High commodity costs spur disappointing ADM earnings

The world's biggest grain processor, Archer Daniels Midland Company (ADM), announced its latest quarterly earnings on Monday, disappointing investors.

ADM reported financial results for its first fiscal quarter, which ended September 30. Company officials said net earnings hit $460 million, representing a 33 percent uptick from the same period in 2010. However, the company's adjusted earnings per share fell 13 percent from 2010 to $0.58. Segment operating profit declined by 9 percent to $699 million.

The company's earnings largely missed expectations, according to Bloomberg. The company's profit took a hit, analysts said, because of low corn supplies and weak oilseed-processing margins.

"The first quarter presented a difficult and challenging market environment," ADM chairwoman Patricia Woertz said in a statement. "Margin conditions in our global oilseeds segment were generally weak, and net corn costs were high. We offset some of these pressures with good management of our commodity positions and by capturing opportunities through our broad and diverse portfolio."

ADM dealt with a volatile commodities market during the quarter, according to analysts. The prices of many commodities have surged over the past few years, squeezing profit margins at companies that deal in them. ADM worked to shore up oilseed supplies by acquiring facilities in other countries, but high commodity costs drove business costs higher.

In a report it released on October 12, the U.S. Department of Agriculture projected global corn inventories to fall 5 percent at the end of the 2011 to 2012 crop year. Amid such tightening of supplies, ADM struggled to implement a business cost reduction program.

"During the quarter, we acquired oilseeds facilities in Poland and India, and expanded our agricultural services operations to support exports. And we returned capital to shareholders through dividends and share buybacks of $347 million," Woertz added. "Looking ahead, we see the margin environment modestly improving, and we are optimistic about the long term."

Nevertheless, analysts said the company's performance was underwhelming. Jefferies & Co. analyst Jeff Farmer asserted the company's oilseed-processing unit's performance was "a little softer than expected."

The company purchased oilseed-processing plants in India and Poland to bolster capacity. Moreover, it increased its agricultural services operations by buying transportation vessels last month.