White Plains, NY - August 1, 2018 - Bunge Limited (NYSE:BG)
• Q2 GAAP EPS of $(0.20); $0.10 on an adjusted basis
• Agribusiness impacted by ~$125 million of new negative mark-to-market on forward soy
crushing contracts; positioned for strong second half of the year
• Food & Ingredients slightly higher than last year, driven by improved results in Milling
• Loders Croklaan integration progressing well
• Global Competitiveness Program exceeding expectations; increasing 2018 savings target
to $150 million from $100 million
• Maintaining 2018 full-year EBIT outlook of ~$1.3 billion, which would exceed prior year
by ~$700 million on the back of strong industry fundamentals
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Financial Highlights
uarter Ended June 30, Six Months Ended June 30,
US$ in millions, except per share data 2018 2017 2018 2017
Net income (loss) attributable to Bunge $ (12) $ 81 $ (33 ) $ 128
Net income (loss) per common share from continuing operations-diluted
$ (0.20) $ 0.48 $ (0.39) $ 0.79
Net income (loss) per common share from continuing operations-diluted, adjusted (a)
$ 0.10 $ 0.17 $ 0.04 $ 0.52
Total Segment EBIT (a) $ 71 $ 73 $ 132 $ 206
Certain gains & (charges) (b) (46 ) (6 ) (70 ) (12)
Total Segment EBIT, adjusted (a) $ 117 $ 79 $ 202 $ 218
Agribusiness (c) $ 118 $ 18 $ 170 $ 127
Oilseeds $ 140 $ 2 $ 106 $ 94
Grains $ (22) $ 16 $ 64 $ 33
Food & Ingredients (d) $ 46 $ 44 $ 100 $ 89
Sugar & Bioenergy $ (40) $ 14 $ (60 ) $ 3
Fertilizer $ (7) $ 3 $ (8)$ (1)
(a) Total Segment earnings before interest and tax ("Total Segment EBIT"); Total Segment EBIT, adjusted; net income (loss) per common share from continuing operations-diluted, adjusted; adjusted funds from operations and ROIC are non-GAAP financial measures. Reconciliations to the most directly comparable U.S. GAAP measures are included in the tables attached to this press release and the accompanying slide presentation posted on Bunge's website.
(b) Certain gains & (charges) included in Total Segment EBIT. See Additional Financial Information for detail.
(c) See footnote 12 for a description of the Oilseeds and Grains businesses in Bunge's Agribusiness segment.
(d) Includes Edible Oil Products and Milling Products segments.
Overview
Soren Schroder, Bunge's Chief Executive Officer, commented, "The soy crushing environment continued to evolve positively, and second quarter results in Oilseeds were within the range of our expectations when excluding the new mark-to-market impact. In Grains, results were lower than expected in South American origination and trading & distribution, where we chose a prudent risk management approach that protected against the downside and set us up for a strong second half. In Food & Ingredients, Milling had a strong quarter, led by the anticipated improvement in Brazil market conditions. Edible Oils performance was soft due to margin pressure from a temporary surplus of soy oil resulting from the strong global crushing environment. The integration of Loders Croklaan is on track, and a strong second half is expected with momentum building into 2019."
Schroder continued, "While total company performance in the second quarter came in below our estimates, we expect a strong second half driven by another step up in performance in soy crushing as we have committed most of the open capacity for the balance of the year at very attractive margins. We are confident in our ability to deliver on our targets for the full year.
Through our Global Competitiveness Program, we continue to make progress improving the way we work together around the world. We’re already seeing the benefits of our streamlined organization. The Program is tracking ahead of target and is now expected to generate $150 million in SG&A savings this year – $50 million more than our previous target. We also expect $80 million in savings over the course of the year from industrial and supply chain initiatives."
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Second Quarter Results
Agribusiness
Global soy crush margins were higher in all regions driven by the combination of strong underlying soymeal demand, crushing capacity constraints caused by reduced soybean production in Argentina, and increased availability of U.S. soybeans as the U.S.-China trade discussions evolved. The increase in forward margins resulted in new negative mark-to-market in the quarter of approximately $125 million related to forward soy crushing contracts. Including impacts from the first quarter, we are carrying forward approximately $185 million of mark-to-market, which will reverse as we execute on these contracts in the second half of the year. In addition to committing a significant portion of our forward soy crush capacity in the U.S. and Europe at very attractive margins, we deliberately increased inventory of Brazilian beans, which has allowed us to secure physical crush margins in Brazil and China for the balance of the year.
