UPDATE 2-GrainCorp charges hurt ADM profit, overshadow lower corn cost

Tue Feb 4, 2014 1:56pm EST

By Karl Plume

Feb 4 (Reuters) - U.S. agribusiness giant Archer Daniels Midland Co said Tuesday it remained committed to expanding its global reach to satisfy Asia's fast-growing demand for food, despite a failed bid to acquire Australian grain handler GrainCorp.

Charges relating to the GrainCorp deal contributed to a 27-percent drop in ADM's fourth-quarter profit, overshadowing strength in its corn processing and oilseeds businesses as lower crop prices boosted margins.

The Decatur, Illinois-based company had pursued grain handler GrainCorp for 13 months before Australia's government blocked the deal in November. ADM retains a stake of about 20 percent in the company.

"The strategic rationale for ownership in GrainCorp remains the same today as it did before with its good business location, strategic region and proximity to Asia. We're pleased with our current ownership stake and have no plans to sell it at this time," said ADM Chief Executive Patricia Woertz.

A strong balance sheet will allow ADM to pursue additional investments in 2014, but the company's focus could be on "consolidation plays," said Chief Operations Officer Juan Luciano.

"This is an industry of relatively high capital intensivity and low margins so you need to make sure you are very prudent in how you invest so you return the cost of capital," he said.

Shares of ADM slipped 0.4 percent to $38.76 in afternoon trading on the New York Stock Exchange.

BUMPER CROPS

ADM reported strong results in its corn processing and oilseeds divisions as bumper U.S. crops, following an historic drought in 2012, replenished supplies and bolstered margins. The company also highlighted good demand for ethanol and biodiesel.

ADM is one of four large agribusinesses known as the ABCDs that dominate the global grain trade. The others are Bunge Ltd , Cargill Inc and Louis Dreyfus Corp.

Cargill Inc last month reported a surge in quarterly profit as lower crop prices boosted grain processing margins and buoyed profits in its meat business.

Benchmark corn prices on the Chicago Board of Trade are down about 40 percent from last summer's highs while soybeans are down about 20 percent.

ADM's agricultural services segment struggled to capitalize on the U.S. grain bounty as some farmers resisted selling at lower prices, striking a blow to its grain trading returns.

Poor international merchandising results further dragged on the segment, including a small impact from cancellations of U.S. corn sales to China amid a dispute over an unapproved biotech variety.

ADM viewed the slow farmer sales of corn in the United States mostly as a delay, similar to limited South American sales in the first quarter last year. U.S. corn has already started to flow in 2014 and more will eventually come to market.

"We expect ag services results to improve from what we saw in Q4 as we go forward and we commercialize the full crop," said Luciano.

Analyst Morningstar on Tuesday raised its fair value estimate for ADM stock to $39 a share from $37 previously due to the big U.S. crop and lower corn prices.

Still, ADM, one of the world's largest ethanol producers, may face challenges in the coming year as the U.S. Environmental Protection Agency considers a proposal to reduce biofuel blending requirements.

PROFIT SLIPS

For the quarter ended Dec. 31, ADM earned a net profit of $374 million, or 56 cents a share, compared with $510 million, or 77 cents a share, a year earlier, the company said.

Adjusted earnings, which excluded GrainCorp-related charges and other items, were 95 cents a share, up from 60 cents a share a year earlier and 10 cents above the consensus estimate, according to Thomson Reuters I/B/E/S.

Revenue slipped to $24.1 billion, from $24.9 billion in the same quarter a year ago, below forecasts for $24.7 billion.

Oilseeds processing profit rose 16 percent to $478 million in the quarter while corn processing earnings surged to $279 million from just $3 million a year ago.

Agricultural services profit fell to $46 million, down $271 million from the same quarter the prior year.

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