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Archer Daniels Q1 Earnings Beat Estimates, Revenues Miss - Analyst Blog

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Archer Daniels Midland CompanyADM began 2015 on a mixed note, reporting spectacular bottom-line results despite the top line lagging expectations.

The company's adjusted earnings for the first quarter of 2015 surged 40% year over year to 77 cents per share, cruising much ahead of the Zacks Consensus Estimate of 71 cents. On a reported basis, Archer Daniels' earnings soared a whopping 92.5% from the year-ago quarter.

Archer-Daniels-Midland Company - Earnings Surprise | FindTheCompany

Results benefitted from outstanding performance at the Oilseeds segment and an impressive start at the newly created WILD Flavors and Specialty Ingredients business. However, lower industry ethanol margin in the Corn processing segment, along with currency headwinds, adversely impacted results to an extent.

The improvement in earnings was let down by a fall in revenues at all of the company's major segments, resulting in a 15.4% year-over-year plunge in total revenue. Total revenue of $17,506 million also lagged the Zacks Consensus Estimate of $20,450 million.

Going by segments, quarterly revenues at Archer Daniels' Agricultural Services segment plunged 17.2% to $8,045 million; the OilseedsProcessing segment's revenues declined 17.8% to $6,293 million, and the Corn Processing segment's revenues descended 17.4% to $2,466 million, all on a year-over-year basis. On the positive side, revenues at the Wild Flavors and Specialty Ingredients segment witnessed a significant jump to $606 million with other revenues advancing 7.9% to $96 million in the reported quarter.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $883 million, marking an improvement of 12% from the year-ago quarter.

On a segmental basis, the Oilseeds Processing segment's operating profit of $469 million jumped $172 million year over year. Strong North American and European soybean crushing results coupled with strong South American results led to the upside.

Archer Daniels' Corn Processing segment registered a $73 million fall in operating profit to $113 million compared with the year-ago quarter figure. The decline is primarily attributable to lower ethanol production volumes along with weaker industry margins.

Operating profit for the Agricultural Services segment went up $52 million year over year to $194 million on the back of enhanced U.S. and global grain merchandising, partly offset by weak industry margins.

At the newly acquired Wild Flavors and Specialty Ingredients segment, operating profit increased $10 million to $68 million.

Financials

Archer Daniels ended the quarter with $890 million in cash and cash equivalents. At the end of the first quarter of 2015, long-term debt including current maturities was $5,593 million. Shareholders' equity as of Mar 31, 2015 was $18,757 million.

During the first quarter, Archer Daniels generated $45 million of cash from operating activities.

Apart from this, the company generated strong returns with its trailing 4-quarter average adjusted ROIC reflecting a 250 basis points (bps) improvement from last year. At the end of the quarter, adjusted ROIC was 9.5%, up 290 bps from the annual WACC of 6.6%.

Moreover, the company returned $0.7 billion to shareholders in the quarter, in the form of share repurchases and dividend payments. In first-quarter 2015, Archer Daniels bought back about 12 million shares.

Other Developments

Moving ahead with its strategy of enhancing returns by focusing on core business growth and strategic acquisitions, Archer Daniels took various steps in the reported quarter.

The company penned a deal to buy a privately-owned oil bottling company, AOR N.V., based in Belgium. This move is likely to help the company expand its product offerings as well as its customer base in Europe, providing opportunities for enhanced returns.

Further, in order to undertake strategic expansions, the company's corn processing business acquired 100% stake in the corn wet mills in both, Bulgaria and Turkey, which it jointly held with Tate & Lyle. The company also increased its stake to 50% in a facility in Hungary. With the acquisition of these corn assets, Archer Daniels expects to cater to the growing demand for sweeteners, in addition to enhancing its capability to satisfy the increasing demand for starch in Europe.

Other Stocks to Consider

Archer Daniels currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader consumer staples sector is SUPERVALU Inc. SVU , with a Zacks Rank #1 (Strong Buy). Also, some other top-ranked stocks in the same industry are Adecoagro S.A. AGRO and Amira Nature Foods Ltd. ANFI , each with a Zacks Rank #2 (Buy).

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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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