In Grains, results in the quarter were impacted by a temporary $24 million foreign exchange loss on hedges in Brazil that are expected to reverse in the second half of the year as contracts are executed. Excluding this impact, results in Brazil were higher than last year driven by higher volumes and margins. Origination results in Argentina were negative due to smaller crops resulting from the drought. While origination results in North America were higher than last year, they were not a material contributor to the quarter. Grain trading & distribution generated a loss in the quarter from positions taken to offset potential unfavorable movements on our bean basis exposure in Brazil, and to protect second half soy crush margins in Europe and the U.S.
Edible Oil Products
Lower earnings in the quarter were primarily driven by losses in South America, partially offset by improved performance in Europe, which benefitted from higher volumes and margins. In Brazil, lower costs were more than offset by lower packaged oil margins as abundant oil supplies from the strong soy crushing environment pressured retail prices to a seasonal low. Results in Argentina were lower as improved volumes and margins were more than offset by foreign currency impacts. The integration of Loders Croklaan is progressing well, and its results in the quarter were as expected.
Milling Products
Performance improved, driven primarily by higher results in Brazil as margins expanded with the transition to the smaller domestic wheat crop. In North America, higher results in the U.S. were partially offset by lower results in Mexico.
Sugar & Bioenergy
Lower earnings in the quarter were primarily driven by our sugarcane milling and trading & distribution operations. In milling, higher ethanol prices and lower operating costs were more than offset by lower sugar prices compared to the prior year and disruptions from the truckers' strike. Sugar trading & distribution incurred a $26 million loss in the quarter primarily due to the combination of unwinding activity in preparation for exiting the business and a $14 million bad debt charge.
During the quarter, we completed the sale of our interest in our renewable oils joint venture to our partner. We are also in late stage discussions to sell our international sugar trading & distribution business. In addition, during the quarter we made a filing in Brazil to explore the possibility of an IPO of our sugarcane milling business. Based on current market conditions in Brazil, we made the decision to postpone the process.
Fertilizer
Results in the quarter were lower due to a $13 million foreign exchange loss on imported fertilizer inventory resulting from the devaluation of the Argentine peso. An offsetting gain is expected to occur in the second half of the year as the inventories are sold. Excluding this impact, results increased from last year driven by higher volume and margins and lower costs.
Global Competitiveness Program
The Global Competitiveness Program announced in July 2017 will rationalize Bunge’s cost structure and reengineer the way we operate, reducing our 2017 addressable baseline SG&A of $1.35 billion to $1.1 billion by 2020.
We are now targeting $110 million in SG&A savings in 2018, representing a total reduction in SG&A expenses of $150 million relative to our 2017 baseline. This reflects an additional $50 million of savings relative to our initial outlook for 2018.
Cash Flow
Cash used by operations in the quarter ended June 30, 2018 was approximately $3.3 billion compared to cash used of $1.3 billion in the same period last year. The year-over-year variance is primarily due to changes in inventory, reflecting an increase in soybean supplies that we will crush during the second half of the year. Trailing four-quarter adjusted funds from operations was $704 million as of the quarter ended June 30, 2018.
Income Taxes
Income taxes for the six months ended June 30, 2018 were $21 million. The prior year included $49 million of notable tax benefits.
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Outlook
The outlook for 2018 remains strong.
In Agribusiness, we expect our full-year EBIT results to be toward the upper end of the range of $800 million to $1.0 billion. While our expectation in Oilseeds has increased due to further strengthening of soy crush margins, we have lowered our outlook in grain origination as a result of uncertainty related to the evolving freight price situation in Brazil and expectations for lower volumes and margins in the U.S. due to reduced exports.
In Food & Ingredients, we expect results to be at the lower end of our full-year EBIT outlook range of $290 to $310 million, reflecting the softer than expected second quarter Edible Oil results in South America and weaker currencies in some of our primary markets. Second half results are expected to improve sequentially.
In Sugar & Bioenergy, based on our expectation of lower cane crush from the drought and a slower than expected increase in Brazilian ethanol prices, we are adjusting our full-year EBIT outlook to breakeven, which includes an expected loss of $20 million in our trading & distribution business.
In Fertilizer, we continue to expect EBIT of approximately $25 million.
Expected savings from the Global Competitiveness Program and industrial and supply chain initiatives are reflected in our segment EBIT ranges.
Additionally, we expect the following for 2018: a tax rate range of 18% to 22%; net interest expense in the range of $270 to $285 million; capital expenditures of approximately $650 million, which is a reduction of $50 million from our previous estimate, which will bring capex to a level below forecasted depreciation, depletion and amortization of approximately $690 million.
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Conference Call and Webcast Details
Bunge Limited’s management will host a conference call at 8:00 a.m. EDT on Wednesday, August 1, 2018 to discuss the company’s results. |
