Bunge Global SA — 2023 Q4
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning, and welcome to the Bunge Global SA Fourth Quarter 2023 Earnings Release and Conference Call. [Operator Instructions] Please note this event is being recorded.
Thank you, Maria, and thank you for joining us this morning for our fourth 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 Investor Center on 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.
Thank you, Ruth Ann, and good morning, everyone. 2023 was a significant year for Bunge with both our continued strong financial performance and progress on our long-term strategy. I want to thank the team for their exceptional execution on our day-to-day business while also focusing on key projects for the future.
Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on Slide 5. Our reported fourth quarter earnings per share was $4.18 compared to $2.21 in the fourth quarter of 2022. Our reported results included a positive mark-to-market timing difference of $1.08 per share and a negative impact of $0.60 per share primarily related to acquisition and integration costs associated with our announced business combination with Viterra as well as a fixed asset impairment charge.
An adjusted annual effective tax rate in the range of 21% to 25%; net interest expense in the range of $300 million to $330 million; capital expenditures in the range of $1.2 billion to $1.4 billion; and depreciation and amortization of approximately $450 million.
Thanks, John. Before turning to Q&A, I want to offer a few closing thoughts. So we're proud of the work we've done to optimize our business, and we're always looking for ways to drive continuous improvement. We've got a clear set of priorities, continue that work in 2024 and we're confident that we'll end the year as an even stronger Bunge.
[Operator Instructions] The first question is from Ben Bienvenu of Stephens.
Over the last several years, there's clearly been building tailwinds for the business. You've capitalized on it very nicely. As we get to this point in the cycle, some of those tailwinds certainly moderate as expressed in your guidance. And you noted, Greg, that as usual, but particularly now there's maybe a little bit less visibility into the business looking forward. If you can think through your business segments, can you help us understand where you feel like you have the most visibility versus the lease and some of the key things that you're focused on to maybe gain greater visibility for the year as we move through the year?
Yes, sure. Thanks, Ben. I think as usual, the first quarter is where we have the most visibility and then it starts to kind of reduce as we go out. Having the global platform, of course, is very helpful. And so as we look across crush today and as we said and we look at the curves and what they give us, they're all inverted with some pretty limited liquidity beyond Q1. And then, we're in that, what we do, have visibility to and you kind of think about history, we're in that transition as markets get a little more balanced on supply and demand, that producers generally don't like selling lower prices, and they've got room to storage. So you see a little bit generally reluctant selling as we transition from the farmer.
Okay. Very good. My second question is related to a similar dynamic as we kind of have shifting wins in the cycle, operationally, organizationally, tactically, you all have positioned the business to maximize earnings power as the cycle was accelerating to the upside over the last number of years. Externally, you've done a masterful job of managing expectations, and I think your track record of guiding conservatively as well established at this point. As we get to a slightly different backdrop, how does your focus internally change, if at all?
Well, I just would start by saying the same things that we've been focused on really work in all environments. And I think we talked as we were going, we were always thinking about trying to build the company for the bottom of the cycle, which you hope you never experienced. But if we have that mindset and we have our costs in position to be the most efficient regardless of where you are in the cycle, that we have our business organized in our operating model to have the most nimble and agile and ability to react to whatever the external factors that we can't control in the market. And that we ensure that we have got our rewards systems in alignment with our stakeholders and with our investors and with our customers at both ends of the value chain that we're kind of -- we're going to operate the same on the things that we can control.
The next question is from Manav Gupta with UBS.
Congrats on a very strong quarter. You came in well ahead of expectations. So congrats on that. My question here is it's more of a help if you could provide, you have a $9 guidance for 2024, which we think is conservative. But help us understand if Viterra does close on, let's say, July 1, then where could this $9 go based on the current environment? Whatever help you could provide would be highly appreciated.
Sure, Manav. This is John. I think what we've communicated in the past, I think, our view is on Viterra close in 2024 will be mildly accretive to flat. In the first year, we've got a lot of synergy costs, a lot of integration costs to incur. And certainly for the first 6 to 12 months, there'll be a lot of work around integration and focus on that. I think we love the business, and I think the long term is outstanding, especially when you look at environment like we're going into. But I wouldn't expect a significant impact on the $9 in this year.
I might add, the 1 thing that we have spoken about is how the businesses are so different with us being much stronger in the processing and then much stronger on the origination, storage handling, and distribution. So if you do have a market that moves more into a contango or a carry that does benefit where you have more storage. So I think that when we talk about the diversification and the crops we handle and in the asset footprints and the geographies, that would be 1 of the things that we'd be thinking about depending on when we close and what the environment looks at when we talk about the outlook at those times.
