Rising tax, corn bills cut Archer Daniels profits

A hike in tax payments and a slump in profits from making high fructose corn syrup dragged earnings at Archer Daniels Midland down by $65m to well below Wall Street expectations.

The ethanol-to-elevators giant reported earnings down 14.6% at $381m for the April-to-June period, the fourth quarter of its fiscal year, equivalent to $0.58 a share.

The result fell well short of the rise in earnings per share to $0.85 that analysts had forecast.

Archer Daniels Midland shares tumbled 6.2% to close at $28.60 in New York, wiping $1.2bn from the group’s stocks market value.

Tax payment

The group attributed the earnings drop largely to a hike in its tax rate for the quarter to 50%, from 19% a year before, reflecting "several unfavourable tax specific items and changes in the geographic mix of earnings".

Altered by factors including a higher tax rate paid in the US, and a knock-on effect from the stronger Brazilian ral, ADM’s income tax payments soared to $385m in the period, from $105m a year before.

However, while terming the tax rate "atypical", the company acknowledged that its tax rate in the 2012 fiscal year, which started last month, would come in at 28-30%, up from 26% in 2010.

The group also revealed a 92% slump, to $9m, in profits from making sweeteners and starch from corn, proving unable to pass on completely in higher sales prices and volumes the higher costs it paid for the grain than a year before.

While ADM’s ethanol operations made a better fist of negotiating the rise in corn prices, which stand some 70% higher than a year ago, securing "favourable ownership positions", and secured a steep rise in income, the improvement was insufficient to prevent a drop in overall profits at the corn processing division.

Margin pressure

ADM’s other units raised profits, with agricultural services enjoying an uplift from elevators and export operations in North America, where the group’s oilseeds processing performance saw a particular rise too.

"Despite a challenging environment in several key markets, ADM delivered solid operating results across all our businesses for the quarter," Patricia Woertz, the group’s chairman and chief executive, said.

The company added that margins in the oilseed processing industry remained "under pressure", despite growing demand for vegetable meals and oils.

The group also highlighted "positive blending economics" for ethanol producers and "strong" global demand for crops and agricultural products.

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