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These Factors Might Hurt Archer Daniels (ADM) Q2 Earnings

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Archer Daniels Midland Company (ADM - Free Report) is slated to release second-quarter 2017 results on Aug 1. The question lingering in investors’ minds is whether this food processing behemoth will be able to deliver a positive earnings surprise in the quarter to be reported. The company delivered a negative earnings surprise in the last reported quarter and has underperformed the Zacks Consensus Estimate in three out of the past four trailing quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 54 cents, reflecting year-over-year increase of about 32%. However, we note that our earnings estimate has declined by 4 cents over the last seven days. Analysts polled by Zacks expect revenues of $15.8 billion, up a little over 1% from the year-ago quarter.

Archer Daniels forms part of the Consumer Staples sector. Per the latest Earnings Trends, the sector’s earnings are expected to rise 3.1%, while revenues are expected to climb 1.2%.

Factors at Play

Archer Daniels has tumbled 9.3% so far this year, as against the sector’s growth of 10%. Well, this could be largely accountable to the company’s dismal sales surprise history. Evidently, Archer Daniels has been missing sales estimates for over three years now. In fact, the company's bottom line has not been impressive too, as the last reported quarter marked its second straight earnings miss. The murky performance can be mainly attributed to fluctuating commodity prices, oversupply in the industry and unfavorable margins.

Further, management expects the global landscape in the second half of 2017 to be competitive for the Agricultural Services segment. Also, results at the Oilseeds segment are anticipated to be in a range of flat to down year over year. The company expects soybean crush margins to remain pressurized on account of excess supply and competition. While export volumes in Brazil are expected to improve, margins are likely to be dented by sluggish commercialization. On the other hand, results at the Corn Processing and Wild Flavors and Specialty Ingredients segments are expected to show better results in the second quarter, as compared with the last year. However, the aforementioned obstacles make us anxious about Archer Daniels’ upcoming results.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Archer Daniels is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Archer Daniels has an Earnings ESP of -1.85% as the Most Accurate estimate of 53 cents is below the Zacks Consensus Estimate of 54 cents. Further, the company currently carries a Zacks Rank #4 (Sell). Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions. The combination of Archer Daniels’ dismal Zacks Rank and negative Earnings ESP makes us apprehensive about the stock.

Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.50% and a Zacks Rank #3.

Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +4.92% and a Zacks Rank #3.

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