ADM, Bunge Reports Vary Greatly

OMAHA (DTN) -- Earnings reports over the past two days showed two industry grain and oilseed trading giants had very different second quarters for 2018 as ADM took advantage of higher demand in China from South America while Bunge got caught on the bad side of some hedging losses and currency exchanges.

The result was that ADM on Tuesday reported net earnings for the quarter ending June 30 of $566 million, up 79% from a year earlier. Earnings per share were $1.02 and total revenue for ADM was up 14% to $17.07 billion.

"Our team executed exceptionally well to deliver outstanding results in the second quarter," said ADM Chairman and CEO Juan Luciano.

Bunge Ltd., reported a $12 million loss on Wednesday, compared to $81 million in net income for the second quarter a year ago. Adjusted earnings came in at 10 cents a share. Bunge's quarterly numbers were a surprise to analysts as Reuters had reported analysts had expected Bunge's adjusted earnings to come in closer to $1.04 a share. Bunge's earnings struggled despite overall sales for the quarter growing 4.3% to $12.15 billion from last year.

ADM and Bunge were in talks earlier this year for a possible merger, but the talks broke off during the spring, reportedly because of expected antitrust challenges, though both companies have remained quiet.

ADM saw second quarter oilseed income grow to $341 million, compared to $201 million a year ago. Ray Young, ADM's chief financial officer said short crops in South America, as well as increased buys in that region from China in anticipation of tariffs also "offered motivation for other buyers to come to the U.S. and the result was significantly higher volumes and margins for corn, wheat and soybean exports."

Responding to an analyst question, ADM officials noted crush margins remain strong, as does demand, and the global stocks-to-use ratio for grains is coming down, but demand for protein continues to rise. ADM added U.S. farmers will be competitive in wheat and corn because of shortages in the rest of the world.

Last quarter, Luciano was concerned about the trade situation between the U.S. and China but ADM noted a robust crush margin environment for oilseeds. Soybean meal growth outside of China is rising in the 4% to 5% range.

"Global demand remains robust. Naturally, we are monitoring the U.S. and China trade situation closely," Luciano said. "We believe the situation is manageable in the short term. Our outlook for the 2018 calendar year is more favorable now that it was after the first quarter."

Bunge's losses were driven heavily by hedging losses and currency exchanges. Bunge was hit with $125 million in losses on contracts for soy crushing, but Bunge is carrying forward approximately $185 million in market-to-market accounts that the company anticipates "will reverse as we execute on these contracts in the second half of the year."

Bunge noted oilseeds remain driven by strong soy crush margins and "within range of expectations when considering market-to-market impact."

In grains, Bunge lost $22 million in trades, mainly because of a $24 million foreign exchange loss on hedges in Brazil that Bunge expects to reverse in the second half of the year as contracts are executed. Outside of the hedge loss, Bunge noted results in Brazil were better than 2017 due to higher volumes and margins, but results in Argentina were negative due to the impact of smaller crops caused by drought.

Bunge's fertilizer business was also hit with a $13 million loss because of foreign exchange losses on imported inventory and the devaluation of the Argentine currency. Bunge expects a gain in the second half of the year when those fertilizer inventories are sold.

Despite the poor quarter and first half of the year, Bunge stated it still expects to hit a goal of $1.3 billion in earnings before interest and taxes (EBIT) for 2018. In its SEC filing, Bunge expects its agribusiness units to generate $800 million to $1 billion in EBIT by the end of the year.

"While total company performance in the second quarter came in below our estimates, we expect a strong second half driven by another step up in performance in soy crushing as we have committed most of the open capacity for the balance of the year at very attractive margins. We are confident in our ability to deliver on our targets for the full year," Soren Schroder, chief executive, said in a statement.

Noting the strength of soy crush margins, Bunge still noted "we have lowered our outlook in grain origination as a result of uncertainty related to the evolving freight price situation in Brazil and expectations for lower volumes and margins in the U.S. due to reduced exports."

Schroder also added that the biggest risk in grain origination remains changes in trade policy.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(BAS/SK)

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