Bunge reports sharply lower Q1 2017 profit

By Aerin Einstein-Curtis contact

- Last updated on GMT

© iStock/Melpomenem
© iStock/Melpomenem

Related tags: South america, Earnings before interest and taxes

Factors such as poor margins, and a delay in pricing by South American grain producers influenced its first quarter revenue decrease, said the agribusiness giant.

The company released details of their first quarter financials ending March 31 on Wednesday.

Its net income for Q1 2017 fell to $47m from $235m in Q1 2016.

Its adjusted earnings before interest and taxes (EBIT) came in at $139m for this quarter as opposed to $322m in the same period in 2016, reported Bunge.  

However, the company is anticipating that it will have solid earnings growth for the year overall, said Soren Schroder, Bunge CEO.

“Despite a slow start we’re confident in delivering a good year with solid earnings growth, although somewhat reduced to reflect the delay in pricing from South American producers,”​ he said on a conference call with analysts.

Large crops and a slow pace in farmers pricing feed grains in South America hit margins, he said. “This standoff between supply and demand has reduced forward commercial activity dramatically translating to a negative effect on our margins this quarter, but fundamentals remain strong,”​ he added.

The company anticipates, however, a growth in demand for soybean meal and an increase in soy crush, he said. The next quarter is set to show record crush rates in South America, especially in Argentina.

“Despite these positive demand and capacity utilization trends, soy crush margins have been weak, except in the US where margins have been fair,”​ said Schroder. “The challenge is in South America and Europe, where current margins of $23-25 a ton are $7-8 a ton below expectations – we believe this will improve in coming months.”

Fundamentals for crush and trade are favorable and markets are expected to adjust to the supply and demand imbalance, he said. “If that happens, and global commercial activity increases, the value of our assets and global network gives us confidence that we’ll be able to grow earnings in agribusiness for the year,”​ he added.

Segment details

The agribusiness segment saw a decrease in earnings in the quarter on comparison with Q1 2016, with income coming in at $109m in Q1 2017. In the same period last year that division had earnings of $282m.

“Agribusiness results were lower than the comparable period last year, primarily as weaker margins and higher costs were only partially offset by higher volumes,” ​said Thomas Boehlert, CFO. “Risk management performance was solid, but lower than last year.”

The volumes for global soy crush were higher than what was seen in the first quarter last year but that improvement was offset by weaker margins and cost increases from Brazil, Argentina and the acquisition of soy crush plants in Europe, he said.

The company has altered its full-year 2017 EBIT to a range of $800 to $925 with an emphasis on the latter half of the year

Results for grains were $17m, down from $144m in the first quarter of 2016, said the company.

Looking forward

The company is not waiting for markets or margins to improve, said Schroder. Instead, it is intent on carrying out further cost and productivity initiatives.

“We expect that a very competitive environment will remain across all segments,”​ he said.  

“We are convinced we’ll grow earnings this year despite the difficult start,” ​he added.  

The company is also looking toward consolidated selling, general and administrative expenses (SG&A) as an area of opportunity and interest going forward, said Boehlert. 

“We plan to launch a substantial project to achieve this in the coming months,” ​he said. “Internal resources have been allocated and the planning process has begun.”

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