Global agri and food company Bunge Ltd announced on 19 July its plans to implement a comprehensive competitiveness programme to improve its position, faced with a tough market and surprise grain stockpiling.
Having planned the move over the past several quarters, the company would rationalise its cost structure and revamp the way it operates, Bunge said in a statement.
Bunge chief financial officer Thomas Boehlert said the company started the process to launch the savings programme in early 2017 and was now beginning implementation.
Once fully implemented, the programme would reduce Bunge’s overhead costs by an estimated US$250M by the end of 2019 by adopting a zero-based budgeting process that would target costs in specific budget categories.
Some US$100M of the savings were anticipated to materialise in 2018 and an additional US$180M in 2019, with total non-recurring charges associated with the programme rising to be 0.8-1.2 times the targeted savings.
Additionally, the firm said it would streamline its processes, consolidate back office functions globally to improve efficiency and scalability and reduce its total 2018 capital expenditure spending from the previously announced US$750M to US$650M.
Soren Schroeder, Bunge CEO, called the competitiveness programme a “transformational next step” for the company to reengineer its organisational and cost structure and said demand and margin trends were positive.
However, Bunge said it expected its second quarter 2017 adjusted earnings to be “modestly profitable”, but below the low end range of analyst estimates.
Schroeder attributed the slim profit margin to challenging market conditions, driven by “unprecedented farmer retention” in South America.
“Increased farmer pricing early in July, as well as more dynamic markets and continued strong demand, lead us to expect much improved agribusiness condition in the second half of the year,” said Schroeder.
Swiss financial services company Credit Suisse was less optimistic, however, and the firm lowered Bunge’s full-year earnings estimate from US$4.28M to US$4.04M.
“We think investors will find this initiative insufficient if it is meant as a defence plan to fend off Glencore’s interest in the company or if it signals a sudden lack of interest on Glencore’s part,” Robert Moskow, a research analyst with Credit Suisse, wrote in the report.