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ADM profit tops forecasts, shares drop as outlook disappoints

Illustration Archer Daniels Midland Co (ADM) logo

By Karl Plume and Sourasis Bose

CHICAGO (Reuters) -Archer-Daniels-Midland Co beat Wall Street expectations on Tuesday with a record first-quarter profit but its shares fell as it forecast full-year earnings below some analyst estimates and investors focused on thinner oilseed crush margins.

A record-large Brazilian soybean crop and strong exports lifted earnings in the grain merchant's Ag Services and Oilseeds segment, its largest by revenue and volumes, more than offsetting weaker results in its ethanol and nutrition businesses.

ADM forecast 2023 earnings at between $6 and $7 per share, down from a record $7.85 in 2022 and below some analyst estimates. Its shares were down 5.5% at $76.37 at midday.

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ADM and its agribusiness peers have drawn support from strong demand for food, feed and biofuel, while global food supply chain disruptions, such as lower grain shipments from war-torn Ukraine, have boosted prices.

But weaker-than-expected oilseed processing margins in major markets worried some investors as ADM estimated U.S. margins at $55 to $65 per tonne in the first quarter, down from $90 to $100 in the prior quarter.

The second quarter "is expected to be weaker, primarily due to lower profits in the crushing sub-segment, as global soybean crush margins have compressed since the end of 2022," CFRA analyst Arun Sundaram said.

"Consensus estimates for both 2023 and 2024 will likely need to come down," he said.

Supply chain middlemen such as ADM make money by processing, trading and shipping crops, often thriving when crises such as droughts or war trigger shortages.

"Supply and transportation constraints in the Black Sea region, severe drought in Argentina, the record Brazilian crop and a resurgence of demand in China post lockdown allowed our team to take full advantage of our global footprint," CEO Juan Luciano said.

Demand for vegetable oils has also soared as biofuel makers have expanded capacity to produce renewable diesel.

ADM's adjusted net earnings stood at $2.09 per share for the three months ended March 31, topping the $1.78 expected by analysts, Refinitiv Eikon data showed.

(Reporting by Sourasis Bose in Bengaluru and Karl Plume in Chicago; editing by Shilpi Majumdar, Jason Neely, David Gregorio and Barbara Lewis)