10-QPeriod: Q3 FY2006

Archer-Daniels-Midland Co Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 7, 2006For Securities:ADM

Summary

Archer-Daniels-Midland Company (ADM) reported strong financial performance for the first quarter of fiscal year 2007, ended September 30, 2006. Net earnings significantly increased by approximately 116% to $402.7 million, or $0.61 per diluted share, compared to $186.3 million, or $0.29 per diluted share, in the same period last year. This substantial growth was driven by robust operating profit increases across key segments, particularly Corn Processing and Oilseeds Processing, benefiting from favorable market conditions, strong demand, and improved crushing margins. The company highlighted improved operating conditions in its core segments. Oilseeds Processing saw a significant uplift due to strong biodiesel demand in Europe and abundant oilseed supplies in North America, leading to improved crushing margins. Corn Processing benefited from increased gasoline prices and strong ethanol demand, along with solid demand for sweeteners and starches. Agricultural Services also performed well due to abundant supplies and increased demand for transportation services. These positive trends contributed to a notable increase in overall net sales and profitability, positioning ADM for continued strong performance.

Key Highlights

  • 1Net earnings surged by 116% to $402.7 million for the quarter ended September 30, 2006, up from $186.3 million in the prior year period.
  • 2Diluted earnings per share (EPS) increased to $0.61 from $0.29 year-over-year, reflecting the strong profit growth.
  • 3Net sales rose 10% to $9.4 billion, driven by increased sales volumes and higher selling prices across various segments, especially Corn Processing and Agricultural Services.
  • 4Operating profit from Oilseeds Processing more than doubled, increasing by $70.5 million, attributed to improved crushing margins and strong biodiesel demand.
  • 5Corn Processing operating profit saw a substantial increase of $154.2 million, primarily due to higher ethanol prices and strong demand in sweeteners and starches.
  • 6Agricultural Services operating profit grew significantly by $91.2 million, driven by increased origination volumes and favorable transportation conditions.
  • 7The company maintained a strong liquidity position with working capital of $6.0 billion and a current ratio of 1.9 to 1 as of September 30, 2006.

Frequently Asked Questions

The substantial increase in net earnings was primarily driven by strong operational performance across key segments. Favorable market conditions, including robust demand for biodiesel and ethanol, improved oilseed crushing margins, and abundant agricultural commodity supplies, significantly boosted operating profits in Oilseeds Processing and Corn Processing. Agricultural Services also contributed positively due to increased origination volumes and favorable transportation demand.

All major segments showed significant improvement. Oilseeds Processing operating profit increased by approximately 71%, Corn Processing by about 113%, and Agricultural Services by over 450%. The 'Other' segment saw a decrease in operating profit, primarily due to lower performance in cocoa and wheat processing, though financial activities within this segment improved.

ADM maintained a strong liquidity position, with working capital of $6.0 billion and a current ratio of 1.9 to 1 as of September 30, 2006. The company also demonstrated strong capital resources with an increase in net worth and a healthy long-term debt to total capital ratio of 28%. The company's objective is to maintain sufficient liquidity and balance sheet strength to fund its capital-intensive business.

The report noted the upcoming adoption of new accounting standards, including FIN 48 (Accounting for Uncertainty in Income Taxes) effective July 2007 and SFAS 157 (Fair Value Measurements) effective July 2008. SFAS 158 (Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans) will require balance sheet recognition of funded status starting June 30, 2007. Regarding market risks, there were no material changes in the company's exposure to marketable equity securities, private equity investments, foreign currency exchange rates, or interest rates. Commodity price risk was quantified, showing a potential loss of $68 million from a hypothetical 10% adverse price change on the highest net commodity position during the quarter.