CPO Ingredion, Inc.

Archer Daniels Midland Company (ADM), one of the leading food processing companies in the world, is scheduled to report its third-quarter 2012 financial results before the opening bell on May 1, 2012.

The current Zacks Consensus Estimates for the quarter is earnings of 60 cents a share. For the quarter under review, revenue is expected to be $21,333 million, according to the Zacks Consensus Estimate.

Second-Quarter 2012, a synopsis

Archer Daniels’ adjusted earnings per share of 51 cents in the second quarter of fiscal 2012 were below the Zacks Consensus Estimate of 77 cents and fell short of the year-ago earnings of $1.20 per share. The decline in earnings was primarily due to ongoing weakness in global oilseeds margins, lower results in corn and poor international merchandising results.

Archer Daniels' quarterly net sales surged 11.4% year over year to $23,306 million, marginally beating the Zacks Consensus Estimate of $23,077 million. The growth in net sales was mainly attributable to a 28.5% rise in Oilseeds Processing revenues to $7,513 million and 29.0% increase in Corn Processing revenues to $3,158 million, offset by a 1.2% decline in Agricultural Services to $11,304 million.

Zacks Consensus

The analyst covered by Zacks expects Archer Daniels to post third-quarter 2012 earnings of 60 cents a share, lower than 86 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of 45 cents and 71 cents a share.

For fiscal 2012, the Zacks Consensus Estimate stood at $2.49 per share, lower than its previous fiscal earnings of $3.13. The current Zacks estimate ranges between $2.36 and $2.56 per share.

Agreement of Estimates

For the third quarter of fiscal 2012, of the 9 analysts covering the stock, 4 analysts revised their estimates in the downward direction in the last 30 days, while no movement is seen in the opposite direction. For fiscal 2012, 4 out of 7 analysts revised their estimates in  the negative direction, while none moved in the opposite direction, in the last 30 days.

In the last 7 days, 1 analyst each has revised their estimate in the downward direction for the third quarter as well as for fiscal 2012, while none revised in the opposite direction.

Magnitude of Estimate Revisions

Given the predominant downwrd earnings revisions by analysts in the last 30 days, the Zacks Consensus Estimates for third-quarter 2012 decreased by 5 cents to 60 cents per share while for fiscal 2012 the consensus plunged 8 cents to $2.49 per share.

Similarly, over the last 7 days, the Zacks Consensus Estimates for third-quarter and fiscal 2012 have been lowered by 2 cents and 4 cents to 60 cents and $2.49 per share, respectively.

Surprise History

With respect to earnings surprises, Archer Daniels has missed as well as topped the Zacks Consensus Estimate over the last four quarters in the range of negative 33.8% to positive 1.2%. The average remained at negative 16.3%, indicating that Archer Daniels has missed the Zacks Consensus Estimate by that measure in the trailing four quarters.

Our View

In addition, Archer Daniels Midland is one of the leading players in the global food processing industry and commands a massive network of more than 560 processing and sourcing facilities and 27,000 vehicles operating across the Americas, Europe and Asia for transportation of agricultural commodities. This provides a strong competitive advantage to the company and strengthens its well-established position in the market.

Although Archer Daniels is expanding its global footprint in the key agricultural regions through acquisitions and joint ventures, we believe 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 and dampen its financial results.

Furthermore, agricultural commodity-based business is capital intensive and hence requires sufficient liquidity and financial flexibility to fund the operating and capital requirements. For this, the company relies on cash generated from operations and external financing. Limitations on access of external financing could negatively affect the company's operating results.

Archer Daniels Midland, which competes with Bunge Limited (BG) and Corn Products International Inc. (CPO), currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Besides, the company retains a long-term Underperform recommendation.

 
ARCHER DANIELS (ADM): Free Stock Analysis Report
 
BUNGE LTD (BG): Free Stock Analysis Report
 
CORN PROD INTL (CPO): Free Stock Analysis Report
 
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