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Bunge Reports Third Quarter 2017 Results

11/01/17

WHITE PLAINS, N.Y., Nov. 1, 2017 /PRNewswire/ -- Bunge Limited (NYSE: BG)

  • Q3 GAAP EPS of $0.59 vs. $0.79 last year, $0.75 vs $0.73 on an adjusted basis
  • Agribusiness improved sequentially and year-over-year, despite a challenging environment
  • Edible Oils had a solid quarter driven by higher volumes and margins in most regions
  • Sugar & Bioenergy impacted by lower than expected Brazilian ethanol prices
  • Competitiveness Program progressing on track; industrial savings on plan
  • Announced Loders acquisition, significantly accelerating growth of value-added Oils
  • Expect sequential improvement in Q4 that continues into 2018

 

  • Financial Highlights

 


Quarter Ended


Nine Months Ended

US$ in millions, except per share data

9/30/2017


9/30/2016


9/30/2017

9/30/2016

Net income (loss) attributable to Bunge

$

92



$

118



$

220


$

474


Net income (loss) per common share from continuing          
operations-diluted

$

0.59



$

0.79



$

1.38


$

3.24









Net income (loss) per common share from continuing
operations-diluted, adjusted (a)

$

0.75



$

0.73



$

1.28


$

2.98


Total Segment EBIT (a)

$

175



$

213



$

381


$

740


Certain gains & (charges) (b)

$

(29)



$

14



$

(41)


$

2


Total Segment EBIT, adjusted (a)

$

204



$

199



$

422


$

738


Agribusiness (c)

$

127



$

83



$

254


$

545


Oilseeds

$

88



$

79



$

182


$

273


Grains

$

39



$

4



$

72


$

272


Food & Ingredients (d)

$

64



$

72



$

153


$

159


Sugar & Bioenergy

$

8



$

35



$

11


$

21


Fertilizer

$

5



$

9



$

4


$

13





(a)

Total Segment earnings before interest and tax ("Total Segment EBIT"); Total Segment EBIT, adjusted; net income (loss) per common share from continuing operations-diluted, adjusted funds from operations and ROIC are non-GAAP financial measures. Reconciliations to the most directly comparable U.S. GAAP measures are included in the tables attached to this press release and the accompanying slide presentation posted on Bunge's website.

(b)

Certain gains & (charges) included in Total Segment EBIT.  See Additional Financial Information for detail.

(c)

See footnote 10 of Additional Financial Information for a description of the Oilseeds and Grains businesses in Bunge's Agribusiness segment.

(d)

Includes Edible Oil Products and Milling Products segments.

 

  • Overview

Soren Schroder, Bunge's Chief Executive Officer, commented, "Our earnings improved sequentially and year-over-year, although they continued to be impacted by market and industry headwinds. As a result, we are reducing our earnings guidance for the year in Agribusiness and Sugar & Bioenergy. At the same time, we are making good progress towards our strategic objectives of creating a more balanced business, managing those aspects of our operations that we can control and taking proactive steps to ensure we remain agile in responding to changing market conditions."

He continued: "Consistent with our strategy, in September we announced the acquisition of Loders Croklaan, which is expected to close in the first half of next year. This transaction will accelerate our growth in higher margin value-added products and it gives us an unmatched global footprint with best-in-class innovation capabilities. In addition, I am pleased with our progress to date in reducing costs and increasing efficiencies. In the quarter we achieved $30 million of industrial cost savings bringing our year-to-date savings to $73 million against our full year target of $100 million. We also expect to meet or exceed the $15 million 2017 target set out in our Competitiveness Program, which is expected to reduce overhead costs by $250 million by the end of 2019."

He added, "Looking ahead, there are some bright spots in the market. Global soy crush margins are off their lows as utilization rates have been adjusting to balance the oversupply of meal, and we have entered the Northern Hemisphere crop season where U.S. crush margins are currently strong. In Food & Ingredients, we continue to grow value-added sales and are very encouraged by the traction we have made with key accounts, particularly in Edible Oils. In Milling, our volumes in Mexico are improving and the smaller wheat crops in Brazil and Argentina should give us an advantage with our integrated footprint. These recent developments, and our disciplined focus on managing our business, are expected to lead to improved results in the fourth quarter and will provide good momentum as we enter 2018."

  • Third Quarter Results

Agribusiness

While both Grains and Oilseeds results were higher than last year, overall margins remained weak, reflecting excess global supplies, spot global customers and pressure on farmer margins.

In Grains, higher origination results were driven by improvements in Brazil and Argentina, which benefited from a spike in farmer selling in July as local prices increased on weather concerns in the U.S. and the devaluation of the real and pesoBrazil also benefited from strong safrinha corn exports. Origination results declined in the U.S., due to reduced exports driven by the higher volume out of South America and temporarily higher logistics costs due to weather. Risk management strategies were effective; however, margins in global grain trading & distribution remained weak due to competitive pressures and limited dislocation opportunities.

In Oilseeds, overall global structural crush margins were compressed during the quarter, reflecting farmer retention and excess meal supply. Compared to last year, soy processing results improved, driven by higher results in the U.S., Brazil and China, all of which benefited from higher volumes and effective risk management. Partially offsetting these improvements were lower soy crush results in Argentina and Europe. Softseed processing results were lower than last year primarily due to lower margins in Europe from higher seed prices. Margins in Canada were comparable to last year as farmers held on to their seeds ahead of a record harvest. Oilseed trading & distribution performed better than last year, reflecting increased volumes and higher margins from effective risk management. Increased Oilseed volumes were primarily driven by soy crush in the U.S., Brazil and our recently acquired plants in Europe, as well as our trading & distribution operations.

