By Jonathan Saul and Michael Hogan
LONDON/HAMBRUG (Reuters) - U.S. agribusiness Archer Daniels Midland Co (N:ADM), reeling from the impact of a global grain glut, is now preparing to scale back its operations in Europe in a bid to boost profits, two sources with knowledge of the matter said.
The Chicago-based agribusiness warned on Tuesday that worsening market conditions were making it difficult to turn a profit trading grain internationally, leading to the biggest daily share loss in eight years.
ADM's shares fell about 10 percent over the previous two days before recouping some losses on Thursday, rising about 2 percent from those lows to $42.00 by 1646 GMT (12.46 p.m. ET).
Record global stocks of commodities such as corn, soybeans and wheat have thinned margins and limited trading opportunities for ADM and rivals such as Bunge Ltd (N:BG), which reported a sharply lower first-quarter profit this week.
Together with Cargill Inc (CARG.UL) and Louis Dreyfus Company [AKIRAU.UL], the firms are collectively known as the ABCD and dominate global grain trading.
Sources said ADM is actively looking at cuts to a number of its European operations including the United Kingdom, Spain, Ireland and back-office operations in Germany.
The measures could also include merging or cutting operations related to former German trading house Alfred C. Toepfer International.
"There are moves for more rationalization in Europe to cut costs. The final overlaps between Toepfer and ADM will be ironed out," one European source with knowledge of the situation said.
"Streamlining is being prepared in some operations in Britain, Spain and elsewhere. Transport is also being looked at for more savings."
A separate European source familiar with ADM's business said: "The idea is a slimming down. Rationalization is coming."
When contacted, an ADM spokeswoman said she could not confirm such plans, adding that the group’s strategy included growth through acquisitions and operational improvements such as inventory control and office usage.
ADM has already exited energy trading and shed key personnel in recent months. Last month it said would close its South African trading operations, whilst also restructuring its operations in Argentina in a further shake-up.
ADM Chief Executive Officer Juan Luciano said on Tuesday the firm would continue to analyze other offices for possible consolidation. "At this point of time I think that probably most of our restructuring has been done, so we wouldn’t expect anything further," he added.
ADM first took an 80 percent stake in Toepfer in 2002 and bought the rest of the company in 2014.
The sources said some of the remaining rump of Toepfer in Germany could also be consolidated.
The sources said there were other areas that could be cut or merged in Europe - with operations that could be moved to ADM's European headquarters and international trading desk in Rolle, Switzerland or its major German hub in Hamburg.
"There will probably be more concentration of operations in Rolle or in Hamburg if an EU presence is needed," the first source said.
"The group is facing a lot of intense competition from smaller companies which have an aggressive presence in their markets, especially the Black Sea."
It was unclear how many jobs could be cut. The sources added that ADM could also look to make further savings by not replacing jobs when people left or migrating them to their headquarters.
ADM, one of the world's top grain traders, reported a higher first-quarter profit this week but said the outlook for its agricultural services segment appeared weaker than it did at the beginning of the year.
That segment's global trading desk suffered its third quarterly loss in the past five quarters.
The agricultural services segment, ADM's largest in terms of revenue, is tasked with buying, selling, storing, shipping and trading grains and oilseeds.
ADM opened a global trading desk in Switzerland in 2015 to oversee its supply network. The desk is now trying to reduce the cost per ton of materials traded because of lower margins, ADM said this week.