CHICAGO U.S. agricultural processor Archer Daniels Midland Co posted higher quarterly earnings but an uncertain outlook and a broad sell-off in equities dragged its stock down more than 5 percent.
Improved oilseed processing and ethanol margins, and rising demand for grains, boosted ADM's fiscal third quarter but weak ethanol margins and uncertainty about near-term demand growth for corn-based biofuel were seen weighing on the shares.
"There wasn't a very clear outlook from them. There might be people thinking the risk/reward is good but there are other opportunities," said Christina McGlone, an analyst with Deutsche Bank.
Shares of ADM, which typically declines to give guidance about future earnings, were down 5.3 percent in afternoon trading to $26.25, their lowest level in 10 months.
Shares of ADM's agribusiness rival Bunge Ltd, which is less reliant on ethanol in the United States, were down about 2.7 percent, while the broader market as measured by the S&P 500 fell 2.4 percent, investors concerned Greek debt woes could spread.
"(Poor ethanol margins) have definitely been weighing on the (ADM) stock. That, and the fear of soybean crush margins and utilization coming down is why it's been weak over the past few months," McGlone said.
For its third quarter ended March 31, ADM reported net earnings of $421 million, or 65 cents a share, compared with $3 million, or nil per share, a year earlier.
Excluding costs for buying back debt, ADM posted earnings of 72 cents per share, matching the average analyst estimate, according to Thomson Reuters I/B/E/S.
Third quarter revenue rose to $15.145 billion, compared with $14.842 billion a year earlier.
ETHANOL MARGINS ERODE
ADM's corn processing segment profit increased to $104 million, up from $49 million the prior year, as bioproducts results rebounded from a loss last year on lower average corn prices and improved ethanol margins.
But sweeteners and starches profit dropped from a year earlier on lower average selling prices.
ADM, the second largest U.S. ethanol producer, said industry margins have since narrowed to about break-even, hurt by record production and weak ethanol prices.
The U.S. Environmental Protection Agency is considering raising the allowable blend of ethanol in the fuel supply to 15 percent, from 10 percent currently, but how soon that may be approved and implemented remains unclear.
"It is a difficult environment right now with the blending wall and the additional capacity. One of those two will have to be solved for the industry to start having better returns," said John Rice, ADM executive vice president for commercial and production.
Operating profit in ADM's oilseeds processing segment rose 81 percent to $405 million in its fiscal third quarter as last year's drought-reduced South American soybean crop boosted margins and volumes at ADM's North American facilities.
Strong oilseed demand in Asia and improved demand for vegetable oil-based biodiesel in Europe and South America further bolstered ADM's profit in the segment.
Agricultural services segment profit increased to $165 million, up $44 million from a year ago, on abundant global grain supplies and steadily rising demand.
ADM's other business segments, which include wheat and cocoa processing, posted net earnings of $22 million, compared with a loss of $140 million a year earlier.