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Archer-Daniels: Segment Contribution and Acquisition

Sue Miller

Archer Daniels Midland's 3Q15 Results: What to Expect?

(Continued from Prior Part)

Agricultural segment contributed 41% to total revenue

Archer Daniels Midland (ADM) operates through four segments. Its Agricultural segment contributed 41% of its total revenue in its last quarter. It also reported an operating margin of 2.2%. The second biggest contributor to total revenue was its Oilseeds Processing Segment, reporting an operating margin of 5.0%. In the second quarter, Wild Flavors and Specialty Ingredients’ operating profit was $104 million. Wild Flavors had strong results in North America, and the specialty proteins business had one of its best quarters ever.

Completion of global cocoa business sale

The company announced on October 16 that it had completed the sale of its global cocoa business to Olam International Limited. The deal is valued at about $1.2 billion, subject to finalization of the post-closing adjustments.
The management mentioned that this sale was a part of their plan to create value through strategic growth, an increased focus on operational efficiencies, and when necessary, the divestiture of businesses that they believe are unable to meet, in the long run, their returns objectives.

Acquisition of Eatem Foods Company

On October 2, Archer Daniels announced its plans of acquiring Eatem Foods Company, a leading developer and producer of premium traditional, natural, and organic savory flavor systems. Eatem is based in Vineland, New Jersey, and is privately held. Archer Daniels planned this acquisition with the intention of accelerating its evolution from an ingredient supplier to a complete solutions provider by systematically building and acquiring capabilities to meet a broad range of customer needs. This will be an addition to the Wild Flavors and Specialty Ingredient segment.

Archer Daniels expects this addition to broaden its capabilities in the leading food service and private brand channels. Archer Daniels’s Wild Flavors and Specialty Ingredients business is following through on its plan to grow profitably by broadening the product portfolio, building the brand, enhancing structural capacity, and expanding geographically.

The company’s competitors in the industry include Hormel Foods (HRL), Keurig Green Mountain (GMCR) and Kellogg (K). These three companies reported net revenue of 2.2 billion, $969.5 million, and $3.5 billion in their last reported quarters, respectively. The PowerShares Dynamic Market ETF (PWC) and the First Trust NASDAQ-100 Equal Weighted ETF (QQEW) invest, respectively, 0.39% and 0.58% of their portfolio in Keurig Green Mountain stock.

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