Archer Daniels (ADM) Q3 Earnings & Sales Beat Estimates

Archer Daniels Midland Company (NYSE:ADM) has reported better-than-expected earnings and sales numbers in third-quarter 2019. Moreover, the top line improved on a year-over-year basis.

Quarterly results benefited from the company’s consistent efforts amid a tough external environment and a weak ethanol industry. Going forward, management remains optimistic about Archer Daniels’ leadership in key global trends like flexitarian diets, nutrition and sustainable materials. Moreover, the company remains focused on making investments in assets and technological capabilities to serve customers efficiently and aid overall growth.

Q3 in Detail

Adjusted earnings of 77 cents per share declined 16.3% from the year-ago quarter but outpaced the Zacks Consensus Estimate of 67 cents. On a reported basis, the company’s earnings were 72 cents per share, down 23.4% from the prior-year quarter.

Revenues in the quarter under review totaled $16,726 million, which grew 5.9% year over year and outpaced the Zacks Consensus Estimate of $16,026 million. Increased revenues across all the segments of the company were the primary reason behind the impressive top-line results.

Effective third-quarter 2019, Archer Daniels merged its Origination and Oilseeds segments into a single business — Ag Services & Oilseeds. This action was taken to offset the impacts of adverse weather conditions in the first six months of 2019.

Going by segments, quarterly revenues at the Ag Services & Oilseeds, Carbohydrate Solutions, Nutrition, and Other grew 2.9%, 1.2%, 58% and 4.8%, respectively, to $12,616 million, $2,565 million, $1,457 million, and $88 million.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $764 million in third-quarter 2019, down 11.3% from the year-ago quarter. On a GAAP basis, the company’s segment operating profit fell nearly 14% year over year to $758 million.

On a segmental adjusted basis, adjusted operating profit at the Ag Services & Oilseeds segment declined 12.8% year over year to $417 million. Moreover, Ag Services’ results remained flat with the year-ago quarter. In South America, results benefited from improved origination margins in Brazil and higher export volume from Argentina. In North America, the company witnessed improved merchandising results, backed by favorable ownership positions, which compensated a tough volume and margin backdrop for U.S. exports.

Moreover, Crushing’s results were lower from the year-ago period, driven by weak crush margins globally. In South America, continued exports of soybeans to China hurt margins. However, crush margins remained impressive in North America and EMEA. Global crush margins somewhat benefited from favorable net timing effects of roughly $50 million during the reported quarter. Furthermore, Refined Products and Other’s results were considerably higher than the year-ago quarter, primarily fueled by improvements in Golden Peanut and Tree Nuts. The segment’s results were hurt by lower Wilmar results.

The Carbohydrate Solutions segment’s adjusted operating profit plunged 36.8% to $182 million. The downside can mainly be attributed to weak Bioproducts results due to negative ethanol industry margins. Starches and Sweeteners were also down. Moreover, results in North America were hurt by increased net corn expenses, somewhat mitigated with lower manufacturing costs — including improvements at the Decatur corn facility. Further, results in EMEA were marred by lower selling prices along with pressures from Turkish sweetener quotas. In wheat milling, higher sales volume was more than offset by weak margins, driven by lower opportunities in wheat procurement.

At the Nutrition segment, adjusted operating profit of $118 million improved substantially from $67 million, owing to impressive performance at both WFSI and Animal Nutrition. While increased sales and margins globally aided results for WILD, continued expansion in protein business fueled results at Specialty Ingredients. Further, contributions from investments in bioactives and fibers aided the Health & Wellness business. In Animal Nutrition, results were primarily backed by contributions from the Neovia buyout. Improvements in vitamin additives coupled with increased lysine production, despite adverse impact of pricing, further drove results.

Other Financials

Archer Daniels ended the quarter with cash and cash equivalents of $932 million, long-term debt — including current maturities — of $7,646 million, and shareholders’ equity of $18,895 million.

During the first nine months of 2019, the company generated negative cash flow of $3,939 million from operating activities. Additionally, the company bought back shares of $150 million and paid out dividends of $592 million in the same period.

Further, its average trailing four-quarter adjusted ROIC was 6.5%.

Price Performance

In the past six months, shares of this Zacks Rank #4 (Sell) company have lost 6.4% compared with the industry’s 7.2% decline.

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