Archer Daniels (ADM) Shares Jump 3.4% on Strong Q1 Earnings - Analyst Blog

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Archer Daniels Midland Company ( ADM ) reported better-than-expected adjusted earnings per share for second-quarter 2014 making the most of strong ethanol demand as well as improvement in U.S. grain export volumes and the ongoing strength in demand for oilseeds products. Further, we believe the company's earnings benefited from its cost containment actions as the increase came despite a fall in revenue.

Driven by this strong performance in the second quarter, the shares of this agri-business giant surged 3.4% to close at $48.56 during yesterday's trading session.

The company's adjusted earnings for the quarter rose 67.4% to 77 cents per share from 46 cents posted in the year-ago comparable quarter. Quarterly earnings also surpassed the Zacks Consensus Estimate of 75 cents per share.


Further, including certain one-time items, Archer Daniels reported earnings of 81 cents per share as compared with 34 cents in the year-ago quarter.

The improved earnings in the quarter were let down by a fall in revenues at all of the company's major segments that resulted in a 4.6% year-over-year decline in total revenue. Total revenue of $21,494 million also lagged the Zacks Consensus Estimate of $23,158 million.

Segment-wise, revenues at Archer Daniels' Oilseeds Processing segment fell 5.3% to $8,841 million, Agricultural Services segment's revenues declined 0.2% to $9,513 million and Corn Processing's revenues decreased 15.6% to $3,071 million, all on a year-over-year basis. However, the company's Other segment's revenues increased 86.5% to $69 million from $37 million in the prior-year quarter.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $819 million, marking an improvement of 32% from the year-ago quarter on the back of robust performances at all three major segments namely Oilseeds processing, Corn processing and Agricultural Services segments.

On a segmental basis, the Oilseeds Processing segment recorded an operating profit of $328 million compared with $310 million in the year-ago period. Results benefited from strong North American canola crushing operations offset by weaker origination in South America. Further, segment results were offset by lower results from Wilmar International Limited. Notably, segment results exclude the impact of a $1 million charge for cocoa hedge timing effects in the second quarter compared with an $11 million gain recorded in the prior-year period.

Archer Daniels' Corn Processing segment registered a $69 million increase in operating profit to $277 million from the year-ago quarter. Segment results exclude positive timing effects of $70 million for corn hedge. The improvement in the quarter was primarily attributable to strong ethanol demand and good margins in ethanol coupled with steady sweetener volumes and lower average selling prices that were offset by lower net corn costs.

Operating profit for the Agricultural Services segment was up $122 million year over year to $203 million as results for Merchandising and Handling and Transportation businesses remained strong, offset by flat Milling and other operating profits.

Other Business segment posted operating profit of $11 million, down from $22 million reported in the prior-year quarter.

Financials

Archer Daniels, which competes with Bunge Limited ( BG ), ended the quarter with $1,630 million in cash and cash equivalents as compared with $1,848 million at the end of the prior-year quarter. At quarter-end, long-term debt including current maturities was $5,389 million, down from a debt of $6,508 million at the end of second quarter 2013. Shareholders' equity as of Jun 30, 2014 was $20,219 million.

During the first half of fiscal 2014, the company deployed $400 million toward capital expenditure as against $458 million in the prior-year period. Further, Archer Daniels' had free cash flow, after changes in working capital and investments, of $585 million in the first half.

Apart from this, the company generated strong returns with its trailing 4-quarter average adjusted ROIC reflecting a 200 basis points improvement from last year. At second-quarter end, adjusted ROIC was 7.7% compared with 6.9% at the end of first-quarter 2014 and 5.7% at the end of the second quarter last year.

Moreover, the company returned more than $800 million to shareholders in the first half of 2014 in the form of share repurchases worth $500 million and dividend payments of more than $300 million. In the second quarter, Archer Daniels bought back about 7.2 million shares, bringing the total buybacks in the first half to 11.5 million shares.

Recalling the previous conference call announcement, the company had laid out a plan to buy back 18 million shares by the end of 2014, as part of its balanced capital allocation strategy. According to this strategy, the company intends to return about $1.4 billion to shareholders in the form of dividends and share repurchases and to direct $1.4 billion into the business toward capital spending and small M&As in 2014.

Further, looking forward to the rest of the year the company is expecting to close the acquisition of WILD Flavors and is confident of improved results as it prepares for very large harvests in North America and Europe.

Other Stocks Worth Considering

Archer Daniels currently carries a Zacks Rank #3 (Hold). However, some other better-ranked stocks that are worth a look in the agricultural operations industry include Fresh Del Monte Produce Inc. ( FDP ) with a Zacks Rank #1 (Strong Buy) and Adecoagro S.A. ( AGRO ) carrying a Zacks Rank #2 (Buy).


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FRESH DEL MONTE (FDP): Free Stock Analysis Report

ADECOAGRO SA (AGRO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ADM , BG , FDP , AGRO

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