February 6, 2018 / 12:20 PM / in 19 days

ADM earnings beat on higher income at agri, corn businesses

(Reuters) - Top U.S. grains merchant Archer Daniels Midland Co (ADM.N) posted better-than-expected fourth-quarter earnings on Tuesday, sending shares higher, as the company’s top executive said ADM was looking to grow through strategic mergers and acquisitions.

Chief Executive Officer Juan Luciano told analysts on a call that the company would not discuss recent media reports about ADM making a take-over approach of rival Bunge Ltd (BG.N).

Chicago-based ADM, which buys, stores and ships commodity crops, has been trying to invest in higher-margin businesses to boost earnings in a volatile commodity market. Projections of massive grain inventories have squeezed margins at grain traders.

To offset these pricing pressures, ADM has proposed a takeover of White Plains, N.Y.-based Bunge, according to a person familiar with the approach, which could set up a bidding war with Swiss-based rival Glencore Plc (GLEN.L).

“We don’t want to just invest to be big,” Luciano said on the analyst call Tuesday. “We just want to invest to plug holes in our value chain.”

Amid all the merger talk, ADM’s mixed performance for the fourth-quarter was helped by higher profits in agricultural services and corn processing.

ADM also benefited from U.S. tax reform, posting a net estimated $379 million quarterly benefit related to the new federal tax law.

The company reported a net profit of $788 million, or $1.39 per share, up from $424 million, or 73 cents per share, a year earlier. Excluding items, ADM earned 82 cents per share, beating analysts’ average estimate by 12 cents, according to Thomson Reuters I/B/E/S.

    However, total revenue fell 2.6 percent to $16.07 billion in the three months ended Dec. 31, amid continued sluggish demand for U.S. grains.

    ADM said profit from its agricultural services business jumped nearly 23 percent to $301 million last quarter, helped by higher marketing and insurance income.

    Looking ahead, it said it expects its agricultural services segment, its largest in terms of revenue, to be largely in line with last year’s first quarter. ADM also said it expects a glut of grain coming out of South America to keep pressuring U.S. agricultural exports.

    This indicated pressure on the global grain merchant and processor from increased competition, waning U.S. exports and an overstocked marketplace that has weighed on corn and soybean prices for years.

    Profit from selling processed products such as sweeteners, starches and bioproducts rose 2.3 percent to $261 million.

    ADM shares were up one-half percent in morning trading, at $40.80 a share.

    Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by David Gregorio

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