White Plains, NY - February 14, 2018 - Bunge Limited (NYSE:BG)
• Q4 GAAP EPS of $(0.48) reflecting charges primarily related to restructuring and tax reform;
$0.67 on an adjusted basis
• Agribusiness impacted by weak margins; Sugar & Bioenergy impacted by adverse weather
• Edible Oils finished the year strong with near record results
• Global Competitiveness Program exceeded expectations in 2017
• Expect Loders Croklaan acquisition to close in Q1
• 2018 outlook includes year-over-year improvement in all segments
Quarter Ended December 31, Year Ended December 31,
US$ in millions, except per share data 2017 2016 2017 2016
Net income (loss) attributable to Bunge $(60)$271$160$745
Net income (loss) per common share from continuing operations-diluted
Net income (loss) per common share from continuing operations-diluted, adjusted (a)$ 0.67$1.70$1.94$4.67
Total Segment EBIT (a)$55$403$436$1,143
Certain gains & (charges) (b) (100) 41(141)43
Total Segment EBIT, adjusted (a)$155$362$577$1,100
Oilseeds$34$134$216 $ 407
Food & Ingredients (d)$70$70$223$229
Sugar & Bioenergy$(8)$30$3$51
(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 11 of Additional Financial Information 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, "While industry headwinds persisted through the end of the year, we made good progress in 2017 towards our strategic objectives by taking proactive steps to improve our cost structure and create a more balanced business.
“Fourth quarter oilseed margins did not recover as quickly as expected, and sugarcane milling results were negatively impacted by a sustained period of rain late in the quarter. Food & Ingredients finished the year on a strong note with Edible Oils closing out a near-record year. Looking ahead, we are seeing positive signs that soy processing conditions are improving, supporting our expectation that all segments will show year-over-year earnings growth in 2018. We expect a soft first quarter with improving conditions throughout the remainder of the year."
Schroder continued, “Our Global Competitiveness Program is off to a strong start, putting us on a good trajectory to achieve our $250 million target by the end of 2019. We also delivered $110 million of industrial cost savings in 2017, exceeding our target by $10 million. In addition, we continue to work toward the separation of our sugarcane milling business and are in the process of exiting from our global sugar trading activities and our renewable oils joint venture.
“We expect our acquisition of Loders Croklaan to close during the first quarter. Loders will greatly advance our strategy to expand downstream into higher margin products closely tied to our global oils and crushing footprint. This will accelerate our move to become the leading global B2B edible oils company."
Fourth Quarter Results
Grains and Oilseeds results were lower than last year, as margins overall remained weak.
In Grains, results in North America were lower than expected, but higher than last year, primarily due to effective positioning, which helped overcome weaker structural margins and lower volumes due to increased exports out of South America. Lower origination results in South America were driven by the combination of weak margins and farmers’ delayed pricing of 2018 crops. Results in global grain trading & distribution were similar to last year; however, margins remained under pressure due to limited dislocation opportunities.
In Oilseeds, structural processing margins overall remained depressed during the quarter, primarily due to an oversupply of soymeal in destinations. Compared to last year, higher soy crushing results in Brazil were more than offset by lower crushing results in Europe, Argentina and Asia. However, conditions improved toward the end of the quarter as Argentine crushers reduced production, bringing global soymeal supply into better balance with demand. This is having a particularly positive impact on soy crush margins in Western Europe and Vietnam. In the U.S., structural margins were good and generally as expected, but slightly lower than last year. Softseed processing results were lower than last year as higher results in Canada were more than offset by lower results in Europe. Results in global oilseeds trading & distribution were similar to last year.
Edible Oil Products
Edible Oils had a strong finish to the year. In North America, improved performance was driven by higher margins and lower costs. In Brazil, higher volume and lower costs were partially offset by lower margins as industry players continued to aggressively compete for price sensitive consumers. In Europe, margins and volumes benefitted from our new value-added acquisitions. In Asia, improved volumes and sales mix drove results with both India and China contributing strongly.
The decline in segment results was primarily in Brazil, where margins were negatively impacted by consumers trading down on value and where the small bakery channel continued to experience soft demand. Also impacting results in Brazil, was aggressive pricing by small mills, which increased production in response to the above average Brazilian wheat crop. In the U.S., margins and volumes were higher. In Mexico, results benefitted from higher volumes reflecting new customer wins. This was the third straight quarter of sequential volume improvement in Mexico and reflects a new quarterly high for the business.
