Bunge facing challenges in Agribusiness

by Eric Schroeder
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Earnings in the third quarter of fiscal 2017 at Bunge were higher sequentially and year-over-year.
 

WHITE PLAINS, N.Y. — Although earnings in the third quarter of fiscal 2017 at Bunge Ltd. were higher sequentially and year-over-year, they continue to be adversely affected by market and industry headwinds, said Soren W. Schroder, chief executive officer.

Net income attributable to Bunge in the third quarter ended Sept. 30 totaled $92 million, equal to 59c per share on the common stock, down 22% from $118 million, or 83c per share, in the same period a year ago. Net sales were flat at $11,423 million.

In the company’s Agribusiness segment, EBIT totaled $103 million in the third quarter ended Sept. 30, up from $83 million in the same period a year ago, while year-to-date EBIT in the segment was $230 million, down sharply from $533 million in the same nine months a year ago.

In a Nov. 1 conference call with analysts, Mr. Schroder said fiscal 2017 so far has been a “challenging year” for Bunge’s Agribusiness segment.

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

“Many of you are asking if this is a new normal or just a low point in the ever-changing Agribusiness cycle,” Mr. Schroder said. “Unfortunately, there is no simple answer. Some of the challenges in the first half of this year were related to the tactical decisions industry participants made by committing to logistics and forward sales in anticipation of record South American crop, a dynamic we don’t expect to recur next year. The oversupply of crops in almost every region, static trade flows, little incentives by consumers and farmers to price forward and low price volatility are all cyclical factors, which have pressured margins. But we would expect that to change in time.”

Mr. Schroder said the underlying macro demand drivers of Bunge’s biggest business — soy crush — are intact, adding that the company is confident that utilization rates and margins will improve. He also indicated that growth in trade of grains and oilseeds are solid, and Bunge expects that supply will adjust to demand either through lower or reduced acreage. In oils, continued growth in demand and lower expansion in palm production is pointing to tighter oil stocks, which could drive demand for softseed crush, he said.

“The point is that the markets are working and remain dynamic even if it doesn’t seem like it at the moment,” he said.

Bunge soybeans
Bunge’s biggest business is soy crush.
 

Mr. Schroder said Bunge continues to improve its agribusiness footprint. He said the recent partnership with SALIC in Canada has the company on its way to creating “the country’s leading export network.” Bunge also has broken ground in Vancouver, B.C., on a new export terminal, and several sites are under construction in Ontario.

“In short, we are filing the missing piece of our global network in a capital-smart way with a first-class partner giving us access to nearly 5 million tonnes of future export flows from both coasts of the country,” he said.

Acknowledging that 2017 has been “a humbling year” from an Agribusiness earnings perspective, Mr. Schroder stressed the importance of remembering the “very positive underlying macro drivers of global trade and food consumption, the important role we play on our world-class footprint and how little it takes to change the global commodity balances.”

“The outlook for Agribusiness in the fourth quarter is for improvement driven by North America and Brazil,” he said. “And we believe that 2018 will be better than this year. How big an improvement is difficult to predict, but the macro drivers are supportive and the industry learned an important lesson this year in getting too far ahead of the large crops.”

Bunge lowered its full-year range for Agribusiness EBIT to $425 million to $500 million, down from $550 million to $650 million.

Mr. Schroder said Bunge also feels good about the prospects for its Foods business.

“Oils’ performance is expected to accelerate significantly with the Loders integration and along with our organic growth initiatives, should move us to the 35% of earnings mix from Food & Ingredients in the medium term,” he explained. “In Milling this year, we experienced a nasty combination of events in Brazil, a very sluggish consumer demand and increased competition from the larger domestic crop. Many observers believe that the Brazilian economy may have bottomed out and their prospects for significantly reduced wheat crops in both Argentina and Brazil, which should place a premium on our enhanced footprint. In Mexico, Milling is back to 2016 run rates. And we have several new customer initiatives, which give us confidence in a good finish to the year and into next.”

EBIT in the Milling Products segment totaled $23 million in the third quarter, down from $52 million in the same period a year ago. In the nine months ended Sept. 30 segment EBIT was $48 million, down from $107 million a year ago. 
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