ST. LOUIS (AP) — Agribusiness conglomerate Archer Daniels Midland said Tuesday its second fiscal quarter profit jumped 29 percent as a recovery in the ethanol industry and growing demand for grains boosted revenue and profit margins.
The results easily beat Wall Street expectations, and Archer Daniels Midland's shares climbed $2.06, or 6.3 percent, to $34.73 in midday trading.
The company, whose operations range from processing crops to making ethanol and shipping food exports, said Tuesday its net income was $732 million, or $1.14 per share, for the three months ended Dec. 31. That's up from $567 million, or 88 cents per share, a year earlier.
Analysts surveyed by FactSet expected earnings of 78 cents per share.
Revenue rose 31.6 percent to $20.93 billion from $15.93 billion a year ago. Analysts expected $17.24 billion.
The Decatur, Illinois, company said its results were driven by higher profits in its corn processing division, which includes its network of ethanol plants, and in its agricultural services division, which includes grain trading.
The results surprised many analysts who expected moderate improvement as global demands for crop-based fuel and grains. Much of the gain resulted from Archer Daniel Midlands ability to trade grain on global markets, both buying and selling large quantities of crops in a way that lets it benefit whether prices rise or fall.
"We postulated that upside could come from trading operations, and boy did it! This report looks to us like the best possible outcome," Citi Investment Research & Analysis David Driscoll said in a note to clients Tuesday.
The company's outlook was bolstered by a recent ruling by the Environmental Protection Agency to allow for a higher percentage blend of ethanol into gasoline. But Chief Executive Officer Patricia Woertz warned that the new regulations won't be a short-term bonanza. She said many older cars still haven't been approved to use the higher 15 percent ethanol blend, so it will take time to see the full impact on ethanol demand.
"I think it will take some time to see higher levels of blending regularly at the pump," Woertz told analysts during a conference call.
Ethanol profits were bolstered in the second quarter by higher gasoline prices, which help Archer Daniels Midland widen profit margins and cover its costs of buying corn as a feedstock for its plants. Archer Daniels Midland does not break out its ethanol results, but it said its second-quarter operating income rose $161 million to $280 million in the bioproducts division, which includes ethanol and food additives like lysine. The company said the increase was driven by higher ethanol sales and profit margins.
At the same time, operating income rose $276 million to $426 million for the second quarter in the agricultural services division. Growing exports boosted income in the merchandising and handling segment by $273 million to $376 million.
But the company was pinched by the continued anemic spending by U.S. consumers at home, which has eaten into profit margins for ingredients that are critical for most processed foods. Operating profits in the sweeteners and starches division fell $52 million from the prior year to $119 million, due to lower average selling prices.