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Can Archer Daniels (ADM) Improve Despite Soft Nutrition Unit?
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Archer Daniels Midland Company (ADM - Free Report) has been witnessing soft trends in the Nutrition segment due to the recent investigation into certain accounting practices related to this segment. This led to a year-over-year segmental revenue decline of 6.7% in fourth-quarter 2023. The company reported an adjusted operating loss of $10 million for the segment in the quarter. Demand headwinds and destocking impacts, along with operational issues with respect to the ERP systems integration, hurt volumes.
In the fourth quarter, the Human Nutrition segment’s operating profit was negative $25 million, about $112 million lower than the year-ago period, due to lower volumes and higher manufacturing costs, stemming from operational headwinds. Animal Nutrition's operating profit of $15 million declined 17% year over year on reduced amino acid margins and lower sub-segment overall volumes.
For the first quarter of 2024, the Nutrition segment’s results are anticipated to be lower year over year due to headwinds from a normalizing texturant market, fixed costs related to the operational challenges stemming from the Decatur East and protein volumes. Management assumes market normalization in texturants to be a headwind in 2024.
Amid these trends, the Zacks Rank #3 (Hold) stock has lost 16.6% in the year-to-date period compared with the industry’s decline of 8.3%. Additionally, ADM shares have underperformed the sector’s decline of 2.9% and the S&P 500’s growth of 6.3% in the same period.
Image Source: Zacks Investment Research
Do Strategies Place ADM for Growth?
Archer Daniels has been actively managing productivity and innovation, as well as aligning work to the interconnected trends in food security, health and well-being. Additionally, the company is benefitting from significant progress on its three strategic pillars — optimize, drive and growth. Hence, ADM is well-poised for sustainable long-term profit growth across new avenues.
For 2024, the company expects the global grain and oil seed supply to increase, as expected improvements in weather will support larger production levels across the major South American countries. Management assumes commodity prices to ease, thus anticipating global soybean crush margins to moderate in 2024, moving to $35-$60 per metric ton.
On the demand front, ADM forecasts vegetable oil demand growth from renewable diesel and low-single-digit soybean mill demand growth to boost structural margin improvement.
For 2024, management expects the Nutrition unit to see the path to recovery. It predicts the conversion of the company’s significant pipeline opportunities in Human and Animal Nutrition to generate mid-single-digit revenue growth. For the full year, management anticipates the Carbohydrate Solutions unit to deliver a strong year but slightly lower than 2023, as better volumes and margins in Sweeteners and Starches are expected to be offset by weaker ethanol.
Under the optimize pillar, the company plans to expand alternative protein capabilities in Decatur, IL, and starch production in Marshall, MN. It concluded its alternative protein expansion in Serbia. As part of the company’s optimizing pillar, it continues to adapt to consumers’ changing nutritional preferences.
Progress on its drive strategy, Archer Daniels continues to adapt its organizational structure to meet operational excellence and set goals. Under the growth pillar, the company is looking to expand its footprint in fast-growing alternative protein. 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.
Stocks to Consider
We have highlighted some better-ranked stocks from the broader Consumer Staples space, namely Celsius (CELH - Free Report) , Freshpet (FRPT - Free Report) and Vital Farms (VITL - Free Report) .
Celsius, specializing in commercializing healthier, nutritional functional foods, beverages and dietary supplements, currently carries a Zacks Rank #2 (Buy). CELH has a trailing four-quarter earnings surprise of 67.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for CELH’s current financial year’s sales and earnings suggests growth of 41.62% and 41.56%, respectively, from the year-ago reported numbers.
Freshpet, a pet food company, presently has a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 61.8%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 24.3% and 110%, respectively, from the year-ago reported figures.
Vital Farms currently carries a Zacks Rank #2. The company offers a range of produced pasture-raised foods. VITL has a trailing four-quarter earnings surprise of 16.2%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 18.7% and 30.5%, respectively, from the year-ago reported figures.
