Intrinsic value of Archer Daniels Midland - ADM

Previous Close

$49.94

  Intrinsic Value

$25.82

stock screener

  Rating & Target

sell

-48%

Previous close

$49.94

 
Intrinsic value

$25.82

 
Up/down potential

-48%

 
Rating

sell

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 2017), $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 28.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  62,045
  63,472
  65,103
  66,934
  68,963
  71,190
  73,614
  76,239
  79,066
  82,101
  85,347
  88,811
  92,499
  96,418
  100,577
  104,985
  109,651
  114,585
  119,798
  125,302
  131,110
  137,236
  143,692
  150,495
  157,659
  165,202
  173,142
  181,497
  190,287
  199,533
Variable operating expenses, $m
  52,172
  53,363
  54,724
  56,252
  57,946
  59,804
  61,827
  64,018
  66,377
  68,910
  71,227
  74,118
  77,196
  80,467
  83,938
  87,616
  91,510
  95,628
  99,978
  104,572
  109,419
  114,531
  119,919
  125,597
  131,576
  137,871
  144,498
  151,470
  158,806
  166,522
Fixed operating expenses, $m
  8,704
  8,896
  9,092
  9,292
  9,496
  9,705
  9,918
  10,137
  10,360
  10,588
  10,820
  11,059
  11,302
  11,550
  11,805
  12,064
  12,330
  12,601
  12,878
  13,161
  13,451
  13,747
  14,049
  14,358
  14,674
  14,997
  15,327
  15,664
  16,009
  16,361
Total operating expenses, $m
  60,876
  62,259
  63,816
  65,544
  67,442
  69,509
  71,745
  74,155
  76,737
  79,498
  82,047
  85,177
  88,498
  92,017
  95,743
  99,680
  103,840
  108,229
  112,856
  117,733
  122,870
  128,278
  133,968
  139,955
  146,250
  152,868
  159,825
  167,134
  174,815
  182,883
Operating income, $m
  1,169
  1,213
  1,287
  1,390
  1,522
  1,681
  1,869
  2,085
  2,329
  2,603
  3,299
  3,634
  4,001
  4,401
  4,835
  5,305
  5,811
  6,356
  6,941
  7,569
  8,240
  8,957
  9,723
  10,540
  11,409
  12,334
  13,318
  14,363
  15,472
  16,650
EBITDA, $m
  2,963
  3,039
  3,150
  3,295
  3,472
  3,682
  3,924
  4,199
  4,508
  4,851
  5,228
  5,642
  6,092
  6,580
  7,108
  7,677
  8,289
  8,946
  9,649
  10,401
  11,203
  12,059
  12,971
  13,941
  14,972
  16,068
  17,231
  18,465
  19,773
  21,159
Interest expense (income), $m
  283
  405
  429
  457
  488
  523
  562
  605
  652
  702
  756
  815
  877
  944
  1,015
  1,090
  1,170
  1,255
  1,345
  1,439
  1,540
  1,646
  1,757
  1,875
  1,999
  2,130
  2,268
  2,413
  2,566
  2,726
  2,895
Earnings before tax, $m
  764
  784
  831
  902
  998
  1,119
  1,264
  1,433
  1,627
  1,847
  2,485
  2,757
  3,057
  3,386
  3,745
  4,134
  4,556
  5,011
  5,502
  6,029
  6,594
  7,200
  7,848
  8,540
  9,279
  10,066
  10,905
  11,797
  12,746
  13,755
Tax expense, $m
  206
  212
  224
  244
  270
  302
  341
  387
  439
  499
  671
  744
  826
  914
  1,011
  1,116
  1,230
  1,353
  1,486
  1,628
  1,781
  1,944
  2,119
  2,306
  2,505
  2,718
  2,944
  3,185
  3,441
  3,714
Net income, $m
  558
  572
  606
  659
  729
  817
  922
  1,046
  1,188
  1,348
  1,814
  2,013
  2,232
  2,472
  2,734
  3,018
  3,326
  3,658
  4,016
  4,401
  4,814
  5,256
  5,729
  6,234
  6,774
  7,348
  7,961
  8,612
  9,305
  10,041

