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Category: Stock Market and Bunge
Date: 31 October 2019 Stock Price: $52.76 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Bunge, a company that sources, processes and supplies oilseed and grain products and ingredients.
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About Bunge
Bunge (www.bunge.com, NYSE: BG) is a world leader in sourcing, processing and supplying oilseed and grain products and ingredients. Founded in 1818, Bunge's expansive network feeds and fuels a growing world, creating sustainable products and opportunities for more than 70,000 farmers and the consumers they serve across the globe. The company is headquartered in New York and has 31,000 employees worldwide who stand behind more than 360 port terminals, oilseed processing plants, grain silos, and food and ingredient production and packaging facilities around the world.
Financial overview of Bunge's 3rd quarter 2019 earnings results
Numbers we are interested in: (for the quarter)
- Sales: $10.323 billion (down from $11.412 billion for the same quarter of the previous year)
- Net sales decreased by -9.54% over the last 12 months
- Cost of goods solds: $11.301 billion (up from $10.494 billion for the same quarter of the previous year)
- Cost of goods sold increased by 7.69% over the last 12 months
- Net loss: -$1.4996 billion (down from $356 million for the same quarter of the previous year)
- Diluted earnings per share: -$10.57 (down from $ 2.44 for the same quarter of the previous year)
- Number of shares in issue: 142 million (down from 150 million for the same period of the previous year)
- Cash and cash equivalents: $291 million
- Cash and cash equivalents per share: $2.05
- Cash and cash equivalents makes up 3.88% of Bunge's market capital
- Cash and cash equivalents makes up 1.56% of Bunge's total assets
- Trade accounts receivable: $1.834 billion
- Accounts receivable makes up 9.84% of Bunge's total assets
- Inventories: $5.466 billion
- Inventories makes up 29.33% of Bunge's total assets
- Total stockholders equity in Bunge: $4.694 billion
- Stockholders equity per share in Bunge: $33.05
- Bunge is trading at 1.59 times its stockholders equity per share which is outside the expected range of between 2 and 4 times that most firms tend to trade at
Bunge (NYSE: BG) management commentary on 3rd quarter 2019 earnings and guidance
WHITE PLAINS, N.Y., Oct. 30, 2019/PRNewswire/ -- Bunge Limited (NYSE: BG)
Greg Heckman, Bunge's Chief Executive Officer, commented, "We navigated uncertain and deteriorating market conditions well. While we expect headwinds to continue, we are making progress on our key priorities. We have improved our operational execution, as well as our discipline around risk management. Our decision to combine our global and North American headquarters in St. Louis is an important step in the work underway to streamline our global business structure. We will continue to focus on the business drivers within our control as we execute our mission of delivering results and driving increased returns to shareholders."
Agribusiness
In Oilseeds, soy crush margins were lower globally driven by the combination of farmer retention of soybeans in anticipation of higher prices and soft export demand for soymeal. Results were negatively impacted by approximately $70 million of mark-to-market reversals on soy crushing contracts, which favorably impacted Q2. However, a decrease in forward soy crush margins during the third quarter resulted in new mark-to-market gains of approximately $95 million, benefiting our results. As we execute on these contracts, mainly in the fourth quarter, we expect these gains to reverse. Softseed processing results were higher than last year, as were results in trading & distribution.
Edible Oil Products
Improved performance was largely driven by higher results in North America and Brazil, which benefited from better supply-demand balance of soy oil, as well as improved execution. Bunge Loders Croklaan also contributed to the increased results.
Milling
The decline in segment performance was primarily driven by lower margins in the U.S. and lower volumes and margins in Mexico. Results in Brazil were comparable to last year.
Sugar & Bioenergy
Higher sugarcane milling results were primarily driven by $32 million of lower depreciation due to the Brazilian sugarcane milling business being classified as held for sale, increased cane crush volumes and higher ethanol prices.
Fertilizer
Slightly lower results were in line with the prior year.
Cash Flow
Cash used by operations in the nine months ended September 30, 2019 was approximately $1.3 billion compared to cash used of approximately $3.3 billion in the same period last year. The year-over-year variance was primarily due to a smaller inventory build this year. Trailing four-quarter adjusted funds from operations was approximately $1.0 billion as of the quarter ended September 30, 2019.
