Bunge cuts profit hopes again - but talk of 'good momentum' reassures investors

02.11.2017

Bunge cut its earnings hopes for the second time in three months as the agricultural trading giant followed rival Archer Daniels Midland in flagging disappointing oilseed crushing margins, and slashed hopes for sugar results too.

However, shares in the group rose in New York, as the group unveiled better-than-expected earnings for the July-to-September quarter, and underlined that it would report “improved” results for the October-to-December period, and “good momentum” heading into 2018.

The group said it was on track on meeting targets for a cost savings drive, flagged improving soy crush conditions and forecast that in South America - after a “difficult” 2017, marked by farmers withholding crops in hope of higher prices - “we expect the industry to approach harvests in 2018 with increased flexibility”.

Furthermore, Bunge revealed that it was close to achieving a long-awaited resolution to its beleaguered Brazilian sugar business, saying that the group was “in the final stages of completing [the unit’s] financial separation”.

This, along with operational improvements, would “position the segment for an improved year” in 2018.

Bunge shares stood 2.4% higher at $70.41 in lunchtime deals in New York.

‘Below-forecast crush margins’

The announcement of a sugar shake-up followed a July-to-September period in which the division saw its operating profits tumble by 71% to $10m, hurt by lower ethanol prices and higher industrial costs, which more than offset a boost from higher sucrose content in cane.

“While Brazilian ethanol prices increased in the quarter, they remained below levels seen last year,” Bunge said, slashing to $45m-55m, from $100m-120m, its forecast for the division’s full year operating profits.

The group also cut its forecast for operating profits from its core agribusiness division, to $425m-500m, from a forecast reduced in August to $550m-650m.

While the strong US soybean harvest as supporting processing margins and export flows, “global oilseed crush and distribution margins continue to track below earlier expectations”, Bunge said.

‘Spike in farmer selling’

Nonetheless, for the July-to-September quarter, the agribusiness division reported a 24% rise to $103m in operating profits, fuelled by its South American exposure, which helped the group offset the weak US origination and export markets which tripped up rival ADM.

Results in Argentina and Brazil “benefited from a spike in farmer selling in July, as local prices increased on weather concerns in the US and the devaluation of the real and peso”.

Bunge also flagged, in oilseeds, that “overall global structural crush margins were compressed during the quarter, reflecting farmer retention”, which supports crop prices, and “excess meal supply”, which undermines values of processing products.

Nonetheless, “compared to last year, soy processing results improved, driven by higher results in the US, Brazil and China, all of which benefited from higher volumes and effective risk management”.

‘Making good progress’

The group stood by expectations for operating profits in food and ingredients to hit $210m-230m this year, “driven by a strong year-over-year improvement in edible oils”, and despite a halving to $23m in milling profits in the latest quarter.

Bunge’s overall operating profits for the quarter fell by 17.8% to $175m, on revenues flat at $11.42bn.

Underlying earnings per share, at $0.75, came in marginally ahead of the $0.73-per-share result that investors had expected.

Soren Schroder, the Bunge chief executive, said that “we are making good progress towards our strategic objectives of creating a more balanced business, managing those aspects of our operations that we can control, and taking proactive steps to ensure we remain agile”.


agrimoney

Readers choice: TOP-5 articles of the month by UkrAgroConsult