Bunge: third quarter results help recover first half loss

By Lorraine Heller

- Last updated on GMT

Related tags Net income Better Brazil

Oilseed processor Bunge has reported an encouraging start to its
second half financial year, after adjustments to its South American
business have allowed the firm to stabilize disrupted business in
the region.

The company today announced a 19 percent increase in net income for its third quarter ended September 30 2006 to $179m. This helped recover a sharp hit to its performance in the last quarter, when profits plunged 90 percent.

"The environment for our business began to improve in the third quarter. Bunge's operating results were substantially better when compared to a weak first half and were stronger than in the same quarter last year. We expect improvement in business conditions to continue as we move into 2007,"​ said Alberto Weisser, Bunge's chairman and chief executive officer.

The company has faced a tough South American operating environment this year, after a quarter of its soybean processing plants in Brazil were affected by farmers' protests. Squeezed by rising production costs and a strong Brazilian real, Brazilian farmers reacted by blocking key roads and railway routes along which grains were shipped to port. This resulted in Bunge being unable to transport its soybean products for export.

But a more stable real and government aid for farmers, as well as increases in crop prices, have already had positive results on Bunge's results in its second half. And the firm also undertook a number of changes in the region in order to reverse its flagging performance.

"Recent improvements in global prices for agricultural commodities are a positive indicator for farmers. Better prices in Brazil should stimulate farmer selling of existing crops and create incentives for expanding production,"​ said Weisser.

The company has so far closed five oilseed processing facilities, which it said improved capacity utilization in Brazil. The industry also reduced soy crushing volumes in Argentina, which resulted in a rise in Bunge's processing margins in the country.

Volume sales for the firm in the quarter saw a modest 3 percent increase, to almost 31 metric tons. Net sales were up 11 percent, reaching $6,965m compared to $6,248m in the same period last year.

Net income increased to $179m from $151m, which contributed to a recovery from the first half slump. This pushed up year-to-date net income to $251m - still 46 percent below last year's figure.

Net income in the quarter decreased marginally to $1.4m from $1.41m in the prior year. Net income for the company's first nine months was down 33 percent from last year, standing at $257m compared to $381m.

The firm's agribusiness revealed significantly stronger results over a week first half, and also improved compared to the same period last year. Lower volumes in Brazil and Argentina were more than offset by higher margins, said the firm.

Strong results in the company's edible oil products were primarily due to increased volumes and margins in Europe. Margins benefited from lower seed costs, better distribution and brand positioning. Strong Brazil edible oils results, driven principally by higher volume, more than offset lower results in North America.

For Bunge's milling products, results in the quarter were slightly less than last year's strong performance. Wheat milling benefited from higher volumes and margins, but was offset by volume and margin declines in corn milling.

The firm said that it expects a solid first quarter, and has set net income guidance for 2006 at $425m-$445m.

"The fourth quarter is typically the strongest for North American and European agribusiness due to the harvest, while South American agribusiness slows down,"​ said Bill Wells, chief financial officer at Bunge.

"Although market conditions in South America remain challenging, we feel the situation has stabilized and that we have adjusted our company to the current environment. Milling and edible oils should continue to perform well,"​ he added.

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