Q1 2020 Earnings Call
Good morning, and welcome to the body first quarter 2020 earnings release Inc. Conference call.
All participants will be and I'll listen only mode.
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At this time I like to kinda comments I'll ever to worry sand wash their ma'am. Please go ahead.
Thank you Rob writer and thank you for joining US this morning for 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 in the investor section of our website at <unk> Dot com under Investor presentations.
Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well.
I'd like to direct you to fly to inform you that todays presentation includes forward looking statements that reflect buying these current view with respect to future events, but actual performance in industry conditions. These forward looking statements are subject to various risks and uncertainties.
Well he has provided additional information in its reports on file with the FCC concerning factors that could cause actual results to differ materially from that's contained in this presentation and we encourage you to review these factors.
On the call. This morning, our Greg Hackman, Buggies, Chief Executive Officer, and John No Chief Financial Officer, I'll now turn the call over to Greg.
Thank you were then and good morning, everyone.
No. This is a difficult time for all we appreciate you joining.
And we hope all is well with your families and loved ones.
Turning to slide three.
You can see the agenda for todays call starting with a few comments on how buggies addressing covert 19.
Followed by an overview of the first quarter.
I'll also provide some thoughts on the potential impact of Cowen 19 on our business for the rest of the year and then hand over to John who go into more details on our performance.
For closing remarks, and then we'll open the line for your questions.
Before diving on a quarter I want to take this opportunity to think our bungled team for their hard work and for taking on this challenge with camaraderie poised and commitment.
Our thoughts on what those have suffered as a result with covert 19 and with all the heroes on the front lines of this pandemic.
I'm tremendously proud of our team and their continued level of execution. During this time.
Critical participant in global food supply chains.
Yes without question and a central business and we're doing our part to ensure that these critical products are getting from farmers to consumers.
This is not an easy or straightforward task.
Our colleagues around the world are going to work every day and to put a plainly showing great grid and getting the job done.
[noise] protecting our team their families and communities as they performed this work is our top priority.
Our global Task Force is working hard to ensure we have the necessary precautionary measures in place to keep them safe well continuing to serve our customers.
On slide four.
You can see a summary of those measures, which vary by region and facility, but essentially include an expansion of our health and safety procedures, along with new protocols to support social distancing.
We also dedicated task forces to monitor developments in coordinated efforts to support our central role in the infrastructure food.
We have not experienced any major disruptions to our plants or supply chains and operations and function well.
We're also working to provide support to the communities in which we operate and last month, we announced $2.5 million commitment to support health and hunger causes directly related to the pandemic in these areas.
All that said, we remained sharply focused on running the business and now let's turn to slide five for an overview of the first quarter and the outlook.
Our underlying business performed well and we're seeing the impact of the strength of our new operating model, which is allowing us to quickly adapt to changing market conditions and customer needs.
In agribusiness, we were able to capitalize on several key opportunities.
Notably strong performances in Softseed crush, China, soy processing and grain origination in Brazil, as farmer selling increased with the devaluation of the Brazilian real.
Edible oil produced a strong quarter benefiting from good demand in an environment of relatively tight vegetable oil supply.
The negative direct impact to cope with 19 were limited in the quarter as Lockdowns and restrictions varied by region.
Govan Nineteens impact on the global economy makes visibility difficult, but we expect 2020 EPS to be lower than we forecasted earlier in the year.
Agribusiness is positioned to perform well given the strong start to the year and the soy crush capacity, we have hedged into the third and fourth quarters.
However results in edible oils will be lower due to covert 19 related demand interruptions in foodservice and Biofuels.
Also lower ethanol prices in foreign exchange volatility will materially reduce results in our sugar and bio energy JV.
Turning to slide six despite covert 19 and its impact on economies around the world, we're continuing to make progress on optimizing our portfolio.
As you may have seen a couple of weeks ago. We reached an agreement to sell 35, U.S. interior elevators to as an overhang corporation for approximately $300 million in proceeds.
This strategic effort supports bunges global value chain model and retains our strong presence elsewhere in the U.S. grain marketplace.
We'll continue to actively participate in global grain trading and distribution anchored to our center golf and BMW Port terminals.
