Intrinsic value of Archer Daniels Midland - ADM

Previous Close

$49.54

  Intrinsic Value

$152.44

stock screener

  Rating & Target

str. buy

+208%

Previous close

$49.54

 
Intrinsic value

$152.44

 
Up/down potential

+208%

 
Rating

str. buy

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 0001), $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 27.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  14.20
  13.28
  12.45
  11.71
  11.04
  10.43
  9.89
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
Revenue, $m
  69,466
  78,691
  88,489
  98,848
  109,757
  121,208
  133,194
  145,715
  158,772
  172,369
  186,517
  201,228
  216,518
  232,407
  248,919
  266,080
  283,920
  302,472
  321,772
  341,860
  362,777
  384,567
  407,280
  430,965
  455,676
  481,469
  508,404
  536,544
  565,955
  596,705
Variable operating expenses, $m
  58,226
  65,906
  74,064
  82,689
  91,771
  101,305
  111,284
  121,708
  132,579
  143,899
  155,286
  167,534
  180,264
  193,493
  207,240
  221,527
  236,380
  251,826
  267,894
  284,618
  302,033
  320,175
  339,084
  358,803
  379,377
  400,851
  423,277
  446,705
  471,191
  496,792
Fixed operating expenses, $m
  8,813
  9,007
  9,205
  9,407
  9,614
  9,826
  10,042
  10,263
  10,489
  10,719
  10,955
  11,196
  11,442
  11,694
  11,951
  12,214
  12,483
  12,758
  13,038
  13,325
  13,618
  13,918
  14,224
  14,537
  14,857
  15,184
  15,518
  15,859
  16,208
  16,565
Total operating expenses, $m
  67,039
  74,913
  83,269
  92,096
  101,385
  111,131
  121,326
  131,971
  143,068
  154,618
  166,241
  178,730
  191,706
  205,187
  219,191
  233,741
  248,863
  264,584
  280,932
  297,943
  315,651
  334,093
  353,308
  373,340
  394,234
  416,035
  438,795
  462,564
  487,399
  513,357
Operating income, $m
  2,427
  3,778
  5,220
  6,752
  8,372
  10,078
  11,869
  13,744
  15,705
  17,751
  20,275
  22,498
  24,812
  27,220
  29,728
  32,338
  35,057
  37,888
  40,839
  43,916
  47,125
  50,474
  53,971
  57,624
  61,442
  65,434
  69,610
  73,980
  78,556
  83,348
EBITDA, $m
  3,728
  5,199
  6,770
  8,438
  10,200
  12,056
  14,004
  16,043
  18,174
  20,398
  22,716
  25,131
  27,645
  30,262
  32,985
  35,821
  38,772
  41,847
  45,051
  48,390
  51,873
  55,507
  59,301
  63,264
  67,405
  71,735
  76,264
  81,002
  85,963
  91,157
Interest expense (income), $m
  283
  405
  572
  749
  938
  1,137
  1,347
  1,567
  1,797
  2,038
  2,289
  2,551
  2,823
  3,106
  3,400
  3,705
  4,023
  4,353
  4,696
  5,053
  5,424
  5,810
  6,212
  6,631
  7,068
  7,523
  7,999
  8,495
  9,013
  9,554
  10,119
Earnings before tax, $m
  2,022
  3,206
  4,471
  5,815
  7,235
  8,731
  10,302
  11,947
  13,666
  15,461
  17,725
  19,675
  21,706
  23,821
  26,023
  28,316
  30,704
  33,193
  35,787
  38,492
  41,315
  44,262
  47,340
  50,556
  53,918
  57,435
  61,115
  64,968
  69,002
  73,229
Tax expense, $m
  546
  866
  1,207
  1,570
  1,953
  2,357
  2,781
  3,226
  3,690
  4,175
  4,786
  5,312
  5,861
  6,432
  7,026
  7,645
  8,290
  8,962
  9,662
  10,393
  11,155
  11,951
  12,782
  13,650
  14,558
  15,508
  16,501
  17,541
  18,631
  19,772
Net income, $m
  1,476
  2,340
  3,264
  4,245
  5,282
  6,374
  7,520
  8,721
  9,976
  11,287
  12,939
  14,363
  15,845
  17,389
  18,996
  20,670
  22,414
  24,231
  26,124
  28,099
  30,160
  32,311
  34,558
  36,906
  39,360
  41,928
  44,614
  47,426
  50,372
  53,457

