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Cargill posts profit despite ‘disruptions and uncertainty’

Cargill posts profit despite ‘disruptions and uncertainty’
Third-quarter earnings eclipse prior year due to cost efficiencies and other savings.

Cargill reported March 28 results for the fiscal 2019 third quarter and first nine months ended Feb. 28, 2019. Adjusted operating earnings were $604 million, up 8% from the $559 million earned last year, bringing earnings for the first nine months to $2.34 billion, a 2% decrease from the prior year.

Net earnings on a U.S. generally accepted accounting principles (GAAP) basis for the quarter were $566 million, a 14% increase from $495 million in the year-ago period. However, net earnings for the nine-month period declined 3% to $2.33 billion. Third-quarter revenues decreased 4% to $26.9 billion, bringing the year-to-date figure to $83.5 billion.

“Disruptions and uncertainty in the global business environment continued to present challenges during the quarter, but our teams captured greater efficiencies across the company,” Cargill chairman and chief executive officer Dave MacLennan said. “We remain focused on our growth objectives. To achieve them, we are innovating what matters for our customers so they can win with consumers in local markets.”

Segment results

Adjusted operating earnings across Cargill’s four business segments were below the year-ago level, the company reported. However, the difference was offset by reduced spending among corporate functions and other cost reductions.

Animal Nutrition & Protein was the largest contributor to Cargill’s adjusted operating earnings. Within the segment, earnings in North American protein exceeded the year-ago period, boosted by continued strong domestic and export demand for beef as well as consumer demand for egg products.

Higher production costs at Cargill’s poultry processing joint ventures in the Philippines and U.K. contributed to a decline in global poultry results. Two recently acquired value-added chicken processors – Campollo in Colombia and Konspol in Poland – both got off to a good start as part of Cargill.

Increased sales volumes for salmon feeds in the North Sea region and functional feeds in North America improved earnings in aquaculture nutrition, but animal nutrition results in total trailed the prior year due partly to the outbreak of African swine fever in China and other countries as well as unfavorable dairy economics in the U.S.

Food Ingredients & Applications delivered mixed results across the segment, according to the company. Starches and sweeteners earnings declined on historically low ethanol prices in North America and higher energy and raw material costs in Europe. Lower sales volume and higher operating costs in North America trimmed otherwise strong cocoa and chocolate performance in other regions. Edible oils pulled ahead of last year on good positioning and operating efficiencies. In North America, wintry weather slowed bio-industrial sales to the road construction industry; at the same time, icy and snowy road conditions drove demand for deicing products. Sales of salts for food and water quality applications also contributed to improved salt results.

In early March, Cargill announced its intent to acquire Smet, a Belgium-based supplier of chocolate and chocolate decorations. The purchase aligns with Cargill’s intent to accelerate growth in specialty ingredients, as Smet would broaden product offerings and services to artisan, chocolatier and foodservice customers. Subject to information and/or consultation procedures with the appropriate employee representative bodies, the transaction is expected to close in the first half of calendar 2019, the company said.

Earnings in Origination & Processing reflected a challenging environment, with ongoing trade tensions and other supply chain disruptions, the company explained. In North America, soy and canola crush operations ran at high capacity, but the near-absence of the Chinese market for plentiful U.S. soybean stocks reduced profitability. The trade turbulence also negatively affected soybean crush operations in China, as did lower demand for soybean meal for feed following the culling of hogs to control the spread of African swine fever. The segment’s European and South American operations both posted higher profits over the prior year, with soybean and soft seed processing leading the way in Europe and corn and soybean origination improving in Brazil.

Cargill completed the previously announced formation of Grainbridge with Archer Daniels Midland. The technology joint venture will begin developing a suite of digital tools to give North American farmers market data and information on their grain marketing activities in a single platform at no cost to them.

According to Cargill, earnings in the Industrial & Financial Services segment were negatively affected by the industry-wide impact of a mining disaster in Brazil in January that required the mine owner to cut iron ore production and exports to China. The incident caused iron ore futures prices in China to rise sharply and Capesize vessel freight rates to fall significantly. Ocean shipping rates began to strengthen by quarter-end, but concerns about a slowdown in global growth continued to weigh on markets. Elsewhere in the segment, the risk management business, which develops diversified risk management strategies for a wide range of customers, put up a strong quarter, with balanced performance across agriculture, energy, metals and other product lines.

Innovative partnerships

Cargill said it is taking action to ensure that the world has a food system that works for producers and consumers alike over the long term while delivering on its commitment to deforestation-free supply chains. During the quarter, Cargill launched updated policies to strengthen protections for forests and promote rural agricultural development across its supply chains with the launch of a South America Sustainable Soy Policy, a Human Rights Commitment and an updated Forest Policy. In conjunction with this, Cargill joined its fellow members of the Soft Commodities Forum in committing to a common framework for monitoring and reporting progress on transparent and traceable supply chains for soy in Brazil’s Cerrado region.

In February, Cargill and the World Food Program (WFP) Innovation Accelerator accepted applications for the Global Innovation Challenge for Zero Hunger. Start-ups, private companies and non-government organizations submitted proposals for bold solutions to sustainably lift people out of hunger. Selected teams will participate in a May bootcamp in Munich, Germany, where they will receive support from industry experts, including Cargill leaders, with the potential to receive up to $100,000 in equity-free funding for their projects. Cargill has committed $550,000 in support of the WFP Innovation Accelerator as part of $12 million the company has provided to WFP over the years to improve the health and nutrition of people around the globe.

With the goal of benefiting 100 million people worldwide by 2030, Cargill also just joined with Heifer International to launch the Hatching Hope Global Initiative. The program will seek to raise the prosperity of small-scale women farmers with training that enables them to expand and improve their poultry production. In addition to helping these farmers nourish their families, Hatching Hope will boost local economies and expand nutrition education. It will connect farmers to products, services and markets so they can become part of sustainable value chains in poultry. Cargill and Heifer International debuted Hatching Hope last week at the 2019 Global Food Security Symposium hosted by the Chicago Council on Global Affairs in Washington, D.C.

“Our aim is to give farmers everywhere a leg up so they can feed their children, send them to school and lift their communities out of poverty,” said Chuck Warta, head of Cargill’s premix animal nutrition business and executive sponsor of Hatching Hope. Warta represented Cargill at the event.

TAGS: Business
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