Grain News


Bunge Reports 2Q Net Income of $136 Million, Down From $274 Million in 2Q 2012

Date Posted: July 25, 2013

White Plains, NY—Bunge Limited (NYSE:BG) reported July 25 its second quarter financial results.

Full Bunge Report

Overview

Soren Schroder, Bunge's Chief Executive Officer, stated, "The first half of the year came in generally as we expected, and we are anticipating a strong second half.

"In the second quarter, in agribusiness our Brazilian operations generated strong results executing record volumes under challenging logistical conditions.

"We navigated the choppy markets well, but faced some challenges in North America, Europe and Argentina, which suffered from the continued effects of last year's poor oilseed and grain crops.

"In sugar & bioenergy, we are pleased to see our improvements in industrial operations, global risk and trade flow management begin to be reflected in better results.

"And food & ingredients delivered a record first half of the year due to improved volumes, margins, service levels and working closely with customers on procurement strategies.

"Good demand and big Northern Hemisphere crops should drive robust commercial activity, asset utilization and global trade in agribusiness during the remainder of the year.

"Sugar & bioenergy will enter the peak milling season.

"In food & ingredients we expect continued strong performance in both milling and edible oils, as we launch new consumer and B2B edible oil products and continue to improve total supply chain efficiency.

"We are optimistic about the long term as well. Our markets, while competitive, are growing steadily, and Bunge is well positioned for the future.

"We recognize, however, that growth must be balanced with good returns, and Bunge's must improve.

"Our improvement plan for sugar & bioenergy is an essential part of elevating overall returns above our cost of capital, but we can do more in other segments as well.

"To support this goal, we are taking steps such as enhancing our global performance management system, which will intensify our continuous improvement and operational excellence efforts to drive higher returns through more granular management of business unit performance.

"We are also adjusting our capital management and investment approach. As a first step, we are reducing our 2013 capex by $200 million and commencing a review of 2014 plans.

"Projects that more immediately improve efficiencies and competitiveness—and that generate faster payback—will be priorities for Bunge.

"We'll also be mindful of balancing the need to continue to pursue growth opportunities while generating compelling, consistent value for shareholders as we assess our capital management framework.

"We look forward to sharing more details in the coming months."

Second Quarter Results

Agribusiness

Results were below last year, but within our expectations.

Strong margins and volumes in our Brazilian operations were the primary driver of results in the quarter.

Tight sunflower and rape seed supplies in Europe and last year's poor grain crops in the Black Sea negatively impacted results in this region.

Oilseed processing capacity utilization in North America was low for both soybeans and canola, hampered by last year's drought which has reduced available raw material.

U.S. grain exports were weak, reflecting the impact of the extreme drought last summer on corn production.

Results in Argentina were lower due in part to slow farmer selling and the poor wheat crop.

Oilseed processing results in Asia were comparable to last year.

Our teams managed global supply lines and market volatility well in a challenging environment.

Results in the second quarter of 2012 included an $85 million gain on sale of our minority stake in Solae.

Sugar & Bioenergy

Results were higher in the quarter due to improved performance in all parts of the segment.

Trading & merchandising benefited from higher volumes and margins on export programs and good risk management.

In sugarcane milling higher ethanol prices and lower production costs, driven by the combination of higher cane yields, ATR and crush volume, more than offset lower sugar prices.

At the end of June, we had crushed approximately 1.3 million metric tons more sugarcane than in the previous year.

The second quarter is typically a weak period for the milling operations as it marks the beginning of the sugarcane harvest in the Center-South of Brazil when the sugar content of the sugarcane is at its lowest level.

Consequently, mills produce less sugar and ethanol per unit of sugarcane milled than they will in the second half of the year when the yield increases.

Results in U.S. biofuels were higher due to improved margins in our ethanol joint venture.

Edible Oil Products

Results in the quarter were higher in all regions due to significant operational improvements and more efficient channel strategies, especially in Brazil and Eastern Europe.

Prior year results included an impairment charge of approximately $5 million related to the closing of a European margarine plant as part of a facilities consolidation program to improve efficiency.

Milling Products

Excluding last year's $36 million gain related to the acquisition of a controlling interest in a Mexican wheat milling business, our results in the quarter were higher driven by improved performances in our Brazilian wheat milling and U.S. corn dry milling operations.

Contributing to the better results were greater efficiencies in operations, working more closely with our largest customers on procurement strategies and the successful integration of our Mexico wheat mill acquisition.

Outlook

Drew Burke, Chief Financial Officer, stated, "We are confident about the second half of the year.

"In agribusiness, export demand for agricultural commodities should be strong due to the combination of lean customer inventory pipelines resulting from delays in exporting product out of South America, and lower prices driven by what are expected to be large new crops in the Northern Hemisphere.

"Farmer selling in South America has picked up, supporting near-term oilseed processing margins.

"Our oilseed processing and merchandising operations in North America and Europe will continue to be impacted by low capacity utilizations due to tight supplies until new crops are harvested.

"While the critical growing period is still in front of us, U.S. soybean and European softseed crops are developing well, supporting good forward processing margins in these regions.

"In sugar & bioenergy, we are entering the seasonally stronger period of the year as higher crush and ATR levels reduce our unit production costs.

"Our cane supply is now in line with industrial capacity as a result of our investments in planting and agricultural productivity over the past two years.

"At the end of June, we were 30% through the harvest, so weather remains an important factor both in ATR evolution and the length of the processing season.

"Changes in Brazilian ethanol policy have improved the economics of producing ethanol, somewhat offsetting weaker sugar prices; however, Brazilian ex-refinery fuel prices remain significantly below international parity.

"There is no change to our outlook that we will finish the year solidly profitable.

"In food & ingredients, we expect the strong momentum to continue.

"Additionally, our new multi-oil refining facility in India and our new refining and packaging facility in Decatur, Alabama, which started up earlier this year, will contribute to the second half.

"As mentioned earlier, our 2013 capex target has been reduced by $200 million to $1 billion.

"Lastly, the pending sale of the Brazilian fertilizer business remains on track to close during the third quarter."

For more information, call 914-684-3246.

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