Archer Daniels (ADM) Q4 Earnings Miss, Increase Y-o-Y

Archer Daniels Midland CompanyADM posted fourth-quarter 2016 results, wherein both sales and earnings increased year over year. The stock gained on the back of enhanced operating conditions in the quarter, as against the beginning of 2016 that remained challenging. However, both the top and the bottom line lagged our estimates.

While the earnings didn't have much impact on the stock price in the pre-market trading hours, the company has considerably outperformed the broader Consumer Staples sector in the last one year. Evidently, Archer Daniels' shares rose 36.4% in the past one year, compared with the sector's growth of nearly 10%.

Q4 Highlights

The company's fourth-quarter adjusted earnings of 75 cents per share jumped 15.4% year over year, but fell short of the Zacks Consensus Estimate of 80 cents. On a reported basis, Archer Daniels' earnings were 73 cents per share, significantly lower than $1.19 earned in the year-ago quarter.

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Total revenue of $16,501 million inched up 0.3% year over year, thanks to improved sales at most segments. However, the top line missed the Zacks Consensus Estimate of $16,584 million, thus continuing with its dismal sales surprise trend.

Going by segments, quarterly revenues at Archer Daniels' Agricultural Services segment were up 0.5% to $8,066 million, the Corn Processing segment's revenues rose 3.5% to $2,516 million and the Wild Flavors and Specialty Ingredients segment witnessed a 2.4% increase in revenues to $544 million. On the other hand, the Oilseeds Processing segment's revenues slipped 1.4% to $5,281 million and Other revenues dropped 5% to $94 million, all on a year-over-year basis.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $827 million in fourth-quarter 2016, up 30.6% from the year-ago quarter. On a GAAP basis, the company's segment operating profit declined 10.4% year over year to $806 million.

On a segmental adjusted basis, operating profit for the Agricultural Services segment rose 14.5% to $245 million, backed by strong North American performance, thanks to the solid global demand for U.S. products. Further, results were fueled by strong merchandising and handling, which were driven by higher volumes and improved margins. Transportation results also remained favorable with Milling and Other operations gaining form solid product margins.

Archer Daniels' Corn Processing segment's adjusted operating profit soared significantly to $255 million. Results benefited from strength in the sweeteners and starches business, which was backed by robust North American demand and better contributions from global operations. Further, favorable ethanol margins and volumes drove Bioproducts results. Animal Nutrition results also remained decent.

The Oilseeds Processing segment's adjusted operating profit increased 4.4% year over year to $239 million. Results gained from improved Asian results; better refining, packaging, biodiesel and other results, and strong soft seeds performance. This, however was somewhat offset by soft crushing and origination results due to reduced soy crush margins, particularly in Brazil.

The Wild Flavors and Specialty Ingredients segment's adjusted operating profit fell 19.1% to $38 million, owing to persistent hurdles in the specialty ingredients business. This was somewhat compensated by benefits from integration of Eatem Foods and decent sales in the EMEAI and Asia Pacific regions.


Archer Daniels ended the quarter with $619 million in cash and cash equivalents. As of Dec 31, 2016, long-term debt including current maturities was $6,777 million. Shareholders' equity at quarter end was $17,181 million.

During the year, Archer Daniels generated $1,475 million of cash from operating activities.

However, the company's returns suffered, with its trailing four-quarter average adjusted ROIC coming at 5.9%, down 70 basis points (bps) from the annual WACC of 6.6%.

Nevertheless, the company returned $1.7 billion to shareholders in 2016, in the form of share repurchases and dividend payments, remaining well on track with its balanced capital allocation plan. Further, concurrent to its earnings release, the company announced a quarterly cash dividend of 32 cents per share, payable on Mar 14 to shareholders of record as on Feb 21.

Looking Ahead

The company remains on track with its strategic growth plan, as is evident from its various buyouts, efficient portfolio management and organic growth projects. Moreover, the company exceeded its run-rate cost savings goal for 2016. In light of these factors, along with improved market conditions and expectations of better contributions from its recent projects and businesses, the company remains confident of delivering solid results in 2017.

Zacks Rank & Key Picks

Archer Daniels currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same industry is Calavo Growers Inc. CVGW , sporting Zacks Rank #1 (Strong Buy).

Other well-ranked stocks in the broader consumer staples sector include Campbell Soup Company CPB and Ingredion Incorporated INGR , with a Zacks Rank #2 (Buy) each. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Calavo Growers, with long-term EPS growth rate of 7%, has seen positive estimate revisions for fiscal 2016, over the past 60 days. Additionally, the company has topped on earnings in the past four quarters, with an average beat of 11.8%.

Campbell Soup, with long-term EPS growth rate of 20.4%, has seen estimates for the current fiscal trend upward in the last 30 days. Further, the company has recorded an earnings beat of 5.3% in the preceding quarter.

Ingredion , with long-term EPS growth rate of 11%, has seen positive estimate revisions in the last 30 days.

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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 Nasdaq, Inc.

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

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