Bunge Global SA — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good day, and welcome to Bunge First Quarter 2024 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded.
Thank you, operator, and thank you for joining us this morning for our first 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 at the Investor Center on our website at bunge.com under Events and Presentations.
Thank you, Ruth Ann, and good morning, everyone. I want to start by thanking the team for delivering another quarter of strong results, which reflect continued focus and great execution. We're off to a good start in 2024 amid a more balanced market environment than we've experienced over the past few years.
Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on Slide 5. Our reported first quarter earnings per share was $1.68 compared to $4.15 in the first quarter 2023. Our reported results included an unfavorable mark-to-market timing difference of $0.94 per share and a negative impact of $0.42 per share related to transaction and integration costs associated with our announced business combination with Viterra. Adjusted EPS was $3.04 in the quarter versus $3.26 in the prior year. Adjusted core segment earnings before interest and taxes, or EBIT was $719 million in the quarter versus $756 million last year.
Thanks, John. Before turning to Q&A, I want to offer a few closing thoughts. As we look ahead, we remain confident in our team's ability to capture opportunities as we work to find solutions allow us to even better serve the needs of customers at both ends of the value chain, farmers and in consumers.
[Operator Instructions] The first question today comes from Adam Samuelson with Goldman Sachs.
So Greg, John, I guess, first question, just thinking about the first quarter results in the context of the full year and an unchanged outlook. Would you characterize the forward kind of environment for the balance of the year is actually weaker than what you had been looking at 3 months ago? Or would you just view this as a just appropriate level of conservatism given limited forward book and kind of where the curve sits today? And kind of with that, can you just maybe give us your view on oilseed processing margins just around the world as you see them today?
Yes. No, we really don't see it differently. What we talked about last time, of course, when we talked about the approximately 9 for the year was really kind of seeing it 50-50 between first half and second half, which we continue to see. What we did see was a little stronger Q1 and some of that will come out of Q2. So Q2 will be a little bit softer, but we still see the halves is about 50-50 and still see the year the same at approximately 9.
If I can just pick up on that last point on the oil leg. And I'd just love to get your view on renewable diesel demand for vegetable oils and feedstock versus other waste fats and oils. It does seem like supply a waste fat in particular, out of Asia have been accelerating pretty meaningfully. How are you looking at RD feedstock demand kind of over the balance of the year? And how -- does that start to transition to '25 with the implementation of the 45C credit in the U.S.
Yes. And I might start at a slightly higher level on the oil. If you look at palm, some of the benefit on the strength in the soft oil is coming. Palm from a supply has really been flat. And so that growth in palm supply has stopped while domestic demand has continued to grow. So the exportable volumes of palm have been going down globally. So that from a high level is some of the support for oil.
Adam, I just say -- this is John. In terms of 45C, things are still in process there. I think we're optimistic that veg oil will certainly have a meaningful role going forward. But there's still a few things under -- as you know, under review. So we're like everyone watching that closely. And I think the logical follow-on to that will be would RVO levels get reset in the future because, clearly, the industry is found ample supply for RD and BD and ultimately [ SA ]. So we're hopeful that the EPA sees that as well.
The next question comes from Ben Bienvenu with Stephens.
I want to follow up on Adam's question around the guidance and focus on kind of the level of visibility that you expect to have through the year. Recognizing we're in a more balanced market environment, is the byproduct of that, that visibility is inherently reduced through all points of the year? Or are there key milestones and triggers as we move through the year that might enhance your visibility into the back half of the year? And if so, maybe give us some insight into what those things are and when you expect to have that visibility?
Yes. You're correct. There's definitely less visibility into this year than we've had for a couple of years. So not much at all kind of beyond 3 months. I think that will change as we see the farmer behavior as things kind of sort out and send the signals, whether that's the progress of the North American crop that then changes the marketing behaviors of the farmer here in North America as they think about that next crop coming off and rolling their stocks and from a marketing.
Very good. Makes sense. John, you made a lot of progress on the share repurchase program, $400 million of stock repurchased during 1Q, $1 billion in the last 3 quarters. I believe your goal was to repurchase half of the $2 billion of stock to expected to repurchase by middle of 2024. Given that you're ahead of schedule of it, does that mean we pull forward the timing of the $2 billion repurchase or we pause here in the short term? What's your expectation to the best you can communicate around cadence of the remaining buyback activity?
