Back to top

Analyst Blog

Following the severe drought in 2012, Archer Daniels Midland Company (ADM - Analyst Report) has been laying greater emphasis on the three C’s – Cost, Cash and Capital to remain on the growth trajectory. Therefore, the company doubled its cost-cutting target for 2014 to $400 million.

Last year, the company targeted to save $200 million by the end of 2014 through its cost-cutting initiatives. However, at the recently held BMO Farm to Market conference in New York, the company’s Chief Operating Officer (CEO), Juan Luciano revealed that it has successfully achieved this target with over half of the year still remaining.

To maintain its profitability amid volatility in the global agriculture-based business, the company has been aggressively focusing on cost cutting measures since 2012. In 2012 alone, this leading food processing company saved approximately $150 million by cutting 1,000 jobs at several of its plants and offices across the world.

With bolstered confidence, the company set the target of $200 million cost savings by the end of 2014. However, having successfully met this, the company has targeted to save an additional $200 million in the remaining period of 2014 through its cost-cutting measures. Notably, we believe that Archer Daniels is well positioned to achieve its target.

Luciano further reveals that apart from cost savings, the company is focusing on several other aspects to enhance shareholder return. Archer Daniels is strategically undertaking steps to manage its business portfolio, which will expectedly help in realizing value from its businesses and investing the same in the best possible resources to enhance returns.

This is evident from the company’s latest move to vend its South American fertilizer business to The Mosaic Company, which is expected to increase returns and help maintain an amicable relationship with cultivators.

Moreover, Archer Daniels has hired advisors to facilitate sale of the chocolate business and has decided to keep the cocoa press assets. Archer Daniels has observed that the cocoa press business is gaining momentum due to improvement in crop supplies and believes that there is immense growth potential in cocoa press, which will help it to meet its return objectives.

Further, in an effort to enhance its global origination network and serve customers better, Archer Daniels bought the remaining 20% stake of Alfred C. Toepfer International last month, which operates offices in the Americas, Africa, Asia, Australia and Europe. We believe this will enhance Archer Daniels’ global reach. These strategic initiatives offer a strong upside potential to the company in the long run.

Archer Daniels Midland is a major global food processing company. It processes oilseeds, corn, wheat, cocoa and other foodstuffs. It is also a giant manufacturer of vegetable oil, protein meal, corn sweeteners, flour, biodiesel, ethanol and other value-added food and feed ingredients. Moreover, the company has a worldwide grain elevator and transportation network for procurement, storage, cleansing and transportation of agricultural commodities.

Other Stocks Worth Considering

Archer Daniels currently carries a Zacks Rank #3 (Hold). However, some other better-ranked stocks that are worth a look in the agricultural products industry include Fresh Del Monte Produce Inc. (FDP - Snapshot Report) which carries a Zacks Rank #1 (Strong Buy) along with Adecoagro S.A. (AGRO - Snapshot Report) and Syngenta AG (SYT - Analyst Report) both carrying Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.