ADM says profit tumbles and issues gloomy view; shares drop

By Tom Polansek

(Reuters) - Archer Daniels Midland Co's quarterly earnings tumbled 44 percent on severance and restructuring costs and weaker trading profits due to a global grain glut, and the agricultural trader offered a gloomy 2018 forecast, sending its shares dropping as much as 6.7 percent on Tuesday.

The company widely missed profit and revenue estimates.

Four years of bumper grain and oilseeds harvests have squeezed profits for ADM and main rivals Bunge Ltd, Cargill Inc [CARG.UL] and Louis Dreyfus Co [LOUDR.UL]. Traders expect more of the same next year, prompting cost cuts and talk of consolidation.

To become more competitive, ADM reconfigured an Illinois ethanol facility and cut its global workforce, bringing total charges to earnings of more than $100 million in the third quarter.

ADM will reduce capital spending next year by about 20 percent to $800 million and reallocate funds to its high-value business from oilseed crushing, Chief Executive Officer Juan Luciano told analysts on a conference call.

"We are not counting on a significant change in conditions for 2018," Luciano said.

ADM shares were down 5 percent at $40.67 and fell as low as $39.95.

Profit in ADM's agricultural services unit, its biggest, fell more than half to $87 million in the third quarter as large global supplies slowed U.S. exports and low crop prices discouraged farmers from selling crops.

ADM handled 20 percent less grain than executives expected and average margins in the United States were 50 percent below expectations, Chief Financial Officer Ray Young told analysts.

"Medium-term risks remain weighted to the downside, especially in ag services, which continues to face structural headwinds," JP Morgan analyst Ann Duignan said.

ADM and its rivals have been investing in higher-margin businesses such as food ingredients to make up for the slump in their core grain trading and processing operations.

In August, ADM said it would reconfigure its Peoria, Illinois, ethanol dry mill to produce higher-margin industrial and beverage alcohol and fuel for the export market. The facility is one of several plants ADM offered up for sale last year, but still has not found a buyer.

In 2014, the company bought Wild Flavors, a natural ingredients company, for $3 billion, its biggest deal ever.

The payoff from the diversification has been slow to emerge.

Bunge, which lags its peers in terms of returns to shareholders, fended off a bid from Glencore earlier this year and promised extensive cost-cutting in a sweeping restructuring announced in July.

The pain extends across the U.S. agricultural economy. Farm incomes have fallen for three straight years with little recovery forecast this year, according to the U.S. Department of Agriculture.

Net profit attributable to ADM slid to $192 million, or 34 cents a share, in the quarter from $341 million, or 58 cents a share, a year earlier.

Excluding items, ADM earned 45 cents per share, missing the average analyst estimate of 55 cents, according to Thomson Reuters I/B/E/S.

Revenue for the Chicago-based company fell 6.3 percent to $14.83 billion, missing expectations for $16 billion, according to Thomson Reuters I/B/E/S.

(Additional reporting by Ahmed Farhatha in Bengaluru; Editing by Anil D'Silva and Jeffrey Benkoe)