Bunge Q2 Earnings Rise on Grain Performance

29 Jul 2016 --- Bunge shares surged on Thursday after the U.S. grain trader said quarterly profit jumped despite volatile grain markets and maintained its higher full-year earnings forecast. Earnings for the second quarter of 2016 were $121 million, up 40.6% from $86 million in the same period of last year.

Soren Schroder, Bunge’s Chief Executive Officer, stated, “Second quarter earnings were better than expected due to strong performance in Grains and favorable soy processing mark-to-market, which pulled some earnings forward. Our Agribusiness team and footprint allowed us to manage through a period of significant volatility in both prices and margins. In Food & Ingredients, Milling results were higher in all regions, reflecting better market conditions in Brazil and operational and commercial improvements. Edible Oils grew volumes, but margins continued to be under pressure in Brazil and parts of Eastern Europe. Sugar & Bioenergy results came in as expected with an outlook for a strong second half of the year. Our performance improvement programs have delivered approximately $60 million of savings year-to-date toward the full year estimate of $125 million.

“We continue to expect earnings growth in 2016 with returns on capital well above WACC; however, second half earnings will be weighted to the fourth quarter coinciding with Northern Hemisphere harvests.

Edible Oil Products results included a reversal of an approximate $12 million mark-to-market gain which benefitted the first quarter. Higher earnings in the second quarter reflected improved performances in Asia, Canada and Europe. Margins were higher in both India and China, and in Canada we benefitted from strong volume growth in both food service and food processor markets. While results were higher in Europe, the combination of depressed economies and soft consumer demand in parts of Eastern Europe continued to weigh on performance. Volumes in Brazil were strong and have returned to pre-economic crisis levels, but margins remained weak with excess supply of domestic soybean oil from the peak crushing period pressuring retail margins. Results in the U.S. were down from last year as an improvement in packaging was more than offset by weaker refining margins. The second quarter 2015 included a $15 million restructuring charge.

Results in Milling Products were higher in all regions compared with last year. In Brazil, volumes benefitted from the contribution of our Pacifico mill and market share gains. Higher margins were driven by favorable raw material sourcing strategies and improved product mix. In Mexico, higher margins were due to improved sales mix and ongoing improvement initiatives. U.S. corn milling saw higher volumes and reduced industrial costs driven by cost initiatives, which more than offset lower margins. Results in rice milling were similar to the prior year.

In terms of outlook, Drew Burke, Chief Financial Officer, stated: “Overall, we continue to expect to grow earnings in 2016. In Agribusiness, forward oilseed processing and grain handling margins in North America and the Black Sea are solid, reflecting big harvests and strong demand. The USDA is forecasting global soy meal and oil demand each to grow approximately 7% this year. However, in the near term, slow farmer selling in Brazil and Argentina, due to smaller than expected crops and lower prices, are negatively impacting margins. We also expect the mark-to-market gains we benefitted from in the second quarter to largely reverse in the third quarter.”

“In Food & Ingredients, we expect 2016 segment EBIT to be $10 to $30 million higher than last year’s adjusted result of $192 million, primarily driven by our operational and commercial excellence initiatives and recent acquisitions. We have lowered the range of our previous outlook to reflect the continued challenging conditions in certain Edible Oils markets. Milling is on track and should continue to benefit from a very competitive footprint.

“In Fertilizer, there is no change to our outlook, and we continue to expect 2016 segment EBIT to be approximately $30 million higher than last year’s result of $5 million, driven by improved farmer economics in Argentina, which should result in increased purchases of crop inputs.

“In Sugar & Bioenergy, we are entering the seasonally strong period of the year when ATR yields rapidly increase. Our sugarcane milling operations are trending well, and the segment remains on target to grow segment EBIT by $70 to $80 million, assuming normal weather patterns, compared to last year’s adjusted loss of $22 million.”