Bunge Reports Fourth Quarter 2017 Results

WHITE PLAINS, N.Y., Feb. 14, 2018 /PRNewswire/ -- Bunge Limited (NYSE:BG)

• Q4 GAAP EPS of $(0.48) reflecting charges primarily related to restructuring and tax reform; $0.67 on an adjusted basis
• Agribusiness impacted by weak margins; Sugar & Bioenergy impacted by adverse weather
• Edible Oils finished the year strong with near record results
• Global Competitiveness Program exceeded expectations in 2017
• Expect Loders Croklaan acquisition to close in Q1
• 2018 outlook includes year-over-year improvement in all segments

• Overview

Soren Schroder, Bunge's Chief Executive Officer, commented, "While industry headwinds persisted through the end of the year, we made good progress in 2017 towards our strategic objectives by taking proactive steps to improve our cost structure and create a more balanced business.

"Fourth quarter oilseed margins did not recover as quickly as expected, and sugarcane milling results were negatively impacted by a sustained period of rain late in the quarter. Food & Ingredients finished the year on a strong note with Edible Oils closing out a near-record year. Looking ahead, we are seeing positive signs that soy processing conditions are improving, supporting our expectation that all segments will show year-over-year earnings growth in 2018. We expect a soft first quarter with improving conditions throughout the remainder of the year."

Schroder continued, "Our Global Competitiveness Program is off to a strong start, putting us on a good trajectory to achieve our $250 million target by the end of 2019. We also delivered $110 million of industrial cost savings in 2017, exceeding our target by $10 million. In addition, we continue to work toward the separation of our sugarcane milling business and are in the process of exiting from our global sugar trading activities and our renewable oils joint venture.

"We expect our acquisition of Loders Croklaan to close during the first quarter. Loders will greatly advance our strategy to expand downstream into higher margin products closely tied to our global oils and crushing footprint. This will accelerate our move to become the leading global B2B edible oils company."

• Fourth Quarter Results

Agribusiness

Grains and Oilseeds results were lower than last year, as margins overall remained weak.

In Grains, results in North America were lower than expected, but higher than last year, primarily due to effective positioning, which helped overcome weaker structural margins and lower volumes due to increased exports out of South America. Lower origination results in South America were driven by the combination of weak margins and farmers' delayed pricing of 2018 crops. Results in global grain trading & distribution were similar to last year; however, margins remained under pressure due to limited dislocation opportunities.

In Oilseeds, structural processing margins overall remained depressed during the quarter, primarily due to an oversupply of soymeal in destinations. Compared to last year, higher soy crushing results in Brazil were more than offset by lower crushing results in Europe, Argentina and Asia. However, conditions improved toward the end of the quarter as Argentine crushers reduced production, bringing global soymeal supply into better balance with demand. This is having a particularly positive impact on soy crush margins in Western Europe and Vietnam. In the U.S., structural margins were good and generally as expected, but slightly lower than last year. Softseed processing results were lower than last year as higher results in Canada were more than offset by lower results in Europe. Results in global oilseeds trading & distribution were similar to last year.

Edible Oil Products

Edible Oils had a strong finish to the year. In North America, improved performance was driven by higher margins and lower costs. In Brazil, higher volume and lower costs were partially offset by lower margins as industry players continued to aggressively compete for price sensitive consumers. In Europe, margins and volumes benefitted from our new value-added acquisitions. In Asia, improved volumes and sales mix drove results with both India and China contributing strongly.

Milling Products

The decline in segment results was primarily in Brazil, where margins were negatively impacted by consumers trading down on value and where the small bakery channel continued to experience soft demand. Also impacting results in Brazil, was aggressive pricing by small mills, which increased production in response to the above average Brazilian wheat crop. In the U.S., margins and volumes were higher. In Mexico, results benefitted from higher volumes reflecting new customer wins. This was the third straight quarter of sequential volume improvement in Mexico and reflects a new quarterly high for the business.

Sugar & Bioenergy

Fourth quarter results in sugarcane milling were significantly below our expectations, primarily due to a sustained period of rain late in the quarter that reduced crush by approximately 700,000 metric tons, negatively impacting sales and unit costs. Compared to last year, the decline in sugarcane milling results was primarily due to lower ethanol and sugar prices, which were down on average by 15% and 18%, respectively, as well as reduced crush volume. Despite these headwinds, this marks the third straight year that full-year results in sugarcane milling were profitable and free cash flow positive. Trading & distribution results in the quarter were approximately breakeven compared to a loss last year. Results in the quarter were impacted by a $5 million loss from our renewable oils joint venture.

As discussed during the last quarter, we remain committed to the separation of our sugarcane milling business. We are also in the process of exiting our global sugar trading operation and are in late stage discussions to sell our interest in our renewable oils joint venture to our partner. Collectively, these two businesses negatively impacted 2017 Sugar & Bioenergy results by approximately $40 million.

Fertilizer

Higher volumes and lower costs in our Argentine fertilizer business were offset by a decrease in margins. Results in the fourth quarter 2016 had an $11 million benefit from the reversal of a provision related to tariffs on natural gas consumption.

