Bunge Reports Third Quarter 2016 Results

WHITE PLAINS, N.Y., Nov. 2, 2016 /PRNewswire/ -- Bunge Limited (NYSE:BG)

• Q3 GAAP EPS of $0.79 vs. $1.42 last year
• Agribusiness impacted by low farmer selling in South America, reducing grain origination and soy crushing results
• Strong performances in Food & Ingredients and Sugar & Bioenergy
• Combined Agri-Foods trailing four quarter ROIC of 8.2%; 1.2 points over WACC
• Expect solid Q4 and strong earnings growth in 2017

 Overview

Soren Schroder, Bunge's Chief Executive Officer, stated, "Challenging market conditions and slow farmer selling led to a lower than expected quarter in Agribusiness. However, performance improvement efforts and better pricing drove higher results in Food & Ingredients and Sugar & Bioenergy. Year to date, we have delivered over $90 million of cost and efficiency benefits toward our full-year target of $125 million. We are also taking important steps to execute our strategy and for 2017 see strong growth potential in our Agribusiness, Foods and Sugar Milling businesses.  

"Two acquisitions announced during the quarter will expand our Food & Ingredients platform and enhance our winning Agribusiness footprint.  Grupo Minsa, a leading corn flour producer, will complement our existing wheat milling business in Mexico and increase our value added offerings to B2B customers in the U.S.  New oilseed processing plants in Northern Europe will bring 2 million metric tons of additional capacity, extend our integrated value chain into key destinations and expand our presence in specialty markets for non-GMO soy and other products.  Both acquisitions are good fits that further optimize our flows and logistics.

"We expect a solid fourth quarter and are confident about our growth prospects in 2017.  Northern Hemisphere oilseed processing and export elevation margins are up with the arrival of harvests and should remain healthy into next year.  Brazil and Argentina should produce record harvests, and with a relatively small volume of crops sold in advance, we expect active commercialization during the first half of next year. In addition, global demand and trade should remain robust. We expect Food & Ingredients will build upon its successes in lowering costs, increasing operational efficiencies and expanding market share. Sugar & Bioenergy should continue to benefit from a lower cost structure and higher sugar prices."

Third Quarter Results

Agribusiness
The combination of smaller than expected soy and corn crops in South America, due to adverse weather, and slow farmer selling negatively impacted our Brazilian and Argentine origination and soy processing results.  Historically, Brazilian farmers price a portion of their next year's production during the third quarter prior to planting, but with the change in market conditions farmers deferred sales in hope of higher prices. Also impacting Grains was lower risk management contributions as last year's results benefitted from the recovery of approximately $50 million of losses on open positions from the second quarter.  In North America and Europe, results in Grains were comparable to last year as higher origination and export volumes were largely offset by lower margins.  In Oilseeds, U.S. and European soy processing volumes and margins were down compared to a very strong prior year due to softer meal demand.

Results in the third quarter of 2015 included a $47 million pre-tax gain on the sale of North American grain assets.

Edible Oil Products
Higher earnings in the third quarter were primarily driven by improved performances in Brazil and Europe. In Brazil, volumes and profits were up in most key categories despite the tough market conditions, reflecting actions to grow market share, contain costs and tighten integration with upstream Agribusiness.  In Europe, higher results were driven by reduced costs and more favorable product mix.  Slightly higher results in Asia were driven by improved product mix of specialty oils and fats in India. Results in North America were comparable to last year as lower margins were offset by higher volumes and decreased industrial costs driven in part by recent footprint restructuring.

Milling Products
Higher results in Brazil were the primary driver of improved performance in the quarter.  Volumes benefitted from the contribution of our recently acquired Pacifico mill and additional market share gains. Higher margins were driven by increased efficiency, improved product mix and favorable raw material sourcing.  Volumes and margins in Brazil are back to levels achieved in 2014 prior to the country's economic crisis. Partially offsetting these improvements, results in Mexico were lower due to the combination of the devaluation of the peso and competitive pressures.  

Sugar & Bioenergy
Higher results in the quarter were primarily driven by our sugarcane milling operation, which benefitted from higher sugar and ethanol prices and volumes. Results in our trading & distribution business were also higher, driven by improved margins that more than offset lower volumes. Results in our biofuel joint ventures were comparable to last year. We incurred $7 million of losses in the quarter associated with our renewable oils joint venture.

Fertilizer
Higher results in the quarter were primarily driven by improved performance in our Argentine fertilizer business, which benefitted from higher farmer purchases in support of increased planting of wheat and corn.  

Cash Flow
Cash generated by operations in the nine months ended September 30, 2016 was $635 million compared to cash generated of $527 million in the same period last year. The year-over-year increase reflects lower secured advances to suppliers due to the slower pace of farmer selling in Brazil.

