Tags: Archer-Daniels-Midland | volatile | demand | ADM

Archer-Daniels-Midland Successful in Sectors with Volatile Demand

By    |   Monday, 23 Jul 2012 01:31 PM

Archer-Daniels-Midland (ADM) has successfully placed itself in the global production funnel for two sectors where demand is huge and proven, food and energy. However, both of these sectors are tremendously volatile as well. Analysts are concerned about currency effects and credit, factors ADM management has to manage but cannot control.

Archer-Daniels-Midland is one of the world’s largest processors of oilseeds, corn, wheat, cocoa, and other agricultural commodities and is a leading manufacturer of vegetable oil, protein meal, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.

The company also has an extensive grain elevator and transportation network to procure, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, as well as processed agricultural commodities.

During the past five years, ADM significantly expanded its agricultural commodity processing and handling capacity through construction of new plants, expansion of existing plants, and the acquisition of plants and transportation equipment, management said in a recent filing.

“The company currently expects to spend approximately $2 billion on capital expenditures in fiscal year 2012, primarily for acquisitions and expansions of processing plants as well as for storage facilities, transportation equipment, and other capital projects including projects aimed at improving efficiency,” management said.

“The company anticipates that approximately one-half of these investments will relate to non-U.S. operations and a significant portion of the U.S. investments will support the company’s ability to serve export markets.”

Archer-Daniels-Midland has a market cap of $17.78 billion in a sector, food products, where the average company size is $8.71 billion. Its trailing 12-month P/E ratio is 13.64 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.41, compared to 2.08 for the sector.

Its projected earnings per share growth for the coming year is 9.37 percent, compared to a sector average of 9.38 percent.

Intense competition


Wall Street is generally flat on ADM, with a buy call from Jefferies and mostly neutral ratings from the rest.

“Archer is well positioned to drive top-line growth through its huge processing, sourcing and transportation facilities. Further, management is focusing on a brisk expansion strategy, which bodes well for future operating performance,” analysts at Zacks Investment Research wrote in mid-May.

“However, sourcing of commodities and stringent credit facilities may pose a threat to its operating performance. Moreover, intense competition and adverse currency fluctuations may undermine the company’s long-term initiatives while affecting its financial results.”

Archer-Daniels-Midland next reports on July 31.

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2012-31-23
Monday, 23 Jul 2012 01:31 PM
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