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
  45,641
  51,702
  58,140
  64,946
  72,114
  79,637
  87,513
  95,739
  104,318
  113,252
  122,547
  132,213
  142,259
  152,698
  163,547
  174,822
  186,544
  198,733
  211,414
  224,612
  238,355
  252,672
  267,595
  283,157
  299,393
  316,340
  334,037
  352,526
  371,850
  392,053
Adjusted assets (=assets-cash), $m
  45,641
  51,702
  58,140
  64,946
  72,114
  79,637
  87,513
  95,739
  104,318
  113,252
  122,547
  132,213
  142,259
  152,698
  163,547
  174,822
  186,544
  198,733
  211,414
  224,612
  238,355
  252,672
  267,595
  283,157
  299,393
  316,340
  334,037
  352,526
  371,850
  392,053
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
  13,546
  15,345
  17,255
  19,275
  21,403
  23,636
  25,973
  28,414
  30,960
  33,612
  36,371
  39,239
  42,221
  45,319
  48,539
  51,886
  55,364
  58,982
  62,746
  66,663
  70,741
  74,991
  79,420
  84,038
  88,857
  93,886
  99,139
  104,626
  110,361
  116,358
Working capital, $m
  2,987
  3,384
  3,805
  4,250
  4,720
  5,212
  5,727
  6,266
  6,827
  7,412
  8,020
  8,653
  9,310
  9,994
  10,704
  11,441
  12,209
  13,006
  13,836
  14,700
  15,599
  16,536
  17,513
  18,531
  19,594
  20,703
  21,861
  23,071
  24,336
  25,658
Total debt, $m
  10,589
  13,875
  17,364
  21,053
  24,938
  29,015
  33,284
  37,743
  42,392
  47,235
  52,273
  57,511
  62,956
  68,615
  74,495
  80,606
  86,959
  93,565
  100,438
  107,592
  115,040
  122,800
  130,889
  139,323
  148,123
  157,308
  166,900
  176,921
  187,394
  198,345
Total liabilities, $m
  24,737
  28,023
  31,512
  35,201
  39,086
  43,163
  47,432
  51,891
  56,540
  61,383
  66,421
  71,659
  77,104
  82,763
  88,643
  94,754
  101,107
  107,713
  114,586
  121,740
  129,188
  136,948
  145,037
  153,471
  162,271
  171,456
  181,048
  191,069
  201,542
  212,493
Total equity, $m
  20,904
  23,680
  26,628
  29,745
  33,028
  36,474
  40,081
  43,849
  47,778
  51,869
  56,127
  60,553
  65,155
  69,936
  74,905
  80,069
  85,437
  91,020
  96,828
  102,872
  109,167
  115,724
  122,559
  129,686
  137,122
  144,884
  152,989
  161,457
  170,307
  179,560
Total liabilities and equity, $m
  45,641
  51,703
  58,140
  64,946
  72,114
  79,637
  87,513
  95,740
  104,318
  113,252
  122,548
  132,212
  142,259
  152,699
  163,548
  174,823
  186,544
  198,733
  211,414
  224,612
  238,355
  252,672
  267,596
  283,157
  299,393
  316,340
  334,037
  352,526
  371,849
  392,053
Debt-to-equity ratio
  0.510
  0.590
  0.650
  0.710
  0.760
  0.800
  0.830
  0.860
  0.890
  0.910
  0.930
  0.950
  0.970
  0.980
  0.990
  1.010
  1.020
  1.030
  1.040
  1.050
  1.050
  1.060
  1.070
  1.070
  1.080
  1.090
  1.090
  1.100
  1.100
  1.100
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
  1,476
  2,340
  3,264
  4,245
  5,282
  6,374
  7,520
  8,721
  9,976
  11,287
  12,939
  14,363
  15,845
  17,389
  18,996
  20,670
  22,414
  24,231
  26,124
  28,099
  30,160
  32,311
  34,558
  36,906
  39,360
  41,928
  44,614
  47,426
  50,372
  53,457
Depreciation, amort., depletion, $m
  1,301
  1,422
  1,550
  1,685
  1,828
  1,978
  2,135
  2,299
  2,470
  2,648
  2,441
  2,634
  2,834
  3,042
  3,258
  3,482
  3,716
  3,959
  4,211
  4,474
  4,748
  5,033
  5,330
  5,640
  5,964
  6,301
  6,654
  7,022
  7,407
  7,809
Funds from operations, $m
  2,777
  3,762
  4,814
  5,930
  7,110
  8,352
  9,655
  11,020
  12,446
  13,934
  15,380
  16,996
  18,679
  20,431
  22,254
  24,153
  26,130
  28,189
  30,336
  32,573
  34,908
  37,344
  39,888
  42,546
  45,324
  48,229
  51,268
  54,448
  57,778
  61,266