My quick follow-up here is it looks like the discretionary CapEx for 2024 is going -- probably going to be somewhere between $720 million to $840 million. Help us understand where this money is being spent, the kind of returns? And when do we start seeing these projects come online, so we can start giving you the benefit of earnings associated with this CapEx?
Sure. Yes. So we embarked really the last year and the year before on some pretty large multiyear projects. And most of those things like are build-out with our Chevron joint venture, our plant in Amsterdam, our new oils plant are specialty proteins plant in Indiana. All those things are -- our plant in India. All of those things are have been multiyear -- well, India is coming on later this year. Most of those are still going to be in build-out phase through 2025. So we really expect them to start contributing in 2026.
The next question is from Ben Theurer with Barclays.
Just want to congrats from my side.
Thank you.
Just 2 ones to follow up. So 1 actually associated a little bit with the M&A and the contribution of it, capital allocation in general. Can you just maybe frame to the audience how you think about the buyback left over for the Viterra deal? Because if I remember right, you said you wanted to have done about half of it, of the $2 billion that was announced until the close. So that would leave you with, I guess, some around about $400 million. Just that we can think about, is that something you target for in the first half?
Sure. So we'll start with share buyback. And the $400 million, I think our expectation right now is we will execute that in the first half of the year. And we've committed to doing at least that $400 million by close of the transaction. So we expect to do that. And then, we'll see from there as we go forward. With respect to our outlook for 2026 and $11, I think we still feel very positive with that and right on track. While the CapEx is maybe been delayed a little bit from a timing standpoint. We got a little bit of a late start on some of these -- as costs went up and we went back and took a look at projects, we've actually picked up pace on the M&A side a little bit. So we feel very good about our trajectory against that $11-plus by 2026 and have no reason to change it at this point.
Okay. Perfect. And then a quick follow-up. As we think about the guidance for this year and maybe the magnitude of changes that you're foreseeing right now? I know and Ben brought this up early on about the visibility, and I know about the challenges 2Q onwards. But as you look at it today, where do you think the biggest downside versus 2023 is within, call it, maybe a key for processing merchandising and Refined and Specialty Oils?
I think, if you look at the big flags, the big put and takes that we're thinking about it at the highest level, of course, the geopolitically and weather, right? And so while we're getting a more balanced S&D situation globally, we're kind of 1 weather event from really tightening things up and that could bring some volatility back. And then the other offset is around it at a high level, if you think about demand. And so lower prices should spur more demand. That's what we've seen historically, and then it's really how quickly we see that.
The next question is from Adam Samuelson with Goldman Sachs.
So maybe continuing along that kind of line of questioning. As we think about kind of the approximately $9 EPS, it would seem to imply, give or take $1 billion of segment profit reduction on a year-on-year basis. And just helping -- can you help dimensionalize the segments where that's coming? Presumably merchandising processing is the largest contributor, but at least frame kind of what kind of year-on-year decline you're currently kind of thinking about for Refined Specialty Oils, Sugar just to help put the decline in processing in better context? And then I got a follow-up.
Yes, Adam, this is John. I think there are really 3 big drivers to the year-over-year change. And the largest is what we're assuming on the processing side, certainly globally. That's probably I'd say, close to 80% of the variance. When you look at the gross variance, we have some things that are going to be up, we expect to be up. But that's a big piece of it. And then the other big drivers are so Refined Specialty Oils being down, from probably a couple of hundred million from where we finished this year in 2024. And then the other 1 is Sugar, we're calling down given ethanol prices and environment in Brazil. But then we have some other things going in the other direction to ultimately get to the change. But certainly, the largest is the Processing segment at this point.
Okay. That's helpful. So I mean within that Processing, if it's 80% or so percent, that implies something like a $70 to $80 -- sorry, $15 to $20 a ton lower kind of global kind of crush margin decline on your footprint. Can you help frame kind of regions where that is kind of a larger kind of headwind versus not and how more North America crush and soy meal and the return of Argentina to the export market in the second quarter, kind of is factoring into your kind of the regional balance of your network?
Yes, I can -- again, let me start. Let's start on that. Yes. So if you think about -- and maybe back into it from soft seeds, we still expect those to be strong but kind of down slightly. They'll be off some from '23, but should still be good in both Europe and North America. But soy is really the 1 as you've called out. So I think everything will be softer.
The next question comes from Steven Haynes with Morgan Stanley.
If I could just come back to the guidance for '24 real quick. I was hoping maybe you could just give a bit more color on how you see that maybe phasing out over the course of the year. I would imagine that 1Q maybe has some favorability in it still from the back half of 2024. So I know you don't give quarterly guidance, but if you can maybe help size like your expectations for the first quarter versus the balance of the year, that would be helpful.
