Saturday, January 30, 2010

Archer Daniels Midland Company (NYSE: ADM): Q2 Earnings Preview 2010

Archer Daniels Midland Company (NYSE: ADM) is scheduled to release its fiscal second quarter 2010 earnings before the opening bell on Tuesday, February 2, 2010. Analysts, on average, expect the company to report earnings of 72 cents a share on revenue of $16.54 billion. In the year ago quarter, the company reported earnings of 91 cents per share on revenue of $16.67 billion.

Archer-Daniels-Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. Archer Daniels, one of the largest agricultural processors in the world, operates processing and manufacturing facilities, and processes crops to make food ingredients, animal feed ingredients, renewable fuels and naturally derived alternatives to industrial chemicals.

ADM is among the largest US ethanol producers, and has expanded its renewable business in Europe , Latin America and Asia. The demand for ethanol and biofuels peaked in 2008 along with gas prices, only to falter in 2009. People only consume biofuels, it seems, when gas prices are extremely high.

In the precedding fiscal first quarter, the Decatur, Illinois based company reported a sharp fall in profit for the first quarter, reflecting lower processing volumes and average selling prices, as well as foreign exchange translation impacts. for the quarter ended September 30, 2009, net earnings attributable to the company were $496 million, down 53% from last year's $1.05 billion. On a per share basis, earnings fell 52% to $0.77 from $1.62 in the same quarter a year ago. Revenue slumped 29% to $14.92 billion from $21.16 billion a year ago. Analysts, on average, expected the company to report earnings of $0.56 per share on revenue of $17.22 billion.

Despite temporary setbacks, the long term fundamnetals of ethanol in specific and agricultural commodities as a whole remain intact. US ethanol demand, as calculated by the Renewable Fuels Association, also reached an all time high at 781,000 barrels per day (b/d) in November, up from 683,000 b/d a year ago. Recently, ADM received a $24.8 million grant from the U.S. Department of Energy to develop and construct a facility that will convert biomass into renewable fuel. One of 19 biofuel projects to receive Department of Energy funding, the ADM Advanced Biorefinery project will produce fuel ethanol and ethyl acrylate, a compound used to make plastics, adhesives, coatings and a range of other materials.

Among other developments, Citigroup recently upgraded Archer Daniels Midland (ADM) to buy from hold to reflect strength in the oilseed processing market and a positive inflection in ethanol profitability.

The company's stock currently trades at a forward P/E (fye 30-Jun-11) of 10.12 and PEG ratio (5 yr expected) of 1.07. In terms of stock performance, ADM shares have gained 9 percent over the past year.

Full Disclosure: None.

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