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Bunge’s Performance in 1Q16: A Strong Start to 2016

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Earnings beat estimates

Before we discuss analysts’ expectations for 2Q16, let’s review its performance in 1Q16. Bunge (BG) started 2016 by beating earnings estimates by 78%. The adjusted EPS (earnings per share) came in around $1.41 for the first quarter—much higher than analysts’ estimates. However, earnings declined 11% YoY (year-over-year).

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Revenue declined and missed estimates

Bunge’s total net sales for 1Q16 came in around $8.92 billion—a decrease of 17% compared to $10.21 billion in 1Q15. It missed analysts’ estimates by 13%. Bunge operates through its five segments—Agribusiness, Edible Oil Products, Milling Products, Sugar and Bioenergy, and Fertilizer. The Agribusiness segment contributed 70% of Bunge’s revenue in the first quarter with $6.2 billion in sales. However, the segment’s sales fell 20% YoY. A softer global soy processing environment impacted the Oilseed segment’s results.

In the Edible Oil Products segment, North American businesses were comparable to last year due to strong volume growth in Bunge’s value-added downstream business. In the Milling products segment, a better performance in Bunge’s value-added categories and increased productivity in its US operation contributed to good results in North America. The trading and distribution business benefited from higher volumes and margins. This drove the performance of the Sugar and Bioenergy segment. Higher volumes and margins in the Argentine fertilizer operation and increased volumes at the Brazilian port facility contributed to the Fertilizer segment’s improved results.

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Return on invested capital

As part of Bunge’s objectives over the last few years to increase its ROIC (return on invested capital) to a level above its WACC (weighted average cost of capital), the company improved over the last three years. Read Will Bunge Continue Its 2016 Rally? to learn more about Bunge’s disciplined capital approach.

Bunge’s trailing fourth quarter ROIC on March 31 was $7.9%—above its WACC of 7%. Bunge’s integrated foods and agribusiness had an ROIC of 9.4%—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.

Bunge’s peers in the industry include Ingredion (INGR) and Flowers Foods (FLO). They reported operating margins of 14.7% and 6.0% in their last reported quarters. The iShares Morningstar Mid Value ETF (JKI) and the iShares S&P MidCap 400 Index Fund (IJH) invest 0.67% and 0.64% of their holdings in Ingredion.

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