And continue to support bug is U.S. soy crushing soy processing and milling businesses.
Not only with this transaction loves to reduce cost and operate more efficiently, we'll reinvest the proceeds into higher returning areas of the company and strengthen our balance sheet.
I'm extremely proud of the team for executing this deal in this environment and market.
Really well done.
And with that I'll hand, the call over to John now to walk through the financial results in detail.
Thanks, Greg Good morning, everyone. You may have seen our announcement a few weeks ago that we've changed our segment reporting to separately disclose corporate and other activities from our reportable segments.
This change more closely reflects how we manage the business review financial information and builds upon our previously stated strategic priorities by providing enhanced visibility segment performance. While also improving the comparability of our segment results in corporate and other activities with those of our industry peers.
Now, let's turn to slide seven to the earnings highlights on.
Our reported first quarter earnings per share was a loss of $1.46 compared to income of 26 cents in the first quarter 2019.
Adjusted EPS was a loss of $1.34 in the first quarter versus income of 36 cents in the prior year.
Our reported results included 12 cents of charges, which 10 cents related to an adjustment to the 30% redeemable non controlling interest in our loaders crooklyn JV and two cents related to our corporate office move to St. Louis.
Total segment earnings before interest and taxes or EBIT was a loss of $170 million in the quarter versus EBIT of 151 million in the prior year.
On an adjusted basis total segment EBIT was a loss of 165 million in the quarter versus EBIT of 166 million in the prior year, primarily driven by results in agribusiness were adjusted EBIT was a loss of $127 million compared to adjusted EBIT of $149 million last year.
In total agribusiness results in the quarter were impacted by $385 million of Mark to market losses on forward hedge contracts of what's your majority is expected to reverse over the course of the year.
In oilseeds average soy processing margins were lower in all regions compared to strong prior year with the exception of China, which benefited from tight soy meal supplies and reduce being availability.
Average softseed processing margins were higher in all regions versus a year ago.
As cobot 19 began to spread globally concerns about soybean meal availability caused global oilseed processing margins to spike toward the end of the quarter.
As a result, we incurred approximately $100 million of mark to market losses related to forward oilseed crush in contracts.
In addition, as vegetable oil values decline during the quarter, we recorded a mark to market loss of $195 million on forward hedges held against deferred fixed price sales to our downstream edible oil customers.
As we execute on these contracts in the coming quarters, we expect these timing losses to reverse.
As Greg noted results in our Green business were primarily driven by origination in Brazil is a pace of farmer selling accelerated in response to increase in local prices caused by the devaluation the Brazilian right.
Ocean freight also had a strong quarter benefiting from excellent execution. However results were impacted by approximately $90 million mark to market losses, primarily related to forward bunker fuel hedges driven by the decline in global energy prices.
These hedges are held against forward fixed price sales commitments, which we expect to reverse in the coming quarters as we execute on these contracts.
In edible oils improved results in North America, Europe in Argentina were more than offset by lower results in Brazil in Asia.
Excluding approximately $20 million of net unfavorable timing differences 6 million of which will reverse in future periods results were higher than prior year.
Recall that in the fourth quarter 2019, we benefited from $13 million, a favorable timing differences, which reversed during Q1.
Well the cobot impact was relatively limited to the segment in total is locked down to restrictions vary by region. We started to see reduced demand for both foodservice and biodiesel channels toward the latter part of the quarter.
We expect to see a more pronounced negative impact in edible oils in the second quarter.
Okay.
And milling improved performance in Brazil, which benefited from higher volumes from food processors was more than offset by lower results in North America due to decrease in U.S. margins and lower corn yields.
In sugar in bio energy segment results for this quarter reflect our share of earnings in our 50 50 joint venture with BP that we formed in December 2019.
By contrast, first quarter results in 2019 reflect our 100% ownership of the Brazilian sugar and bio energy operations.
Additionally results of the joint venture are reported on a one month lag.
The 50 million dollar loss in the quarter reflects the seasonally slow intercrop period.
For the business is selling inventory from the previous season as well as an approximately 25 million dollar foreign exchange translation loss on U.S. dollar denominated debt the joint venture due to depreciation Brazilian Ray I during the quarter.
