White Plains, N.Y-based agribusiness and food giant Bunge Ltd has reported record Q2 2002 net income of US$50m (US$0.50/share), up 117% from US$23m (US$0.36/share) year on year.
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Q2 volumes meanwhile grew 32% to 23.6 million metric tons and gross profit increased 52% to US$320m, year on year. Income from operations was up 101% to US$197m from Q2 2001.
All divisions reported solid growth resulting in the improvement in earnings. Particularly strong was oilseed processing profitability benefiting from higher volumes and higher average soybean product margins. The fertilizer business began its seasonal upturn early, as farmers purchased retail fertilizer products in anticipation that exchange rate volatility could push prices higher.
The devaluation of the Brazilian real and Argentine peso had a favourable impact on earnings. The agribusiness division sells most of its products in US dollars into the export markets, and the fertilizer division sells product to Brazilian farmers at a real-based price that is effectively dollar-linked which benefits gross profit margins as costs in both divisions are based on local currency. Reductions in dollar denominated debt also minimised the effects of the devaluation. The devaluation of both currencies accelerated during the last two weeks of June, contributing to the stronger than expected results.
Chairman and CEO Alberto Weisser commented: “Our momentum continues to drive growth in profitability. The H1 was above our expectations and showed substantial improvement in earnings. We expect this momentum to continue and hope to deliver a record year for profits”.
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By GlobalDataQ2 financial performance
Agribusiness
Sales volumes increased 33% and gross profit increased 90% over the same period last year in Bunge’s agribusiness division. Income from operations for the Q2 2002 increased 146% to US$155m. Sales volumes and margins were up due to higher average soybean product margins.
Grain origination profitability benefited from a strong South American crop and the acquisition of inventories earlier in the year at lower prices. Oilseed processing results were particularly strong in the US and South America on higher sales volumes and margins. International marketing sales volumes increased 67% reflecting continued growth.
Fertilizers
Sales volumes increased 45% and gross profit increased 28% year on year in the fertilizer division. Income from operations for the Q2 2002 increased 38% to US$33m. Sales volumes increased as retail fertilizer and raw material products began their seasonal pickup earlier than last year, with Brazilian farmers buying in the Q2 2002 for the new planting season due to concerns that continued devaluation of the Brazilian real could push prices higher. Historically, retail sales are strongest in the H2. Animal nutrient sales benefited from a strong export market for Brazilian meat products, especially poultry.
Food products
Sales volumes increased 7% in Bunge’s food products division. Income from operations for the Q2 2002 increased 70% to US$17m. In the edible oil segment, sales volumes increased. However, increases in raw material costs were equally offset by a decline in selling, general and administrative expenses. In the wheat milling and bakery products segment, results improved due to a shift to a higher margin product mix and financial pressures facing domestic competitors. Brand and productivity initiatives made over the last 24 months have favourably affected the segment’s sales and profit growth. In the other segment, corn products sales volumes increased over the Q2 2001, and margins were solid. A labour strike negatively affected last year’s results in this segment. Income from operations in soy ingredients was flat year on year as the impact of higher sales volumes was offset by increases in raw material costs.
Operating results
Operating results increased 113% to US$111m for the Q2 2002 compared to the Q2 2001, an increase attributable to income improvements from operations and a decline in net interest expense. The increase in foreign exchange losses partially offsets the expansion of gross profit margins on dollarised inventories that result from the devaluations.
H1 results
Sales volumes increased 21% and gross profit increased 38% in the six months ended 30 June 2002, year on year. Income from operations increased 54% to US$265m. Oilseed processing was a primary contributor as higher volumes and gross profit margins improved results. The fertilizer segment particularly benefited from a strong performance by Fosfertil, as a result of higher sales volumes and improved product mix. Results in the food products division reflected improvements in the profitability of the wheat and corn milling businesses.
Non-operating income fell after to a drop in net interest expense that was partially offset by an increase in foreign exchange losses. The Brazilian real decreased in value relative to the US dollar by 18% in the H1 compared to 15% year on year. For the H1 2002, the value of the Argentine peso versus the US dollar declined by 57%. Net income for the H1 was affected by a US$12m tax credit due to tax refunds, and a US$6m fall in the deferred tax asset valuation allowance. Bunge also recorded a goodwill impairment charge of US$14m net of tax.
Brazil restructuring
In February 2002, Bunge restructured its corporate organization in Brazil which generated a net increase in the ownership of its Brazilian operations. Bunge paid US$105m to up its interest in Bunge Alimentos and Bunge Fertilizantes to 83%. For the H1, net income was US$11m higher than it would have been if the transaction had not taken place.
Outlook
CFO Bill Wells stated: “The Q2 was stronger than expected, driven in part by increased demand in the fertilizer segment, higher sales volumes and product margins in oilseed processing and the favourable impact on earnings of the devaluations of the Brazilian real and Argentine peso. The outlook for all of our business lines is solid, and we anticipate that this will continue in the Q3. Therefore, we remain confident in our prior forecast of US$65-70m for Q3 2002 net income.”
