. The company’s earnings primarily improved due to robust operating profit at the Corn Processing segment, partially offset by weak performance at its Agricultural Services segment.

On a reported basis, the company reported earnings of 34 cents per share, substantially below 43 cents earned in the prior-year quarter.

Archer Daniels' quarterly net sales dropped nearly 0.6% year over year to $22,541 million, but surpassed the Zacks Consensus Estimate of $22,330 million. The marginal year-over-year decline in sales was mainly due to lower volumes resulting from tight U.S. crop supplies.

Segment-wise, the company’s Corn Processing revenues jumped 28.6% to $3,638 million on account of increased corn processing volumes. Archer Daniels’ Oilseeds Processing segment revenues decreased 3.4% year over year to $9,336 million due to lower oilseeds processing volumes. Moreover, revenues for the Agricultural Services segment witnessed a decline of 6.1% to $9,530 million.

Operational Discussion

Archer Daniels reported total segment operating profit of $647 million, up 18.9% from the year-ago quarter, primarily due to robust performance at the company’s Corn Processing segment, partially offset by a weak operating performance at the Agricultural Services segment.

On a segmental basis, Oilseeds Processing segment recorded an operating profit of $321 million compared with $331 million in the year-ago period. The $10 million decline was due to the dismal margins in Cocoa business, partly offset by improved performances at all other businesses in the segment.

Operating profit for Agricultural Services segment declined 34.1% to $81 million driven by poor U.S. origination and export volumes and reduced international merchandize margins. The segment’s operating profit was also negatively impacted by weak results at the Transportation unit due to reduced barge freight utilization on account of lower U.S. export volumes.

Archer Daniels' Corn Processing segment's operating profit jumped over twofold to $223 million from $74 million in the year-ago quarter. This was primarily attributable to improved results at the Bioproducts unit.

Operating profit from the Other Business segment came in at $22 million, up $6 million from $16 million reported in the prior-year quarter.


Archer Daniels ended the quarter with $1,848 million in cash and cash equivalents compared with $1,291 million at the end of the prior-year quarter. At quarter-end, long-term debt including current maturities was $6,508 million, down $1,704 million from a debt of $8,212 million at the end of second quarter of 2012. The company reduced its long-term debt by $3.4 billion to $5.5 billion in the last twelve-month period. Shareholders’ equity as of Jun 30, 2013 was $19,013 million.

GrainCorp Acquisition Update

On Jul 29, 2013, Archer Daniels announced that it had received the nod from The European Commission for its proposed acquisition of Australia’s leading agribusiness company, GrainCorp Limited. With this, the company now has clearance from six government agencies for the acquisition.

After gaining The United States Federal Trade Commission’s approval in Nov 2012, Archer Daniels had sealed the deal in late Apr 2013. Since then, the company has been seeking fair trade clearance from the government agencies of different countries.

At present, Archer Daniels has the acquisition sanction from five countries, namely the U.S., Australia, South Africa, Canada and Japan, along with the European Commission. Moreover, the company is in negotiation with the government agencies of China and South Korea for the final clearance.

Archer Daniels has agreed to pay A$12.20 per share for all outstanding shares of GrainCorp, which totals approximately A$3.4 billion. The American agribusiness giant already holds 19.8% stake in the Australian agri-products dealer, acquired for an average of A$11.24 per share.

Update on FCPA Matter

Along with its second-quarter financial results, Archer Daniels announced that it has increased its provision against a probe into potential violations of U.S. foreign bribery law. The company charged $54 million toward this provision in the concluded quarter, up $29 million from the provision of $25 million made in first-quarter 2013.

Archer Daniels is in talks with the U.S. Justice Department and the Securities and Exchange Commission since Nov 2012 over a matter related to Foreign Corrupt Practices Act (FCPA) dating back to 2008 and earlier.

Other Stocks Worth Considering

Archer Daniels currently carries a Zacks Rank #3 (Hold). Other stocks performing well in the agricultural products industry include The Andersons, Inc. (ANDE - Free Report) , Limoneira Company (LMNR - Free Report) and Kraft Foods Group, Inc. . All of them have Zacks Rank #2 (Buy).

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