Archer Daniels Midland Company (ADM – (Free Report), a recent study on certain accounting practices related to this segment has shown a soft trend in the nutrition segment. This resulted in a 6.7% year-on-year decline in segment revenue in the fourth quarter of 2023. The company reported an adjusted operating loss of $10 million in the segment. In addition to the impact of demand headwinds and inventory reductions, operational issues related to ERP system integration negatively impact sales volumes.
Human Nutrition’s operating income for the fourth quarter was -$25 million, approximately $112 million lower than the prior-year period, due to lower production volumes due to operational headwinds and higher manufacturing costs. Animal Nutrition’s operating income was $15 million, down 17% year over year due to lower amino acid margins and lower volumes across subsegments.
The Nutrition segment’s results for the first quarter of 2024 are expected to be down year-over-year due to headwinds from texturant market normalization, fixed costs related to operational challenges arising from Eastern Decatur and protein volumes. Management expects normalization of the texturant market to be a headwind in 2024.
Amid this trend, the Zacks Rank #3 (Hold) stock has declined 16.6% since the beginning of the year, compared to the industry’s decline of 8.3%. Additionally, ADM stock lagged the sector’s 2.9% decline and the S&P 500’s 6.3% growth in the same period.
Does the strategy position ADM for growth?
Archer Daniels has actively managed productivity and innovation, while aligning its work with interconnected trends in food security, health and wellbeing. Additionally, the company benefits from significant progress in his three strategic pillars: Optimize, Drive, and Grow. ADM is therefore poised to deliver sustainable long-term profit growth across new avenues.
The company expects global grain and oilseed supplies to increase in 2024 as weather conditions are expected to improve and production levels are expected to improve across major South American countries. Management assumes commodity prices will ease, and therefore expects global soybean crushing margins to ease in 2024 to between $35 and $60 per tonne.
On the demand side, ADM forecasts increased vegetable oil demand from renewable diesel and low-single-digit soybean mill demand growth to drive improved structural margins.
Looking ahead to 2024, management expects the nutrition sector to chart a path to recovery. We expect the company’s significant pipeline opportunities in human and animal nutrition to convert and generate mid-single-digit revenue growth. For the full year, management expects the Carbohydrate Solutions segment to deliver a strong year but slightly lower than 2023, as volume and profit growth in sweeteners and starches is expected to be offset by weakness in ethanol. I predict it will be.
Under the optimization pillar, the company plans to expand alternative protein production capacity in Decatur, Illinois and starch production in Marshall, Minnesota. Completed expansion of alternative proteins in Serbia. As part of the company’s optimization pillar, it continues to adapt to consumers’ changing nutritional preferences.
Archer Daniels continues to drive forward strategies and adapt its organizational structure to achieve operational excellence and set goals. Under its growth pillar, the company aims to expand its business in the rapidly growing alternative protein field. Notably, Archer Daniels has signed an agreement with Benson Hill to process and commercialize a portfolio of proprietary ingredients derived from ultra-high protein soybeans.
Stocks to consider
We picked some of the better-ranked stocks from the broader consumer staples space. Celsius (cell – free report), fresh pet (FRPT – free report) and vital farm (Vitol – free report).
Celsius specializes in commercializing healthier, nutritionally functional foods, beverages, and nutritional supplements and currently carries a Zacks Rank #2 (Buy). CELH’s fourth-quarter earnings surprise averaged 67.4%.You can view See the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimates for CELH’s current fiscal year revenue and earnings are suggesting growth of 41.62% and 41.56%, respectively, compared to the year-ago reported numbers.
Freshpet, a pet food company, currently carries a Zacks Rank #2. FRPT’s Q4 earnings surprise averaged 61.8%.
The Zacks Consensus Estimates for Fresh Pet’s current fiscal year sales and earnings are suggesting growth of 24.3% and 110%, respectively, compared to the year-ago reported numbers.
Vital Farms currently carries a Zacks Rank #2. The company offers a variety of grass-fed foods. VITL’s fourth-quarter earnings surprise averaged 16.2%.
The Zacks Consensus Estimates for Vital Farms’ current fiscal year revenue and earnings represent growth of 18.7% and 30.5%, respectively, compared to the year-ago reported numbers.
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