"In the first quarter, our Agribusiness team managed markets, margins, and logistics very well in a challenging environment,” said Soren Schroder, Bunge’s chief executive officer. “In Food and Ingredients, we are seeing positive signs in Brazil with gains in both volume and market shares. Overall, results were better than expected, our return on capital continues well above WACC and we feel confident about growing earnings in 2016.”
Net sales were down 17% to $8.92 billion from $10.8 billion in the same quarter a year earlier.
Total segment earnings before interest and tax were $322 million, down from $373 million in the same period a year ago. Agribusiness earnings were $282 million, down from $330 million a year earlier.
Agribusiness results benefited from good performances in South America and effective risk management strategies, Bunge said.
Lower Oilseeds results ($138 million this quarter vs. $242 million a year earlier) were due to a softer global soy processing environment. Margins in the U.S. and Europe were negatively impacted by increased export competition from Argentina. Partially offsetting this decrease were improved results in Argentina, which benefited from increased farmer selling following the devaluation of the peso. Soy processing results in Brazil were good and comparable to last year. Oilseed trading and distribution results were similar to last year, benefiting from strong export flows out of South America.
“Customer demand is strong and global soy processing margins are improving,” Schroder said. “Smaller harvests in South America, due to recent adverse weather, are introducing new market dynamics. These will generate headwinds in the second quarter, but also create the potential for us to leverage our winning global footprint more broadly over the course of the year. Both U.S. crush margins and export flows should improve in the second half, and the possibility of dislocations has increased.”
Despite continued tough macro-economic conditions in Brazil, Edible Oil Product volumes recovered toward the end of the quarter and local currency margins were better than last year, the company said. India continued to experience double digit volume growth and margin expansion in local currency. However, currency translation from the weaker Indian rupee offset the benefit. Depressed economies, unfavorable currency translation and soft consumer demand impacted margins and volumes in Russia and Ukraine. Results in Bunge’sr North American business were comparable to last year, as strong volume growth in three of the company’s value-added downstream business was offset by lower refining margins. The quarter included a $12 million mark-to-market gain, which will reverse in the following quarters.
In Grains, higher results in the quarter ($144 million this quarter vs. $88 million in the previous quarter) were largely driven by improved performances in grain trading & distribution and port services operations, which benefited from increased South American exports. Higher volumes were primarily driven by increased origination in South America, which more than offset declines in the U.S.
First-quarter results in 2015 benefited from approximately $70 million of mark-to-market reversals on contracts related to oilseed processing and bunker fuel hedges.
Bunge said while the Milling Products segment volumes have recovered and are up 11% since the second quarter in 2015, its Brazilian business continued to face currency translation headwinds and soft consumer demand, especially in the foodservice channel. Margins in local currency, however, improved, driven by higher productivity and better product mix. Higher results in North America were primarily due to improved performance in value added categories and increased productivity in U.S. operations.
“In Agribusiness, demand for our core products is strong,” said Drew Burke, Bunge’s chief financial officer. “The USDA is forecasting global soy meal and oil demand each to grow 7% this year, which should be supportive of soy processing margins. Softseed processing margins should improve later in the year with the arrival of new crop seed supplies. Recent weather related changes to crop production in South America could present increased opportunities for our assets in the Northern Hemisphere. However, we expect headwinds in the second quarter as South American farmers and markets adjust to a scenario of lower production.”