Yahoo Finance Why Did Archer Daniels Midland’s Margins Fall More in 1Q16?
Global Dynamics Challenged Archer Daniels Midland in 1Q16
Margins fell
In Archer Daniels Midland’s (ADM) 1Q16 earnings call on May 3, management mentioned that global dynamics impacted the margins across the US agricultural export sector, the US ethanol industry, and the global soybean crushing industry. The company’s margins have been falling for the past few quarters. Weak margins continued in 1Q16—compared to 1Q15. However, the company’s 1Q16 operating and net margins of 2.1% and 1.6%, respectively, were above analysts’ estimates. The net margin of 5.1% was slightly higher than expectations.
Archer Daniels Midland’s peers in the industry include McCormick & Company (MKC), Flowers Foods (FLO), and WhiteWave Foods (WWAV). They saw gross margins of 39.3%, 46.8%, and 32.8%, respectively, in their last reported quarters.
To gain exposure to McCormick & Company, you can invest in ETFs like the PowerShares Dynamic Food & Beverage Portfolio (PBJ) and the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS). PBJ and RHS invest 2.7% and 2.6% of their respective portfolios in these stocks.
Completed acquisitions
Archer Daniels Midland completed acquisitions worth $0.1 billion in 1Q16. In its Corn Processing segment, Archer Daniels Midland closed its Eaststarch acquisition at the beginning of November in 2015. Management mentioned that the integration of this acquisition is going better than expected. It’s expected to drive demand by expanding the company’s global product portfolio and customer reach. In the Agricultural services segment, Archer Daniels Midland recently closed its Medsofts joint venture in Egypt to grow its destination marketing capabilities.
In the Corn Processing segment, it announced plans to acquire a Casablanca, Morocco-based corn wet mill that produces glucose and local native starch. It expects to see substantial demand growth in the coming years from this facility. It’s the leading sweetener and starch supplier in the country. In the Oilseeds segment, the company initiated significant expansion and modernization of the Santos Port in Brazil. The company expanded its annual storage and grain handling capacity from 6 million to 8 million metric tons. The company expects a better pricing environment in 2H16 with tighter supply and demand.
Browse this series on Market Realist:
