ADM misses profit estimates on US demand dip and lower crush margins

By P.J. Huffstutter and Tanay Dhumal

(Reuters) -Global grains merchant Archer-Daniels-Midland Co shares dropped 2% on Tuesday after the company missed Wall Street expectations for second-quarter profit, which were hit by lower soy crush margins and waning demand for U.S. crops.

Such lower profits reflect the challenge global grain merchants and oilseed processors now face, as crop prices hover at nearly four-year lows due to a hefty global stockpiles of corn and soybeans.

The company reported adjusted profit of $1.03 per share for the three months to June 30, against analyst expectations of $1.22 per share, LSEG data shows. Executives maintained their full-year guidance, but cautioned supply-demand pressures could weigh on its largest business unit in the coming months.

The company's Ag Services and Oilseeds arm suffered a 56% year-on-year plunge in quarterly operating profit due to a slew of challenges, from South American farmers slow to sell their crops amid rising export buyer demand, to global soybean crush margins getting squeezed and biodiesel margins tightening.

Sales of U.S. soybeans have lagged. China, the world's largest soy buyer, has stepped up its purchases in recent weeks, but traders believe that most of the deals have involved low-priced Brazilian supplies.

As buyers turned to South America, that shift weighed on the company's North American business, ADM said.

"We expect these dynamics to continue to pressure margins in our third quarter," ADM's chief executive officer Juan Luciano told analysts on an earnings call.

ADM's global soybean crush margins also were squeezed. Crushing plants produce high-protein soymeal feed for livestock and soyoil for food and fuel.

ADM and other U.S. soy processors have faced pressure as biofuel producers cut back on their use of soyoil, turning instead to cheaper alternatives like imported used cooking oil.

Luciano said ADM expected its crush and ethanol business fundamentals to improve going into the second half of the year. He also noted that ADM was "reducing our footprint to match supply and demand around the globe."

Carbohydrate Solutions segment, which includes ethanol and sweeteners, saw operating profits up 12% compared to the prior year period on higher starches and sweetener volumes and better margins.

The Nutrition segment posted a 36% drop in its quarterly operating profit, due in part to higher manufacturing costs and continued downtime at its Decatur East soy processing plant.

The company did not comment on the multiple ongoing U.S. government investigations related to accounting irregularities. Manufacturing giant 3M's Monish Patolawala is set to start later this week as ADM's new chief financial officer.

(Reporting by Tanay Dhumal in Bengaluru and PJ Huffsutter in Chicago; Editing by Maju Samuel, David Goodman and Nick Zieminski)