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Archer Daniels (ADM) Q2 Earnings Lag Estimates; Stock Down
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Archer Daniels Midland Company (ADM - Free Report) continued its dismal run, as the company marked its fifth straight quarter of earnings miss in second-quarter 2016. Moreover, results declined year over year, leading shares of the company to drop 2.8% in the pre-market trading session.
Bearing the brunt of the challenging market conditions, the company’s second-quarter adjusted earnings of 41 cents per share plunged 31.7% year over year, also falling short of the Zacks Consensus Estimate of 44 cents. On a reported basis, Archer Daniels’ earnings were 48 cents per share compared with 62 cents earned in the year-ago quarter.
Further, total revenue of $15,629 million fell 9.1% year over year, owing to lower sales at all of its operating segments.
Going by segments, quarterly revenues at Archer Daniels’ Agricultural Services segment declined 8.8% to $6,387 million, the Oilseeds Processing segment’s revenues fell 10.6% to $6,099 million, the Corn Processing segment’s revenues decreased 8.8% to $2,352 million; the Wild Flavors and Specialty Ingredients segment witnessed a 0.3% drop in revenues to $680 million, while Other revenues went up 13.3% to $111 million, all on a year-over-year basis.
Operational Discussion
Archer Daniels reported adjusted segment operating profit of $573 million in the second quarter of 2016, down 20.9% from the year-ago quarter. On a GAAP basis, the company’s segment operating profit declined nearly 15.8% year over year to $680 million.
On a segmental adjusted basis, operating profit for the Agricultural Services segment tanked 55.1% million to $57 million owing to soft margins in the U.S. grain handling network that resulted in soft merchandising and handling earnings. Also, transportation results decelerated owing to unfavorable barge demand and freight rates.
Archer Daniels' Corn Processing segment’s adjusted operating profit fell by 13.3% from the year-ago quarter to $163 million. Benefits from strength in the sweeteners and starches business were more than offset by soft lysine results and lower U.S. ethanol industry margins which hurt Bioproducts’ results.
The Oilseeds Processing segment’s adjusted operating profit declined 21.9% year over year to $235 million, mainly accountable to the slump in crushing and origination operating profit, which in turn was a result of persistently soft canola margins coupled with reduced soy crush margins. Also, results were weak across refining, packaging, biodiesel and other areas of the segment. The segment gained little respite from a marginal improvement in Asian oilseeds results, which were partly contributed by Wilmar.
The Wild Flavors and Specialty Ingredients segment’s adjusted operating profit fell 9.6% to $94 million, on account of certain start-up costs associated with Tianjin and Campo Grande. The segment results benefited from solid flavors and systems growth that was offset by soft sales of functional specialty proteins and fibers.
Financials
Archer Daniels ended the quarter with $334 million in cash and cash equivalents. As of Jun 30, 2016, long-term debt including current maturities was $5,832 million. Shareholders’ equity at quarter end was $17,669 million.
As of Jun 30, 2016, Archer Daniels used $366 million of cash from operating activities.
Further, the company’s returns suffered, with its trailing four-quarter average adjusted ROIC coming at 5.7%, down 90 basis points (bps) from the annual WACC of 6.6%.
Nevertheless, the company returned $0.8 billion to shareholders in the first half of 2016, in the form of share repurchases and dividend payments. During the same time frame, Archer Daniels bought back shares worth $500 million, remaining well on track with its balanced capital allocation plan.
Other Q2 Developments
Focused on its strategic plan, Archer Daniels acquired complete ownership of Amazon Flavors, manufacturer of natural extracts, emulsions and compounds. Further, this agricultural operations company enhanced its facility at Straubing, Germany, by adding soybean crushing capability to it. This will enable the company to use flex capacity and cater to the rising consumer demand for non-GMO soybean meal and oil in Western Europe.
Additionally, the company increased its ownership stake in Wilmar to 22% from 20%, boosting its Asian operations. Finally, Archer Daniels is on track with the strategic review of its ethanol dry mills.
Management revealed that it has attained approximately $150 million of run-rate savings in the first half of 2016 and remains on track to achieve the goal of $275 million by the end of the calendar year.
Also, the company anticipates recording equity losses worth $50 million in third-quarter of 2016, owing to Wilmar’s profit warning announced in July. Per the warning, Wilmar is expected to post about $230 million as net loss for its second quarter, thereby impacting Archer Daniels’ third quarter.
Nevertheless, management stated that while the first half of the year was challenging, it expects favorable results in the second half, given the company’s enhanced fundamentals and improvement witnessed in the general market scenario toward the end of the second quarter.
Zacks Rank
Archer Daniels currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Calavo Growers Inc. (CVGW - Free Report) , with a Zacks Rank #1 (Strong Buy). Some better-ranked stocks in the broader consumer staples sector include Omega Protein Corporation and The J. M. Smucker Company (SJM - Free Report) , each sporting a Zacks Rank #1.
