The Company is engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products.
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I have taken a beating in CAPS (down 33%) with this call, but I am writing my pitch now since I bought this stock in my real life portfolio today. Reasons are quite simple, ADM is lumped in with the ethanol buzz and is getting drilled accordingly because of the freefall in crude oil and the political risks of ethanol with an upcoming election.
ADM is a critical player in the ethanol market, but that doesn't mean the ethanol market is critical for ADM. Enough blabber, here are facts:
- Refining and packaging of biofuels represented 8.5B in revenue out of 69.8B for 2008 (remember they have a June fiscal year). Moreover, these activities contributed 181 million in operating profit versus 3,441 million for 2008. In sum, yes ethanol is an important part of ADM, but ADM is more important to ethanol than ethanol is to ADM.
- The two most important segments for ADM (both in terms of revenue and operating profit) are Oilseed crushing/origination (processing for a variety of industries such as: chemicals, pharmaceuticals and foods) and merchandising/handling (storage of grains and subsequently identifying best value added channel and delivering... examples: animal feed or delivering the grains further up the consumer value chain.
Those two activites described above contributed 70% of the revenues for 2008. Do these sound like highly volatile and consumer discretionary activities? I think not.
As other pluses:
-they have recently secured over 3B in financing to expand capacity
-they still have authorization to repurchase 75.6 million shares (that is 11.7% of outstanding) on the open market under an approved share repurchase plan that expires 31/dec/2009.
-dividend track record
Now I'm in, and not with "play money".
Hi all,While it is interesting and informative to undestand that ADM is more than just an enthanol company, can anyone figure out why the latest inventory number has ballooned by so much? Inventory 10,160,000 6,060,000 4,677,508 Also, is there any reason why the cash flow from operating activities goes negative? Is this a one time event? The numbers are taken from Yahoo Finance.Total Cash Flow From Operating Activities: (3,204,000) 303,000 1,376,041 I think it is important for investors to know about these before adding more position into the company. Thanks!
Thanks for the reply,As much as I could tell, the increase is due to increased commodity prices. Right around their 4th quarter 2008 (2nd quarter for us normal people), commodity prices peaked and this is what was left on their books. Since then commodity prices have come down, but they won't lose on these since they always enter into forward contracts to take out price risk. We should expect higher sales and COGS (while they flush out these high cost inventories) along with lower inventory levels for the next quarter or two. On a side note: the company has 7.4 billion in undrawn credit lines, 2.2 billion of which they have as an uncommitted contingency. Cash shouldn't be a problem.Trading under book value today and I am loading up the boat.Good luck to all.