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Archer Daniels (ADM) Stock Continues to Decline: Here's Why

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Leading food processing company, Archer Daniels Midland Company (ADM - Free Report) seems to be losing sheen due to back-to-back dismal sales performances. The company’s surprise history reveals that it has lagged the sales estimates for over three years now. This probably has weighed tremendously on the stock performance.

Evidently, shares of Archer Daniels have declined 10.2% year to date, while the Zacks categorized Consumer Staples sector grew 9%. Apart from the dismal sales trend, the company’s earnings in the most recent quarter marked its second consecutive miss which further hurt sentiments. Notably, shares of the company have dipped 11.3% in the last three months and 3.4% in the past one month.

Further, this Zacks Rank #5 (Strong Sell) company’s estimates have declined in the last 30 days. The Zacks Consensus Estimate for 2017 fell by 2 cents to $2.64 per share while estimate for 2018 declined by 4 cents to $2.92 per share.

Archer-Daniels-Midland Company Price, Consensus and EPS Surprise


Archer-Daniels-Midland Company Price, Consensus and EPS Surprise | Archer-Daniels-Midland Company Quote

What’s Leading to the Decline?

Clearly, the stock is struggling due to strained earnings and revenues, as discussed above. In the recently reported first-quarter 2017, both earnings and sales lagged estimates. While this marked Archer Daniels’ second consecutive earnings miss, the company has delivered negative earnings surprise in seven of the last eight quarters. Consequently, the company has an average negative surprise of 2.6% for the trailing eight quarters. Further, the company has been missing sales estimates for over three years now.

The dismal performance can be primarily attributed to the fluctuating commodity prices, oversupply in the industry and unfavorable margins. Further, its significant presence in the international market exposes it to unfavorable foreign currency translations.

Additionally, the company faces intense competition in all segments where it operates. Furthermore, Glencore's plans to expand in the agriculture space may increase competition for Archer Daniels.

Can the Tables Turn?

We believe Archer Daniels’ strategic initiatives and constant focus on cost-savings along with enhancing processing capabilities and global footprint through strategic acquisitions bode well. The company remains on track with long-term strategic plan that was announced in 2012. In this regard, Archer Daniels enhanced cost structure, solidified core operations and made significant expansions – both geographic as well as category-wise.

These factors helped the company to generate cost savings and gain efficiencies, which in turn drove first-quarter results. While the first-quarter results were below expectations, both earnings and sales grew year over year. Moreover, the company’s run-rate savings in the first quarter reflect that it is on track with its 2017 target. Going forward, management remains confident of sustaining this momentum in 2017.

Further, the current Zacks Consensus Estimate of 59 cents per share for second-quarter 2017 reflects 44.4% growth from the prior-year quarter. Analysts polled by Zacks anticipate revenues of $16.1 billion, up 3.1% from the year-ago quarter. Moreover, the stock is supported by a VGM Style Score of “A”, which justifies growth prospects.

Bottom Line

The company’s strategic initiatives and cost saving plan can be rewarding for the company. However, the lower-than-expected revenues and earnings cannot be ignored. We would hence prefer to stay away from the stock until more pronounced effects of the company’s initiatives are visible in its top and bottom-line performances.

Stocks to Consider

Meanwhile, investors may consider better-ranked stocks in the same sector including Calavo Growers, Inc. CVGW, Craft Brew Alliance, Inc. BREW and Limoneira Company LMNR. While Calavo Growers and Craft Brew Alliance sport a Zacks Rank #1 (Strong Buy), Limoneira carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Calavo Growersvhas surged 16.4% in the last three months. The stock has recorded an average positive earnings surprise of 4.7% in the trailing four quarters.

Craft Brew Alliance has gained nearly 29.5% in the last three months. Also, the company’s estimates for the current fiscal have witnessed positive estimate revisions in the last 30 days.

Limoneira has increased 11.2% in the last three months. Further, the company has to its credit a spectacular earnings surprise history with an average beat of 14.7% recorded in the preceding four quarters. The company’s estimates have witnessed an uptrend in the last 30 days.

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