Intrinsic value of Archer Daniels Midland - ADM

Previous Close

$42.15

  Intrinsic Value

$7.26

stock screener

  Rating & Target

str. sell

-83%

  Value-price divergence*

-60%

Previous close

$42.15

 
Intrinsic value

$7.26

 
Up/down potential

-83%

 
Rating

str. sell

 
Value-price divergence*

-60%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ADM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 24.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.91
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  62,346
  64,965
  67,745
  70,693
  73,816
  77,119
  80,611
  84,298
  88,191
  92,297
  96,625
  101,187
  105,993
  111,053
  116,379
  121,985
  127,884
  134,088
  140,614
  147,476
  154,690
  162,274
  170,246
  178,624
  187,429
  196,680
  206,402
  216,615
  227,345
  238,617
  250,458
Variable operating expenses, $m
 
  63,405
  66,119
  68,997
  72,044
  75,268
  78,676
  82,275
  86,074
  90,082
  94,306
  98,759
  103,449
  108,387
  113,586
  119,058
  124,815
  130,870
  137,239
  143,936
  150,978
  158,380
  166,160
  174,337
  182,930
  191,960
  201,448
  211,416
  221,889
  232,890
  244,447
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  60,762
  63,405
  66,119
  68,997
  72,044
  75,268
  78,676
  82,275
  86,074
  90,082
  94,306
  98,759
  103,449
  108,387
  113,586
  119,058
  124,815
  130,870
  137,239
  143,936
  150,978
  158,380
  166,160
  174,337
  182,930
  191,960
  201,448
  211,416
  221,889
  232,890
  244,447
Operating income, $m
  1,584
  1,559
  1,626
  1,697
  1,772
  1,851
  1,935
  2,023
  2,117
  2,215
  2,319
  2,428
  2,544
  2,665
  2,793
  2,928
  3,069
  3,218
  3,375
  3,539
  3,713
  3,895
  4,086
  4,287
  4,498
  4,720
  4,954
  5,199
  5,456
  5,727
  6,011
EBITDA, $m
  2,484
  2,499
  2,606
  2,719
  2,839
  2,967
  3,101
  3,243
  3,392
  3,550
  3,717
  3,892
  4,077
  4,272
  4,477
  4,692
  4,919
  5,158
  5,409
  5,673
  5,950
  6,242
  6,549
  6,871
  7,210
  7,566
  7,940
  8,332
  8,745
  9,179
  9,634
Interest expense (income), $m
  283
  286
  328
  371
  417
  466
  518
  573
  630
  691
  756
  823
  895
  970
  1,049
  1,132
  1,220
  1,313
  1,410
  1,512
  1,619
  1,732
  1,851
  1,976
  2,107
  2,245
  2,389
  2,542
  2,702
  2,870
  3,046
Earnings before tax, $m
  1,822
  1,273
  1,298
  1,325
  1,354
  1,385
  1,417
  1,451
  1,486
  1,524
  1,563
  1,605
  1,649
  1,695
  1,744
  1,795
  1,849
  1,906
  1,965
  2,028
  2,093
  2,162
  2,235
  2,311
  2,391
  2,476
  2,564
  2,657
  2,755
  2,857
  2,965
Tax expense, $m
  534
  344
  351
  358
  366
  374
  383
  392
  401
  411
  422
  433
  445
  458
  471
  485
  499
  514
  531
  547
  565
  584
  603
  624
  646
  668
  692
  717
  744
  771
  801
Net income, $m
  1,279
  929
  948
  968
  989
  1,011
  1,034
  1,059
  1,085
  1,112
  1,141
  1,172
  1,204
  1,238
  1,273
  1,310
  1,350
  1,391
  1,434
  1,480
  1,528
  1,579
  1,632
  1,687
  1,746
  1,807
  1,872
  1,940
  2,011
  2,086
  2,164