Yes. It's going to really depend a little bit on how things progress on the Viterra transaction and timing around that. But I think it's possible we could pull some of that forward. I think it's hard to commit to that today because with the close of the deal, as you know, we've got target leverage ratios we'd like to make sure we hit at the close of that transaction. And we've got other projects in play today as well, not only CapEx, but as you know, we've always got a pipeline of M&A stuff going on.
The next question comes from Salvator Tiano with Bank of America.
So firstly, I wanted to ask about Canada, I guess, announcement yesterday about their view that the transaction of Viterra would be anticompetitive. I think they said negative for procurement on the west side of Western Canada and anticompetitive on the Eastern side on the production of canola oil and meal. So given their -- I guess, their view, can you talk a little bit firstly about what are the milestones here? And what could be -- how do this impact the transaction's timeline?
Yes. I might start kind of at a higher level, we are pleased with the progress we're making. I mean if you look, we got to file in a little 40 jurisdictions and 28 of those have issued unconditional clearances at this point. Of the remaining 13, of course, we've got some of the big ones, U.S., Canada, Brazil, China and the EU. If you remember, Argentina is post-closing review. So while overall, we don't know exactly when we'll get the green light, but we sure haven't seen anything that indicates any material risk to the economics of the deal.
Okay. Perfect. And I also wanted to ask about the cover crops. You mentioned that the trial this winter went very well. I'm just wondering, at which point do you think you can start commercializing these products and actually start seeing some benefit to the bottom line? And what's kind of the thinking with regard to the economics, like how could this type of products be monetized?
You broke up right at the beginning. Was the question on winter canola?
Yes, exactly.
Yes. Look, we were in the trial phase, running the pilots on winter canola, and we've been very pleased with the producer reaction. We've been pleased with the production and the performance of the winter canola. And so the plan now will be to scale that up in the coming campaign. And as we get visibility to the uptake by the producer and our ability to scale that up, then we'll eventually get to the point to be able to talk about any, any impact to the financials, but it's a little bit early for that.
The next question comes from Steven Haynes with Morgan Stanley.
Earlier, we kind of talked a bit about the oil side of the equation. I was just wondering if we could come back to the meal side of it. There's some more crush capacity coming in the U.S. this year as your comments before, Argentina potentially kind of a bit more of a factor in the global market. So how are you thinking about both kind of domestic inclusion and export opportunity for meal in the second half?
No. Thank you. So far here in '24, soybean, meal demand appears pretty good. I mean the lower prices are doing their work. And I think you called it out there, seeing a higher inclusion. The other thing it feels like profitability for the animal segment has bottomed, and as profitability gets better, we probably expect some expansion there. Right now, global animal numbers are stable. When you look at pork and poultry together, they're roughly flat, with poultry up maybe a little and pork down a little bit. And then if you look globally, the hog margins really are up in all regions except China and the poultry margins are better.
The next question comes from Tom Palmer with Citi.
I wanted to just ask on the second quarter, you did note maybe a little bit of incremental softness. Just what's driving that, in particular? Is it certain segments we should be thinking about or certain regions where maybe it's come down a bit?
Yes, Tom, this is John. If you look at the -- when we cadence the quarter, it's kind of 60%, 40% for the first half. We ended up a little bit more tilted toward Q1 versus Q2. But largely, the makeup of the quarter hasn't really changed so much in total. And even by segment, it's been more timing. And so where we saw a little bit of over-delivery in Q1 across merchandising and processing. We're seeing a little bit of softness in Q2 in those 2 items. So really more of a view on some of that was timing. It's always hard to predict that.
Understood. And then maybe we could just kind of shift over to 4Q where you do expect a little bit of an uptick, consistent with a quarter ago. What's really driving that? Is there visibility at this point that really guides that? And then is there any read through, I guess, of that as maybe the environment being improved in later this year that kind of pulls into '25?
A couple of things on Q4, of course, historically in North America. If you look at where our planted acres are, you assume that soybean crop gets grown, you've got new crop coming off. And also with the amount of stock that U.S. producers carrying, the marketing coming up as close to that new crop being harvested and then the new crop harvest.
The next question comes from Heather Jones with Heather Jones Research.
I want to stick with oil demand. So Greg, you mentioned about the Chinese UCO. And yes, it seems like that [ arb ] is closed? And also you have soybean oil that seems to be trading at a unusually -- just out of whack relative to historical values relative to palm oil and canola and the animal fats. And so just wondering if you think there is an opportunity for soy to price itself back into food rations or will that take a longer period?
