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Why it is Apt to Hold Archer Daniels (ADM) Before Q3 Earnings
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Archer Daniels Midland Company (ADM - Free Report) has been well-placed amid the ongoing supply headwinds, as reflected by its robust surprise trend. The company reported top and bottom line beat for the last seven quarters. ADM continues to benefit from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment also bodes well.
The company’s Nutrition segment has been gaining from significant growth in the Human and Animal Nutrition units. The Human Nutrition unit continues to reflect gains from strength across its diverse product portfolio. Continued top-line growth in Flavors, particularly in North America, EMEA and South America, bodes well despite rising costs.
Strength in alternative proteins led to strong soy protein volumes and margins. This, along with gains from the Sojaprotein buyout and healthy demand for texturants, aided the Specialty Ingredients category. The Health & Wellness unit witnessed robust quarterly improvement, driven by growth in probiotics, gains from its Deerland Probiotics buyout and solid fiber demand.
The animal nutrition unit has been gaining from robust volumes and margins in amino acids. Backed by strength across the Human and Animal Nutrition units, the company expects 20% operating profit growth for the nutrition segment in 2022. The company expects operating profit growth for third-quarter 2022 to be higher year over year in the third quarter, driven by the continued demand and favorable ethanol blending economics.
Archer Daniels is progressing well with its three strategic pillars — optimize, drive and growth. Under the optimize pillar, the company is on track with improvement in its key businesses — the Decatur complex, Golden Peanut and Three Nuts business. Archer Daniels is restructuring its North American wheat milling footprint by shutting old, less efficient mills and opening a state-of-the-art facility in Mendota.
As part of ADM’s optimizing pillar, it continues to adapt to consumers’ changing nutritional preferences. Under its drive pillar, the company continues to modify its organizational structure to meet operational excellence and set goals. Further, under the growth pillar, the company is looking to expand its footprint in fast-growing alternative protein.
Backed by the positives, the Zacks Rank #3 (Hold) stock has gained 36.6% in the past year compared with the industry’s 24.1% growth. Shares of ADM also compare favorably against the sector and the S&P 500’s declines of 9.9% and 17.4%, respectively.
The Zacks Consensus Estimate for ADM’s 2022 sales and earnings suggests growth of 15.7% and 31.8%, respectively. It has a trailing four-quarter earnings surprise of 20.1%. For the third quarter, the consensus mark for the company’s sales and earnings suggests growth of 14.4% and 42.3%, respectively.
Image Source: Zacks Investment Research
Headwinds on the Path
Archer Daniels has been witnessing a rising SG&A expense trend for a while. Higher performance-related compensation, project-related costs and shifting costs from business segments into the centralized centers of excellence in supply chain and operations have been hurting SG&A expenses. Higher inflation is also concerning.
Wrapping Up
Despite the headwinds, strength in ADM’s nutrition unit, product innovation and solid demand will help sustain its momentum.
Lamb Weston, a leading global manufacturer, marketer and distributor of value-added frozen potato products, currently flaunts a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial year’s sales and earnings suggests growth of 14.8% and 42.3%, respectively, from the year-ago reported numbers.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank of 1. THS has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year sales and earnings per share suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported figures.
Flowers Foods, which produces packaged bakery foods in the United States, currently carries a Zacks Rank of 2 (Buy). FLO has a trailing four-quarter earnings surprise of 10.4%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial year’s sales and earnings per share suggests growth of 10.8% and 3.2%, respectively, from the year-ago reported figures.
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Why it is Apt to Hold Archer Daniels (ADM) Before Q3 Earnings
Archer Daniels Midland Company (ADM - Free Report) has been well-placed amid the ongoing supply headwinds, as reflected by its robust surprise trend. The company reported top and bottom line beat for the last seven quarters. ADM continues to benefit from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment also bodes well.
The company’s Nutrition segment has been gaining from significant growth in the Human and Animal Nutrition units. The Human Nutrition unit continues to reflect gains from strength across its diverse product portfolio. Continued top-line growth in Flavors, particularly in North America, EMEA and South America, bodes well despite rising costs.
Strength in alternative proteins led to strong soy protein volumes and margins. This, along with gains from the Sojaprotein buyout and healthy demand for texturants, aided the Specialty Ingredients category. The Health & Wellness unit witnessed robust quarterly improvement, driven by growth in probiotics, gains from its Deerland Probiotics buyout and solid fiber demand.
The animal nutrition unit has been gaining from robust volumes and margins in amino acids. Backed by strength across the Human and Animal Nutrition units, the company expects 20% operating profit growth for the nutrition segment in 2022. The company expects operating profit growth for third-quarter 2022 to be higher year over year in the third quarter, driven by the continued demand and favorable ethanol blending economics.
Archer Daniels is progressing well with its three strategic pillars — optimize, drive and growth. Under the optimize pillar, the company is on track with improvement in its key businesses — the Decatur complex, Golden Peanut and Three Nuts business. Archer Daniels is restructuring its North American wheat milling footprint by shutting old, less efficient mills and opening a state-of-the-art facility in Mendota.
As part of ADM’s optimizing pillar, it continues to adapt to consumers’ changing nutritional preferences. Under its drive pillar, the company continues to modify its organizational structure to meet operational excellence and set goals. Further, under the growth pillar, the company is looking to expand its footprint in fast-growing alternative protein.
Backed by the positives, the Zacks Rank #3 (Hold) stock has gained 36.6% in the past year compared with the industry’s 24.1% growth. Shares of ADM also compare favorably against the sector and the S&P 500’s declines of 9.9% and 17.4%, respectively.
The Zacks Consensus Estimate for ADM’s 2022 sales and earnings suggests growth of 15.7% and 31.8%, respectively. It has a trailing four-quarter earnings surprise of 20.1%. For the third quarter, the consensus mark for the company’s sales and earnings suggests growth of 14.4% and 42.3%, respectively.
Image Source: Zacks Investment Research
Headwinds on the Path
Archer Daniels has been witnessing a rising SG&A expense trend for a while. Higher performance-related compensation, project-related costs and shifting costs from business segments into the centralized centers of excellence in supply chain and operations have been hurting SG&A expenses. Higher inflation is also concerning.
Wrapping Up
Despite the headwinds, strength in ADM’s nutrition unit, product innovation and solid demand will help sustain its momentum.
Stocks to Consider
Some better-ranked stocks are Lamb Weston (LW - Free Report) , TreeHouse Foods (THS - Free Report) and Flowers Foods (FLO - Free Report) .
Lamb Weston, a leading global manufacturer, marketer and distributor of value-added frozen potato products, currently flaunts a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial year’s sales and earnings suggests growth of 14.8% and 42.3%, respectively, from the year-ago reported numbers.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank of 1. THS has a trailing four-quarter earnings surprise of 45.2%, on average.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year sales and earnings per share suggests growth of 16.8% and 15.1%, respectively, from the year-ago reported figures.
Flowers Foods, which produces packaged bakery foods in the United States, currently carries a Zacks Rank of 2 (Buy). FLO has a trailing four-quarter earnings surprise of 10.4%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial year’s sales and earnings per share suggests growth of 10.8% and 3.2%, respectively, from the year-ago reported figures.