White Plains / NY. (bl) Agricultural giant Bunge Limited announced a good start to the year in agribusiness and food + ingredients segments. Results in sugar + bioenergy were impacted by lower ethanol margins. Fertilizer results were impacted by lower market prices and 27 million USD non-recurring item.
Overview
Alberto Weisser, Bunge´s Chairman and Chief Executive Officer, stated, «We faced headwinds in the first quarter, as expected, but are confident that we will deliver strong results in 2012. Agribusiness and food + ingredients produced good results in the quarter. Lower margins for ethanol depressed results in sugar + bioenergy. Fertilizer margins were pressured by an environment of falling international prices, an inherent risk in this business. Looking ahead, margins should improve significantly in sugar + bioenergy with the new harvest and in fertilizer with the start of the traditional sales season later this year. Market conditions in agribusiness indicate cause for optimism. Supply and demand in oilseeds and grains is more balanced, which should support crush margins globally. Export shipments in key crops are up compared to last year and the second half of the year promises to be active in the Northern Hemisphere. Volatility should persist, but we feel confident that our risk management capabilities will enable Bunge to navigate the markets successfully».
First Quarter Results
Agribusiness: Grain merchandising benefited from a strong performance in South America due to the smaller U.S. grain harvests last fall, but results were lower when compared to an especially strong prior year period. Higher oilseed processing results in Brazil and Canada were more than offset by lower results in the U.S. and Europe. Increased volume in the quarter was primarily driven by higher grain merchandising and oilseed processing in Europe, the addition of new grain facilities in the U.S. and our two new oilseed processing facilities in Asia that commenced operations after the first quarter of last year.
Sugar + Bioenergy: The first quarter is the inter-harvest period in Brazil when sugarcane mills in the Center-South region are not operating and are selling sugar and ethanol inventories from the previous cane harvest. The loss in the quarter was primarily due to lower ethanol margins stemming from high cost inventory that was carried into the year from 2011. Brazilian market sales prices were pressured by a reduction in ethanol blending rates from 25 percent to 20 percent and increased volume of U.S. imports.
Edible Oil Products: Results in the quarter were down when compared to an especially strong prior year period, primarily due to lower performance in the U.S. and in Brazil higher advertising expenses and challenges related to the implementation of a new SAP system that resulted in lost sales opportunities. Volumes were higher primarily due to increases in Europe and the addition of new acquisitions in India, Brazil and the U.S.
Milling Products: Improved results in corn milling were more than offset by lower results in wheat milling, which experienced some challenges related to the implementation of a new SAP system that resulted in lost sales opportunities.
Fertilizer: Higher volumes were more than offset by lower margins, which were pressured by falling market prices in the quarter. Results in our Moroccan joint-venture were also down in the quarter primarily due to lower international prices and scheduled maintenance. First quarter 2012 results included a 27 million USD provision related to a legacy environmental claim in Brazil dating back to 1998.
Financial Costs: Interest expense decreased in the quarter due to lower average interest rates on debt.
Income Taxes: The effective tax rate for the quarter ended March 31, 2012 was 13 percent compared to 15 percent for the same period last year.
Cash Flow: Cash used by operations in the quarter ended March 31, 2012 was 302 million USD compared to cash provided by operations of 734 million USD in the same period last year. The lower cash flow primarily reflects higher uses of working capital due to recent increases in commodity prices.
Outlook
Drew Burke, Chief Financial Officer, stated, «We are expecting a strong 2012 in agribusiness. It is currently the high season for oilseed processing in South America and good global demand for protein meal and vegetable oil, as well as a pick-up in farmer selling following the recent increases in prices, should benefit oilseed processing margins in the region. In the Northern Hemisphere, crush margins should improve from levels seen last year when the harvest begins in the second half of the year. Like last year, China crush margins are expected to improve throughout the year. In grain merchandising, tight global grain stocks and the potential for a record U.S corn crop should keep facilities running at high utilization levels come harvest».
«We are expecting to crush between 17 and 18 million metric tons of sugarcane this year, a slightly narrower range than previously communicated, which reflects the impact of dry weather in February and March. We are continuing our aggressive planting program in 2012 and are on track to reach in excess of 70’000 hectares of planted sugarcane. As a reminder, earnings in sugar + bioenergy reach their peak in the second half of the year. We expect a solid performance in food + ingredients with growth and positive contributions from new acquisitions. Farm economics are strong in South America and should result in higher fertilizer volumes. This, combined with stabilizing prices, should provide a favourable environment when the buying season begins in the second half of this year. Despite the challenging first quarter, we expect full-year results to exceed last year».
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