• Q3 GAAP EPS of $2.39 vs. $0.59 in the prior year; $2.52 vs. $0.75 on an adjusted basis
• Agribusiness results driven by strong soybean crushing margins; includes ~$155 million of new mark-to-market gains on forward soy crushing contracts
• In Food & Ingredients, Milling produced a solid quarter; Edible Oils impacted by oil surplus from strong soy crushing environment
• Global Competitiveness Program expected to deliver full savings a year ahead of schedule; increasing 2018 savings target to $175 million from $150 million
• Expect 2018 full-year EBIT outlook of ~$1.2 billion, ~$600 million higher than prior year, and combined core Agribusiness-Foods ROIC to exceed WACC
Quarter Ended September 30, Nine Months Ended September 30,
US$ in millions, except per share data 2018 2017 2018 2017
Net income (loss) attributable to Bunge $ 365 $ 92 $ 332 $ 220
Net income (loss) per common share from continuing operations-diluted
$ 2.39 $ 0.59 $ 2.08 $1.38
Net income (loss) per common share from continuing operations-diluted, adjusted (a)
$ 2.52 $ 0.75 $ 2.64 $ 1.28
Total Segment EBIT (a) $ 535 $ 175 $ 667 $ 381
Certain gains & (charges) (b)(38 )(29)(108)(41)
Total Segment EBIT, adjusted (a)$573 $204 $775 $422
Agribusiness (c) $485 $ 127 $655 $254
Oilseeds $367 $88 $473 $ 182
Grains $118 $ 39 $ 182 $ 72
Food & Ingredients (d)$62 $64 $162 $153
Sugar & Bioenergy $3 $8 $(57) $11
Fertilizer $23 $5 $ 15 $4
(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.
Soren Schroder, Bunge's Chief Executive Officer, commented, "Bunge produced a strong third quarter, supported by the prudent actions we took in the second quarter to secure crush margins at multi-year highs, positioning the company for a strong second half performance. Milling also had a good quarter; however, margins in Edible Oils remained under pressure due to a surplus of soy oil resulting from the strong global crushing environment. The integration of our recent acquisition of Loders Croklaan is on track, and the combined Bunge Loders Croklaan platform will be an important driver of earnings going forward."
Schroder continued, "Looking ahead, we expect to deliver a good fourth quarter led by our Northern Hemisphere oilseed processing operations. We also expect improvement in Edible Oils, where oil supplies are tightening, and we are entering the period of seasonally stronger demand.
We continue to drive greater efficiency and lower costs throughout the company. The Global Competitiveness Program is now expected to generate $175 million in SG&A savings this year relative to our 2017 baseline. This represents a $25 million increase from our previous target and $75 million higher than our initial estimate this year. We have also achieved $65 million of industrial cost savings toward our full year target of $80 million, positioning us well to enter 2019 with a lower cost profile.”
Third Quarter Results
Structural soy crush margins were higher in all regions driven by favorable market dynamics and actions taken in the second quarter to deliberately build our inventory of Brazilian beans, allowing us to secure crush margins in Brazil and China at attractive margins. A decrease in industry margins in certain regions resulted in new mark-to-market gains in the quarter of approximately $155 million related to forward soy crushing contracts, which will reverse as we execute on these contracts in the coming quarters.
In Grains, higher results in the quarter were primarily driven by Brazil origination, which benefitted from increased farmer selling as local soy prices rose from the combination of currency devaluation and strong export demand. Results in North America origination benefitted from lower logistics costs, which last year were negatively impacted by weather. Results in ocean freight were also higher than last year.
Edible Oil Products
Performance improved sequentially; however, due to the favorable soy crushing environment, margins in Brazilian packaged oil and North American refining remained under pressure. Underlying performance of Bunge Loders Croklaan was solid and the integration is on track, but reported earnings were impacted by an approximate $10 million negative impact from the revaluation of raw material supply contracts that will largely reverse in future quarters as sales contracts are executed. Excluding this impact, Loders results were as expected. Compared to last year, higher results in the U.S. and Argentina were more than offset by lower results in other regions.
Improved performance was driven by higher results in Brazil as margins expanded with the smaller domestic wheat crop. Results in the U.S. and Mexico were similar to last year.
Sugar & Bioenergy
Sugarcane milling results were negatively impacted by early season drought and excessive rain during the quarter, reducing production and increasing unit costs. Sugar trading & distribution incurred a $5 million loss related to exiting the international business, which was completed during the quarter.
Higher results in the quarter were driven by our Argentine operation, benefitting from higher prices and volumes, as well as lower costs related to prior restructuring actions. Additionally, third quarter results included a $7 million recovery of foreign exchange losses from the second quarter. An additional $6 million recovery is expected in the fourth quarter.
Global Competitiveness Program
The Global Competitiveness Program announced in July 2017 is rationalizing Bunge’s cost structure and reengineering 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 SG&A savings of $175 million by the end of this year relative to our 2017 baseline. This reflects $75 million of additional savings compared to our initial outlook for 2018. We expect 2019 savings against the baseline of approximately $250 million, achieving our addressable SG&A target of $1.1 billion a full year ahead of schedule. With the changes implemented and our culture of continuous improvement, we expect to achieve additional savings beyond 2019.
Cash used by operations in the nine months ended September 30, 2018 was approximately $3.3 billion compared to cash used of approximately $2.0 billion in the same period last year. The year-over-year variance is primarily due to an increase in inventory, reflecting our decision to build soybean supplies in Brazil during the second quarter to support our crushing operations. We expect to work down the balance to a lower level during the fourth quarter. Trailing four-quarter adjusted funds from operations was approximately $1.1 billion as of the quarter ended September 30, 2018.
Income taxes for the nine months ended September 30, 2018 were $106 million, which included a notable tax benefit of $15 million. The prior year included $49 million of notable tax benefits.
Business conditions are expected to remain favorable for the balance of 2018 and into 2019 driven by strong oilseeds processing margins and improving conditions in Edible Oils.
In Agribusiness, we expect our full-year 2018 EBIT results to be in the upper half of the range of $800 million to $1.0 billion, with fourth quarter results to be driven primarily by our Northern Hemisphere oilseeds operations.
In Food & Ingredients, we are reducing our full-year EBIT outlook range to $250 to $270 million, reflecting a softer than expected third quarter in Edible Oils. While margins are currently recovering in Edible Oils, they are doing so at a pace slower than we had anticipated.
In Sugar & Bioenergy, we are reducing our full-year EBIT outlook from breakeven to a loss of between $20 and $40 million. This is based on the weaker than expected third quarter results and continued lower cane crush from the challenging weather conditions, and includes a year-to-date loss of $25 million in our trading & distribution business.
In Fertilizer, we are increasing our full-year EBIT outlook to approximately $35 million, an increase of $10 million from our previous outlook.
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 at the upper end of the range of 18% to 22%; net interest expense in the range of $310 to $315 million, an increase of approximately $35 million due to higher inventories and interest rates; capital expenditures of approximately $600 million, a reduction of $50 million from our previous estimate.
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