Bunge slashed hopes for earnings from it core trading and
oilseeds processing division, citing dents to Brazilian margins as flagged by rival
Archer Daniels Midland – but said that hedging had protected its sugar profits
from weak prices.
The ag trading giant – with Archer Daniels Midland, Cargill
and Louis Dreyfus one of the ABCD group of sector leaders – slashed to $500m-650m,
from $800m-925m, its forecast for full-year operating profits at its
agribusiness division, its biggest earner.
The downgrade came as the group reported an 89% plunge to
$18m in operating profits for the division in the April-to-June quarter, as
Bunge revealed a further dent from the "slow" Brazilian farmer selling which,
in boosting competition by processors for supplies, has "negatively impacted
"Weak global margins and slower-than-expected farmer selling
in South America led to a challenging second quarter in agribusiness," said Soren
Schroder, the Bunge chief executive.
In grains, Bunge noted that Brazilian growers' slow crop
sales had spurred "intense industry competition for supply to meet logistics
In oilseeds, the group flagged a dent to South American
margins from "a combination of slow farmer selling and an oversupply of soymeal".
While the group forecast a "much-improved" second half of
2017 for the agribusiness division, with Brazilian grower now "proving willing
sellers" as crop prices have shown some recovery, Thom Boehlert, the Bunge
finance director, flagged some lingering headwinds yet.
"While South American soy crush margins have expanded, they,
along with soy crush margins in Europe, are still below our earlier
expectations," he said.
Mr Schroder said that although "consumption of soymeal and soyoil
is strong, the crushing industry oversupplied the market during the second
quarter, resulting in a meal surplus that is expected to weigh on margins
through" the current July-to-September period.
In the milling division, in which the forecast for operating
profit was cut to $210m-230m, from $245m-265m, Bunge also noted continuing
setbacks from "soft consumer demand" in Brazil and Mexico.
"Our milling business, particularly in Brazil, is facing
headwinds from contraction in flour consumption both in the industrial and food
service segments," Mr Schroder said, after a quarter in which the division saw
operating profits halve to $16m.
However, in the Brazil-based sugar unit, the group stood by
expectations of full-year operating profits of $100m-120m, citing operational improvements,
and forward sales which had protected Bunge from a drop of 25% so far this year
in prices, as measured by New York futures.
An improvement in quarterly profits in sugar reflected "production
that was hedged at higher prices than last year".
The comments came as the group unveiled a 34% drop to $72m
in earnings attributable to shareholders for the April-to-June quarter, despite
a 10.5% rise to $11.65bn in sales.
Operating profits slumped by 64% to $75m, led by the plunge
in agribusiness earnings, but the decline was offset in part by tax benefits,
which saw the group put in a net tax benefit of $55m for the quarter, compared
with a net expense of $39m a year before.
The earnings were equivalent to $0.17 a share, stripping out
one-off factors, a result in line with market expectations.