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Archer Daniels (ADM) Disappoints Again, Q1 Earnings Miss

Archer Daniels Midland Company’s ADM adjusted earnings of 42 cents per share for first-quarter 2016 plummeted 46.2% year over year and fell short of the Zacks Consensus Estimate of 43 cents. This marks the company’s fourth consecutive earnings miss.
 

On a reported basis, Archer Daniels’ earnings were 39 cents per share compared with 77 cents earned in the year-ago quarter.

Total revenues of $14,384 million fell 17.8% year over year and lagged the Zacks Consensus Estimate of $15,394 million. Soft revenues resulted from lower sales at all of its operating segments.

Going by segments, quarterly revenues at Archer Daniels’ Agricultural Services segment plunged 19.5% to $6,480 million, the Oilseeds Processing segment’s revenues plummeted 20.6% to $4,997 million, the Corn Processing segment’s revenues decreased 10.5% to $2,207 million, Wild Flavors and Specialty Ingredients segment witnessed a 2.3% decline to $592 million, while Other revenues were up 12.5% to $108 million, all on a year-over-year basis.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $573 million in the first quarter, down 36% from the year-ago quarter. On a GAAP basis also, the company’s segment operating profit declined nearly 33% year over year to $573 million.

On a segmental adjusted basis, operating profit for the Agricultural Services segment dropped $118 million to $76 million owing to difficult comparisons from last year that stemmed from significantly lower North American export volumes and margins, moderate global merchandising and transportation opportunities, and unfavorable Global Trade Desk merchandising positions.

Archer Daniels' Corn Processing segment’s operating profit jumped $127 million from the year-ago quarter to $129 million. The increase was primarily due to the strength in the sweeteners and starches business, offset by lower U.S. ethanol industry margins and soft lysine results.

The Oilseeds Processing segment’s operating profit declined $231 million year over year to $261 million, as crushing margins worldwide were impacted by higher Argentine crush run rates, coupled with lower softseed crush volumes and weaker Brazilian commercialization.

The Wild Flavors and Specialty Ingredients segment’s operating profit increased $2 million to $70 million driven by solid contributions from Wild Flavors and specialty ingredients businesses. With over 900 revenue synergy projects identified, this segment is smoothly progressing toward attaining its 2016 targets.

Financials

Archer Daniels ended the first quarter with $706 million in cash and cash equivalents. As of Mar 31, 2016, long-term debt including current maturities was $5,863 million. Shareholders’ equity at quarter-end was $17,913 million.

As of Mar 31, 2016, Archer Daniels generated $23 million of cash from operating activities.

However, the company’s returns suffered, with its trailing four-quarter average adjusted ROIC coming at 6.3%, down 30 bps from the annual WACC of 6.6%.

Nevertheless, the company returned $0.5 billion to shareholders in the first quarter, in the form of share repurchases and dividend payments. In the quarter, Archer Daniels bought back shares worth $300 million.

Other Developments

Focused on its strategic plan, Archer Daniels acquired a controlling stake in a leading producer of non-GMO, organic and gluten-free ingredients, named Harvest Innovations. Also, it bought a corn well mill in Morocco, fortifying its sweetener presence. To cater to all this expansion, the company opened a modern flavor creation, application and customer innovation center in Cranbury, NJ.

Simultaneously, progressing with its portfolio management efforts, the company agreed to sell its Brazilian sugarcane ethanol operations.

Archer Daniels currently carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Some better-ranked stocks in the broader consumer staples sector include Campbell Soup Company CPB and Mondelez International Inc. MDLZ, each carrying a Zacks Rank #1 (Strong Buy), and Kellogg Company K, holding a Zacks Rank #2 (Buy).

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