ADM to Vend Fertilizer, Chocolate Businesses - Analyst Blog

Going ahead with its ongoing strategy of portfolio management, Archer Daniels Midland Company ADM yesterday announced certain undertaken steps, which will expectedly help in realizing value from its businesses and investing the same in best possible resources to enhance returns. The company declared that it has entered into an agreement to sell its South American fertilizer business.

Moreover, it is on the lookout for buyers for its chocolate business and plans to retain the cocoa press operations. Lastly, the company declared that it has completed acquisition of the remaining stake in Toepfer.

The company said that it has entered into an agreement with The Mosaic Company MOS to vend its fertilizer businesses in South America as the returns from this asset have fallen short of the company's objectives. The deal that is worth $350 million, including $150 million in working capital, includes ADM's four fertilizer blending units in Brazil and one in Paraguay.

As per the contract, ADM is entitled to purchase fertilizers from Mosaic after the deal's closure. Moreover, the company will be able to continue supplying fertilizers to certain customers in Brazil and Paraguay. The move will expectedly increase the company's returns and help in maintaining amicable relationships with cultivators.

In a separate development, after failing to get a potential buyer for its chocolate and cocoa press businesses over the past one year, Archer Daniels has finally hired advisors to facilitate sale of the chocolate business and has decided to keep the cocoa press assets. Archer Daniels has chocolate-making facilities in the U.S., Germany, Belgium, the U.K. and Canada.

ADM has observed that the cocoa press business industry is picking momentum due to improvement in crop supplies. Therefore, the company believes that there is immense growth potential in cocoa press, which will likely help it to meet its return objectives.

Further, in an effort to enhance its global origination network and serve customers better, the world's largest corn producer has bought the remaining 20% stake of Alfred C. Toepfer International for €83 million or approximately $115 million. Toepfer has offices in the Americas, Africa, Asia, Australia and Europe and has thereby facilitated ADM to increase its global reach.

We expect ADM's consistent focus on enhancing processing capabilities and increasing its global footprint to drive growth going forward. The company intends to invest around $1.4 billion in capital projects in 2014, the majority of which will be in high-growth markets outside the U.S.

Archer Daniels Midland is a major global food processing company. It processes oilseeds, corn, wheat, cocoa and other foodstuffs. It is also a giant manufacturer of vegetable oil, protein meal, corn sweeteners, flour, biodiesel, ethanol and other value-added food and feed ingredients. Moreover, the company has a worldwide grain elevator and transportation network for procurement, storage, cleansing and transportation of agricultural commodities.

Currently, Archer Daniels carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Investors interested in the food industry could also consider stocks like Diamond Foods, Inc. DMND and J&J Snacks Food Corp. JJSF. Both of these have a Zacks Rank #2 (Buy).