White Plains / NY. (bl) Bunge Limited reported a 33 percent drop in profit in the third quarter 2008 due to softer demand for feed inputs, slower farmer selling and reduced sales of fertilizer in Brazil. The company posted a net income of 234 million USD for the quarter ended September 30, down from 351 million USD a year ago. Sales increased to 14,8 billion USD, a jump of 52 percent from 9,7 billion USD a year earlier.
Alberto Weisser, Bunge’s Chairman and Chief Executive Officer: «The third quarter was a volatile time in the global agribusiness and food markets, but the Bunge team managed through the period with skill. We head toward the end of 2008 with a comfortable liquidity position and continued expectations for record full-year results. Current conditions in the global agribusiness market are clearly different than the extraordinary ones experienced in the first half of the year. Comparatively, recent results have been pressured by softer demand for feed inputs and slower farmer selling in certain regions, as well as by reduced sales of fertilizer in Brazil».
Agribusiness
Oilseed processing results were slightly lower in the quarter, as higher margins were more than offset by lower volumes. Softseed processing results in Europe and Canada were strong in the quarter, whereas demand for soybean products weakened. Slow farmer selling in the U.S. and Brazil due in part to volatility of commodity and currency prices, as well as harvest delays in the U.S., contributed to lower results in grain origination. Lower distribution results reflected margins that returned to more normal levels from the higher margins experienced in the third quarter of last year. Risk management strategies continued to work well during a volatile period. Foreign exchange losses of 192 million USD, primarily in Bunge´s Brazilian subsidiary, from U.S. Dollar-denominated financing of working capital were offset by the positive impact of foreign exchange on valuations of commodity inventories included in gross profit. In the third quarter, the Brazilian real devalued 17 percent against the U.S. Dollar. Third quarter EBIT included a 60 million USD credit resulting from a favorable ruling related to certain transactional taxes in Brazil that were accrued and paid in past years.
Fertilizer
Volumes were down in the quarter primarily due to soybean and corn farmers accelerating purchases in the first half of the year and a tight credit environment for farmers. Higher margins were more than offset by 215 million USD of foreign exchange losses resulting from the devaluation of the Brazilian real on U.S. Dollar-denominated financing of working capital. Unlike in agribusiness where inventories are marked to market, the offsetting gain on fertilizer inventories is expected to occur in future quarters when the inventories are sold. Minority interest increased in the quarter due to higher results at Fosfertil.
Edible Oil Products
Volumes increased in the quarter. Results declined primarily due to high raw material costs in Europe as a result of crude oil inventories purchased prior to the recent price declines.
Milling Products
Higher margins in wheat milling were offset by lower volumes in corn milling.
Financial Costs
Interest expense decreased in the quarter due to lower average debt levels, mostly resulting from the drop in prices of agricultural commodity inventories which led to lower average working capital needs.
Income Taxes
The effective tax rate for the nine months ended September 30, 2008 was 24% compared to 26% for the same period in 2007. The decrease in the effective tax rate was primarily due to a higher percentage of earnings in lower tax jurisdictions.
Cash Flow
Cash provided by operating activities in the third quarter of 2008 was 2’210 million compared to cash provided by operating activities of 134 million USD in the same period last year. For the nine months ended September 30, 2008, cash provided by operating activities was 1’727 million USD compared to cash used for operating activities in the same period last year of 642 million USD. The 2,4 billion USD year-over-year improvement reflects the drop in commodity prices during the quarter, as well as higher earnings and actions taken to increase the efficiency of working capital management (press release).
