Cargill makes company-wide gains in Q1

Animal Nutrition & Protein segment was largest contributor to adjusted operating earnings.

Cargill reported financial results for its fiscal 2017 first quarter ended Aug. 31, 2016, with adjusted operating earnings rising 35% to $827 million, compared with $611 million in the year-ago period.

On a U.S. generally accepted accounting principles (GAAP) basis, first-quarter net earnings were $852 million, up 66% from $512 million a year ago.

The variance between adjusted and net earnings was largely a function of timing differences related to inventory, derivatives and hedging. Revenues were $27.1 billion, essentially even with last year's $27.5 billion.

"We posted a strong start to the new fiscal year," Cargill chairman and chief executive officer David MacLennan said. "We've been charting a new path to higher performance, and it's rewarding to see the many changes we've made resulting in gains across much of the company."

He noted that recent acquisitions have brought in new capabilities alongside Cargill's continuous work to optimize plant efficiency, supply chains and cost structure. "These actions are making us more competitive and equipping us to serve a broadening range of customer needs," MacLennan said.

Segment results

* The Animal Nutrition & Protein segment was the largest contributor to Cargill's adjusted operating earnings in the first quarter, with results up sharply from the prior year. Profitability was led by the segment's beef business, which benefited from the North American market's ongoing transition to increased cattle supplies as well as renewed consumer demand for beef.

The global group of poultry businesses, along with U.S.-based turkey and further-processed eggs, delivered increased earnings over the prior year.

Animal nutrition contributed to the strong results as well, with sales growth in North America and parts of Asia. Sales volume for aqua feeds was reduced by weather-related events in some countries, but this was partly offset by the sales strength of the segment's new aqua nutrition unit in high-value functional feeds and raw material sourcing.

To grow its protein portfolio, Cargill purchased Five Star Custom Foods, which specializes in cooked protein products for the foodservice and food manufacturing sectors, with facilities in Ft. Worth, Texas, and Nashville, Tenn. Cargill is selling two cattle yards in the Texas Panhandle to Friona Industries, which is already a significant supplier of fed cattle to Cargill. The sale will allow capital currently used to buy and feed cattle to be redeployed in other parts of the business, the company said.

With the upcoming introduction of the antibiotic-free Honest Turkey product line, Cargill said it is expanding its commitment to turkeys raised without the use of antibiotics to differentiate these products from conventional offerings.

* Origination & Processing earnings rose moderately from last year's first quarter due, in part, to the realization of improved soybean processing margins in the current period, along with the reversal of market-to-market losses taken in the preceding quarter. Results also were boosted by good performance in Brazil, North American grain exports, canola in Canada and biodiesel in North America and Europe.

As announced in August, Cargill is selling its soybean and rapeseed crush, oil refining and related bulk storage assets in Amsterdam and its soybean crush facility in Brest, France, to Bunge. The transaction is subject to regulatory clearance from the European Union. Cargill is retaining its soybean processing plants in Barcelona, Spain, and Liverpool, U.K., as well as other oilseed processing and refining facilities in Europe.

* Improved earnings in starches and sweeteners and edible oils lifted segment earnings in Food Ingredients & Applications. Cocoa and chocolate products contributed to the upturn, although earnings were restrained by this season's shortage of mid-crop cocoa beans in Ghana.

Salt earnings were flat, with good performance in salts for food and other applications offset by less demand for road salt and deicing products in the current period.

The segment's flour business in Argentina was sold to Molinos Canuelas, a local, family-owned, retail food company with its own flour business.

* The Industrial & Financial Services segment was profitable for the quarter, with returns from Cargill's asset management investments offsetting weak performance in other parts of the segment.

Petroleum results were affected by low global demand for oil in oversupplied markets; likewise, the metals business in North America has dealt with weak demand as it works to reduce inventory.

Focus on priorities

MacLennan emphasized that Cargill is keeping its focus on three connected priorities: sustainability, food security and nutrition.

Cargill noted that the August debut of the Midwest Row Crop Collaborative (MRCC) shows how the company can bring unique insights to advancing sustainable agriculture. MRCC brings together industry and conservation leaders to take sustainability work to a larger scale. In its launch, MRCC announced that it will support and build out current programs that seek to improve soil health and water quality in Illinois, Iowa and Nebraska.

MacLennan noted, "Cargill is committed to the success of the MRCC because we believe that sustainability programs like this will benefit agricultural supply chains from end to end."

Also, Cargill and Heifer International began a new partnership in Qingshen, China, aimed at improving farmer livelihoods, agricultural practices and food security in which about 100 small, family-owned poultry farms — most led by women — will receive chicks, business training and access to nutrition expertise and veterinary support. Plans provide for expanding the program over time as each farming family gifts livestock to another family in need. Cargill said its animal nutrition business is committed to sharing its knowledge of animal husbandry through farmer training and other means and hopes this project will be the first of many to succeed using this innovative format.

Cargill has 150 years of history in providing food, agriculture, financial and industrial products and services to the world. Cargill has 150,000 employees in 70 countries.

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