Archer Daniels' Eatem Buyout Complements Growth Plans

Archer Daniels Midland Company ADM announced plans to further strengthen its portfolio with the impending acquisition of Eatem Foods Company.

Vineland, NJ-based Eatem is a leading manufacturer and developer of high-quality conventional, organic and natural savory flavor systems. The company, which was founded more than three decades ago, has been generating annual revenues in the range of mid-$40 millions.

The addition of Eatem to Archer Daniels' portfolio is in line with the company's goal of transforming into a provider of complete solutions from being an ingredient supplier. The company has been on track to achieve this target through various acquisitions and construction of facilities, which in turn will help it meet increasing customer demand.

In this regard, Archer Daniels added Specialty Commodities Inc. to its WILD Flavors and Specialty Ingredients segment last year, in an attempt to expand its nut and seed offering and enhance its grains business. Moreover, the company recently announced plans to introduce a modern flavor creation, application and customer service facility in Cranbury, NJ that is slated to launch next month.

The facility is expected to accommodate a lab space, where new flavors for mint and oral care products will be developed and tested. Consequently, the facility is anticipated to help retain Archer Daniels' position as a leading flavor company by working with its customers to fulfill and even surpass their requirements.

The company's WILD Flavors and Specialty Ingredients segment is on track to achieve greater profitability by enhancing its product range, expanding across geographies, improving structural capabilities and developing the brand.

We believe that Eatem's buyout will complement these strategies, as its focus on quality, culinary skills, savory flavors, and technical knowhow are likely to be growth drivers. Also, Eatem's offerings match consumers' tastes and preferences, which incline toward healthy foods, cultural cuisines, clean labels and natural flavors. Hence, its addition is most likely to solidify Archer Daniels' customer base.

We believe that this acquisition (which is anticipated to close in the coming weeks), combined with the other aforementioned strategies, will boost Archer Daniels' profitability and augment shareholder value.

Zacks Rank

Archer Daniels currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Cal-Maine Foods Inc. CALM, with a Zacks Rank #1 (Strong Buy), Dean Foods Company DF and Diamond Foods, Inc. DMND, each with a Zacks Rank #2 (Buy).

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