ARCHER DANIELS MIDLAND CO. $29 (New York symbol ADM; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 658.6 million; Market cap: $19.1 billion; Price-to-sales ratio: 0.2; Dividend yield: 2.4%; TSINetwork Rating: Above Average; www.adm.com) processes corn, wheat, soybeans, canola, flax seed, peanuts, cocoa and other crops into a variety of food ingredients, such as flour, oils and sweeteners. It is also the largest maker of ethanol from corn in the U.S.
In its fiscal 2013 first quarter, which ended September 30, 2012, the company earned $182 million, or $0.28 a share. That’s down 60.4% from $460 million, or $0.68 a share, a year earlier. Lower profits from its ethanol business offset higher earnings from its oilseeds operations. Revenue fell 0.4%, to $21.8 billion from $21.9 billion.
The latest earnings included a $146-million writedown of its investment in a Mexican maker of corn flour and tortillas. Without this charge and other unusual items, the company would have earned $0.50 a share in the latest quarter, down 13.8% from $0.58 a year earlier.
Archer Daniels recently paid $278 million to increase its interest in GrainCorp, a leading Australian grain-storage and shipping company, from 4.9% to 14.9%. It then paid $139 million for another 5% of GrainCorp, raising its stake to 19.9%.
Archer Daniels now wants to buy 100% of Grain- Corp. That would help it profit as Australia ships more grain to Asia. This purchase would also cut its reliance on the U.S., which supplies over half of its revenue.
Buying GrainCorp would cost Archer Daniels $2.9 billion. However, GrainCorp has rejected this offer as too low. GrainCorp’s shares are trading for slightly less than Archer Daniels’ offer, which indicates that investors do not expect a higher bid. Even so, it’s possible Archer Daniels’could raise its offer. As well, it’s current 19.9% stake helps discourage rival bidders.
Rising prices for corn and other grains will increase Archer Daniels’costs. That’s why the stock trades at just 12.0 times its projected 2013 earnings of $2.42 a share. However, Archer Daniels should keep profiting from rising demand for more and better foods. It also has a long history of annual dividend increases. The current rate of $0.70 yields 2.4%.
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