Bunge’s disciplined capital allocation approach in 2015 set the stage for a strong 2016
Bunge Limited (BG), a leading agribusiness and food company, believes that 2015 was a year of many milestones despite the challenging environment. The company’s Agribusiness segment delivered good operating profit with improved returns on invested capital and fewer serious safety incidents in 2015.
Good returns on invested capital
As part of its objectives, Bunge also achieved four-quarter-trailing ROIC (return on invested capital) of 8.3%, 1.3 points above its cost of capital. Factors that helped Bunge reach this target weren’t only lower agricultural prices and currency, but also a disciplined capital allocation approach and strong working capital management.
For its core Agribusiness and Food segments, the ROIC was 10% due to positive operating profit and free cash flow in the sugarcane milling business. For 2016, Bunge plans to increase ROIC above its WACC (weighted average cost of capital) for its core Agribusiness and Foods operations. The company also realized ~$100 million of productivity savings from performance improvement initiatives. As part of its balanced capital allocation framework, it repurchased $300 million worth of common shares in 2015.
Record performance for Agribusiness segment
Bunge’s most significant revenue and profit segment, the Agribusiness segment, delivered record EBIT performance. Agribusiness volume rose 4%, which created a strong position for Bunge in Brazil. This ultimately helped the company to serve farmers who commercialized large volumes of crops and enhanced the export program.
Higher earnings and operating profit in 2015
In spite of the challenging market conditions, Bunge managed to generate a higher adjusted segment operating profit of $1.23 billion, higher than the $1.21 billion in 2014. The Agribusiness segment alone contributed a record operating profit with an 18% increase in 2015. Bunge’s 2015 adjusted earnings were $4.83 per share, an increase of ~15% compared to $4.19 per share in 2014.
How were peers’ earnings in 2015?
Archer Daniels Midland (ADM) earned $2.0 billion in operating profit in 2015 whereas Ingredion (INGR) and ConAgra Foods (CAG) earned $706 million and $1.5 billion, respectively. Bunge makes up about 3.5% and 3.3% of the PowerShares Global Agriculture Portfolio (PAGG) and the iShares MSCI Global Agriculture Producers ETF (VEGI), respectively. These ETFs have risen 5% and 9% year-to-date.
In the next parts of the series, we’ll talk about Bunge’s operating segments and their growth strategies.