Archer-Daniels-Midland Company (ADM)
The global shift to a green economy has enabled many companies to align their operations with environmental sustainability and ecological responsibility.
However, those involved with the farming and agriculture space are especially well-positioned to capitalize on this movement. Indeed, Archer-Daniels-Midland Company, a premier human and animal nutrition company, is a clear example of an enterprise that has leveraged this trend to drive financial success.
For instance, ADM’s second quarter results for 2023 highlight the impact of its strategic efforts in this domain. While the firm reported a year-on-year decrease in net earnings of around 25% at $0.9 billion, its trailing four-quarter average adjusted ROIC rose 200 basis points from 11.6% in 2022 to 13.8% today.
Likewise, the Nutrition business achieved encouraging results in Flavors and continued to expand its customer base, actively addressing softer demand within other parts of the operation.
In addition to its Nutrition wing, Archer-Daniels-Midland’s expansion in the pet food and pet treats market reflects its focus on delivering solutions supporting healthier living. Its growth in these areas is backed by strong financial metrics, including an adjusted segment operating profit of $1.6 billion for the period.
Finally, ADM’s commitment to decarbonization is evident in its strategic initiatives, which are helping build additional earnings power and growth. The company’s continued progress with carbon capture and sequestration is in step with its green agenda, while its investments in plant-based consumer and industrial solutions to petroleum-derived products further justify this approach.
Nutrien Ltd. (NTR)
The worldwide fertilizer market is having to grapple with many challenges that could profoundly impact industry stakeholders and investors. These issues span from escalating input costs and supply chain disruptions to geopolitical tensions and specific problems such as labor strikes at port locations.
Amid these escalating headwinds, Nutrien, a global frontrunner in the agricultural industry, finds itself well and truly enmeshed. Its operations have been directly hit by some of the most critical setbacks, prompting questions about the viability of the company’s stock as a potential investment.
One of the primary obstacles the company is contending with is the scaling back of production at its Cory Potash mine. This disruption is a consequence of the International Longshore and Warehouse Union (ILWU) Canada strike, which doesn’t just affect production at the Cory plant but also poses a threat to other potash mines in Saskatchewan. This situation has prompted NTR’s President and CEO, Ken Seitz, to call for a swift resolution to avert further harm to the Canadian economy.
Beyond the strike, other factors, such as the Portland terminal outage and discounted potash offer levels, have also impacted Nutrien’s output. These developments have led the firm to anticipate that its full-year 2023 adjusted EBITDA will fall short of previous guidance due to “lower forecasted benchmark fertilizer prices.“
Despite these hurdles, Nutrien’s diversified portfolio, robust balance sheet, and strategic investments make a solid case for long-term capital appreciation.
In particular, NTR has allocated around $1.2 billion for specific growth initiatives, such as building a “clean ammonia production facility” at its Geismar site and rolling out a next-generation autonomous potash mining operation.
In fact, Investors considering Nutrien can find confidence in the company’s potential for growth, backed by its position as a global leader in the agricultural industry. The situation emphasizes the interconnectedness of global market dynamics and showcases its strength and innovation, reinforcing NTR’s status as a substantial buying opportunity in the face of myriad complexities.
Bunge Limited (BG)
Mergers and acquisitions are more than mere financial transactions; they are strategic decisions that can redefine entire industries. In the agricultural division, where diversification and global reach are crucial, a recent agreement between Binge and Viterra is a testament to this philosophy. This landmark deal, uniting two titans of the sector, promises to reshape the market by expanding global footprints, diversifying crop offerings, and enhancing resilience.
Indeed, the most striking feature of the proposed union is its complementary nature. While Bunge has been a dominant force in oilseed processing, Viterra’s strength comes from its comprehensive logistics network and infrastructure assets. This combination is expected to improve both companies’ business mix, balancing profit generation between processing, handling, and merchandising.
Another compelling aspect of the alliance is the expansion of Bunge’s global visibility. Traditionally focused on the South American market – with just a “modest presence in other key regions” – Bunge’s merger with Viterra opens up access to places like the US and Europe. This expanded footprint is more than just a crude land grab; it’s a strategic move to manage the risks typically associated with the farming industry and reduce dependence on a single geographic territory.
On top of that, crop diversification could be a significant benefit of this merger too. Unlike Bunge’s focus on Soy and Corn, Viterra offers a broader range of crops, including Wheat, Barley, and Rapeseed. This diversification is vital in the uncertain nature of the agriculture industry, allowing the combined entity to reduce reliance on specific crops and tap into new market opportunities worth billions.
Financially, the merger is grounded in sturdy fundamentals, with a planned $2 billion share repurchase scheme to “enhance EPS accretion” an essential part of the deal. This will undoubtedly be an attractive selling point for interested investors, as will its safe and growing dividend.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.