Archer Daniels Dips 14% YTD: Should You Buy, Sell or Hold ADM?
Archer Daniels Midland Company ADM shares have declined 13.7% in the year-to-date (YTD) period, wider than the Zacks Agriculture – Operations industry’s decline of 5.7% and against the broader Zacks Consumer Staples sector’s 13.1% growth.
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One of the key factors contributing to ADM's struggles has been the sluggish performance of its Agricultural Services & Oilseeds segment. The segment's revenues dropped by 12.6% year over year in the second quarter of 2024, contributing to an overall revenue decline of 9.5%. Carbohydrate Solutions segment’s revenues dropped 14.7% year over year.
The Zacks Consensus Estimate for 2024 revenues is pegged at $880.6 million, indicating a year-over-year decline of 6.3%. The consensus estimate for 2024 earnings per share (EPS) is pegged at $5.33, suggesting a 23.6% decline compared to the previous year. The consensus estimate for 2024 EPS has declined 2.2% in the past 60 days.
The stock is currently trading below its 200-day moving average, indicating the possibility of a further bearish shift in its price.
Decoding the Challenges Faced by ADM Stock
Archer Daniels has been struggling with weak margins in its Agricultural Services & Oilseeds segment, driven by a challenging operating environment.
In South American origination, lower margins have been driven by weak farmer selling due to a smaller crop in Mato Grosso, alongside increased logistics costs linked to take-or-pay contracts. In North American origination, the company faces headwinds related to a higher supply of agricultural products from Brazil and Argentina, which shifted export competitiveness to South American origins. This led to fewer carriers and trading opportunities in North America, dampening performance in the second quarter.
ADM's crush margins have been negatively impacted due to the return of Argentinian crush capacity and increased imports of used cooking oil, both of which added pressure on the market and weighed on margins.
The Refined Products & Other segment is also faced with challenges related to an increase in pre-treatment capacity and a higher volume of used cooking oil imports, which has been putting downward pressure on refining profitability. Biodiesel margins continue to be impacted by lower LCFS and RIN values.
Management expects increased crop production in South America to lead to reduced margins across the segment in 2024. The global soybean crush margins are expected to be $35-$60 per metric ton for 2024, with strength in soybean meal and oil demand. Such limitations are likely to continue hurting margins in the third quarter. For Agricultural Services & Oilseeds, management anticipates the third quarter to be lower than the year-earlier levels.
Do ADM’s Strategic Initiatives Hold Potential?
The near-term challenges discussed are no doubt worrisome for ADM. However, the company remains focused on its strategic moves by actively managing productivity and innovation and aligning work to the interconnected trends in food security, health and wellbeing.
Looking ahead, ADM is well-positioned to capitalize on better margin opportunities as it moves into the second half of 2024. The company’s processing capacities are improving as the year progresses across its production operations, which consist of the ramp-up of Green Bison to full capacity and growing production in Ukraine.
ADM has been creating additional margin opportunities, opening channels to customers, advancing digital technologies in areas like farmer needs, extending Regen Act programs and partnerships, and growing its BioSolutions platform. ADM also anticipates achieving a significant portion of its planned $500 million cost savings through its execution excellence program within the first year.
What Should Investors Do Now?
As we have already discussed, the stock is positioned below its 200-day moving average, which indicates the possibility of negative movement. Therefore, despite the recent dip in the share price, this might not be the ideal time to invest in ADM. Those who already own this Zacks Rank #4 (Sell) stock may consider selling it, given the company’s gloomy 2024 outlook.
Three Picks You Can’t-Miss
Here, we have highlighted three better-ranked food stocks, namely, The Chef's Warehouse CHEF, Pilgrim’s Pride PPC and Flowers Foods FLO.
The Chef’s Warehouse, which engages in the distribution of specialty food products, sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimated figure for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank #1. PPC delivered a positive earnings surprise of 27.3% in the trailing four quarters, on average.
The Zacks Consensus Estimated figure for Pilgrim’s Pride’s current financial-year earnings indicates growth of 183.43% from the prior-year reported level.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings calls for growth of around 0.9% and 5%, respectively, from the year-ago reported numbers.
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Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
Pilgrim's Pride Corporation (PPC) : Free Stock Analysis Report
The Chefs' Warehouse, Inc. (CHEF) : Free Stock Analysis Report