WHITE PLAINS, NEW YORK, U.S. — Despite a drop in overall net income, Bunge reported on Oct. 29 that third-quarter earnings for its agribusiness segment jumped 73% from $186 million to $322 million due to favorable soy processing and increased farmer selling.
Bunge reported net income available to Bunge common shareholders for the third quarter was $229 million or $1.56 per share, down 19.3% from $284 million or $1.90 in the same quarter last year.
The company said its overall lower quarterly profit is due to the weaker results in the Food & Ingredients and Sugar & Bioenergy divisions.
"Agribusiness delivered a good third quarter,” said Soren Schroder, Bunge’s chief executive officer (CEO). “The segment capitalized on favorable soy processing margins and increased farmer selling in Brazil and generated solid risk management income. Food & Ingredients showed sequential improvement from the second quarter driven by our North American operations, but the tough economic environment in Brazil and rapid devaluation of the real continued to present challenges.”
Net sales reached $10.7 billion, down 21% from $13.6 billion in the same period last year.
In oilseeds, soybean processing in the U.S., Brazil, Argentina and Europe were the largest contributors to the quarter, benefitting from strong domestic and export demand for soy meal. Softseed processing results in Europe and Canada were down as farmers retained seed. Results in oilseed trading and distribution were lower than last year's strong performance, Bunge said.
In grains, higher results were primarily driven by Bunge’s Brazilian grain origination operation, which experienced a significant pick-up in volume in the quarter with the devaluation of the Brazil’s currency. Grain origination results in other origins were similar to last year and did not make a significant contribution to results due to slow farmer selling, Bunge said. Results in grain trading and distribution which included the recovery of approximately $50 million of losses on open positions at the end of the second quarter, were similar to last year.
Bunge’s global team managed risk during the quarter as both grain and oilseed prices declined, reflecting good crops and inventory build-up in most regions, the company said. Higher segment volumes were primarily due to soy processing operations in the U.S., Argentina and Asia. Third quarter 2014 results were impacted by approximately $80 million in temporary mark-to-market hedging losses in the oilseed processing and distribution operations, which reversed later in the year when Bunge executed the contracts.
Edible oil products segment earnings before interest and tax were $13 million, down 64% from $37 million in the same period last year. Results in North America showed improvement due to higher margins in both of the refining and packaging operations. In Brazil, margins and volumes were pressured due to the rapid contraction of consumer demand and the significant devaluation of the real. While volumes are rebuilding from lower levels, margins will take time to recover, the company said. Results in Bunge’s European operation were also down in the quarter largely due to the weak economic environment in certain countries, which more than offset the savings from performance improvement initiatives.
Milling products segment earnings before interest and tax were $32 million, down 13.5% from $37 million in the same quarter last year. Improved performance in North America was more than offset by lower results in Brazil. Bunge’s Brazilian wheat milling business was impacted by lower margins in U.S. dollars and volumes due to the rapid contraction of consumer demand, particularly from the food service channel, and the significant devaluation of the real, the company said. In local currency, the Bunge team held margins similar to last year levels; however, the weak economic conditions have made it difficult to push through higher prices to cover higher local costs and currency impacts. In North America, higher margins and volumes in the Mexican wheat milling business more than offset the impacts of currency devaluation and lower margins in our U.S. corn milling business. Rice milling results were comparable to last year. Third quarter results reflect the recovery of approximately $4 million of mark-to-market losses on foreign exchange, which were incurred in the second quarter.
"In Agribusiness, strong underlying demand for soymeal and oil will continue to support a favorable U.S. and Brazilian soy crushing environment,” said Brew Burke, chief financial officer (CFO). “European sunseed crush margins have improved in certain countries with the arrival of harvest; however, rapeseed and Canadian canola margins continue to be pressured by weak demand and a reluctant farmer. With the arrival of new crops, utilizations in our North American grain operations are picking up, although export margins are weak due to farmer retention and increased global competition. Our Brazilian grain handling assets, on the other hand, should benefit from strong export flows of corn due to this year's large safrinha crop.
"In Food & Ingredients, we expect sequential improvement from Q3 as we move into the seasonally strongest quarter. In Europe, margins will improve as new oilseed crops reset raw material costs. In North America, we expect continued good performance. And while results in Brazil should improve with seasonality, we will likely continue to face challenges expanding margins and increasing volumes in an environment of extremely low consumer confidence.”