A month has gone by since the last earnings report for Archer Daniels Midland (ADM). Shares have added about 3.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ADM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Archer Daniels' Q2 Earnings & Sales Beat Estimates
Archer Daniels posted robust second-quarter 2020 results. Amid the ongoing COVID-19 crisis, the company remains committed to improving its underperforming categories, driving Readiness and investing primarily in the Nutrition unit.
Adjusted earnings of 85 cents per share rose 41.7% from the year-ago quarter and outpaced the Zacks Consensus Estimate of 51 cents. On a reported basis, the company’s earnings were 84 cents per share, up two-folds from the prior-year quarter’s 42 cents.
Revenues declined 0.1% year over year to $16,281 million but exceeded the Zacks Consensus Estimate of $15,401 million. Robust sales growth in the Nutrition and the Ag Services & Oilseeds segments provided some cushion to the top line.
Gross profit grew 14% year over year to $1,108 million, while gross margin expanded 80 basis points (bps) to 6.8% in the quarter under review. Also, SG&A expenses rose 6% to $638 million.
Segment-wise, revenues for the Ag Services & Oilseeds segment advanced 4.2% year over year to $12,741 million. Meanwhile, revenues for the Nutrition and Carbohydrate Solutions segments were $1,437 million and $2,014 million, reflecting a decline of 5.7% and 16.4% year over year, respectively. However, Nutrition unit grew 8% on constant currency basis driven by growth in most of its products.
Moreover, Archer Daniels reported adjusted segment operating profit of $804 million in second-quarter 2020, up 17.9% from the year-ago quarter. On a GAAP basis, the company’s segmental operating profits improved nearly 26% year over year to $813 million.
Adjusted operating profit at Ag Services & Oilseeds increased 14% year over year to $413 million. Operating results gained from solid performance in South America that led to higher volumes and improved margins stemming from softness in Brazil Real and strong farmer selling. On the flip side, dismal margins in interior grain affected North America.
Despite higher year-over-year growth in South America, driven by strong demand in domestic meal and soft Brazilian Real along with robust crush volumes and margins in EMEAI, the crushing business was a drab year over year. Additionally, North America witnessed weak margins due to COVID-19 impacts.
Operating results for Refined Products and Other improved year over year, driven by solid margins and volumes in biodiesel in North and South America as well as sturdy volumes and margins in refined and packaged oils in South America, somewhat offset by lower biodiesel margins in EMEAI.
The Carbohydrate Solutions segment’s adjusted operating profit fell 1.6% to $195 million due to a soft performance by Starches and Sweeteners resulting from lesser demand for foodservice in North America along with loss of corn oil contracts. However, the unit gained from reduced raw-material expenses and risk control measures. Meanwhile, Vantage Corn Processors performed well year over year on the back of solid demand for industrial ethanol and improved inventory level.
In the Nutrition segment, adjusted operating profit of $158 million rallied 35% from $117 million in the year-ago quarter owing to significant gains in Human and Animal Nutrition units. The Human Nutrition division gained from its diversified portfolio and higher sales of North America flavors. The Animal Nutrition unit retained growth in the quarter under review, driven by a solid performance from Neovia, strong demand for amino acids and sturdy sales in pet care.
Archer Daniels ended the quarter with cash and cash equivalents of $1,203 million, long-term debt, including current maturities, of $8,642 million, and shareholders’ equity of $19,311 million.
During the quarter, the company used $436 million in cash for operating activities. Additionally, it bought back shares of $112 million and paid out dividends of $405 million in the reported quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.31% due to these changes.
Currently, ADM has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ADM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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