May 1, 2018 / 11:29 AM / 21 days ago

UPDATE 5-ADM profit rises on higher soy processing margins

(Rewrites throughout, recasts lead paragraph, adds details on earnings)

By P.J. Huffstutter

May 1 (Reuters) - Archer Daniels Midland Co on Tuesday reported a 16 percent increase in quarterly profit, boosted by improved results in its soybeans business, even as the company warned that the ongoing U.S.-China trade dispute could pinch revenues in coming quarters.

The U.S. grains merchant said revenue rose 3.6 percent to $15.53 billion for the quarter, led by record volumes in soybean processing, as the company’s oilseeds division accounted for more than one-third of overall revenue for the quarter.

Overall profit margins rose, the company said, a sign that the agricultural sector may have turned a corner after five years of bumper crops that have sapped earnings. Big ag processors have countered that by thriving on exports, now threatened by trade disputes that have resulted in tariffs on a number of goods, including sorghum, a grain used for feed and that can also be turned into ethanol.

However, ADM’s trading unit benefited from the volatility spurred by the trade battle, reporting its best first quarter in four years. But the company also forecast the trade dispute between the United States and China would affect its business in the coming months.

The Chicago-based company expects a negative impact of about $30 million in the second quarter due to Beijing’s decision to impose stiff anti-dumping tariffs on sorghum, Chief Executive Juan Luciano said on an analysts’ call on Tuesday.

The company, one of the largest exporters of U.S. sorghum to China, has threatened legal action against China after several of its sorghum shipments were caught up in the dispute. The company said it was selling sorghum to ethanol producers.

ADM said earnings rose to $393 million, or 70 cents per share, from $339 million, or 59 cents, a year earlier. Results were bolstered by U.S. tax changes and biodiesel tax credits, company officials said.

SOYBEAN BONANZA

Much of the good news was focused on ADM’s oilseeds business, where profits rose to $350 million for the quarter, up 12 percent from the year-ago period, on an 8 percent increase in revenue to $5.63 billion.

The company said that unit could hit more than $1 billion in operating profit this year.

“That’s a significant increase over the about $850 million of adjusted operating profit that we achieved last year,” CEO Luciano told analysts on a call Tuesday.

The company hit record volumes of soybean processing, driven by animal feed demand in the wake of serious drought in Argentina, the world’s top supplier of soymeal. In the United States, the company was running above 95 percent of its crush capacity through March, Luciano said.

ADM said the spike in soybean processing volumes both in North and South America was not immediately apparent in revenues as a result of $100 million in “negative timing effects” ADM faced on forward hedges. Commodities companies use hedges to lock in profits for future quarters.

Luciano said the position was expected to reverse later in 2018.

This is the first quarter to reflect new business segments since ADM completed the restructuring of its business units in March. (Additional reporting by Akshara P in Bengaluru; editing by Jonathan Oatis and Paul Simao)

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