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Archer Daniels (ADM) Q2 Earnings Lag Estimates; Stock Down
Archer Daniels Midland Company (ADM - Free Report) continued its dismal run, as the company marked its fifth straight quarter of earnings miss in second-quarter 2016. Moreover, results declined year over year, leading shares of the company to drop 2.8% in the pre-market trading session.
Bearing the brunt of the challenging market conditions, the company’s second-quarter adjusted earnings of 41 cents per share plunged 31.7% year over year, also falling short of the Zacks Consensus Estimate of 44 cents. On a reported basis, Archer Daniels’ earnings were 48 cents per share compared with 62 cents earned in the year-ago quarter.
Further, total revenue of $15,629 million fell 9.1% year over year, owing to lower sales at all of its operating segments.
Going by segments, quarterly revenues at Archer Daniels’ Agricultural Services segment declined 8.8% to $6,387 million, the Oilseeds Processing segment’s revenues fell 10.6% to $6,099 million, the Corn Processing segment’s revenues decreased 8.8% to $2,352 million; the Wild Flavors and Specialty Ingredients segment witnessed a 0.3% drop in revenues to $680 million, while Other revenues went up 13.3% to $111 million, all on a year-over-year basis.
Operational Discussion
Archer Daniels reported adjusted segment operating profit of $573 million in the second quarter of 2016, down 20.9% from the year-ago quarter. On a GAAP basis, the company’s segment operating profit declined nearly 15.8% year over year to $680 million.
On a segmental adjusted basis, operating profit for the Agricultural Services segment tanked 55.1% million to $57 million owing to soft margins in the U.S. grain handling network that resulted in soft merchandising and handling earnings. Also, transportation results decelerated owing to unfavorable barge demand and freight rates.
Archer Daniels' Corn Processing segment’s adjusted operating profit fell by 13.3% from the year-ago quarter to $163 million. Benefits from strength in the sweeteners and starches business were more than offset by soft lysine results and lower U.S. ethanol industry margins which hurt Bioproducts’ results.
The Oilseeds Processing segment’s adjusted operating profit declined 21.9% year over year to $235 million, mainly accountable to the slump in crushing and origination operating profit, which in turn was a result of persistently soft canola margins coupled with reduced soy crush margins. Also, results were weak across refining, packaging, biodiesel and other areas of the segment. The segment gained little respite from a marginal improvement in Asian oilseeds results, which were partly contributed by Wilmar.
The Wild Flavors and Specialty Ingredients segment’s adjusted operating profit fell 9.6% to $94 million, on account of certain start-up costs associated with Tianjin and Campo Grande. The segment results benefited from solid flavors and systems growth that was offset by soft sales of functional specialty proteins and fibers.
Financials
Archer Daniels ended the quarter with $334 million in cash and cash equivalents. As of Jun 30, 2016, long-term debt including current maturities was $5,832 million. Shareholders’ equity at quarter end was $17,669 million.
As of Jun 30, 2016, Archer Daniels used $366 million of cash from operating activities.
Further, the company’s returns suffered, with its trailing four-quarter average adjusted ROIC coming at 5.7%, down 90 basis points (bps) from the annual WACC of 6.6%.
Nevertheless, the company returned $0.8 billion to shareholders in the first half of 2016, in the form of share repurchases and dividend payments. During the same time frame, Archer Daniels bought back shares worth $500 million, remaining well on track with its balanced capital allocation plan.
Other Q2 Developments
Focused on its strategic plan, Archer Daniels acquired complete ownership of Amazon Flavors, manufacturer of natural extracts, emulsions and compounds. Further, this agricultural operations company enhanced its facility at Straubing, Germany, by adding soybean crushing capability to it. This will enable the company to use flex capacity and cater to the rising consumer demand for non-GMO soybean meal and oil in Western Europe.
Additionally, the company increased its ownership stake in Wilmar to 22% from 20%, boosting its Asian operations. Finally, Archer Daniels is on track with the strategic review of its ethanol dry mills.
ARCHER DANIELS Price, Consensus and EPS Surprise
ARCHER DANIELS Price, Consensus and EPS Surprise | ARCHER DANIELS Quote
Looking Ahead
Management revealed that it has attained approximately $150 million of run-rate savings in the first half of 2016 and remains on track to achieve the goal of $275 million by the end of the calendar year.
Also, the company anticipates recording equity losses worth $50 million in third-quarter of 2016, owing to Wilmar’s profit warning announced in July. Per the warning, Wilmar is expected to post about $230 million as net loss for its second quarter, thereby impacting Archer Daniels’ third quarter.
Nevertheless, management stated that while the first half of the year was challenging, it expects favorable results in the second half, given the company’s enhanced fundamentals and improvement witnessed in the general market scenario toward the end of the second quarter.
Zacks Rank
Archer Daniels currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Calavo Growers Inc. (CVGW - Free Report) , with a Zacks Rank #1 (Strong Buy). Some better-ranked stocks in the broader consumer staples sector include Omega Protein Corporation and The J. M. Smucker Company (SJM - Free Report) , each sporting a Zacks Rank #1.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>