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  915
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  39,769
  40,476
  42,209
  44,046
  45,991
  48,049
  50,225
  52,522
  54,948
  57,506
  60,203
  63,045
  66,039
  69,192
  72,511
  76,003
  79,678
  83,544
  87,610
  91,885
  96,380
  101,105
  106,072
  111,292
  116,778
  122,542
  128,599
  134,963
  141,648
  148,671
  156,049
Adjusted assets (=assets-cash), $m
  38,854
  40,476
  42,209
  44,046
  45,991
  48,049
  50,225
  52,522
  54,948
  57,506
  60,203
  63,045
  66,039
  69,192
  72,511
  76,003
  79,678
  83,544
  87,610
  91,885
  96,380
  101,105
  106,072
  111,292
  116,778
  122,542
  128,599
  134,963
  141,648
  148,671
  156,049
Revenue / Adjusted assets
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
  1.605
Average production assets, $m
  13,501
  14,097
  14,701
  15,340
  16,018
  16,735
  17,493
  18,293
  19,137
  20,028
  20,968
  21,958
  23,000
  24,098
  25,254
  26,471
  27,751
  29,097
  30,513
  32,002
  33,568
  35,214
  36,943
  38,761
  40,672
  42,680
  44,789
  47,005
  49,334
  51,780
  54,349
Working capital, $m
  7,872
  7,666
  7,994
  8,342
  8,710
  9,100
  9,512
  9,947
  10,407
  10,891
  11,402
  11,940
  12,507
  13,104
  13,733
  14,394
  15,090
  15,822
  16,592
  17,402
  18,253
  19,148
  20,089
  21,078
  22,117
  23,208
  24,355
  25,561
  26,827
  28,157
  29,554
Total debt, $m
  6,931
  7,447
  8,436
  9,485
  10,596
  11,771
  13,013
  14,325
  15,710
  17,171
  18,711
  20,334
  22,043
  23,843
  25,739
  27,733
  29,831
  32,039
  34,360
  36,801
  39,368
  42,066
  44,902
  47,883
  51,015
  54,307
  57,765
  61,399
  65,216
  69,226
  73,439
Total liabilities, $m
  22,596
  23,112
  24,101
  25,150
  26,261
  27,436
  28,678
  29,990
  31,375
  32,836
  34,376
  35,999
  37,708
  39,508
  41,404
  43,398
  45,496
  47,704
  50,025
  52,466
  55,033
  57,731
  60,567
  63,548
  66,680
  69,972
  73,430
  77,064
  80,881
  84,891
  89,104
Total equity, $m
  17,173
  17,364
  18,108
  18,896
  19,730
  20,613
  21,546
  22,532
  23,573
  24,670
  25,827
  27,046
  28,331
  29,683
  31,107
  32,605
  34,182
  35,840
  37,585
  39,419
  41,347
  43,374
  45,505
  47,744
  50,098
  52,571
  55,169
  57,899
  60,767
  63,780
  66,945
Total liabilities and equity, $m
  39,769
  40,476
  42,209
  44,046
  45,991
  48,049
  50,224
  52,522
  54,948
  57,506
  60,203
  63,045
  66,039
  69,191
  72,511
  76,003
  79,678
  83,544
  87,610
  91,885
  96,380
  101,105
  106,072
  111,292
  116,778
  122,543
  128,599
  134,963
  141,648
  148,671
  156,049
Debt-to-equity ratio
  0.404
  0.430
  0.470
  0.500
  0.540
  0.570
  0.600
  0.640
  0.670
  0.700
  0.720
  0.750
  0.780
  0.800
  0.830
  0.850
  0.870
  0.890
  0.910
  0.930
  0.950
  0.970
  0.990
  1.000
  1.020
  1.030
  1.050
  1.060
  1.070
  1.090
  1.100
Adjusted equity ratio
  0.422
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429
  0.429

