ARCHER DANIELS MIDLAND CO. $42 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 587.6 million; Market cap: $24.7 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.9%; TSINetwork Rating: Above Average; www.adm.com) processes corn, wheat, soybeans, canola, flax seed, peanuts and other crops to make a variety of food ingredients such as flour, oils and sweeteners. It’s also the largest maker of ethanol from corn in the U.S.
To cut its exposure to volatile crop prices, Archer continues to expand into value-added products. For example, the company recently paid $84 million for 90% of Harvest Innovations. This firm processes soy and oils for gluten-free pastas and other foods. Archer will buy the remaining 10% in the next two years.
The company also paid an undisclosed sum for a plant in Morocco that makes sweeteners from corn. The purchase will help expand its share of the global sweeteners’ market. In addition, a plan to improve efficiency should cut $275 million from its annual costs by the end of this year.
However, high crop harvests have depressed prices and profits at Archer’s grain-trading business. As a result, the company’s earnings in the first quarter of 2016 fell 53.3%, to $230 million from $493 million a year earlier. Due to fewer shares outstanding, pershare profits fell 49.4%, to $0.39 from $0.77.
Revenue in the quarter declined 17.8%, to $14.4 billion from $17.5 billion. International markets supply half of the company‘s revenue, so the high U.S. dollar hurts the contribution from its overseas operations.
Archer is in a strong position to keep expanding. It held cash of $1.2 billion, or $2.10 a share (as of March 31, 2016). As well, its long-term debt of $5.9 billion is a moderate 24% of its market cap.
The company will likely earn $2.45 a share in 2016. The stock trades at 17.1 times that estimate. Earnings could improve to $2.90 a share in 2017, and the stock trades at a more reasonable 14.5 times that forecast. The $1.20 dividend yields 2.9%.
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