With the continued devaluation in Brazilian Ray I during the second quarter, we expect the JV results to be further negatively impacted by foreign exchange translation losses, unless the Brazilian reward recovery a large portion of its recent decline.
In fertilizer.
Higher segment results reflected improved performance in our Argentine operation, which benefited from higher margins more than offsetting lower volume.
For the quarter, we recognize an income tax benefit of $55 million.
Based on our current outlook, we expect our full year effective tax rate to be towards the upper end of our 19% to 23% guided range.
Interest expense was up slightly during the quarter compared to last year due to interest charged on settlement of an arbitration matter in Brazil, as well as foreign currency borrowings in certain countries, where interest rates were high.
However, the incrementally higher borrowing costs were fully offset in gross margin from currency hedges on underlying working capital being funded with those borrowings.
We continue to expect full year net interest.
We have approximately $230 million.
Let's turn to slide eight.
Cash flow highlights.
Due to the approximate $410 million mark to market losses incurred during the first quarter, our trailing 12 month adjusted funds from operations was considerably down from where we ended 2018.
Adjusting both 2019 and the trailing 12 months for these mark to market timing differences results would be comparable as shown in the chart on the right.
As you can see on slide nine at the ended the first quarter approximately 90% of our debt was used to finance readily market women stories.
Our net debt excluding readily market will inventories was approximately $500 million.
Turning to slide 10, we have committed working capital facilities approximately $4.3 billion all of which was available to ended the quarter and we had cash balance of $193 million.
Moving to slide 11 in our summary of capital allocation.
As I discussed earlier Q1 adjusted funds from operations is distorted due to the impacted large mark to market loss on forward hedges that will reverse during the course of the year.
Capex spending was $55 million of which $38 million invested in maintenance environmental health and safety standards.
We paid 70 mine $9 million in dividends to shareholders.
Please turn to slide 12 in our return on invested capital.
Our trailing four quarter average adjusted return on invested capital was 6.5% up approximately one percentage point from the prior year.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John.
No I'm not first wanted to say this with the fact that we're operating at time of unprecedented volatility complexity and uncertainty.
As John I mentioned, we expect to see a greater impact from covert 19 in our business in the second quarter, primarily in our edible oils business.
However work, we've done improve our operations to streamline our portfolio and hone our approach to risk management has allowed us to remain nimble and adapt to the evolving business and operational demands.
We stayed very focused weve comps a great deal despite the environment.
From continuing to invest in technology and drive our strategic initiatives to evolving our innovation processes to the current reality that working remotely.
I remain impressed by the team steadfast commitment to the execution of our priorities, especially in the face these challenging times.
Given the evolution of the Kelvin 19 situation, we have decided to postpone our full investor day to a later date, but we will hold a virtual investor event in June or John and I will provide an update on our progress and the impact of our key initiatives to our operating model.
We'll be providing more details in the coming weeks.
And with that we'll open the call to your questions.
Ladies and gentlemen at this time will be in the question and answer session.
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We'll pause momentarily to some other officer.
Okay.
And our our first question today comes from Ken Zaslow from Bank of Montreal. Please go ahead with your question.
Good morning, everyone.
Yes.
Just a couple of questions. One is does coven Nineteena said some of these earnings power beyond 2020.
And then what we deal with the proceeds.
Between $80 million the proceeds and my last part my last question would be.
I think about foodservice it seems like it's starting to China.
That's a little bit.
Is that in your expectations for the edible oils business or did you kind of include edible oils business as the time of the press release and I'll leave it there.
Okay.
Well I'll leave the proceeds to John but let me work backwards.
On the.
Edible oils and the outlook.
No we're.
We are receiving information as everyone is daily and even some.
I guess to use a term we order before green shoots of of demand coming back.
Even this week so no our original outlook of course, when we put it together with the best information we had at the time, which is continuing to move to move quickly as the state's open back up.
As far as covert 19 on on 2021.
We are grappling with Q2 and what affects it's going to have it in Q2, but I think that.
The key cat as the we're really pleased with the changes we've made to the operating model and.
How the team is able to stay.
Connected foot the commercial.
In the industrial folks and responding to the challenges our customers have got and were able to adapt to the situation. So.
