Bunge fourth quarter sees support from grains, agribusiness

By Aerin Einstein-Curtis

- Last updated on GMT

© GettyImages/Vertigo3d
© GettyImages/Vertigo3d

Related tags Grain exports Latin America Soybean

Agribusiness and grain results are boosting fourth quarter returns for Bunge Limited based, in part, on origination and improved farmer selling in South America.

The Missouri-headquartered company released details of its fourth-quarter and full-year results on Wednesday [February 12]. Its fiscal quarter ended December 31.

Overall, the company reported total segment earnings before interest and taxes (EBIT) of $44m for the quarter, said John Neppl, chief financial officer with Bunge. The company saw $70m for the final quarter of 2018.

However, the adjusted total segment EBIT was $283m, up from $107m the previous year, he said during an earnings conference call. Adjusted segment results for the full year rose to $1.12bn.

The company saw $239m in net changes, with about $102m related to various portfolio initiatives and $76m linked to the “partial impairment of goodwill”​ from the acquisition of Loders Croklaan, he said. Its net les for the final quarter of 2019 were $10.78bn, a drop from the $11.54bn the previous year. Net sales for the year declined from $45.74bn to $41.14bn.

Gross profit for the quarter increased from $422m in 2018 to $571m, Bunge said. However, gross profit for the year declined from returns set the previous year.

Bunge’s global competitiveness program – started in 2017​ – is intended to provide a $250m reduction in selling, general and administrative expense (SG&A) costs by the end of 2020, Neppl said. The cost savings target has been reached through a “split of indirect spending and employee costs.”

Recapping and looking forward

In 2019, Bunge was able to make progress on key priorities, said Greg Heckman, Bunge CEO. The company has focused on improving operational performance, streamlining its portfolio and increasing fiscal discipline.

“On operational performance, our total oilseed crush volume and capacity utilization rates were the highest in the past five years,” ​he said. “Our soy and sunseed crushing operations achieved the lowest industrial unit costs in that same time frame.”

“These improvements helped us weather the difficult markets in 2019 and allowed us to capture more margin when we had the opportunity,”​ he added.

The company has also moved to a global operating model, from a regional structure, he said. And it has almost completed the move of its global headquarters to St Louis – that is expected to be done by the end of the second quarter.

Throughout 2019, Bunge established a joint venture in sugar and bioenergy with BP, sold idled grain facilities in Eastern Europe, two idled milling sites in Brazil and closed seven other grain facilities to improve capacity use in South America, said Heckman.

“Taking into account the current margin environment and lack of visibility into the back half of the year, we expect 2020 EPS [earnings per share] to be broadly in line with what we earned in 2019 when excluding notable items, our gain on Beyond Meat and the depreciation benefit of the sugar and bioenergy segment,” ​he said.

In agribusiness, the prediction is for results to decline from those seen in 2019 because of the forward market structure, added Neppl. “However, actual origination, processing and distribution margins will evolve based on fulfillment of the US-China trade agreements, crop sizes and farmer commercialization.”

Results for food and ingredients are expected to be similar to 2019, while results for fertilizer are anticipated to decline, he said. However, sugar and bioenergy have seen improved “market fundamentals.”

External influences

There has been good momentum coming out of the fourth quarter and there is visibility for the first half of 2020, Heckman said. However, there is expected to be some uncertainty in the latter half of the year.

“We expect markets to remain volatile as long as US and China trade tensions and ASF continue to create uncertainty,”​ he said. The second half of the year provides “little visibility.”

US soy crush margins are below last year, he said. And, the implementation and timing of the phase one trade deal with China remain unclear.

“It's too early to tell what if any impact the coronavirus situation will have on our markets or how developments in Argentina may affect the industry this year,”​ he added.

Segment results

Within the company’s business segments, agribusiness had a positive end to the year, Bunge said. Adjusted earnings for the segment increased from $55m in 2018 to $177m.

“Higher segment results in the quarter, reflected improved execution, particularly in managing risk throughout our grain and oilseeds value chains,”​ Neppl added.

However, segment earnings for agribusiness dropped for the full year, the company said. In 2019, the segment earned $639m but in 2018, full-year results were $709m.

Oilseeds saw a reduction in earnings both for the quarter and full year, the company said. Fourth-quarter results were $41m, while full-year results were $410m.

“As expected, oilseeds' results were negatively impacted by approximately $95m in mark-to-market reversals on soy crushing contracts, which favorably impacted our third-quarter results,”​ Neppl said. There were also reduced soy processing results in the US and Europe, but soft seed results improved.

“An increase in soy crush margins during the fourth quarter resulted in new mark-to-market losses on forward contracts,”​ he said. “However, these losses were largely offset by mark-to-market gains on forward hedges, related to our soft seed and palm oil supply chains that serve our downstream edible oils customers.”

Grains increased to $136m for the fourth quarter, and returned $229m for the full year, the company said.

The improved results were based on origination in South America, said Neppl. “Brazilian farmer selling increased as local prices improved, and in Argentina, farmers accelerated sales in anticipation of a change in export taxes,”​ he added.

The food and ingredients segment brought in $84m for the fourth quarter and $287m for the year, Bunge reported. Sugar and bioenergy saw improved returns for both the final quarter and the full-year period.

The fertilizer segment was slightly down for the quarter but saw an improved full-year return as earnings rose from $42m to $55m, the company said. The ‘other’ segment, which includes Bunge Ventures saw a loss for the final quarter but returned $69m for the full year.

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