Change in working capital, $m
  371
  397
  421
  445
  469
  492
  515
  538
  561
  585
  608
  633
  657
  683
  710
  738
  767
  798
  830
  864
  899
  937
  977
  1,018
  1,063
  1,109
  1,158
  1,210
  1,265
  1,322
Cash from operations, $m
  2,406
  3,365
  4,392
  5,485
  6,641
  7,859
  9,140
  10,482
  11,885
  13,350
  14,772
  16,364
  18,021
  19,747
  21,544
  23,415
  25,363
  27,391
  29,506
  31,710
  34,009
  36,407
  38,912
  41,528
  44,261
  47,120
  50,110
  53,238
  56,514
  59,944
Maintenance CAPEX, $m
  -796
  -909
  -1,030
  -1,158
  -1,294
  -1,436
  -1,586
  -1,743
  -1,907
  -2,078
  -2,256
  -2,441
  -2,634
  -2,834
  -3,042
  -3,258
  -3,482
  -3,716
  -3,959
  -4,211
  -4,474
  -4,748
  -5,033
  -5,330
  -5,640
  -5,964
  -6,301
  -6,654
  -7,022
  -7,407
New CAPEX, $m
  -1,693
  -1,799
  -1,911
  -2,020
  -2,127
  -2,233
  -2,337
  -2,442
  -2,546
  -2,652
  -2,759
  -2,869
  -2,982
  -3,098
  -3,220
  -3,346
  -3,479
  -3,618
  -3,764
  -3,917
  -4,079
  -4,249
  -4,429
  -4,619
  -4,819
  -5,030
  -5,252
  -5,487
  -5,735
  -5,996
Cash from investing activities, $m
  -2,489
  -2,708
  -2,941
  -3,178
  -3,421
  -3,669
  -3,923
  -4,185
  -4,453
  -4,730
  -5,015
  -5,310
  -5,616
  -5,932
  -6,262
  -6,604
  -6,961
  -7,334
  -7,723
  -8,128
  -8,553
  -8,997
  -9,462
  -9,949
  -10,459
  -10,994
  -11,553
  -12,141
  -12,757
  -13,403
Free cash flow, $m
  -82
  657
  1,452
  2,307
  3,220
  4,190
  5,216
  6,297
  7,432
  8,620
  9,757
  11,054
  12,406
  13,815
  15,283
  16,811
  18,401
  20,058
  21,784
  23,582
  25,456
  27,410
  29,450
  31,579
  33,803
  36,126
  38,556
  41,097
  43,757
  46,541
Issuance/(repayment) of debt, $m
  3,096
  3,285
  3,489
  3,689
  3,885
  4,078
  4,269
  4,459
  4,650
  4,842
  5,038
  5,239
  5,445
  5,658
  5,880
  6,111
  6,353
  6,607
  6,873
  7,153
  7,449
  7,760
  8,088
  8,434
  8,800
  9,185
  9,592
  10,021
  10,473
  10,950
Issuance/(repurchase) of shares, $m
  1,105
  436
  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  
  4,201
  3,721
  3,489
  3,689
  3,885
  4,078
  4,269
  4,459
  4,650
  4,842
  5,038
  5,239
  5,445
  5,658
  5,880
  6,111
  6,353
  6,607
  6,873
  7,153
  7,449
  7,760
  8,088
  8,434
  8,800
  9,185
  9,592
  10,021
  10,473
  10,950
Total cash flow (excl. dividends), $m
  4,119
  4,378
  4,941
  5,996
  7,105
  8,268
  9,485
  10,756
  12,081
  13,463
  14,795
  16,293
  17,851
  19,474
  21,163
  22,922
  24,754
  26,665
  28,657
  30,735
  32,904
  35,170
  37,538
  40,013
  42,602
  45,312
  48,148
  51,118
  54,230
  57,491
Retained Cash Flow (-), $m
  -2,582
  -2,776
  -2,949
  -3,117
  -3,283
  -3,446
  -3,607
  -3,768
  -3,929
  -4,092
  -4,257
  -4,427
  -4,601
  -4,781
  -4,969
  -5,164
  -5,368
  -5,583
  -5,808
  -6,045
  -6,294
  -6,557
  -6,835
  -7,127
  -7,436
  -7,762
  -8,105
  -8,468
  -8,850
  -9,253
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
  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
  1,538
  1,602
  1,993
  2,878
  3,822
  4,822
  5,878
  6,988
  8,152
  9,371
  10,538
  11,866
  13,250
  14,692
  16,194
  17,758
  19,386
  21,082
  22,849
  24,690
  26,610
  28,613
  30,703
  32,886
  35,166
  37,550
  40,043
  42,650
  45,380
  48,238
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
  1,474
  1,467
  1,734
  2,370
  2,962
  3,500
  3,971
  4,368
  4,683
  4,913
  5,004
  5,064
  5,038
  4,932
  4,754
  4,513
  4,218
  3,882
  3,518
  3,137
  2,752
  2,374
  2,012
  1,675
  1,368
  1,096
  859
  660
  495
  363
Current shareholders' claim on cash, %
  96.2
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9
  94.9

