Cargill: reports Q2 fiscal 2016 earnings

Minneapolis / MN. (cg) Cargill Company reported financial results for the fiscal 2016 second quarter and first half ended November 30, 2015. Key measures include:

• Adjusted operating earnings in the second quarter were 574 million USD, a 13 percent decrease from 657 million USD in the same period a year ago.
• For the first half, adjusted operating earnings were 1.19 billion USD, down 7 percent from the comparable period.
• Net earnings on a U.S. GAAP basis in the second quarter and first half were 1.39 billion USD and 1.9 billion USD, respectively. That compares with 784 million USD and 1.21 billion USD in the respective periods a year ago.
• The major differences between adjusted and net earnings in the quarter included gains on the sales of the U.S. pork business and Cargill’s interest in the North Star BlueScope Steel joint venture, as well as a charge related to a change in accounting treatment for Venezuela.
• Second-quarter revenues decreased 10 percent to 27.3 billion USD, reflecting lower commodity prices and weaker demand in some markets. Revenues for the first half totalled 54.8 billion USD.

«Cargill posted a solid second quarter against a strong comparative period in the prior fiscal year», said David MacLennan, Cargill’s chairman and chief executive officer. «Within the segments, we saw performance gains in key global businesses, including animal nutrition, grain and oilseed processing, most of our poultry operations, and several food ingredients categories».

MacLennan noted significant progress in reshaping Cargill’s portfolio. «We already see a stronger chocolate business emerging from the integration of our first-quarter purchase of ADM’s chocolate operations. And we are delighted to welcome global salmon feed producer EWOS to Cargill, as it brings new markets and deep expertise in nutrition for cold-water species». MacLennan also cited the sales of the U.S. pork business to JBS USA Pork and the 50 percent share in North Star BlueScope Steel to Australia’s BlueScope Steel. «Each business is well positioned for growth with an industry leader».

In mid-November, MacLennan announced a new leadership team for Cargill, responsible for the company’s strategic direction and the performance of its business segments. «It’s fitting we take this action now, as we celebrate Cargill’s 150th anniversary and position the company for success in the generations to come».

Second-quarter segment performance

Adjusted operating earnings in Animal Nutrition + Protein decreased slightly in the second quarter, with higher results in animal nutrition offset by a decline in animal protein, largely in red meat. Effective market segmentation and favorable commodity costs bolstered earnings in global animal nutrition. Areas of particular strength included the U.S. and Vietnam overall, and aquaculture nutrition in Latin America. Within the segment’s animal protein businesses, poultry results in Central America, Europe, Thailand and the U.S. rose on strong operational and commercial performance. In the U.S., the Thanksgiving holiday also gave a boost to fresh whole turkey sales volume. Difficult economic conditions in North American cattle feeding and the long-anticipated decrease in Australia’s cattle supplies curbed earnings in global beef.

Adjusted operating earnings for the Origination + Processing segment were down moderately from last year’s level. Within the segment, the grain and oilseed supply chain businesses were well ahead of last year on a combined basis, boosted by improved soybean crush results in most geographies and by good risk management amid declining prices in well-supplied markets for agricultural commodities. Earnings trailed the year-ago period due to normalized grain-handling levels in Canada after two very large crop years and weaker performance in cotton, soft seed crush and sugar.

Adjusted operating earnings in Food Ingredients + Applications slipped below last year, though efforts to strengthen operational and commercial execution continued to make good progress. Profitability in global starches and sweeteners pulled ahead of last year, as did cocoa and chocolate, and edible oils. Some of the staple foods units were hurt by weakening currencies and recessionary conditions in the emerging economies they serve. With an unseasonably warm start to winter in North America, results in road salt and de-icing products trailed last year.

Industrial + Financial Services’ adjusted operating earnings declined significantly from last year’s level, reflecting in part the liquidation of certain hedge funds at an asset management subsidiary. Additionally, energy results were reduced by muted volatility in petroleum markets and by mild temperatures in a period when cold weather usually drives demand for natural gas and power. Performance improved in metals trading.

As noted earlier, Cargill stopped consolidating its Venezuelan operations in its financial statements, effective November 30. In accordance with U.S. generally accepted accounting principles, the action was taken due to an inability to convert Venezuelan bolivars to U.S. Dollars or pay U.S. Dollar dividends, combined with a decreasing ability to exercise operational decision-making authority. Going forward, Cargill’s investments in Venezuela will be accounted for using the cost method of accounting. Cargill has operated in Venezuela for 29 years, and continues to serve customers with animal feeds and branded foods such as flour, pasta, oils and sauces.