Can Archer Daniels (ADM) Retain Its Earnings Beat Trend in Q3?
Archer Daniels Midland Company ADM is slated to report third-quarter 2023 results on Oct 24, before market open. The company is likely to report top and bottom-line declines when it posts the third-quarter 2023 results.
The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at $1.53 per share, which suggests a decline of 17.7% from the year-ago quarter’s reported figure. The consensus mark has moved down 1.3% in the past 30 days. For third-quarter 2023 revenues, the consensus mark is pegged at $23.5 billion, suggesting a 4.8% decline from the prior-year quarter’s reported figure.
In the last reported quarter, the company delivered an earnings surprise of 18.9%. Its earnings outperformed the Zacks Consensus Estimate by 22.4%, on average, in the trailing four quarters.
Archer Daniels Midland Company Price and EPS Surprise
Archer Daniels Midland Company price-eps-surprise | Archer Daniels Midland Company Quote
Key Factors to Note
Archer Daniels has been gaining from solid demand, improved productivity, product innovations and persistent growth. ADM expects resilient food demand to drive higher volumes and margins in starches, sweeteners and wheat milling. It expects positive contributions from productivity and innovation initiatives across the company to drive value throughout 2023. Gains from these efforts are likely to have contributed to the company’s third-quarter performance.
Archer Daniels' solid product portfolio and momentum in the first half indicate strength. Also, the company has been witnessing improved crush margins. Robust demand for ethanol and biofuels raises optimism about ethanol and biofuel margins. These factors, along with lower recession challenges, are likely to have aided the demand for its core products in the to-be-reported quarter.
However, Archer Daniels has been exposed to headwinds, including higher performance-related compensation, project-related costs, and shifting costs from business segments into the centralized centers of excellence in the supply chain and operations. These are likely to have led to a continued rise in SG&A expenses in the to-be-reported quarter. As a percentage of sales, we expect SG&A expenses to increase 10 basis points to 3.4% in the third quarter.
The company is also not immune to the global impacts of inflation. It expects corporate costs for 2023 to be $1.5 billion, driven primarily by inflation and higher interest expenses. This is likely to have impacted the company’s third-quarter cost performance, affecting margins.
Our model predicts the cost of products sold, as a percentage of sales, to expand 90 bps year over year to 93.3% in the second quarter. Lower sales and higher cost of products sold rate are likely to result in a soft gross margin in the quarter. We estimate the gross margin to contract 90 bps to 6.4% in the to-be-reported quarter. On a dollar basis, gross profit is expected to decline 18.4% year over year in the third quarter.
The overall Nutrition segment’s results in third-quarter 2023 are expected to reflect the impacts of continued declines in the Animal Nutrition performance because of weaker margins in amino acids and lower volumes stemming from soft global feed demand. Also, continued demand fulfillment challenges and inventory losses in Pet Solutions have been deterrents. The decline, however, is expected to have been partially offset by the steady performance of the Human Nutrition, and Health & Wellness businesses.
We estimate the Animal Nutrition business to deliver a 4.4% decline in sales in the to-be-reported quarter, whereas the Human Nutrition business is expected to register growth of 8.6%.
What the Zacks Model Unveils
Our proven model does not conclusively predict an earnings beat for Archer Daniels this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Archer Daniels currently has an Earnings ESP of -8.00% and a Zacks Rank #2.
Stocks With Favorable Combination
Here are some companies you may want to consider, as our model shows that they have the right combination of elements to deliver an earnings beat.
Hershey HSY has an Earnings ESP of +1.29% and a Zacks Rank #3 at present. The company is expected to report top and bottom-line growth when it reports third-quarter 2023 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $2.97 billion, which suggests growth of 9% from the figure reported in the prior-year quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Hershey’s quarterly earnings has moved down by a penny in the past seven days to $2.47 per share. The consensus mark suggests growth of 13.8% from the year-ago quarter’s reported number. HSY has delivered an earnings surprise of 8.9%, on average, in the trailing four quarters.
Colgate-Palmolive CL has an Earnings ESP of +0.37% and a Zacks Rank #3 at present. The company is expected to report top and bottom-line growth when it reports third-quarter 2023 results. The Zacks Consensus Estimate for CL’s quarterly earnings has been unchanged in the past 30 days at 80 cents per share. The consensus mark suggests 8.1% growth from that reported in the year-ago quarter.
The Zacks Consensus Estimate Colgate’s quarterly revenues is pegged at $4.8 billion, which indicates growth of 8.3% from the figure reported in the prior-year quarter. CL has delivered an earnings surprise of 1.7%, on average, in the trailing four quarters.
The Boston Beer Company SAM has an Earnings ESP of +0.17% and a Zacks Rank #3 at present. The company is slated to witness bottom-line growth when it reports third-quarter 2023 results. The Zacks Consensus Estimate for SAM’s quarterly earnings has moved up by a penny in the past seven days to $4.25 per share, suggesting growth of 11.3% from the year-ago quarter’s reported number.
The Zacks Consensus Estimate for Boston Beer’s quarterly revenues is pegged at $892.9 million, which suggests a decline of 0.6% from the figure reported in the prior-year quarter. SAM has delivered a negative earnings surprise of 74.9%, on average, in the trailing four quarters.
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Hershey Company (The) (HSY) : Free Stock Analysis Report
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