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,279
  929
  948
  968
  989
  1,011
  1,034
  1,059
  1,085
  1,112
  1,141
  1,172
  1,204
  1,238
  1,273
  1,310
  1,350
  1,391
  1,434
  1,480
  1,528
  1,579
  1,632
  1,687
  1,746
  1,807
  1,872
  1,940
  2,011
  2,086
  2,164
Depreciation, amort., depletion, $m
  900
  940
  980
  1,023
  1,068
  1,116
  1,166
  1,220
  1,276
  1,335
  1,398
  1,464
  1,533
  1,607
  1,684
  1,765
  1,850
  1,940
  2,034
  2,133
  2,238
  2,348
  2,463
  2,584
  2,711
  2,845
  2,986
  3,134
  3,289
  3,452
  3,623
Funds from operations, $m
  890
  1,869
  1,928
  1,990
  2,056
  2,126
  2,200
  2,278
  2,361
  2,448
  2,539
  2,636
  2,737
  2,844
  2,957
  3,075
  3,200
  3,331
  3,469
  3,614
  3,766
  3,926
  4,094
  4,271
  4,457
  4,653
  4,858
  5,073
  5,300
  5,538
  5,788
Change in working capital, $m
  -585
  309
  328
  348
  368
  390
  412
  435
  459
  484
  511
  538
  567
  597
  629
  662
  696
  732
  770
  810
  851
  895
  941
  989
  1,039
  1,092
  1,147
  1,205
  1,266
  1,330
  1,397
Cash from operations, $m
  1,475
  1,560
  1,600
  1,642
  1,688
  1,737
  1,788
  1,843
  1,902
  1,963
  2,028
  2,097
  2,170
  2,247
  2,328
  2,414
  2,504
  2,599
  2,699
  2,804
  2,915
  3,031
  3,154
  3,283
  3,418
  3,561
  3,711
  3,868
  4,034
  4,208
  4,391
Maintenance CAPEX, $m
  0
  -900
  -940
  -980
  -1,023
  -1,068
  -1,116
  -1,166
  -1,220
  -1,276
  -1,335
  -1,398
  -1,464
  -1,533
  -1,607
  -1,684
  -1,765
  -1,850
  -1,940
  -2,034
  -2,133
  -2,238
  -2,348
  -2,463
  -2,584
  -2,711
  -2,845
  -2,986
  -3,134
  -3,289
  -3,452
New CAPEX, $m
  -882
  -596
  -603
  -640
  -678
  -717
  -758
  -800
  -845
  -891
  -939
  -990
  -1,043
  -1,098
  -1,156
  -1,216
  -1,280
  -1,346
  -1,416
  -1,489
  -1,566
  -1,646
  -1,730
  -1,818
  -1,911
  -2,008
  -2,109
  -2,216
  -2,328
  -2,446
  -2,569
Cash from investing activities, $m
  -1,211
  -1,496
  -1,543
  -1,620
  -1,701
  -1,785
  -1,874
  -1,966
  -2,065
  -2,167
  -2,274
  -2,388
  -2,507
  -2,631
  -2,763
  -2,900
  -3,045
  -3,196
  -3,356
  -3,523
  -3,699
  -3,884
  -4,078
  -4,281
  -4,495
  -4,719
  -4,954
  -5,202
  -5,462
  -5,735
  -6,021
Free cash flow, $m
  264
  64
  56
  23
  -12
  -48
  -85
  -123
  -163
  -204
  -246
  -290
  -336
  -384
  -434
  -486
  -541
  -598
  -657
  -719
  -784
  -852
  -924
  -998
  -1,076
  -1,158
  -1,244
  -1,334
  -1,428
  -1,527
  -1,631
Issuance/(repayment) of debt, $m
  1,088
  943
  989
  1,049
  1,111
  1,175
  1,242
  1,312
  1,385
  1,461
  1,540
  1,623
  1,710
  1,800
  1,895
  1,994
  2,098
  2,207
  2,322
  2,441
  2,567
  2,698
  2,836
  2,981
  3,132
  3,291
  3,458
  3,634
  3,817
  4,010
  4,213
Issuance/(repurchase) of shares, $m
  -1,000
  0
  0
  0
  0
  0
  0
  0
  0
  0
  16
  47
  81
  115
  151
  188
  227
  267
  310
  354
  400
  449
  499
  552
  608
  666
  727
  790
  857
  927
  1,000
Cash from financing (excl. dividends), $m  
  122
  943
  989
  1,049
  1,111
  1,175
  1,242
  1,312
  1,385
  1,461
  1,556
  1,670
  1,791
  1,915
  2,046
  2,182
  2,325
  2,474
  2,632
  2,795
  2,967
  3,147
  3,335
  3,533
  3,740
  3,957
  4,185
  4,424
  4,674
  4,937
  5,213
Total cash flow (excl. dividends), $m
  386
  1,007
  1,046
  1,071
  1,099
  1,127
  1,157
  1,189
  1,222
  1,257
  1,310
  1,380
  1,454
  1,531
  1,611
  1,696
  1,784
  1,877
  1,974
  2,076
  2,183
  2,294
  2,412
  2,535
  2,664
  2,799
  2,941
  3,090
  3,246
  3,410
  3,582
Retained Cash Flow (-), $m
  726
  -679
  -743
  -788
  -835
  -883
  -933
  -986
  -1,040
  -1,097
  -1,157
  -1,219
  -1,284
  -1,353
  -1,424
  -1,498
  -1,577
  -1,658
  -1,744
  -1,834
  -1,928
  -2,027
  -2,131
  -2,239
  -2,353
  -2,473
  -2,598
  -2,730
  -2,868
  -3,013
  -3,165
Prev. year cash balance distribution, $m
 
  488
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  815
  302
  283
  264
  244
  224
  203
  182
  160
  153
  161
  169
  178
  188
  197
  208
  219
  230
  242
  254
  267
  281
  295
  310
  326
  342
  360
  378
  397
  417
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  774
  271
  238
  207
  178
  150
  125
  101
  80
  68
  64
  59
  54
  48
  43
  38
  33
  28
  24
  20
  16
  13
  10
  8
  6
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.8
  99.6
  99.3
  99.0
  98.6
  98.1
  97.6
  97.0
  96.4
  95.7
  95.0
  94.3
  93.5
  92.7
  91.8
  91.0
  90.1
  89.2
  88.2
  87.3

