Bunge Limited (NYSE:BG) Q3 2023 Earnings Call Transcript

Bunge Limited (NYSE:BG) Q3 2023 Earnings Call Transcript October 26, 2023

Bunge Limited beats earnings expectations. Reported EPS is $2.99, expectations were $2.5.

Operator: Good day, and welcome to the Bunge Limited’s Third Quarter 2023 Earnings Release and Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ruth Ann Wisener. Please go ahead.

Ruth Ann Wisener: Thank you, operator, and thank you for joining us this morning for our third quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the Investors section of our website at bunge.com under Events and Presentations. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are posted on our website as well. I’d like to direct you to Slide 2 and remind you that today’s presentation includes forward-looking statements that reflect Bunge’s current view with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties.

Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review these factors. On the call this morning are Greg Heckman, Bunge’s Chief Executive Officer; and John Neppl, Chief Financial Officer. I’ll now turn the call over to Greg.

Gregory Heckman: Thank you, Ruth Ann, and good morning, everyone. I want to start by thanking the team for delivering another quarter of outstanding results by performing exceptionally well in this highly dynamic environment. Our team remains focused on executing our day-to-day business, effectively utilizing our global footprint and adapting to changing market conditions to meet the needs of our customers, both farmers and end consumers. At the same time, the team continued to make good progress on our integration planning with Viterra. During this process, our teams had the opportunity to work with the Viterra team, reinforcing how similar our cultures are and increasing our confidence in the combination and the value it will create.

We reached a significant milestone in October, receiving overwhelming shareholder approval for the merger. We continue to engage with the appropriate regulatory agencies and expect to close the transaction in mid-2024. While we will continue to operate as two separate companies until we close, we’re looking forward to bringing our teams and assets together to create a premier Agribusiness solutions company. Turning to the third quarter. We delivered strong operating results, driven by refined and specialty oils and processing. We also saw strong performance in our noncore sugar business. John will cover our financial results in more detail. In addition, since we reported second quarter results, we repurchased approximately $600 million of Bunge common shares, making meaningful progress against the repurchase plan we outlined following the announcement of the Viterra transaction.

Looking ahead to the remainder of the year and based on what we see in the market and the forward curves today, we now expect full-year 2023 adjusted EPS of at least $12.50 and depending on how market conditions continue to evolve, we see the potential for upside. I’ll hand the call over to John now to walk through our financial results and outlook in more detail, and we’ll then close with some additional thoughts. John?

John Neppl: Thanks, Greg, and good morning, everyone. Let’s turn to the earnings highlights on Slide 5. Our reported third quarter earnings per share was $2.47 compared to $2.49 in the third quarter of 2022. Our reported results included a negative mark-to-market timing difference of $0.14 per share and a negative impact of $0.38 per share, primarily related to acquisition and integration costs associated with our announced business combination agreement with Viterra. Adjusted EPS was $2.99 in the third quarter versus $3.45 in the prior year. Adjusted core segment earnings before interest and taxes, or EBIT were $735 million in the quarter versus $740 million last year. Agribusiness adjusted results of $472 million were down compared to last year as a slightly higher performance in processing was more than offset by lower results in merchandising.

In processing, higher results in Brazil soy origination, Asia and North America were largely offset by drought impacted results in Argentina. Results in Europe were in line with last year as improved performance in soft seeds was offset by lower results in soy crush. In merchandising, higher results in our global corn value chain, which benefited from the large Brazilian Safrinha corn crop were more than offset by lower results in financial services and our global wheat value chain. Higher refining specialty oils results were primarily driven by North America. Higher results in Asia, led by our India business also contributed to the improved performance. Results in South America and Europe were lower. In Milling, higher results were primarily driven by our South American operations, reflecting improved margins due to the combination of lower wheat costs and more favorable channel mix.

Results in the U.S. were also higher. The increase in corporate expenses primarily reflected investments in growth initiatives as well as performance-related compensation accruals. Lower other results were related to Bunge Ventures in our captive insurance program. Better results in our noncore sugar and bioenergy joint venture were primarily driven by higher sugar prices, which more than offset lower ethanol prices. Net interest expense of $95 million in the quarter was higher compared to last year, primarily due to higher average variable interest rates. For the first nine months of the year, income tax expense was $495 million compared to $257 million in the prior year. The increase was primarily due to higher pretax income in 2023 as well as a change in geographic earnings mix.

Let’s turn to Slide 6, where you can see our adjusted EPS and EBIT trends over the past four years, along with the trailing 12 months, reflecting our team’s continued excellent performance while also delivering on a variety of growth and productivity initiatives. Slide 7 details our capital allocation of the nearly $1.9 billion of adjusted funds from operations that we generated year-to-date. After allocating $321 million to sustaining CapEx, which includes maintenance, environmental health and safety, we had approximately $1.6 billion of discretionary cash flow available. Of this amount, we paid $287 million in common dividends, invested $484 million in growth in productivity related CapEx, which is up significantly from $168 million this time last year and repurchased $466 million of Bunge shares, leaving $377 million of retained cash flow.

