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Can Growth Strategies Aid Archer Daniels (ADM) Amid Cost Woes?
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Archer Daniels Midland Company (ADM - Free Report) has been favored by investors on the back of its ongoing initiatives to drive growth. The company has been significantly progressing on its three strategic pillars — optimize, drive and growth. Also, it has been on track with the Readiness program.
Driven by these initiatives and continued business momentum, the company has been witnessing a robust earnings surprise trend, which continued in first-quarter 2023. The top and bottom lines beat the Zacks Consensus Estimate and advanced year over year. This marked the 15th straight quarter of an earnings beat. Results were bolstered by strong margins across the Ag Services & Oilseeds and Carbohydrate Solutions segments, and a solid product portfolio.
However, Archer Daniels has been witnessing a rising SG&A expense trend for a while now. Also, the dismal performance in the Nutrition Unit has been concerning.
Shares of Archer Daniels have lost 11.6% in the past year against the industry’s growth of 4.4%. Moreover, the Zacks Rank #3 (Hold) stock compared unfavorably with the sector’s rise of 3.9% and the S&P 500’s improvement of 14.9%.
Image Source: Zacks Investment Research
Can Growth Initiatives Lift Stock?
Archer Daniels looks poised for long-term growth, owing to its progress on the optimize, drive and growth pillars. Under the optimize pillar, the company revealed plans to expand alternative protein capabilities in Decatur, IL, and starch production in Marshall, MN. It concluded its alternative protein expansion in Serbia and is on track to launch the expanded probiotic capacity in Valencia, Spain.
The company also expects to start operating its joint venture crush and refining facility in North Dakota by this year’s harvest. It continues to adapt to consumers’ changing nutritional preferences as part of optimizing growth.
Under its drive pillar, ADM has been adapting its organizational structure to meet operational excellence and set goals. Notably, Archer Daniels inked an agreement with Benson Hill to process and commercialize a portfolio of proprietary ingredients derived from their ultra-high protein soybeans.
In response to growing trends for all things sustainable, the company has been making efforts to expand its solutions portfolio, which forms part of its Carbohydrate Solutions unit. It collaborated with LG Chem to produce lactic and polylactic acids for bioplastics, which is a plant-based product.
Also, ADM 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. 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.
Additionally, Archer Daniels is likely to gain from the Readiness goals of driving business improvement, standardizing functions and enriching consumers’ experience, which are on track. As a part of readiness efforts, it introduced a company-wide simplification initiative. The company’s strategic pillars for growth and the aforementioned initiatives are guided and supported by the Readiness program focused on accelerating and enhancing competitiveness.
Hurdles to Overcome
Archer Daniels is lately witnessing soft trends in its Nutrition segment, which is hurting investor sentiment.
In first-quarter 2023, the company’s Nutrition segment witnessed a year-over-year revenue decline of 3.7%. The adjusted operating profit fell 23% from the year-ago quarter. The Human Nutrition unit was flat year over year.
The Flavors unit was drab due to sluggish results in North America, while sturdy margins aided the Specialty Ingredients unit. The Health & Wellness business remained weak year over year. Also, the Animal Nutrition unit was weak year over year due to lower margins in amino acids.
However, management has been making efforts to help reduce destocking impacts in beverage, lower margins in amino acids and the broader demand fulfillment challenges. It expects 2023 operating profit growth of more than 10% on a constant-currency basis, led by Human Nutrition. Also, the company is likely to witness growth toward the back half of the year.
In first-quarter 2023, Archer Daniels’ SG&A expenses rose 6.3% to $881 million. The metric grew 14.1%, 13.6%, 10.1% and 16.7% in the fourth, third, second and first quarters of 2022, followed by increases of 4.9%, 13.2%, 15.8% and 12.8% in the fourth, third, second and first quarters of 2021, respectively. This can be attributed to 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.
Higher SG&A expenses linked with higher performance-related compensation, project-related costs and shifting costs from business segments into the centralized centers of excellence in supply chain and operations have been other headwinds. The global impacts of inflation have been concerning. Any deleverage in SG&A expenses has a direct bearing on the company’s profitability.
Consumer Staple Stocks Worth a Look
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely, Molson Coors (TAP - Free Report) , Monster Beverage (MNST - Free Report) and PepsiCo Inc. (PEP - Free Report) .
Molson Coors currently sports a Zacks Rank #1 (Strong Buy). TAP has a trailing four-quarter earnings surprise of 32.1%, on average. Shares of TAP have rallied 31.3% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Molson Coors’ current financial year’s sales and earnings suggests growth of 5.4% and 7.6%, respectively, from the year-ago period’s reported figures. TAP has an expected EPS growth rate of 4.3% for three to five years.
Monster Beverage currently sports a Zacks Rank #1. The company has an expected EPS growth rate of 22.9% for three to five years. Shares of MNST have rallied 35.6% in the past year.
The Zacks Consensus Estimate for Monster Beverage’s sales and earnings per share for the current financial year suggests growth of 12.8% and 37.5%, respectively, from the year-ago period’s reported figures. MNST has a trailing four-quarter negative earnings surprise of 4.1%, on average.
PepsiCo has a trailing four-quarter earnings surprise of 6.3%, on average. It currently carries a Zacks Rank #2 (Buy). Shares of PEP have gained 14.2% in the past year.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 4.9% and 7.5%, respectively, from the year-ago period's reported figures. PEP has an expected EPS growth rate of 7.8% for three to five years.
