Bunge Reports Q1 Results, High Results Driven by Brazil

04 May 2017 --- In Agribusiness, slow selling due to lower commodity prices and stronger local currencies negatively impacted Bunge's grain origination and soy processing operations in Brazil and Argentina. Grain and Oilseeds distribution results were also lower due to limited forward merchandising opportunities.

Partially offsetting these lower results were higher softseed processing results in Canada and Europe, which were driven by bigger seed crops and improved vegetable oil demand. Higher oilseed processing results in China, due to improved margins and volumes, offset lower crush results in the U.S., which were down due to lower margins. Higher costs in Oilseeds were primarily driven by appreciation of the Brazilian real, inflation in Argentina and closing costs for our recently announced acquisition of crush plants in Europe.

Edible Oil Products 
Higher results in the quarter were primarily driven by Brazil, which increased volumes and margins in most product categories in what remains a challenging economic environment. By managing the complete soybean chain, our Brazilian team leveraged our integrated footprint to meet customer demand during a period of tight oil supply. Overall results were partially offset by lower margins in U.S. refining and packaging. Earnings in other regions of the world were comparable with last year. Results in 2016 included a $12 million mark-to-market gain, which reversed in the second quarter.  

Sugar & Bioenergy 
The first quarter is the inter-harvest period in Brazil when sugarcane mills in the Center-South region typically do not operate for most of the quarter and are selling sugar and ethanol inventories from the previous sugarcane harvest. Adjusting for $6 million of severance and restructuring costs, the improved results in the quarter were primarily driven by our industrial milling business, which benefited from higher sugar volumes and prices compared to last year. 

Results in trading and distribution were negatively impacted by sugar price volatility and were down from last year. Results and related development costs associated with our renewable oils joint venture equated to a loss of $6 million in the quarter. 

Soren Schroder, Bunge’s Chief Executive Officer, stated, “The slow pace of farmer selling in South America compressed margins in Agribusiness and led to a lower than expected first quarter. Our teams managed risks, logistics and industrial operations well. Despite this difficult start, we continue to expect 2017 to be a year of solid year-over-year earnings growth, although below our prior expectations. 
 
“Farmers in South America are in the process of harvesting record soybean crops and are on track for record corn production, over 70% of which has yet to be commercialized. We expect the pace of selling to increase in the second quarter in front of the prospects of large crops in the Northern Hemisphere, and these sales, combined with lower commodity prices, should lead to improved soy crushing margins. 
 
“In Food & Ingredients, volumes in Edible Oils increased, while margins in Milling reflected increased competition and softer demand in both Brazil and Mexico. Our market shares remain strong, and we expect margins to expand as we continue to execute on our value added programs and capture additional performance improvement benefits.  In Sugar & Bioenergy, we are confident in a strong year with most of our sugar hedged at higher prices and continued benefits in sugarcane yields from operational improvements. 
 
“We have made good progress with our performance improvement initiatives.  We delivered $22 million of cost savings in the first quarter and are on track to achieve $100 million of benefits in 2017. We have also reduced our 2017 capex by $50 million. Importantly, to align our cost structure with the competitive environment, we continue to seek and identify additional opportunities to ensure operating excellence throughout the organization. We will report progress on these cost reduction and efficiency initiatives in the coming quarters.” 

Outlook 
Thomas Boehlert, Chief Financial Officer, stated, “In Agribusiness, we expect improvement in 2017 from last year’s results. South American farmers have produced record bean and corn crops and have a significant percentage remaining to price.  On-farm storage has increased in parts of Brazil over the years, but capacity is well below current production estimates. In Oilseeds, product demand is strong and in line with our long term projections.  While soy processing margins have been good in the U.S., they remain below our expectations in South America. We expect margins to improve as farmer selling picks up in the coming months and customers’ replenish pipelines; however, as a result of this delay, we are adjusting our full-year 2017 EBIT range to $800 million to $925 million, weighted to the second half of the year.   

“In Food & Ingredients, we expect Edible Oils to continue to show strong year-over-year improvement in 2017 on higher volumes and margins. However, due to the weaker than expected start in Milling and anticipation of continued soft consumer demand from the tough economic environments in Brazil and Mexico, we are adjusting our full-year 2017 EBIT range to $245 million to $265 million, weighted to the second half of the year due to seasonality. 

“In Sugar & Bioenergy, we expect 2017 EBIT of $100 million to $120 million. Our outlook for year-overyear improvement reflects sugar prices hedged at higher levels and higher cane yields and crush, which assumes normal seasonal weather patterns. Similar to past years, results will be seasonally weak until the second half of the year.”

“Additionally, we have reduced expected capex spend by $50 million to a range of $700 million to $750 million, of which approximately $150 million is related to sugarcane planting, mill maintenance and productivity projects.”