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Archer Daniels Q3 Earnings Miss

Zacks Equity Research

Archer Daniels Midland Company (ADM) posted adjusted earnings of 46 cents per share for third-quarter 2013, missing the Zacks Consensus Estimate by 2 cents and dropping 13.2% from the year-ago comparable quarter’s adjusted earnings of 53 cents. The miss resulted from a decline in operating profit at the Agricultural Services segment.

On a reported basis, the company posted earnings of 72 cents per share, substantially above 28 cents earned in the prior-year quarter.

Archer Daniels' quarterly net sales dropped nearly 2% year over year to $21,393 million, but surpassed the Zacks Consensus Estimate of $20,282 million. The year-over-year decline in sales was mainly due to lower volumes resulting from tight U.S. crop supplies. Overall, the company’s results remained strong during the quarter, nearly nullifying the impact of the 2012 U.S. drought.

Segment-wise, the company’s Corn Processing revenues jumped 8.5% to $3,393 million on account of improved ethanol margins, offset by lower processing volumes. Archer Daniels’ Oilseeds Processing segment revenues decreased 4.9% year over year to $9,216 million due to lower oilseeds processing volumes. Moreover, revenues for the Agricultural Services segment witnessed a decline of 2.3% to $8,751 million.

Operational Discussion

Archer Daniels reported total segment operating profit of $606 million, an improvement of 21.7% from the year-ago quarter, driven by robust performance at all the company’s segments.

On a segmental basis, the Oilseeds Processing segment recorded an operating profit of $361 million compared with $336 million in the year-ago period. The $25 million improvement was due to strong performance in both North and South America regions. North American oilseed crushing operations benefited from superior capacity utilization along with excellent foreign and domestic protein meal demand, while South American operations gained from strong margins that resulted from large export volumes.

Operating profit for Agricultural Services segment rose 30.8% to $102 million driven by a smooth transition to new crop. However, adjusting for the year-ago Gruma related charges and the current period intercompany insurance settlements, operating profit declined $152 million year over year. During the quarter, merchandising and handling remained weak on account of poor U.S. origination and export volumes and reduced international merchandize margins, while transportation and milling businesses continued to do well.

Archer Daniels' Corn Processing segment's operating profit registered growth of a whopping 133.8% to $159 million from $68 million in the year-ago quarter. This was primarily attributable to improved results from ethanol.

Other Business segment posted operating loss of $16 million, compared with operating profit of $16 million reported in the prior-year quarter.


Archer Daniels ended the quarter with $3,252 million in cash and cash equivalents compared with $1,235 million at the end of the prior-year quarter. At quarter-end, long-term debt including current maturities was $6,520 million, down $295 million from a debt of $6,815 million at the end of the third quarter of 2012.

Further, the company continued to reduce its net debt, which reached $3.4 billion from $8.8 billion in the year-ago period. Shareholders’ equity as of Sep 30, 2013 was $19,566 million.

GrainCorp Acquisition Update

Archer Daniels continues to progress well with its proposed deal to acquire leading agribusiness company, GrainCorp Limited.  The company has so far received clearance on the deal from 7 out of 9 jurisdictions. During the third quarter, the company’s acquisition proposal received a nod from South Africa, Japan, the European Commission and South Korea.

The company is now working with government agencies in Australia and China to gain approval. The company expects to close the deal in the first quarter of 2014, based on a recent order by the Australian Treasurer committing the government to give out a decision earliest by Dec 17.

Archer Daniels has agreed to pay A$12.20 per share for all outstanding shares of GrainCorp, which totals approximately A$3.4 billion. The American agribusiness giant already holds 19.8% stake in the Australian agri-products dealer, acquired for an average of A$11.24 per share.

Other Stocks Worth Considering

Archer Daniels currently carries a Zacks Rank #3 (Hold). Other stocks performing well in the agricultural products industry include Gruma S.A.B. de CV (GMK), Limoneira Co. (LMNR) and The Andersons Inc. (ANDE). Of these, Gruma and Limoneira carry a Zacks Rank #1 (Strong Buy), while Andersons has a Zacks Rank #2 (Buy).

Read the Full Research Report on ADM
Read the Full Research Report on ANDE
Read the Full Research Report on LMNR
Read the Full Research Report on GMK

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