Bunge Hit by Slow Farmer Selling, Food & Ingredients on Track for Another Record Year

31 Oct 2014 --- Bunge Limited has reported that total adjusted segment EBIT of $316 million, down $72 million vs. last year. Full-year outlook remains positive; anticipate meeting or exceeding targeted combined Agribusiness-Foods ROIC of 1.5 points over WACC. Agribusiness negatively affected by slow farmer selling and ~$80 million mark-to-market hedging impact, which is largely expected to reverse upon execution in Q4. Sugar & Bioenergy is up vs. last year; on track to finish year EBIT and free cash flow neutral.

Soren Schroder, Bunge’s Chief Executive Officer, stated, “Third-quarter results were lower than last year; however, Bunge is in a strong position to meet or exceed our full-year, combined return target of 1.5 points above cost of capital in Agribusiness and Food & Ingredients.”

“Adjusting for temporary mark-to-market impacts, Agribusiness results were within our range of expectations. The transition from tight to plentiful global grain and oilseed supplies, highlighted by falling prices and some of the slowest farmer selling in recent memory in South America, created a challenging market environment in the third quarter. Our Agribusiness team managed the associated risks well. Looking ahead, strong crushing margins and high utilizations at export facilities throughout the Northern Hemisphere should deliver a good fourth quarter.”

“In Food & Ingredients, Milling continued its good performance and we made steady progress on our improvement efforts in Edible Oils, although results in that business were impacted by logistics issues and tight raw material supply in North America. The fourth quarter is a period of seasonally strong demand for Food & Ingredients, and this, combined with additional contributions from improvement initiatives, should help us reach another record year for the segment.”

“Sugar & Bioenergy produced solid results, and we are on track to finish the year EBIT and free cash flow neutral. We are pleased with the progress to date to stabilize the business, and we have a strong team committed to operate it to be profitable and self-funding as we work to further improve its returns.”

“The market environment and the election in Brazil have complicated efforts to reach a conclusion in the strategic review of our sugarcane milling operations, but our intent is unchanged, and we continue to look at a full range of options.”

“During the quarter we returned $100 million to Bunge’s shareholders through our share repurchase program, bringing the year-to-date total to $300 million.”

The quarter was characterized by very slow farmer selling driven by the significant drop in commodity prices. As a result, grain origination results were lower than last year, especially in South America. In Brazil Bunge experienced the lowest level of forward selling of new crops in years and in Argentina farmers are holding soybeans as a hedge against inflation and currency devaluation. This, combined with the impact of approximately $80 million in temporary mark-to-market hedging losses in our North American and European oilseed processing and distribution businesses, were the primary drivers of lower year-over-year results. “We expect approximately $60 million of mark-to-market reversals in the fourth quarter and additional reversals in Q1 2015 as we execute on existing distribution contracts and process the related crushing volumes. Our risk strategies were successful in both grains and oilseeds. In our oilseed processing business, we managed the complicated crop transition in North America well. Crushing margins were higher year-over-year in most parts of the world, but volumes were impacted by reduced soybean availability, especially in Argentina and in the U.S. where old crop beans were scarce and new crop beans weren’t yet available due to the weather-delayed harvest. China crushing continued to be a challenge compared to the previous year, but conditions improved as we entered the fourth quarter.”

“Contributions from our performance improvement initiatives and higher results in Brazil were more than offset by lower results in North America and Ukraine. Brazil benefitted from improved margins in most parts of the business, reflecting our efforts to manage value and improve our relationships with key accounts. In North America, results were impacted by railcar availability in Canada and incremental logistics costs in the U.S. as raw material supply ran low during the transition to the new soybean crop. In Ukraine, results were negatively impacted by the significant devaluation of the Ukrainian hryvnia vs. the U.S. dollar during the quarter.”

“Higher results in the quarter reflect improved performance in our Brazilian wheat milling business, which benefitted from improved margins and production yields, and the addition of our new wheat mills in Mexico. The integration of these mills continues to progress well with synergies tracking to expectations. We have made improvements to the cost structure through reducing energy consumption, broadening raw material sourcing and streamlining the organizational structure. Results in corn and rice milling were comparable to last year. Third quarter 2013 results included a $7 million charge related to transactional taxes in Brazil.”

“All businesses in the segment performed well, generating higher results in the third quarter. In sugarcane milling improved Brazilian ethanol prices, increased energy sales and savings from our cost containment initiatives, more than compensated for lower milling volumes due to wet weather. Also contributing to higher milling results were mark-to-market gains related to hedges on our forward sugar sales of approximately $12 million and gains on foreign currency hedges. Higher margins in our global trading & merchandising business more than offset lower volumes. Results in our biofuels business were higher than last year, primarily due to the contribution from our new corn wet milling joint venture in Argentina. Results in the third quarter of 2013 included provisions of approximately $18 million related to equipment and machinery held for sale.”

Drew Burke, Chief Financial Officer, stated, “We expect to have a strong fourth quarter. In Agribusiness, record U.S. harvests in combination with extremely slow farmer selling in South America and strong demand from the livestock sector have driven U.S. crush margins to historically strong levels. Along with large softseed and grain crops in Europe, this will allow our crushing and exporting facilities in the Northern Hemisphere to operate at high run rates with good margins. We also expect about $60 million in mark-to-market reversals in the fourth quarter and additional reversals in the first quarter of 2015.

"In Food & Ingredients we expect another record year. The fourth quarter is the seasonally strong holiday period when demand for flours, vegetable oils, margarines and shortenings increases. We will also have additional contributions from our performance improvement initiatives and our new wheat mills in Mexico.”

“In Sugar & Bioenergy, we expect breakeven full-year segment EBIT and are managing the business to be free cash flow neutral. We have sufficient cane to crush approximately 20 mmt; however, at the end of September we were about 75% through the harvest, so weather remains an important factor in the length of the processing season.”

“We expect our Q4 and 2014 full year tax rate to be approximately 23%, which is in line with our long-term range of 22-24%.”