ADM fourth-quarter profit misses as U.S.-China trade war stings, shares drop

The Archer Daniels Midland Co. (ADM) logo is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 3, 2018. REUTERS/Brendan McDermid·Reuters
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By P.J. Huffstutter

(Reuters) - U.S. grains trader Archer Daniels Midland Co on Tuesday reported lower-than-expected fourth-quarter 2018 earnings as the U.S.-China trade war roiled global agriculture, sending its shares down more than 6 percent.

Three of its four business units reported lower results, including ADM's grain trading origination business, where adjusted operating profit slumped 30 percent to $183 million despite higher volumes of North American corn and soybean exports to markets outside of China.

Profits were also hurt by "significant insurance settlements" among ADM's businesses tied to sorghum shipments in early 2018.

Last April, Reuters reported that several ships carrying cargoes of sorghum, a niche animal feed, from the United States to China changed course after Beijing slapped hefty anti-dumping deposits on U.S. imports.

An anti-dumping probe by Beijing, which halted trade between the world's biggest buyer and seller of the grain early last year, was among the first fights between the United States and China, which are still embroiled in a trade war.

ADM's origination unit, which buys grain from farmers, received an intra-company settlement in the quarter from its captive insurance subsidiary related to sorghum shipments intended for China in the first half of 2018, ADM said in a statement to Reuters on Tuesday.

One key bright spot was its oilseeds unit, with quarterly operating profit more than doubling. The unit crushes soybeans and exports beans grown in Brazil and elsewhere.

Crush volumes for the quarter "were among the highest ever," with oilseeds' operating profit up almost 80 percent for full-year 2018 from the year earlier, ADM Chief Financial Officer Ray Young told analysts on a conference call.

Crush margins "will not be as spectacular" in 2019, ADM Chief Executive Officer Juan Luciano said on the call, although margins would be above the average from the last five years.

"Despite maybe some modest reduction in crush margins versus the previous year, we expect that we're well positioned to grow profits in 2019," Luciano said.


ADM's fourth-quarter woes came amid a bruising U.S.-China trade fight that virtually halted sales of U.S. soybeans to the world's top importer, swelling supplies and dragging prices to decade lows.

But as China turned to Brazil for its soybeans, grain traders including ADM jumped at the chance to ship the oilseeds from South America, and buy them at a discount from U.S. farmers for processing.

Luciano acknowledged that "rapidly changing trade, geopolitical and market conditions" had an impact on the company.

Profit also declined at ADM's other two business units. The carbohydrate solutions business was pressured in part by poor margins in corn-based ethanol production, while its nutrition group was hurt by lower sales and margins in Europe and the Middle East, and lower margins in North America.

ADM also had some production problems during the quarter, including a dust explosion and fire last November at its massive Decatur, Illinois, processing complex, hurting results.

Net earnings attributable to ADM fell to $315 million, or 55 cents per share, from $788 million, or $1.39 per share, a year earlier, when the company recorded $249 million in tax gains.

Excluding one-time items, the company earned 88 cents per share, while analysts, on average, estimated 92 cents, according to IBES data from Refinitiv.

Revenue fell to $15.95 billion from $16.07 billion. The consensus analyst estimate was $16.81 billion, according to Refinitiv data.

The stock was down 6.1 percent to $41.77 in early-afternoon trading.

(Reporting by P.J. Huffstutter in Chicago and Arundhati Sarkar in Bengaluru; Editing by Karl Plume and Jeffrey Benkoe)