Everybody needs food. It doesn’t matter if it’s a pandemic, recession, or even war, we all need sustenance to survive.
So, it should come as no surprise that companies in the food industry are doing well during this time of COVID-19. While some (especially meat packers) have suffered temporary setbacks owing to workplace-related outbreaks of the coronavirus, those appear to have largely been overcome, at least for now.
Chicago-based Archer Daniels Midland Co. (ADM-N) is not in the meat-packing business, but it is one of the largest food-processing companies in the world, using mainly plant-based materials. The stock, which normally trades in the US$40-US$50 range, dropped to under US$29 in March before rallying. I view it as good value at the current level.
ADM traces its history back to 1902, when George A. Archer and John W. Daniels began a linseed crushing business. In 1923, Archer-Daniels Linseed Co. acquired Midland Linseed Products Co., and Archer Daniels Midland Co. was formed. Since then, ADM has been adding major profit centres to its agribusiness, expanding to milling, processing, specialty food ingredients, nutrition and more.
Over the years, strategic alliances and acquisitions have made ADM into an international giant with operations around the world. Revenue in fiscal 2019 was US$65-billion.
Recently, the company announced a deal with Sazerac Co. Inc., one of the largest producers of distilled spirits in North America, to help increase Sazerac’s production of hand sanitizer and support efforts to fight COVID-19. ADM is providing industrial ethyl alcohol to Sazerac to enable it to increase output destined for health care, pharmaceutical and other industries.
The variety of products ADM produces include flours and grains, beans and pulses, nuts, oils, proteins, starches and sweetening solutions. The company makes products used in medical supplements and health foods, including ingredients used for cognitive, heart, digestive and immune problems.
ADM is also a major player in animal nutrition, chemicals, packaging, personal care and renewable plastics.
It is also a leader in the fight against climate change and recently launched a sustainability program with the goal of reducing greenhouse gas emissions by 25 per cent and energy intensity by 15 per cent by 2035.
So, what about the financials? First-quarter revenue was US$14.8-billion, down from US$15.3-billion in the same period of 2019. The company said that its Starches and Sweeteners subsegment was down year-over-year, largely owing to about US$50-million in negative mark-to-market impacts on forward sales of corn oil. It said much of this could reverse over the balance of the year.
On the profit side, the results were much better. Net earnings attributable to shareholders were US$391-million (69 US cents a share) compared with US$233-million (41 US cents) in the same period of 2019. Adjusted earnings were 64 US cents a share, up from 46 US cents a year ago.
The company has a strong balance sheet with cash and cash equivalents of US$4.7-billion at the end of the first quarter.
ADM increased its quarterly dividend by a penny at the start of the year, to 36 US cents a share (US$1.44 a year). At Monday’s closing price of US$40, the yield is 3.6 per cent.
If you look at ADM’s chart, you’ll see this stock is unlikely to ever be a big winner. If anything, the company is too big and diversified. What you will see is a fairly consistent trading range, which is not a bad thing these days. This stock is not going to propel a portfolio to new heights or wreak havoc in a market crash. It’s a solid holding that offers a decent yield and appears undervalued at the current level with a price-to-earnings ratio of just 14.79.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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Gordon Pape