Archer-Daniels-Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products. Its Agricultural Services segment offers agricultural commodities, including oilseeds, corn, wheat, milo, oats, rice, and barley. This segment also provides structured trade finance; and processes wheat into wheat flour. The company’s Corn Processing segment provides sweeteners, starch, syrup, glucose, and dextrose; bio products; alcohol, amino acids, and other food and animal feed ingredients; and ethyl alcohol. This segment also offers corn gluten feed and meal, and distillers’ grains; vegetable oil and protein meal; formula feeds, and animal health and nutrition products; citric acids and glycols; glucose and native starch; and contract and private label pet treats and foods, and specialty ingredients. Its Oilseeds Processing segment processes soybeans and soft seeds into vegetable oils and protein meals. This segment offers ingredients for the food, feed, energy, and industrial products industries; crude vegetable and salad oils; margarine, shortening, and other food products; partially refined oils; oilseed protein meals; peanuts, tree nuts, and peanut-derived ingredients; cottonseed flour for the pharmaceutical industry; cotton cellulose pulp for the chemical, paper, and filter markets; and agricultural commodity raw materials. The company’s Wild Flavors and Specialty Ingredients segment provides natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, and other specialty food and feed ingredients; edible beans; soy proteins, oils, and gluten-free ingredients; natural extracts and compounds; and gluten-free and high-protein pastas. The company also engages in the futures commission and insurance activities. Archer-Daniels-Midland Company was founded in 1898 and is headquartered in Chicago, Illinois.

FINANCIAL RATIOS  of  Archer Daniels Midland (ADM)

Valuation Ratios
P/E Ratio 18.9
Price to Sales 0.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 16.4
Price to Free Cash Flow 40.7
Growth Rates
Sales Growth Rate -7.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.6%
Cap. Spend. - 3 Yr. Gr. Rate -0.7%
Financial Strength
Quick Ratio 2
Current Ratio 0.5
LT Debt to Equity 37.9%
Total Debt to Equity 40.4%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 5.3%
Ret/ On T. Cap. - 3 Yr. Avg. 7.2%
Return On Equity 7.3%
Return On Equity - 3 Yr. Avg. 9.5%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 5.9%
Gross Margin - 3 Yr. Avg. 5.9%
EBITDA Margin 4.8%
EBITDA Margin - 3 Yr. Avg. 5.1%
Operating Margin 2.5%
Oper. Margin - 3 Yr. Avg. 2.8%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 2.1%
Net Profit Margin - 3 Yr. Avg. 2.5%
Effective Tax Rate 29.3%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 54.8%

ADM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADM stock intrinsic value calculation we used $62346 million for the last fiscal year's total revenue generated by Archer Daniels Midland. The default revenue input number comes from 2016 income statement of Archer Daniels Midland. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ADM stock valuation model: a) initial revenue growth rate of 4.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.4%, whose default value for ADM is calculated based on our internal credit rating of Archer Daniels Midland, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Archer Daniels Midland.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ADM stock the variable cost ratio is equal to 97.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ADM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.4% for Archer Daniels Midland.

Corporate tax rate of 27% is the nominal tax rate for Archer Daniels Midland. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ADM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ADM are equal to 21.7%.

Life of production assets of 15 years is the average useful life of capital assets used in Archer Daniels Midland operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ADM is equal to 11.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $17173 million for Archer Daniels Midland - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 591.271 million for Archer Daniels Midland is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Archer Daniels Midland at the current share price and the inputted number of shares is $24.9 billion.

Management's discussion and analysis

This MD&A should be read in conjunction with the accompanying consolidated financial statements.

The Company is principally engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products.  The Company uses its significant global asset base to originate and transport agricultural commodities, connecting to markets in 163countries.  The Company also processes corn, oilseeds, and wheat into products for food, animal feed, chemical and energy uses.  The Company uses its global asset network, business acumen, and its relationships with suppliers and customers to efficiently connect the harvest to the home thereby generating returns for our shareholders, principally from margins earned on these activities.

The Company’s operations are organized, managed, and classified into four reportable business segments: Agricultural Services, Corn Processing, Oilseeds Processing, and Wild Flavors and Specialty Ingredients.  Each of these segments is organized based upon the nature of products and services offered.  The Company’s remaining operations are not reportable business segments, as defined by the applicable accounting standard, and are classified as Other. See Note 17 of Item 8 for more information about the Company’s business segments.

