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Will Bunge Continue Its 2016 Rally?

PART:
1 2 3 4 5 6 7 8 9 10 11 12
Part 3
Will Bunge Continue Its 2016 Rally? PART 3 OF 12

How Bunge’s Agribusiness Segment Is Driving Growth

Agribusiness draws highest revenue and profit

Among Bunge’s (BG) five operating segments, Agribusiness, Edible Oil Products, Milling Products, Sugar and Bioenergy, and Fertilizer, Agribusiness is the most important segment. This segment makes up 70%–75% of Bunge’s total revenue each quarter along with ~80% of the total segment operating profit. In 2015 alone, agricultural commodity products contributed ~72% of Bunge’s total net sales.

How Bunge’s Agribusiness Segment Is Driving Growth

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Global demand for Bunge’s core agribusiness products like oilseeds and grains grew in 2015. Rising demand contributed to a record adjusted operating profit in 2015 of $1.1 billion, 15% higher than in 2014. Grain origination and exports out of Brazil along with strong soy crushing results drove the performance. Bunge’s primary customers for oilseeds and grains are animal feed manufacturers and meat producers. Thus, global demand for protein products ultimately benefits Bunge’s agribusiness segment.

Peers in the US and other parts of the world

A major competitor for Bunge in the US is Archer Daniels Midland (ADM), which has a similar business under its Agricultural Services, Corn Processing, and Oilseeds Processing segments, which together earned $67.8 billion in revenue in fiscal 2015. Ingredion’s (INGR) similar operations earned $5.6 billion in revenue in fiscal 2015.

Cargill, another peer, is a privately held agricultural product company in the US. Other peers in Europe include Louis Dreyfus Group and Glencore International (GLEN). Wilmar International (SGX) and China National Cereals and Oils and Foodstuffs (COFCO Group) are among the other competitors in Asia. The chart below shows the net revenue from Bunge’s Agribusiness segment and some of its peers’ operations. The VanEck Vectors Agribusiness ETF (MOO) invests around 32% in agricultural chemical sectors and 17% in the food and beverage sector.

How Bunge’s Agribusiness Segment Is Driving Growth

Target of $200 million EBIT run rate improvement

Bunge’s agribusiness segment aims to achieve ~$200 million of EBIT run rate growth by 2017, operational excellence, and higher returns. To achieve this, the company has a threefold strategy in place:

  • crush optimization: operational improvements through process standardization
  • global logistics: improvements in domestic transportation, port utilization, and ocean freight
  • margin and risk management: margin optimization through soybean and other products flow management
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