Cargill Q2 profits dip despite strong ingredients results, suspends operations with Guatemalan palm oil supplier

05 Jan 2018 --- The world’s largest food commodities supplier, Cargill has reported lower profits in its Q2 results as overflowing crops continued to weigh on its grain trading business. The company’s adjusted operating profit declined 8 percent year-on-year to USUS$948m in the quarter ended November 30, while net profit fell 6 percent to US$924m. Compared to results from last year, the company has experienced a drop in profit.

“Even as conditions vary across our global markets, we continue to realize greater benefits from operating as an integrated company with a unique combination of talent, assets, insights and solutions,” said David MacLennan, Cargill’s chairman and chief executive officer.

He noted that during the quarter, the company announced more than US$1 billion in agreed acquisitions, joint ventures and new investments in facilities. “Thanks to the results of our recent strong performance, we are reinvesting in ways that enable our teams to achieve more for our customers and lead for growth.”

Cargill’s animal nutrition and protein, food ingredients and applications and industrial and financial services segments all increased profits in the quarter. However, the company’s global poultry business – part of animal nutrition and protein – declined.

As an example of Cargill’s technology initiatives, the company said its turkey business experimented with using Blockchain, the electronic ledger, to track birds during the Thanksgiving holiday to provide customers with information about the farms that raised the animals.

Cargill’s revenue was US$29.2bn in the quarter, up 8 percent compared to the same period last year.

Segment results
Earnings in Food Ingredients & Applications were up broadly, with a majority of the segment’s food ingredient businesses posting good gains for the quarter. Cocoa and chocolate products, malts for brewers, distillers and food manufacturers, as well as sweeteners and starches for food and other applications, led results in most regions. The segment’s Asia-based businesses also contributed strongly to the quarter. Salt results decreased from the prior year, due in part to lower sales volume for deicing products after two mild North American winters. In addition to deicing and other industrial applications, the business serves food manufacturers with a wide range of salt ingredients and sodium reduction products.

Adjusted operating earnings in Animal Nutrition & Protein narrowly exceeded last year’s strong second quarter. Animal nutrition earnings rose across the global business, with improvement led by premix and feed additives. Protein results in North America decreased slightly against a strong comparative period. As cattle costs moved up, retail demand for beef remained brisk, as did exports of US beef. Pre-season marketing by the US turkey business drove whole-bird sales in advance of the Thanksgiving holiday. The segment’s global poultry business trailed the year-ago quarter, as good performance in parts of Southeast Asia was offset by softer earnings elsewhere. In total, Animal Nutrition & Protein was the largest contributor to adjusted operating earnings in the second period.

In poultry, Cargill is forming a joint venture with UK-based Faccenda Foods. Once completed, the venture will serve the country’s food retailers and foodservice companies with fresh chicken, turkey and duck. With regard to organic growth, Cargill is investing US$146 million in its cooked meats facility in Nashville, Tennessee. Acquired last year, the new outlay will double the plant’s pizza toppings capacity and fund the construction of a pepperoni production facility. The two projects will come online in mid-2018 and mid-2019, respectively.

Acquisition of Pro-Pet
Elsewhere, Cargill has reached an agreement to acquire Pro-Pet, an Ohio-based manufacturer of private label and co-manufactured pet foods, including premium dog food brand Black Gold. The acquisition makes Cargill the only national supplier of both animal feed and pet food offerings in the agricultural retail space.

The transaction is expected to close within 30 days, subject to customary approvals.

“Pro-Pet’s commitment to high-quality, safe pet food and passion for the pet food business is the perfect fit for our Cargill Animal Nutrition business, and allows us to better serve our customers seeking a focused supplier for both animal feed and pet food options,” said Pilar Cruz, president, Cargill Feed and Nutrition.

“Cargill’s vast resources and competency in sourcing of commodities, along with their reputation in the agricultural retail business sector, makes Cargill the natural and best partner for Pro-Pet,” said Jim Wiegmann, president and CEO of Pro-Pet. “There is no organization that can leverage the strengths and capabilities of Pro-Pet better than Cargill, which will enhance our ability to serve retail partners and pet food brand owners.”

Pet food is a top-growing category among agriculture retailers with an estimated eight percent distribution share, in a space that continues to evolve with changing consumer preferences.

“The pet food category continues to change, as indicated by the increased focus on premium offerings,” said Mark Lueking, US managing director, Cargill Feed and Nutrition. “Pro-Pet has the capability to satisfy this market need, and our mutual passion for serving customers make us a strong cultural fit. We look forward to growing the business together by delivering a range of options to meet customer demand.”

Currently, Cargill operates 50 animal feed production and distribution facilities across the US, offering branded and private label pet food to agriculture retailer customers.

Company suspends business with Guatemalan palm oil supplier
In other news, Cargill has suspended business with a major Guatemalan palm oil supplier that has been accused of human rights violations and environmental degradation. A Guatemalan judge ordered Reforestadora de Palmas del Petén (REPSA) to shut down the plantation for six months, but a higher Guatemalan court overturned the order.

e Minneapolis Star Tribune reports on the move by the agribusiness giant, which said it wouldn't enter any new purchase deals with REPSA until the Guatemalan firm can meet the “requirements of our sustainable palm oil policy.”

REPSA in 2015 was targeted by human rights and environmental advocates after a large fish kill in northern Guatemala that critics say was caused by discharges from the company. A court ruling against REPSA was followed by kidnappings and a killing of local activists.

Cargill in 2016 required REPSA to toughen its policies on environmental and social protection and issue stronger policies against violence.

Speaking with FoodIngredientsFirst, Chris Schraeder, Director, Sustainability Communications, and Corporate Affairs, stated: “In November, Cargill announced the suspension of business with Guatemalan palm oil supplier Reforestadora de Palmas del Petén, S.A (REPSA) effective immediately. The suspension is a result of REPSA's failure to meet the requirements of our sustainable palm oil policy and critical milestones in response to grievances raised by a coalition of international and Guatemalan NGOs. We will not enter into new purchase contracts with REPSA until the supplier can demonstrate adoption of the required sustainable environmental and social practices."

“Cargill is committed to treating people with dignity and respect in the workplace and in the communities where we do business, and we are committed to the protection of human rights. We also expect our suppliers to uphold the law and treat people with dignity and respect,” Schraeder added.

By Gaynor Selby & Elizabeth Green