Global Competitiveness Program

The Global Competitiveness Program ("GCP") announced in July 2017 is expected to rationalize Bunge's cost structure and reengineer the way we operate, reducing our 2017 addressable baseline SG&A of $1.35 billion to $1.1 billion by 2020.

The company reduced addressable SG&A by $40 million in 2017 as compared to the baseline, exceeding its $15 million target by approximately $25 million, and incurred $55 million of severance and program-related SG&A costs during the year.

Cash Flow

Cash generated by operations in the year ended December 31, 2017 was $1,006 million compared to cash generated of $1,904 million in 2016.  Adjusted funds from operations was $884 million for the year ended December 31, 2017. Our cash cycle was down 3.5 days compared to last year, reflecting disciplined capital management. This allowed us to grow our volume by approximately 10 million metric tons while holding our working capital relatively constant with last year levels. Total capex of $662 million was $188 million below our original 2017 target of $850 million.

Income Taxes

Adjusting for all notable items, the effective tax rate for the year ended December 31, 2017 was approximately 13%. As a result of tax law changes in the U.S. and Argentina during the fourth quarter, we recognized a non-cash charge of $66 million, which included taxes on accumulated foreign earnings and withholding taxes related to the future repatriation of those earnings, partially offset by adjustments for deferred tax assets and liabilities.

• Outlook

In 2018, we will continue to focus on execution of our strategic priorities.

Savings from the Global Competitiveness Program are expected to total $100 million versus our 2017 addressable SG&A baseline. We expect an additional $80 million of savings in industrial and supply chain initiatives. Savings from these programs are reflected in the segment EBIT ranges below.

In Agribusiness, we are not expecting a quick turnaround; however, oilseed crush margins are showing signs of improvement. We are entering South American harvests with increased flexibility. We have reduced forward logistics and sales commitments in Brazil and Argentina, providing more optionality to adapt to farmer marketing and customer buying patterns. In each of the past two years, unusually low priced feed wheat and DDGS have taken share from soybean meal in feed formulations, negatively impacting soy crush margins. With soymeal more competitively priced and expectations that Argentine processors will crush in alignment with the pace of farmer selling, we see a better balance in the supply and demand of soymeal during the year. Based on these factors, which should improve origination and crush margins, we see segment EBIT improving to a range of $550 to $700 million. We expect results to be weighted to the second half of the year with a soft first quarter.

In Food & Ingredients, we expect segment results to improve sequentially as we progress through the year, resulting in EBIT of $260 to $280 million. Our outlook for year-over-year growth reflects increased volume of higher value-added products, growth in sales to key accounts and higher results in Brazil wheat milling. The EBIT range does not reflect contributions from Loders Croklaan, which we expect to close in the first quarter.

In Sugar & Bioenergy, we expect 2018 EBIT of $50 to $70 million. Results are expected to be seasonally weak in the first half of the year.  We expect a loss of approximately $40 million in the first quarter, due to carrying over an exceptionally low inventory balance from 2017 into the intercrop period due to the reduced crush volume.

In Fertilizer, we expect EBIT of approximately $25 million.

Additionally, we expect the following for 2018 (excluding the Loders Croklaan acquisition): a tax rate range of 18% to 22% reflecting the impacts of U.S. and Argentina tax reform; net interest expense in the range of $225 to $245 million; capital expenditures of approximately $650 million, of which approximately $150 million is related to sugarcane milling; and depreciation, depletion and amortization of approximately $625 million.

• Conference Call and Webcast Details

Bunge Limited's management will host a conference call at 8:00 a.m. Eastern on Wednesday, February 14, 2018 to discuss the company's results.

Additionally, a slide presentation to accompany the discussion of results will be posted on www.bunge.com.

To listen to the call, please dial (877) 883-0383. If you are located outside the United States or Canada, dial (412) 902-6506. Please dial in five to 10 minutes before the scheduled start time. When prompted, enter confirmation code 2101973. The call will also be webcast live at www.bunge.com.

To access the webcast, go to "Webcasts and presentations" in the "Investors" section of the company's website.  Select "Q4 2017 Bunge Limited Conference Call" and follow the prompts.  Please go to the website at least 15 minutes prior to the call to register and download any necessary audio software.

A replay of the call will be available later in the day on February 14, 2018, continuing through March 14, 2018. To listen to it, please dial (877) 344-7529 in the United States, (855) 669-9658 in Canada, or (412) 317-0088 in other locations. When prompted, enter confirmation code 10115948. A replay will also be available in "Past events" at "Webcasts and presentations" in the "Investors" section of the company's website.

• Website Information

We routinely post important information for investors on our website, www.bunge.com, in the "Investors" section. We may use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

• About Bunge Limited

Bunge Limited (www.bunge.com, NYSE: BG) is a leading global agribusiness and food company operating in over 40 countries with approximately 32,000 employees.  Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America.  Founded in 1818, the company is headquartered in White Plains, New York.

