In its 1Q16 earnings press release, Bunge Limited (BG) announced the acquisition of Walter Rau Neusser. It’s a leading European supplier of mid-specialty oils and fats for foodservice and food processing customers. This acquisition contributes to the company’s strategy of expanding the share of earnings from value-added products. It will add to the Edible Oil segment.
The company expects to close this deal in the coming months of fiscal 2016. The deal will give Bunge 62.8% ownership in the acquired company. Management mentioned that this acquisition fits perfectly into the company’s existing soft seed crush supply chains.
Return on invested capital
As part of Bunge’s objectives over the last few years, it wanted to increase its ROIC (return on invested capital) to a level above its WACC (weighted average cost of capital). The company made substantial, steady improvement over the last three years.
Bunge’s trailing fourth quarter ROIC on March 31 was $7.9%. It was above its WACC of 7%. Bunge’s integrated foods and agribusiness had a return of 9.4%. This is 2.4% above its cost of capital. The reduction and ROIC from the trailing four quarters ending December 31 show lower operating earnings in 1Q16—compared to 1Q15.
Acquisitions in 2015
Management also indicated that the integration of the Pacifico acquisition and the construction of its new wheat mill in Rio de Janeiro are on track. They expect the results in 2016 to be better and driven by the acquisitions in 2015. There weren’t any acquisitions completed in 1Q16 besides the announcement of the above acquisition.
The capital expenditures in the first quarter were $110 million. The capital expenditures for 2016 are estimated to be ~$850 million. It includes $150 million for Bunge’s sugar business.
Bunge’s peers in the agribusiness industry include Syngenta (SYT), Ingredion (INGR), and B&G Foods (BGS). They reported year-to-date returns of 3.4%, 20%, and 19%, respectively. The Vanguard Mid-Cap Value ETF (VOE) invests 0.65% in Bunge.