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Bunge reports Q3 results, strategic review focused on improving shareholder value

Bunge reports solid third-quarter results and announces formation of strategic review committee.

Bunge Ltd. of White Plains, N.Y., has reported solid third-quarter results and announced the formation of a strategic review committee to evaluate how to add future value for shareholders.

According to Bunge chief executive officer Soren Schroder, the results were supported by the prudent actions taken in the second quarter to secure crush margins at multiyear highs, positioning the company for a strong second-half performance.

Structural soy crush margins were higher in all regions, driven by favorable market dynamics and actions taken in the second quarter to deliberately build the company's inventory of Brazilian soybeans, allowing it to secure crush margins in Brazil and China at attractive margins, he said. A decrease in industry margins in certain regions resulted in new market-to-market gains in the quarter of approximately $155 million related to forward soy crushing contracts, which will reverse as the company executes on these contracts in the coming quarters.

In Grains, higher results in the quarter were primarily driven by Brazil origination, which benefited from increased farmer selling as local soybean prices rose from the combination of currency devaluation and strong export demand. Results in North America origination benefited from lower logistics costs, which last year were negatively affected by weather. Results in ocean freight also were higher than last year.

In Edible Oil Products, performance improved sequentially; however, due to the favorable soy crushing environment, margins in Brazilian packaged oil and North American refining remained under pressure, Schroder said.

The underlying performance of Bunge Loders Croklaan was solid, and the integration is on track, but reported earnings were affected by an approximately $10 million negative impact from the revaluation of raw material supply contracts that will largely reverse in future quarters as sales contracts are executed. Excluding this impact, Loders results were as expected. Compared to last year, higher results in the U.S. and Argentina were more than offset by lower results in other regions.

Bunge completed its acquisition of a 70% ownership interest in IOI Loders Croklaan from IOI Corporation Berhad in March. At the time, the company said the acquisition established Bunge as a global leader in business-to-business (B2B) oil solutions with expanded value-added capabilities, reach and scale across core geographies. With Loders, Bunge said it would provide a comprehensive customer offering, from core products to specialties, for B2B customers in the food processing, industrial and artisanal bakery, confectionery, human nutrition and foodservice segments.

In Milling Products, improved performance was driven by higher results in Brazil as margins expanded with the smaller domestic wheat crop. Results in the U.S. and Mexico were similar to a year ago.

In Sugar & Bioenergy, sugarcane milling results were negatively affected by early-season drought and excessive rain during the quarter, reducing production and increasing unit costs. Sugar trading and distribution incurred a $5 million loss related to exiting the international business, which was completed during the quarter.

Higher results in the quarter were driven by the company's fertilizer operation in Argentina, benefiting from higher prices and volumes as well as lower costs related to prior restructuring actions. Additionally, third-quarter results included a $7 million recovery of foreign exchange losses from the second quarter. An additional $6 million recovery is expected in the fourth quarter.

The Global Competitiveness Program announced in July 2017 is rationalizing Bunge's cost structure and re-engineering the way it operates, reducing the company's 2017 addressable baseline selling, general and administrative (SG&A) of $1.35 billion to $1.1 billion by 2020.

“We are now targeting SG&A savings of $175 million by the end of this year relative to our 2017 baseline. This reflects $75 million of additional savings compared to our initial outlook for 2018. We expect 2019 savings against the baseline of approximately $250 million, achieving our addressable SG&A target of $1.1 billion a full year ahead of schedule. With the changes implemented and our culture of continuous improvement, we expect to achieve additional savings beyond 2019,” Schroder said.

Cash used by operations in the nine months ended Sept. 30 was approximately $3.3 billion, compared to cash used of approximately $2.0 billion in the same period last year. The year-over-year variance is primarily due to an increase in inventory, reflecting the company's decision to build soybean supplies in Brazil during the second quarter to support its crushing operations. Schroder said the expectation is that Bunge will work down the balance to a lower level during the fourth quarter. Trailing four-quarter adjusted funds from operations was approximately $1.1 billion as of the quarter ended Sept. 30.

What's ahead?

Looking forward, business conditions are expected to remain favorable for the balance of 2018 and into 2019, driven by strong oilseed processing margins and improving conditions in Edible Oils.

In Agribusiness, the company expects its full-year 2018 earnings before interest and taxes (EBIT) results to be in the upper half of the range of $800 million to $1.0 billion, with fourth-quarter results to be driven primarily by its Northern Hemisphere oilseed operations.

In Food & Ingredients, Bunge is reducing its full-year EBIT outlook range to $250-270 million, reflecting a softer-than-expected third quarter in Edible Oils. While margins are currently recovering in Edible Oils, they are doing so at a slower pace than anticipated.

In Sugar & Bioenergy, the company reduced its full-year EBIT outlook from breakeven to a loss of $20-40 million. This is based on the weaker-than-expected third-quarter results and continued lower cane crush from the challenging weather conditions and includes a year-to-date loss of $25 million in the trading & distribution business.

In Fertilizer, Bunge is increasing its full-year EBIT outlook to approximately $35 million, up $10 million from its previous outlook.

Additionally, the company expects the following for 2018: a tax rate at the upper end of the range of 18-22%; net interest expense in the range of $310-315 million, an increase of approximately $35 million due to higher inventories and interest rates, and capital expenditures of approximately $600 million, a reduction of $50 million from its previous estimate.

New ag lead announced

Christos Dimopoulos has been named president, Agribusiness, for Bunge. His appointment follows the previous announcement of Brian Thomsen's retirement and is effective immediately.

"Our global footprint and strength in Agribusiness are at the core of Bunge's business portfolio, and we are pleased to have a seasoned leader with deep industry expertise in operations and risk management in this key role for Bunge," Schroder said. "I look forward to working with Christos as we continue to optimize our global footprint and expand on our capabilities in origination, capacity management and destination marketing to remain the leader in global crush and be the partner of choice for farmers and customers around the world."

Dimopoulos joined Bunge in 2004 and most recently served as senior vice president global grains and oilseeds. Prior to joining Bunge, he held roles of increasing responsibility in Europe and the U.S. with Tradigrain and Intrade Risk Management. He holds a Bachelor's degree from HEC Lausanne in Business Management & Marketing.

Strategic review committee formed

In related news, Bunge has formed a strategic review committee to conduct a comprehensive, strategic review focused on enhancing long-term shareholder value. The committee will make recommendations to the CEO and the board. Bunge expects to provide future updates as appropriate.

Founded in 1818, 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 serve customers worldwide; processes oilseeds to make protein meal for animal feed; produces edible oil products for consumers and commercial customers in the food processing, industrial and artisanal bakery, confectionery, human nutrition and foodservice categories; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies, and sells fertilizer in South America.

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