Challenging fourth quarter for Bunge

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/shironosov
© GettyImages/shironosov

Related tags: Archer daniels midland, Earnings before interest and taxes

Bunge reports drops in net income and segment earnings for the end of 2017 stemming, in part, lower soy crush margins.

The company released its fourth-quarter results on Wednesday. The period covered ended December 31.

The past year was a challenging one for the agribusiness segments of the company, said Soren Schroder, CEO of Bunge, on a conference call about the financial earnings.

He said 2017 proved to be a year of significant market and industry challenges with the exception of edible oils.

“It was not what we expected coming into the year with a variety of factors developing negatively as the year progressed.”

Soy crush margins and sugar milling volumes were among the areas where the company saw difficulties, he said.

Overall, the company had total segment earnings before interest and tax (EBIT) for the quarter of $55m, down from $403m for the same period in 2016, said Tom Boehlert, CFO with Bunge.

The total net income reported for the quarter fell from the $271m reported in 2016. The full year net income for 2017 was $160m, down from $745m for the prior year, it reported.

Total adjusted segment results for the fourth quarter were $155m and for the year were $577m, both down from 2016, which had $362m and $1.1bn, respectively, the company reported.

Looking forward, there is an anticipation of a somewhat “soft”​ first quarter for 2018, said Schroder. However, 2018 is expected to see improvements for multiple sectors.

Although there continues to be speculation that the Archer Daniels Midland Company (ADM) is attempting to acquire Bunge, the topic was not open for questions during the call.

“Finally, as we’ve all seen in the media reports both in recent weeks and last spring, surrounding our potential role in industry consolidation, as we have said consistently, and as I know you understand, we can’t comment on the market rumors or speculation,”​ said Schroder.

Segment breakdown

The company’s agribusiness segment saw several market challenges in 2017, said Schroder.

Soy crush margins were down about $5 a ton from 2016, and more than $10 a ton from the three-year average, he said. “This was primarily due to weak soymeal demand and competing proteins that took market share and excess crushing in Argentina, which pushed destination soymeal stocks to the highest levels seen in many years,”​ he added.

“We started the fourth quarter on a strong note, but much weaker soy crush margins in Europe, Brazil and Argentina, and origination margins in Brazil led to an approximate $100m shortfall in November and December versus our expectations,”​ said Schroder.

On the grains side, margins also were compressed based on farmer retention of crops and a lack in logistic flexibility, he said. “Industry players had over-committed sales and logistics coming into harvest forcing aggressive competition for product despite poor margins,”​ he added.

Agribusiness results dropped compared to the same quarter in 2016 as lower margins were not completely offset by higher volumes, said Boehlert.

The agribusiness adjusted results had an EBIT of $78m compared to $237m the previous year, he said. Oilseeds dropped by $100m and grains by $59m.

For the full year, the segment had earnings of $332m, a drop from $782m in 2016, the company reported.

Looking forward, Bunge sees signs that the market is improving, said Schroder. “We’re not forecasting a quick rebound in agribusiness, but we are seeing signs that the soy crushing environment has begun to turn,”​ he added.

Soy crushing margins have started to improve as crush rates in Argentina declined, demand for protein has increased and soymeal is again being priced for use in feed formulations, he said.

For food and ingredients, there were challenges to wheat milling stemming from margin pressure in Brazil, he said.

Adjusted EBIT for food and ingredients was “flat”​ at $70m, said Boehlert. Full-year results for the segment in 2017 were $223m, a slight drop from the $229m reported in 2016.  

“The bright spot in 2017 was our edible oil business, where we are gaining traction with both global and regional key accounts,”​ said Schroder. “Through its tight linkage with agribusiness, we have a superior global footprint and significant supply chain capabilities – this combined with a well-organized global approach to key accounts is driving growth in both volumes and margins in food service, industrial and baking segments.”

Sugar and Bioenergy had a record EBIT in 2016, but saw a drop in results for 2017 stemming from low prices and higher costs generated by poor weather conditions, he said.

The adjusted EBIT for the segment dropped $8m in 2017, compared to earnings of $30m in 2016, said Boehlert.

He said Bunge is in the process of exiting its sugar trading business and leaving its joint venture in renewable oils.

Competitiveness efforts

The company’s efforts as part of its global competitive program are continuing, said Schroder. The company exceeded some of its initial targets with the plan.

“We delivered $110m of industrial and efficiency benefits exceeding our target by $10m,” ​he said. “We continue to be disciplined stewards of capital, reducing CapEx $188m below our original 2017 target of $850m and we reduced our cash cycle by 3.5 days, allowing us to grow volumes by approximately 10m tons, while holding working capital relatively flat compared with last year.”

The overall program is focused on reducing the company’s cost base and streamlining the organizational structure to improve efficiency, said Boehlert. As part of these efforts, the company has cut headcount, consolidated its geographic regions, and is bringing in organizational design changes along with zero-based budgeting.

“The re-engineering of Bunge is significant and it is well underway to simplify how we work while reducing cost,”​ said Schroder. “We executed on a number of strategic acquisitions in both ag and food in the past year enhancing our footprint and improving our future earning potential as conditions normalize.”

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