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Archer Daniels (ADM) Topples on Q3 Earnings & Sales Miss

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Archer Daniels Midland Company (ADM - Free Report) reported a dismal third-quarter 2017, wherein both the top and bottom lines lagged estimates and declined year over year. Results were hurt by a tough operating environment at the company’s Agricultural services and Oilseeds Processing segments.

With this, the company has posted a negative earnings surprise in three of the trailing four quarters. Additionally, its more than three-year long trend of missing sales estimates persisted.

Following the dismal results the company’s shares dropped nearly 2.1% in the pre-market trading session. Moreover, Archer Daniels has underperformed the Consumer Staples sector on a year-to-date basis due to its negative surprise history. Evidently, this Zacks Rank #3 (Hold) stock has declined 6.2% against the sector’s growth of 7.1%.



Q3 Highlights

The company’s third-quarter adjusted earnings of 45 cents per share declined 27.3% year over year, and also lagged the Zacks Consensus Estimate of 55 cents.

Archer-Daniels-Midland Company Price, Consensus and EPS Surprise

 

Archer-Daniels-Midland Company Price, Consensus and EPS Surprise | Archer-Daniels-Midland Company Quote

On a reported basis, Archer Daniels’ earnings were 34 cents per share compared with 58 cents in the prior-year quarter.

Total revenues of $14,827 million dropped 6.3% year over year, with lower year-over-year sales at all segments. Moreover, the top line missed the Zacks Consensus Estimate of $15,629 million, continuing with its miserable surprise trend.

Going by segments, quarterly revenues at Archer Daniels’ Agricultural Services segment were down 12.7% to $6,075 million, the Corn Processing segment’s revenues fell 2.7% to $2,325 million and the Oilseeds Processing segment’s revenues dipped 0.4% to $5,752 million.  Further, the Wild Flavors and Specialty Ingredients segment suffered a 5.6% decline in revenues to $577 million. Conversely, Other revenues improved 3.2% to $98 million on a year-over-year basis.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $541 million in third-quarter 2017, down 16.8% from the year-ago quarter. On a GAAP basis, the company’s segment operating profit declined 24.8% year over year to $485 million.

On a segmental adjusted basis, adjusted operating profit for the Agricultural Services segment declined 55.4% to $87 million, due to soft merchandising and handling results for both North America Grain and Global Trade, stemming from lack of competitiveness of U.S. corn and soybeans in global markets. Milling and Other operations were weak as well due to lower volumes, while product margins remained strong. Transportation results were impacted by diminished U.S. grain exports and slow start to North American harvest.

Archer Daniels' Corn Processing segment’s adjusted operating profit improved 18.2% to $253 million. Results benefited from enhanced margins at North America Sweeteners and Starches. Further, favorable ethanol margins drove Bioproducts results.

The Oilseeds Processing segment’s adjusted operating profit decreased 17.9% year over year to $119 million. Results were hurt by reduced global crush margins as well as lower South American origination margins. Together, these factors hampered Crushing and origination results. Additionally, soft biodiesel results due to lower margins and negative mark-to-market impacts, hurt Refining, Packaging, Biodiesel and Other operations results. However, results in Asia continued to gain from Wilmar’s contributions.

The Wild Flavors and Specialty Ingredients segment’s adjusted operating profit dropped 16.4% to $61 million owing to hurdles in the specialty ingredients business. This was partly offset by double-digit rise in WILD Flavors’ operating profit driven by strong sales in Asia and EMEA.

Financials

Archer Daniels ended the quarter with $518 million in cash and cash equivalents. As of Sep 30, 2017, long-term debt including current maturities was $6,608 million. Shareholders’ equity at quarter end was $17,577 million.

During first three quarters of 2017, Archer Daniels generated $2,155 million of cash from operating activities. Further, the company’s trailing four-quarter average adjusted ROIC came in at 6.4%, up 40 basis points (bps) from the annual WACC of 6.0%.

Additionally, the company returned $1.2 billion to shareholders in the nine months of 2017, in the form of share repurchases and dividend payments, remaining well on track with its balanced capital allocation plan.

Looking Ahead

Going into the fourth quarter, Archer Daniels is through with its costs and investments in acquisitions, new innovation centers and new facilities. Going forward, the company will focus on lower capital spending and increasing benefits from the aforementioned investments.

Interested in Consumer Staples Space? Check these 3 Hot Picks

Better-ranked stocks in the consumer staples sector include Unilever Plc (UL - Free Report) , Snyder's-Lance, Inc. and McCormick & Company, Incorporated (MKC - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Unilever, with long-term EPS growth rate of 9.3%, has increased 36.4% year to date.

Snyder's-Lance has increased 6% in the last three months. Moreover, the company has to its credit a spectacular earnings history as it delivered an average positive earnings surprise of 2.1% in the trailing four quarters.

McCormick & Company, with long-term EPS growth rate of 9.4%, has grown 2.9% in last three months.

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