Archer Daniels gains 5% as accounting concerns fall despite weak results 📈

Shares of Chicago-based agriculture and nutrition giant Archer Daniels Midland (ADM.US) are gaining nearly 5% today, as the company announced that it has completed an internal investigation into the nutrition industry's accounting, where it identified accounting problems in January. Following this disclosure, the company's shares cheapened by more than 22% and recorded their weakest session since 1929 crash. Positive comments related to accounting problems, along with a better-than-forecast outlook for the future, increased Wall Street optimism and investors buy shares of the heavily oversold company, leading to almost 5% increases. 

• Despite weakness in the 'Nutrition' sector, the segment is expected to bring the company mid-single-digit revenue growth and operating income, which is expected to be higher in 2024 than in 2023.
• Profit forecasts appealed to Wall Street - the company expects adjusted earnings per share in 2024 of $5.25-$6.25, compared to $5.41 estimates from analysts surveyed by FactSet.
• Management has approved an additional $2 billion share buyback. The market expects the company may have the worst behind it. The company said it is aiming for sharp improvements in earnings reporting, as well as the overall profitability of its operations and supply chain. 
• Sales in the fourth quarter fell 11% year-on-year, and earnings per share fell from 30% year-on-year. Margins also fell however investors, are hopeful that the company will buy back more shares in 2024 after the stock hit a record high since 2008.
• The company anticipates soybean crush margin will decline this year, likely moving into a range of $35/metric ton (MT) to $60/MT. Q4 profit included net charges of $171 million, and Archer expectes FY 2024 $5.87 earnings per share.

Weak results not enough to make Archer shares cheap?

• The company reported net income of $565 million, or $1.06 per share, in Q4 2023, compared to $1.019 billion, or $1.84 per share, in Q4 2022. Adjusted for a $0.3 impairment and restructuring charge, earnings were $1.36, slightly below FactSet forecasts of $1.43.
• Revenue came in 3% below forecasts, falling to $22.978 billion vs. $25.939 billion in 2022, below FactSet forecasts of $23.786 billion. The nutrition segment reported an operating loss of $10 million in Q4, compared to a profit of $105 million in Q4 2022.
• CFRA analysts raised their target price for the stock to $67 from $61 previously, arguing the decision was due to the normalization of the commodity market, following a series of supply chain disruptions, and less-than-expected uncertainty related to the impact of the 'Nutrition' segment's accounting scandal, where the company reported overstated earnings for several quarters, at a time when management was tying higher bonuses to the sector's performance.
• CFRA expects 2024 to be a lagging hole for the company in terms of its earnings growth outlook, as the company stressed confidence in the 2025 financial targets it set three years ago. Accounting issues are likely to prove to have much less of an impact than feared, which has the potential to remove a serious overhang on the company's shares.
• The company has created a stronger team and hired managers with experience in supply chain management. It has engaged experts to identify opportunities to streamline operations at its largest plants and simplify product and production lines.

Archer Daniels Midland (ADM.US), D1 interval

The company's shares reached the SMA50 (orange line) today, where a bit of broader supply was triggered, halting today's rebound.

Source: xStation5