Archer-Daniels-Midland Co. (ADM) witnessed its shares experiencing the most significant decline since April after the company revealed its plan to expand its nutrition business. The Chicago-based firm, known as one of the world’s largest agricultural commodity traders, announced its acquisition of food-ingredients maker Revela Foods LLC for an undisclosed amount. This announcement led to a decline in ADM stock by as much as 4.7%.
The Revela Foods acquisition marks ADM’s first move since Ian Pinner, a longtime ADM executive, took charge of the nutrition unit. ADM has been strategically investing billions in expanding its nutrition business since 2014, notably with its largest-ever deal – the $3 billion acquisition of European natural ingredient maker Wild Flavors. This move aimed to diversify the company’s portfolio with a focus on value-added products. The Revela deal is anticipated to be finalized early next year.
Ian Pinner emphasized the significance of the flavors business in ADM’s nutrition growth strategy, stating, “Our flavors business is an important pillar of our nutrition growth strategy, and we are continuing to add to our flavors pantry to ensure we remain the partner of choice for customers around the globe.”
Despite ADM’s substantial investments in its nutrition business, including the $1.8 billion takeover of pet food and animal feed maker Neovia, the expected payoff is yet to materialize. Analyst estimates compiled by Bloomberg indicate a projected decline of over 18% in the segment’s profits this year, reaching the lowest point since 2020. Challenges in other business lines, such as plant-based protein, have offset growth in the flavors business.
Revela Foods is expected to generate revenue of $240 million this year, according to ADM. However, BMO Capital Markets analyst Andrew Strelzik adjusted his recommendation on ADM shares to the equivalent of a hold. This decision was based on the growing profit-margin pressures observed across the company’s crush and ethanol operations.
As ADM navigates the challenges associated with its recent business expansions, market observers and investors will be closely monitoring the company’s performance in the evolving landscape of the agriculture and nutrition sectors.
