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.

An assembly line of automated machines packing a variety of plant-based foods and beverages.

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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