Bunge Limited: Reports First Quarter 2018 Results

White Plains / NY. (bl) Bunge Limited announced its financial results for the first quarter (Q1/2018) ended March 31, 2018. Highlights:

• Q1 GAAP EPS of USD (0.20); USD (0.06) on an adjusted basis that includes USD 120 million of negative mark-to-market on forward oilseed crushing contracts
• Higher Food + Ingredients results driven by lower costs and stronger demand
• Loders Croklaan integration progressing as expected
• Global Competitiveness Program on track to generate USD 100 million of savings in 2018
• Increasing midpoint of total 2018 full-year Ebit outlook by USD 295 million

Overview

Soren Schroder, Bunge’s Chief Executive Officer, commented, «During the first quarter, we saw a dramatic change in the global soy crush market environment as margins expanded significantly from 2017 levels. Our teams managed the rapidly changing environment well and positioned the company for a strong performance for the balance of the year. In times like these, when trade flows and capacities shift among regions, the value of our global footprint and capabilities are demonstrated. In Food + Ingredients, results were better than expected with improvement in most regions. Looking ahead, we expect significant growth in Company earnings and returns in 2018».

Schroder continued, «We closed on Loders Croklaan during the quarter, which now positions us as a global leader in B2B oils, and when fully integrated will nearly double the size of our Edible Oils business. We also strengthened our milling footprint in the U.S. with the acquisition of two corn masa mills. These investments increase results from value added activities closer towards our targeted level of 35 percent. In addition, we continue to progress towards the separation of our Brazilian sugarcane milling business. We have recently secured debt financing for the business and are now in a position where the business could operate on a stand-alone basis».

We also made solid progress on our cost objectives. Our Global Competitiveness Program is on track towards our target of USD 100 million this year. And, over the course of the year, we expect an additional USD 80 million of savings from industrial and supply chain initiatives».

First Quarter Results

Agribusiness: The agribusiness environment improved dramatically from conditions seen last year with reduced soybean supplies in Argentina and tightening global grain supplies, leading to increased volatility and improved margins, especially in soy crushing.

In Grains, higher results were driven by global trading + distribution, which benefitted from increased margins and effective risk management. Origination results were comparable to last year as improved performance in Brazil, which benefitted from increased farmer commercialization as local soy prices rose, offset lower results in North America and Argentina.

In Oilseeds, global soy crush margins significantly improved over the course of the quarter driven by the combination of strong underlying soymeal demand and crushing capacity constraints caused by reduced soybean production in Argentina. The increase in forward margins resulted in negative mark-to-market of USD 120 million related to forward oilseed crushing contracts. As we execute on these contracts during the balance of the year, we expect this impact will be offset by higher margins, which is embedded in our revised outlook.

Edible Oil Products: Results were higher in all regions with the exception of South America. In Europe, improved performance was driven by higher volumes and margins, reflecting increased value-added sales from recent acquisitions, as well as increased demand for margarine which benefitted from the rise in European butter prices. In North America, improved results reflected higher margins and lower costs, where the business is seeing the positive effects of cost improvement and restructuring initiatives. In Asia, results were higher in both India and China. In Brazil, however, lower costs were more than offset by lower margins as abundant oil supplies from the strong soy crushing environment pressured retail prices.

Milling Products: Higher results in North America were the primary driver of improved performance in the quarter. In Mexico, results benefitted from double digit volume growth, which was supported by a new sales force structure, and lower costs. Improved results in the U.S. were due to higher margins. Results in Brazil were slightly higher than last year, as higher volume and lower costs more than offset lower margins. We are starting to see signs of improvement as the Brazilian market transitions to a significantly smaller wheat crop this year.

Sugar + Bioenergy: The first quarter is the inter-harvest period in Brazil when sugarcane mills in the Center-South region typically do not operate for most of the quarter and are selling sugar and ethanol inventories from the previous sugarcane harvest.

Results were lower than last year as higher average ethanol prices were more than offset by lower sugar prices and volumes. Volumes were negatively impacted by carrying over a low inventory balance from 2017 into the intercrop period. Trading + distribution results in the quarter were higher than last year.

In addition to progressing towards the separation of our sugarcane milling business, we recently signed a share purchase agreement to sell our interest in our renewable oils joint venture to our partner, and are in the process of exiting our global sugar trading operation.

Fertilizer: Improved results in the quarter were primarily driven by higher margins and lower costs, reflecting in part the restructuring of our Argentine nitrogen fertilizer plant.

Global Competitiveness Program

The Global Competitiveness Program 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 USD 1.35 billion to USD 1.1 billion by 2020.

We reduced SG+A by USD 40 million in 2017 and expect to reduce it by an additional USD 60 million this year, totaling a USD 100 million reduction in 2018 as compared to the 2017 baseline. We have incurred a total of USD 69 million of program-related costs since inception, including USD 14 million this quarter.

Cash Flow

Cash used by operations in the quarter ended March 31, 2018 was approximately USD 1.5 billion compared to cash used of USD 603 million in the same period last year. The year-over-year variance is primarily due to changes in inventory, reflecting the improved agribusiness environment. Trailing four-quarter adjusted funds from operations was USD 811 million as of the quarter ended March 31, 2018.

Income Taxes

Income taxes for the quarter ended March 31, 2018 were USD 19 million.

Outlook

We expect 2018 to be a year of strong earnings growth, particularly in Agribusiness.

In Agribusiness, we are increasing our full-year Ebit outlook range to USD 800 million to USD 1.0 billion, primarily based on improved soy crush margins.

In Food + Ingredients, we are increasing our full-year Ebit outlook range to USD 290 to USD 310 million to account for the addition of our 70 percent ownership stake in Loders Croklaan, which we acquired in early March. Segment results are expected to improve sequentially.

In Sugar + Bioenergy, based on current sugar prices, we are reducing our full-year Ebit outlook range to USD 40 to USD 60 million. Results are expected to be seasonally weak until the second half of the year.

In Fertilizer, we continue to expect Ebit of approximately USD 25 million.

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, which incorporates Loders Croklaan: a tax rate range of 18 percent to 22 percent; net interest expense in the range of USD 255 to USD 275 million; capital expenditures of approximately USD 700 million, of which approximately USD 150 million is related to sugarcane milling; and depreciation, depletion and amortization of approximately USD 690 million.