Bunge shares surge amid improving outlook

by Josh Sosland
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Net income of Bunge Ltd. was lower in the third quarter.

WHITE PLAINS, N.Y. — Net income of Bunge Ltd. was lower in the third quarter ended Sept. 30, but the company offered brighter guidance for the full year and into 2017.

Bunge net income was $118 million, equal to 79c per share on the common stock, down 51% from $239 million, or $1.42 per share, in the third quarter of 2015.

The improved guidance reflected the arrival of the 2016 harvests in the Northern Hemisphere and was viewed by management and investors as a positive sign for the start of 2017 as well. In early trading Nov. 2 on the New York Stock Exchange, shares of Bunge rose $4.73 to $67.31, a 7.6% gain from the Nov. 1 close of $62.58.

Drew Burke, Bunge
Drew Burke, c.f.o. of Bunge

“The agribusiness environment has improved with the arrival of harvests in the Northern Hemisphere, driving higher margins and utilizations in our North American and European oilseed processing and grain handling operations,” said Drew Burke, chief financial officer. “Soybean meal demand should increase as feed formulations normalize, reflecting robust underlying demand for proteins. Slow farmer selling in South America is likely to persist through the end of the year.”

The effects of the new crop on results were expected to be strongest in Bunge’s Food and Ingredients segment. EBIT for the full year was projected at $230 million to $240 million, an improvement from about $200 million to $220 million in the most recent guidance, issued three months ago.

“Our improved outlook reflects higher margins and volumes resulting from our performance improvement initiatives and a more stable economic environment in Brazil,” Mr. Burke said.

Improved ethanol prices are leading the company to raise its EBIT forecast for Sugar and Bioenergy by about $10 million, to $60 million to $70 million, while the company lowered its forecast for Fertilizer EBIT by about $5 million, to $35 million.

“With this year’s turnaround in Food & Ingredients, Sugar and Bioenergy and Fertilizer, we see the potential for significant earnings growth in 2017 as Agribusiness returns to historical levels of performance, supported by growing protein demand, record crops in South America, and the fact that Brazilian farmers have only priced small percentages of their next year's soy and corn crops,” Mr. Burke said.

Soren Schroder, chief executive officer, said Bunge benefited from cost-cutting initiatives in the third quarter, even as the company dealt with a difficult market environment.

Soren Schroder, Bunge
Soren Schroder, c.e.o. of Bunge

“Challenging market conditions and slow farmer selling led to a lower-than-expected quarter in Agribusiness,” he said. “However, performance improvement efforts and better pricing drove higher results in Food and Ingredients and Sugar and Bioenergy. Year to date, we have delivered over $90 million of cost and efficiency benefits toward our full-year target of $125 million. We are also taking important steps to execute our strategy and for 2017 see strong growth potential in our Agribusiness, Foods and Sugar Milling businesses.

“Two acquisitions announced during the quarter will expand our Food and Ingredients platform and enhance our winning Agribusiness footprint. Grupo Minsa, a leading corn flour producer, will complement our existing wheat milling business in Mexico and increase our value added offerings to B2B customers in the U.S. New oilseed processing plants in Northern Europe will bring 2 million metric tons of additional capacity, extend our integrated value chain into key destinations and expand our presence in specialty markets for non-G.M.O. soy and other products. Both acquisitions are good fits that further optimize our flows and logistics.

“We expect a solid fourth quarter and are confident about our growth prospects in 2017. Northern Hemisphere oilseed processing and export elevation margins are up with the arrival of harvests and should remain healthy into next year. Brazil and Argentina should produce record harvests, and with a relatively small volume of crops sold in advance, we expect active commercialization during the first half of next year. In addition, global demand and trade should remain robust. We expect Food and Ingredients will build upon its successes in lowering costs, increasing operational efficiencies and expanding market share. Sugar and Bioenergy should continue to benefit from a lower cost structure and higher sugar prices.”

Grupo Minsa flour, Bunge
Bunge's acquisition of Grupo Minsa will complement the company's existing wheat milling business in Mexico and increase its value added offerings to B2B customers in the U.S. 

Agribusiness EBIT in the third quarter was $83 million, down 78% from $369 million in the same period in 2015. Edible Oil Products EBIT was $34 million, up 162% from $13 million. Milling Products EBIT was $52 million, up 63% from $32 million.

Year-to-date, Agribusiness EBIT was $533 million, down 38% from January-September 2015; Edible Oil Products was $66 million, up 53%; and Milling Products were $107 million, up 22%.

Improved results in Brazil boosted Milling Products EBIT in the third quarter.

“Volumes benefited from the contribution of our recently acquired Pacifico mill and additional market share gains,” Bunge said. “Higher margins were driven by increased efficiency, improved product mix and favorable raw material sourcing. Volumes and margins in Brazil are back to levels achieved in 2014 prior to the country’s economic crisis. Partially offsetting these improvements, results in Mexico were lower due to the combination of the devaluation of the peso and competitive pressures.”

Bunge net income in the nine months ended Sept. 30 was $474 million, equal to $3.24, down 19% from $588 million, or $3.53 per share. Sales were $30,880 million, down 5% from $32,350 million. 
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