We'll continue to improve the business and be in a position to handle whatever challenges in front of us and then John the proceeds.
So as Greg mentioned in his remarks, we have gross proceeds of $300 million coming from the great sales grain assets.
Now expected to be close until late Q4, probably early Q1 of next year, just given regulatory timing.
But at this point, we don't have any specific plans other than initially will reduce any any revolver debt that we had outstanding and then we will look at what our alternatives are we have a bond coming due in November and.
Pending on timing and this and how we feel about.
Capital markets at the time and our liquidity.
We we may very well just pay that off at the time I will keep an eye on markets between now and then to determine if refinancing that makes sense, but.
Other than that we will put it basically that top of house and what.
Second our capital allocation ecstasy with best alternatives are but nothing specific right now.
Okay, just to be clear, but but as you saw us just go back to the first as you assess coven 18.
You did that there could either be positives or negatives or would affected or do you think that.
Was it settles down you will emerge similar better or worse is their weight is just kind of thinking about that in terms of earnings. How your return on invested capital will you have to reconfigure how youre thinking about your return on invested capital and then I will really leave it there.
Yes.
John upon as well as in question, Ken I believe any.
Anytime Youre challenged I mean, I don't think six months ago, we would've thought you can run on an operation. This big in this complex remotely Anna and I will say the teams done a phenomenal job.
As we've continued to run the business.
With with no major interruptions to our supply chain or serving customers. So all of these challenges make you make you better we continue to focus on all our initiatives and continue doing the things that that we wanted to do to improve the business for for 2021.
And I will say during this time of stress that.
For for the Globe and for everyone capital spending has slowed down for everyone and so I think overall the capacities probably end up tighter.
As things improve and as we see demand come back and.
I think we're in a in a great position with the changes made to the portfolio the operating model and having the global footprint and the flexibility to respond.
As we see things improve so.
Sure don't see it as a negative so I think it's a it's a flat to positive.
Jonathan anything.
Okay.
Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.
Yes, thanks, good morning, everyone.
Hi, Adam.
So I guess first question, Greg John just trying to.
I think kind sizing quantify kind of the chain.
In outlook in so anyway to frame and the magnitude of.
The impact in edible oils, and especially in sugar.
Relative to what you thought previously and not in February.
Well on on agribusiness.
No change.
What's happening a little differently in a in a more challenging way than we thought.
But in our biggest business, we really unchanged and think will.
We'll be able to deliver.
The same as a as earlier outlook.
On the edible oil side that really is is going to depend on the recovery and the shape of the recovery and how quickly that it is and so at this point.
We we've used divest information that we have looking at the forward curves and we'll continue to to update you as we go forward.
Forward on that I will say it looked about us dark is it as it could at the beginning of the month and things have started to improve just in the last.
Six business days.
With some orders and with some of the opening up so it is it really moved moved quickly.
On the way down as demand was cut in now the key will be.
How demand comes back, which which will definitely be more gradual.
And then on the sugar sugar and bio energy.
Again, we're really pleased with with our partner the teams executing very well down there on.
The synergies in and getting the business in the best shape it can be.
From an overall.
Industry and economics of course, with the cope 19 impacts on demand and the overall outlook on on energy prices with what's happened in crude oil.
I think where it is going to shape as anyone in the industry and.
Yes, we know what will be lower but it's not clear and Theres. Some talk now and maybe some aid for the industry, but it's all too early to tell any impact of that as well.
Okay.
And then just thinking about.
The portfolio and congratulations on getting the U.S. screen elevator announcement kind of done all right.
How how much is left.
We sized unit 300 million to proceed on that transaction is that the invested capital you have in that or is there additional working capital release that comes late comes upon closing.
And.
Then just how much is left in terms of portfolio actions from where we are today.
I'll take the portfolio actions and I'll, let let John talked to the numbers.
The portfolio actions, we continue to try to work against the internal deadline, we gave ourselves of having everything substantially done or at least to a point, where we could talk about it at Investor day. So we can give you a clear look at kind of our go forward portfolio.
In late June.
Even though there there have been.
Some thanks.
To slow people down here with covert 19, we still got dedicated teams working on all of those deals would probably have won one left of size and and two or three that are smaller.
And clean up.
