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ADM plans strategy to beat lower demand on strong Q2 profits

By Caroline Scott-Thomas , 04-Feb-2009

Agricultural processing giant Archer Daniels Midland (ADM) has reported strong second quarter results despite slowing demand, with profits up 24 percent compared to the same period last year.

However, chairman and CEO Patricia Woertz said in an earnings conference call: “Like every company in the world today, we see the impact and ramifications of the economic crisis… ADM is better positioned than most, but we are not immune.”

ADM reported a net profit of $585m for the second quarter ended December 31, up from $473m for the same period in 2008. Meanwhile, its net sales increased 1 percent in the quarter, to $16.7bn. The company explained that the 24 percent increase in profits was due to higher selling prices in comparison to underlying commodity costs, but said that this had been offset by lower sales volumes.

Despite its strong results, the company outlined its strategy to deal with the difficult economic climate, and highlighted its efforts to build liquidity as a buffer against market volatility.

Executive vice president and chief financial officer Steve Mills said: “Long term debt to equity levels returned to much more comfortable levels of 28 percent.”

Global strategy

With over 230 plants in more than 60 countries, the company underlined the advantage to be gained from global presence, saying that it allowed it to move crops from one area to another, and balance differences in localized demand.

“Growth in China will roughly offset lower demand elsewhere,” said Mills.

In terms of its plans to deal with the slowdown, he said: “We will manage each plant differently, whether that is running plants slower…or doing maintenance now instead of in the summer.”

Strong results, weaker outlook

ADM’s strongest results were in oilseed processing, with profits up 46 percent, and agricultural services, including grain storage and transportation, which saw profits rise 47 percent. The company said that its agricultural sector had benefited from finalizing sales for deliveries earlier in 2008, when prices were higher, a situation which contributed to a slight drop in its share price after the results announcement, as analysts predicted weaker futures.

Ethanol plummets

However, corn processing profit plunged 89 percent, from $275m in last year’s second quarter, to just $29m, due to a market oversupply of corn-based ethanol. The company said that demand has dropped, but despite poor results in the sector, ADM said that it intends to look for opportunities in the long term for its ethanol business, and is tipped to become the biggest producer of ethanol in the US in 2010, when it plans to open two new processing plants.

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