UPDATE 3-ADM's lower profit misses Street view, shares fall

Tue May 5, 2009 2:46pm EDT

* Q3 net earnings $8 million, or 1 cent per share

* Earnings fall 98 pct on one-time charges, lower sales

* Excluding charges, Q3 share 37 cts vs Street view 49 cts

* Ethanol uncertainty adds pressure, shares down 10 pct (Recasts, adds quotes and background, updates stock activity)

By Karl Plume

CHICAGO, May 5 (Reuters) - Archer Daniels Midland Co (ADM.N) shares were down 10 percent on Tuesday after the U.S. agricultural processor reported a 98 percent drop in quarterly earnings due to sales slowed by the recession and one-time equity investment losses.

The release of a draft rule by the U.S. environmental regulators to scrutinize the carbon footprint of biofuels production more closely alos pressured the shares of ADM, a top maker of corn-based ethanol fuel in the United States.

"The results weren't great, the outlook was a little tepid and there is this uncertainty about ethanol," said Christina McGlone, an equities analyst at Deutsche Bank Securities.

A draft rule issued by the U.S. Environmental Protection Agency on Tuesday was designed to reduce the impact of biofuels on the climate and on food prices. [ID:nN05476101] But analysts said it could impact the profitability of some ethanol plants.

ADM currently has the capacity to produce about 1 billion gallons of ethanol a year at its U.S. wet corn mills, with capacity for an additional 550 million gallons under construction.

About 20 percent of U.S. ethanol capacity is currently shut down industrywide due to thin margins caused by historically high corn feedstock costs and weak fuel demand.

DULL DEMAND

Operating profit in ADM's oilseed and corn processing segments, agricultural services and other segments fell 72 percent on dulled demand for raw materials and fuel.

ADM is one of the largest processors of corn and soybeans and producers of ethanol in the United States.

Its weaker-than-expected earnings follow similarly disappointing results last month from other agribusinesses, including Bunge Ltd (BG.N) and privately held Cargill.

"Overall, operating results were generally weaker and all of our segments were down compared to last year's exceptionally strong third quarter results," said ADM CEO Patricia Woertz.

"However, we do feel we performed relatively well given the global downturn, the tough economic conditions, weaker demand and reduced volatility."

For the third quarter that ended March 31, Decatur, Illinois-based ADM reported a net profit of $8 million, or a penny per share, negatively impacted by two charges related to equity investments.

Excluding the charges, ADM said it would have earned 37 cents per share.

But that still fell short of analyst expectations for 49 cents per share on average, according to Reuters Estimates.

In the same quarter a year ago, ADM reported a profit of $517 million, or 80 cents per share.

Revenue fell 21 percent to $14.84 billion, hurt by lower average selling prices and smaller sales volumes.

ONE-TIME CHARGES

Two equity investment losses offset the bulk of ADM's earnings for the quarter, including a $132 million noncash, after-tax charge related to foreign currency derivative losses in ADM's investment in Mexican food processor Gruma S.A.B. de C.V. (GRUMAB.MX).

ADM also reported a $97 million income tax charge in the third quarter related to its investment in palm oil and oilseed processor Wilmar International Ltd (WLIL.SI).

In converting its Wilmar investment from indirect to direct ownership, ADM was expected take an additional charge of $60 million in the fourth quarter and a final, yet undetermined tax charge in 12 months to 18 months, ADM CFO Steve Mills said.

ADM said oilseeds processing profit slipped 6 percent to $224 million due to poor crush margins in North America and weak fertilizer margins and reduced demand in South America.

Profit from corn processing fell to $49 million from $172 million a year ago as increased operating profit in corn starches and sweeteners was more than offset by continued struggles in its ethanol business.

Ethanol producer margins have been under pressure from soft fuel demand and high corn input costs and analysts say the recession could keep a lid on ethanol prices during the normally strong demand summer driving season.

Profit in ADM's agricultural services segment dropped to $121 million, down $245 million from the same quarter last year, as agricultural commodity supplies increased globally while demand eased.

ADM shares were down 10 percent at $23.53 in afternoon trading on the New York Stock Exchange. (Reporting by Karl Plume; Editing by Maureen Bavdek and Andre Grenon)

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