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Can Growth Strategies Aid Archer Daniels (ADM) Amid Cost Woes?
Archer Daniels Midland Company (ADM - Free Report) has been favored by investors on the back of its ongoing initiatives to drive growth. The company has been significantly progressing on its three strategic pillars — optimize, drive and growth. Also, it has been on track with the Readiness program.
Driven by these initiatives and continued business momentum, the company has been witnessing a robust earnings surprise trend, which continued in first-quarter 2023. The top and bottom lines beat the Zacks Consensus Estimate and advanced year over year. This marked the 15th straight quarter of an earnings beat. Results were bolstered by strong margins across the Ag Services & Oilseeds and Carbohydrate Solutions segments, and a solid product portfolio.
However, Archer Daniels has been witnessing a rising SG&A expense trend for a while now. Also, the dismal performance in the Nutrition Unit has been concerning.
Shares of Archer Daniels have lost 11.6% in the past year against the industry’s growth of 4.4%. Moreover, the Zacks Rank #3 (Hold) stock compared unfavorably with the sector’s rise of 3.9% and the S&P 500’s improvement of 14.9%.
Image Source: Zacks Investment Research
Can Growth Initiatives Lift Stock?
Archer Daniels looks poised for long-term growth, owing to its progress on the optimize, drive and growth pillars. Under the optimize pillar, the company revealed plans to expand alternative protein capabilities in Decatur, IL, and starch production in Marshall, MN. It concluded its alternative protein expansion in Serbia and is on track to launch the expanded probiotic capacity in Valencia, Spain.
The company also expects to start operating its joint venture crush and refining facility in North Dakota by this year’s harvest. It continues to adapt to consumers’ changing nutritional preferences as part of optimizing growth.
Under its drive pillar, ADM has been adapting its organizational structure to meet operational excellence and set goals. Notably, Archer Daniels inked an agreement with Benson Hill to process and commercialize a portfolio of proprietary ingredients derived from their ultra-high protein soybeans.
In response to growing trends for all things sustainable, the company has been making efforts to expand its solutions portfolio, which forms part of its Carbohydrate Solutions unit. It collaborated with LG Chem to produce lactic and polylactic acids for bioplastics, which is a plant-based product.
Also, ADM 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. 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.
Additionally, Archer Daniels is likely to gain from the Readiness goals of driving business improvement, standardizing functions and enriching consumers’ experience, which are on track. As a part of readiness efforts, it introduced a company-wide simplification initiative. The company’s strategic pillars for growth and the aforementioned initiatives are guided and supported by the Readiness program focused on accelerating and enhancing competitiveness.
Hurdles to Overcome
Archer Daniels is lately witnessing soft trends in its Nutrition segment, which is hurting investor sentiment.
In first-quarter 2023, the company’s Nutrition segment witnessed a year-over-year revenue decline of 3.7%. The adjusted operating profit fell 23% from the year-ago quarter. The Human Nutrition unit was flat year over year.
The Flavors unit was drab due to sluggish results in North America, while sturdy margins aided the Specialty Ingredients unit. The Health & Wellness business remained weak year over year. Also, the Animal Nutrition unit was weak year over year due to lower margins in amino acids.
However, management has been making efforts to help reduce destocking impacts in beverage, lower margins in amino acids and the broader demand fulfillment challenges. It expects 2023 operating profit growth of more than 10% on a constant-currency basis, led by Human Nutrition. Also, the company is likely to witness growth toward the back half of the year.
In first-quarter 2023, Archer Daniels’ SG&A expenses rose 6.3% to $881 million. The metric grew 14.1%, 13.6%, 10.1% and 16.7% in the fourth, third, second and first quarters of 2022, followed by increases of 4.9%, 13.2%, 15.8% and 12.8% in the fourth, third, second and first quarters of 2021, respectively. This can be attributed to 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.
Higher SG&A expenses linked with higher performance-related compensation, project-related costs and shifting costs from business segments into the centralized centers of excellence in supply chain and operations have been other headwinds. The global impacts of inflation have been concerning. Any deleverage in SG&A expenses has a direct bearing on the company’s profitability.
Consumer Staple Stocks Worth a Look
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely, Molson Coors (TAP - Free Report) , Monster Beverage (MNST - Free Report) and PepsiCo Inc. (PEP - Free Report) .
Molson Coors currently sports a Zacks Rank #1 (Strong Buy). TAP has a trailing four-quarter earnings surprise of 32.1%, on average. Shares of TAP have rallied 31.3% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Molson Coors’ current financial year’s sales and earnings suggests growth of 5.4% and 7.6%, respectively, from the year-ago period’s reported figures. TAP has an expected EPS growth rate of 4.3% for three to five years.
Monster Beverage currently sports a Zacks Rank #1. The company has an expected EPS growth rate of 22.9% for three to five years. Shares of MNST have rallied 35.6% in the past year.
The Zacks Consensus Estimate for Monster Beverage’s sales and earnings per share for the current financial year suggests growth of 12.8% and 37.5%, respectively, from the year-ago period’s reported figures. MNST has a trailing four-quarter negative earnings surprise of 4.1%, on average.
PepsiCo has a trailing four-quarter earnings surprise of 6.3%, on average. It currently carries a Zacks Rank #2 (Buy). Shares of PEP have gained 14.2% in the past year.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 4.9% and 7.5%, respectively, from the year-ago period's reported figures. PEP has an expected EPS growth rate of 7.8% for three to five years.