Challenges with oilseeds, trade lower Bunge Q4 results

By Aerin Einstein-Curtis

- Last updated on GMT

© GettyImages
© GettyImages

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Bunge fourth quarter results reflected challenges from ongoing trade uncertainty with China and the declining value of Brazilian soybean ownership.

The New York-based company announced its fourth quarter and full-year results for 2018 on Thursday [February 21]. The fiscal year ended December 31.

Overall, Bunge was “not satisfied”​ with its fourth quarter results for 2018, said Kathi Hyle, non-executive board chair with Bunge Limited on an earnings conference call. “We have the global footprint, assets and the team to perform better,”​ she added.

Net sales for the final quarter of 2018 were $11.5bn, down from the $11.6bn for the same quarter, the previous year, Bunge reported. Gross profit for the quarter was $422m, compared to $462m in 2017.

The adjusted net income for the quarter was a loss of $65m, compared to a loss of $60m seen for the same quarter the previous year, the company said.

The past year saw “operational and risk management missteps” ​reduce results, said Greg Heckman, acting CEO with Bunge. “We had crush plant downtime as well as startup delays that caused us to miss volumes and profits in markets that were enjoying robust demand,”​ he added.  

However, the company was able to capitalize on the rebound in global soy crush margins and is ahead of schedule on its cost-saving efforts through the global competitiveness program, he said.

Company restructure and CEO search

A change in leadership​ ​is underway though. Former CEO Soren Schroder stepped down in December.

The company has engaged a search firm to complete a global examination for the next company head, she said. That process is in progress and Greg Heckman, a company board member, has been named acting CEO.

Bunge has also added a new head of agribusiness, established and filled the position of global risk management head, added four directors to the board and formed a strategic review committee within the board, she said. That group has started a “comprehensive and detailed review”​ for all of Bunge’s individual businesses and “capital allocation priorities.”

“We are moving quickly to focus on our core portfolio and ensure that we are investing in the businesses that yield the strongest returns,”​ she added.

Additionally, the company has set four priorities for 2019, said Heckman during the conference call. These include “driving operational performance,” “optimizing the portfolio,” “implementing a more rigorous approach to our capital allocation framework”​ and improving the company’s financial discipline.

The current year can be best described as a transitional period for the company that may see Bunge exiting some business areas and making other changes, he said.

Full year and segment highlight

Overall, net sales in 2018 were $45.74bn, similar the previous year’s $45.79bn, Bunge reported. However, gross profit was about $2.26bn in 2018, up from $1.76bn in 2017.

The adjusted net income for the year was $267m, an improvement from the $160m reported in 2017, the company said.

The total adjusted segment earnings before interest and taxes (EBIT) were $107m, a drop from the $155m noted in the same quarter of 2017, said Thom Boehlert, CFO with Bunge.

The agribusiness segment did not end the year “as expected,” ​he said on the earnings call. However, there was a year-over-year improvement as 2018 saw adjusted full-year returns of $709m up from $332m in 2017 based on soy and softseed crush margins.

The adjusted EBIT for agribusiness was $55m, down $23m from the prior year, he said. The drop was “primarily due to the reduction in the value of company’s Brazilian soybean ownership as factors related to China trade and demand caused Brazilian prices to converge with US and Brazilian new crop bean prices,”​ he added.

Company results in both grains and oilseeds were affected by the approximately $125m loss linked to that drop in value, he said.  

“In oilseeds, structural soy crush margins were higher in all regions due to more favorable market conditions with the exception of Argentina, where margins were lower due to tight bean supplies resulting from the drought and farmer retention,”​ said Boehlert. “Total soy crush volumes were similar to last year as higher volumes in the US and Europe were offset by lower volumes in South America.”

The drop in value for the company’s ownership in Brazilian soybeans also negatively affected trading and distribution results for oilseeds, he said.

In grains, the drop for the quarter was largely a result of the effect from the Brazilian soybeans, he said. “Origination results in Brazil were also pressured by very little farmer selling of old and new crop beans due to tight supplies and a drop in local prices,” ​he added.

In North America, returns fell as a result of “lower structural margins and volumes”​ related to the reduced demand by China for soybeans, he said.  

The adjusted EBIT for food and ingredients was $73m, up from $70m in the final quarter of 2017, said Boehlert. In sugar and bioenergy, the adjusted EBIT for the quarter was a loss of $48m, rather than the loss of $8m in 2017.

Adjusted EBIT for the fertilizer segment was $27m, an increase from the $15m returned for the same quarter the previous year, he said.

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