Cargill Posts Disappointing Results in a Changing Food Environment
07 Aug 2015 --- Global food ingredients business Cargill has announced disappointing fourth quarter and full year results with a significant loss reported in both reporting periods. Fourth-quarter revenues were $28.4 billion, compared with $36.2 billion in the same quarter 2014, while full year earnings fell 13% compared with 2014, from $1.82bn to $1.58bn.
Analysts say that a changing consumer market and sluggish sales in emerging markets are partly to blame for the losses, as Cargill struggles to do business in a new environment. Sustainability, a backlash against GM crops and concern about meat quality top current consumer issues and all affect Cargill and the way it must do business in the future.
David MacLennan, Cargill's president and chief executive officer, said: "While several Cargill businesses generated very strong earnings in fiscal 2015, we lagged results from the prior year and did not meet our own expectations.
"The economic environment remains sluggish in many emerging markets where we have invested significantly over the past several years. Even so, we aim for growth and profitability through these cycles. We are moving forward with good progress on changes begun last year to optimize the business portfolio, reduce costs and increase operational effectiveness."
MacLennan noted that for Cargill, how it achieves results is paramount. "Over the 150 years that Cargill has been in business, we've seen big changes in the marketplace, including today's profound rise in the importance of sustainability. Given Cargill's broad presence in food and agriculture, we're in a good position to drive positive change. We want to be the most trusted source of sustainable products and services in our industry."
Animal Nutrition & Protein posted increased profits for the full fiscal year, with strong performances in global animal nutrition, Central American poultry, and U.S. pork, turkey and egg further processing. The segment executed extremely well, drawing on its global reach, diverse products and services, and lower feed input costs. Softer results in some animal protein businesses held fourth-quarter earnings below the year-ago level. The biggest factor was the North American market, where high cattle costs decreased beef's competitiveness relative to other meats. In the fiscal 2016 first quarter, Cargill agreed to sell its U.S.-based pork business to JBS USAPork for $1.45 billion, pending regulatory review and approval.
Full-year earnings in Origination & Processing were up slightly for the year; fourth-quarter results lagged the year-earlier period. Recent years' record-large crops in the Americas have seen the rebuilding of global agricultural commodity stocks, which reduced price volatility and limited market opportunities for many of the segment's businesses. Adverse economic conditions hampered results in Argentina, as farmers held their crops; Brazil also experienced slower farmer selling due to lower global prices for corn and soybeans. Cargill's evacuation and the subsequent armed occupation of its sunflower seed processing plant in Donetsk, Ukraine, in early July 2014 decreased earnings in that region during the following 11 months. In contrast to those geographies, results in North America were strong. The combination of a record U.S. soybean crop, limited supplies from South America and a strong export pull for most of the year boosted soybean crush volumes in North America, even in the typically slower fourth quarter. After months of unusually high grain-handling and export volumes in Canada, driven by the country's very large 2013 and 2014 harvests, the segment's grain origination returned to more normal levels in the fourth quarter. Alvean, the new Cargill-Copersucar sugar joint venture, got off to a very strong start in its first eight months of operations.
Earnings in Food Ingredients & Applications trailed the prior-year period for both the fourth quarter and full year. Areas of continuing strong performance included Cargill's salt operations, which met high demand for deicing products during a harsh northeastern winter in North America. Ardent Mills, the North American flour milling joint venture formed by Cargill, ConAgra Foods and CHS in fiscal 2014, had a successful first year of operation. Elsewhere in food ingredients, earnings lagged. The economic slowdown and excess industry capacity in emerging markets decreased results, as did rapidly evolving consumer preferences in developed economies. Comprehensive efforts are underway to improve profitability and reshape the portfolio for better performance.
The Industrial & Financial Services segment posted an upturn in the fourth quarter, though not for the full year. The energy businesses, especially petroleum, performed significantly better than a year ago in both periods – a function of last fiscal year's restructuring and good positioning during calendar 2014's sharp drop in crude oil prices.
MacLennan noted Cargill has experienced tremendous growth and success during its 150 years. "Our company has a history of rising to challenges, and we continue to do so today. We are focused on improving profitability and restoring growth, while fulfilling our commitment to helping customers thrive and feeding the world sustainably."
