Bunge gets a boost from its agribusiness segment

By Aerin Einstein-Curtis contact

- Last updated on GMT


Related tags: Earnings before interest and taxes

Bunge Limited’s second quarter outperformed the same period last year.

Details of the agribusiness and commodity trading giant's second quarter results​ for the period ending June 30 were released on Thursday.

“The second quarter finished better than expected, and we're optimistic for the balance of the year,”​ said Soren Schroder, Bunge CEO, in a conference call on the results.

Overall, the company had a net income of $121m for the quarter compared to $86m for Q2 2015.

Total segment earnings before interest and tax (EBIT) were $217m in Q2 2016, again up on the $152m from the same period last year, reported Bunge.

The Q2 2016 earnings for its agribusiness division jumped to $180m as opposed to $134m in Q2 2015.

Food businesses in the US and Brazil have been restructured to reduce cost, noted Bunge. Margins have remained weak in China, although there is demand growth for proteins and oils, said the company. It said it has focused on risk and reducing cost in that area, and is anticipating improvement in profit from the crush industry in the medium term.

And Schroder said the impending grain export season looks more promising than last year’s.

“We're optimistic about growing earnings this year and next,” s​aid the CEO on the call. “We have a solid foundation in agribusiness.”

In that particular segment, Schroder said Bunge continues to improve the efficiency and growth potential of its footprint in crush and origination.

He noted the inauguration of a crushing facility in its fourth complex in June in the Kyiv, Ukraine.

"And in Vietnam, we recently announced the crush joint venture with Wilmar and Green Feed, which will link our upstream pressing operation to Wilmar's downstream oil refining and consumer products business and Green Feed's marketing activities.

"And this week in Brazil, we announced the joint venture with AMAGGI, a leading Brazilian farming and agribusiness company. Together, we will share the export terminal at Barcarena and transhipment station in Miritituba to ensure the facilities operate at the highest levels of utilization and efficiency,"​ continued Schroder.

He added that other partnerships such as the Saudi Agricultural and Livestock Investment Company (SALIC) in Canada, will help fill gaps in the group's global grain footprint. 

Grains and oilseeds focus

In the agribusiness segment, the grains portion had an increase when compared to income for the second quarter of 2015, said Bunge CFO, Andrew Burke, on the call.  

Net sales for the segment were $7,524m, a drop from the $7,744m done the previous year, the company reported. Gross profit also saw a drop; however, segment volume did see an improvement moving to 33.9m metric tons.

“Agribusiness adjusted EBIT [earnings before interest and tax] was $180m versus $134m in the prior year, a higher performance was due to our grains business, which reported an adjusted EBIT of $124m versus $71m the prior year,” ​said Burke. “The increase was primarily driven by our grains trading and distribution business where we benefited from increased volumes and improved risk management results.”

Both volumes and margins were up from the past year for port operations in South America, he said. Argentina continues to have pressure on origination as April flooding, inflation and low prices mean that farmers are less willing to sell, but US origination margins are predicted to improve this fall and when export demand increases.  

The oilseed side of the segment fell from an income of $63m in 2015 to $56m for the quarter just ending, he said.

Processing in Argentina also was negatively affected by the weather, he said. But soy processing has been strong in Brazil and North America.

M&A activity on the horizon 

Bunge is anticipating additional growth in earnings for the latter half of 2016, said Burke. And the money that was set aside for future mergers and acquisitions has not yet been tapped.

Oilseeds are expected to be solid as the US Department of Agriculture (USDA) has projected a 7% growth in global consumption of soybean meal and oil, he said. The US processing margin is positive and may benefit from the more limited supply coming out of South America.

“Results will be weighted towards the fourth quarter as farmer retention in South America is putting processing margins under newer term pressures, and we will absorb most of the mark-to-mark reversal in the third quarter,”​ said Burke.

US grains’ also is anticipated to see benefits from a large new crop in the northern hemisphere, South America’s smaller crop and increased farmer retention, added the CFO.

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