In October, we repurchased an additional $134 million of Bunge shares bringing the total amount of repurchases to $600 million since we reported Q2 earnings in early August. This leaves us with approximately $1.4 billion remaining on our existing $2 billion authorization. We expect to complete about half of the authorization of the Viterra transaction, with the remainder to be completed within 18 months of that date. As shown on Slide 8, at quarter-end, readily marketable inventories, or RMI exceeded our net debt by approximately $3.2 billion. This reflects our use of retained cash flow to fund working capital while reducing debt. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA was 0.3x at the end of the third quarter.

Slide 9 highlights our liquidity position. At quarter-end, all $5.7 billion of our committed credit facilities was unused and available, providing us ample liquidity to manage our ongoing capital needs. Please turn to Slide 10. For the trailing 12 months, adjusted ROIC was 19%, well above our RMI adjusted weighted average cost of capital of 7.7%. ROIC was 14.4%, also well above our weighted average cost of capital of 7%. Moving to Slide 11. For the trailing 12 months, we produced discretionary cash flow of approximately $2.1 billion and a cash flow yield of 19.2%. Please turn to Slide 12 and our 2023 outlook. As Greg mentioned in his remarks, taking into account year-to-date results in the current margin environment and forward curves, we’ve increased our full-year 2023 adjusted EPS outlook to at least $12.50 with potential upside depending on how market conditions evolve over the balance of the year.

In Agribusiness, full-year results are forecasted to be up from the prior year outlook and in line with last year as higher results in processing are largely offset by lower results in merchandising. In Refined specialty oils, full-year results are expected to be up from our prior outlook and last year’s record performance. In Milling, full-year results are expected to be in line with our prior outlook and significantly down from a strong prior year. In Corporate and Other results are expected to be down from our prior forecast and last year. In noncore, full-year results in our Sugar and Bioenergy joint venture are expected to be up from our prior outlook and higher than last year. Additionally, the company expects following for 2023, an adjusted annual effective tax rate in the range of 21% to 23%, net interest expense in the range of $340 million to $360 million, which is down from our prior outlook of $350 million to $370 million.

Capital expenditures in the range of $1 billion to $1.2 billion and depreciation and amortization of approximately $425 million, which is up $10 million from our prior outlook. With that, I’ll turn things back over to Greg for some closing comments.

Gregory Heckman: Thanks, John. Before turning to Q&A, I want to offer a few thoughts. So looking at the longer term, the fundamental drivers of our business remain in place. Global population continues to grow and the need for sustainable solutions to meet that demand means the world will continue to look to Bunge to supply essential products and services to the feed, food and fuel industries. Our strategic combination with Viterra will help us accelerate our long-term growth with greater diversification across customers, assets, geographies and crops, we’re creating a platform with enhanced efficiencies, connectivity and capabilities across value chains. This will provide us with more optionality and allow us to even better serve the needs of both farmers and in consumers regardless of market environment.

In addition, we’re continuing to progress on our other important growth initiatives, including enhancing our footprint with targeted greenfield and bolt-on acquisitions, deepening our relationships with customers at both ends of the value chain, strengthening our digital capabilities and investing in innovative and sustainability-oriented programs and products. In Brazil, we reached an agreement to acquire CJ Selecta, a leading manufacturer and exporter of soy protein concentrate in Brazil. Construction is also progressing well on our soy protein concentrate plant in Morristown, Indiana, and we’re nearly ready to begin serving customers from our new highly efficient multi-oil facility in India. To continue to help our customers meet the demand for sustainability and low CI crops, we’re executing on regenerative agricultural projects with multiple customers in multiple countries, helping to build sustainable, integrated supply chains and expand global regenerative agricultural practices.

For instance, tomorrow, Bunge and CP Food, a leading Asian feed and food company will announce a collaboration to develop a black chain solution for the traceability of deforestation free soy from Brazil. We’re proud of the progress we’re making, but also know there’s still much to do as we continue positioning Bunge to deliver on our critical mission of connecting farmers to consumers to deliver essential food, feed and fuel to the world. I continue to be impressed by the energy, collaboration, innovation and commitment of the Bunge team as we work together and with key partners to find solutions to the world’s most pressing food security issues. And with that, we’ll turn to Q&A.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Strelzik with BMO. Please go ahead.

Andrew Strelzik: Hey, good morning. Thanks for taking the questions.

Gregory Heckman: Good morning, Andrew.

Andrew Strelzik: Good morning. So I guess my first one, you alluded to some of the upside opportunities for the year. And when you talked last quarter about some of them, I believe there was — the thinking was that there’s even more upside really was more in 4Q than in 3Q. You talked about merchandising opportunities, dislocations, potentially China. Can you talk about how those are shaping up relative to what you were thinking three months ago or some of those opportunities have evolved at all where you’re seeing the upside potential?