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Can Archer Daniels (ADM) Improve Despite Soft Nutrition Unit?
Archer Daniels Midland Company (ADM - Free Report) has been witnessing soft trends in the Nutrition segment due to the recent investigation into certain accounting practices related to this segment. This led to a year-over-year segmental revenue decline of 6.7% in fourth-quarter 2023. The company reported an adjusted operating loss of $10 million for the segment in the quarter. Demand headwinds and destocking impacts, along with operational issues with respect to the ERP systems integration, hurt volumes.
In the fourth quarter, the Human Nutrition segment’s operating profit was negative $25 million, about $112 million lower than the year-ago period, due to lower volumes and higher manufacturing costs, stemming from operational headwinds. Animal Nutrition's operating profit of $15 million declined 17% year over year on reduced amino acid margins and lower sub-segment overall volumes.
For the first quarter of 2024, the Nutrition segment’s results are anticipated to be lower year over year due to headwinds from a normalizing texturant market, fixed costs related to the operational challenges stemming from the Decatur East and protein volumes. Management assumes market normalization in texturants to be a headwind in 2024.
Amid these trends, the Zacks Rank #3 (Hold) stock has lost 16.6% in the year-to-date period compared with the industry’s decline of 8.3%. Additionally, ADM shares have underperformed the sector’s decline of 2.9% and the S&P 500’s growth of 6.3% in the same period.
Image Source: Zacks Investment Research
Do Strategies Place ADM for Growth?
Archer Daniels has been actively managing productivity and innovation, as well as aligning work to the interconnected trends in food security, health and well-being. Additionally, the company is benefitting from significant progress on its three strategic pillars — optimize, drive and growth. Hence, ADM is well-poised for sustainable long-term profit growth across new avenues.
For 2024, the company expects the global grain and oil seed supply to increase, as expected improvements in weather will support larger production levels across the major South American countries. Management assumes commodity prices to ease, thus anticipating global soybean crush margins to moderate in 2024, moving to $35-$60 per metric ton.
On the demand front, ADM forecasts vegetable oil demand growth from renewable diesel and low-single-digit soybean mill demand growth to boost structural margin improvement.
For 2024, management expects the Nutrition unit to see the path to recovery. It predicts the conversion of the company’s significant pipeline opportunities in Human and Animal Nutrition to generate mid-single-digit revenue growth. For the full year, management anticipates the Carbohydrate Solutions unit to deliver a strong year but slightly lower than 2023, as better volumes and margins in Sweeteners and Starches are expected to be offset by weaker ethanol.
Under the optimize pillar, the company plans to expand alternative protein capabilities in Decatur, IL, and starch production in Marshall, MN. It concluded its alternative protein expansion in Serbia. As part of the company’s optimizing pillar, it continues to adapt to consumers’ changing nutritional preferences.
Progress on its drive strategy, Archer Daniels continues to adapt its organizational structure to meet operational excellence and set goals. Under the growth pillar, the company is looking to expand its footprint in fast-growing alternative protein. 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.
Stocks to Consider
We have highlighted some better-ranked stocks from the broader Consumer Staples space, namely Celsius (CELH - Free Report) , Freshpet (FRPT - Free Report) and Vital Farms (VITL - Free Report) .
Celsius, specializing in commercializing healthier, nutritional functional foods, beverages and dietary supplements, currently carries a Zacks Rank #2 (Buy). CELH has a trailing four-quarter earnings surprise of 67.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for CELH’s current financial year’s sales and earnings suggests growth of 41.62% and 41.56%, respectively, from the year-ago reported numbers.
Freshpet, a pet food company, presently has a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 61.8%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 24.3% and 110%, respectively, from the year-ago reported figures.
Vital Farms currently carries a Zacks Rank #2. The company offers a range of produced pasture-raised foods. VITL has a trailing four-quarter earnings surprise of 16.2%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 18.7% and 30.5%, respectively, from the year-ago reported figures.