What: Shares of Archer Daniels Midland Company (ADM 1.43%) have been on a roller coaster over the past month as earnings threw investors for a loop. Shares rose 10% in the month of October only to fall 7.7% so far in November.
So what: The rise in October was driven by the acquisition of savory flavor systems maker Eatem Foods Company. Competitor Cargill also reported a 20% increase in earnings during the third quarter, raising hope that Archer Daniels Midland's earnings would be strong as well.
But when third-quarter results were reported on Nov. 3, the company admitted to a 9% decline in revenue to $16.6 billion, and net income dropped 66% to $252 million, or $0.41 per share. Even after adjusting for one-time items, earnings of $0.60 per share were well lower than the $0.86 per share earned a year ago.
Management said that weak margins in ethanol hurt results, which may continue as demand for ethanol remains weak and oil prices remain low.
Now what: Archer Daniels Midland's pop in October seemed to be more speculation than anything else. But the reality was that earnings results are extremely poor and are heading lower.
I like the general stability the food business can provide long-term, but right now Archer Daniels Midland has too much exposure to the weakening ethanol market and the weak commodity market. Until those larger trends turn around I don't see much value in this stock, even with the recent share price discount.