The Company’s recent significant portfolio actions and announcements include:

   

the purchase in February 2016 of a controlling stake in Harvest Innovations, an industry leader in minimally processed, expeller-pressed soy proteins, oils, and gluten-free ingredients;

   

the purchase in April 2016 of a 50% interest in Cairo-based Medsofts Group, a consolidated joint venture that owns and manages merchandising and supply chain operations;

   

the sale in May 2016 of the sugarcane ethanol operations in Limeira do Oeste in the Brazilian state of Minas Gerais;

   

the purchase in May 2016 of the remaining 60% interest in Amazon Flavors, a leading Brazilian manufacturer of natural extracts, emulsions and compounds;

   

the acquisition in June 2016 of a Casablanca, Morocco-based corn wet mill that produces glucose and native starch;

   

the purchase in September 2016 of Caterina Foods, a leading toll manufacturer of specialty gluten-free and high-protein pastas;

   

the expansion in November 2016 of Olenex, a 37.5% joint venture with Wilmar, from a sales and marketing venture to a full function joint venture which owns and operates specialty oils and fats, palm refining, and tropical oils processing plants in Europe;

   

the sale in December 2016 of the Company's 19.8% ownership interest in GrainCorp;

   

the announcement in January 2017 of the sale of the Company's crop risk services businesses to Validus Holdings, a global group of insurance and reinsurance companies, which is subject to regulatory approval and expected to close in the first half of 2017; and

   

the acquisition in February 2017 of Crosswind Industries, Inc., an industry leader in the manufacture of contract and private label pet treats and foods, as well as specialty ingredients.

As part of the implementation of the Company’s strategic plan, the Company continues to evaluate the capital intensity of its operations and portfolio, seeking ways to reduce and redeploy capital in its efforts to drive long-term returns.

Operating Performance Indicators

The Company’s agricultural services and oilseeds processing operations are principally agricultural commodity-based businesses where changes in selling prices move in relationship to changes in prices of the commodity-based agricultural raw materials. Therefore, changes in agricultural commodity prices have relatively equal impacts on both revenues and cost of products sold. Thus, changes in revenues of these businesses do not necessarily correspond to the changes in margins or gross profit.

The Company’s corn processing operations and Wild Flavors and Specialty Ingredients businesses also utilize agricultural commodities (or products derived from agricultural commodities) as raw materials. However, in these operations, agricultural commodity market price changes do not necessarily equal changes in cost of products sold. Thus, changes in revenues of these businesses may correspond to changes in margins or gross profit.

The Company has consolidated subsidiaries in 76 countries.  For the majority of the Company’s subsidiaries located outside the United States, the local currency is the functional currency. Revenues and expenses denominated in foreign currencies are translated into U.S. dollars at the weighted average exchange rates for the applicable periods. For the majority of the Company’s business activities in Brazil, the functional currency is the U.S. dollar; however, certain transactions, including taxes, occur in local currency and require conversion to the functional currency. Changes in revenues are expected to be correlated to changes in expenses reported by the Company caused by fluctuations in the exchange rates of foreign currencies, primarily the Euro, British pound, Canadian dollar, and Brazilian real, as compared to the U.S. dollar.

The Company measures its performance using key financial metrics including net earnings, segment operating profit, return on invested capital, EBITDA, economic value added, manufacturing expenses, and selling, general, and administrative expenses. The Company’s financial results can vary significantly due to changes in factors such as fluctuations in energy prices, weather conditions, crop plantings, government programs and policies, changes in global demand, general global economic conditions, changes in standards of living, and global production of similar and competitive crops. Due to these unpredictable factors, the Company undertakes no responsibility for updating any forward-looking information contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

As an agricultural commodity-based business, the Company is subject to a variety of market factors which affect the Company's operating results. Agricultural Services was negatively impacted in the first half of the year by weak U.S. grain export competitiveness and decreased global merchandising opportunities. Starting in the third quarter, export volumes and margins improved due to the U.S. harvest and weather conditions in South America. In Corn Processing, global demand for sweeteners and starches and U.S. exports, principally to Mexico, continued to grow. In Europe, raw material costs improved resulting in improved margins. Corn-based ethanol remained a very competitive transportation fuel, and domestic blending was strong as U.S. gasoline demand was up compared to 2015. U.S. ethanol also continued to be the one of the cheapest oxygenates in the world, driving strong export volumes throughout 2016. Industry production levels remained high during the year limiting margins. In Oilseeds Processing, global crushing operations achieved strong capacity utilization although margins were weaker mainly due to higher supply of soybean meal from Argentina, and other protein meal substitutes. Softseed margins improved due to better seed supply and oil demand. Vegetable oils continued to maintain a steady demand from the food industry. Additionally, vegetable oil sales volumes benefited from demand driven by the U.S. 2016 biodiesel blenders credit. The Wild Flavors and Specialty Ingredients business benefited from increased demand for flavor ingredients and flavor systems, specialty proteins, natural health and nutrition products, and polyols, but was adversely impacted by soft market conditions in non-flavor food ingredient markets and a strong U.S. dollar, as well as operational issues at the specialty commodities unit.

