Overview
Soren Schroder, Bunge's Chief Executive Officer, commented, "Our earnings improved sequentially and year-over-year, although they continued to be impacted by market and industry headwinds. As a result, we are reducing our earnings guidance for the year in Agribusiness and Sugar & Bioenergy. At the same time, we are making good progress towards our strategic objectives of creating a more balanced business, managing those aspects of our operations that we can control and taking proactive steps to ensure we remain agile in responding to changing market conditions.”
He continued: “Consistent with our strategy, in September we announced the acquisition of Loders Croklaan, which is expected to close in the first half of next year. This transaction will accelerate our growth in higher margin value-added products and it gives us an unmatched global footprint with best-inclass innovation capabilities. In addition, I am pleased with our progress to date in reducing costs and increasing efficiencies. In the quarter we achieved $30 million of industrial cost savings bringing our yearto-date savings to $73 million against our full year target of $100 million. We also expect to meet or exceed the $15 million 2017 target set out in our Competitiveness Program, which is expected to reduce overhead costs by $250 million by the end of 2019.”
He added, “Looking ahead, there are some bright spots in the market. Global soy crush margins are off their lows as utilization rates have been adjusting to balance the oversupply of meal, and we have entered the Northern Hemisphere crop season where U.S. crush margins are currently strong. In Food & Ingredients, we continue to grow value-added sales and are very encouraged by the traction we have made with key accounts, particularly in Edible Oils. In Milling, our volumes in Mexico are improving and the smaller wheat crops in Brazil and Argentina should give us an advantage with our integrated footprint. These recent developments, and our disciplined focus on managing our business, are expected to lead to improved results in the fourth quarter and will provide good momentum as we enter 2018."
Third Quarter Results
Agribusiness
While both Grains and Oilseeds results were higher than last year, overall margins remained weak, reflecting excess global supplies, spot global customers and pressure on farmer margins.
In Grains, higher origination results were driven by improvements in Brazil and Argentina, which benefited from a spike in farmer selling in July as local prices increased on weather concerns in the U.S. and the devaluation of the real and peso. Brazil also benefited from strong safrinha corn exports. Origination results declined in the U.S., due to reduced exports driven by the higher volume out of South America and temporarily higher logistics costs due to weather. Risk management strategies were effective; however, margins in global grain trading & distribution remained weak due to competitive pressures and limited dislocation opportunities.
In Oilseeds, overall global structural crush margins were compressed during the quarter, reflecting farmer retention and excess meal supply. Compared to last year, soy processing results improved, driven by higher results in the U.S., Brazil and China, all of which benefited from higher volumes and effective risk management. Partially offsetting these improvements were lower soy crush results in Argentina and Europe. Softseed processing results were lower than last year primarily due to lower margins in Europe from higher seed prices. Margins in Canada were comparable to last year as farmers held on to their seeds ahead of a record harvest. Oilseed trading & distribution performed better than last year, reflecting increased volumes and higher margins from effective risk management. Increased Oilseed volumes were primarily driven by soy crush in the U.S., Brazil and our recently acquired plants in Europe, as well as our trading & distribution operations.
Edible Oil Products
Results improved in most regions, driven by higher margins and lower costs. In North America, lower costs and higher margins in Canada more than offset softer U.S. refining margins. In Brazil, higher margins and lower SG&A costs more than offset decreased volume, as consumer demand remained soft, but showed some signs of improvement. Better results in Asia were driven by improved performance in both China and India with increased sales of higher value products. Western Europe performed better than in the prior year, including acquisitions, but this was offset by weak retail sales in Eastern Europe. Increased segment SG&A reflected recent acquisitions.
Milling Products
The decline in segment results was due to our Brazilian business, where volumes and margins were negatively impacted by consumers trading down on value and where the small bakery channel continued to suffer a year-over-year reduction in 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 Mexico, higher earnings reflected lower costs and a slight increase in volume from sales to new customers. This was the second straight quarter of volume growth in Mexico, which has returned to 2016 run rate levels. In the U.S., corn milling benefited from both higher volumes and margins.
Sugar & Bioenergy
Results were lower in sugarcane milling, primarily due to lower ethanol prices and higher industrial costs, which more than offset higher sucrose content in the cane. While Brazilian ethanol prices increased in the quarter, they remained below levels seen last year. We remain committed to reducing exposure to sugarcane milling and are in the final stages of completing its financial separation. We continue to explore all options to maximize shareholder value, while improving operations through cost and productivity initiatives. The business is performing well despite the challenging price environment.
Trading & distribution results in the quarter were negative, driven by weak distribution margins and a lack of market volatility. As a result of the very competitive environment, we are in the process of restructuring the business. Results in the quarter were also impacted by a $3 million loss from our renewable oils joint venture.
Fertilizer
Despite lower costs, earnings decreased in the quarter due to lower margins in our Argentine fertilizer business as a result of structural challenges of our locally produced nitrogen products competing with lower-priced international imports.
