Bunge reduces earnings guidance for 2017

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/shironosov
© GettyImages/shironosov

Related tags: Better, Earnings before interest and taxes

Bunge reported lower income for the third quarter on the same period in 2016 though it anticipates momentum in the fourth quarter and start of 2018.

The New York-headquartered company reported its third quarter results on Wednesday. The period covered ended September 30.

Soren Schroder, Bunge CEO, said market headwinds prompted the company to reduce its earnings guidance.

"Our earnings improved sequentially and year-over-year, although they continued to be impacted by market and industry headwinds. As a result, we are reducing our earnings guidance for the year in agribusiness and sugar and bioenergy. At the same time, we are making good progress towards our strategic objectives of creating a more balanced business, managing those aspects of our operations that we can control and taking proactive steps to ensure we remain agile in responding to changing market conditions.”

The company’s competiveness program also has started to take effect, he added.

Overall, Bunge reported a decrease in net income - earnings dipped from $118m in Q3 2016 to $92m for the same period this year.

Total segment earnings before interest and tax (EBIT) moved from $213m in 2016 to $175m this year, said Thomas Boehlert, CFO with Bunge. However, on an adjusted basis total segment EBIT was $204m.  

Soy processing and origination margins have not met company expectations, he said. But there has been some improvement at this point and the full-year EBIT is predicted to be in the range of $425-$500.

Bunge is looking to see improved segment performance in 2017, based on current efforts and work with the renewable oils joint venture, added Schroeder.

Ag and grain segment results

While the grains and oilseeds results were higher than last year, overall margins remained weak, reflecting excess global supplies, spot global customers and pressure on farmer margins, said the company.

Results for the agribusiness segment improved in the third quarter, with the adjusted EBIT moving from $83m for the third quarter in 2016 to $127m for the same period this year, said Boehlert. Positive segment results saw benefit from soy crush volumes, origination margins and risk management efforts.

“This resulted from a $9m increase in oilseeds and a $35m increase in grains,”​ he said on the conference call. “Global soy crush volumes were higher than in the comparable quarter last year, but the impact was partially offset by lower margins.”

The oilseeds area had an adjusted segment EBIT of $88m, up from $79m for the same quarter the previous year, the company reported. Grains reported total segment EBIT of $4m for 2016 and $39m for the third quarter of this year.

The improvement in grains is primarily attributed to a boost in origination margins in Brazil and Argentina, said Boehlert. There also was an improvement in oilseed trading and distribution, but soft seed crush volumes were comparable to last year.

“Many of you are asking if this is a new normal or just a low point in the ever-changing agribusiness cycle – unfortunately, there is no simple answer,” ​said Schroder. “Some of the challenges in the first half of this year were related to the tactical decisions industry participants made by committing to logistics and forward sales in anticipation of record South American crop, a dynamic we don't expect to recur next year.”

The oversupply of crops in multiple areas along with slow trade flow and low price volatility are factors that have pressured margins, he said. However, they are also elements that are anticipated to change over time.

The company remains confident that use rates and margins will improve for soy crush, as demand drivers continue, he said. “Similarly, growth in trade of grains and oilseeds is solid, and we expect that supply will adjust to demand either through lower or reduced acreage because of poor farm economics, or some kind of crop disruption, such as those we're already seeing signs of in wheat – corn and beans will follow,” ​he added.

There has been some tightening of stocks in oil markets, which may help drive demand for soft seed crush, he said. 

Overall results for the milling segment dropped by $12m from the third quarter last year, said Boehlert.

Looking forward

Looking forward to the fourth quarter and 2018, the anticipation is North America and Brazil will drive improved results, said Schroder.

“Although these are early days, we are starting to see more favorable conditions,” ​he said. “Based on these and the steps we're taking to improve our business, we expect improved results in the fourth quarter, which will give us momentum as we enter 2018.”

Additionally, there are changes happening along value chains as farmers are becoming more sophisticated, downstream users are finding new ways to source raw materials and new technology is altering feed production, he said.

“All of those changes represent opportunities for those such as Bunge, who perform the fundamental role of connecting farmers to global and local markets,”​ said Schroder.

The focus is on supporting farmers in all regions, with a special emphasis on South America, he added.

Work also continues on a new export terminal in Vancouver as part of the company’s partnership with SALIC to establish an export network in Canada, he said.

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