Yes. Steven, this is John. we're looking today, when we look forward at our forecast, we're expecting it to be pretty closely balanced between first half, second half, actually, pretty close to 50-50. And I would say, waiting on the first half of the year, more 60-40, and on the back half of the year kind of the mirror image more of a 40-60. That's kind of how we're seeing the year at this point.
Okay. And then maybe just another quick follow-up on the back half and what you're kind of assuming for the size of the U.S. crop and how to think about maybe what some of the different scenarios are there. I think you alluded to 4Q being a little bit better because of the U.S. crop, but maybe if we have a larger-than-expected crop in the back half, like what do you think that would mean for the outlook that you've currently laid out?
Yes. I'd say if you look kind of at a high level, right, we get the Brazil crop coming in probably the bean production being in the mid-150s. And that's versus last year, we were around 160 million metric tons. I mentioned Argentina being production to be around 50 million tons there, which is about double what it was last year. And then I think as that sorts out and the market sends the right signals, we'll see how the acres work here in North America, right, and how many bean acres that we end up with and how the growing season plays itself out. But we do need to have a good growing season here in North America, but have no reason right now to plan on anything else.
The next question is from Salvator Tiano of Bank of America.
Yes. So the first question I want to ask is specifically about the guidance. And I know you mentioned many times the forward curves in most cases are inverted for crush margins. But -- and I understand that's how you give the outlook. But let's say, we're sitting here from 6 months from now. And who do you expect the crush margins to indeed be that low? As you said, liquidity is linked at kind of on the forward curve. So is there a chance that simply things will revert and the outlook for the year may be better?
Well, I think that's why we've been consistent about using the forward curves and what we currently see in the environment when we do give the outlook because that way, it kind of doesn't flop around depending on our forecasting of what we see in the markets and versus what the public forecasters are saying they see in the market. But that's why I do think those flags that we've called out. Right?
Okay. Perfect. The second question is on merchandising specifically. I guess in Q2 and Q3, it was kind of a wash when you consider the $75 million to $100 million EBITDA you've given in normalized earnings, but Q4 was well below that. Would you say now merchant -- we are an environment on the Ag cycle where merchandising will actually be below that normalized level or are we still mid-cycle and Q4 was just an anomaly?
Yes. So I think we call merch should be slightly down here in '24 versus '23. And right now, that's probably got it slightly below where we're at in our baseline model. But again, merchandising is the toughest 1 to forecast and is the first 1 to react if we get some policy changes that affect flows and/or weather -- any weather issues that affect production. And I'll tell you, as we continue to grow more yield on the same amount of acres, and we're seeing more volatile weather patterns, both dry and wet that affect production and logistics that probably just long term leads to more volatility. So the merchandising will be the 1 that absorbs that on the short-term changes.
The next question is from Thomas Palmer with Citi.
I wanted to ask a little more on the demand pull you're seeing from renewable diesel. I mean, it really has been a kind of key driver over the last couple of years in terms of crushing refined oil. The industry, obviously, responding on the crush side with added capacity in part to support this industry. I guess, what's the visibility in terms of that demand pull at this point in terms of absorbing some of this increased supply that's coming from the added crush capacity? Are we still a little bit in waiting mode? At different points, you've kind of noted that maybe curves aren't showing it, but you are at least in touch with customers who are showing optionality for that increased demand pull on a forward basis?
Yes. We see it continue to grow. I think there's going to be another 1.4 billion gallons of RD capacity come online in the first half of '24. I think some of the complexity, right is, it isn't just a veg oil game as they grow their demand. The market sent some signals when the pipelines got tight. And so we saw UCO imports. And so as we balance some of that supply and demand understanding did we soak up some surpluses and what will be the ongoing rate of some of these imported UCOs and other kind of low-CI feedstocks as the market kind of works to balance itself out as that demand comes on.
Yes, totally. Just quickly on the share repo plans. I think as of the October earnings call, you've spent the $134 million on repo taking you to what, $600 million between the back half of the year. Should we -- as we look at this coming year, expect maybe a more balanced cadence because it looks like you kind of stopped at least for the last couple of months of '23, but still have clearly meaningful plans as we look at the time period kind of before Viterra closes. So again, should that be a little more balanced on repo?
Yes. I think -- well, our expectation is between now and, let's say, midyear, we'll have the other $400 million, but timing on close of Viterra is yet to be determined. But I think we won't wait around until we have news for that. I think we'll put it on a pace here to make sure that we're completed by midyear.
The next question is from Sam Margolin with Wolfe Research.
My question is on refining because it seems like that's the segment where the commodity headwinds are probably the most visible, but it sounds like there's a technology story there for you where you're either gaining share or maybe potentially getting some pricing power. And I wonder if you could just talk about the attributes of the yields in the new refineries that are adding value and how they accrue to the segment growth? And how should we think about that contribution?
