ADM net profit more than doubles on ethanol
Thursday, August 3, 2006, 12:29
Archer Daniels Midland Co., the world's largest ethanol producer, said profit more than doubled in the Q4 on rising demand for the corn-based fuel as gasoline prices surged. Net income rose to $410.3 million, or 62 cents a share, in the quarter ended June 30, from $195.5 million, or 30 cents, a year earlier, Decatur, Illinois-based Archer Daniels said on Tuesday in a statement. Sales rose 1.3% to $9.55 billion. Ethanol profit jumped nearly sevenfold to $174 million, and soybean processing more than doubled on lower costs CEO Patricia Woertz, a former oil executive, wants to increase production capacity for alternative fuels by 50% by 2008. Shares of ADM are up 78% this year. „The market was already expecting a beat in the quarter, but the results on Tuesday were high quality enough to potentially exceed those expectations,” Credit Suisse analyst David Nelson wrote in a note to investors. Still, the results may have been discounted by investors who consider the earnings from ethanol to be „the result of unusually high spot prices” and therefore one-time gains, Nelson said.
ADM benefited as ethanol futures on the Chicago Board of Trade jumped 44% to $2.56 a gallon in the past year. Archer Daniels plans to increase ethanol production capacity to 1.6 billion gallons by 2008, from the present 1.1 billion gallons. US refiners and fuel blenders earlier this year switched to ethanol as the primary blending component in gasoline following rule changes in an energy bill passed by Congress last year. The Energy Policy Act requires refiners to almost double ethanol use to 7.5 billion gallons a year by 2012. „The numbers for ethanol work in a huge way at current price levels for wholesale gasoline and corn,” Credit Suisse's Nelson said in a July 25 note to investors.
ADM's operating profit from corn processing, which includes ethanol refining, corn milling and production of sweeteners, more than doubled to $285.9 million from the year-ago quarter. Operating profit from crushing soybeans into cooking oil and animal feed, surged to $194.7 million from $73.9 million. Soybean futures traded in Chicago have fallen 14% in the past year as US farmers harvested the second-biggest crop ever in 2005, boosting reserve inventories to a record on June 1. The US is the biggest grower of the oilseed. The average profit from crushing a bushel of soybeans into vegetable oil and animal feed in central Illinois during the quarter rose 36% to 90 cents, according to data compiled by Bloomberg from the US Department of Agriculture.
For the full year, ADM earned $1.31 billion, or $2 a share, up from $1.04 billion, or $1.59 a share. Five analysts surveyed by Thomson were expecting earnings of $1.89 a share, on average. Full-year sales totaled $35.6 billion, up from $35.9 million in the previous year. ADM crushes grain and oilseeds to make animal feed, sweeteners, flour, cocoa butter and ethanol. The company, which also trades and transports grain, has about 26,000 employees and operates more than 270 processing plants worldwide, including facilities in China. It has 19 oilseed crushing plants overseas, with the capacity to crush about 88,000 metric tons of grain a day, according to the company's annual report. (Bloomberg)