Priorities in 2016
Archer Daniels Midland (ADM) completed acquisitions worth $0.5 billion in 2015. It expects the acquisitions to be accretive in 2016 as well. That included the sale of its global cocoa business, Medsoft’s Egyptian joint venture, strengthening of the European Olenex refined oils joint venture, and the Eaststarch acquisition. The company has an objective to achieve an incremental $275 million of run-rate savings by the end of fiscal 2016.
Balanced capital allocation framework
In 2016, Archer Daniels Midland’s priority is its balanced capital allocation framework. It started this initiative by selling a 50% interest in its Brazilian port in 2015. To improve the long-term returns in a more challenged operating environment, the company plans to reduce the asset intensity in several of its businesses. For 2016, Archer Daniels Midland budgeted capital expenditure of around $1 billion. It set a preliminary target to reduce the invested capital for its businesses by at least $1 billion over time. Archer Daniels Midland’s priority also includes growing its geographic footprint and expanding its specialty ingredients business. It’s looking for opportunistic acquisitions around the world including bolt-ons.
Returning capital to shareholders
In light of returning capital to shareholders and the importance of the dividend to investors, Archer Daniels Midland’s board announced a 7% increase in its quarterly dividend to $0.30 per share. The first increased dividend was paid on March 8 to shareholders of record on February 16. Currently, Archer Daniels Midland has a dividend yield of 2.8% as of April 26. Management has been increasing the dividend at an average annual rate of 14.4% over the past five years. Management thinks that shares are an attractive investment at the current levels. As a result, management plans to repurchase $1 billion–$1.5 billion in shares in 2016. This is subject to strategic merger and acquisition opportunities.
Archer Daniels Midland’s peers in the industry include McCormick & Company (MKC), Flowers Foods (FLO), and General Mills (GIS). McCormick has returned 8.7% YTD (year-to-date). General Mills has returned 5.2% YTD. However, Flowers Food has fallen 11.5% YTD. The PowerShares S&P 500 Quality Portfolio (SPHQ) and the PowerShares S&P 500 Low Volatility Portfolio (SPLV) invest 1.2% and 1.1% of their portfolio in McCormick & Company.