Bunge shares slide; sustains loss in fourth quarter

by Josh Sosland
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Earnings at Bunge in 2017 declined 58% from the year before.

WHITE PLAINS, N.Y. — Earnings at Bunge Ltd. in the year ended Dec. 31, 2017, adjusted for special charges, declined 58% from the year before. Announcing outlooks for 2018, the company projected improved results across all segments in the new year.

Weaker-than-expected fourth-quarter results sent Bunge shares tumbling. In trading Feb. 14 on the New York Stock Exchange, Bunge closed at $75.02 per share, down $4.49, or 6%. The close represented a rally from the intra-day low of $74. Bunge shares have been buoyed in recent weeks by speculation about a takeover bid by Archer Daniels Midland Co., Chicago. Bunge shares in December traded as low as $66.04 per share.

Net income in the year ended Dec. 31 was $126 million, equal to 89c per share on the common stock, down 82% from $709 million, or $5.07 per share, in 2017. Sales were $45,794 million, up 7% from $42,679 million.

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

“It was not what we expected coming into the year with a variety of factors developing negatively as the year progressed — crush margins, sugar milling prices and volumes in particular,” Soren W. Schroder, chief executive officer, said in a Feb. 14 conference call with investment analysts.

In the fourth quarter of 2017, Bunge sustained a loss of $69 million, versus net income of $262 million, or $1.83 per share, in the fourth quarter of 2016. Sales were $11,605 million, down 1.6% from $11,799 million in the same period the year before.

Fourth-quarter results fell well shy of expectations, Mr. Schroder said.

“The fourth quarter was a disappointment, there’s no doubt about it,” he said. “But we started out very well. October was a very strong month and gave all of us confidence that we were on track for the guidance we had given of a quarter that would be in the $300 million range in total.”

Bunge ag commodities
Bunge’s largest division, Agribusiness, had EBIT in 2017 of $256 million, down 71% from $875 million in 2016.

Disappointing soft seed crush “really was the major variable,” he said.

Major special charges in the fourth quarter included $86 million in interest and income tax charges (versus a $5 million gain in the fourth quarter of 2016); $24 million in impairment charges ($63 million in 2016); $52 million for severance, benefits and other costs (zero in 2016). Overall, special charges totaled $163 million in the fourth quarter of 2017, versus a net gain of $17 million in the final quarter the year before.

“While industry headwinds persisted through the end of the year, we made good progress in 2017 toward our strategic objectives by taking proactive steps to improve our cost structure and create a more balanced business,” Mr. Schroder said.

Bunge’s largest division, Agribusiness, had EBIT in 2017 of $256 million, down 71% from $875 million in 2016. In the fourth quarter, EBIT was $26 million, down 92% from $342 million. Agribusiness volumes were 142,855,000 tonnes in 2017, up 6% from 2016. In the fourth quarter, volumes were 34,343,000 tonnes, up 4.6%. Sales were $31,741 million for the year, up 6% from $30,061 million; $7,904 million in the fourth quarter, down 3.5%.

The company attributed the poor fourth-quarter earnings to weak margins. Fourth-quarter grain results were improved from 2016, but in oilseeds, “structural processing margins overall remained depressed during the quarter, primarily due to an oversupply of soybean meal in destinations,” the company said.

Bunge estimated that soybean crushing margins were $5 a ton lower in 2017 than in 2016 and $10 below the three-year average. Grain origination margins were compressed due to “farmer retention and lack of logistics flexibility,” Mr. Schroder said.

EBIT of the Bunge Edible Oils division was $126 million in 2017, up 13% from $112 in 2016. In the fourth quarter, though, EBIT was $28 million, down 39% from $46 million in the last quarter of 2016. Sales were $8,018 million for the year, up 17%; $2,141 million in the fourth quarter, up 13%.

“Fourth-quarter oilseed margins did not recover as quickly as expected, and sugarcane milling results were negatively impacted by a sustained period of rain late in the quarter,” Mr. Schroder said. “Food & Ingredients finished the year on a strong note with Edible Oils closing out a near-record year.”

For 2018, Bunge is projecting $100 million in savings, versus the company’s 2017 addressable selling, general and administrative expenses. The company also expects an additional $80 million of savings in its industrial and supply chain initiatives.

“The reengineering of Bunge is significant and is well underway to simplifying how we work, while reducing costs,” Mr. Schroder said.

Bunge projected improved results in its Agribusiness division in 2018 but warned against expectations of a “quick turnaround.” The company was encouraged by indications of improved oilseed crushing margins.

The company projected Agribusiness EBIT improving to a range of $550 million to $700 million.

“We expect results to be weighted to the second half of the year with a soft first quarter,” Bunge said.

The company’s Food & Ingredients is projected to generate EBIT of $260 million to $280 million, versus $223 million in 2017.

“Our outlook for year-over-year growth reflects increased volume of higher value-added products, growth in sales to key accounts and higher results in Brazil wheat milling,” Bunge said.

The EBIT range does not reflect contributions from IOI Loders Croklaan. The company expects to complete its acquisition of Loders in the first quarter.

“Looking ahead, we are seeing positive signs that soy processing conditions are improving, supporting our expectation that all segments will show year-over-year earnings growth in 2018,” Mr. Schroder said. “We expect a soft first quarter with improving conditions throughout the remainder of the year. Our Global Competitiveness Program is off to a strong start, putting us on a good trajectory to achieve our $250 million target by the end of 2019. We also delivered $110 million of industrial cost savings in 2017, exceeding our target by $10 million. In addition, we continue to work toward the separation of our sugarcane milling business and are in the process of exiting from our global sugar trading activities and our renewable oils joint venture.

“We expect our acquisition of Loders Croklaan to close during the first quarter. Loders will greatly advance our strategy to expand downstream into higher margin products closely tied to our global oils and crushing footprint. This will accelerate our move to become the leading global B2B edible oils company.”
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