Sugar & Bioenergy
Fourth quarter results in sugarcane milling were significantly below our expectations, primarily due to a sustained period of rain late in the quarter that reduced crush by approximately 700,000 metric tons, negatively impacting sales and unit costs. Compared to last year, the decline in sugarcane milling results was primarily due to lower ethanol and sugar prices, which were down on average by 15% and 18%, respectively, as well as reduced crush volume. Despite these headwinds, this marks the third straight year that full-year results in sugarcane milling were profitable and free cash flow positive. Trading & distribution results in the quarter were approximately breakeven compared to a loss last year. Results in the quarter were impacted by a $5 million loss from our renewable oils joint venture.
As discussed during the last quarter, we remain committed to the separation of our sugarcane milling business. We are also in the process of exiting our global sugar trading operation and are in late stage discussions to sell our interest in our renewable oils joint venture to our partner. Collectively, these two businesses negatively impacted 2017 Sugar & Bioenergy results by approximately $40 million.
Higher volumes and lower costs in our Argentine fertilizer business were offset by a decrease in margins. Results in the fourth quarter 2016 had an $11 million benefit from the reversal of a provision related to tariffs on natural gas consumption.
Global Competitiveness Program
The Global Competitiveness Program ("GCP") announced in July 2017 is expected to 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.
The company reduced addressable SG&A by $40 million in 2017 as compared to the baseline, exceeding its $15 million target by approximately $25 million, and incurred $55 million of severance and program-related SG&A costs during the year.
Cash generated by operations in the year ended December 31, 2017 was $1,006 million compared to cash generated of $1,904 million in 2016. Adjusted funds from operations was $884 million for the year ended December 31, 2017. Our cash cycle was down 3.5 days compared to last year, reflecting disciplined capital management. This allowed us to grow our volume by approximately 10 million metric tons while holding our working capital relatively constant with last year levels. Total capex of $662 million was $188 million below our original 2017 target of $850 million.
Adjusting for all notable items, the effective tax rate for the year ended December 31, 2017 was approximately 13%. As a result of tax law changes in the U.S. and Argentina during the fourth quarter, we recognized a non-cash charge of $66 million, which included taxes on accumulated foreign earnings and withholding taxes related to the future repatriation of those earnings, partially offset by adjustments for deferred tax assets and liabilities.
In 2018, we will continue to focus on execution of our strategic priorities.
Savings from the Global Competitiveness Program are expected to total $100 million versus our 2017 addressable SG&A baseline. We expect an additional $80 million of savings in industrial and supply chain initiatives. Savings from these programs are reflected in the segment EBIT ranges below.
In Agribusiness, we are not expecting a quick turnaround; however, oilseed crush margins are showing signs of improvement. We are entering South American harvests with increased flexibility. We have reduced forward logistics and sales commitments in Brazil and Argentina, providing more optionality to adapt to farmer marketing and customer buying patterns. In each of the past two years, unusually low priced feed wheat and DDGS have taken share from soybean meal in feed formulations, negatively impacting soy crush margins. With soymeal more competitively priced and expectations that Argentine processors will crush in alignment with the pace of farmer selling, we see a better balance in the supply and demand of soymeal during the year. Based on these factors, which should improve origination and crush margins, we see segment EBIT improving to a range of $550 to $700 million. We expect results to be weighted to the second half of the year with a soft first quarter.
In Food & Ingredients, we expect segment results to improve sequentially as we progress through the year, resulting in EBIT of $260 to $280 million. Our outlook for year-over-year growth reflects increased volume of higher value-added products, growth in sales to key accounts and higher results in Brazil wheat milling. The EBIT range does not reflect contributions from Loders Croklaan, which we expect to close in the first quarter.
In Sugar & Bioenergy, we expect 2018 EBIT of $50 to $70 million. Results are expected to be seasonally weak in the first half of the year. We expect a loss of approximately $40 million in the first quarter, due to carrying over an exceptionally low inventory balance from 2017 into the intercrop period due to the reduced crush volume.
In Fertilizer, we expect EBIT of approximately $25 million.
Additionally, we expect the following for 2018 (excluding the Loders Croklaan acquisition): a tax rate range of 18% to 22% reflecting the impacts of U.S. and Argentina tax reform; net interest expense in the range of $225 to $245 million; capital expenditures of approximately $650 million, of which approximately $150 million is related to sugarcane milling; and depreciation, depletion and amortization of approximately $625 million.
Conference Call and Webcast Details
Bunge Limited’s management will host a conference call at 8:00 a.m. Eastern on Wednesday, February 14, 2018 to discuss the company’s results.
Additionally, a slide presentation to accompany the discussion of results will be posted on www.bunge.com
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