(Updates with decline in stock price, analyst and executive comments)
By Tom Polansek
April 29 Archer Daniels Midland Co shares tumbled on Tuesday after the agribusiness giant reported that a harsh U.S. winter took a bigger-than-expected bite out of quarterly profits.
Illinois-based ADM became the latest major agricultural trading house to detail how weather-related disruptions to rail service hurt results after rival Cargill Inc this month said the problems contributed to a 28 percent drop in earnings. Analysts expect the rail backlog will also impact Bunge Ltd's earnings, due out on Thursday.
The rail disruptions, which slowed grain shipments, came at a particularly bad time for the U.S. agriculture industry because traders were scrambling to transport crops from massive autumn harvests to buyers overseas. As the backlogs ease, importers will increasingly be making purchases from South America, which is harvesting fresh crops.
The impact on earnings disappointed investors who had been hoping that large U.S. harvests would boost profits for agribusiness by providing more crops for them to handle, process, export and store. Tight supplies squeezed companies last year after a severe U.S. drought in 2012.
On the New York Stock Exchange ADM was down 2.7 percent at $43.15 per share, hitting its lowest price since March 26.
"We were expecting results to be much better compared with 2013, given that the agricultural complex in the U.S. is finally working through the effects of the drought," Morningstar analyst Jeff Stafford said.
Earnings for grain merchandising and handling operations, a core part of ADM's business, dropped 19 percent from a year earlier to $69 million during the quarter ended March 31. Overall, the company earned $267 million, or 40 cents per share, down from $269 million, or 41 cents. Adjusted earnings were 55 cents per share, up from 46 cents a year ago but below analysts' estimates for 74 cents.
Profits were limited by low margins in the business of storing grain for farmers, who postponed selling their crops until prices increased.
"With the farmer not selling and the basis not breaking and the weather getting in the way, I think that was the combination," ADM President Juan Luciano told analysts on a conference call.
Basis the industry pricing convention for the difference between cash grain prices and futures prices. Slow sales of crops by farmers forced end users like ADM to increase basis bids to buy grain, eating into their margins.
ADM called the ethanol market "robust" and reported a quarterly profit of $196 million for its corn processing unit, up from $153 million a year ago.
WANTED: ANOTHER MASSIVE HARVEST
ADM needs another large U.S. corn harvest to realize the full potential of its agricultural services division, which includes grain merchandising and handling, Luciano said. Farmers were behind their usual corn planting pace as of Sunday.
"If the corn crop and soybean crop are just getting planted, there's a long way to go," said Ari Gendason, managing principal for investment firm Arlon Group.
Earnings for the agricultural services division were weak at $153 million, up just slightly from a year ago, ADM Chief Executive Officer Patricia Woertz said.
ADM earlier signaled it was attempting to refocus on grain trading by selling its fertilizer operations in South America, seeking a buyer for its chocolate business and taking full ownership of grain trader Alfred C. Toepfer International, analysts said.
The company reported a $65 million charge for the timing effects on its corn hedges and a $24 million charge for its cocoa hedges. Together, the charges likely knocked down earnings by about 9 cents a share, according to ADM.
The cocoa business returned a profit in the quarter after losses a year earlier, the latest sign of a turnaround at the niche division. (Reporting by Tom Polansek, Editing by Franklin Paul and Alden Bentley)