Income Taxes
Income taxes for the nine months ended September 30, 2019 were $70 million, which included notable tax benefits of $30 million. The prior year included a $15 million notable tax benefit.
Outlook
Based on the current agribusiness environment, which has become more challenging, the Company now expects a decline in earnings versus 2018. This outlook excludes notable items, the favorable impact of Bunge Ventures' investment in Beyond Meat and higher results in Sugar & Bioenergy.
Additionally, the Company expects the following for 2019: A tax rate in the range of 20% to 24% excluding notable items; net interest expense in the range of $290 to $300 million; capital expenditures in the range of $520 to $540 million, of which approximately $115 million is related to sugarcane milling; and depreciation, depletion and amortization of approximately $550 million.
Greg Heckman, Bunge's Chief Executive Officer, commented, "We navigated uncertain and deteriorating market conditions well. While we expect headwinds to continue, we are making progress on our key priorities. We have improved our operational execution, as well as our discipline around risk management. Our decision to combine our global and North American headquarters in St. Louis is an important step in the work underway to streamline our global business structure. We will continue to focus on the business drivers within our control as we execute our mission of delivering results and driving increased returns to shareholders."
Agribusiness
In Oilseeds, soy crush margins were lower globally driven by the combination of farmer retention of soybeans in anticipation of higher prices and soft export demand for soymeal. Results were negatively impacted by approximately $70 million of mark-to-market reversals on soy crushing contracts, which favorably impacted Q2. However, a decrease in forward soy crush margins during the third quarter resulted in new mark-to-market gains of approximately $95 million, benefiting our results. As we execute on these contracts, mainly in the fourth quarter, we expect these gains to reverse. Softseed processing results were higher than last year, as were results in trading & distribution.
Edible Oil Products
Improved performance was largely driven by higher results in North America and Brazil, which benefited from better supply-demand balance of soy oil, as well as improved execution. Bunge Loders Croklaan also contributed to the increased results.
Milling
The decline in segment performance was primarily driven by lower margins in the U.S. and lower volumes and margins in Mexico. Results in Brazil were comparable to last year.
Sugar & Bioenergy
Higher sugarcane milling results were primarily driven by $32 million of lower depreciation due to the Brazilian sugarcane milling business being classified as held for sale, increased cane crush volumes and higher ethanol prices.
Fertilizer
Slightly lower results were in line with the prior year.
Cash Flow
Cash used by operations in the nine months ended September 30, 2019 was approximately $1.3 billion compared to cash used of approximately $3.3 billion in the same period last year. The year-over-year variance was primarily due to a smaller inventory build this year. Trailing four-quarter adjusted funds from operations was approximately $1.0 billion as of the quarter ended September 30, 2019.
Income Taxes
Income taxes for the nine months ended September 30, 2019 were $70 million, which included notable tax benefits of $30 million. The prior year included a $15 million notable tax benefit.
Outlook
Based on the current agribusiness environment, which has become more challenging, the Company now expects a decline in earnings versus 2018. This outlook excludes notable items, the favorable impact of Bunge Ventures' investment in Beyond Meat and higher results in Sugar & Bioenergy.
Additionally, the Company expects the following for 2019: A tax rate in the range of 20% to 24% excluding notable items; net interest expense in the range of $290 to $300 million; capital expenditures in the range of $520 to $540 million, of which approximately $115 million is related to sugarcane milling; and depreciation, depletion and amortization of approximately $550 million.
Bunge Limited (NYSE:BG) stock price history
The image below obtained from Google, shows the stock price history of Bunge Limited over the last 5 years. And its not been a good time for Bunge Limited at all. 5 years ago the stock of Bunge was trading at around $88.70 a stock and its currently trading at $52.76 a stock. That's a loss of -35.94% suffered by Bunge stockholders over the last 5 years.
