Archer-Daniels posted better-than-expected third-quarter 2014
earnings, backed by strong ethanol demand, improvement in the U.S.
grain export volumes and stringent cost-containment efforts.
Archer-Daniels' consistent focus on enhancing its processing
capabilities and global footprint through strategic acquisitions
bode well for future growth. Moreover, we are encouraged by its
strong cash flow generation ability and capital allocation
strategies which help it to make investments toward the development
of business while using the excess cash to enhance shareholder
returns. However, significant presence in the international market
exposes the company to unfavorable foreign currency translations
and economic and political instability. The company also remains
sensitive to rising commodity prices. Hence, we downgraded our
Outperform recommendation to Neutral on the stock.
Archer-Daniels-Midland Company is one of the leading food
processing companies in the world. The company processes oilseeds,
corn, wheat, cocoa and other feedstuffs, and is one of the leading
manufacturers of vegetable oil, protein meal, corn sweeteners,
flour, biodiesel, ethanol, and other value-added food and feed
ingredients. Archer-Daniels also has a worldwide grain elevator and
transportation network for procurement, storage, cleansing and
transportation of agricultural commodities. The IL-based company
reports its operating results under four segments:
The Agricultural Services division (40% of total revenue for
3Q14) includes operations related to the company's grain elevator
and transportation network in the U.S. to buy, store, clean and
transport agricultural commodities and resell them primarily as
animal feed and raw materials for the agricultural processing
The Oilseeds processing division (43% of total revenue) is
engaged in the processing of soybeans, cottonseed, sunflower seeds,
canola, rapeseed, peanuts and flaxseed into vegetable oils and
protein meals in North America, Europe, South America and Asia,
principally for food and feed industries.
The Corn processing segment (16% of total revenue) produces a
number of products for the food and beverage industries, including
syrup, starch, glucose, dextrose, and sweeteners. It is also
engaged in the production of ethanol, amino acid, citric acid,
lactic acid, lactates, sorbitol and xanthan gum for various
The Other segment (1% of total revenue) primarily includes the
company's financial business units. However, the segment makes
negligible contribution to the company's revenues.
Archer Daniels Midland Company (ADM): Read the Full
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
ARCHER DANIELS (ADM): Free Stock Analysis
To read this article on Zacks.com click here.