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  40,765
  41,703
  42,775
  43,978
  45,311
  46,774
  48,367
  50,091
  51,949
  53,943
  56,075
  58,351
  60,774
  63,350
  66,082
  68,978
  72,044
  75,286
  78,711
  82,327
  86,144
  90,168
  94,410
  98,879
  103,587
  108,543
  113,760
  119,249
  125,025
  131,099
Adjusted assets (=assets-cash), $m
  40,765
  41,703
  42,775
  43,978
  45,311
  46,774
  48,367
  50,091
  51,949
  53,943
  56,075
  58,351
  60,774
  63,350
  66,082
  68,978
  72,044
  75,286
  78,711
  82,327
  86,144
  90,168
  94,410
  98,879
  103,587
  108,543
  113,760
  119,249
  125,025
  131,099
Revenue / Adjusted assets
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
  1.522
Average production assets, $m
  14,022
  14,345
  14,713
  15,127
  15,586
  16,089
  16,637
  17,230
  17,869
  18,555
  19,288
  20,071
  20,905
  21,791
  22,731
  23,727
  24,781
  25,896
  27,074
  28,318
  29,631
  31,015
  32,474
  34,012
  35,631
  37,336
  39,130
  41,018
  43,005
  45,094
Working capital, $m
  310
  317
  326
  335
  345
  356
  368
  381
  395
  411
  427
  444
  462
  482
  503
  525
  548
  573
  599
  627
  656
  686
  718
  752
  788
  826
  866
  907
  951
  998
Total debt, $m
  7,947
  8,455
  9,036
  9,688
  10,411
  11,203
  12,067
  13,001
  14,008
  15,089
  16,245
  17,478
  18,792
  20,188
  21,669
  23,238
  24,900
  26,657
  28,513
  30,473
  32,542
  34,723
  37,022
  39,445
  41,996
  44,682
  47,510
  50,485
  53,615
  56,908
Total liabilities, $m
  22,095
  22,603
  23,184
  23,836
  24,559
  25,351
  26,215
  27,149
  28,156
  29,237
  30,393
  31,626
  32,940
  34,336
  35,817
  37,386
  39,048
  40,805
  42,661
  44,621
  46,690
  48,871
  51,170
  53,593
  56,144
  58,830
  61,658
  64,633
  67,763
  71,056
Total equity, $m
  18,670
  19,100
  19,591
  20,142
  20,752
  21,422
  22,152
  22,942
  23,793
  24,706
  25,683
  26,725
  27,835
  29,014
  30,266
  31,592
  32,996
  34,481
  36,050
  37,706
  39,454
  41,297
  43,240
  45,287
  47,443
  49,713
  52,102
  54,616
  57,261
  60,043
Total liabilities and equity, $m
  40,765
  41,703
  42,775
  43,978
  45,311
  46,773
  48,367
  50,091
  51,949
  53,943
  56,076
  58,351
  60,775
  63,350
  66,083
  68,978
  72,044
  75,286
  78,711
  82,327
  86,144
  90,168
  94,410
  98,880
  103,587
  108,543
  113,760
  119,249
  125,024
  131,099
Debt-to-equity ratio
  0.430
  0.440
  0.460
  0.480
  0.500
  0.520
  0.540
  0.570
  0.590
  0.610
  0.630
  0.650
  0.680
  0.700
  0.720
  0.740
  0.750
  0.770
  0.790
  0.810
  0.820
  0.840
  0.860
  0.870
  0.890
  0.900
  0.910
  0.920
  0.940
  0.950
Adjusted equity ratio
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  558
  572
  606
  659
  729
  817
  922
  1,046
  1,188
  1,348
  1,814
  2,013
  2,232
  2,472
  2,734
  3,018
  3,326
  3,658
  4,016
  4,401
  4,814
  5,256
  5,729
  6,234
  6,774
  7,348
  7,961
  8,612
  9,305
  10,041
Depreciation, amort., depletion, $m
  1,794
  1,826
  1,863
  1,905
  1,950
  2,001
  2,055
  2,115
  2,179
  2,247
  1,929
  2,007
  2,090
  2,179
  2,273
  2,373
  2,478
  2,590
  2,707
  2,832
  2,963
  3,102
  3,247
  3,401
  3,563
  3,734
  3,913
  4,102
  4,300
  4,509
Funds from operations, $m
  2,352
  2,399
  2,470
  2,563
  2,679
  2,817
  2,978
  3,161
  3,367
  3,596
  3,743
  4,020
  4,322
  4,651
  5,007
  5,391
  5,804
  6,248
  6,724
  7,233
  7,777
  8,358
  8,977
  9,636
  10,337
  11,082
  11,874
  12,714
  13,605
  14,550
Change in working capital, $m
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
Cash from operations, $m
  2,346
  2,391
  2,461
  2,554
  2,669
  2,806
  2,966
  3,148
  3,352
  3,580
  3,726
  4,003
  4,304
  4,631
  4,986
  5,369
  5,781
  6,223
  6,698
  7,205
  7,748
  8,327
  8,944
  9,602
  10,301
  11,044
  11,834
  12,672
  13,561
  14,504
Maintenance CAPEX, $m
  -1,376
  -1,402
  -1,434
  -1,471
  -1,513
  -1,559
  -1,609
  -1,664
  -1,723
  -1,787
  -1,855
  -1,929
  -2,007
  -2,090
  -2,179
  -2,273
  -2,373
  -2,478
  -2,590
  -2,707
  -2,832
  -2,963
  -3,102
  -3,247
  -3,401
  -3,563
  -3,734
  -3,913
  -4,102
  -4,300
New CAPEX, $m
  -264
  -323
  -369
  -414
  -459
  -503
  -548
  -593
  -639
  -686
  -734
  -783
  -833
  -886
  -940
  -996
  -1,054
  -1,115
  -1,178
  -1,244
  -1,313
  -1,384
  -1,459
  -1,537
  -1,619
  -1,705
  -1,794
  -1,888
  -1,987
  -2,089
Cash from investing activities, $m
  -1,640
  -1,725
  -1,803
  -1,885
  -1,972
  -2,062
  -2,157
  -2,257
  -2,362
  -2,473
  -2,589
  -2,712
  -2,840
  -2,976
  -3,119
  -3,269
  -3,427
  -3,593
  -3,768
  -3,951
  -4,145
  -4,347
  -4,561
  -4,784
  -5,020
  -5,268
  -5,528
  -5,801
  -6,089