Edible Oil Products

Results improved in most regions, driven by higher margins and lower costs. In North America, lower costs and higher margins in Canada more than offset softer U.S. refining margins. In Brazil, higher margins and lower SG&A costs more than offset decreased volume, as consumer demand remained soft, but showed some signs of improvement. Better results in Asia were driven by improved performance in both China and India with increased sales of higher value products. Western Europe performed better than in the prior year, including acquisitions, but this was offset by weak retail sales in Eastern Europe. Increased segment SG&A reflected recent acquisitions.

Milling Products

The decline in segment results was due to our Brazilian business, where volumes and margins were negatively impacted by consumers trading down on value and where the small bakery channel continued to suffer a year-over-year reduction in demand. Also impacting results in Brazil was aggressive pricing by small mills, which increased production in response to the above average Brazilian wheat crop. In Mexico, higher earnings reflected lower costs and a slight increase in volume from sales to new customers. This was the second straight quarter of volume growth in Mexico, which has returned to 2016 run rate levels. In the U.S., corn milling benefited from both higher volumes and margins.

Sugar & Bioenergy

Results were lower in sugarcane milling, primarily due to lower ethanol prices and higher industrial costs, which more than offset higher sucrose content in the cane. While Brazilian ethanol prices increased in the quarter, they remained below levels seen last year. We remain committed to reducing exposure to sugarcane milling and are in the final stages of completing its financial separation. We continue to explore all options to maximize shareholder value, while improving operations through cost and productivity initiatives. The business is performing well despite the challenging price environment.

Trading & distribution results in the quarter were negative, driven by weak distribution margins and a lack of market volatility. As a result of the very competitive environment, we are in the process of restructuring the business.  Results in the quarter were also impacted by a $3 million loss from our renewable oils joint venture.

Fertilizer

Despite lower costs, earnings decreased in the quarter due to lower margins in our Argentine fertilizer business as a result of structural challenges of our locally produced nitrogen products competing with lower-priced international imports.

Competitiveness Program

The Competitiveness Program was announced in July 2017. The program is expected to rationalize Bunge's cost structure and reengineer the way we operate, reducing overhead costs by approximately $250 million once fully implemented by the end of 2019. The company will achieve these cost savings by adopting a zero-based budgeting process that will target costs in specific budget categories, simplifying its organizational structure, streamlining processes and consolidating back office functions globally to improve efficiency and scalability.

The company is on track to meet or exceed its 2017 savings target of $15 million and has incurred $13 million of severance and program-related costs through the end of third quarter.

Cash Flow

Cash used for operations in the nine months ended September 30, 2017 was $302 million compared to cash generated of $635 million in the same period last year. The year-over-year variance primarily reflects negative changes in working capital and lower earnings. Trailing four-quarter adjusted funds from operations was $1.2 billion as of the quarter ended September 30, 2017.

Income Taxes

Excluding approximately $49 million of notable tax benefits, the effective tax rate for the nine months ended September 30, 2017 was approximately 22%.

  • Outlook

Overall, we expect sequential earnings improvement in the fourth quarter, which will provide positive momentum as we enter 2018. Agribusiness should benefit with the shift to Northern Hemisphere harvests where the large U.S. soy crop is supporting strong domestic crush margins and export flows. However, global oilseed crush and distribution margins continue to track below earlier expectations, and as a result, we are reducing our full-year 2017 EBIT range to $425 million to $500 million.

In Food & Ingredients, we continue to expect full-year 2017 EBIT of $210 million to $230 million driven by a strong year-over-year improvement in Edible Oils.

Sugar & Bioenergy is expected to show strong sequential improvement as the fourth quarter is typically the strongest quarter, as Brazilian ethanol inventories normally tighten during this period. However, we are reducing our full-year EBIT range to $45 million to $55 million, reflecting lower third-quarter results, lower-than-expected Brazilian ethanol prices and reduced activity in trading & distribution.

In Fertilizer, we continue to expect full-year 2017 EBIT of approximately $25 million. The fourth quarter is typically the strongest quarter, as Argentine farmers purchase crop inputs for planting.

Expectations for the full-year 2017 tax rate, excluding notables, remains 18% to 22%, reflecting forecasted earnings mix.

Looking ahead to 2018, we will continue to focus on the factors in our business that can be controlled. Savings from the Competitiveness Program are expected to total $100 million with an additional $80 million of savings from industrial initiatives. Demand for soy crush continues to grow, and after a difficult 2017 in South America, we expect the industry to approach harvests in 2018 with increased flexibility. Expected growth in our Food & Ingredients business will continue to improve the balance of our business. In Sugar & Bioenergy, where our milling business has performed well, we expect continued efficiency improvements in our agricultural operations and the restructuring of our global sugar trading & distribution business to position the segment for an improved year, assuming normal weather patterns.

  • Conference Call and Webcast Details

Bunge Limited's management will host a conference call at 8:00 a.m. EDT on Wednesday, November 1, 2017 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 (877) 883-0383.  If you are located outside the United States or Canada<

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