No, I think one of the things that we have seen from our food customers is as prices have come back, the programs we're working on with them are really driven around driving volume now, whether it's new products or product enhancements. So whereas we saw when we had kind of the inflationary, all the projects were really focused around cost reduction, they're now looking at driving volume.
Okay. And then I have a two-part question. So I was just wondering how you all are thinking about the full year. And like you noted, there's little visibility beyond 3 months. But when you're thinking about the full year, how are you thinking about the magnitude of Argentine crush for the year? And I asked because you mentioned that you think U.S. crush margins should be okay. I'm just wondering what you think, with Argentina come into the market with increased meal flows and then several new plants coming on in the next few months. Just wondering, do you think those margins are going to be lifted by the oil side? And just how you're thinking about how those all -- the interplay there?
Yes. I think there'll be a little bit of a balance, right? Of course, we've put all this in our outlook currently. But some of what we talked earlier with animal profitability, a little bit of an uptake on the meal demand side from some expansion on the animal side. And then we've got on the oil side, we talked about palm situation from a tightness, some demand growth on feed and food side from the lower price. And then RD continuing to come on. And then the other is seeing whether these other low CI feedstocks at what pace they can continue to be competitive.
The next question comes from Ben Theurer with Barclays.
Greg, John. Just wanted to follow up on just other capital allocation. I mean, obviously, we have the Viterra pending, but I know you have a bunch of other projects pending in terms of growth investments, productivity increase, et cetera. Can you update us as to for the CapEx for this year, which still seems obviously somewhat elevated. What are like some of the projects you have out there? And when do you think they're going to be playing a relevant role as the contribution to the current results. So just around that framework. That would be my first question.
Sure. Yes. And so Ben, as you know, we've got a number of projects, obviously, going on globally. Greg mentioned the Krishna plant, which is a relatively small one that was commissioned here recently. But in addition to the Destrehan plant expansion that we announced a groundbreaking finally on that a few weeks ago. We've got the other ones that we've mentioned, Morristown SPC plant in Morristown, Indiana underway. Of course, our greenfield oil, specialty oils plant in the Netherlands in Rotterdam, or in Amsterdam, specifically that's underway. And barge unloading expansion in the port in Destrehan, that's going to complement the expansion at Destrehan at the facility.
Okay. Perfect. Very clear. And then my second question, within Agribusiness merchandising, how do you think about the cadence of merchandising, because it feels like it was a little softer into the back half of last year and kind of stabilized now into 1Q actually improved sequentially.
Yes, that's always a tough one. But I -- right now, I'd say we're expecting to be fairly on track with where we were a year ago in merchandising in total. We were off to, as you pointed out, a sequentially good start versus Q3, Q4 of last year. Right now, we're -- we've pulled some of that forward from Q2, so we still call the first half, I'll say, relatively modest, but a good start. And we'll see. We've got a couple of months here to go, so there's always opportunity.
The next question comes from Andrew Strelzik with BMO.
I know we've talked a lot about the soybean oil side, but I just wanted to go back to that one more time. And I guess I'm just trying to think about outlets from a demand perspective, given the market seems to be -- investors seem to be a little bit concerned about inclusion in renewable diesel as a feedstock moving forward.
Yes. The U.S. does have the ability to switch quickly. I mean if you think about it, prior to RD, we held the residual stocks for the world, and we're there to export as the world needed it and called on oil from the U.S. And then as we were building capacity on the crush side as well as building capacity to import other oils and other low CI feedstocks, right? We pulled stocks down and then drove imports into North America. So I think when you think about the U.S., it will continue to be probably the most dynamic on the oil side to help balance things globally.
Got it. Okay. That's helpful. And then I guess I just wanted to ask about the crush capacity expansions that have been announced over the last several years. Obviously, when those announcements were made, for a number of players, the margin environment was much stronger.
Look, I -- when I look at it through our lens, I mean, things definitely got more expensive to build for a period of time, and that's why we slowed down our Destrehan project. Did the work and we're patient to get the cost down before we did build that.
Andrew, maybe I'd just add there that as you could imagine, we watch this fairly closely. And those projects that were well underway are going to continue and get completed, but really, anything that was -- that is proposed or early stages, we've seen a number of those put on hold, at least for now. And I think the expectation on our part would be that with where we are today in the margin environment that those things would probably not get done unless things change.
This concludes the question-and-answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks.
I just like to thank everyone for joining us today and for your interest in Bunge. We look forward to speaking with you again soon. So have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.