Reuters — Bunge Ltd. kept the door open on Wednesday to a sale of the company as it reported a 34 per cent drop in quarterly earnings and cut its full-year outlook, but its chief executive officer predicted a grains market rebound that would reverse the slide.
CEO Soren Schroder said planned cost cuts should also help improve performance by the agricultural commodities trader after its second straight weak quarterly result.
Bunge and rivals Archer Daniels Midland, Cargill and Louis Dreyfus, known as the ABCDs in global grain trading, have been stung by a glut of crops following four years of bumper harvests around the world.
The companies have taken steps to diversify and invest in higher-margin businesses such as food ingredients and natural flavourings, but results of the efforts have been mixed.
Cargill’s restructuring effort has begun to yield higher earnings while Bunge has stumbled as its heavier presence in South America, home to a large share of its elevators and processing plants, has blunted gains.
Bunge, which rebuffed an approach from rival Glencore in May, will “evaluate the best path,” CEO Soren Schroder told analysts on a conference call, when asked whether selling the company was an option.
“There’s no entrenchment,” he added.
Bunge unveiled a cost-cutting and restructuring plan last month that it said will slash costs by $250 million by the end of 2019 (all figures US$).
Grain market recovery
Schroder forecast a turnaround in agricultural commodities markets that have burdened Bunge and the broader grain trading industry for more than two years with a string of huge global harvests and record supplies.
“Global corn stocks, while ample, are going down. Wheat stocks are going down. Soybean stocks, depending on how the U.S. crop comes out, probably have peaked,” Schroder said in an interview with Reuters.
“You’re setting yourself up for a rebound,” he added.
Global corn supplies are forecast to drop by nearly 12 per cent by the end of the 2018 season, and soybean stocks are seen down 1.3 per cent, according to the latest U.S. Department of Agriculture forecast. Global wheat stocks are seen up less than one per cent year-on-year after more than doubling over the previous decade.
But analysts, some of whom have cut outlooks for Bunge, were skeptical of an imminent recovery.
“That’s been a common refrain for the last several quarters among agribusiness companies yet we continue to see downward earnings revisions,” said Farha Aslam, analyst with Stephens Inc.
On Tuesday, rival Archer Daniels said slow farmer sales in South America dragged down profits for its soybean processing business.
The optimistic outlook by Bunge, which has seen shares whipsawed between poor results and speculation of a potential takeover, comes despite this year’s record corn and soybean crop in Brazil and forecasts for another bumper crop in the U.S., the world’s top two producers.
Some analysts expect Bunge’s second consecutive weak quarter to invite another approach by Glencore while others believe the overhaul could buy time to deliver on promised growth.
Regional partnerships and joint ventures remain possibilities for Bunge as it looks to prop up return on invested capital. U.S. grain handling and South American and Asian oilseed crushing are among sectors that are ripe for consolidation, Schroder told Reuters.
On Wednesday, the company slashed its full-year agribusiness earnings target to $550 million to $650 million, from $800 million to $925 million in the first quarter, and its food and ingredients target to $210 million to $230 million, from $245 million to $265 million. Both were cut for a second straight quarter.
Net income available to shareholders fell to $72 million, or 51 cents per share, in the quarter, from $109 million, or 78 cents per share, a year earlier.
Bunge shares were near unchanged on Wednesday at $78.08.
— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago.Tagged bunge, commodities, grain trading, grains, restructuring, Soren Schroder