But our goal is to try to still be in position to two to talk about that and then we move on to the continuous improvement, which is continuing to challenge the lowest returning parts of our portfolio in an improving them or or figuring out if they need to be out of the portfolio and that will never stop is.
Got it I've talked about.
This isn't in over manager portfolio is in an event at something you do everyday every month every quarter. So.
As you see there will be an ongoing and ongoing process and then John I'll expand numbers and in terms of the great assets and how to think about invested capital as you can imagine we've owned these elevators for quite a long period of time. So the book value the carrying value those is really quite low.
Pretty small percentage of the total proceeds so we will be reporting a gain on on the sale and.
But probably as importantly, we didnt care a lot of working capital in these elevators.
Between farmer payables deferred park Barber payables on bridge and the fact that they basically sourced product for our pipeline. We didn't carry a lot of working capital. There. They these were really flow through elevators for us primarily so we don't expect a significant impact on invested capital.
Real benefit is is taking the proceeds and paying off debt initially and take it from the cost.
Got it Okay. That's helpful color I'll pass on thank you.
Thank you.
Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.
Thanks, and good morning, everyone. Im just curious you can speak to the different hedges in place.
If you use the word majority in terms of recouping.
In the balance of the year could you kind of put some parameters around majority and then just help us understand.
What if any risk is associated with the recovery of.
Of those hedges.
Sure, let me walk through the pieces Vincent because it is pretty pretty comprehensive. So overall, we had as I mentioned about $385 million in in the agribusiness, a total of $410 million altogether across the business. The 100 million that we mentioned associated with.
Our.
With our soil soy processing and oilseed processing.
That really will largely execute over the balance of this year.
It is representative of coming into the quarter into Q1, largely covered and we had mentioned that at the end of the year I think on our yearend call that we came into the first quarter fairly heavily covered and so as a market mood at the end of the quarter. We recorded a 100 million and that largely unwind really a big chunk of it in Q2 as you think about where the.
Where we were booked out and then beyond.
Most all that is expected to come come through here in the fiscal year.
The $195 million associated with hedging, our oilseed pipeline or our bedroom oil pipeline into our out of oil customers little bit longer time period.
Does that flows through but again expect the majority of that to execute during the year really not not necessarily any real risk and whether or not those execute it's just timing and.
And then the other 20 million. We had mentioned we mentioned the 90 million on on Ocean freight again vast majority of that will clear out this year as we execute on the underlying contracts and then we had mentioned on the remaining 20 on edible oils at 13 at that was really a carry enova.
Income we took last year, so we have a small $6 million carry out.
The so we really expect that to rollout again, a vast majority of the by the end of the year, but with the market moves we saw in April.
A big chunk of our Mark to market that we recognized in March as you can imagine has been affected already just given the decline in.
And processing margins in April so, but we feel confident that it's just execution to get most of this cleared off by the end of the year.
Okay, very good and if I could just ask on the loaders crackling business have you had time to go back and see how that business performed.
In a recession as I suspect.
You know even if covert subsides later this year, we're still going to be in recessionary conditions well into next year.
I don't know that we've had it.
Long enough intended to do the analysis versus that as well as the changes.
That we've continued to make to bring along not on the letters croaking portfolio, but the combined legacy bogey portfolio of products and services together with customers.
What we are seeing a course in some of those areas where.
People are staying at home and in and eating a different different things you know we're seeing.
Demand be the same are higher in some areas of course, where your foodservice of course, that's where.
The demand is really.
Really been hurt across the entire fats and oils portfolio.
I will say from a total customer outlook we have.
You know we've had good momentum the past couple of years in growing our share of wallet the products that value added products were offering them the breadth of the portfolio and really changing the way that we've worked with people around innovation.
I will say since Covance that has all accelerated.
I think customers really appreciate the breadth of the portfolio they've appreciated our reliability the depreciate our ability to solve problems.
And adapt and continue to do some innovation from a distance.
And what we're seeing through that it is changing the nature of these relationships more quickly on the trust on these going from less transactional to more partnership to bringing more products to them. So one of the net positives I think of the direction, we were going with customers and the changes we're making it is actually accelerated that and so some of the.
Positive I think will be the strength of the customer relationships coming out the other side of this as the demand improves.
