Bunge Limited (BG)

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Bunge Limited (BG)

Q3 2008 Earnings Call Transcript

October 23, 2008, 10:00 am ET

Executives

Mark Haden – IR

Alberto Weisser – CEO and Chairman

Jacqualyn Fouse – CFO

Analysts

Christine McCracken – Cleveland Research

Christina McGlone – Deutsche Bank

Kenneth Zaslow – BMO Capital Markets

Robert Moskow – Credit Suisse

David Driscoll – Citi Investment Research

Diane Geissler – Merrill Lynch

Vincent Andrews – Morgan Stanley

Christopher Bledsoe – Barclays

Presentation

Operator

Good day, ladies and gentlemen, and welcome to today’s Bunge Limited third quarter conference call. Well note that today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the conference over to Mr. Mark Haden. Please go ahead, sir.

Mark Haden

Thank you, Sara, and thank you, everyone, for joining us this morning. Welcome to Bunge Limited third quarter 2008 earnings conference call. Before we get started I wanted to inform those of you who may not have seen it in the press release this morning that we have prepared a slide presentation to accompany our discussion of the third quarter results. It can be found in the Investor Information Section of our website, www.bunge.com, under Investor Presentation.

Reconciliations of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investor Information section.

I’d like to direct you to Slide two and remind you that today’s presentation includes forward-looking statements that reflect Bunge’s current views with respect to future events, financial performance, and industry condition. 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 encourages you to review these factors.

Participating on the call this morning to discuss our third quarter results are Alberto Weisser, Bunge’s Chairman and CEO, and Jackie Fouse, Bunge’s Chief Financial Officer.

And now I will turn the call over to Alberto.

Alberto Weisser

Good morning, everyone. The third quarter was a volatile time in the global agribusiness and food markets, but the Bunge team managed through the period with skill. We head towards the end of 2008 with a solid liquidity position and continued expectations for a strong full year results. I am proud of our team’s efforts and accomplishments in this record year.

Current market conditions are clearly different than the extraordinary ones experienced in the first half of the year. When compared to the first two quarters, recent results have been pressured by softer demand for feed inputs and slower farmer selling in certain regions as well as reduced fertilizer sales in Brazil. There is weaker overall demand from livestock companies in U.S. and the soy complex is feeling some pressure from the substitutional feed wheats for soymeal in Europe. At the same time, however, soymeal demand is growing in Asia and Brazil and USDA forecasts overall demand for soybean meal to grow by 2% next year. Larger wheat harvest in Eastern Europe have created export opportunities for Ukraine and Russia.

As the first nine months of 2008 demonstrate our industry is dynamic, so it’s important to view today’s weaker market environment in the broader context. Conditions change and value shifts from region to region, product to product, and up and down the production chain as the market adjusts to new conditions via its normal functions. Underneath this change there are basic and steady fundamentals that will continue to generate compelling growth.

World population and living standards in developing economies continue to rise and non-food uses for agriculture commodities are expected to increase. These factors will contribute to a rebound in overall demand. At the same time, ending stocks of agricultural commodities remain below historic norms, which will encourage the markets to maintain commodity prices at levels that provide incentives to farmers to plant larger areas and buy the nutrients necessary to generate higher crop yields.

What we believe is important is to be global and to have a global view of the market, to have a broad product portfolio and to be integrated from farm to consumer so as to capture efficiencies. These qualities provide a competitive advantage over regional or single-value chain companies and Bunge has them.

There are two global strategies for growth. The first is to invest in our core businesses. One example is our purchase of a 50% stake in the Phu My Port in Vietnam. Since 2004, Bunge has had exclusive rights to ship agricultural commodities through the port. As an owner now, we will be able to expand the port's capacity and accelerate the growth of our business in this attractive market. Another example is our recent purchase of a wheat mill and distribution center in Brazil, which will enable us to better serve bakery customers in that country.

Our second growth strategy is to invest in complimentary value chains such as sugar, which is a promising market in which we can leverage our expertise. In September we purchased a majority stake in a second sugarcane mill in Brazil, which we plan to expand. We also entered into joint ventures with the Japanese firm Itochu to develop sugar and sugarcane-based ethanol opportunities in the country. Together, we will complete the expansion of the Santa Juliana mill and develop a new green field mill. The three projects should reach full annual capacity of over 12 million metric tons of sugarcane in the aggregate, within four years.

Since the announcement of the merger, Corn Products and Bunge have been engaged in preparations for the integration of our two companies. Bunge and Corn Products currently anticipate that the special shareholders' meetings of both companies will be held in mid to late December, rather than November as previously anticipated. We are disappointed in the performance of the stock prices of the two companies, but Bunge's belief in the strategic rationale for the merger is unchanged.

Now, I would like to turn the call over to Jackie, who will take you through the third quarter results and outlook.

Jacqualyn Fouse

Good morning, everyone. Thank you for being on the call. We go to Slide three of the webcast slides and look at some highlights from the income statements. Overall, Bunge produced a solid Q3 results in a volatile market environment. With respect to the quarter, having come off a very strong Q2, we saw the impact of a shift in profits, notably for fertilizer into the first half of the year, and we are seeing some additional shift into Q4 for both fertilizer and agribusiness.

For Fertilizer, under the uncertain environment with currency and commodity price volatility as well as tight credit conditions farmers are being cautious in delaying purchases and we are managing our credit risk very carefully.

For Agribusiness, we see slower selling by farmers in the U.S. and Brazil and some impact from the delayed harvest in the U.S. and we will talk a bit more about the segment results in just a moment.

Q3 was also impacted by about $215 million of negative currency impact on fertilizer, U.S. dollar financing for inventories, which will be recovered in future periods as the inventory is sold.

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