Cargill Q3 sees net income rise, challenges from ASF, market uncertainty

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/ipopba
© GettyImages/ipopba

Related tags: Cargill, financial returns, ASF

African swine fever hampered animal feed sales and soy crush operations, and trade disruptions and uncertainty created challenges across the company even as cost-cutting measures boosted quarterly net earnings, according to Cargill’s third-quarter results.

The Minnesota-based agri-giant released details from its fiscal third quarter and first nine months on Thursday [March 28]. The financial period ended February 28.

Earning results for the company’s total animal nutrition business segment dropped compared to the same period last year, the company said. The reduction in sales was attributed, in part, to the outbreak of African swine fever (ASF) in China and “unfavorable dairy economics in the US.”

Similarly, soybean crush operations in China saw a negative influence from ongoing trade uncertainty and the reduction in demand for soybean meal, the company said. The drop in demand followed efforts to control the spread of ASF.

However, quarterly net earnings from a US GAAP (generally accepted accounting principles) basis were $566m – up 14% from the previous year, Cargill reported. Adjusted operating earnings for the third quarter were $604m, up 8% from the same quarter last year. 

Total revenues for the third quarter dropped 4% to $26.9bn, the company reported.

For the first nine months of the year, adjusted operating earnings fell 2% to $2.34bn and net earnings on a US GAAP basis fell 3% to $2.33bn.

The company did see some closures last week from flooding in Iowa and Nebraska, said Lisa Clemens, senior director of investor relations with Cargill. However, all but one facility have returned to full operation.

“Should there be a material impact on fourth-quarter earnings, we would discuss it at that time,”​ she added in response to a recent statement​ from Archer Daniels Midland indicating an anticipated drop in quarterly results from weather-related issues.

Also during the quarter, Cargill and ADM also completed the formation of Grainbridge. The joint venture is focused on developing tools to provide market data and information access to producers.

Segment highlights

All four of Cargill’s business segments saw adjusted operating earning fall compared to results last year, the company reported.

“The difference was offset by reduced spending among corporate functions and other cost reductions,” ​the company added.

The animal nutrition and protein segment provided the largest contribution to adjusted operating earnings for the quarter, Cargill said. The volume of sales for functional feeds in North America along with salmon feeds in the North Sea region boosted earnings for aqua nutrition.

“Earnings in North American protein exceeded the year-ago period, boosted by continued strong domestic and export demand for beef as well as consumer demand for egg products,” ​the company said. “Higher production costs at Cargill’s poultry processing joint ventures in the Philippines and UK contributed to a decline in global poultry results.”

The company also recently added two value-added chicken processors in Colombia and Poland, which are demonstrating a “good start,” ​it reported.

However, earnings for origination and processing were altered by ongoing trade tensions and supply chain disruptions, the company said.

“In North America, soy and canola crush operations ran at high capacity, but the near absence of the Chinese market for plentiful US soybean stocks reduced profitability,”​ the company said. "The segment’s European and South American operations both posted higher profits over the prior year, with soybean and soft seed processing leading the way in Europe, and corn and soybean origination improving in Brazil.”

Trade disruptions also negatively influenced soybean crush in China, Cargill said. Adding, “As did lower demand for soybean meal for feed following the culling of hogs to control the spread of African swine fever.”

The food ingredients and applications segment had mixed results for the quarter, the company said.

A drop in earnings for starches and sweeteners stemmed from low ethanol prices in North America and high costs in Europe as low sales volume and higher costs in North America reduced cocoa and chocolate performance.

In the industrial and financial services segment, earnings were diminished by a mining disaster in Brazil, which altered global markets, Cargill reported.

Cargill also has been working to address its support of rural agricultural development and focus on “deforestation-free supply chains,”​ the company said. During the quarter, it launched a South America Sustainable Soy policy, updated its forest policy and started a human rights commitment.

The company also is working with other members of the Soft Commodities Forum to develop a common framework for establishing a “transparent and traceable”​ supply chain for soy coming from Brazil’s Cerrado region.

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