Bunge Looking to Cut Costs as Revenue Slides
February 11 2016 - 2:19PM
Dow Jones News
By Jacob Bunge
Bunge Ltd. aims to cut costs in its grain and food businesses
and look at joint ventures in some businesses as the agribusiness
giant navigates turbulent economic conditions.
Slowing U.S. grain exports and food-ingredient sales in Brazil
are likely to continue pressuring the White Plains, N.Y., company
in 2016, its chief executive said, prompting the company to dial
back long-term profit expectations.
"In the current challenging environment, modest growth is the
right indication," Bunge CEO Soren Schroder said in an
interview.
A broad collapse in commodity prices has pressured Bunge and
other top traders of crops and agricultural products, such as
Cargill Inc. and Archer Daniels Midland Co. While three-straight
years of bumper crops in North America and elsewhere have
replenished global grain supplies and reduced costs for grain
companies that make vegetable oil, animal feed and ethanol, farmers
have built more bins to store crops rather than sell at cut-rate
prices, and U.S. grain has become less competitive on global
markets as the U.S. dollar rises and currencies of other
crop-producing nations have fallen.
Bunge on Thursday reported $203 million, or $1.30 a share, in
profit for the quarter ended Dec. 31, compared with a loss of $54
million, or 43 cents a share for the year-earlier period. The
results undershot analysts' expectations of $1.56 a share, and the
company's mixed outlook for 2016 sent its shares plunging 16% to
$49.02 after hitting their lowest level since late 2009.
A prior target to deliver $8.50 in earnings per share by 2018
now is uncertain given pressures on multiple fronts, Mr. Schroder
said. "We can see how we get there, but we are not going to put a
date on it," he said. "It's too difficult in the current
environment to predict that accurately."
Double-digit earnings growth in 2016 is "not impossible," he
told analysts on a post-earnings conference call.
Mr. Schroder said Bunge plans to cut $125 million in annual
expenses this year by managing transport more efficiently across
its grain-trading and ingredients operations, while running its
soybean-crushing plants and packaging facilities more efficiently.
Tough business conditions are prompting other companies to reassess
their own portfolios, which could create openings for more joint
ventures and partnerships that would let grain firms share the cost
of maintaining assets like ports and transport networks, he
said.
"There's an understanding that it pays off to be smart about how
you deploy capital," Mr. Schroder said. Bunge's deal last year, in
which it joined with a Sauri Arabian investment firm to buy a
majority stake in the Canadian Wheat Board, is an example and part
of Bunge's ongoing strategy, he said.
Last week, ADM said it had started a strategic review of its
corn dry mills that make ethanol and animal feed.
Despite the challenges, Mr. Schroder said a wholesale
restructuring of Bunge's business wasn't needed or feasible. "I
don't believe there's one big silver bullet thing you could do to
restructure and make a massive difference," he said. "The pieces
fit together and I don't believe they can operate on their
own."
For the fourth quarter, earnings in Bunge's core agribusiness
division, which trades and processes grains and oilseeds, dropped
15%. Profit from edible oil and milling products plunged 28% and
42%, respectively. Meanwhile, earnings from fertilizer rose 4.8%,
while sugar and bioenergy swung to a profit.
Executives said that conditions in the sugar business, where
Bunge has been considering the sale of its Brazilian mills for more
than two years, are improving as Brazil's ethanol market improves
and sugar prices rebound globally.
Revenue, linked to the prices of the commodities that Bunge
deals, declined 16% to $11.13 billion.
Anne Steele contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
February 11, 2016 14:04 ET (19:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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