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Why Is ADM (ADM) Up 5.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Archer Daniels Midland (ADM - Free Report) . Shares have added about 5.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ADM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Archer Daniels’ Q1 Earnings & Revenues Top Estimates

Archer Daniels posted impressive first-quarter 2021 results, wherein both top and bottom line advanced year over year. Despite the tough ongoing environment, it reported the sixth straight quarter of adjusted operating profit growth. Also, solid demand for majority of its products contributed to quarterly growth. Management expects strong momentum to continue as governments in several regions are easing restrictions with the acceleration of vaccine rollout. Apart from these, it is on track with its transformation strategy, which focuses on productivity and innovation.

Encouragingly, the company is optimistic about 2021 and envisions another year of strong earnings growth. Moreover, it anticipates significant year-over-year growth across all segments in 2021.

Q1 Highlights

Adjusted earnings of $1.39 per share in the first quarter outpaced the Zacks Consensus Estimate of $1.00. The figure also improved more than two folds compared with 64 cents in the year-ago quarter. On a reported basis, the company’s earnings were $1.22 per share, up 77% from the prior-year quarter’s 69 cents.

Revenues advanced 26.2% year over year to $18,893 million and surpassed the Zacks Consensus Estimate of $16,779 million. Solid sales across majority of the segments contributed to the top line.

Segment-wise, revenues for the Nutrition and the Ag Services & Oilseeds segments improved 35.5% and 6.3% year over year to $1,563 million and $15,007 million, respectively. Meanwhile, the metric declined 4% to $2,223 million for the Carbohydrate Solutions unit.

Gross profit increased 62.8% year over year to $1,548 million, while gross margin expanded 180 basis points (bps) to 8.2% in the quarter under review. SG&A expenses rose 12.8% to $749 million.

Moreover, Archer Daniels reported an adjusted segment operating profit of $1,199 million in first-quarter 2021, up 86.5% from the year-ago quarter. On a GAAP basis, the company’s segmental operating profits grew nearly 85% year over year to $1,105 million.

Segment Operating Profit Discussion

Adjusted operating profit at Ag Services & Oilseeds increased 84.1% year over year to $777 million. Operating results gained from solid performance in North America, driven by robust demand in China. On the flip side, a slow-selling season for Brazilian farmers as compared to the first quarter of 2020 along with dismal margins and rising freight costs led to the sluggishness in South America. Also, unfavorable timing acted as a deterrent.

Moreover, strong margins in soybean and softseed crushing on the back of healthy demand for vegetable oil and tight soybean stocks contributed positively to the crushing business. Operating results for Refined Products and Other improved year over year, driven by solid margins in North America and EMEAI refined oils.

The Carbohydrate Solutions segment’s adjusted operating profit surged 281% to $259 million. Starches and sweeteners gained from better pricing in ethanol, solid performance in corn oil as well as favorable co-product values. Moreover, Vantage Corn Processors performed well year over year on higher demand for USP-grade alcohol and sturdy margins on the distribution of fuel ethanol.

In the Nutrition segment, adjusted operating profit of $154 million grew 8.5% from $142 million in the year-ago quarter owing to significant gains in the Human Nutrition unit. The Human Nutrition division gained from higher sales across various segments, particularly beverages. Also, positive product mix in North America and strong margins in EMEAI regions were upsides. Further, Health and Wellness performed well year over year, driven by demand for probiotics and fibers. Meanwhile, the Animal Nutrition unit remained drab due to sluggish demand and rising input costs stemming from COVID-19 impacts, particularly in South America. This was somewhat offset by improved performance in amino acids and a positive product mix.

Other Financials

Archer Daniels ended the quarter with cash and cash equivalents of $694 million, long-term debt, including current maturities, of $8,437 million and shareholders’ equity of $20,861 million.

In the quarter ending Mar 31, 2021, the company provided $298 million in cash for operating activities. Additionally, it paid out dividends of $208 million in the said period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.22% due to these changes.

VGM Scores

At this time, ADM has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ADM has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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