Archer Daniels Midland Company (ADM) ended its run for 2014 on a strong note.
The company’s adjusted earnings for the fourth quarter of 2014 rose 5.3% year over year to $1.00 per share and surpassed the Zacks Consensus Estimate of 93 cents.
Further, including certain one-time items, Archer Daniels reported earnings of $1.08 per share compared with 56 cents in the year-ago quarter.
Archer Daniels’ results gained traction mainly from strong ethanol demand which stemmed from reduced gasoline prices.
The improved earnings were let down by a fall in revenues at all of the company’s major segments, resulting in a 13.5% year-over-year plunge in total revenue. Total revenue of $20,894 million also lagged the Zacks Consensus Estimate of $23,289 million.
A Glimpse of 2014
Archer Daniels’ full-year 2014 adjusted earnings advanced 37.3% year over year to $3.20 per share, coming ahead of the Zacks Consensus Estimate of $3.07. However, due to declining revenues at most segments, total revenue dropped 9.6% year over year to $81,201 million, falling short of the Zacks Consensus Estimate of $85,275 million.
Going by segments, quarterly revenues at Archer Daniels’ Oilseeds Processing segment plunged 13.9% to $7,048 million; the Agricultural Services segment’s revenues declined 16.9% to $10,556 million and the Corn Processing segment’s revenues slipped 5.4% to $2,889 million, all on a year-over-year basis. However, the company’s Other segment’s revenues almost doubled to $401 million from $201 million in the prior-year quarter.
Operational Discussion
Archer Daniels reported adjusted segment operating profit of $1,128 million, marking an improvement of 8.5% from the year-ago quarter.
On a segmental basis, the Oilseeds Processing segment’s adjusted operating profit of $395 million decreased $107 million year over year. Strong North American and European soybean crushing results were more than offset by weak South American results, due to soft crush margins and fertilizer results, coupled with sluggish sales.
Archer Daniels' Corn Processing segment registered a $31 million fall in adjusted operating profit to $284 million from the year-ago quarter. The decline is primarily attributable to falling sweetener and starch results, and lower average selling prices, coupled with rising net corn costs. Going forward, management intends to enhance product mix and optimize expenses in order to generate profitability in this segment.
Operating profit for the Agricultural Services segment went up $234 million year over year to $435 million on the back of strong results from the Merchandising and Handling, and Transportation and Milling businesses.
Financials
Archer Daniels, which competes with Tyson Foods, Inc. (TSN) and Bunge Ltd. (BG), ended 2014 with $1,099 million in cash and cash equivalents as compared with $3,121 million at the end of 2013. At the end of fourth-quarter 2014, long-term debt including current maturities was $5,582 million, down from a debt of $6,512 million at the end of fourth-quarter 2013. Shareholders’ equity as of Dec 31, 2014 was $19,630 million.
During 2014, Archer Daniels generated $5,043 million of cash from operating activities.
Apart from this, the company generated strong returns with its trailing 4-quarter average adjusted ROIC reflecting a 240 basis points improvement from last year. At fourth-quarter end, adjusted ROIC was 9%, up from 8.5% at the end of third-quarter 2014.
Moreover, the company returned over $1.8 billion to shareholders in 2014 in the form of share repurchases and dividend payments. In the fourth quarter, Archer Daniels bought back about 9.4 million shares.
Further, the company announced a 17% hike on its quarterly cash dividend to 28 cents a share, payable on Mar 10, 2015, to shareholders of record as on Feb 17. Also, Archer Daniels plans to incur nearly $1.5–$2 billion for share repurchases in 2015. These facts underscore the company’s solid financial status, giving it the flexibility to make capital expenditures.
For 2015, the company aims to incur $1.1–$1.3 billion as capital expenditures.
Other Developments
During the fourth quarter of 2014, Archer Daniels completed the purchase of WILD Flavors GmbH and Specialty Commodities. Results of both these businesses formed part of the company’s Other Operating Profits in the fourth-quarter results.
Further, in 2015, a new business unit called WILD Flavors and Specialty Ingredients was formed, that includes the WILD Flavors businesses and the company’s own specialty ingredients. This new business unit will form a reportable segment from first-quarter 2015.
Other Stocks to Consider
Archer Daniels currently carries a Zacks Rank #3 (Hold). However, a better-ranked stock in the consumer staples sector is Dean Foods Company (DF), with a Zacks Rank #2 (Buy).
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