How High Can ADM Earnings Grow?

Archer Daniels Midland (ADM -0.91%) will release its quarterly report on Tuesday, and investors have gotten increasingly enthusiastic about the agriculture company's stock recently. With so many favorable trends supporting the agricultural industry, ADM earnings look poised to deliver the growth that shareholders have come to expect from the company.

ADM has an extensive business whose vertical integration includes farming operations, food processing plants, and biofuel production facilities. Its size gives it an important competitive advantage, but even ADM isn't immune from the pressures and uncertainties that are always present in agriculture. Let's take an early look at what's been happening with Archer Daniels Midland over the past quarter and what we're likely to see in its quarterly report.

Stats on Archer Daniels Midland

Source: Yahoo! Finance.

Will ADM earnings grow like weeds this quarter?
Analysts have pruned their view on ADM earnings in recent months, with a $0.03 per share cut in June-quarter estimates and more than double that reduction for their full-year 2013 consensus. The stock, though, has risen to new multi-year highs, gaining more than 10% since the end of April.

One potentially huge growth driver for ADM is its planned $3.5 billion acquisition of Australia's GrainCorp, expanding its international reach. Earlier this week, the company got European Commission approval for the transaction, and while some other regulatory hurdles remain, ADM seems increasingly likely to get the deal done.

However, trouble on the ethanol front could hurt ADM's long-term prospects. Lawmakers are looking to amend the Renewable Fuel Standard, which has supported huge growth in biofuel production from ADM and Valero (VLO 0.08%) and their combined ethanol production capacity of about 3 billion gallons annually, representing a quarter of U.S. production. With the potential to remove corn-based ethanol from the law entirely, tiny rival KiOR (NASDAQ: KIOR) might see new support for its cellulosic ethanol production, but the negative impact at ADM and Valero would be far greater.

The near-term question for ADM is how weather affects the company's results. Last week, Bunge (BG -1.64%) reported a big drop in earnings due to weak harvests in its international markets, but it believes that U.S. harvests will be large and eventually lead to increased trading activity. Yet with a cold, wet spring, those results might take longer to materialize than previously expected, forcing ADM shareholders to be patient in waiting for a payoff from this year's rebound from last year's U.S. drought conditions.

In the ADM earnings report, look for the company to give its strategic vision for the long-awaited GrainCorp acquisition as well as updates on how it plans to handle its ethanol business going forward. With demographics still favoring agriculture over the long run, any pullback in ADM stock could well be the buying opportunity patient investors have waited for.

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