Net earnings attributable to controlling interests decreased $0.6 billion to $1.3 billion. Segment operating profit decreased $0.6 billion to $2.7 billion, primarily due to the prior year gain on sale of the global cocoa and chocolate businesses and lower earnings in the current year due to the sale of those businesses, weaker global crushing and origination margins, and lower international merchandising results, partially offset by better ethanol results. Corporate results in the current year include a charge of $19 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves, compared to a credit of $2 million in the prior year and a decrease of approximately $70 million in the Company’s share of the results of Compagnie Industrielle et Financiere des Produits Amylaces SA (Luxembourg) (CIP).

Income taxes increased $96 million due to a higher effective tax rate partially offset by lower earnings before income taxes. The Company’s effective tax rate for 2016 increased to 29.3% compared to 19.2% for 2015 due primarily to low tax rates on significant gains related to portfolio actions in 2015, a $71 million prior year discrete tax benefit resulting mainly from the release of a $66 million valuation allowance compared to a $49 million discrete tax expense in the current year, and changes in the geographic mix of pretax earnings (see Note 13 in Item 8 for more information).

Revenues and cost of products sold in a commodity merchandising and processing business are affected by the underlying commodity prices and volumes. In periods of significant changes in commodity prices, the underlying performance of the Company is better evaluated by looking at margins since both revenues and cost of products sold, particularly in Oilseeds Processing and Agricultural Services, generally have a relatively equal impact from commodity price changes which generally result in an insignificant impact to gross profit.

Revenues decreased $5.4 billion, or 8%, to $62.3 billion due to lower average sales prices ($3.5 billion), including $0.6 billion in foreign currency translation impacts, and lower overall sales volumes ($1.9 billion). The decrease in sales prices was due principally to lower underlying agricultural commodity prices, in particular prices of corn, soybeans, and soybean-related products. The decrease in sales volumes was due principally to the sale of the cocoa business and decreased sales volumes of ethanol and South American grain and oilseed origination. Agricultural Services revenues decreased 6% to $27.9 billion due to lower average sales prices ($2.5 billion) partially offset by higher sales volumes ($0.7 billion). Corn Processing revenues decreased 5% to $9.5 billion due to lower sales volumes ($0.5 billion) due principally to ethanol and the sale of the sugar ethanol business partially offset by sales volumes from the acquisition of Eaststarch C.V. Oilseeds Processing revenues decreased 12% to $22.2 billion due to lower average sales prices ($0.8 billion) and lower sales volumes ($2.3 billion) principally due to South American grains and oilseeds and the sale of the cocoa business. WFSI revenues were flat due to lower average sales prices ($0.2 billion) which were offset by higher sales volumes ($0.2 billion).

Cost of products sold decreased $5.0 billion to $58.7 billion due principally to lower average commodity costs, including $0.6 billion in foreign currency translation impacts, and lower manufacturing costs. Included in cost of products sold is a charge of $19 million from the effect of changes in agricultural commodity prices on LIFO inventory valuation reserves compared to a credit of $2 million in the prior year. Manufacturing expenses decreased $0.2 billion to $5.2 billion primarily due to the sale of the cocoa business, lower energy usage and prices, and decreased repairs and maintenance expenses.

Gross profit decreased $0.3 billion, or 8%, to $3.7 billion. The decrease in gross profit consists principally of lower soy crush margins ($309 million), reduced merchandising results ($95 million) primarily due to Agricultural Services global trade execution and positioning losses, lower volumes and freight rates in barge operations ($24 million), the sale of the cocoa business in the prior period ($78 million), partially offset by contribution of the recent Eaststarch C.V. acquisition ($85 million), and higher results in sweeteners and starches ($169 million). These factors are explained in the segment operating profit discussion on page 31. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves had a $19 million negative impact on gross profit compared to a positive impact of $2 million in the prior year. The decrease in underlying commodity prices did not result in a significant decrease in margins or gross profit as lower underlying commodity prices had a relatively equal impact on revenues and cost of products sold.

Selling, general, and administrative expenses of $2.0 billion were comparable to the prior year. Decreased expenses related to the sale of the cocoa business and a U.S. retiree medical benefit plan curtailment gain were offset by legal settlements, costs, and legal fees, increased transaction fees due to increased trading volume from the brokerage business, and expenses for the recently consolidated Eaststarch C.V.

