Cargill: transforming operations for growth

by Eric Schroeder
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MINNEAPOLIS, MINNESOTA, U.S. — Two of Cargill’s top two executives in the company’s 2016 annual report issued Aug. 16 admitted the company has not yet achieved the consistent earnings growth the company wants, but even so, where changes have been made Cargill has realized positive results.

Cargill
David MacLennan, chairman and chief executive officer.

“We are transforming Cargill to be more agile, with capabilities essential to our customers’ success,” David MacLennan, chairman and chief executive officer, and Marcel Smits, executive vice-president and chief financial officer, wrote in “Envisioning Tomorrow,” the company’s 2016 annual report issued Aug. 16. “We are leading the advance toward a more sustainable food system that nourishes people and protects the planet.”

In fiscal 2016, adjusted operating earnings were $1.64 billion, down 15% from fiscal 2015, but net earnings on a GAAP basis rose 50% to $2.38 billion. The variance between net earnings and adjusted operating earnings included gains on sales of businesses and other assets, asset impairment charges, and a LIFO inventory adjustment. Revenues for the fiscal year declined 11% to $107.2 billion, which reflected lower commodity prices, a strong U.S. dollar and divestitures.

In the report, MacLennan and Smits said Cargill is in the process of transforming operations for growth. To that end, the company has simplified its leadership and organizational structure.

“We replaced the former two-tiered leadership structure with a smaller executive team that represents Cargill’s major lines of business and key functions, and is responsible for strategic direction, portfolio management, capital allocation and talent development,” they said. “We initiated a cross-company move toward fewer, larger business groups to speed decision-making, increase accountability and take better advantage of Cargill’s global reach.”

The executives said Cargill has focused on “competitive excellence,” which has included everything from running plants and supply chains more efficiently to improving how the company delivers services to its businesses.

“With this leaner, more direct structure, we are better positioned to meet customers’ emerging needs,” MacLennan and Smits said.

In the course of its transformation Cargill also said it has made significant changes to its portfolio, including acquiring businesses and investing capital to make the company more competitive in markets it hopes to lead.

Key moves in 2016 included the acquisition of EWOS, a leader in salmon nutrition; acquiring a chocolate business that strengthened the company’s North American brands and capabilities; partnering with Jollibee Foods, Asia’s largest food service company, to build a supply chain for specialty poultry products in the Philippines; completing a new oilseed crush, refining and port complex in northeastern China; and forming a joint venture to build a grain export terminal in Ukraine on the Black Sea, which is well situated to serve destinations in the Middle East, North Africa and Asia.

“We sold businesses where we did not see a consistent path to growth, including pork processing and custom sauces in the U.S., as well as Cargill’s stake in North Star BlueScope Steel,” the executives said. “And we spun out Black River Asset Management into independent employee-owned firms. Totaling nearly $2.4 billion, these divestitures were the most significant in years.”

Cargill said it earned more than $425 million from innovation during fiscal 2016, primarily from new products and services in risk management and structured finance, animal nutrition and protein, and food ingredients and bioindustrials. The company also said it achieved more than $200 million in savings by increasing efficiency in its plants and supply chains.

For the full report, click here

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