Archer Daniels Midland Company (ADM - Free Report) has been gaining from strategic initiatives like management of business portfolio, Project Readiness, focus on cost-savings program and a disciplined capital allocation strategy. Recently, it reported solid fourth-quarter 2017 earnings wherein the bottom line surpassed the Zacks Consensus Estimate and improved year over year.
However, these initiatives were not enough to reverse the company’s dismal sales trend that has been lagging estimates for more than three years now. Moreover, fourth quarter sales also declined year over year due to soft sales across most segments. The drab performance history can be attributed to the fluctuating commodity prices, oversupply in the industry and unfavorable margins. This, in turn, has weighed upon the company’s share price movement. The stock has lost 5.6% in a year, narrower than the industry’s decline of 8.8%.
Post fourth-quarter earnings, the stock gained 1.7% fueled by robust earnings. Additionally, the Zacks Consensus Estimate of $2.76 for 2018 and $2.88 for 2019 has moved up by 5 cents and 8 cents, respectively, in the last seven days.
Going into 2018, Archer Daniels remains encouraged on delivering growth through its strategic initiatives like increasing capabilities, product innovations, maximizing shareholders’ value and solid international foothold. Let’s see whether these initiatives are enough to cushion this Zacks Rank #3 (Hold) stock and reverse the dismal sales trend.
Deeper Insight of Strategic Initiatives
Archer Daniels has been undertaking several strategic initiatives to manage its business portfolio. These initiatives are expected to help the company realize value and invest the same in the best possible resources to enhance returns. Further, to streamline its portfolio, the company has undertaken few divestitures as evident from the recent agreement to sell its oilseeds operations in Bolivia to Inversiones Piuranas S.A.
Additionally, the company is progressing well with cost savings, a key component of its long-term strategy. Archer Daniels targets $550 million in additional run rate cost savings over the next five years, including cost savings of $350 million from operational excellence and process enhancements, and about $200 million in incremental purchasing savings. Impressively, the company has generated run-rate cost savings of $285 million in 2017 and plans to achieve $200 million in run-rate savings by the end of 2018.
Moreover, Archer Daniels has long been enhancing operational efficiency at its production and supply chain networks to curtail costs. Also, the company is on track with business transformation, under its 1ADM program. Together, these aforementioned initiatives come under the company’s single strategic plan called Project Readiness. Management expects this project to drive business improvement, standardize functions and enrich consumers’ experience. Notably, it rolled out its 1ADM business transformation project in various regions as well as businesses in 2017 and remains on track with further 1ADM rollouts in 2018.
Archer Daniels has also maintained a disciplined capital allocation strategy, focused on making investments to develop its business while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks. Recently, the company raised its quarterly dividend by 4.7% to 33.5 cents per share compared with prior payout of 32 cents.
Looking for Solid Stocks? Check These
Some better-ranked stocks in the broader Consumer Staples sector are Lamb Weston Holdings, Inc. (LW - Free Report) , Sysco Corporation (SYY - Free Report) and United Natural Foods, Inc. (UNFI - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lamb Weston, with a long-term earnings growth rate of 12%, has pulled off an average positive earnings surprise of 7.9% in the trailing four quarters.
Sysco, with a long-term earnings growth rate of 10.1%, has delivered an average positive earnings surprise of 1.1% in the last four quarters.
United Natural, with a long-term earnings growth rate of 6.2%, has pulled off an average positive earnings surprise of 2.3% in the trailing four quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>