UPDATE 3-ADM advances GrainCorp bid; quarterly earnings drop
* ADM completes due diligence on Australia's GrainCorp
* Agribusiness company can "easily finance" deal -CEO
* Quarterly earnings miss Wall Street expectations
* Historic U.S. drought puts pressure on profits
By Tom Polansek
CHICAGO, May 1 (Reuters) - Archer Daniels Midland Co defended its plan to buy Australia's GrainCorp Ltd for A$3.0 billion ($3.1 billion), promising the grain handler was a good fit to help feed growing markets in Asia and the Middle East.
ADM, one of the world's top grain traders, said on Wednesday it has completed a due diligence review of GrainCorp's books and intends to move forward with a cash offer to acquire the Australian firm.
The Decatur, Illinois-based company also reported lower-than-expected earnings for the first quarter ended March 31, the latest agribusiness giant to cite lingering pain from a historic U.S. drought.
ADM is one of the four so-called "ABCD" companies that dominate the flow of agricultural goods around the world, along with Bunge Ltd, Cargill Inc and Louis Dreyfus Corp.
"We can easily finance this transaction," Chief Executive Patricia Woertz told analysts on a call.
GrainCorp last week agreed to back a sweetened A$3.0 billion ($3.1 billion) takeover bid from ADM, ceding control of Australia's largest independent grains handler after a six-month courtship.
The takeover, which still needs regulatory approval, is the latest move in the consolidation of the global grains sector amid competition to feed fast-developing countries like China.
It would boost ADM's international presence and give it an important foothold in Asian markets.
Moody's Investors Service on Tuesday placed ADM under review for a ratings downgrade because of the proposed deal. High crop prices and capital spending mean ADM's "ability to generate free cash flow is less certain," the agency said.
Morgan Stanley analyst Vincent Andrews, on ADM's call on Wednesday, questioned Woertz about her confidence in GrainCorp's future earnings. He cited "scuttlebutt" that 2012 was an above-average year for the Australian company.
ADM modeled earnings results for GrainCorp over a number of years and under varying crop conditions, Woertz said. The company expects synergies of A$50 million to A$70 million by the end of the second year.
"I think it's more about what we can do together once we have closed on the deal," she said.
ADM has been hurt by the worst U.S. drought in more than half a century, which devastated the corn harvest in the United States, the world's top grain producer.
Global grain and soybean supplies remain tight, limiting the volume of crops available for ADM and its rivals to buy, store, process, transport and sell. Buyers hope U.S. farmers bring in a large autumn harvest to replenish inventories.
"Until we have a new crop, we will struggle with the lack of volume," Chief Operating Officer Juan Luciano said, noting the second quarter will likely be "difficult."
ADM reported net earnings of $269 million, or 41 cents a share, for the first quarter ended March 31, down from $399 million, or 60 cents a share, a year ago.
Adjusted earnings per share were 48 cents, down from 78 cents a year ago, and below earnings of 51 cents expected by analysts surveyed by Thomson Reuters.
Profits in the agricultural services sector dropped 42 percent to $151 million.
Revenue totaled $21.72 billion, beating Wall Street's expectations of $21.33 billion.
Rival Bunge last week reported earnings of $170 million for the first quarter ended March 31, up from $84 million a year earlier, but warned that crop supplies were low. Results in Bunge's agribusiness sector were down from a year earlier.
Cargill last month said lingering pressure from the drought hurt its meat and grain operations, knocking earnings for the fiscal third quarter ended Feb. 28 by 42 percent.
ADM shares are up almost 23 percent so far this year, compared to a 2 percent decline in Bunge shares.
Ethanol was a bright spot for ADM, the largest U.S. producer of the corn-based biofuel.
The company brought its plants back to full capacity during the quarter ended March 31 due to improving margins and expects margins to "remain positive but volatile" for the rest of the year, Luciano said.
ADM's corn processing operating profit was $153 million, up $20 million from the same period one year earlier.
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