Income Taxes
The effective tax rate for the nine months ended September 30, 2016 was 19%. Excluding approximately $39 million of favorable notable tax items, the effective tax rate was 26%. 

Outlook

Drew Burke, Chief Financial Officer, stated, "The agribusiness environment has improved with the arrival of harvests in the Northern Hemisphere, driving higher margins and utilizations in our North American and European oilseed processing and grain handling operations. Soybean meal demand should increase as feed formulations normalize, reflecting robust underlying demand for proteins. Slow farmer selling in South America is likely to persist through the end of the year.

"In Food & Ingredients, we expect 2016 EBIT of $230 to $240 million.  Our improved outlook reflects higher margins and volumes resulting from our performance improvement initiatives and a more stable economic environment in Brazil. 

"In Sugar & Bioenergy, we expect 2016 EBIT of $60 to $70 million. Our improved outlook reflects better than expected ethanol prices and assumes normal seasonal weather patterns.

"In Fertilizer, we expect 2016 EBIT to be approximately $30 million, which is slightly down from our earlier expectation due to lower margins.   

"We expect our full-year tax rate, excluding notables, to be slightly more favorable than our previous expectation and fall in the lower end of our 25 to 29% range.

"With this year's turnaround in Food & Ingredients, Sugar & Bioenergy and Fertilizer, we see the potential for significant earnings growth in 2017 as Agribusiness returns to historical levels of performance, supported by growing protein demand, record crops in South America, and the fact that Brazilian farmers have only priced small percentages of their next year's soy and corn crops."  

Conference Call and Webcast Details

Bunge Limited's management will host a conference call at 8:00 a.m. EDT on Wednesday, November 2, 2016 to discuss the company's results.

Additionally, a slide presentation to accompany the discussion of results will be posted on www.bunge.com.

To listen to the call, please dial (888) 771-4371.  If you are located outside the United States or Canada, dial (847) 585-4405.  Please dial in five to 10 minutes before the scheduled start time.  When prompted, enter confirmation code 43551092.  The call will also be webcast live at www.bunge.com.

To access the webcast, go to "Webcasts and Events" in the "Investors" section of the company's website.  Select "Q3 2016 Bunge Limited Conference Call" and follow the prompts.  Please go to the website at least 15 minutes prior to the call to register and download any necessary audio software.

A replay of the call will be available later in the day on November 2, 2016, continuing through December 2, 2016.  To listen to it, please dial (888) 843-7419 or, if located outside the United States or Canada, dial (630) 652-3042.  When prompted, enter confirmation code 43551092.  A replay will also be available at "Past Events" in the "Investors" section of the company's website.

About Bunge Limited

Bunge Limited (www.bunge.com, NYSE: BG) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees.  Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America.  Founded in 1818, the company is headquartered in White Plains, New York.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including "may," "will," "should," "could," "expect," "anticipate," "believe," "plan," "intend," "estimate," "continue" and similar expressions. These forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. The following important factors, among others, could affect our business and financial performance: industry conditions, including fluctuations in supply, demand and prices for agricultural commodities and other raw materials and products used in our business; fluctuations in energy and freight costs and competitive developments in our industries; the effects of weather conditions and the outbreak of crop and animal disease on our business; global and regional agricultural, economic, financial and commodities market, political, social and health conditions; the outcome of pending regulatory and legal proceedings; our ability to complete, integrate and benefit from acquisitions, dispositions, joint ventures and strategic alliances; our ability to achieve the efficiencies, savings and other benefits anticipated from our cost reduction, margin improvement and other business optimization initiatives; changes in government policies, laws and regulations affecting our business, including agricultural and trade policies, tax regulations and biofuels legislation; and other factors affecting our business generally. The forward-looking statements included in this release are made only as of the date of this release, and except as otherwise required by federal securities law, we do not have any obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

„Additional Financial Information

The following table provides a summary of certain gains and charges that may be of interest to investors. The table includes a description of these items and their effect on net income (loss) attributable to Bunge, earnings per share diluted and continuing operations for total segment EBIT for the quarter and nine months ended September 30, 2016 and 2015.

 

 

 

 

„ Definition and Reconciliation of Non-GAAP Measures

This earnings release contains certain "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934. Bunge has reconciled these non-GAAP financial measures to the most directly comparable U.S. GAAP measures below. These measures may not be comparable to similarly titled measures used by other companies.

