Cargill to Likely Slow Pace of Divestitures
August 10 2016 - 4:30PM
Dow Jones News
Cargill Inc. is likely to slow its pace of divestitures in the
coming year as a wide-ranging revamp of the agricultural giant
starts to show results.
After shedding about $2.4 billion worth of assets in the past
year, including pork-processing plants, a steelmaking venture and
crop insurance, Cargill aims to run its trading and food-production
operations more profitably and invest in businesses where the
company can claim a leading position, its chief financial officer
said Wednesday.
Cargill over its past fiscal year has invested about $3 billion
in new and established businesses ranging from aquaculture to
meat-processing, part of a longer-running effort by Chairman and
Chief Executive David MacLennan to refocus the 151-year-old
agricultural conglomerate on higher-margin products and services
that are in step with consumers' evolving preferences.
"In 2016 we had a very big year in terms of portfolio
realignment," Cargill CFO Marcel Smits said in an interview. In
terms of asset sales, "2017 is not going to be at the scale of
2016."
Cargill, the largest U.S. private company in terms of sales, is
working to improve its performance following several years of
declining profits and agricultural-market pressures. The family
owned Minnesota company on Wednesday reported a 50% increase in
full-year earnings for its fiscal 2016, though profits fell 15%
after adjusting for gains on asset sales and other one-time
events.
Cargill's annual sales have dropped by about one-fifth since
2013, partly reflecting lower prices for commodity crops like corn
and soybeans as global supplies have swelled. While rising grain
supplies have provided cheaper raw materials for processing, they
have muted some market swings that create trading opportunities for
grain merchants like Cargill and rivals Archer Daniels Midland Co.
and Bunge Ltd.
In response Cargill has sold and spun off businesses and is
reorganizing others, such as its food ingredients division, which
makes vegetable oils for deep fryers and malts for brewers. Cargill
replaced the division's five managers with one and fused 25
business units into five global product groups, which Mr. Smits
said helped it deliver the highest profits among Cargill's
businesses in the quarter ended May 31. Cargill also has rolled out
new products, like non-GMO vegetable oils.
Mr. Smits said Cargill is making similar changes to its core
grain trading and processing business, which recorded a rare loss
in Cargill's fiscal fourth quarter partly because its traders were
on the wrong side of a 5.6% surge in soybean prices in May. The
company aims to boost efficiency in its processing plants as it
exits other businesses like retail stores that sell farm supplies
to farmers.
The portfolio shifts, which have included the $1.5 billion
acquisition of a Norwegian fish-feed producer and expansion of
Cargill's for a possible sale or revampingU.S. meat processing
capacity, reflect a change in Cargill's thinking, prioritizing
profitability over diversification and expansion, Mr. Smits
said.
"In the past Cargill would've said, if businesses make a decent
return, that's good," he said. "The real shift is, that's not good
enough. We have to be clear we can be leaders in the industry."
He said Cargill will continue to evaluate its many lines of
business, some of which continue to struggle. Cargill's industrial
and financial services division lost money in both the quarter and
Cargill's fiscal year, which the company said stemmed from an
adjustment to contracts in its ocean shipping business. The company
recorded a small loss for the quarter in its energy business and
profits in its metals business, both of which are under review for
a possible sale or revamping.
Cargill reported a fiscal fourth-quarter loss of $19 million,
which doesn't include gains on sales and other one-time events,
compared with a $230 million profit for the same quarter last year.
Including deals and other charges, Cargill earned $15 million in
the quarter ended May 31, compared with a $51 million loss for the
prior-year period.
Corrections & Amplifications: Cargill's $230 million profit
in the fourth quarter of last year doesn't include gains on sales
and other one-time events, An earlier version of this article
incorrectly stated the profit was an unadjusted figure.
Revenue for the quarter declined 5% to $27.1 billion.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
August 10, 2016 16:15 ET (20:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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