  -6,389
Free cash flow, $m
  706
  667
  658
  669
  698
  745
  809
  891
  990
  1,108
  1,137
  1,291
  1,463
  1,655
  1,867
  2,100
  2,354
  2,630
  2,930
  3,254
  3,604
  3,980
  4,384
  4,817
  5,281
  5,776
  6,306
  6,871
  7,473
  8,114
Issuance/(repayment) of debt, $m
  454
  508
  581
  652
  723
  793
  863
  935
  1,007
  1,081
  1,156
  1,234
  1,313
  1,396
  1,481
  1,570
  1,661
  1,757
  1,857
  1,960
  2,068
  2,181
  2,299
  2,422
  2,551
  2,686
  2,827
  2,975
  3,130
  3,292
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  454
  508
  581
  652
  723
  793
  863
  935
  1,007
  1,081
  1,156
  1,234
  1,313
  1,396
  1,481
  1,570
  1,661
  1,757
  1,857
  1,960
  2,068
  2,181
  2,299
  2,422
  2,551
  2,686
  2,827
  2,975
  3,130
  3,292
Total cash flow (excl. dividends), $m
  1,160
  1,175
  1,239
  1,321
  1,420
  1,537
  1,672
  1,826
  1,997
  2,188
  2,293
  2,524
  2,777
  3,051
  3,348
  3,669
  4,015
  4,387
  4,786
  5,214
  5,672
  6,161
  6,683
  7,239
  7,832
  8,463
  9,133
  9,846
  10,603
  11,406
Retained Cash Flow (-), $m
  -348
  -429
  -491
  -551
  -611
  -670
  -730
  -790
  -851
  -913
  -977
  -1,042
  -1,110
  -1,179
  -1,252
  -1,326
  -1,404
  -1,485
  -1,569
  -1,656
  -1,748
  -1,843
  -1,943
  -2,047
  -2,156
  -2,270
  -2,389
  -2,514
  -2,645
  -2,782
Prev. year cash balance distribution, $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 flow adjustment, $m
  61
  62
  63
  65
  67
  69
  71
  74
  76
  79
  82
  85
  89
  92
  96
  101
  105
  110
  115
  120
  125
  131
  137
  144
  150
  158
  165
  173
  181
  190
Cash available for distribution, $m
  811
  745
  748
  770
  810
  867
  943
  1,036
  1,147
  1,275
  1,316
  1,482
  1,667
  1,872
  2,097
  2,343
  2,611
  2,902
  3,218
  3,558
  3,924
  4,318
  4,740
  5,192
  5,676
  6,193
  6,744
  7,332
  7,958
  8,624
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  778
  682
  651
  634
  628
  630
  637
  647
  659
  669
  625
  632
  634
  628
  616
  595
  568
  535
  495
  452
  406
  358
  311
  264
  221
  181
  145
  113
  87
  65
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Archer-Daniels-Midland Company is a processor of oilseeds, corn, wheat, cocoa and other agricultural commodities. The Company manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients. Its segments include Agricultural Services, which utilizes its United States grain elevator, global transportation network and port operations to buy, store, clean and transport agricultural commodities, such as oilseeds, wheat, milo, oats, rice and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry; Corn Processing, which is engaged in corn wet milling and dry milling activities; Oilseeds Processing, which includes global activities related to the origination, merchandising, crushing and further processing of oilseeds; Wild Flavors and Specialty Ingredients products, which include flavors, sweeteners and health ingredients; Other, and Corporate.

FINANCIAL RATIOS  of  Archer Daniels Midland (ADM)

Valuation Ratios
P/E Ratio 22.4
Price to Sales 0.5
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 19.4
Price to Free Cash Flow 48.3
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 $60828 million for the last fiscal year's total revenue generated by Archer Daniels Midland. The default revenue input number comes from 2017 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 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 4.3%, 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 84.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8517 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 5.4% 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 0.1%.

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 22.6%.

Life of production assets of 10 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 0.5%. 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 - $18322 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 569 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 $28.4 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]

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▶ 5 Stocks Trading Near 52-Week High With More Room to Run   [Jul-17-18 11:00AM  InvestorPlace]
▶ 4 Top Ranked Income Stocks to Buy for July 16th   [Jul-16-18 01:38PM  InvestorPlace]
▶ Top Ranked Momentum Stocks to Buy for July 9th   [Jul-09-18 09:40AM  Zacks]
▶ Saudi Arabia kick starts sale of state flour mills   [Jun-28-18 09:45AM  Reuters]
▶ NYSE trader: Expect stocks to shake off the Trump-North Korea news   [May-24-18 02:50PM  Yahoo Finance Video]
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