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Factors Likely to Decide Archer Daniels' (ADM) Q2 Earnings

Archer Daniels Midland Company ADM is slated to report second-quarter 2020 results on Jul 29, after market close. The company’s earnings have outperformed the Zacks Consensus Estimate by an average surprise of 28.5% in the trailing four quarters.

The Zacks Consensus Estimate for second-quarter earnings, though stable at 50 cents over the past 30 days, suggests a decline of 16.7% year over year. Further, the consensus mark for revenues is pegged at $14,765 million, indicating a decrease of 9.4% year over year.

Factors to Note

Archer Daniels is grappling with rising SG&A costs, and any deleverage in the same is likely to get reflected in the bottom line during the second quarter of 2020. Meanwhile, the company has been witnessing soft adjusted-operating profit across its Carbohydrate Solutions segment for a while. Management at its first-quarter earnings call on Apr 30 said that it expects the Carbohydrate Solutions segment results to be lower year over year on sluggishness in ethanol industry demand and margins. Moreover, the company anticipates lower demand in foodservice to hurt the Starches and Sweeteners sub-segment, contributing to the segment’s downside. The company also anticipates lower results for the Ag Services and Oilseeds segment owing to mark-to-market impacts as Ag Services normalize seasonally. These factors might have weighed on top and bottom lines in the to-be-reported quarter.

Nevertheless, Archer Daniels’ nutrition segment has been standing out. The nutrition segment is likely to have benefited from significant gains in Human and Animal Nutrition businesses. While a diversified portfolio, robust performance in alternative proteins and additional bioactives income have been aiding the Human Nutrition division, solid performance of Neovia, strong volumes and margins in feed additives, as well as sturdy sales in pet care has been driving the Animal Nutrition unit. In addition, Archer Daniels’ three strategic pillars — optimize the core, drive efficiency and grow strategically — as well as focus on Project Readiness, bode well. These factors might have provided some cushion to the company during the quarter.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Archer Daniels this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Archer Daniels carries a Zacks Rank #3, its Earnings ESP of -4.04% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Clorox CLX currently has an Earnings ESP of +0.59% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Grocery Outlet GO currently has an Earnings ESP of +11.63% and a Zacks Rank #3.

Kellogg K presently has an Earnings ESP of +1.23% and a Zacks Rank #3.

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Archer Daniels Midland Company (ADM): Free Stock Analysis Report
 
Kellogg Company (K): Free Stock Analysis Report
 
The Clorox Company (CLX): Free Stock Analysis Report
 
Grocery Outlet Holding Corp. (GO): Free Stock Analysis Report
 
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