Bunge board backs management after earnings miss, CEO says

(Dave Bedard photo)

Chicago | Reuters — Agricultural merchant Bunge reported a worse-than-expected loss for the fourth quarter on Wednesday, the latest in a string of poor results that has left the company’s management fending off takeover bids from rivals.

Several years of abundant grains supply on global markets have made it tough for Bunge and its rivals to turn a profit on their core business: buying, processing and selling corn, soy and wheat.

That has left the sector open to consolidation, and Bunge has received interest from both U.S. rival Archer Daniels Midland and Swiss-based commodities trader Glencore.

“I have, and management has, the board’s support,” CEO Soren Schroder told Reuters in an interview after the company reported a $69 million loss for the fourth quarter (all figures US$).

The loss, compared with a profit of $262 million a year earlier, is likely to raise shareholder pressure on executives to find a buyer or take more aggressive steps to shore up the agribusiness division.

“They have taken corrective actions,” said William Densmore, senior director at FitchRatings, after the earnings were announced.

“However, management credibility has lessened during the past year and any further operating challenges in 2018 could likely ratchet up the pressure.”

Bunge, whose shares fell more than five per cent in midday trading, warned analysts the impact on margins of global grains oversupply was expected to spill into the first quarter of 2018.

The company’s management insisted for the fifth quarter in a row their strategy would turn the company around.

Divestments including selling or shutting the firm’s sugar trading desk, changing shipping arrangements in South America and focusing on grains and oilseeds businesses were all part of that strategy, Schroder said.

Dutch food ingredients company Corbion said on Wednesday it is in talks to buy Bunge’s 49.9 percent stake in their oil joint venture in Brazil.

Hopes for 2018

Schroder pointed to improving soybean crush margins in the Americas and Europe, tightening global soymeal supplies and rising demand as motives for optimism for results in 2018.

The company should also make savings on shipping costs due to changes it has made in hauling contracts in South America, he said.

Schroder has forecast a brighter agribusiness outlook for more than a year, yet the segment, its largest in terms of revenues and volumes, has struggled.

Bunge was forced to lower agribusiness earnings guidance for three straight quarters in 2017. On Wednesday, the company warned 2018 earnings for the segment would be well below historical averages.

Merger talk

Schroder declined to comment on market and media reports about Bunge being approached by rivals ADM and Glencore.

Less than a year ago, Schroder had said he would like to lead consolidation in the global grains industry.

In November, Bunge sweetened compensation packages for top executives in the case of a takeover, according to the company’s regulatory filings.

The company and other agricultural traders, including ADM and Cargill, have been trying to diversify into higher-margin sectors such as food ingredients and aquaculture to compensate for the poor returns on their traditional grain handling businesses.

Bunge said fourth-quarter 2017 sales in its agribusiness segment fell 3.5 per cent to $7.9 billion even as volumes rose.

On an adjusted basis, Bunge earned a profit of 67 cents a share in the quarter, against analyst expectations for $1.37 per share, according to Thomson Reuters I/B/E/S.

The company reported a net loss of 48 cents per share, which includes charges related to restructuring.

Bunge took a $66 million charge due to tax law changes in the U.S. and Argentina.

Net sales fell 1.6 per cent to $11.61 billion.

Reporting for Reuters by P.J. Huffstutter and Karl Plume in Chicago; additional reporting by Anirban Paul in Bangalore.

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