Cargill earnings fall 41% from last year's record

Cargill earnings fall 41% from last year's record

Cargill has reported lower earnings in six of its past 10 fiscal quarters and annually in three of the past six years.

OUTGOING Cargill chief executive officer Greg Page said the lingering effects of a record drought last year hindered the company's performance during the first quarter of the 2014 fiscal year, resulting in net earnings of $571 million that were some 41% smaller than the record-setting performance a year ago.

"Cargill did an excellent job managing the remaining effects of last year's severe drought and smaller crops," said Page, who will step down as CEO on Dec. 1 but will remain with the company as executive chairman. "Our agricultural supply chain and food ingredient businesses were focused on helping customers and the company to successfully manage their raw material purchases and inventories during the market uncertainty that precedes the transition to new crops in the Northern Hemisphere."

Page noted that Cargill's performance was balanced, with nearly three-fourths of its business units recording profits.

Unfortunately for the nation's largest privately held company, earnings results in recent history have become an exercise in unmet expectations more often than not. In six of the 10 most recent quarters, Cargill has reported smaller net earnings compared with the same quarter in the prior year.

While first-quarter earnings were viewed as disappointing by industry analysts, they are nonetheless being compared to a record first quarter in 2012, when the company earned $975 million, its best quarter in more than a year.

For the most recent quarter ended Aug. 31, Cargill said its Origination & Processing segment was the largest contributor to results.

"Supported by strong global analytics, sourcing, logistics and risk management, the segment successfully navigated the uncertainty surrounding crop production in the Northern Hemisphere, including weather gyrations in North America," the company said in a statement.

Results improved slightly in Cargill's Animal Nutrition & Protein segment on improved margins and better beef slaughter plant efficiencies. On the other hand, earnings were down slightly in the Food Ingredients & Applications segment.

The company said results in its Industrial & Financial Services segment were down significantly from last year's strong first quarter as the segment's energy businesses posted a weak performance due to the combined effects of mild weather, soft demand and low market volatility.

"Backed by strong analytics, results in steel and iron ore markets were solid, although somewhat below last year's first quarter," Cargill said. "Asset management results softened largely due to rising economic pressures in emerging markets."

In what will be Page's final quarter at the tiller, the financial results were something of an emblem for the relatively tough period the company has faced during his tenure. He was named president and CEO in February 2007, and Cargill notched a sixth consecutive year of record earnings in fiscal 2008, at $3.64 billion.

Annual net earnings from continuing operations have barely come within $1 billion of that mark since 2009 and have fallen compared to the prior year in three of the past six fiscal cycles. Second-quarter earnings in 2012 were the poorest results for the grain handling and meat processing firm in 10 years and may have been a tipping point for Page's tenure.

Feed industry sources speculated privately that Cargill's board gave Page little choice but to hand off the mantle of leadership and take what some viewed as a figurative demotion to the executive chairmanship.

Even with challenging headwinds facing it, Cargill is still one of the most successful companies of any industry anywhere in the world. If it were publically traded, its revenues would have placed it at number nine on the 2013 Fortune 500 list, ranking between Valero Energy and Ford Motor Co.

By comparison, rivals Archer Daniels Midland (ADM) and Tyson Foods clock in at numbers 27 and 93, respectively, on the Fortune 500 list.

ADM, which is scheduled to release its third-quarter fiscal 2013 earnings Oct. 29, has reported lower annual earnings for five consecutive quarters. Investors, however, have been impressed with the company's efforts in acquiring Australian grain handler GrainCorp, and ADM's stock is up roughly 18% since landing its takeover bid in April.

Rumors in recent weeks indicate that Cargill will likely buy some or all of ADM's cocoa processing operations, with the combined assets of the two firms handling roughly 35% of the market, according to estimates from the Financial Times. No deal has been announced as of yet, and analysts assume that some divestitures will be needed to satisfy European antitrust authorities.

The announcement of a big-ticket cocoa deal could help sweeten the mood around Cargill after so many bitter quarters in recent years.

Volume:85 Issue:42

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