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Why Is ADM (ADM) Up 2.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Archer Daniels Midland (ADM - Free Report) . Shares have added about 2.8% in that time frame, underperforming 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 catalysts.

Archer Daniels Surpasses Q3 Earnings & Revenue Estimates

Archer Daniels posted impressive third-quarter 2021 results, wherein both the top and bottom lines advanced year over year. This marked the eighth straight quarter of adjusted operating profit growth. Solid demand, robust crush margins and persistent growth in the Nutrition segment aided quarterly results. Management remains optimistic about the fourth-quarter performance.

In a recent development, the company has acquired a 75% stake in PetDine in a bid to enhance its growing pet business. It also sold the Peoria ethanol complex, signed a MoU with Gevo to produce sustainable aviation fuel, and collaborated with LG Chem for the production of plant-based solutions.

Q3 Highlights

Adjusted earnings of 97 cents per share in the third quarter outpaced the Zacks Consensus Estimate of 91 cents. The figure also grew 9% from 89 cents in the year-ago quarter. On a reported basis, the company’s earnings were 93 cents per share, up more than two-folds from the prior-year quarter’s 40 cents.

Revenues rallied 34.5% year over year to $20,340 million and surpassed the Zacks Consensus Estimate of $17,558 million. Solid sales across the majority of the segments contributed to the top line.

Segment-wise, revenues for the Ag Services & Oilseeds, Carbohydrate Solutions, and Nutrition segments improved 36.1%, 38.9% and 17% year over year to $15,689 million, $2,866 million and $1,697 million, respectively.

The gross profit increased 27.3% year over year to $1,326 million, while the gross margin contracted 40 basis points (bps) to 6.5% in the quarter under review. SG&A expenses rose 13.2% to $720 million.

Archer Daniels reported an adjusted segmental operating profit of $1,002 million in third-quarter 2021, up 18% from the year-ago quarter. On a GAAP basis, the company’s segmental operating profits grew 10.6% year over year to $1,000 million.

Segment Operating Profit Discussion

Adjusted operating profit at Ag Services & Oilseeds grew 41.7% year over year to $618 million. Despite the tough environment and headwinds related to hurricane Ida, the segment performed well. However, negative timing effects of roughly $50 million and reduced export volumes stemming from hurricane Ida acted as deterrents. Meanwhile, global trade remained strong.

The crushing business has witnessed significant year-over-year growth, driven by robust margins and solid demand for vegetable oil and higher production of renewable diesel. Positive timing impacts of nearly $70 million also aided results. Operating results for Refined Products and Other improved year over year on the back of strength in EMEA and North America biodiesel, favorable timing effects of $80 million, healthy demand for renewable diesel, and improved foodservice in North America.

The Carbohydrate Solutions segment’s adjusted operating profit fell 13.4% to $213 million due to rising input costs. Meanwhile, starches and sweeteners gained from an optimal mix between sweeteners and ethanol production. Vantage Corn Processors performed well year over year as production resumed at two dry mills. Sturdy fuel ethanol margins also remained an upside.

In the Nutrition segment, the adjusted operating profit of $176 million grew 19.7% from $147 million in the year-ago quarter. Human Nutrition unit gained from better volume and favorable product mix along with strength in beverage, which drove Flavors results in 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 animal nutrition unit grew more than two-folds year over year, 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.

Other Financials

Archer Daniels ended the quarter with cash and cash equivalents of $1,083 million; long-term debt, including current maturities, of $8,620 million; and shareholders’ equity of $21,990 million.

In the nine months ending Sep 30, 2021, the company provided $5,853 million in cash for operating activities. It also paid out dividends of $626 million in the said period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, ADM has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, ADM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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