Bunge leaves door open to sell­ing it­self, cuts 2017 fi­nan­cial fore­cast

Chief ex­ec­u­tive of­fi­cer pre­dicts a grain mar­ket re­bound will re­verse the slide

The Gulf Today - Business - - 6viewpoint -

NEW YORK: Bunge has kept the door open to a sale of the com­pany as it re­ported a 34 per cent drop in quar­terly earn­ings and cut its full-year out­look, but its chief ex­ec­u­tive of­fi­cer pre­dicted a grain mar­ket re­bound that would re­verse the slide.

CEO Soren Schroder said planned cost cuts should also help im­prove per­for­mance by the agri­cul­tural com­modi­ties trader af­ter its sec­ond straight weak quar­terly re­sult.

Bunge and ri­vals Archer Daniels Mid­land Co, Cargill and Louis Drey­fus Co, known as the ABCDS in global grain trad­ing, have been stung by a glut of crops fol­low­ing four years of bumper har­vests around the world.

The com­pa­nies have taken steps to di­ver­sify and in­vest in higher-mar­gin busi­nesses such as food in­gre­di­ents and nat­u­ral flavour­ings, but re­sults of the ef­forts have been mixed.

Cargill’s re­struc­tur­ing ef­fort has be­gun to yield higher earn­ings while Bunge has stum­bled as its heav­ier pres­ence in South Amer­ica, home to a large share of its el­e­va­tors and pro­cess­ing plants, has blunted gains.

Bunge, which re­buffed an ap­proach from ri­val Glen­core Plc in May, will “eval­u­ate the best path,” CEO Soren Schroder told an­a­lysts on a con­fer­ence call, when asked whether sell­ing the com­pany was an op­tion.

“There’s no en­trench­ment,” he added.

COST-CUT­TING

Bunge un­veiled a cost-cut­ting and re­struc­tur­ing plan last month that it said will slash costs by $250 mil­lion by the end of 2019.

Schroder fore­cast a turn­around in agri­cul­tural com­modi­ties mar­kets that have bur­dened Bunge and the broader grain trad­ing in­dus­try for more than two years with a string of huge global har­vests and record sup­plies.

“Global corn stocks, while am­ple, are go­ing down. Wheat stocks are go­ing down. Soy­bean stocks, de­pend­ing on how the US crop comes out, prob­a­bly have peaked,” Schroder said in an in­ter­view with Reuters.

“You’re set­ting your­self up for a re­bound,” he added.

Global corn sup­plies are fore­cast to drop by nearly 12 per cent by the end of the 2018 sea­son, and soy­bean stocks are seen down 1.3 per cent, ac­cord­ing to the lat­est U.S. De­part­ment of Agri­cul­ture fore­cast.

Global wheat stocks are seen up less than 1 per cent year-onyear af­ter more than dou­bling over the pre­vi­ous decade.

But an­a­lysts, some of whom have cut out­looks for Bunge, were skep­ti­cal of an im­mi­nent re­cov­ery.

“That’s been a com­mon re­frain for the last sev­eral quar­ters among agribusi­ness com­pa­nies yet we con­tinue to see down­ward earn­ings re­vi­sions,” said Farha As­lam, an­a­lyst with Stephens Inc.

SOYABEAN PRO­CESS­ING

On Tues­day, ri­val Archer Daniels said slow farmer sales in South Amer­ica dragged down prof­its for its soyabean pro­cess­ing busi­ness. The op­ti­mistic out­look by Bunge, which has seen shares whip­sawed be­tween poor re­sults and spec­u­la­tion of a po­ten­tial takeover, comes de­spite this year’s record corn and soyabean crop in Brazil and fore­casts for another bumper crop in the United States, the world’s top two pro­duc­ers.

Some an­a­lysts ex­pect Bunge’s sec­ond con­sec­u­tive weak quar­ter to in­vite another ap­proach by Glen­core while oth­ers be­lieve the over­haul could buy time to de­liver on promised growth.

Re­gional part­ner­ships and joint ventures re­main pos­si­bil­i­ties for Bunge as it looks to prop up re­turn on in­vested cap­i­tal.

US grain han­dling and South Amer­i­can and Asian oilseed crush­ing are among sec­tors that are ripe for con­sol­i­da­tion, Schroder told Reuters.

On Wed­nes­day, the com­pany slashed its full-year agribusi­ness earn­ings tar­get to $550 mil­lion to $650 mil­lion, from $800 mil­lion to $925 mil­lion in the first quar­ter, and its food and in­gre­di­ents tar­get to $210 mil­lion to $230 mil­lion, from $245 mil­lion to $265 mil­lion. Both were cut for a sec­ond straight quar­ter.

SHARE­HOLD­ERS

Net in­come avail­able to share­hold­ers fell to $72 mil­lion, or 51 cents per share, in the quar­ter, from $109 mil­lion, or 78 cents per share, a year ear­lier.

Bunge shares were near un­changed on Wed­nes­day at $78.08.

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