Archer Daniels (ADM) Bounces Back With Q3 Earnings Beat

Archer Daniels Midland Company (NYSE:ADM) bounced back with an earnings beat in third-quarter 2016, gaining from improved operating conditions in the quarter, which succeeded a challenging first-half 2016. Consequently, shares of the company jumped 2.6% in the pre-market trading session.

The company’s third-quarter adjusted earnings of 59 cents per share fell 1.7% year over year, but substantially beat the Zacks Consensus Estimate of 47 cents. On a reported basis, Archer Daniels’ earnings were 58 cents per share compared with 41 cents earned in the year-ago quarter.

Total revenue of $15,832 million slumped 4.4% year over year, owing to lower sales at its Corn Processing and Oilseeds Processing segments. The top line missed the Zacks Consensus Estimate of $16,052 million.

Going by segments, quarterly revenues at Archer Daniels’ Agricultural Services segment were up 5.4% to $6,960 million, while the Wild Flavors and Specialty Ingredients segment witnessed a 3.9% increase in revenues to $611 million. On the other hand, the Oilseeds Processing segment’s revenues tumbled 14.4% to $5,775 million, the Corn Processing segment’s revenues decreased 5.1% to $2,391 million and Other revenues dropped 12% to $95 million, all on a year-over-year basis.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $650 million in third-quarter 2016, down nearly 5% from the year-ago quarter. On a GAAP basis, the company’s segment operating profit declined 9% year over year to $645 million.

On a segmental adjusted basis, operating profit for the Agricultural Services segment rose 29.5% million to $193 million owing to strong merchandising and handling earnings mainly on higher volumes and improved margins. The improvement resulted from a shift in seasonal global demand to North America this year due to crop shortages in South America. Transportation results improved owing to strong exports and favorable freight rates. Further, Milling and Other gained form solid product margins due to seasonal demand.

Archer Daniels' Corn Processing segment’s adjusted operating profit soared 61.8% from the year-ago quarter to $212 million. Benefits from strength in the sweeteners and starches business along with flat Bioproducts results due to improved operational performance and Animal Nutrition were offset by lower ethanol results.

The Oilseeds Processing segment’s adjusted operating profit plunged 57% year over year to $144 million, mainly accountable to the slump in crushing and origination results due to reduced soy crush margins, along with lower origination volumes in Brazil. Further, impacting the segment’s results were fall in Asian results on the back of Wilmar’s unusual equity loss in the second quarter. These were slightly mitigated by improved refining, packaging, biodiesel and other results.

The Wild Flavors and Specialty Ingredients segment’s adjusted operating profit increased 4.3% to $73 million, on account of strong operating profits in flavors and ingredient systems and the integration of Eatem Foods, neutralized by mixed results from the specialty ingredients businesses and certain start-up costs.

Financials

Archer Daniels ended the quarter with $701 million in cash and cash equivalents. As of Sep 30, 2016, long-term debt including current maturities was $6,866 million. Shareholders’ equity at quarter end was $17,556 million.

As of Sep 30, 2016, Archer Daniels generated $1,156 million of cash from operating activities.

Further, the company’s returns suffered, with its trailing four-quarter average adjusted ROIC coming at 5.8%, down 80 basis points (bps) from the annual WACC of 6.6%.

Nevertheless, the company returned $1.3 billion to shareholders in the first nine months of 2016, in the form of share repurchases and dividend payments, remaining well on track with its balanced capital allocation plan.

Looking Ahead

Management revealed that it has attained approximately $250 million of run-rate savings in the first nine months of 2016 and remains on track to achieve the goal of $275 million by the end of the calendar year.

Further, citing the improved market conditions and greater U.S. harvest, along with solid execution capabilities, the company remains confident of delivering solid results through the rest of 2016 and 2017.

Zacks Rank

Archer Daniels currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Calavo Growers Inc. (NASDAQ:CVGW) and Limoneira Company (NASDAQ:LMNR) , each sporting a Zacks Rank #1 (Strong Buy). Another well-ranked stock in the broader consumer staples sector is Avon Products Inc. (NYSE:AVP) , also sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Calavo Growers, with a long-term EPS growth rate of 7%, has seen positive estimate revisions for fiscal 2016, over the past 60 days. Additionally, the company has topped earnings in the past three quarters, with an average beat of 11.5%.

Limoneira, with a long-term EPS growth rate of 20%, has seen estimates for the current fiscal trend upward in the last 60 days. Further, the company has recorded a beat of 14.5% in the preceding quarter.

Avon Products has surged nearly 61.7% year to date. Moreover, its long-term EPS growth rate of 5% helps it stand strong against the industry.

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