The stock of Bunge is trading at a lot closer to its 52 week low of $47.26 than it is to its 52 week high of $69.30 a stock, which to us is a clear indication that the short term sentiment and momentum of Bunge stock is very negative at this point in time,
The stock of Bunge is trading at a lot closer to its 52 week low of $47.26 than it is to its 52 week high of $69.30 a stock, which to us is a clear indication that the short term sentiment and momentum of Bunge stock is very negative at this point in time,
Recent coverage of Bunge Limited
The extract below discusses the latest regarding Bunge as obtained from TheStreet.com
CHICAGO and WHITE PLAINS, N.Y. and MINNEAPOLIS and GENEVA and ROTTERDAM, Netherlands, Sept. 19, 2019 /PRNewswire/ -- The industry-wide initiative to modernize global agricultural commodity trade operations announced today that another major partner, Glencore Agriculture Limited, has joined the effort. "We've been interested in the initiative from the very early days and we're excited now to join as a full partner," said Glencore Agriculture Limited CEO David Mattiske. "The digital platform this group intends to develop will leverage the newest technologies and has the potential to revolutionize our industry, making contract execution processes more efficient, more accurate and more transparent. These advances are necessary for our industry to continue serving our critical global role efficiently and effectively, and the benefits will be felt by companies of all sizes along the post-trade value chain."
The initiative, which now includes Glencore Agriculture Limited as well as Archer Daniels Midland Company (NYSE: ADM) ("ADM"), Bunge Limited (NYSE: BG) ("Bunge"), Cargill Incorporated ("Cargill"), COFCO International Ltd ("COFCO International") and Louis Dreyfus Company ("LDC"), is initially looking at new technologies - such as blockchain and artificial intelligence - to create digital solutions to automate grain and oilseed post-trade execution processes, reducing costs needed to move agricultural and food products around the globe. The group is projecting launch of the new platform in the second half of 2020 subject to regulatory approval. "This effort is growing, and the reason is clear: we're offering clear and tangible benefits for the industry, created by the industry," the initiative participants said in a joint statement.
CHICAGO and WHITE PLAINS, N.Y. and MINNEAPOLIS and GENEVA and ROTTERDAM, Netherlands, Sept. 19, 2019 /PRNewswire/ -- The industry-wide initiative to modernize global agricultural commodity trade operations announced today that another major partner, Glencore Agriculture Limited, has joined the effort. "We've been interested in the initiative from the very early days and we're excited now to join as a full partner," said Glencore Agriculture Limited CEO David Mattiske. "The digital platform this group intends to develop will leverage the newest technologies and has the potential to revolutionize our industry, making contract execution processes more efficient, more accurate and more transparent. These advances are necessary for our industry to continue serving our critical global role efficiently and effectively, and the benefits will be felt by companies of all sizes along the post-trade value chain."
The initiative, which now includes Glencore Agriculture Limited as well as Archer Daniels Midland Company (NYSE: ADM) ("ADM"), Bunge Limited (NYSE: BG) ("Bunge"), Cargill Incorporated ("Cargill"), COFCO International Ltd ("COFCO International") and Louis Dreyfus Company ("LDC"), is initially looking at new technologies - such as blockchain and artificial intelligence - to create digital solutions to automate grain and oilseed post-trade execution processes, reducing costs needed to move agricultural and food products around the globe. The group is projecting launch of the new platform in the second half of 2020 subject to regulatory approval. "This effort is growing, and the reason is clear: we're offering clear and tangible benefits for the industry, created by the industry," the initiative participants said in a joint statement.
Bunge Limited (NYSE: BG) stock valuation
So what do we value Bunge stock at after the release of their 3rd quarter 2019 earnings? It is hard to value a loss making firm and a firm that uses cash in operations instead of generating cash from operations. Our base position when a firm is loss making and burns cash is to use the stockholders equity per share as a base for our valuation. Based on this we have a target (full value) price of Bunge at $33.05 a stock. We therefore believe that the stock of Bunge is overvalued.
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $33.05. Therefore we believe a good entry point into Bunge stock is at $29.80 or below. We expect the stock of Bunge to pull back from current levels to levels closer to our target price (full value price) in coming weeks and moths as we believe it is overvalued at this point in time. We therefore rate Bunge as a sell
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $33.05. Therefore we believe a good entry point into Bunge stock is at $29.80 or below. We expect the stock of Bunge to pull back from current levels to levels closer to our target price (full value price) in coming weeks and moths as we believe it is overvalued at this point in time. We therefore rate Bunge as a sell
Next earnings release of Bunge Limited
It is expected that Bunge will publish their 4th quarter and full fiscal 2019 earnings report in early February 2020