Bunge earnings down despite strong ag operations

by Eric Schroeder
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WHITE PLAINS, N.Y. — Net income at Bunge Ltd. in the second quarter ended June 30 totaled $265 million, equal to $1.78 per share on the common stock, down 14% from $307 million, or $2.02 per share, in the same period a year ago.

Net sales during the second quarter of fiscal 2012 were $15,090 million, up 4% from $14,488 million in the second quarter of fiscal 2011.

“Bunge’s Agribusiness operations performed well in a volatile environment, but Sugar & Bioenergy, which was impacted by adverse weather conditions, and Food & Ingredients delivered lower-than-expected earnings,” said Alberto Weisser, chairman and chief executive officer. “Looking ahead, we expect a strong second half of 2012. Weather is always an important variable in the agribusiness and food industries, but this year it is particularly significant. Global stocks of corn and soybeans are already tight, and a severe drought in the U.S. has lowered expectations for a replenished supply this fall and driven commodity futures prices to record levels.

“As the world adjusts to these developments we are likely to see a tempering of near-term demand among commercial customers, the emergence of non-traditional trade flows both within regions and globally, as well as massive planting by farmers in the Southern Hemisphere. Large crops next spring from farmers in South America will help provide relief to a stressed market.

“We expect Bunge will have a strong second half of the year, not only because we are confident in our businesses and our approach, but also because we are confident that the role we play as a company is both meaningful and valued. In times of tight commodity stocks and price volatility, farmers depend on a trusted outlet for their crops, commercial customers rely on a responsive supplier, and the world requires flexible trade that can move products smoothly and safely from where they are to where they need to be.

Bunge’s strong balance sheet, efficient operations, diverse product portfolio and global asset network enable us to provide these services in the most challenging of times.

“Of course, record commodity prices spark concern for the food security of vulnerable communities. However, while corn and soybean stocks are low, global stocks of other key staples, including wheat and rice, are at more comfortable levels. The availability of these crops, combined with rational approaches by governments to domestic food, agriculture and trade policies, fast response from aid agencies and cooperation from industry, should help the world respond quickly and effectively to potential issues.”

For Agribusiness, second-quarter EBIT rose to $386 million from $308 million, while sales rose 10% to $10,580 million from $9,624 million.

“Results in the quarter were primarily driven by strong performances in oilseed processing and grain merchandising in our South American operations,” Bunge said. “Results in our European merchandising business, which benefited from the addition of our new Ukrainian port terminal, also improved and contributed to the higher volume in the quarter. The addition of grain facilities in the U.S. related to our new grain export terminal in the Pacific Northwest and oilseed processing capacity expansions in Asia that came on-stream last year also contributed to the increase in volume. Results in the quarter included an $85 million gain on sale of our minority stake in Solae. Results in the second quarter of 2011 included a $37 million gain related to the sale of our interest in a European oilseed processing facility joint venture.”

The Edible Oil Products segment had second-quarter EBIT of $2 million, down 93% from $30 million, and sales of $2,331 million, up 6% from $2,200 million. Bunge said performance was weaker in most regions, primarily due to lower margins in packaged oil resulting from volatile raw material prices.

For Milling Products, second-quarter EBIT was $44 million, up 100% from $22 million in the same period a year ago. Net sales for the quarter, meanwhile, fell 14% to $421 million from $491 million. Bunge said the most recent quarter included a $36 million gain from the acquisition of the remaining interest in a Mexican wheat milling business. Excluding the gain, sluggish results reflected the combination of lower margins in wheat milling and continuing challenges related to the complemented implementation of a new SAP system in Brazil.

Bunge sustained a loss of $28 million in its Sugar & Bioenergy segment during the second quarter of fiscal 2012, which compared with EBIT of $18 million a year ago. Net sales fell 24% to $1,079 million from $1,420 million.

In the Fertilizer segment, Bunge sustained a loss of $1 million, which compared with a loss of $5 million in the same period a year ago. Sales eased 10% to $679 million from $753 million.

Looking ahead, Drew Burke, chief financial officer, said Bunge expects continued overall strong performance in agribusiness in the second half of the year, though he noted demand could slow with higher prices.

“Due to tight soybean supplies in South America, oilseed processing in the U.S. should benefit from strong export demand when harvest commences,” Mr. Burke said. “Our European sunseed and Canadian canola processing operations should benefit from the combination of large crop production and increased oil and meal demand due to tightness in the global soybean and European rapeseed supply.”

For the first six months of fiscal 2012, overall net income at Bunge was $349 million, or $2.37 per share, down 34% from $531 million, or $3.51 per share, in the same period a year ago. Net sales were $28,536 million, up 7% from $26,682 million.

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