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Archer Daniels to Enhance Citrus Flavors With the FCC Buyout

Zacks Equity Research

Archer Daniels Midland Company ADM recently agreed to buy Florida Chemical Company (“FCC”) to enhance its nutrition portfolio, with citrus ingredients and flavors. FCC is part of Flotek Industries, Inc. FTK, the leading developer and supplier of chemistry and services to the oil and gas industry. Flotek will sell its FCC business, which operates as its Consumer and Industrial Chemistry Technologies segment, worth $175 million in cash. The deal is subjected to regulatory approvals and is likely to close in the first quarter of 2019.

Following the completion of the deal, roughly 75 employees of FCC will be transferred to the buyer. 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 believe that Archer Daniels’ portfolio is likely to benefit from FCC’s rich heritage and expertise, apart from its huge customer base. In fact, these factors, together with Archer Daniels’ research and development capabilities, will help citrus flavors expand, thereby efficiently catering to consumer needs.

Being the leader in natural flavors for food and beverages, Archer Daniels believes this buyout to help it gain leadership in citrus flavors, hence, strengthening its nutrition portfolio and overall market share. With the buyout of WILD, Archer Daniels has been reinforcing its foothold in the nutrition space, with the expansion of its specialty ingredients portfolio, including vanilla, mint and other savory flavors.

Management will continue to build a strong tie with Flotek via a long-term supply agreement and the joint pursuit of next-generation chemistry technologies.

We note that Archer Daniels regularly undertakes initiatives to manage its business portfolio, which are expected to help in realizing value to boost returns. Recently, management completed acquisitions of Rodelle and Protexin. It also remains on track to close the Neovia buyout based in France, which should aid in boosting animal nutrition solutions for the feed industry. Last year, the company signed a joint development agreement with the biotech company of China — Qingdao Vland Biotech Group Co., Ltd. All these reflect Archer Daniels’ focus on improving its portfolio in the Nutrition space.

Going forward, Archer Daniels remains focused on five major platforms, animal nutrition, health & wellness, carbohydrates, human nutrition, and taste to drive growth.

A glimpse of Archer Daniels’ price performance in the past year depicts that this Zacks Rank #1 (Strong Buy) stock has gained 6.5% against the industry’s 5% decline.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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