Bunge Reassures Investors It's Receptive as Glencore Circles

(Bloomberg) -- Bunge Ltd., one of the world's largest crop traders, has reassured investors it's open-minded about its options following takeover interest from Glencore Plc and declining profits.

There's “no entrenchment” on Bunge's board and it's listening to shareholders amid industry discussions about consolidation, Chief Executive Officer Soren Schroder said Wednesday in an interview as his company lowered its full-year earnings forecast and warned of tough market conditions.

He said Bunge has been getting feedback from investors about improving its performance for a couple of years, though inquiries have picked up over the last several months.

“They want to make sure we've got our hands firmly on the wheel,” he said.

Schroder reiterated that Bunge is open to consolidation, although he prefers that it pursue regional partnerships for assets, such as its ports. On top of a weaker 2017 profit outlook, Schroder said the company may not meet a targeted return of 9 percent on capital invested this year and next, suggesting a longer period of under-performance.

The company, based in White Plains, New York, is among agricultural trading companies that have struggled after several years of surplus global production and depressed prices. Last month it announced a plan to cut costs.

Bunge said Wednesday that 2017 earnings before interest and tax will be $1.03 billion at best, down from its May projection of as much as $1.34 billion. The latest target, which Bunge said is skewed toward the end of the year, is more than 30 percent below its original forecast for 2017 of as much as $1.49 billion.

The company blamed the deteriorating outlook on a glut of soybean meal, the feed used to fatten pigs and chickens, which has depressed global margins. It also cited the effects of farmers in Brazil hoarding crops in anticipation of higher prices. Slow farmer sales have reduced the amount of crops running through Bunge's network of silos, terminals and plants.

The “mismatch” between the outlook among crop-processors and the volume of farmer selling in South America was “unprecedented” in the second quarter, Schroder said on a conference call with analysts. While soybean consumption is strong, the industry produced too much and the meal surplus will weigh on margins through the third quarter, he said.
The company lowered its 2017 earnings forecast for its food and ingredients segment, partly due to "soft" consumer demand in Brazil and Mexico. Among other options Bunge is still reviewing is a sale or initial public offering for its sugar mills in Brazil, Schroder said.

The shares dropped 0.9 percent to $77.37 at 1:26 p.m. in New York.

--With assistance from Javier Blas

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Jim Efstathiou Jr.