• Cautionary Statement Concerning Forward-Looking Statements

This press release contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include our expectations regarding industry trends and our future financial performance, the completion and timing of acquisitions and dispositions, our assumptions and expectations for the Global Competitiveness Program and other efficiency initiatives and similar statements that are not historical facts. These forward-looking statements reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including "may," "will," "should," "could," "expect," "anticipate," "believe," "plan," "intend," "estimate," "continue" and similar expressions. These forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. The following important factors, among others, could affect our business and financial performance: industry conditions, including fluctuations in supply, demand and prices for agricultural commodities and other raw materials and products used in our business; fluctuations in energy and freight costs and competitive developments in our industries; the effects of weather conditions and the outbreak of crop and animal disease on our business; global and regional agricultural, economic, financial and commodities market, political, social and health conditions; the outcome of pending regulatory and legal proceedings; our ability to complete, integrate and benefit from acquisitions, dispositions, joint ventures and strategic alliances; our ability to achieve the efficiencies, savings and other benefits anticipated from our cost reduction, margin improvement and other business optimization initiatives; changes in government policies, laws and regulations affecting our business, including agricultural and trade policies, tax regulations and biofuels legislation; and other factors affecting our business generally. The forward-looking statements included in this release are made only as of the date of this release, and except as otherwise required by federal securities law, we do not have any obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

• Additional Financial Information

The following table provides a summary of certain gains and charges that may be of interest to investors, including a description of these items and their effect on net income (loss) attributable to Bunge, earnings per share diluted and total segment EBIT for the quarters ended December 31, 2017 and 2016.

The following table provides a summary of certain gains and charges that may be of interest to investors, including a description of these items and their effect on net income (loss) attributable to Bunge, earnings per share diluted and total segment EBIT for the years ended December 31, 2017 and 2016.

• Definition and Reconciliation of Non-GAAP Measures

This earnings release contains certain "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934. Bunge has reconciled these non-GAAP financial measures to the most directly comparable U.S. GAAP measures below. These measures may not be comparable to similarly titled measures used by other companies.

Total Segment EBIT and Total Segment EBIT, adjusted

Bunge uses total segment earnings before interest and taxes ("Total Segment EBIT") to evaluate Bunge's operating performance. Total Segment EBIT is the aggregate of each of our five reportable segments' earnings before interest and taxes. Total Segment EBIT, adjusted, is calculated by excluding certain gains and charges as described above in "Additional Financial Information" from Total Segment EBIT. Total Segment EBIT and Total Segment EBIT, adjusted are non-GAAP financial measures and are not intended to replace net income (loss) attributable to Bunge, the most directly comparable U.S. GAAP financial measure. Bunge's management believes these non-GAAP measures are a useful measure of its reportable segments' operating profitability, since the measures allow for an evaluation of segment performance without regard to their financing methods or capital structure. For this reason, operating performance measures such as these non-GAAP measures are widely used by analysts and investors in Bunge's industries. These non-GAAP measures are not a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to net income (loss) or any other measure of consolidated operating results under U.S. GAAP.

Below is a reconciliation of Net income attributable to Bunge to Total Segment EBIT, adjusted:

• Net Income (loss) per common share from continuing operations–diluted, adjusted

Net income (loss) per common share from continuing operations-diluted, adjusted, excludes certain gains and charges and discontinued operations and is a non-GAAP financial measure. This measure is not a measure of earnings per common share-diluted, the most directly comparable U.S. GAAP financial measure. It should not be considered as an alternative to earnings per share-diluted or any other measure of consolidated operating results under U.S. GAAP.  Net income (loss) per common share from continuing operations-diluted, adjusted is a useful measure of the Company's profitability.

Below is a reconciliation of Net income attributable to Bunge to Net income (loss) - adjusted (excluding certain gains & charges and discontinued operations).

Below is a reconciliation of Net income (loss) per common share from continuing operations - diluted, adjusted (excluding certain gains & charges and discontinued operations) to Net income (loss) per common share–diluted:

• Severance, Employee Benefit and Other Costs

The following table summarizes the costs incurred as part of the Global Competitiveness Program and other associated cost reduction and strategic initiatives.

2017 baseline total SG&A was $1.45 billion.  There was $100 million of SG&A determined not to be addressable through the GCP, leaving 2017 addressable baseline SG&A of $1.35 billion ("Addressable Baseline").  The items that are not addressable by the GCP relate to costs other than direct spending and personnel costs, such as amortization, bad debt charges and recoveries and financing fees and taxes.

GCP savings are determined by comparing Adjusted Actual Addressable SG&A to the Addressable Baseline.  Adjusted Actual Addressable SG&A is equal to the total reported SG&A minus the items not addressable by the GCP, plus or minus items such as:

• GCP program costs which include severance and related employee costs, consulting and professional costs and other costs specifically designated to the program,
• Changes in inflation and foreign exchange rates as compared to Addressable Baseline assumptions,
• Perimeter changes relating to acquisitions and divestitures and corporate transactions,
• Changes in variable compensation relating to business performance as compared to the Addressable Baseline assumptions, and
• Identified investments in new or enhanced capabilities.

We expect to reduce Actual Addressable SG&A from the Addressable Baseline level of $1.35 billion to $1.1 billion by 2020, achieving $250 million in run-rate savings by the end of 2019.

SOURCE Bunge Limited