Bunge cuts agribusiness EBIT in face of challenging market conditions
November 13, 2017
Global agri and food company Bunge has slashed its agribusiness segment’s annual earnings before interest and tax (EBIT) projection by US$125M in the face of continuing challenges in the marketplace.
Bunge’s net income in the third quarter of 2017 – ended on 30 September – totalled US$92M, more than 20% lower than the US$118M during the same period last year, with net sales flat at US$11.423bn, World Grains wrote on 2 November.
The agribusiness segment’s EBIT totalled US$103M in the third quarter, which marked an increase from the US$83M in the same period in 2016, but the segment’s year-to-date EBIT was down significantly to US$230M from US$533M.
Bunge lowered its full year range agribusiness EBIT from US$550M-US$650M to US$425-US$500M, with CEO Soren Schroder saying that it was difficult to tell whether this was the new normal or just a low point in market cycles.
“Some of the challenges in the first half of this year were related to the tactical decisions industry participants made by committing to logistics and forward sales in anticipation of a record South American crop, a dynamic we don’t expect to recur next year,” Schroder said in a conference call with analysts on 1 November.
“The oversupply of crops in almost every region, static trade flows, little incentives by consumers and farmers to price forward and low price volatility are all cyclical factors, which have pressured margins. But we would expect that to change in time.”
He said that the underlying demand for soya crush, Bunge’s biggest business, was intact and that growth in grains and oilseeds trade remained “solid”, which caused him to believe that supply would adjust to demand through lower planted acreage going forward.
In oils, according to Schroder, growing demand and shrinking expansion in palm oil production could indicate lower oil stocks, which could drive demand for softseed crush.
While 2017 had been a “humbling” year for Bunge, Schroder said that it was important to remember the continuing drivers of global trade and food consumption and how little it could take to change the global commodity balances.
“The outlook for agribusiness in the fourth quarter is for improvement driven by North America and Brazil and we believe that 2018 will be better than this year. How big of an improvement is difficult to predict, but the macro drivers are supportive and the industry learned an important lesson this year in getting too far ahead of the large crops,” he said.