Credit Suisse lowers estimates for ADM, Bunge

by Eric Schroeder
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ADM facility
Credit Suisse has lowered ADM's second-quarter e.p.s. to 51c, below its first-quarter estimate of 60c and compared with the industry consensus of 54c.
 

NEW YORK — Equity research firm Credit Suisse on July 18 lowered its second-quarter and full-year earnings-per-share estimates for both Bunge Ltd. and Archer Daniels Midland Co., citing poor conditions for soybean crush margins and slow farmer selling.

In the case of ADM, Robert Moskow, research analyst, said Credit Suisse has lowered the Chicago-based company’s second-quarter e.p.s. to 51c, below its first-quarter estimate of 60c and compared with the industry consensus of 54c. The company’s full-year e.p.s. was lowered to $2.60 from $2.84, and compared with the industry consensus of $2.63.

Robert Moskow, Credit Suisse
Robert Moskow, research analyst with Credit Suisse 

“Poor conditions for soybean crush margins, slow farmer selling in Brazil and weak ethanol margins have pressured near-term results and probably will impact the second half of the year,” Mr. Moskow wrote in the report. “Strong demand in the export markets for beans has turned out to be more of a negative than a positive for ADM and other soybean crushers because it pulled beans out of the domestic markets and forced domestic crushers to pay unattractive prices to farmers to procure supplies. U.S. plants have exacerbated the situation by running their plants at break-even or below in order to compete with Brazil for the strong export demand for soybean meal.”

Mr. Moskow said ADM’s agricultural services were largely in line with low expectations, but concerns remain for the second half of fiscal 2017. He said the company only expected modest improvement in the division during the second quarter with the global trade desk improving its weak performance and grain carries improving. He added that ADM’s assets will have to compete with Brazil’s strong corn and wheat crop, which is expected to present risk during the third and fourth quarters of fiscal 2017.

In the company’s corn processing division, corn sweeteners continue to benefit from strong pricing contracts, favorable capacity utilization and volume growth from Eaststarch, Mr. Moskow said. Ethanol margins have failed to improve from break-even levels, though, Mr. Moskow said.

Bunge facility
Credit Suisse lowered its second-quarter e.p.s. estimate for Bunge to 35c, which compared with an industry consensus of 57c.
 

Credit Suisse lowered its second-quarter e.p.s. estimate for White Plains, N.Y.-based Bunge to 35c, which compared with an industry consensus of 57c, and its full-year e.p.s. estimate to $4.28, down from an earlier forecast of $5.30 and compared with the industry consensus of $4.75.

 “Poor conditions for soybean crush margins, slow farmer selling and weak milling results in Mexico have pressured near-term results and probably will impact the second half of the year,” Mr. Moskow said. “That said, we are maintaining our $90/share target price and our outperform rating. Glencore’s publicly announced interest in ‘pursuing a consensual business situation’ with Bunge makes this one of those times for shareholders where the worse it gets for Bunge’s results, the better it might get for the stock price as the probability of a take-out goes higher or the company pursues more aggressive avenues to create shareholder value.”

Mr. Moskow noted that strong demand in the export markets for beans has turned out to be more of a negative than a positive for Bunge and other soybean crushers because it has pulled beans out of the domestic markets and forced domestic crushers to pay higher prices to farmers to procure supplies. He said U.S. plants have made the situation worse by running their plants at break-even or below in order to compete with Brazil for the strong export demand for soybean meal.

“This dynamic has emboldened Brazilian farmers to continue to hold out longer for better prices and delay pricing their crop,” Mr. Moskow said. “As a result, cash crush margins in Brazil and the U.S. are worse than what the futures markets reflect while export margins remain unattractive.”

Mr. Moskow also noted that Bunge’s food product divisions are under pressure. He said milling customers in Mexico in the most recent quarter traded down to less expensive alternatives because of fears of unfavorable trade negotiations with the United States.

“Food service demand for edible oil in Brazil demand remained weak due to macroeconomic issues,” he said. “Edible oil margins improved temporarily due to tighter vegetable oil inventories, but this does not appear material enough or sustainable enough to offset the downside to the year.”

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