Archer Daniels' Cost-Savings Plan On Track: Should You Buy?

Archer Daniels Midland Company (NYSE:ADM) progresses well by strengthening its business through increased cost savings, which is a key component of its long-term strategy. Also, the company has long been enhancing the operational efficiency of its production and supply chain networks to curtail costs. These initiatives helped this Illinois-based company to deliver robust earnings in fourth-quarter 2017.

Consequently, this Zacks Rank #1 (Strong Buy) stock has gained 4.4% in the last three months, faring better than the Agriculture – Operations industry’s 0.2% upside. Currently, the industry ranks in the top 22% of all Zacks industries.

Deeper Analysis of Archer Daniels’ Initiatives

Being a leading player in the global food processing industry, Archer Daniels’ network spans across the Americas, Europe and Asia for transportation of agricultural commodities. Driven by its strategic initiatives like making meaningful acquisitions, undertaking organic growth projects and efficiently managing the portfolio, it has generated run-rate cost savings of $285 million in 2017. Archer Daniels targets $550 million in additional run-rate cost savings over the next five years, including cost savings of $350 million from operational excellence and process enhancements, and about $200 million in incremental purchasing savings. By the end of 2018, it plans to achieve $200 million in run-rate savings.

In addition, the company remains on track with its business transformation under its 1ADM program. This, together with the enhancement of operational efficiency and the reduction of costs, comes under the company’s single strategic plan called Project Readiness. It expects this project to aid in achieving a more coordinated approach toward driving business improvement, standardizing functions and enriching consumers’ experience. Further, as part of this plan, the company is planning about allocating resources efficiently to more mature businesses and make prudent business investments. Notably, as management rolled out the 1ADM business transformation project in various regions as well as businesses in 2017, the company recorded success. It also remains on track with further 1ADM rollouts in 2018.

Recently, Archer Daniels appointed Joe Taets to the newly created role of senior vice president and president of Global Business Readiness. This is likely to speed up growth at its ongoing Readiness initiative.

Meanwhile, the company remains focused on cost synergy activities by addressing redundancies and removing overlapping corporate SG&A. Going forward, it will focus on lower capital spending and increasing benefits from the aforementioned investments. Apart from managing its business portfolio, the company has been continuing with its investment activities for business growth. With regard to this, it shifted from domestic projects – where returns are difficult to model – to international projects that can be tracked more easily and will be accretive at a faster pace.

Management also recently realigned its business into four segments namely — Carbohydrate Solutions, Nutrition, Oilseeds and Origination — to accelerate growth and resonate well with changing customers’ needs. The new business segments are expected to clearly differentiate the company’s product and service offerings while justifying its operating structure. Additionally, these segments will help Archer Daniels provide value-added and exclusive product assortments, thus, boosting growth across its business portfolio.

Want More of Solid Picks, Check These

Calavo Growers, Inc. (NASDAQ:CVGW) delivered a positive earnings surprise of 68.8% in the previous quarter and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Post Holdings, Inc. (NYSE:POST) , also a Zacks Rank #1 stock, has long-term earnings growth rate of 14%.

Limoneira Company (NASDAQ:LMNR) pulled off an average positive earnings surprise of 14.1% in the trailing four quarters. The stock carries a Zacks Rank #2 (Buy).

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