Archer Daniels Midland Company (ADM - Analyst Report) reported better-than-expected adjusted earnings per share for third-quarter 2014 making the most of strong ethanol demand as well as improvement in U.S. grain export volumes. The company’s earnings also benefited from its cost containment actions as the increase came despite a fall in revenue.

The company’s adjusted earnings for the quarter rose 72.3% year over year to 81 cents per share and surpassed the Zacks Consensus Estimate of 76 cents. Further, including certain one-time items, Archer Daniels reported earnings of $1.14 per share as compared with 72 cents in the year-ago quarter.

The improved earnings were let down by a fall in revenues at all of the company’s major segments that resulted in an 18.1% year-over-year decline in total revenue. Total revenue of $18,117 million also lagged the Zacks Consensus Estimate of $21,238 million.

Segment-wise, revenues at Archer Daniels’ Oilseeds Processing segment fell 17.3% to $7,854 million, Agricultural Services segment’s revenues declined 16.8% to $7,284 million and Corn Processing’s revenues decreased 14.6% to $2,896 million, all on a year-over-year basis. However, the company’s Other segment’s revenues jumped over 2.5 times to $83 million from $33 million in the prior-year quarter.

Operational Discussion

Archer Daniels reported adjusted segment operating profit of $1,073 million, marking an improvement of 77% from the year-ago quarter on the back of robust performances at Corn processing and Agricultural Services segments.

On a segmental basis, the Oilseeds Processing segment’s adjusted operating profit of $362 million remained flat year over year.

Archer Daniels' Corn Processing segment registered a $180 million increase in operating profit to $356 million from the year-ago quarter. The improvement is primarily attributable to strong ethanol demand and good margins in ethanol coupled with steady sweetener volumes and lower average selling prices that were more than offset by lower net corn costs.

Operating profit for the Agricultural Services segment went up $57 million year over year to $159 million on the back of strong results from Merchandising and Handling and Transportation businesses, partially offset by fall in Milling and other operating profits.

Other Business segment posted operating profit of $33 million contrary to an operating loss of $16 million reported in the prior-year quarter.

Financials

Archer Daniels, which competes with Bunge Limited (BG - Snapshot Report), ended the quarter with $4,539 million in cash and cash equivalents as compared with $3,252 million at the end of the prior-year quarter. At quarter-end, long-term debt including current maturities was $5,364 million, down from a debt of $6,520 million at the end of third quarter 2013. Shareholders’ equity as of Sep 30, 2014 was $20,261 million.

During the first three quarters of fiscal 2014, the company deployed $605 million toward capital expenditure as against $659 million in the prior-year period. Further, Archer Daniels generated $4,424 million of cash from operating activities in the first nine months of 2014.

Apart from this, the company generated strong returns with its trailing 4-quarter average adjusted ROIC reflecting a 280 basis points improvement from last year. At third-quarter end, adjusted ROIC was 8.5% compared with 7.7% at the end of second-quarter 2014 and 5.7% at the end of the third quarter last year.

Moreover, the company returned $1,172 million to shareholders in the first three quarters of 2014 in the form of share repurchases worth $702 million and dividend payments of $470 million. In the third quarter, Archer Daniels bought back about 6.5 million shares.

With this, the company completed its previously announced plan to buy back 18 million shares by the end of 2014, as part of its balanced capital allocation strategy. According to this strategy, the company intends to return about $1.4 billion to shareholders in the form of dividends and share repurchases and to direct $1.4 billion into the business toward capital spending and small M&As in 2014.

Looking ahead, Archer Daniels intends to repurchase up to 10 million shares by the end of this year.

Other Stocks Worth Considering

Archer Daniels currently carries a Zacks Rank #3 (Hold). However, some other better-ranked stocks that are worth a look in the agricultural operations industry include Amira Nature Foods Ltd. (ANFI - Snapshot Report) and Calavo Growers Inc. (CVGW - Snapshot Report), both sporting a Zacks Rank #1 (Strong Buy).

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