Archer Daniels Midland Co. (ADM), a farm products company, will have likely to bear the brunt of worldwide weakness in oilseeds margin, especially in Europe, in the third quarter too. This is on the back of uncertain global economic conditions continue to haunt various sectors, particularly the continued confusion prevailing over the Euro Zone.
The company's second quarter adjusted earnings failed to meet analysts' estimations, but revenues came in above expectations. The earnings were missed due to fall in oilseed and higher corn costs.
Recently, ADM disclosed its intention of cutting down its workforce by 3 percent or 1,000 jobs in an effort to reduce the costs for improved profitability. The company seemed to have had no option but to do that just ahead of second quarter results to limit negative sentiments.
Q2 results
The Decatur, Illinois-based Archer Daniels Midland delivered net income of $80 million or 12 cents a share, 89 percent down from $732 million or $1.14 a share in the year-ago quarter. Adjusted earnings were 51 cents a share, down 58 percent from the year earlier quarter.
Revenues, however, grew 11.4 percent to $23.3 billion from $20.9 billion in the previous year quarter. Wall Street analysts predicted the company to deliver earnings of 76 cents a share on revenues of $22.82 billion.
Archer Daniels Diamond blamed the continued sluggishness in worldwide oilseeds crushing margins, more so in European Union, hurting its overall results.
Analyst Take
Earlier in January, analysts have warned downward tendency in grain and oilseed prices as the markets have become extremely high. The livestock and grain tables are turning. This happens only when grain spike levels off, while producers of meat move into upward trajectory. The different commodity indices and markets also point to a downtrend.
iStock Punch
The weakness in the industry will likely to continue to impact its margins. The saving grace is that revenue is coming above estimations. Not much can be expected in the near term and one can consider entering the counter if any positive news emerges from the sector.