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Archer Daniels Acquires FCC, Boosts Citrus Flavors Portfolio

Zacks Equity Research
Archer Daniels (ADM) has acquired Florida Chemical's Consumer and Industrial Chemistry Technologies segment for $175 million in cash.

Archer Daniels Midland Company ADM recently concluded the buyout of Florida Chemical Company LLC (FCC) to enhance its nutrition portfolio with citrus ingredients and flavors. FCC is the Consumer and Industrial Chemistry Technologies segment of Flotek Industries, Inc. FTK. The acquisition is grossly valued at $175 million in cash. Including working capital adjustments and transaction fees, Archer Daniels will pay a net sum of about $165 million for this buyout.

Additionally, Flotek and Archer Daniels have collaborated for two long-term supply agreements as part of the deal. Per the first agreement, Flotek’s long-term pact to supply citrus terpenes to Archer Daniels remains intact. Meanwhile, the second agreement designates Flotek to manufacture a variety of chemistries for Florida Chemical's industrial customers.

Being specialized in citrus-based oils and ingredients, FCC offers high-value and exclusive citrus flavors, with specialty terpenes and formulated products. Further, these products are natural and have less sugar content in food and beverages to suit growing needs of consumers. In fact, FCC’s products consist of individual citrus flavor materials and essential oils, flavor enhancers and citrus flavor modifiers along with natural or artificial sweeteners. Notably, FCC is serving customers with premium citrus products for over three quarters of a century.

As citrus is among the fastest-growing flavors, we expect Archer Daniels’ portfolio to benefit from FCC’s rich heritage and expertise, apart from its huge customer base. Archer Daniels expects this buyout to help it gain leadership in citrus flavors, and strengthen its nutrition portfolio and overall market share.

Moreover, Archer Daniels has been intensely focusing on strengthening its Nutrition portfolio. With the buyout of WILD, Archer Daniels has reinforced its foothold in the nutrition space, expanding its specialty ingredients portfolio, including vanilla, mint and other savory flavors.

Further, the company completed the buyout of Neovia in February 2019 to expand its presence in the animal feed industry. Earlier, the company completed the acquisitions of Rodelle and Protexin. The company has also signed a joint development agreement with Chinese biotech company, Qingdao Vland Biotech Group Co., Ltd. These acquisitions reflect Archer Daniels’ focus on improving its portfolio in the Nutrition space.

Management expects increased profits at the Nutrition segment during the first quarter of 2019, on the back of operational improvements and gains from acquisitions as well as higher margin and sales. Also, the segment’s operating profit is projected to be significantly higher compared with the first quarter of 2018. Moving ahead, Archer Daniels is focused on five major platforms — animal nutrition, health & wellness, carbohydrates, human nutrition and taste — to boost growth.

However, the Nutrition segment has witnessed declining adjusted operating profit during the fourth quarter. Lower Merchandising and Handling results, including important insurance settlements in other income and dismal performance at Animal Nutrition owing to continuous production issues, were deterrents.

We note that shares of this Zacks Rank #3 (Hold) company, belonging to the Agriculture-Operations industry, have declined 4.6%, against the S&P 500’s growth of 2.9%.

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