Bunge earnings fall on softer second quarter

by Eric Schroeder
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Soren Schroder, c.e.o. of Bunge, said the second quarter was more challenging than expected.

WHITE PLAINS, N.Y. — Challenges across all aspects of its business dragged down earnings at Bunge Ltd. in the second quarter of fiscal 2015. Net income at Bunge in the quarter ended June 30 totaled $72 million, equal to 50c per share on the common stock, down 74% from $272 million, or $1.81 per share, in the same period a year ago.

Net sales during the second quarter of fiscal 2015 were $10,782 million, down 36% from $16,793 million in the second quarter of fiscal 2014.

“Conditions in the second quarter were more challenging than expected,” said Soren Schroder, chief executive officer. “In Agribusiness, we experienced weak softseed margins, slow farmer selling outside of Brazil and a difficult trading and distribution environment. In Food & Ingredients, margins and volumes came under dramatic pressure in our Brazilian businesses, especially edible oils, as consumers adjusted to an environment of increasing unemployment, inflation and currency devaluation.”

For Agribusiness, second-quarter EBIT fell 48% to $164 million from $311 million, while sales decreased 40% to $7,744 million from $12,855 million.

Bunge attributed the sluggish performance to lower results in softseed processing and trading and distribution. In oilseeds, Canadian canola processing margins were significantly weaker than last year, while European softseed margins were down from last year driven by the combination of slow farmer selling and decreased vegetable oil demand.

In grains, results in grain origination were slightly lower as stronger performance in Brazil was more than offset by weaker margins and volumes in North America and Argentina, Bunge said.

The Edible Oil Products segment had a second-quarter loss of $6 million, which compared with EBIT of $46 million a year ago. Sales fell 21% to $1,667 million from $2,099 million. Bunge said lower results in the quarter primarily were due to market challenges in the company’s Brazilian operation. Results were higher in the United States, though, buoyed by higher volumes and margins in refining and packaging operations.

For Milling Products, second-quarter EBIT was $20 million, down 55% from $44 million in the same period a year ago. Net sales for the quarter were lower, decreasing 26% to $409 million from $553 million. Bunge attributed the decrease in performance to lower results in its Brazilian wheat and U.S. corn milling operations. Bunge said demand from the ready-to-eat cereal and brewing industries remained soft during the quarter.

Bunge had a second-quarter loss of $12 million in its Sugar & Bioenergy segment, which compared with EBIT of $6 million a year ago. Net sales decreased 26% to $881 million from $1,186 million.

Despite the difficulties during the second quarter, Mr. Schroder was optimistic in his outlook for the back half of fiscal 2015.

“Looking ahead to the second half of the year, we expect full-year Agribusiness EBIT to exceed $1 billion,” he said. “Demand for soy meal and soy oil remains solid, supporting a promising soy crush outlook. The Brazilian safrinha corn crop is large and current local prices are encouraging famers to sell. Based on present crop conditions in the Northern Hemisphere there should be ample supplies to drive high asset utilizations and an expansion in global trade. Food & Ingredients will show improvement from the first half of the year, but will fall short of last year’s second half. Sugar & Bioenergy is moving into its seasonally stronger period when sugar and ethanol production increases, and based on current strong domestic ethanol consumption in Brazil, we have increased confidence that we will end the year EBIT and cash flow positive.

“We also continue to make strides in driving greater efficiency through our performance improvement initiatives, having generated approximately $50 million of year-to-date benefits. The rolling four quarter ROIC for our core Agribusiness and Food operations is 9.6%, continuing to track well above our 7% cost of capital, and we expect returns of approximately 10% for the full year.”

In the six months ended June 30 overall net income at Bunge was $321 million, or $2.21 per share, up 31% from $245 million, or $1.65 per share, in the same period a year ago. Net sales were $21,588 million, down sharply from $30,254 million.
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