Total Segment EBIT and Total Segment EBIT, adjusted

Bunge uses total segment earnings before interest and taxes ("Total Segment EBIT") to evaluate Bunge's operating performance. Total Segment EBIT is the aggregate of each of our five reportable segments' earnings before interest and taxes. Total Segment EBIT, adjusted, is calculated by excluding certain gains and charges as described above in "Additional Financial Information" from Total Segment EBIT.  Total Segment EBIT and Total Segment EBIT, adjusted are non-GAAP financial measures and are not intended to replace net income (loss) attributable to Bunge, the most directly comparable U.S. GAAP financial measure. Bunge's management believes these non-GAAP measures are a useful measure of its reportable segments' operating profitability, since the measures allow for an evaluation of segment performance without regard to their financing methods or capital structure. For this reason, operating performance measures such as these non-GAAP measures are widely used by analysts and investors in Bunge's industries. These non-GAAP measures are not a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to net income (loss) or any other measure of consolidated operating results under U.S. GAAP.

Below is a reconciliation of Net income attributable to Bunge to Total Segment EBIT:

Net Income (loss) per common share from continuing operations–diluted, adjusted

Net income (loss) per common share from continuing operations-diluted, adjusted, excludes certain gains and charges and discontinued operations and is a non-GAAP financial measure. This measure is not a measure of earnings per common share-diluted, the most directly comparable U.S. GAAP financial measure. It should not be considered as an alternative to earnings per share-diluted or any other measure of consolidated operating results under U.S. GAAP.  Net income (loss) per common share from continuing operations-diluted, adjusted is a useful measure of the Company's profitability.

Below is a reconciliation of Net income (loss) per common share from continuing operations - diluted, adjusted to Net income (loss) per common share–diluted:

„Notes

Agribusiness:

(1)     2016 EBIT includes a pre-tax impairment charge of $12 million related to remaining unamortized carrying value of certain patents, recorded in the second quarter.

(2)     2015 EBIT includes a $47 million pre-tax gain on the sale of our Canadian grain assets to G3 Canada Limited recorded in the third quarter.

(3)     2015 EBIT includes a pre-tax reversal of an export tax contingency of $30 million recorded during the second quarter.

Edible Oil Products:

(4)     2015 EBIT includes a pre-tax impairment charge of $15 million related to the announced closure of a U.S. packaged oil plant, recorded during the second quarter.

Milling Products:

(5)     2016 EBIT includes a pre-tax gain of $14 million related to a wheat import tax contingency settlement in Brazil recorded in the third quarter.

Income Tax:

(6)     2016 income tax benefits (charges) include benefits of $39 million related to $60 million, net of reserves, recorded in the first quarter for the change in a tax election in North America and $11 million related to tax credits in Europe recorded in the second quarter, offset by a charge of $(32) million for an uncertain tax position related to Asia recorded in the first quarter.

2015 income tax benefits (charges) includes charges of $25 million related to $6 million of uncertain income tax positions in North America and South America and $4 million related to the finalization of a tax audit in Asia recorded in the second quarter. Additionally includes 2015 income tax valuation allowances of $15 million resulting from management's evaluation of the recoverability of its net operating loss carryforwards in Asia recorded in the third quarter.

Notes to the Financial Tables:

(7)     See Definition and Reconciliation of Non-GAAP Measures.

(8)     A reconciliation of net income attributable to Bunge to net income (loss) is as follows:

(9)     Approximately 4 million outstanding stock options and contingently issuable restricted stock units were not dilutive and not included in the weighted-average number of common shares outstanding for the three and nine months ended September 30, 2016.  Approximately 8 million weighted-average common shares that are issuable upon conversion of the convertible preference shares were not dilutive and not included in the weighted-average number of common shares outstanding for the three months ended September 30, 2016.

Approximately 3 million and 2 million outstanding stock options and contingently issuable restricted stock units were not dilutive and not included in the weighted-average number of common shares outstanding for the three and nine months ended September 30, 2015, respectively.   

(10)   Includes readily marketable inventories of $4,221 million and $3,666 million at September 30, 2016 and December 31, 2015, respectively. Of these amounts $2,920 million and $2,513 million, respectively, are attributable to merchandising activities.

„Notes

(11)   The Oilseed business included in our Agribusiness segment consists of our global activities related to the crushing of oilseeds (including soybeans, canola, rapeseed and sunflower seed) into protein meals and vegetable oils; the trading and distribution of oilseeds and oilseed products; and biodiesel production, which is primarily conducted through joint ventures.

The Grains business included in our Agribusiness segment consists primarily of our global grain origination activities, which principally conduct the purchasing, cleaning, drying, storing and handling of corn, wheat, barley, rice and oilseeds at our network of grain elevators; the logistical services for distribution of these commodities to our customer markets through our port terminals and transportation assets (including trucks, railcars, barges and ocean vessels); and financial services and activities for customers from whom we purchase commodities and other third parties. 

 

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SOURCE Bunge Limited