Ethanol sales yield strong harvest for ADM in third quarter

ADMethanol
Ethanol is a major component of ADM’s biofuel segment. Photo courtesy of ADM.

By Nicholas Heinzmann

Archer Daniels Midland Company, fueled by strong demand for ethanol and low corn prices, reported stronger-than-expected third quarter earnings Tuesday. Shares soared 4.9 percent on the news.

Net income at the world’s largest corn processor grew nearly 57 percent compared with the year-ago period, to $747 million, or $1.14 per diluted share, from $476 million, or 72 cents per diluted share. Revenues sagged in the third quarter, falling 18 percent to $18.1 billion from $20.2 billion.

Taking one-time items into account, ADM reported adjusted earnings per share of 81 cents, compared with 47 cents per share one year ago. That topped by 8 cents the 73 cents analysts surveyed by Bloomberg had been expecting.

Strong sales in ethanol and sweeteners drove ADM’s results. High demand for both products and record low corn prices helped the company nearly double operating profit in its corn processing segment. But the question on Wall Street is whether that success can carry over into the next quarter.

profitcompare

“ADM’s ethanol business could continue to struggle relative to historical profitability,” said Jeffery Stafford, a senior analyst with Morningstar Inc. “Overcapacity looms as a potential threat, given the disparity between the level of corn ethanol mandated by the renewable fuel standard and future U.S. gasoline demand.”

Corn-based ethanol is blended with gasoline to create a partially renewable fuel. While a federal mandate will soon raise the amount of ethanol in that blend to 15 percent — the current ratio is 10 percent ethanol to 90 percent gasoline — Stafford expects demand for gasoline to decline simultaneously as engines become more efficient. This translates to potentially low sales growth for ADM over the longer term.

Still, hitting the brakes on U.S. ethanol sales may not threaten ADM’s growing export market. President and COO Juan R. Luciano said ethanol exports are projected to grow 25 percent in 2015, to $1 billion from $800 million. As the U.S. “becomes a more regular and reliable supplier at global markets” for ethanol, ADM expects continued strong results from its ethanol segment, Luciano said.

ADM shares closed Tuesday at $49.54 up $2.29 from the day before.