Morningstar | ADM Updated Forecasts and Estimates from 08 Feb 2019
Archer Daniels Midland reported mixed fourth-quarter results as adjusted segment operating profit grew 8% year on year to $860 million. Higher profits were driven primarily by continued strong performance in the oilseeds business. However, we've reduced our outlook for profits in the oilseeds segment due to a lower soy crush margin, the origination segment due to less favorable grain merchandising conditions, and the carbohydrate solutions segment due to lower sweetener and ethanol profits. Having updated our model, we're lowering our fair value estimate to $46 per share from $48. Our no-moat rating is unchanged.In the oilseeds segment, operating profit more than doubled year on year to $432 million, driven by an elevated soy crush spread. However, by the end of the quarter, the soy crush spread fell from around $1.20 per bushel to $0.90 per bushel. This is only slightly above the 2013-17 average of roughly $0.80. While the soy crush spread is just one of many variables that drives profits for the the oilseeds segment, the lower spread will lead to a double-digit profit decline in 2019.
In the origination segment, Archer Daniels was able to take advantage of favorable grain merchandising conditions as the segment generated a 2.9% operating margin. While this was below the 3.8% margin achieved a year ago, this remains well above the historical long-term 2% average. In 2018, much of the elevated profits came from a change in global crop trade patterns due to the trade dispute between the U.S. and China. However, as global trade patterns have already begun to shift, we anticipate fewer price dislocation opportunities going forward. Further, given its large U.S. grain merchandising footprint, the company could face additional headwinds in 2019 if China continues to purchase lower U.S. crop volumes than it did before the dispute. As such, we forecast a slight operating profit decline in 2019 for the origination segment.
Archer Daniels Midland is a human and animal nutrition and an agricultural origination and processing company. The company has three segments: Ag Services and Oilseeds, which includes activities related to the origination, merchandising, transportation, and storage of agricultural raw materials, and the crushing and further processing of oilseeds such as soybeans and soft seeds into vegetable oils and protein meals; Carbohydrate Solutions, which is engaged in corn and wheat wet and dry milling and other activities; and Nutrition, which engages in the manufacturing, sale, and distribution of an array of products including plant-based proteins, natural flavor ingredients, and flavor systems.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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