Gregory Heckman: Sure. And I’d just start by saying the solid execution by the team has really been the key here. It continues to be really dynamic, but the ability to deliver the strong Q3 and then give us the confidence to raise the years just fantastic execution. So we’ve seen crush margins improve recently and that’s really been on the back of soybean demand improving. That’s allowed us to go ahead and lock in a lot of Q4 on the crush side. We’re, of course, not seeing that same visibility into the Q1 and Q2. We do expect that to kind of develop over the first quarter — I’m sorry, as to develop for the first quarter as we go through Q4. But overall, we’re still on the back of a really tight situation globally, and we expected that to play out right as we got to the end of Argentina with the crop really about less than half of last year.

And so we did have to call on crush for the rest of the globe to step in and provide that. We continue to also see strong oil demand in North America, and that’s both from food as well as fuel. And that has, of course, driven the opportunities, not only while crush has been volatile, but gross margins have been volatile, but actually been very strong, and we’ve seen it pulling oil for reformulation and pulling imports. So I think that’s — those are going to kind of be the drivers that we’ll continue to see here in Q4.

Andrew Strelzik: Okay. Great. That’s super helpful. And then maybe as a follow-up to that, as we think out to next year, and I’m certainly not asking for guidance. But I guess I’m just curious how you think about what’s durable from this year and what’s not. Certainly, there’s a lot of conversation in the market about U.S. crush margins given the curve. Refined oils has been kind of consistently stronger than you anticipated. Brazil’s going to have another big crop. So how are you thinking about — what could be similar or different in ’24 versus ’23? Thank you.

Gregory Heckman: You bet. I think what will be similar is until we get another look at the South American crop and while the weather patterns look like they’re setting up favorable for South America with an El Nino, that’s really not how the planning is starting. So we do need to see that weather happen and see a good crop. But if you can get strong crops, we had a record in Brazil. If we see another record crop in Brazil and then see the crop, I think, the U.S. data think that we could see a crop in Argentina on soybeans even back above ’22 levels, but that would be about twice what we saw for production this year. That starts to make South America, again very competitive globally n soy exports as well as exports to China, but it’s on meal and oil.

So that will be the one we watch, but remember, we’re not going to get that until April or later. So this tightness will continue through Q1. And so as we get more visibility, the first half, we’ll see we’ll be able to kind of lock that in and then see how weather plays out here in the second half. And the others ultimately on China, where we look at soybean imports probably to be flat and corn imports to be up. But China is a very savvy buyer and we’ve seen it can really depend on prices when they’ll reload stock. So I think any surprises there could be to the upside on volume and be supportive also on the merch side.

Andrew Strelzik: Great, I’ll go ahead and pass it on. Thank you.

Gregory Heckman: Thanks, Andrew.

Operator: Thank you. Next question is from Ben Bienvenu with Stephens Inc. Please go ahead.

Ben Bienvenu: Hi, thanks. Good morning.

Gregory Heckman: Good morning, Ben.

Ben Bienvenu: I want to ask about the buyback. You made good progress already, more than $450 million in the quarter, and it looks like more kind of since the end of quarter close. When you think about kind of your goal of $2 billion within 18 months of the Viterra closing. Is that timeline getting pulled forward? And how are you thinking about kind of balancing cash flow as it relates to deploying the cash flows to buyback?

John Neppl: Yes. Look, I think as of now, we’re keeping the timeline fairly steady. Now that could certainly accelerate given the steps we’ve made already. But when you look at 2024, we’ve got a pretty robust pipeline of CapEx projects to execute. We had significant increases here in CapEx and a lot of that relates to some big greenfield projects that are underway, and we’ll have similar or maybe even slightly higher CapEx next year related to that. We announced CJ Selecta that will close in 2024. That’s going to be a draw as well. We’ll see how things shake out on the cash generation side as we go into the year. And then we’ll balance that, obviously with share buybacks and other M&A opportunities that might come up. But ultimately, as we get near the close of the Viterra transaction, we do want to try to target certain leverage ratio at close, and so that might impact timing as well.

But whether we pull it forward or not, we still remain committed to hitting the $2 billion.

Ben Bienvenu: Okay. Great. And then, Greg, just to revisit Andrew’s question around next year. You made a comment that you expect the crush curves to firm in the first half of next year or into 1Q as we move through the fourth quarter. Could you talk about some of the drivers that you see at play there? And then I guess just panning out and thinking about 2024, you mentioned some of the positives or potential upside drivers to strengthen the year. Could you just kind of stack on each side of the ledger, the potential positives and negatives that you guys are paying attention to as of now, so we can be mindful of them.

Gregory Heckman: Sure. I’d say in the first half, the tightness that we expect and then we talked about the size of the South American crop., of course, remember what we saw this year and that is kind of good for our global footprint. And while being pretty balanced globally has helped us deliver our most complete footprint is South America and especially Brazil. So the record crop there was good for our export system as well as our crushing system. It made South America more competitive versus North America on bean exports, which kept some more beans at home in the U.S., which actually — our crush franchise is bigger than our export franchise in North America. So again, that was positive for our crush franchise. So if you see another record crop there in South America, we will have that same benefit in Brazil.