uploads///Archer Daniels Midlands Declining Performance

Archer Daniels Showed Falling Performance in Second Quarter


Oct. 28 2015, Updated 9:11 a.m. ET

Second quarter performance recap

Archer Daniels Midland (ADM) transforms crops into products. It operates through its four segments that are Agricultural Services, Corn Processing, Oilseeds Processing, Wild Flavors and Specialty Ingredients. It reported its second quarter results for fiscal 2015 in the first week of August. The company reported net earnings of $386 million, or $0.62 per share, and segment operating profit of $808 million for the quarter.

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Previous earnings

As per the press release, the company’s Agricultural Services earnings fell by $57 million on lower merchandising volumes and export margins. The company’s Corn Processing earnings fell by $80 million due to strong sweetener results offset by lower bioproducts results. The Oilseeds Processing segment’s earnings were solid, as strong global soy crush and South American origination compensated for lower soft seed and refining results. Wild Flavors and Specialty Ingredients earned a strong $104 million in the second reporting period for this business unit. The average analyst estimate for revenue this quarter is $17.8 billion, and the earnings per share estimate is $0.7.

Performance drivers in the last quarter

Lower merchandising volumes and margins were responsible for lowering the Agricultural segment’s earnings. Towards the end of the second quarter, a slight fall in certain commodity prices along with low volumes and margins affected the profit.

The company’s milling segment recorded sound performance. Higher product margins and strong merchandising results contributed to this performance. The Corn Processing segment showed a fall in earnings despite strong sweetener results. Lower ethanol margins were responsible for this fall. Large South American corn and soybean harvests drove the rising earnings of the Oilseeds segment.

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Forward guidance

The company’s forward guidance lies in focusing on strengthening its business with its long-term strategy of better cost savings. Over the next five years, the company has shaped its target of $550 million in additional run rate cost savings. It also includes cost savings of $350 million from operational excellence and process enhancements and ~$200 million in incremental purchasing savings.

The company is also taking strategic steps to manage its business portfolio. This could ultimately help realize value and invest the same value in the best possible resources to enhance return objectives.

Peers’ performance

Archer Daniels’s competitors in the industry are Pinnacle Foods (PF), Sanderson Farms (SAFM), Tyson Foods (TSN), and ConAgra (CAG). They reported a net margin of 6.9%, 6.9%, 3.4%, and -41.3% for their last reported quarter, respectively. The Guggenheim Mid-Cap Core ETF (CZA) and the PowerShares Dynamic Large Cap Value ETF (PWV) each invest 2.0% and 1.4% of their portfolio in the ConAgra stock.


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