Asset impairment, exit, and restructuring costs decreased $145 million to $55 million. Prior year charges include long-lived asset impairments of $129 million related to certain Oilseeds Processing facilities, sugar ethanol facilities in Brazil, a facility in the Corn Processing segment, and capitalized software costs and restructuring and exit costs of $71 million related principally to an international pension plan settlement, sugar ethanol facilities in Brazil, and several individually insignificant restructuring and exit costs. Current year charges include $11 millionof software impairment in Corporate, $6 million of other-than-temporary impairment charges on the Company’s investment in two available for sale equity securities in Corporate, and $17 million and $21 million of individually insignificant fixed asset impairment and restructuring charges, respectively.

Interest expense declined $15 million to $293 million primarily due to lower interest rates on long-term debt and the $8 million effect of the revaluation of the mandatorily redeemable 10% interest in Harvest Innovations.

Equity in earnings of unconsolidated affiliates decreased $98 million to $292 million primarily due to lower earnings from the Company’s investments in Wilmar and CIP and a decrease in equity earnings from Eaststarch C.V. which is now fully consolidated following the acquisition of the remaining interest in November 2015, partially offset by increased earnings from other equity investees.

Other income - net decreased $203 million to $147 million. Prior year income consisted primarily of gain on sales of $256 million related primarily to the sale of the cocoa, chocolate, and lactic businesses, a gain of $212 million on the revaluation of the Company’s previously held equity investments in North Star Shipping, Minmetal, and Eaststarch C.V. in conjunction with the acquisition of the remaining interests, and a gain of $62 million on the sale of a 50% interest in the Barcarena export terminal facility in Brazil to Glencore plc, partially offset by a $189 million loss on debt extinguishment related to the repurchase of outstanding debt and loss provisions of $45 million related to sugar ethanol facilities in Brazil. Current year income includes $48 million of realized additional consideration related to the sale of the Company’s equity investment in Gruma S.A.B. de C.V. in December 2012, a $59 million gain, including recovery of loss provisions, related to the sale of the Company’s Brazilian sugar ethanol facilities, a $12 million gain related to the revaluation of the remaining interest to settlement value in conjunction with the acquisition of Amazon Flavors, and a $10 million loss on sale of other individually immaterial assets.

Agricultural Services operating profit decreased 16%. Merchandising and Handling operating results declined primarily due to compressed grain handling margins in the first half of 2016. International merchandising results were down driven by poor execution and low market volatility which limited forward merchandising opportunities. Strong origination results in Argentina and the addition of destination marketing in Egypt through the Company’s Medsofts joint venture were partially offset by the absence of a $27 million prior year gain on the revaluation of the Company’s previously held investments in North Star Shipping and Minmetal in conjunction with the acquisition of the remaining interest. Milling and Other results increased 12%. Current period results include additional realized consideration related to the sale of the Company’s equity investment in Gruma S.A.B de C.V. in December 2012 of $48 million. Transportation operating profit declined due to weak barge demand and lower freight rates.

Corn Processing operating profit increased 25%. Sweeteners and Starches operating profit increased as the business continued to perform well with higher volumes and pricing and improved margins from optimizing flex grind in the Company’s corn wet mills. The integration of the recent Eaststarch C.V. and Morocco acquisitions has progressed smoothly, significantly exceeding the Company's earnings accretion target. Bioproducts profit improved due to higher ethanol margins towards the end of the year, a $59 million gain, including recovery of loss provisions, related to the sale of the Company’s Brazilian sugar ethanol facilities, and the absence of prior year's restructuring and fixed asset impairment charges of $75 million related to the sugar ethanol business.

Oilseeds Processing operating profit decreased 45%. Crushing and Origination operating profit declined driven primarily by lower global soy crush margins which were high last year, lower South American grain origination results caused by smaller soybean and corn crops in the region and year-over-year slower farmer-selling, absence of a $62 million prior year gain related to the sale of the 50% interest in the Barcarena export terminal facility in Brazil to Glencore plc, partially offset by strong softseed volumes and margins in North America. Refining, Packaging, Biodiesel, and Other results declined due to the gain of $244 million on the sale of the global cocoa and chocolate businesses in October 2015 and lower earnings in the current year due to the sale of these businesses, partially offset by good demand and improved margins for refined and packaged oils and improved European biodiesel results. Asia results declined due primarily to equity losses of $48 million from the Company’s investment in Wilmar that was recorded in the Company's results in the third quarter of 2016.

Wild Flavors and Specialty Ingredients (WFSI) operating profit increased 2% due to strong results in flavors and systems, polyols, and natural health and nutrition products and a gain of $12 million related to the acquisition of the remaining interest in Amazon Flavors. These increases were partially offset by weaker sales of hydrocolloids and fibers, a short edible beans crop impacting volumes and costs, and operational issues at the specialty commodities unit.

