Cargill earnings fall in second quarter: 'Disruption, from markets to business model, is likely the new normal'

By Aerin Einstein-Curtis contact

- Last updated on GMT

Cargill sees lower returns in Q2 results ©GettyImages/Pannonia
Cargill sees lower returns in Q2 results ©GettyImages/Pannonia

Related tags: quarterly results, Beef, Colombia, Shrimp feed, oilseeds

Market challenges, political instability in some regions and adverse regional market conditions contributed to lower financial returns for Cargill’s second quarter.

The Minnesota-based agro-giant reported its earnings for the second quarter of its 2019 fiscal year and the first half on Thursday [January 3]. The fiscal period ended on November 30.

Overall, the company reported adjusted operating earnings for the second quarter of $853m, a 10% drop from the $948m generated during the same period last year. Adjusted operating earnings for the first half of the year were $1.74bn – a 5% decline from 2018.

Revenues for the second quarter dropped 4%, the company said.

Net earnings from a US GAAP basis were $741m, a 20% reduction from the same quarter in the 2018 fiscal year, Cargill said. Similarly, net earnings for the first half of the year fell 7% compared to the same period the previous year.

“Disruption – from markets to business model – is likely the new normal,” ​Lisa Clemens, senior director of investor relations with Cargill, told FeedNavigator. 

She said the company was pushing to ready its businesses for the future with continuous improvement, financial discipline and its own disruptive mindset.

Segment highlights

Its animal nutrition and protein business contributed to the adjusted operating earnings for the quarter, the company said. However, overall results were slightly below those for the second quarter last year.

“Our protein business in North America (beef and value-added egg products) increased earnings over the year-ago level, marking two and a half years of very strong performance,” ​said Clemens. “Reduced results in animal nutrition and poultry were responsible for the small decline in the segment overall.”

There were strong domestic and export demands for beef in North America and a large supply of cattle she said.

“US consumers have traded up their meat purchases due to the stronger economy and higher employment, and US beef exports stayed strong."

The company said continued political instability in Central America and market challenges in Southeast Asia reduced results in the segment’s global poultry business.

Cargill is, however, expanding its poultry business in Columbia and recently acquired Campollo, a manufacturer of poultry and protein products. 

Although the sales volumes for shrimp and salmon feed in both the North Sea area and Mexico increased, total results for animal nutrition earnings dropped compared to the previous year, said the agribusiness giant.

There was a range of factors that affected earnings including higher input costs, regional pricing pressures, currency volatility and reduced sales volumes, said Clemens.

“This included weak dairy and poultry economics in the US, and lower hog volumes in China and Vietnam, which tempered feed demand,” ​she said. “The hog industry in China has been further affected by the incidence of African swine flu.”

Earnings for the origination and processing segment increased as the company made use of its global network in light of “volatile agricultural markets”​ and “trade turbulence,”​ Cargill said.

In North America and Europe, there was demand for oilseeds processing as increasing protein consumption supported soybean meal use in animal feed.

The US and Canada supported grain exports and, along with European biodiesel production, contributed to quarter results, the company said. There also were gains in Argentina.

Additionally, Cargill continues its efforts to support digitalizing the agricultural supply chain, the company said.  

The food ingredients and application segment saw a decline stemming from mixed results within the unit, the company said.

Industrial and financial services also trailed results from the previous fiscal year.

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