Bunge sees earnings loss for the second quarter, impact of trade war

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/ gopixa
© GettyImages/ gopixa
Bunge is reporting mixed results for the second quarter of its fiscal year with an overall drop in earnings somewhat offset by gains for its agribusiness segment.

The New York-based company reported its Q2 results Wednesday [August 1]. The results covered the quarter that ended June 30.

Overall, the company reported a net income loss of $12m for the quarter, compared to an intake of $81m for the same period last year. However, net sales for the quarter increased to about $12.15bn and gross profit rose to $542m.

However, the company is “on course” ​for a good year despite changes in trade policy and uncertainty in commodity and financial markets, said Soren Schroder, CEO with Bunge, on an earnings conference call.

“While agribusiness came in somewhat below our expectations when considering the $125m of new negative mark-to-market in soy crush and the temporary $24m foreign currency impact in grains, we've been active in securing excellent margins for the balance of the year,”​ he said. “With only small amounts of soy crush capacity left open, we have a high degree of confidence in our full year guidance, supported by our forecast for a very strong second half.”

Total segment earnings before income tax (EBIT) dropped from $73m to $71m, said Thomas Boehlert, CFO with Bunge. The adjusted total segment EBIT rose to $117m.

“Excluding the mark-to-market impact on soy crush commitments, adjusted EBIT would have been $242m,” ​he added.

Business in South American had a solid first half of the year, which is expected to continue, said Schroder. However, there remains some uncertainty regarding truck freight pricing in Brazil.

Strong results are anticipated for crush and oils in North American and Europe looking forward, he said. China provided opportunities with volatile crush margins.

The company’s global competitiveness program is moving ahead of initial expectations and is anticipated to bring in savings of $150m for the year, he said.

Segment results

Bunge’s agribusiness unit saw an increase in adjusted segment EBIT, said Boehlert. It improved from $18m to $118m.

Grains saw a loss of $22m, dropping from the $16m reported for the second quarter of 2017, the company reported.

This was affected by a temporary $24m loss from foreign exchange and hedges in Brazil that are anticipated to reverse, said Boehlert. Small crop size in Argentina dampened origination results in Argentina as did risk positions the company took to offset possible negative bean basis movements in Brazil.

“In total, excluding mark-to-market impacts in the first half of the year, year-to-date agribusiness results would have been approximately $355m versus $127m in the prior year,”​ he said.

Oilseeds brought in $140m, up from $2m the previous year as soy crush margins were higher than in 2017, he said. “This was driven by the combination of strong soymeal demand, lower crush rates in Argentina due to the drought, and increased availability of US soybeans as the US-China trade dynamic evolved,” ​he added.

There was a drop of about $125m in new mark-to-market losses from forward soy crush commitments, he said. “As the contracts related to future crush capacity commitments are executed over the balance of the year, we expect the second quarter mark-to-market, as well as the balance of the first quarter mark-to-market totaling $185m to reverse – this is embedded in our outlook,”​ he added.

“Excluding the mark-to-market impact, oilseeds second-quarter adjusted EBIT would have been $265m compared to $2m last year, a significant improvement,​” said Boehlert.

The company has increased its inventory of Brazilian soybeans to secure physical crush margins for Brazil and China for the remaining quarters, said Schroder.

Trade war

Bunge anticipated a quick resolution to the trade talks so the company was positioned “long in futures”​ to hedge, he said. But the company bet wrong. Futures dropped, which offset the gains on bean basis ownership, but is expected to provide a benefit in the rest of the year, he added.

For the first six months, the business’ earnings were $170m, up from $127m for the first half of 2017, the company said.  

The sugar and bioenergy and fertilizer businesses both saw losses posted for the quarter and for the first six months of the year, the company reported. However, the food and ingredients segment saw an increase in income from $44m to $46m.

The performance in milling was good and strong performance is anticipated for the rest of the year, said Schroder. However, edible oils were “disappointing.”

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