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High-fructose syrup plus soybeans brighten ADM outlook

29-Nov-2001

Agribusiness processing giant Archer Daniels Midland Co.'s prospects have brightened as the outlook for its mainstay soybean products and high-fructose corn syrup improves amid favourable commodity trends, analysts said.

ADM, which sports a new logo and recently adopted the futuristic slogan "the nature of what's to come," is expected to provide details of its financial outlook on Wednesday, at the first-ever gathering of analysts at the company's central Illinois corporate headquarters in Decatur.

The decidedly proactive approach from a historically closed-door company is a signal to some analysts of a favourable outlook for the company. It also signals a possible turnaround from a bad stretch blighted by a price-fixing scandal surrounding the feed additive lysine that led to a hefty fine and prison sentences for several top executives in 1999.

"I think ADM has finally turned the corner," said Prudential Securities analyst Jeff Kanter. "The outlook for (agribusiness) companies is the best it's been in four or five years."

This year ADM and other agribusiness companies are benefiting from abundant harvests of both soybeans and corn, driving down the cost of the raw materials they use to make vegetable oils and other food additives, analysts said.

"Probably the biggest positive is improvement in the soybean crushing sector," said Banc of America Securities analyst William Leach, who estimates soy-based products account for about one-third of ADM's annual profits. ADM has about $20 billion in annual revenues, positioning it second to the much larger, privately held agribusiness rival Cargill Inc.

In addition, ADM and its manufacturing competitors are negotiating higher prices for high-fructose corn syrup, the sweetener used by major soft drink manufacturers such as Coca-Cola Co. and PepsiCo Inc. The price boost, which would take effect next year, could provide a much-needed lift to lackluster margins, Leach said.

Investors seem heartened by the latest trends, having bid up ADM shares about 20 per cent since mid-September. The stock closed at $15.04 on the New York Stock Exchange on Tuesday, down 20 cents. It has outperformed the broad Standard & Poor's 500 Index by 20 per cent this year.

Also working in the company's favor is continued demand for ethanol, a renewable fuel ADM manufactures from corn, and a leading candidate to replace gasoline additive MTBE (methyl tertiary-butyl ether) in California. California and some other states are seeking cleaner, non-polluting additives.

"The glamorous part of the ADM story for the last year or so has been the potential for new legislation that would expand demand for ethanol," wrote Credit Suisse First Boston analyst David Nelson in a report released on Monday.

ADM is expected to earn 18 to 24 cents a share in its fiscal second quarter, with a consensus at 24 cents, according to Thomson Financial/First Call. The company is expected to earn 82 cents a share for all of fiscal 2002 and 97 cents for fiscal 2003.

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