WHITE PLAINS, NEW YORK, U.S. — Bunge Limited reported on July 30 that earnings for the second quarter were $72 million or 50¢ per share down from $272 million or $1.71 per share in the same quarter a year ago due to poor returns in the agribusiness segment.
For the first six months of the year, Bunge reported earnings of $321 million or $2.21 per share up from $245 million or $1.65 per share in the same period a year ago.
The company reported net sales of $10.8 billion for the quarter, down from $16.8 million in the same quarter of 2014.
"Conditions in the second quarter were more challenging than expected. In agribusiness, we experienced weak softseed margins, slow farmer selling outside of Brazil and a difficult trading & distribution environment,” said Soren Schroder, Bunge's chief executive officer (CEO). “In food & ingredients, margins and volumes came under dramatic pressure in our Brazilian businesses, especially edible oils, as consumers adjusted to an environment of increasing unemployment, inflation and currency devaluation.”
Agribusiness second quarter earnings were $134 million down from $311 million in the same quarter a year ago, which Bunge attributed to significantly lower results in softseedprocessing and trading & distribution. Soy processing results were comparable with last year.
Oilseeds second quarter earnings were $63 million down from $229 million in the same quarter a year ago. Canadian canola processing margins were significantly weaker than an exceptionally strong prior-year period. European softseed margins were down from last year driven by the combination of slow farmer selling and decreased vegetable oil demand, Bunge said.
In soy processing, results were higher in Asia, which recovered from depressed levels seen for most of 2014, and in the U.S., where utilizations and margins exceeded last year due to strong domestic and export demand. Offsetting these improvements were lower results in Argentina and Brazil. While margins were good in both regions, they were not as strong as last year, and volumes in Argentina were impacted by strikes during May which delayed the start of peak season crushing. Oilseed trading & distribution results were significantly lower in the quarter due to lower margins and volumes, Bunge said.
Grains second quarter earnings were $71 million down from $82 million in the same quarter a year ago. The results in grain origination were slightly lower as improved performance in Brazil, which benefited from a pick-up in farmer selling during the last half of June, were more than offset by weaker margins and volumes in North America and Argentina. Results were lower in grain trading & distribution due to weaker margins and volumes and less effective risk management strategies during the quarter. Results in ocean freight were higher due to good execution and the reversal of approximately $10 million of mark-to-market losses on bunker fuel hedges that were incurred in the fourth quarter of last year.
Edible oil products had lower results in the quarter primarily due to market challenges in Bunge’s Brazilian operations, which experienced a significant decrease in margins and lower volumes as consumers reduced spending and traded down to lower value products in response to the recessionary economy. Results in the 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. In the U.S., excluding a $15 million charge related to restructuring, results were higher than last year driven by higher volumes and margins in both refining and packaging operations.
The decrease in milling products performance in the quarter was primarily due to lower results in Bunge’s Brazilian wheat and U.S. corn milling operations. In Brazil, the company experienced a sharp reduction in volumes as customers, particularly food service, pulled back demand in response to the depressed economic environment. In U.S. corn milling, slightly higher margins were more than offset by lower volumes as demand from ready-to-eat cereal and brewing industries remained soft. Adjusting for a $4 million mark-to-market impact related to hedges on wheat inventory, which will reverse later in the year, results in the Mexican wheat milling operation were comparable to last year. Results in rice milling were also similar to the prior year.
Results in Bunge’s biofuel joint ventures were lower due to the less favorable U.S. ethanol production environment. Results in the quarter were impacted by a $7 million loss from its Brazilian renewable oils joint venture.
"Looking ahead to the second half of the year, we expect full-year Agribusiness EBIT to exceed $1 billion,” said Schroder. “Demand for soy meal and soy oil remains solid, supporting a promising soy crush outlook. The Brazilian safrinha corn crop is large and current local prices are encouraging famers to sell. Based on present crop conditions in the Northern Hemisphere there should be ample supplies to drive high asset utilizations and an expansion in global trade. Food & Ingredients will show improvement from the first half of the year, but will fall short of last year's second half. Sugar & Bioenergy is moving into its seasonally stronger period when sugar and ethanol production increases, and based on current strong domestic ethanol consumption in Brazil, we have increased confidence that we will end the year EBIT and cash flow positive.”
"We also continue to make strides in driving greater efficiency through our performance improvement initiatives, having generated approximately $50 million of year-to-date benefits. The rolling four quarter ROIC for our core Agribusiness and Food operations is 9.6%, continuing to track well above our 7% cost of capital, and we expect returns of approximately 10% for the full year."