Bunge Ltd., a global leader in sourcing, processing and supplying oilseed and grain products and ingredients, reported results for its 2020 second quarter, with earnings per share on a generally accepted accounting practices basis of $3.47 versus $1.43 in the 2019 second quarter, or $3.88 on an adjusted basis versus $1.52 in the prior year.
The core Agribusiness and Food & Ingredients businesses generated strong results, with Agribusiness earnings improving on excellent execution, the announcement said. Edible Oils also performed better than expected.
Bunge chief executive officer Greg Heckman said, "Bunge had an outstanding second quarter, with strong performance across all of our core businesses while maintaining a sharp focus on the safety of our team. Our execution against committed crush capacity and coordination of trade flows was exceptional.
"We realized the benefit from our risk management decisions in the first half of this year and earned new business with our focus on innovation and our collaborative approach with customers," he continued. "We generated strong cash flow while being disciplined in our approach to capital allocation and continued to execute on our key priorities. These results would be strong in any environment, let alone a pandemic, and we couldn't be more proud of the resilience and commitment of our team."
Results by segment
Agribusiness. Higher Agribusiness results in the quarter reflected strong execution throughout the value chains, particularly in managing risk, committed crush capacity and global trade flows, Bunge noted.
In Oilseeds, higher soy processing results were driven by higher margins in South America, Europe and Asia, partially offset by lower margins in North America. Softseed processing results were higher in all regions.
A market-to-market balance of approximately $295 million was carried into the second quarter of previously reported timing losses related to forward oilseed processing contracts and hedges against sales to downstream Edible Oils customers. As anticipated, approximately $155 million of these timing losses reversed in the second quarter upon executing a portion of these contracts. In addition, as a result of a decrease in global crush margins and the recovery in global vegetable oil prices during the quarter, the company said it benefited from new market-to-market gains of approximately $145 million. This reduced the carryforward balance on open contracts to a net gain of less than $10 million, which is expected to reverse in the coming quarters. Higher results in trading and distribution were driven by increased margins and favorable positioning.
Results in grains improved in most areas of the business. Origination benefited from increased farmer selling in Brazil with the rise of local prices caused by the devaluation of the Brazilian real. North America origination also showed improvement. Higher results in trading and distribution were also driven by improved margins and favorable positioning. Ocean
Freight had a strong quarter as well, driven by excellent execution as well as approximately $75 million of gains from the reversal of market-to-market timing primarily related to bunker fuel hedges that negatively affected the first quarter.
Edible Oil Products. Early in the quarter, the company said it observed a steep drop in foodservice and biofuel demand due to COVID-19-related lockdowns and restrictions. As the quarter developed, refinery margins improved, driven by increased demand from food processor and consumer retail channels, along with a partial recovery in foodservice and biofuel demand. This margin improvement, combined with share growth with new customers and lower costs, resulted in higher earnings in all regions.
Milling Products. Higher results in Brazil, primarily driven by increased food processor and consumer retail demand, as well as decreased costs, more than offset lower results in North America, which was negatively affected by business mix.
Fertilizer. Higher segment results reflected improved performance in Bunge's Argentina operation, which benefited from higher margins and volumes as farmers accelerated purchases in anticipation of higher local prices.
Corporate & Other. Corporate items generally include salaries and overhead for corporate functions, and Other generally comprises the results of Bunge Ventures and the company's securitization, captive insurance and other activities. Total adjusted segment earnings before interest and taxes (EBIT) for Corporate & Other was comprised of a $56 million loss from corporate and $2 million from other for the quarter ended June 30, 2020. This compares to the prior-year period's $60 million loss from corporate and $146 million from other, which reflected Bunge's investment in Beyond Meat.
Sugar & Bioenergy. Segment results for the quarter, which are non-cash, reflect Bunge's share of results of the 50/50 joint venture with BP. By contrast, second-quarter 2019 results reflected its 100% ownership of the Brazilian sugar and bioenergy operations that Bunge contributed to the joint venture in December 2019. Additionally, results of the joint venture are reported on a one-month lag.
Lower results in the quarter were primarily driven by approximately $70 million of foreign exchange translation losses on U.S. dollar-denominated debt of the joint venture due to the depreciation of the Brazilian real. Also contributing to the decline in earnings were lower Brazilian ethanol prices, driven by the drop in global oil prices.
Bunge reported that it is increasing its full-year 2020 earnings per share outlook to reflect its stronger-than-expected second-quarter results.
In Agribusiness, based on first-half results, the current market environment and forward curves, full-year results are expected to be higher than the previous guidance as well as last year's results.
In Edible Oils, the company expects modest improvement compared to the previous outlook. Despite a stronger-than-expected second quarter, the business will likely continue to face headwinds from COVID-19. Expected results in Milling continue to be in line with last year.
Bunge said it expects the following for 2020: an adjusted annual effective tax rate in the upper end of the range of 19-23%, net interest expense of approximately $230 million, capital expenditures in the range of $375-400 million and depreciation and amortization of approximately $400 million.
The outlook for the sugar and bioenergy joint venture has declined from the previous forecast to reflect the impact of foreign exchange volatility in the first half of the year.
Founded in 1818 and headquartered in St. Louis, Mo., Bunge creates sustainable products and opportunities for more than 70,000 farmers and the consumers they serve across the globe. The company has almost 25,000 employees and more than 350 port terminals, oilseed processing plants, grain silos and food and ingredient production and packaging facilities around the world.