Monday, July 30, 2007

ADM Earnings: Investments Pay Off

Archer Daniels Midland (ADM) released results today and reported earnings of $954.8 million, or $1.47 a share, up from net income of $410.3 million, or 62 cents a share in 2006. Results included gains on asset sales of $616 million in oilseeds processing and agricultural services.

Net sales rose 28% to $12.21 billion, topping analysts' prediction of $10.13 billion. Corn processing operating profit fell 16% to $241.3 million and the company cited lower ethanol sales volume and higher net corn costs as the culprits.

Oilseeds processing operating profit more than tripled to $587.2 million, boosted by a gain on the exchange of the company's interests in several Chinese JV's for shares in Wilmar International, the largest ag processing business in Asia. Agricultural services operating profit nearly tripled to $240.8 million due to a gain on the sale of the company's Agricore United investment.

ADM repurchased $533 million worth of shares during the year.

So, what to think? About what I expected in corn processing and oil seed processing and good news on the asset sales. ADM clearly want to expand into Brazil to produce ethanol. They are doing everything except issuing a press release stating as such. The assets sales are giving ADM the funds they need to make that investment without a significant jump in debt, always a good thing. Now that these gains are booked and in the bank, I would look for action in Brazil soon.

Another positive sign is the 28% jump in sales. A real good sign. Corn prices are what they are as these prices are contracted and locked in before the crops go in the ground. ADM will see the benefit of this year's record crop in the fall and winter contracts they sign for next year. This will significantly lower input costs and boost profits going forward.

Additional capacity begins to come on line this fall which will add to profits also. The ND biodiesel plant just came on line and the Rhondopolis, Brazil biodiesel plant will commence operations in August. The fall of 2008 will bring additional ethanol capacity in Iowa and Nebraska that will expand current capacity by 50%.

All in all an unspectacular quarter but one that has the company perfectly situated to execute it plans for the future, that is a very good thing.


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