Bunge Ltd., which just last week announced plans to sell part of its fertilizer business to Vale S.A. (GM Feb. 1, p. 1), reported a fertilizer segment loss of $616 million for the year ending Dec. 31, 2009, compared to 2008’s positive earnings before interest and taxes (EBIT) of $321 million. Fertilizer sales for the year were off 37 percent, to $5.86 billion from 2008’s $3.7 billion, though actual volumes sold were up 4 percent, to 11.6 million mt from 2008’s 11.1 million mt.
While fourth-quarter fertilizer EBIT was still in the negative column, there were definite signs of improvement as sales volumes increased 40 percent, or 1 million mt, from year-ago levels. Volumes moved up to 3.3 million mt from 2.39 million mt. Bunge said higher volumes reflected a return to more traditional seasonal patterns in which Brazilian farmers purchase most of their fertilizer needs in the second half of the year, closer to when they plant their crops.
Fourth-quarter fertilizer EBIT was up 40 percent, to a loss of $174 million on sales of $974 million from the year-ago loss of $289 million on sales of $985 million. Bunge said the fourth-quarter fertilizer loss was due to the continued mismatch between current market prices, which were lower than expected, and inventory costs, which negatively impacted margins. Bunge said potash particularly put pressure on margins.
“Bunge’s earnings in the fourth quarter represent a disappointing end to a mixed, and ultimately challenging year for Bunge,” said Alberto Weisser, Bunge chairman and CEO. He told analysts that the company was “hammered” by its fertilizer business. “In 2009, fertilizer generated significant losses, which stemmed from a difficult market characterized by high-cost inventory and a weak price environment. We performed well in agribusiness, however, and produced strong results in edible oils.”
In addition to the sale of assets to Vale, Bunge noted that it did acquire the Argentine fertilizer business of Petrobras, which expands its portfolio in that country and its relationship with farmers. As for the asset sale, he said it would provide the financial flexibility to redeploy capital in core businesses and in complementary value chains, where it sees a number of opportunities.
“Of course, divesting our nutrients assets alters the profile of our fertilizer business,” said Weisser. “Moving forward, this business, which serves as a valuable complement to our agribusiness operations, will continue to make a meaningful, albeit smaller, contribution to our overall results. We have made changes to the retail business in Brazil with an aim to reduce risks associated with price and foreign exchange volatility. We have consolidated responsibility for raw material sourcing and end product sales, and we are working to reduce lead times on purchases and adjust our cost structure.”
For the year company-wide, Bunge managed to make a profit, though net income was off 75 percent. Net income was $335 million ($2.22 per diluted share) on sales of $41.9 billion, compared to 2008’s $1.33 billion ($7.73 per diluted share) and $52.6 billion. Sales were off 20 percent.
Bunge reported a fourth-quarter net loss of $8 million ($.21 per share), which was a 96 percent improvement over the year-ago loss of $180 million ($1.89 per share). Sales were off only 5 percent, to $10.4 billion from the year-ago $10.9 billion.
“2010 should be a good year for Bunge,” said CFO Jacqualyn Fouse. “Record harvests in North America and projections for record soybean production in South America, combined with an improved global demand picture, should result in higher volumes for agribusiness and food and ingredients. After two lackluster years of fertilizer demand in Brazil, we expect industry NPK retail volume to grow 2-4 percent.”
Fouse told analysts that with respect to fourth-quarter fertilizer results, roughly half of that was related to the company’s retail business. Bunge expects all the fertilizer businesses it is retaining to generate a combined pre-tax profit in the range of $50-$80 million in 2010.
Weisser reiterated that the fertilizer retail business can now be completely focused on extracting a margin per ton, and minimize risk while servicing farmers. “If we do not see the margin there, we don’t need to buy it.” He said retail will no longer have to worry about selling an upstream business product. Weisser added that it should be less volatile, and that Bunge’s Argentine retail has been very successful without the upstream component.
Bunge full-year 2010 guidance is $5.75-$6.25 per share and excludes the fertilizer nutrients business being sold, as well as the gain on its sale.