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Will Archer Daniels' (ADM) Strategic Efforts Aid Q2 Earnings?

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Archer Daniels Midland Company (ADM - Free Report) is slated to report second-quarter 2018 results on Jul 31. The company has delivered positive earnings surprise in three of the trailing four quarters, with an average beat of 13.3%.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 76 cents, mirroring year-over-year growth of 33.3%. Estimates remained stable in the past 30 days. Moreover, the Zacks Consensus Estimate for quarterly revenues is $15.80 billion, up 5.8% from the year-ago actual figure.

Archer Daniels Midland Company Price, Consensus and EPS Surprise


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

How Things Are Placed Before 2Q18 Earnings

Archer Daniels began 2018 on a solid note with first-quarter earnings and sales surpassing estimates and improving year over year. Notably, this marked the company’s return to growth trajectory, reversing its more than three-year long trend of missing sales estimates while earnings topped for the second straight quarter. The trend is expected to continue in the second quarter as well based on improved market conditions, gains from U.S. tax reform, product innovations and Project Readiness.

Archer Daniels remains focused on enhancing operational efficiency at its production and supply chain networks to curtail costs. Also, the company has been on track with business transformation, under its 1ADM program, which forms an integral part of Project Readiness. The company expects Readiness to help management have a more coordinated approach toward driving business improvement, standardizing functions and enriching consumers’ experience. Notably, management rolled out the 1ADM plan to ocean freight and European corporate finance operations in the first quarter. Moreover, it remains on track with further 1ADM rollouts to cover the entire enterprise in 2018.

Archer Daniels has also been undertaking strategic steps to manage its business portfolio, which are expected to help in realizing value and invest the same in best possible resources to enhance returns. In fact, the company’s focus on improving its portfolio of Animal Nutrition products is commendable as well. Recently, management has agreed to acquire France-based Neovia, which provides value-added animal nutrition solutions for the feed industry. The acquisition is in sync with the company’s growing Animal Nutrition footprint and capabilities, thus marking a transformative step for Archer Daniel’s Animal Nutrition business as well as a key strategic investment in France. It intends to concentrate on five major platforms, animal nutrition, bioactives, carbohydrates, human nutrition and taste along with geographic regions to drive growth.

Furthermore, the company is progressing well with its cost-saving initiatives. In the first quarter, the company generated operational cost savings of $70 million on a run rate basis and is on track to exceed the targeted $200 million savings for 2018. Meanwhile, the company aims at cost synergy activities by addressing redundancies and removing overlapping corporate SG&A. It will focus on lower capital spending and increasing benefits from the aforementioned investments as well.

However, Archer Daniels witnessed softness across its Origination segment in the last reported quarter. The segment’s revenues declined 1.4%, while its adjusted operating profit decreased 4.3%. Gains from solid Merchandising and Handling results as well as sturdy Global Trade owing to higher volumes and margins were more than offset by weak U.S. export volumes and nearly $40 million of mark-to-market impact on existing contracts. Additionally, transportation results declined year over year, leading to higher operating expenses.

Additionally, significant global presence exposes the company to adverse currency translations. Also, intense competition across all its segments and volatile commodity prices remain threats.

Nevertheless, Archer Daniels’ smooth progress on portfolio management initiatives, cost-savings plan as well as Readiness program is anticipated to boost the upcoming quarterly results.

Zacks Model

Our proven model does not conclusively show that Archer Daniels is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and 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 carries a Zacks Rank #2, which increases the predictive power of earnings beat. However, the company’s Earnings ESP of -3.97% makes surprise prediction difficult.

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:

The Boston Beer Company, Inc. (SAM - Free Report) has an Earnings ESP of +13.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dean Foods Company (DF - Free Report) has an Earnings ESP of +10.35% and a Zacks Rank of 3.

Monster Beverage Corporation (MNST - Free Report) has an Earnings ESP of +1.46% and a Zacks Rank #3.

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