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Cargill reports 'solid' Q2 results

Cargill sees performance gains in animal nutrition, grain and oilseed processing, poultry operations and many food ingredient categories.

Cargill reported financial results Jan. 7 for its fiscal 2016 second quarter and first half ended Nov. 30, 2015.

Key measures include:

  • Adjusted operating earnings in the second quarter were $574 million, a 13% decrease from $657 million in the same period a year ago; adjusted operating earnings for the first half were $1.19 billion, down 7% from the comparable period.
  • Net earnings (U.S. GAAP basis) in the second quarter and first half were $1.39 billion and $1.9 billion, respectively, compared with $784 million and $1.21 billion in the respective periods a year ago.
  • The major differences between adjusted and net earnings in the quarter included gains on the sales of the U.S. pork business and Cargill's interest in the North Star BlueScope Steel joint venture, as well as a charge related to a change in the accounting treatment for Venezuela (Effective Nov. 30, Cargill stopped consolidating its Venezuelan operations in its financial statements).
  • Revenues in the second-quarter decreased 10% to $27.3 billion, reflecting lower commodity prices and weaker demand in some markets; revenues for the first half totaled $54.8 billion.

"Cargill posted a solid second quarter against a strong comparative period in the prior fiscal year," Cargill chairman and chief executive officer David MacLennan said. "Within the segments, we saw performance gains in key global businesses, including animal nutrition, grain and oilseed processing, most of our poultry operations and several food ingredients categories."

MacLennan noted significant progress in reshaping Cargill's portfolio, particularly pointing to a stronger chocolate business due to the integration of Archer Daniels Midland's chocolate operations in the first quarter and the purchase of global salmon feed producer EWOS bringing "new markets and deep expertise in nutrition for cold-water species."

MacLennan also cited the sale of Cargill's U.S. pork business to JBS USA Pork and the sale of its 50% share in North Star BlueScope Steel to Australia's BlueScope Steel.

In mid-November, MacLennan announced a new leadership team responsible for the company's strategic direction and the performance of its business segments. "It's fitting we take this action now as we celebrate Cargill's 150th anniversary and position the company for success in the generations to come."

Segment performance

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Cargill reported that adjusted operating earnings in its Animal Nutrition & Protein segment decreased slightly in the second quarter, with higher results in animal nutrition offset by a decline in animal protein, largely in red meat.

Effective market segmentation and favorable commodity costs bolstered earnings in global animal nutrition. Areas of particular strength included the U.S. and Vietnam overall and aquaculture nutrition in Latin America.

Within the segment's animal protein businesses, poultry results in Central America, Europe, Thailand and the U.S. rose on strong operational and commercial performance. In the U.S., the Thanksgiving holiday also gave a boost to fresh whole-turkey sales volume, the company reported. Difficult economic conditions in North American cattle feeding and the long-anticipated decrease in Australia's cattle supplies curbed earnings in global beef.

Adjusted operating earnings for the Origination & Processing segment were down moderately from last year's level. The grain and oilseed supply chain businesses were well ahead of last year on a combined basis, boosted by improved soybean crush results in most geographies and by good risk management amid declining prices in well-supplied markets for agricultural commodities, Cargill noted. Earnings trailed the year-ago period due to normalized grain handling levels in Canada after two very large crop years and weaker performance in cotton, soft seed crush and sugar.

Adjusted operating earnings in Food Ingredients & Applications slipped below last year, although efforts to strengthen operational and commercial execution continued to make good progress. Profitability in global starches and sweeteners pulled ahead of last year, as did cocoa and chocolate and edible oils. Some of the staple foods units were hurt by weakening currencies and recessionary conditions in the emerging economies they serve. With an unseasonably warm start to winter in North America, results in road salt and deicing products trailed last year.

Industrial & Financial Services adjusted operating earnings declined significantly from last year's level, reflecting, in part, the liquidation of certain hedge funds at an asset management subsidiary. Additionally, energy results were reduced by muted volatility in petroleum markets and by mild temperatures during a period when cold weather usually drives demand for natural gas and power, the company said. Performance improved in metals trading.

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