Bunge to evaluate Brazil sugar, ethanol segment on poor earnings

By Susanne Retka Schill | October 25, 2013

Bunge Ltd. reported disappointing earnings in its Brazilian sugar and ethanol holdings, although overall, the agribusiness firm reported third quarter earnings before interest and taxes (EBIT) of $404 million on $14.7 billion in sales. Sales for the first nine months totaled $45 billion with EBIT of $903 million. The sugar and bioenergy segment showed a $19 million loss in the third quarter, and $1 million EBIT earnings for the nine months.

In its earnings discussion, the company hinted at future changes in its Brazilian cane processing and ethanol segment, reporting the global trading and merchandizing team in its sugar and bioenergy segment “is performing well and building a solid business. Our Brazilian milling operations, however, continued to face suboptimal weather and low goal sugar prices, as well as the structural headwinds of domestic cost inflation and capped ethanol prices.” In response, the company is reducing its fourth quarter outlook. “While we expect the segment to be profitable in 2014, achieving our previously stated EBIT goal of $8-$10 per metric ton during the year will be difficult without a change in Brazil fuel pricing policy.” It does expect the 2014 sugarcane milling business to be free cash flow positive in 2014, the earnings report said, adding that, “given the challenges facing the Brazilian industry, we have commenced a comprehensive process to explore all alternatives to optimize the value of this business.”

Further in the earnings discussion, the company reported that lower unit costs from higher crushing volume at its Brazilian sugarcane mills were more than offset by lower sugar prices, as well as “costs related to land we will not harvest or plant this year to wet weather.” Third quarter milling results were substantially below target, primarily due to lower sugar content in the cane processed at all mills due to the wet weather and frost. The company added that results in U.S. biofuels were higher primarily due to improved margins in the company’s ethanol joint venture. In supporting documents, the company reported sugar sales volumes of 303,000 metric tons in the third quarter and 599,000 metric tons for the nine months, and ethanol sales volume of 416,000 metric tons (140 million gallons) in the third quarter and 1,086,000 metric tons (363 million gallons) for the first nine-months of the year.

Agribusiness is by far the largest business segment at Bunge, showing EBIT of $335 million for the third quarter just ended, and $680 million for the first nine months of the year. Food and ingredients trails with $73 million EBIT for the quarter and $195,000 for the nine months. The fertilizer segment tallies $15 million for the quarter, and $27 million for nine months – all positive earnings compared to the sugar and bioenergy earnings reported above.