Back to top

Image: Bigstock

Solid Nutrition Unit to Aid Archer Daniels (ADM) Amid Cost Woes

Read MoreHide Full Article

Archer Daniels Company (ADM - Free Report) has long been benefiting from favorable demand, continued growth in the Nutrition segment and other strategic endeavors. It is also progressing well with its Readiness program, focused on accelerating and enhancing competitiveness.

Speaking of its nutrition segment, third-quarter 2021 revenues rose 17% year over year, with adjusted operating profit growth of 19.7%, owing to significant gains in the Human and Animal Nutrition units contributing to quarterly growth.

The Human Nutrition unit gained from better volume and favorable product mix along with strength in beverage, which drove Flavors results in the EMEA and North America. Solid demand for alternative proteins contributed to the Specialty Ingredients category. The Health & Wellness unit also witnessed robust quarterly growth, particularly in bioactives and fiber. The company has been investing in bolt-on acquisitions to build a one-stop shop with top-notch ingredients and solutions for the Human Nutrition unit. It also ventured into the flavors space with the acquisition of WILD.

The Animal Nutrition unit grew year over year more than two-folds in the third quarter, driven by strength in amino acids as well as feed additives and ingredients, which somewhat offset elevated costs in LATAM and slower demand recovery in the APAC region. Some notable efforts in the category are the Neovia and Sojaprotein buyouts; a joint venture with Marathon Oil Company; a 75% ownership stake in PetDine to leverage the rising demand for pet food; and a joint venture with Vland Biotech.

The nutrition segment is expected to sustain the momentum, with year-over-year earnings growth in the fourth quarter and operating profit growth of 20% in 2021. The segment is on its way to attaining $1 billion in operating profit in the years ahead.

As a result, the company posted impressive third-quarter 2021 results, wherein both top and bottom lines advanced year over year. This marked the eighth straight quarter of adjusted operating profit growth. Revenues grew 34.5% year over year, driven by solid sales across the majority of the segments. Management remains optimistic about the fourth-quarter and 2022 performance, driven by healthy global demand. The company also envisions another year of solid earnings growth.

In the past three months, shares of this Zacks Rank #3 (Hold) stock rose 5.4% compared with the industry’s growth of 0.6%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

The company has been expanding its solutions portfolio, which forms part of its Carbohydrate Solutions unit. Archer Daniels collaborated with LG Chem to produce lactic and polylactic acids for bioplastics, a plant-based product. Earlier, the company launched Biosolutions to expand its portfolio of sustainable higher-margin solutions, particularly for pharmaceuticals and personal care markets. Such endeavors are likely to help attain 10% revenue growth annually.

In a recent development, Archer Daniels entered a joint venture with Gevo to help meet the demand for low carbon sustainable aviation fuel. It also decided to shut down its ethanol facility in Peoria by the end of October. The company is utilizing innovative technologies to develop products and boost operating capabilities.

However, it continues to witness higher SG&A expenses due to elevated performance-related compensation, project-related costs and shifting of costs from business segments into the centralized centers of excellence in supply chain and operations. Higher manufacturing costs also remain concerning for the Carbohydrates Solutions and Ag Services & Oilseeds segments in the fourth quarter of 2021.

Wrapping Up

We believe that Archer Daniels will sustain its positive momentum on the back of solid demand and strength in the nutrition unit. The Zacks Consensus Estimate for 2021 earnings is pegged at $4.87 per share, indicating an increase of 1% in the past 30 days. Topping it, a VGM Score of A and a long-term earnings growth rate of 8.6% reflect its inherent strength.

Better-Ranked Stocks to Consider

Albertsons Companies (ACI - Free Report) , a Zacks Rank #1 (Strong Buy) stock at present, has an expected long-term earnings growth rate of 12%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy (HELE - Free Report) currently has an expected long-term earnings growth rate of 8% and a Zacks Rank #2 (Buy).

Hain Celestial (HAIN - Free Report) , currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 21.2%, on average.