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Why Is ADM (ADM) Down 17.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Archer Daniels Midland (ADM). Shares have lost about 17.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ADM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Archer Daniels Q4 Earnings Beat, Nutrition Unit Aids

Archer Daniels Midland Company reported better-than-expected earnings and sales results for fourth-quarter 2019.

Adjusted earnings of $1.42 per share rose 61.4% from the year-ago quarter and outpaced the Zacks Consensus Estimate of 79 cents. On a reported basis, the company’s earnings were 90 cents per share, up 63.6% from the prior-year quarter.

Earnings, on a reported and adjusted basis, benefited from the announcement of retroactive biodiesel tax credit (BTC) for 2018 and 2019, which provided subsidy for fuel made from cooking oil, soybean oil and animal fat. This led to incremental earnings of 61 cents per share in the fourth quarter. Additionally, strong Nutrition business, and robust global demand for biodiesel and food oils aided results.

Revenues improved 2.4% year over year to $16,329 million and surpassed the Zacks Consensus Estimate of $15,080 million. The top line benefited from robust sales growth in the Nutrition segment.

Operational Discussion

Going by segments, revenues for Nutrition segment rose 57% year over year to $1,414 million. Meanwhile, revenues for Ag Services & Oilseeds, and Carbohydrate Solutions segments were $12,359 million and $2,477 million, respectively, reflecting a decline of 0.8% each. Revenues for the Other segment declined 12.2% to $79 million.

Moreover, Archer Daniels reported adjusted segment operating profit of $1,028 million in fourth-quarter 2019, up 19.5% from the year-ago quarter. On a GAAP basis, the company’s segmental operating profits rose 18.8% year over year to $934 million.

On a segmental adjusted basis, adjusted operating profit at Ag Services & Oilseeds improved 20.2% year over year to $739 million. Operating results gained from the passage of BTC. Operating results for the Ag Services business were slightly down year over year on softness in North America due to a delayed harvest in the United States. This led to lower exports and a consequent decline in margins. Meanwhile, improved margins, stemming from robust export demand and farmer selling, aided results in South America.

The Crushing business witnessed strong margins, which was lower than the record levels seen last year. However, Crushing results remained soft year over year, owing to negative impacts of timing in the reported quarter. Operating results for Refined Products and Other improved substantially on gains from the passage of BTC. Additionally, the unit witnessed strong and substantial gains from robust global demand for biodiesel and food oils as well as the Algar Agro acquisition in Brazil. Meanwhile, Wilmar witnessed a slight improvement year over year.

The Carbohydrate Solutions segment’s adjusted operating profit declined 11.7% to $174 million, owing to strong results from Starches and Sweeteners, offset by a decline in Bio-products. Lower manufacturing costs and higher income from co-products in North America primarily aided results for Starches and Sweeteners. This was partly offset by soft margins in EMEAI. Further, results gained from strong performance at global wheat milling. Meanwhile, results for Bio-products were principally hurt by unfavorable ethanol industry margins.

At the Nutrition segment, adjusted operating profit of $102 million improved 64.5% from $62 million in the year-ago quarter, owing to significant gains in WFSI and Animal Nutrition units. Results for WFSI benefited from robust sales and margins for WILD in North America, EMEAI and APAC. The Specialty Ingredients unit gained from sustained margin growth in proteins, offset largely by soft sales volume and margins in emulsifiers as well as lower edible beans margins. Health & Wellness results were aided by new agreement for ADM fermentation capacity. In Animal Nutrition, results reflected positive contributions from Neovia, offset by persistent losses in lysine on weak global pricing environment.

Other Financials

Archer Daniels ended 2019 with cash and cash equivalents of $852 million, long-term debt — including current maturities — of $7,679 million, and shareholders’ equity of $19,225 million.

In 2019, the company used $5,452 million in cash for operating activities. Additionally, it bought back shares of $150 million and paid out dividends of $789 million in 2019. Further, its average trailing four-quarter adjusted return on invested capital (ROIC) was 7.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -11.74% due to these changes.

VGM Scores

Currently, ADM has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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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