Record U.S. crops boost Bunge Q4 results

Higher results driven by Food & Ingredients and Sugar & Bioenergy segments.

Bunge Ltd. reported results this week for its fiscal 2016 fourth quarter and full year, pointing out that higher results were driven by its Food & Ingredients and Sugar & Bioenergy segments.

Fourth-quarter diluted earnings per share were $1.83, compared with $1.31 in the 2015 fourth quarter (Table).

The company said it continues to expect strong earnings growth in 2017.

Commenting on the results, Bunge chief executive officer Soren Schroder stated, "Bunge had a solid fourth quarter to end a challenging year. Higher Food & Ingredients and Sugar & Bioenergy results in 2016 reflect our team's hard work to drive structural improvements to increase the underlying competitiveness of our businesses. Agribusiness faced a very competitive global market environment but finished strong. Our 2016 adjusted ROIC (return on invested capital) in our core Agribusiness and Food operations was 8.6% — 1.6 points over our cost of capital.

"Our efforts to drive long-term, sustainable value are on track," Schroder added, noting that Bunge exceeded its target for cost and efficiency benefits by $10 million in 2016, delivering $135 million. He said the company returned $457 million to shareholders through dividends and share repurchases.

Schroder explained that Bunge expanded its value-added Food & Ingredients' capabilities with bolt-on mergers and acquisitions in Europe and strengthened the Agribusiness segment's footprint through joint ventures in Brazil, Vietnam and Canada. In addition, the previously announced Northern Europe soy crush and Mexico corn milling acquisitions are expected to close in the 2017 first and second quarters, respectively, he added.

"We enter 2017 with confidence and expect strong growth in earnings," Schroder said. "After disappointing crops in South America last year, the region is on track to produce record harvests this season, which aligns well with our footprint. In addition, global soybean processing margins, which were under pressure during most of 2016, are improving, and soft seed margins are better in both North America and Europe."

He said the company expects the Food & Ingredients segment to increase its share of value-added products and volumes. For the Sugar & Bioenergy segment, sugar is hedged at higher prices, and ethanol prices in Brazil should be supported by favorable supply and demand.

Cash generated by operations in the year ended Dec. 31, 2016, was $1.904 billion, compared to $610 million in 2015. The year-over-year increase was primarily driven by lower levels of working capital, reflecting increased payables and decreased secured advances to farmers. Adjusted funds from operations of $1.477 billion were $61 million higher than $1.416 billion in the year-ago period.

Fourth-quarter results by segment

* Agribusiness. Results in the Agribusiness segment decreased from last year, primarily due to lower results in Bunge's soy processing operations, reflecting tight bean supplies in South America and softer global soybean meal demand due to competition from lower-cost feed products.

Results in the company's European and Canadian softseed processing operations increased, driven by large crops, solid vegetable oil demand and a new Ukrainian plant that started up earlier this year.

Improved performance in grains was largely driven by higher results in U.S. operations, which benefitted from record corn and soybean crops that increased origination and export volumes and margins, as well as lower costs resulting from Bunge's footprint optimization efforts. The company said its global teams effectively managed risk during the quarter, although contributions from risk management were lower than last year.

* Edible Oil Products. Increased Edible Oil Products results in the fourth quarter were primarily driven by improved performance in Brazil, reflecting higher margins in all major product categories, share gains and lower costs.

In India, increased sales of higher-margin specialty bakery products contributed to its improved performance. Results in North America were down as higher results in Canada were more than offset by lower U.S. results. Performance in Europe was comparable to last year.

* Milling Products. Higher Milling Products results in the quarter were primarily due to increased volumes and margins in Brazil, which benefitted from the contribution of Bunge's recently acquired Pacifico mill, market share gains and an improved product mix. Partially offsetting these improvements were lower results in North America, driven by the translation impact of the stronger U.S. dollar on the company's Mexican operations and lower margins in its U.S. corn milling business.

* Sugar & Bioenergy. Increased results in the quarter were primarily driven by Bunge's sugarcane milling operation, where higher sugar and ethanol prices more than offset lower crush volumes. Results in the trading and distribution business were down due to lower volumes and margins. Results in the company's biofuel joint ventures were higher due to improved volumes and margins. Bunge incurred a $7 million loss in the quarter associated with its renewable oils joint venture.

* Fertilizer. Higher Fertilizer results in the quarter were driven by improved volumes in the Argentina fertilizer business that slightly offset lower margins. Results in the quarter also benefitted from the reversal of an $11 million provision related to tariffs on natural gas consumption.

Outlook

"Our full-year 2017 outlook remains largely consistent with the assumptions that we provided at our December investor day," Bunge chief financial officer Thomas Boehlert said.

Agribusiness segment earnings before interest and tax (EBIT) are expected to return to a historical range of $895 million to $1.05 billion, which he said will be driven by large crops in South America, as well as a return to more normal levels of soybean meal inclusion in feed rations and higher softseed crush margins "due to the combination of greater seed supply and robust vegetable oil demand. We expect Agribusiness to start the year slow and progressively improve as volumes and margins pick up in South America."

Food & Ingredients segment results are expected to improve sequentially as the year progresses, resulting in EBIT of $270-290 million. "Our outlook for year-over-year improvement reflects higher margins and volumes resulting from our performance improvement initiatives, a more favorable product mix of higher-value added products and full-year contributions from our new wheat mills in Brazil," Boehlert said.

For Sugar & Bioenergy, 2017 EBIT of $100-120 million is expected. He said the outlook for year-over-year improvement reflects Bunge's actions to improve cane yields, hedging sugar prices at higher levels, a favorable ethanol supply/demand balance in Brazil and the assumption that seasonal weather patterns will be normal. Similar to past years, results will be seasonally weak in the first half of the year.

The Fertilizer segment's EBIT is expected to be approximately $30 million.

Bunge is a leading global agribusiness and food company operating in more than 40 countries with approximately 32,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice used in food ingredients, and sells fertilizer in South America.

 

Bunge Ltd. financial highlights, fourth quarter and full year (million $)

 

-Q4-

-Year-

 

2016

2015

2016

2015

Net income attributable to Bunge

271

203

745

791

Net income (loss) per common share from continuing operations-diluted ($)

1.83

1.31

5.07

4.84

Net income (loss) per common share from continuing operations-diluted, adjusted ($)

1.70

1.49

4.67

4.83

Total segment EBIT*

403

294

1,143

1,248

Certain gains (charges)

41

(43)

43

19

Total segment EBIT, adjusted

362

337

1,100

1,229

Agribusiness

237

268

782

1,054

Oilseeds

134

185

407

596

Grains

103

83

375

458

Food & Ingredients**

70

46

229

192

Sugar & Bioenergy

30

10

51

(22)

Fertilizer

25

13

38

5

*EBIT = earnings before interest and tax.

 **Includes Edible Oil Products and Milling Products segments.

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