Feb. 8 (Bloomberg) -- Olam International Ltd., the commodity trader targeted by short-seller Carson Block, reported the highest quarterly profit since 2010 and said itΆs reviewing operations including spending plans.

Olam “appears to be trying to rein in its capital expenditure and acquisition spending,” BlockΆs research firm Muddy Waters LLC said today in a statement on its website, restating its strong sell rating on the stock. ItΆs “one of the bright spots for Olam investors,” it said.

Net income jumped 20 percent to S$154.1 million ($124.3 million) in the three months ended Dec. 31, Singapore-based Olam, the second-largest rice trader, said yesterday. Olam, in its first profit result since Block said in November the company will fail, said it will complete its business review in April.

“Strategy recalibration suggests the ship is not right,” James Koh, an analyst with Maybank Kim Eng Holdings in Singapore who rates the stock sell, said in a note today. While the review is welcome, it suggests the existing strategy “may be inherently flawed,” he said.

Olam, which counts SingaporeΆs Temasek Holdings Pte as its largest shareholder, rose 1.5 percent to S$1.66 in Singapore as of 12:24 p.m. The stock lost 27 percent last year, making it the second-worst performer on the benchmark Straits Times index, and is down 4.6 percent since Block first questioned OlamΆs accounts on Nov. 19.

The second-quarter result included a net gain after tax of S$18.1 million from the sale and leaseback of Almond Orchards in California, Olam said, and is the highest since the second quarter of fiscal 2010, according to data compiled by Bloomberg.

Situation Stabilized

“We have successfully stabilized the situation that surrounded the company in the recent past,” Chief Executive Officer Sunny Verghese said in a statement yesterday. Olam will review its “business priorities, capital expenditure plans and free cash flow generation targets,” it said.

Revenue, including other income, increased 9.9 percent to S$4.94 billion, while sales volume in metric tons advanced 54 percent in the quarter, Olam said yesterday.

Temasek raised its stake yesterday to 21 percent from 20 percent on Jan. 16, according to an Olam filing today, making it OlamΆs top shareholder ahead of Kewalram Singapore Ltd. with 20.2 percent, according to data compiled by Bloomberg.

Biological Assets

Olam, also one of the top six cotton traders, reported a net gain from changes in fair value of biological assets of S$22.1 million, compared with S$34 million in the quarter a year earlier. The companyΆs biological assets include its almond orchards, coffee plantations and dairy cattle.

Muddy Waters said in a report on Nov. 27 that Olam is “likely to fail” and questioned the way the company bought assets and booked non-cash accounting gains. Block, who said heΆs betting against the stock, said Olam is “aggressiveΆΆ in reporting gains on biological assets.

Olam said Dec. 21 it abandoned a bid for a Brazilian sugar- mill operator because they couldnΆt agree on terms. The company said on the same day it agreed to pay $52 million in cash for Seda Solubles S.L.Άs coffee unit, which would give Olam facilities in Spain and Russia.

The termination of the bid is positive for investors, though OlamΆs choice of acquisitions is still “questionable,” Muddy Waters said today in the statement. Olam should also scrap its fertilizer project in Gabon, which Verghese said will be delayed by 9 months, because itΆs too complex for OlamΆs core expertise, the research firm said.

“It is in the best interests of the company and its shareholders not to respond to every opinion, claim or assertion made by those who may be doing so for their own vested interests,” Olam said today in an e-mail.

No Pressure

The assertions by Muddy Waters were made to panic shareholders and to benefit BlockΆs short positions, Olam said Nov. 28. It has filed a lawsuit against the short-seller and his firm for defamation. Olam has been unsuccessful in serving Block with a legal notice, though itΆs served Muddy Waters, Verghese said yesterday at a presentation in Singapore.

“There has been no pressure to increase our borrowing cost so far” nor has there been demand to post additional collateral or for early repayment, he said. Support from OlamΆs lenders ensured business “has not skipped a beat during this entire period,” Verghese said.

OlamΆs debt ratios are “dangerously high,” and its interest burden is not sustainable, Muddy Waters said today.

Suppliers and customers continue to trust the company, Shekhar Anantharaman, executive director of finance and business development, said yesterday in Singapore. The board reviews its strategy every year, CEO Verghese also said.

Spending Plans

Olam has announced $910 million of acquisitions since April 2011, according to data compiled by Bloomberg, adding assets including a dehydrated vegetable business, milk producer NZ Farming Systems Uruguay Ltd. and a Nigerian manufacturer of biscuits and candy.

The commodity trader plans to spend as much as S$3.7 billion in the three years through fiscal 2015, compared with S$3.3 billion from 2010 to 2012, the first part of a six-year program to lift annual profit to $1 billion, Verghese said in November. Free cash flow will remain negative until about 2015 as the company is in an “investment ramp-up phase,” he also said that month.

“If we come to a determination with this strategy recalibration exercise that we must slow down the pace of capital expenditure and become cash flow positive a little earlier than intended, these are some of the pathways weΆve caught a glimpse of,” Verghese said yesterday.