Global agribusiness giant ADM has cut its full-year outlook due to lower crushing margins and regulatory uncertainty in the biofuels sector, World Grain reported.
Lower crushing margins also held back the company’s financial results in the third quarter ended 30 September, the 5 November report said.
Adjusted earnings totalled US$448M in the quarter, down 15% from US$530M in the same period the previous year.
Revenues increased by 3.6% from US$19.94bn to US$20.37bn.
“With a challenging industrywide operating environment, we remain flexible, adapting plans where needed, taking action on what is in our control and investing for long-term growth,” ADM president and CEO Juan Luciano was quoted as saying in a 4 November earnings call.
“A key part of this dynamic environment relates to the status of highly anticipated US biofuel policy. We believe progress on this front will drive significant biofuel and renewable diesel demand and lead to elevated pricing, volumes and margins across several of our key operating areas, which we expect will set up a constructive environment over the long run, but based on the current short-term environment, our Ag Services and Oilseeds business is significantly impacted.”
Within ADM’s Ag Services and Oilseeds segment, operating profit fell by 21% from US$480M to US$379M. In the first nine months of the fiscal year, the segment had operating profit of US$1.17bn, down 35% from US$1.80bn.
In the crushing sub-segment, operating profit was 93% lower in the quarter, falling from US$187M to US$13M. Lower margins were the result of slower demand due to the deferral of US biofuel policy.
“Both global soyabean and canola crush execution margins were significantly lower than the prior-year quarter,” ADM chief financial officer Monish Patolawala was quoted as saying.
“Soyabean and canola crush margins were down most significantly in North America, driven by global trade evolution and reduced biofuel production.”
Within the refined products and other subsegment, operating profit was 3.2% lower at US$120M compared with US$124M. The deferred biofuel policy had restrained North American demand, which negatively impacted biodiesel and refining margins, ADM said.
“Given the deferral in US biofuel policy and other global movements, it is difficult to predict the timing of when we will see a structural increase in biofuel demand,” Luciano said.
In the ag services sub-segment, operating profit increased by 78% from US$107M to US$190M, driven primarily by higher export activity in North America. In the Wilmar sub-segment, operating profit decreased by 10% from US$62M to US$56M.
In the nine months ended 30 September, ADM had net earnings of US$622M, down 50% from US$1.23bn in the same period of the previous year. Adjusted net earnings in the nine months totalled US$1.24bn down from US$1.79bn.
At US$61.71bn, nine-month revenues were down by 3.6% from US$64.03bn.
“The two big events that will move commodity prices will be clarity on the China trade deal and regulatory clarity on the biofuels policy, and until then, things are going to be a little bit hand-to-mouth for a while,” Luciano said.
