Bunge remains ‘confident’ in its sugar and ethanol business, despite plummeting earnings over the last three months.
The US agribusiness and food giant saw shares fall as after announcing drop in earnings and revenues.
But the group’s core agribusiness group saw rising earnings, thanks to high volumes, strong Brazilian exports, and positive soybean crush margins, which Bunge expects to remain in place for the rest of the year.
Falling revenues, profits
For the three months to September 30, Bunge reported profits of $239m, down 19% from $294m last year, at $1.90 a share, ahead of analysts’ expectations of $1.56 a share.
But revenues came in at $10.79bn, down 21% from last year and behind expectations of $12.64m.
Earnings before interest, depreciation, taxation and amortisation in the Sugar & Bioenergy group were down to $3m dollars, from $44m last year.
The segment has made a loss of $32m so far this season, but Bunge remains confident that the next three months will bring the segment back into the black.
Drew Burke, Bunge’s chief financial officer said “In Sugar & Bioenergy, strong domestic demand and an improving price outlook for ethanol in Brazil gives us confidence that we will finish the year profitable and free cash flow positive.
“Demand for ethanol in Brazil has been strong; recent gasoline price increases have been supportive to ethanol pricing; and the significant devaluation of the Brazilian real has returned Brazil to its traditional role as the world’s low cost producer of sugar,” said Mr Schroder.
Brazil’s ethanol industry enjoyed a recent turnaround, even as the broader economy has languished.
Dollar-denominated ethanol prices in Sao Paolo have rallied 25% in the last month, according to figures from the research institute Cepea.
Flurry of investments
A recent hike on gasoline prices by the troubled state-owned oil company Petrobras has made ethanol fuel more appealing to consumers.
This incentive is likely to increase further if the government, which is struggling to control the size of its budget deficit, increases the gasoline duty, as it is widely expected to do this year.
And economic woes are helping export markets as well, by weakening the real and making Brazilian product more competitive in dollar-markets.
The increased demand has sparked a flurry of investments in the sector.
The private mill Rio Verde this week pledged to double its ethanol output over the next two years, to 670,000 litres per day, following the likes of Cargill and Odebrecht in announcing new investments capacity in recent weeks, after years of stagnation.
Falling fertilizer sales
Earnings in Bunge’s food segment were down, while the fertilizer segment made a loss, which the group ascribed to the weak South American results, including reduced plantings in Argentina, and currency effects in Brazil.
But the core agribusiness business saw higher results, thanks to a pick-up in grain volumes handled in Brazil, where the lower currency has stimulated export demand, and supported farmer production by propping up prices.
Oilseed processing also contributed to the higher returns, thanks to wider margins and increased volumes.
Soren Schroder, Bunge’s chief executive, said “the segment capitalized on favourable soy processing margins and increased farmer selling in Brazil”.
Bunge was upbeat about the prospects for its agribusiness unit.
Mr Burke said “strong underlying demand for soymeal and oil will continue to support a favourable US and Brazilian soy crushing environment”.
Soybean demand was seen helped by rising livestock numbers.
In Brazil, lower demand for high-priced beef was seen supporting demand for hogs and poultry.
“With the arrival of new crops, utilizations in our North American grain operations are picking up, although export margins are weak due to farmer retention and increased global competition.”
And Mr Burke expects “strong export flows” of Brazilian corn, thanks to this year’s large second-sowing crop.
Bunge shares in New York were down 2.2% at $76.88 in morning deals.
(Source – http://www.agrimoney.com/news/bunge-stands-by-sugar-and-ethanol-business–8953.html)