Competitiveness Program The Competitiveness Program was announced in July 2017. The program is expected to rationalize Bunge’s cost structure and reengineer the way we operate, reducing overhead costs by approximately $250 million once fully implemented by the end of 2019. The company will achieve these cost savings by adopting a zero-based budgeting process that will target costs in specific budget categories, simplifying its organizational structure, streamlining processes and consolidating back office functions globally to improve efficiency and scalability.
The company is on track to meet or exceed its 2017 savings target of $15 million and has incurred $13 million of severance and program-related costs through the end of third quarter.
Cash Flow
Cash used for operations in the nine months ended September 30, 2017 was $302 million compared to cash generated of $635 million in the same period last year. The year-over-year variance primarily reflects negative changes in working capital and lower earnings. Trailing four-quarter adjusted funds from operations was $1.2 billion as of the quarter ended September 30, 2017.
Income Taxes
Excluding approximately $49 million of notable tax benefits, the effective tax rate for the nine months ended September 30, 2017 was approximately 22%.
Outlook
Overall, we expect sequential earnings improvement in the fourth quarter, which will provide positive momentum as we enter 2018. Agribusiness should benefit with the shift to Northern Hemisphere harvests where the large U.S. soy crop is supporting strong domestic crush margins and export flows. However, global oilseed crush and distribution margins continue to track below earlier expectations, and as a result, we are reducing our full-year 2017 EBIT range to $425 million to $500 million.
In Food & Ingredients, we continue to expect full-year 2017 EBIT of $210 million to $230 million driven by a strong year-over-year improvement in Edible Oils.
Sugar & Bioenergy is expected to show strong sequential improvement as the fourth quarter is typically the strongest quarter, as Brazilian ethanol inventories normally tighten during this period. However, we are reducing our full-year EBIT range to $45 million to $55 million, reflecting lower third-quarter results, lower-than-expected Brazilian ethanol prices and reduced activity in trading & distribution.
In Fertilizer, we continue to expect full-year 2017 EBIT of approximately $25 million. The fourth quarter is typically the strongest quarter, as Argentine farmers purchase crop inputs for planting.
Expectations for the full-year 2017 tax rate, excluding notables, remains 18% to 22%, reflecting forecasted earnings mix.
Looking ahead to 2018, we will continue to focus on the factors in our business that can be controlled. Savings from the Competitiveness Program are expected to total $100 million with an additional $80 million of savings from industrial initiatives. Demand for soy crush continues to grow, and after a difficult 2017 in South America, we expect the industry to approach harvests in 2018 with increased flexibility. Expected growth in our Food & Ingredients business will continue to improve the balance of our business. In Sugar & Bioenergy, where our milling business has performed well, we expect continued efficiency improvements in our agricultural operations and the restructuring of our global sugar trading & distribution business to position the segment for an improved year, assuming normal weather patterns.
Conference Call and Webcast Details
Bunge Limited’s management will host a conference call at 8:00 a.m. EDT on Wednesday, November 1, 2017 to discuss the company’s results.
Additionally, a slide presentation to accompany the discussion of results will be posted on www.bunge.com.
To listen to the call, please dial (877) 883-0383. If you are located outside the United States or Canada, dial (412) 902-6506. Please dial in five to 10 minutes before the scheduled start time. When prompted, enter confirmation code 8162299. The call will also be webcast live at www.bunge.com.
To access the webcast, go to “Webcasts and presentations” in the “Investors” section of the company’s website. Select “Q3 2017 Bunge Limited Conference Call” and follow the prompts. Please go to the website at least 15 minutes prior to the call to register and download any necessary audio software.
A replay of the call will be available later in the day on November 1, 2017, continuing through December 1, 2017. To listen to it, please dial (877) 344-7529 in the United States, (855) 669-9658 in Canada, or (412) 317-0088 in other locations. When prompted, enter confirmation code 10112670. A replay will also be available in “Past events” at “Webcasts and presentations” in the “Investors” section of the company’s website.
Website Information
We routinely post important information for investors on our website, www.bunge.com, in the "Investors" section. We may use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.
About Bunge Limited
Bunge Limited (www.bunge.com), NYSE: BG) is a leading global agribusiness and food company operating in over 40 countries with approximately 32,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and 6 ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York.
Cautionary Statement Concerning Forward-Looking Statements
This press release contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including "may," "will," "should," "could," "expect," "anticipate," "believe," "plan," "intend," "estimate," "continue" and similar expressions. These forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. The following important factors, among others, could affect our business and financial performance: industry conditions, including fluctuations in supply, demand and prices for agricultural commodities and other raw materials and products used in our business; fluctuations in energy and freight costs and competitive developments in our industries; the effects of weather conditions and the outbreak of crop and animal disease on our business; global and regional agricultural, economic, financial and commodities market, political, social and health conditions; the outcome of pending regulatory and legal proceedings; our ability to complete, integrate and benefit from acquisitions, dispositions, joint ventures and strategic alliances; our ability to achieve the efficiencies, savings and other benefits anticipated from our cost reduction, margin improvement and other business optimization initiatives; changes in government policies, laws and regulations affecting our business, including agricultural and trade policies, tax regulations and biofuels legislation; and other factors affecting our business generally. The forward-looking statements included in this release are made only as of the date of this release, and except as otherwise required by federal securities law, we do not have any obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.
