Back to top

Image: Bigstock

Archer Daniels (ADM) Announces Detailed 5-Year Growth Plan

Read MoreHide Full Article

Archer Daniels Midland Company (ADM - Free Report) announced a detailed plan to sustain earnings growth, drive growth across all businesses (particularly the nutrition segment) via productivity and innovation, and return good value to shareholders. The company is also making efforts to lower carbon emissions.

Management expects net incremental operating profit growth of $1.2 billion, suggesting high-single-digit earnings growth from a baseline of $4-$4.50 to a new baseline of $6-$7 by 2025. It anticipates an operating profit of $1.25-$1.5 billion for the nutrition segment by 2025. The company also anticipates share repurchases worth $5 billion and a dividend payout ratio of 30-40%. Archer Daniels forecasts a 10% return on capital to continue, which is significantly ahead of the company’s long-term weighted average cost of capital of 7%.

In a bid to achieve sustainable growth beyond 2025, ADM is on track with digitalization efforts in the Ag Services & Oilseeds unit, expanding the BioSolutions portfolio in the Carbohydrate Solutions unit, and boosting market growth in the Nutrition segment’s Health & Wellness.

The company is progressing well with its existing Strive 35 goals, which aim at reducing energy and water use, trash to landfills, and Scope 1 and 2 greenhouse gas emissions. Notably, Archer Daniels is likely to reduce Scope 3 greenhouse gas emissions by 25% from a 2019 baseline by 2035.

What’s More?

Archer Daniels’ Nutrition segment has been serving as a growth driver for a long time now. In third-quarter 2021, revenues at the segment rose 17% year over year. The segment’s adjusted operating profit grew 19.7% year over year, owing to significant gains in the Human and Animal Nutrition units. Backed by strength across both Human and Animal Nutrition units, the nutrition segment will likely sustain momentum with year-over-year earnings growth in the fourth quarter and operating profit growth of 20% in 2021.

The company has been expanding its solutions portfolio, which forms part of its Carbohydrate Solutions unit. It 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 on an annual basis.

In a recent development, Archer Daniels entered a joint venture with Gevo to help meet the demand for low-carbon sustainable aviation fuel. ADM is also utilizing innovative technologies to develop products and boost operating capabilities.

Driven by these factors, Archer Daniels delivered better-than-expected results for third-quarter 2021, wherein both the top and bottom lines improved 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 the quarterly results. 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.

Consequently, shares of this Zacks Rank #3 (Hold) company have gained 31.8% year to date compared with the industry’s growth of 7.3%.


Zacks Investment ResearchImage Source: Zacks Investment Research


However, it is reeling under higher performance-related compensation, project-related costs and shifting of costs from business segments into the centralized centers of excellence in supply chain and operations. Also, higher manufacturing costs remain concerning for the Carbohydrates Solutions and Ag Services & Oilseeds segments in the fourth quarter of 2021.

Stocks to Consider

We have highlighted some better-ranked companies from the broader Consumer Staples space, namely Albertsons Companies (ACI - Free Report) , The J. M. Smuckers (SJM - Free Report) , and Hershey (HSY - Free Report) .

Albertsons Companies currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 37.6%, on average. Shares of Albertsons Companies have surged 75.4% year to date.

The Zacks Consensus Estimate for ACI’s current financial-year sales suggests year-over-year growth of 3.6%. The same for earnings per share indicates a decline of 16.7% from the year-ago period’s reported figure. ACI has an expected long-term earnings growth rate of 12%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The J. M. Smuckers, a Zacks Rank #2 stock at present, has a trailing four-quarter earnings surprise of 10.8%, on average. Shares of the company have gained 20.5% year to date.

The Zacks Consensus Estimate for The J. M. Smuckers’ sales for the current financial year suggests year-over-year growth of 0.03%, while the same for earnings per share indicates a decline of 5.6% from the year-ago reported figure. SJM has an expected long-term earnings growth rate of 1.2%.

Hershey presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 4.4%, on average. Shares of Hershey have gained 25.7% year to date.

The Zacks Consensus Estimate for HSY’s sales and earnings per share for the current financial year suggests growth of 8.9% and 12.6%, respectively, from the year-ago period’s reported numbers. HSY has an expected long-term earnings growth rate of 7.7%.