Strong 4Q for Bunge, but outlook less certain

Related tags Bunge Risk management Soybean Influenza

Mad cow disease, bird flu and a poor US soybean harvest failed to
rock quarterly profits for the world's largest oilseed processor
Bunge. But the company held back from rising future earnings
outlook because of market volatility.


Citing risk management and 'locked in prices' as supporting the rise, Bunge reported a 3 per cent increase on net income for fourth quarter 2003 ended 31 December, coming in at $100 million, from $97 million posted for the same period a year before.

"We would not expect that we would see the fourth quarter of this year replicating the fourth quarter that we saw in 2003,"​ said Bill Wells, the company's chief financial officer.

While the company's edible oils business benefited from the recently acquired French oil company Cereol - profit rolling in at $13 million for the quarter, up from $3 million for the year before - a harder time was felt in the agribusiness sector where droughts cropped the soybean harvests, sending prices to seven year highs. Even improvements in edible oils for the company were partially offset by increases in the raw materials, primarily soybean oil.

Agribusiness operations, although benefitting from high prices and good margins in North and South America, took a blow in western Europe with results including a $40 million in impairment charges on from the company's weakening oilseed operations there.

"Customer demand was very strong, and margins benefited. Ourincreasingly efficient global logistics system and competitive freight pricing, locked in as part of our risk management programs, helped offset current record freight rates,"​ commented Alberto Weisser, CEO of Bunge.

Risk management strategies will continue to come into play as the outlook for 2004 remains volatile. A bird flu virus sweeping across Asia and killing millions of chickens is likely to have an on impact soymeal feed demand. As a major global supplier of soyfeed for animals, Bunge could feel the pinch. But this week the company remained circumspect.

"While the avian flu will have a negative impact on demand, its effects are too early to quantify,"​ said Wells during a conference call with analysts. "There are expected to be some offsets due to increased demand for soymeal from the Americas,"​ he added, referring to an increase in demand in the US and Brazil for chicken exports to Asia.

Suppliers to beef livestock have also been affected by the discovery of a BSE-infected cow in late December, the first mad cow case in the US. As a major purchaser of US grains the beef industry has been knocked as countries across the world closed their borders to US beef. The impact will soon trickle down to key feed suppliers such as Bunge, or competitor Archer Daniels Midlands, with 2004 earnings likely to be pulled down.

Over two years since the company went public, there are signs that Bunge is just beginning to get noticed in the investment community. A recent article on CBS MarketWatch reported that Conrad Hermann, a fund manger for the Franklin Templeton Flex Cap Growth Fund, had been drawn to Bunge in his quest for stocks that could be priced incorrectly on the market.

"We're looking forward to what the drivers of growth may be. The current market price may not be reflecting growth,"​ Hermann told CBS MarketWatch.

"It's similar to Archer Daniels Midland, but this is a company that's really only half the valuation of Archer Daniels,"​ he said. Shares are trading at 10 times earnings based on this year's forecast, versus the 20 times that Archer Daniels shares are trading.

The company also holds increasing interest because it is the dominant soya player in Brazil and Argentina where soya acreage - the fastest growing feed crop - is increasing at 10 per cent a year.

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