A month has gone by since the last earnings report for Archer Daniels Midland (ADM). Shares have lost about 2.8% 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 drivers.

Archer Daniels' Q3 Earnings Miss, Revenues Dip 8.1% Y/Y

Archer Daniels posted soft third-quarter 2024 results, wherein the bottom and top lines missed the Zacks Consensus Estimate. Both the metrics also declined on a year-over-year basis.

The company has informed that that files2023 Form 10-K and Subsequent Forms 10-Q have been restated. This restatement has no impact on consolidated financial results for 2023 and Q1 and Q2 of 2024.

An Insight Into ADM’s Q3 Performance

Adjusted earnings of $1.09 per share missed the Zacks Consensus Estimate of $1.26. Also, the figure declined 33% from earnings of $1.63 per share in the year-ago quarter. On a reported basis, Archer Daniels’ earnings were 4 cents per share, down 97% from the year-ago quarter’s $1.52.

Revenues fell 8.1% year over year to $19.9 billion and lagged the consensus estimate of $20.6 billion.

Segment-wise, revenues for Ag Services & Oilseeds fell 8.5% year over year to $15.1 billion, while Carbohydrate Solutions’ revenues dropped 12.1% year over year to $2.9 billion. However, Nutrition reported almost year-over-year flat revenues of $1.8 billion.

The gross profit decreased 22.2% year over year to $1.4 billion, while the gross margin fell 150 basis points to 6.8%. SG&A expenses rose 11% year over year to $905 billion.

Archer Daniels reported an adjusted segmental operating profit of $1 billion, down 28% from the year-ago quarter.

The company has a trailing four-quarter return on invested capital of 8.8%, on an adjusted basis.

ADM’s Segmental Operating Profit

Adjusted operating profit for Ag Services & Oilseeds plunged 43% year over year to $480 million. The Ag Services subsegment’s operating profit fell 53%, mainly owing to soft results in South America Origination, as weak farmer selling and higher logistics costs associated with the industry take-or-pay contracts resulted in lower margins.

The Crushing subsegment’s operating profit dropped 25% year over year. Global soybean crush margins increased on solid margins in EMEA. However, elevated canola seed prices owing to less supply in Europe led to lower canola crush margins and overall soft results. In the reported quarter, there were nearly zero mark-to-market timing impacts compared with $100 million of favorable impacts in the year-ago period.

The Refined Products & Other (RPO) subsegment’s operating profit declined 63%, mainly due to soft results in North America, as increased imports of used cooking oil and elevated pre-treatment capacity led to lower refining and global biodiesel margins. Equity earnings from ADM’s investment in Wilmar were $62 million compared with $35 million in the year-ago quarter.

The Carbohydrate Solutions segment’s adjusted operating profit dipped 3% year over year to $452 million. The Starches and Sweeteners sub-segment rose 13% year over year on robust starches and sweeteners margins coupled with increased volumes.  In the Vantage Corn Processing subsegment, operating loss of $3 million fell year over year, owing to elevated inventories and production.

In the Nutrition segment, the adjusted operating profit of $105 million decreased 19% from $130 million in the year-ago quarter. The Human Nutrition subsegment’s operating profit was $86 million, roughly 27% lower from the prior-year period, including robust performance by recent Flavors M&A, lapping of non-recurring gains in the year-ago period, changes in inventory adjustments and other costs, consisting of costs related to the closure of a joint venture. In the Animal Nutrition subsegment, the operating profit of $19 million increased 58% year over year on cost-optimization actions and reduced input costs, which aided margins.

Archer Daniels’ Other Financials

The company ended the quarter with cash and cash equivalents of $784 million; long-term debt, including current maturities, of $8.3 billion; and shareholders’ equity of $22 billion. As of Sept. 30, 2024, ADM provided $2.5 billion in cash for operating activities. 

The company repurchased shares worth $2.3 billion and cash dividends of $744 million during the nine months of 2024.

Management has currently reaffirmed the EPS view of $4.50-$5.00 for 2024, based on the year-to-date trends, uncertainty in legislative and regulatory policy, weak market demand and internal operational headwinds.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -14.96% due to these changes.

VGM Scores

At this time, ADM has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 these revisions indicates a downward shift. It's no surprise ADM has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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