Other - Financial operating profit increased on higher volumes from the Company’s futures commission brokerage business and improved results from its captive insurance operations.

Corporate results were a net charge of $882 million in the current year compared to $988 million in the prior year. The effect of changes in agricultural commodity prices on LIFO inventory valuation reserves resulted in a charge of $19 million in the current year compared to a credit of $2 million in the prior year. Interest expense - net declined $15 million due principally to lower interest rates on long-term debt and the effect of the revaluation of the mandatorily redeemable 10% interest in Harvest Innovations. Unallocated corporate costs increased $24 million due primarily to increased spending on the Company’s ERP program and various strategic business improvement projects. Other charges in the current year included legal settlement costs and legal fees, a software impairment charge, other-than-temporary impairment charges on the Company’s investments in two available for sale equity securities, a loss on the sale of an investment, other asset impairment and restructuring charges, partially offset by a gain related to a U.S. retiree medical benefit plan curtailment. Other charges in the prior year consisted of the $189 million loss on debt extinguishment related to the repurchase of outstanding debt, restructuring charges of $29 million related principally to an international pension plan settlement, and asset impairment and settlement charges of $24 million. The increase in minority interest and other expense is due to a decrease of approximately $70 million in the Company’s share of the results of CIP.

[Source: Form 10-K dated 2017-02-17]

RELATED COMPANIES Price Int.Val. Rating
BG Bunge 77.16 1,429.43  str.buy
INGR Ingredion 124.70 88.62  sell
MGPI MGP Ingredient 60.79 7.73  str.sell
SEB Seaboard 4,354.09 891.79  str.sell
PF Pinnacle Foods 60.60 33.86  sell

COMPANY NEWS

▶ [$$] Tough times for big grain traders   [Aug-08-17 06:32AM  Financial Times]
▶ ADM Directors Declare Cash Dividend   [11:00AM  Business Wire]
▶ Company News For August 02, 2017   [Aug-02-17 10:09AM  Zacks]
▶ ADM beats 2Q profit forecasts   [Aug-01-17 10:57PM  Associated Press]
▶ Q2 Earnings From UA, PFE And ADM   [11:25AM  Zacks]
▶ ADM 2nd-qtr profit dips 2.8 pct   [07:13AM  Reuters]
▶ 5 Undervalued Stocks That Could Trade 20% Higher   [Jul-26-17 11:20AM  Benzinga]
▶ Yahoo Finance Live: Midday Movers - Jul 25th, 2017   [Jul-25-17 09:40AM  Yahoo Finance Video]
▶ 3 Top Dividend Stocks in Agriculture   [Jul-16-17 09:05PM  Motley Fool]
▶ The Top Dividend-Growing Consumer Staples Stocks   [Jul-12-17 02:44PM  Market Realist]
▶ 10 Low-Key Companies That Are Changing Aquaculture   [Jul-11-17 11:37AM  Motley Fool]
▶ 6 More Stocks With High Returns in an Uncertain Market   [Jun-29-17 06:00AM  Investopedia]
▶ ADM Animal Nutrition Recalls Rough-N-Ready Cattle Feed   [Jun-23-17 05:47PM  Business Wire]
▶ Burcon Announces Fiscal 2017 Results and Reviews Operations   [Jun-21-17 04:26PM  GlobeNewswire]
▶ 5 Stocks That Pay You to Own Them   [Jun-19-17 08:20AM  Motley Fool]
▶ Huge grain supplies dampen impact of USDA reports   [Jun-08-17 07:00AM  Reuters]
▶ Huge grain supplies dampen impact of USDA reports   [Jun-07-17 04:32PM  Reuters]
▶ 3 No-Brainer Stocks to Buy in Agriculture   [09:28AM  Motley Fool]
▶ ADM to Construct New Flour Mill in Illinois   [Jun-02-17 10:00AM  Business Wire]
▶ How to Make Money From Engineered Biology   [09:34AM  Motley Fool]
▶ New Strong Sell Stocks for May 31st   [May-31-17 09:23AM  Zacks]
▶ [$$] Bunge shares creep higher as Glencore interest digested   [May-24-17 12:42PM  Financial Times]
▶ 3 Value Stocks for Retirement   [10:07AM  Motley Fool]
▶ Joel Greenblatt's Top 3 New Stocks for the 1st Quarter   [May-17-17 01:00PM  GuruFocus.com]
▶ ADM Named to Forbes Best Employer List   [10:00AM  Business Wire]
▶ Why ADM and Fresh Del Monte Are Sinking   [03:27PM  Investopedia]
Stock chart of ADM Financial statements of ADM
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.