Bunge highlighted the sugar market turnaround, just as it has distanced itself from the sector, as the trading giant unveiled a better-than-expected close to 2019, helped by the vegetable oil rally and a scramble to sell by South American farmers.
The agricultural trader – with Archer Daniels Midland, Cargill and Louis Dreyfus one of the ABCD group of sector leaders – forecast that for 2020 it would report earnings per share, excluding one-off factors, “broadly in line” with its result for last year.
However, it was only in sugar and bioenergy, of its four key operational areas, that it signalled growth prospects, saying that “market fundamentals have improved versus 2019, driven by sustained Brazilian ethanol market prospects and better sugar prices”.
New York raw sugar futures for March touched 15.56 cents a pound on Wednesday, their highest in nearly three years.
For its key agribusiness division, Bunge forecast 2020 results being “down from 2019” - although adding much would depend on the likes of the extent of Chinese purchases of US ags following the countries’ phase one trade deal - while seeing a decline in the fertilizer result this year too.
The food and ingredients division will achieve a “similar” full-year result, said Bunge, which also forecast a lower net interest expense, of $230m.
The outlook came as Bunge unveiled adjusted earnings per share for 2019 of $4.58. Even excluding also a $0.86-per-share benefit from the group’s stake in Beyond Meat and a sugar benefit, the result exceeded Wall Street expectations, as well as the $2.72 per share achieved the year before.
Investors had forecast adjusted 2019 earnings of $2.75 per share, according to Refinitiv data, which show expectations for 2020 at $3.47 per share.
For the October-to-December quarter, adjusted earnings per share reached $1.27, a multiple of the $0.32-per-share result that analysts had pencilled in.
Sales fell by 6.7% to $10.78bn.
Bunge shares rose 4.5% to $57.50 in early trading in New York, before easing back to $55.78 in late morning deals, a gain of 1.4% on the day.
‘Markets moved in our favour’
Greg Heckman, the Bunge chief executive said that the group had "finished 2019 on a strong note, driven by solid operating performance and market conditions that moved in our favour during the quarter”.
While divisional operating profits for the quarter fell by more than one-third to $44m, that included a series of one-time factors. Gross profits rose by 35% to $571m.
In the agribusiness division, Bunge flagged, in oilseeds, higher soybean crush margins, a benefit to rapeseed and sunflower seed crushing operations from “strong [vegetable] oil demand”, and a fillip in trading from “better positioning”.
Grains results were boosted by origination success in South America, where “Brazilian farmer selling increased as local prices improved”, while in Argentina, “farmers accelerated sales in anticipation of a change in export taxes” following the election of a Peronist president, Alberto Fernandez.
Elsewhere, fertilizer and milling results were in line with those a year before, and those in edible oil products “slightly lower” than a year before, with improvements recorded in North America and Asia, but “lower results in South America”.
Sugar exit quest
In sugar and bioenergy, Bunge reported a gross profit of $50m for the quarter, compared with a loss of $36m a year before, attributed to enhancements within the business, as well as in the broader markets.
“Higher results… were primarily due to improved agricultural yields and operational execution that drove lower unit costs, as well as higher ethanol pricing and higher sugar pricing and volume,” the group said.
The boost comes ironically as Bunge has completed a revamp of its sugar investments, which saw it sell its trading arm to Wilmar International in 2018, while in December folding its Brazil-based production assets into a 50:50 joint venture with oil giant BP.
The tie-up with BP - which followed failures in a long-running effort to sell the operations, or list them in Sao Paulo – “represents a major portfolio optimisation milestone for Bunge which allows us to reduce our current exposure to sugar milling”, Mr Heckman said in July, when the deal was announced.