WHITE PLAINS, NEW YORK, U.S. — Timing differences in soy crush margins and a stake in Beyond Meat, Inc. benefited Bunge, Ltd. in the second quarter ended June 30.
Companywide, White Plains-based Bunge had net income of $214 million, equal to $1.43 per share on the common stock, in the quarter compared with a loss of $12 million in the previous year’s second quarter. Net sales of $10.096 billion were down 29% from $12.147 billion. Bunge’s stock on the New York Stock Exchange was trading at $58.73 per share early in the afternoon on July 31, which was up 4.2% from a close of $56.36 on July 30.
A net unrealized gain of $135 million in the quarter came from Bunge Ventures’ stake in Beyond Meat, Inc. Bunge Ventures is the company’s venture capital unit. Los Angeles-based Beyond Meat produces plant-based meat substitutes.
“We haven’t discussed ventures often, but it’s an important vehicle as the competitive landscape and consumer preferences drive change and as technology continues to accelerate innovation and transparency in our industry,” said Gregory A. Heckman, chief executive officer of Bunge in a July 31 earnings call.
In Agribusiness, adjusted EBIT of $189 million in the second quarter was up 60% from $118 million. Net sales of $7.068 billion were down 19% from $8.725 billion. Agribusiness benefited from about $70 million in timing differences in soy crush, along with increased soy crush volumes. Soy crush margins decreased in many markets toward the end of the quarter, creating mark-to-market profit in hedge contracts, said John W. Neppl, chief financial officer for Bunge.
“As we execute on the physical business, these gains will effectively be offset by lower realized margins, mostly in the third quarter,” he said.
Lower structural margins partly offset the benefit. The margins were lower because of farmer retention of soybeans in anticipation of higher prices and increased meal availability with the return of Argentine supply.
Heckman talked about the African swine fever situation during the July 31 earnings call. The disease has led to a reduction in China’s hog population and thus less soy needed to feed the hogs.
“African swine fever continues to impact Chinese demand for soymeal,” he said. “Combined with the unresolved U.S.-China trade situation, this has altered both typical trade flows and producer marketing patterns.”
About 15% of Bunge’s crush is in China, he said.
“So as beans back up in the rest of the world and there is more demand for meal in the rest of the world for the protein to fill that hole in the protein demand in China, we do like how our global footprint sits, and that’s why we believe that we can see some tailwinds long term, but none of that in ’19 and maybe not even the first half of ’20,” Heckman said.
He said many factors determine whether companies increase production of hogs and chickens: the animal life cycle and the investment to increase production along with labor, transportation and permits.
“So it’s not just flipping a switch,” Heckman said.
Within Agribusiness, oilseeds registered adjusted EBIT of $164 million, which was up 17% from $140 million, and grains had adjusted EBIT of $25 million, which compared with a loss before interest and taxes of $22 million in the previous year’s second quarter. In grains, origination results improved in South America, which more than offset lower results in North America. A combination of extreme weather and low export demand, brought on by the U.S.-China trade disputes, negatively impacted North American results for grains.
The bad U.S. weather had a negative effect of about $13 million in the second quarter, Neppl said.
“The big driver is logistics obviously at the river system and then farmer willingness around whether to hold off on soybeans, waiting to see what was going to happen with this year’s crop,” he said.
In Food and Ingredients, adjusted EBIT of $49 million was up 7% from $46 million in the previous year’s second quarter as strength in edible oils offset weakness in milling. Within Food and Ingredients, edible oils, higher margins in South America drove results for edible oils, and stronger demand in North America contributed to better results versus last year’s second quarter. Net sales of $2,206 million in edible oils were down 5% from $2,325 million. In milling, lower volumes and margins had a negative effect in Brazil. Net sales of $430 million were up 0.9% from $426 million.
In Sugar and Bioenergy, the loss before interest and taxes was $9 million, which compared with a loss of $40 million in the previous year’s second quarter. Net sales fell to $284 million from $582 million. Lower costs and increased ethanol volumes and prices drover higher sugarcane milling results. Lower sugar volume and margins partially offset the benefit.
Bunge Ltd. and BP P.L.C. on July 22 said they have agreed to form a 50/50 joint venture, a bioenergy company in Brazil called BP Bunge Bioenergia. The joint venture will have 11 mills across Brazil and have a combined annual crushing capacity of 32 million tonnes. Of that total, Bunge will contribute 8 sugar cane mills with a combined annual capacity of 20 million tonnes. Bunge through the transaction will receive $775 million in cash, comprising $700 million in respect of non-recourse Bunge debt to be assumed by the joint venture at the transaction’s closing and $75 million from BP.
Bunge anticipates an impairment charge of between $1.5 billion and $1.7 billion in the third quarter, Heckman said July 31.
“We have a strong partner in BP, and we also retain flexibility for further monetization,” he said. “So we’re very excited about this transaction. It meets all of our strategic criteria and enables us to reduce leverage.”
Bunge on June 30 had short-term debt of $1.885 billion, which compared with $750 million on Dec. 31, 2018, and long-term debt of $4.039 billion, which compared with $4.203 billion on Dec. 31.
“Our team is moving forward on the strategic priorities we laid out, driving operational performance, optimizing the portfolio and strengthening financial discipline,” Heckman said. “Our new joint venture with BP in Brazil is just a first step as we increase focus, deploy capital more effectively and seek to improve results for all of our stakeholders.”
In Fertilizer, EBIT of $6 million in the second quarter compared with a loss before interest and taxes of $7 million in the previous year’s second quarter. Net sales rose 21% to $108 million from $89 million.
Companywide in the six months ended June 30, net income of $259 million, or $1.71 per share, compared with a loss of $38 million in the same time of the previous year. Net sales of $20.034 billion were down 12% from $22.788 billion.