Archer-Daniels-Midland Co. (NYSE:ADM) witnessed a decline in its shares as the agribusiness powerhouse cautioned about pressured margins for the remainder of the year, despite surpassing quarterly earnings expectations.
CEO Juan Luciano highlighted a combination of challenges, including ample grain supplies, slower farmer selling, and increased availability of alternative ingredients for biofuel production in the US, which are squeezing profits for crop traders and processors.
Shares of the Chicago-based company fell by as much as 5.5%, marking the most significant drop since January.
Luciano highlighted the industry’s transitional phase during a conference call with analysts, stating that the company is focusing on a combination of productivity and innovation to help offset increasingly challenging market conditions driven by growing commodity supply.
ADM’s cautious outlook reflects a shifting cycle for the ABCD group of companies dominating agricultural commodities trading. After years of robust profits amid volatile price fluctuations caused by factors like crop losses and geopolitical tensions, the market has stabilized. Prices for crops such as corn, soybeans, and wheat have eased, allowing buyers to operate with reduced inventories.
For the quarter ended March 31, ADM reported adjusted earnings per share of $1.46, a 30% decrease from the previous year but surpassing analyst estimates compiled by Bloomberg.
The company’s Ag Services and Oilseeds business, its largest segment, experienced profit declines due to stable trade flows and slower farmer selling in South America. Additionally, soybean crush margins in North America were impacted by increased imports of used cooking oil, an alternative ingredient for renewable diesel production, and anticipated large supplies from Brazil and Argentina.
However, ADM managed to partially offset these challenges with lower manufacturing costs and increased volumes. The company processed 9.39 million metric tons of oilseeds in the first quarter, surpassing analyst expectations.
ADM has been under scrutiny since a January accounting scandal led to a market value loss of over $8 billion in a single day. While a disclosed $137 million impairment charge last month was deemed mostly immaterial by analysts, ongoing investigations, including by the Department of Justice, continue to weigh on the company.
Last week, former Chief Financial Officer Vikram Luthar, who was placed on leave during the scandal, agreed to resign effective September 30.
The nutrition unit, central to the accounting investigations, saw operating profit decline by 39% from the previous year, primarily due to margins impacted by downtime at its Decatur East plant and market normalization. Operating profit in the Carbohydrate Solutions segment also decreased by 11%, attributed to lower domestic ethanol margins amid strong industry production and elevated stocks.
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