* 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 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
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
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
"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
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.