Why Is ADM (ADM) Down 5.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Archer Daniels Midland (ADM). Shares have lost about 5.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Archer Daniels Beats Q1 Earnings & Revenue Estimates

Archer Daniels reported impressive first-quarter 2022 results, wherein both top and bottom lines advanced year over year. This marked the 10th straight quarter of adjusted operating profit growth.

Despite supply-chain headwinds, results gained from solid demand, improved productivity, product innovations and persistent growth in the Nutrition segment. Management expects reduced crop supplies, stemming from weak Canadian canola crops, the short South American crops and disruptions in the Black Sea region to affect global grain markets for the next few years.

Q1 Highlights

Adjusted earnings of $1.90 per share in the first quarter outpaced the Zacks Consensus Estimate of $1.35. The figure also grew 36.7% from $1.39 in the year-ago quarter. On a reported basis, the company’s earnings were $1.86 per share, up 52.5% from the prior-year quarter’s $1.22.

Revenues advanced 25.2% year over year to $23,650 million and surpassed the Zacks Consensus Estimate of $19,140 million. Solid sales across the majority of the segments contributed to the top line.

Segment-wise, revenues for Ag Services & Oilseeds grew 21.6% year over year, whereas Carbohydrate Solutions’ revenues rose 51.4% year over year. The Nutrition segment witnessed year-over-year revenue growth of 23.1%.

The gross profit increased 22.5% year over year to $1,897 million, while the gross margin contracted 17 basis points (bps) to 8% in the quarter under review. SG&A expenses rose 16.7% to $829 million.

Archer Daniels reported an adjusted segmental operating profit of $1,556 million in first-quarter 2022, up 29.8% from the year-ago quarter. On a GAAP basis, the company’s segmental operating profits grew 39.3% year over year to $1,539 million.

Segment Operating Profit Discussion

Adjusted operating profit for Ag Services & Oilseeds rose 29.7% year over year to $1,008 million. This was mainly driven by the robust global demand as well as sturdy global trade owing to strength in destination marketing and global ocean freight. Refined Products and Other also performed well on the back of healthy refining premiums and solid demand for refined oils in North America, as well as improved biodiesel margins in EMEA. The crushing business has witnessed strong global margins, stemming from robust protein and vegetable oil demand. On the flip side, adverse timing impacts hurt the quarterly results to some extent.

The Carbohydrate Solutions segment’s adjusted operating profit grew 22.4% to $317 million. Vantage Corn Processors performed well year over year, driven by strong margins, offset by losses on ethanol inventory. Meanwhile, starches and sweeteners improved year over year due to rising corn co-product revenues, higher citric acid profits in North America, a rise in volumes and margins in EMEA, and wheat milling.

In the Nutrition segment, the adjusted operating profit of $189 million grew 22.7% from $154 million in the year-ago quarter. The Human Nutrition unit gained from strength across all businesses. Despite rising costs, continued momentum in Flavors bodes well. Strength in alternative proteins, including gains from the Sojaprotein buyout, and favorable currency timing impacts in South America aidedthe Specialty Ingredients category. The Health & Wellness unit also witnessed robust quarterly growth, driven by growth in probiotics, gains from its Deerland Probiotics buyout and solid fiber demand. The animal nutrition unit grew significantly year over year, driven by strength in amino acids stemming from positive changes in the product mix and sturdy demand in North America, which partly offset the global supply-chain disruptions.

Other Financials

Archer Daniels ended the quarter with cash and cash equivalents of $1,079 million; long-term debt, including current maturities, of $9,295 million; and shareholders’ equity of $23,755 million.

In the reported quarter, the company used $1,206 million in cash for operating activities. It also issued a cash dividend of $226 million in the quarter.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 26.28% due to these changes.

VGM Scores

At this time, ADM has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ADM has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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