Bunge Reports 1Q Net Loss of $13 Million, Down From Net Income of $180 Million in 1Q 2013
Date Posted: May 1, 2014
White Plains, NY—Bunge Limited (NYSE:BG) reported May 1 its first quarter 2014 financial results.
Soren Schroder, Bunge's Chief Executive Officer stated, "The first quarter was slower than expected, but our outlook for the remainder of the year is positive.
"Results in the quarter were primarily impacted by losses in our grain trading & distribution business that are behind us and a temporarily depressed crushing environment in China.
"The global agribusiness and food markets, despite some challenges, look strong with solid demand and crush margins in most regions. Soybean harvests in South America are large, and farmers, particularly in Argentina, have increased their commercialization of crops.
"Our team in Brazil is doing a first-rate job managing market risks and optimizing logistics flows, which has positioned us well for executing on this harvest.
"Farmers in the Northern Hemisphere are expected to plant large crops this spring, which should drive strong asset utilization and exports later in the year.
"We continue to target full-year, combined returns in agribusiness and food & ingredients at 1.5 points above cost of capital.
"Our global operational improvement programs and working capital management initiatives are progressing well.
"The Bunge team is focused on delivering strong, long-term shareholder value through improved operational performance in our core businesses, disciplined capital management, and a balanced approach to capital allocation.
"We are actively pursuing strategic alternatives for the Brazilian sugarcane business with the goal of maximizing value for shareholders. We are also continuing with cost and productivity improvements at our mills, which will become evident through the crushing season.
"During the quarter we returned $92 million to Bunge's shareholders through our share repurchase program and expect to repurchase another $108 million during the second quarter."
First Quarter Results
Strong grain origination results in Brazil, which benefited from the early stages of a record harvest, were offset by losses in our trading & distribution operations, where our commercial and risk management strategies anticipated lower grain prices.
The combination of deteriorating U.S. winter wheat conditions and Black Sea political volatility caused prices to rise, pressuring margins. Additionally, ocean freight costs in our trading & distribution operation were above market as we executed higher priced vessels that were toward the end of their time charter contracts.
Strong oilseed processing margins in Europe, Brazil and the U.S. led to improved results, despite a weak crushing environment in China. Year ago results included a gain of $16 million related to the sale of certain legal claims in Brazil.
Sugar & Bioenergy
The first quarter is the inter-harvest period in Brazil when sugarcane mills in the Center-South region typically do not operate and are selling sugar and ethanol inventories from the previous sugarcane harvest.
Results in both our cane milling and trading & distribution businesses were lower than last year.
In sugarcane milling the primary drivers of the difference were approximately $31 million of mark-to-market losses related to hedges on our forward sugar sales and higher start-up costs, which last year were mostly incurred in the second quarter due to the later start to the milling season.
Results in our trading & merchandising business were lower than a strong year-ago period.
Results in our biofuels business were higher than last year primarily due to the favorable ethanol margin environment in the U.S. and the contribution from our new corn wet milling joint venture in Argentina.
Edible Oil Products
Results in the quarter reflect normal seasonal weakness and were lower than last year.
Improved performances in our U.S., Europe and Asia businesses were more than offset by lower results in Brazil and Canada.
Our Brazilian operations focused on improving margins, which resulted in volume loss in January and February, but recovered in March.
In Canada, we also focused on achieving better margins, with some initial volume loss.
The Canadian results were also impacted by lower volumes primarily due to the effects on demand of the severe winter weather and rail logistics issues.
SG&A was higher in the quarter primarily reflecting increased advertising and sales promotion spending to help grow our brands in certain retail markets and spending related to performance improvement initiatives.
Year ago results included a gain of $9 million related to the sale of certain legal claims in Brazil.
Higher margins in our Brazilian wheat milling business were driven by continued focus on extracting higher value through improved product and channel mix and tight cost control.
These gains more than offset lower volumes of lower margin sales.
Wheat milling results in Mexico benefited from our new Altex acquisition, which performed to plan in the quarter.
Results in rice milling were comparable to last year. Results in our U.S. corn milling were lower than last year primarily due to lower margins and higher energy costs.
Higher SG&A in the quarter was due to the addition of Altex.
Year ago results included a gain of $6 million related to the sale of certain legal claims in Brazil.
Drew Burke, Chief Financial Officer, stated, "We remain confident about the full year.
"Demand for our products in most regions has been strong, and we expect these conditions to persist throughout the year.
"In the near term, our South American operations, which are in the early parts of harvest, will be the primary driver of results.
"With the recent pick-up in pace of farmer selling and strong export demand for soybean meal, crush margins and utilizations in South America should remain strong through September when export demand begins to shift back to North America.
"In China, the second quarter will remain challenging as the industry works through the excess supply of soybeans; however, we expect margins in the second half of the year to improve significantly as supply and demand come into balance.
"In the Northern Hemisphere we are entering the slow season; however, forward crush margins for soy and soft seeds look good.
"In sugar & bioenergy, we continue to expect full-year segment results to be about breakeven and are managing the business to be free cash flow neutral.
"Despite dry weather during the first quarter, we expect to have sufficient cane to crush close to capacity.
"Due to the seasonality of the Brazilian sugarcane harvest, we expect results in this segment to be weighted toward the second half of the year.
"In food & ingredients, similar to last year, we expect each quarter to improve sequentially as we move into seasonally stronger periods of the year and our performance improvement programs gain traction by improving our cost base through higher productivity, cost reduction and working capital management.
"The integration of our Altex wheat mills is going well, and we expect to extract more value from our Mexico milling operations as the year progresses."
For more information, call 914-684-3246.