I think on an overall, it's just the team has been running the refineries better. We set some records there in Q4 on volume and capacity utilization in our refineries. So we're just trying to run the system better to meet the demands. And then on our India refinery, that is new multi-oil capabilities as well as packaging, and that's to meet some current demand as well as some growth. We'll be commissioning that in the first half. That's for our Foods business.
Yes, Sam, I would add that food is still 75% to 80% of our volume on refined oil. So while energy certainly has been a nice demand for us, food is a big focus. We have very big downstream customers, and they depend on us from a traceability sustainability standpoint and to be able to provide a multi oil. So that's still the primary focus of that RS&O segment.
Okay. That's super helpful. And then just a follow-up on capital allocation and the discretionary CapEx component. I think this year, it feels like it has more of the characteristics of sort of a trough year than maybe something structurally problematic. And so it makes sense that discretionary CapEx is still at the top of your Q. But I mean, is there anything that, the scenario that you can imagine that might cause you to decelerate growth CapEx or any market conditions specifically that you're watching for that could change -- maybe change the mix of your capital allocation and move growth CapEx kind of lower on the priority list?
Yes. I don't -- I mean, the reality is most of the projects that are in our growth pipeline now are all underway. So the bulk of it won't change, because we're still -- we still believe those are great long-term projects. Certainly, around the fringes as new things come up, we may trade-off between that and M&A, which we have done some of. We've seen some great bolt-on M&A opportunities and have allocated some capital in that direction instead. But I would say largely, our forward track here for '24 and '25 is pretty locked in from a CapEx standpoint.
The next question is from Davis Sunderland with Baird.
Just 1 for me. I was curious about the cost structure for Processing and RS&O. Maybe just how this has evolved as new capacity has come online in the industry? And maybe any comments if you guys could give on variable cost changes over the last few years and how your cost structure compares to competitors would be helpful.
Sure. This is John. Look, I think, we have not been immune to the inflation that we saw over the last few years relative to kind of started during COVID and worked its way through. But what we've seen recently is energy prices coming off quite a bit, especially in Europe, which has lowered our variable costs over there quite a bit. I think our belief is that we're probably or probably close to the most efficient in the industry are certainly on par with others. And it's as you can imagine, higher cost areas generally is going to be U.S. with inflation and Europe with energy costs and inflation.
The next question is from Andrew Strelzik with BMO.
First for me, I was hoping you could compare the current environment in the curves to the $8.50 EPS assumptions in the baseline more broadly? I guess it seems like for the most part, most of the profitability and margin structures are similar to those assumptions, especially on the crush side, if you were able to lock in the first quarter, a little higher. The exceptions maybe you said a little bit weaker on merchandising. And if a couple of hundred million lower unrefined oils is right, and I had the buyback you're -- the math is something like $10 plus, I think. And I understand the volatility of the environment, et cetera. But am I thinking about that correctly? Is there anything that else that's materially weaker than kind of the baseline assumptions?
Yes, I can start, and Greg can jump in. I think actually, our margin assumptions right now for 2024 are better than the baseline -- marginally better than where we were in the 850 baseline assumptions. So we think that will hold for the year, if not improve. Where we're seeing a little -- and that's probably more on the soft side than the soy side, the higher assumption around margin structure and what we're seeing today. I think where we see the downside versus our baseline is really in merchandising.
And probably the only thing on the commercial side that we didn't mention, while the margins on crush are a little higher than the baseline. The volume is just a little bit lower and that's due to -- we exited Russia as a choice. And then in Ukraine, our volume is down with the war ongoing there.
Yes. And maybe just 1 other thing to add, too. As you're thinking through this share buyback, certainly as we've done more of that than we had in our original baseline model, I think we modeled $250 million a year in our baseline assumption, and we of course, we've accelerated that with the Viterra transaction coming.
Okay. Great. That was super helpful. And I guess, maybe my other question, I'm used to thinking about the guidance in terms of a plus and you being asked about upside opportunities you've discussed. Lot of the risks here, and I appreciate the change in the kind of guidance presentation to be approximately $9. But can you talk about where there might be upside opportunities if we're looking for those, where you think the greatest opportunities might lie throughout the year?
Yes. I think, probably the same key ones, China, always a big factor their economy and if it would speed up from a demand and then how China is going to think about any stock building, because they can definitely make it change on these markets that are really still pretty close in the supply and demand balance, any type of weather situation at all.
This concludes our question-and-answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks.
I'd like to thank everyone for joining us today and for your interest. And I guess I'd just like to wrap up by saying we've tried to reflect in our outlook what has changed for '24, but I sure want to also reflect what has not changed. And what hasn't changed, right, is there's long-term growth in demand for the things we make and the services that we provide with them, and that is across all 3 food, feed and fuel markets.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.