uploads///Bunges Ongoing Declining Performance

Bunge Limited’s Disappointing Performance in 2Q15


Oct. 23 2015, Published 12:07 p.m. ET

Second quarter performance recap

Bunge Limited’s (BG) performance in the last quarter was disappointing. It reported an operating margin of $152 million in 2Q15, down by ~63% compared to the same quarter last year. Its Agribusiness segment showed weak performance due to weak soft seed processing, and a challenging trading and distribution environment.

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Slowdown in Brazil

The market slowdown in Brazil affected the Food and Ingredients segment. The main effect was on Edible Oils, as consumers adjusted to an environment of increasing unemployment, inflation, and currency devaluation. Bunge’s net second-quarter profit reported $72 million, or 50 cents per share, compared with $272 million, or $1.81 a share, a year earlier. The profit fell far short of analysts’ average estimate of $1.43 per share.

Revenue fell 36% to ~$10.8 billion, below the consensus estimate for ~$14.9 billion. The Sugar and Bioenergy sector showed slow results since the second quarter was a weak period for sugar milling operations. It was because of the harvesting period in Brazil when sugar content of the cane was at its lowest level. Higher sugar prices in Brazil also had an effect on sugarcane milling results. The company reported a $7 million loss from their Brazilian renewable oils joint venture.

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Low performance drivers of 2Q15

Bunge’s falling quarterly profit was mainly due to weak oilseed processing margins in Canada and Europe, and a surprisingly steep drop in demand for its food products in recession-hit Brazil.

In terms of revenues, Bunge’s agribusiness segment contributes the most. It reported an earnings fall of 57% from the year-ago-quarter. This segment buys, sells, stores, and transports crops and processed products.

The Food and Ingredients segment’s profit fell 68% as edible oils margins and volumes contracted amid rising unemployment, inflation, and currency devaluation in Brazil.

Peer performance

Bunge’s peers in the agribusiness industry include Archer Daniels Midland (ADM), Ingredion (INGR) and B&G Foods (BGS). They reported a profit margin of 2.25%, 7.36%, and 9.68% in their last reported quarter, respectively. The PowerShares Dynamic Market ETF (PWC) invests ~2.9% of its portfolio in ADM stock while the Power Shares DWA Consumer Staples Momentum ETF (PSL) invests 1.68% of its portfolio in Ingredion stock.


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