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ADM (ADM) Up 3.4% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Archer Daniels Midland (ADM). Shares have added about 3.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ADM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Archer Daniels Q3 Earnings Beat Estimates, Rise Y/Y

Archer Daniels posted stellar third-quarter 2022 results, wherein both the top and the bottom line advanced year over year and trumped the Zacks Consensus Estimate.

Results were bolstered by robust global demand, gains from the integrated global value chain, a solid product portfolio and ADM’s team expertise in navigating dynamic market conditions. Management cited that ADM is well poised to conclude 2022 on a solid note, continuing the momentum into 2023.

Q3 Highlights

Archer Daniels’ adjusted earnings of $1.86 per share in the third quarter outpaced the Zacks Consensus Estimate of $1.42. The figure also surged 91.8% from 97 cents in the year-ago quarter. On a reported basis, Archer Daniels’ earnings were $1.83 per share, up 96.8% from the prior-year quarter’s $1.26.

Revenues advanced 21.4% year over year to $24,683 million, surpassing the Zacks Consensus Estimate of $22,912 million. Solid sales across all the segments contributed to the top line.

Segment-wise, revenues for Ag Services & Oilseeds grew 22% year over year, whereas Carbohydrate Solutions’ revenues rose 24.9% year over year. The Nutrition segment witnessed year-over-year revenue growth of 9.8%.

The gross profit increased 36.6% year over year to $1,811 million, while the gross margin expanded 80 basis points (bps) to 7.3% in the quarter under review. SG&A expenses rose 13.6% to $818 million.

Archer Daniels reported an adjusted segmental operating profit of $1,579 million in third-quarter 2022, up 57.6% from the year-ago quarter’s level. On a GAAP basis, ADM’s segmental operating profits grew 55.9% year over year to $1,559 million.

Segmental Operating Profit

Adjusted operating profit for Ag Services & Oilseeds rose 73.9% year over year to $1,075 million. The short crops in South America boosted U.S. exports, and improved volumes and margins in North American origination. Improved margins in global ocean freight, driven by efficient execution amid dynamic global trade flows powered by solid results in Global Trade. South American origination witnessed improved volumes and margins on higher farmer selling in addition to elevated volumes through the export facilities.

Crushing results were sharply higher along with margins on resilient global demand for both the meal and oil. Solid rapeseed margins in EMEA, aided by robust oil demand and continued market dislocations coupled with positive impacts from an insurance settlement, drove results. North American soy crush margins continued to gain from renewable diesel demand. Solid results were partly offset by reduced crush volumes, including impacts of idled facilities in Ukraine and Paraguay.

Refined Products and Other results were strong year over year, benefiting from a robust margin environment for refined oils and biodiesel. Solid performance in global refined oils was led by healthy demand and higher refined oil margins despite supply-chain headwinds. Also, equity earnings from Wilmar were much higher than the year-earlier quarter’s figure.

The Carbohydrate Solutions segment’s adjusted operating profit grew 45.1% to $309 million. The Starches and Sweeteners subsegment, including ethanol production from the wet mills, recorded improved year-over-year results, and global demand for sweeteners and starches.

Corn co-products with continued robust demand for corn oil and effective risk management expanded execution margins in North America. Wheat milling was strong, generating better volumes and margins to serve robust demand for flour. In EMEA, the business saw higher volumes and margins amid a dynamic energy environment.

Vantage Corn Processors’ results were soft. Ethanol margins were affected by reduced domestic demand and higher corn costs.

In the Nutrition segment, the adjusted operating profit of $177 million grew 0.6% from $176 million in the year-ago quarter. The Human Nutrition unit gained from solid demand for plant-based proteins, a robust performance in texturants and strength in Specialty Ingredients. Animal Nutrition results were weaker than the year-earlier quarter’s level.

Pet results were down in Latin America due to soft volumes, partly offset by sturdy volumes and margins in North America. Weak animal protein demand adversely impacted feed volumes.

Other Financials

Archer Daniels ended the quarter with cash and cash equivalents of $1,099 million; long-term debt, including current maturities, of $8,559 million and shareholders’ equity of $24,029 million. In the nine months ending Sep 30, 2022, ADM used $3,348 million of cash for operating activities.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 7.82% due to these changes.

VGM Scores

Currently, ADM has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ADM has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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