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 22.2
Price to Sales 0.5
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 19.2
Price to Free Cash Flow 47.9
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 0001 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 14.2% 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 83.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8623 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%.

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 19.5%.

Life of production assets of 14.9 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 4.3%. 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 559.737 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 $27.7 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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BG Bunge 67.43 55.49  hold
INGR Ingredion 102.60 118.20  hold
MGPI MGP Ingredient 75.94 20.03  str.sell
SEB Seaboard 3,801.08 725.24  str.sell
PF Pinnacle Foods 66.31 52.65  sell

COMPANY NEWS

▶ Commodity Producers Feel the Heat in Trade War   [Oct-16-18 11:59AM  Bloomberg]
▶ Stock Market Turns Ugly At Midday; This Oil Stock Breaks Out   [Oct-08-18 12:17PM  Investor's Business Daily]
▶ New Strong Buy Stocks for October 4th   [Oct-04-18 11:09AM  Zacks]
▶ 3 ETFs to Plow Gains in John Deere   [Sep-26-18 04:22PM  Investopedia]
▶ Bunge Stock Is Ready to Make a Big Leap Forward in 2018   [Sep-21-18 09:43AM  InvestorPlace]
▶ [$$] Sirius Minerals buys its way into Brazil   [Sep-16-18 10:48PM  Financial Times]
▶ Top Research Reports for Abbott, Gilead & FedEx   [Sep-07-18 04:15PM  Zacks]
▶ ADM Opens Technical Innovation Center in Shanghai   [Aug-16-18 10:10AM  Business Wire]
▶ [$$] Firms That Bossed Agriculture for a Century Face New Threat: Farmers   [Aug-15-18 12:28PM  The Wall Street Journal]
▶ [$$] Sirius Minerals: money for a hole in the ground   [Aug-07-18 12:00AM  Financial Times]
▶ ADM Directors Declare Cash Dividend   [Aug-02-18 10:04AM  Business Wire]
▶ [$$] More to be done on sustainable investment   [12:18AM  Financial Times]
▶ Company News For Aug 1, 2018   [10:44AM  Zacks]
▶ Trade Wars: Winners & Losers for Investors   [10:00AM  TheStreet.com]
▶ ADM: 2Q Earnings Snapshot   [07:08AM  Associated Press]
▶ [$$] Sirius Minerals reveals its US partner   [05:04AM  Financial Times]
▶ [$$] Grain merchant ADM weathers agricultural trade wars   [Jul-30-18 09:18PM  Financial Times]
▶ [$$] Archer Daniels to Buy Vanilla-Products Maker Rodelle   [Jul-23-18 01:51PM  The Wall Street Journal]

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