Okay very good thanks very much.
[music].
Our next question comes from and BN revenue from Stephens Inc. Please go ahead with your question.
Yes, thanks, good morning, everybody fully one.
I want to ask on on Sugar Meyer energy it sounded like.
Greg Your commentary was the Twoq.
And John that that could be a little bit worse than one Q.
Recognizing the probably somewhat limited visibility and it's dependent on the recovery.
Demand.
On how representatives.
The year do you think kind of the first half looks and then what can you do operationally with BP to mitigate these losses.
You take just a.
Start on that and I'll, let John John finish what we've done with BP is second our combined teams have been down there there.
Exceeding the cost synergies.
At the executing very well on the plan. So we've got a a stronger business with two great partners, we're coming out of the seasonally slow intercrop period.
And from a overall as we get started on the crop from a business and how its operating of the teams working together.
Fine the.
We'll be in position to get our share of the opportunity the external factors that that is the one that.
That will be the.
The tough when to see how that plays out and as we talked you've got the underlying economics and then you've got if they're ends up being any any aid to the industry.
I think we've we're trying to be on the front end to that and then specifically and I don't know enough yet phase one is.
We issued as we mentioned during their remarks, there were reporting on a one month lag. So we have pretty good visibility into March would happen in margin. That's that's basis for our comments.
Regarding Q2 as we saw continued depreciation in fact, most of the reality depreciation in Q1 occurred in March and so that's going to be reflected Q2, and a big part of that will be additional impact on the translation losses on the U.S. dollar denominated debt.
This business is a combination of you SDN and Ray I.
Yes, the Ria business.
The team is working on on hedging at U.S. dollar debt just been a difficult market environment as you can imagine to get something like that down in Brazil, but they're continuing to work on that we believe you'd probably get access to hedge part of that debt just given the fact that part of the business based.
The underlying reigh in part of the GST, So thats going to be part of the headwind and I think just something that since the carry over kind of in the first half from Q1 into Q2, but.
I would say largely I don't necessarily think thats indicative of point.
Okay great.
Going to ask on the Mark to market impacts and with respect to your debt to EBITDA metric how do the rating agencies account for that to date pull out those mark to market impacts when assessing your ratings.
Yes, they do have a good understanding of those and so we take the time to explain explain those and I would say that our feedback this week from from the rating agencies as we talk to them ahead of time.
They understood that that impact based on what has happened with the market volatility in the in the crush margins and and vegetable oil market. So.
They they understand it there used to that conversation with us and they understand it's just timing and not necessarily cash.
Related.
Okay, Great best of luck.
Our next question comes from.
Tom.
So much from JP Morgan. Please go ahead with your question.
Thanks, Good morning.
Morning.
And so could you expand on what is sustaining the agribusiness outlook given wet board crush margins US day, that's is lost.
Sure.
From a.
Outlook, what we're seeing is we do have.
Fair amount of.
Crush hedged into Q3.
And some into Q4.
The.
Kind of key factors, if you think about it.
From an overall, how we're thinking about the flags or the puts and takes on the on the risk side.
This is coven, okay if.
If it continues to grow and dampened oil demand and and biofuel demand.
It takes longer before we see the recovery.
The other risk is fsf would return.
To China in a big way or spread somewhere.
And if we got some trade disruptions again that could cause a lot of volatility and frankly make it more difficult for for customers and just managing margins overall.
Then if argentinian crush increased significantly that can be tough on global margins.
The other side of that that we based our outlook on the curves about making any topside adjustments, but the other side of that coin is.
You've got reductions in the ethanol run which of course reduces the amount of DDG with where we'd is price globally right now there should be less we fed both of those are good for soybean meal inclusion in the feed rations. So that helps the demand side there.
And then currently Argentina.
The farmer is really.
He did some selling early when they were worried about the tax but now the farmers really stop selling.
And that.
The just the overall difficulties there we don't don't see that changing that probably limits.
Argentina's runtime and then their competitiveness is also hurt right now higher freight costs because of the the low water in the Parana River and that looks like that's going to persist for awhile and that generally when Argentina's lower on volume that's better for our global crush margins.
And then.
Others that we see foodservice and biodiesel demand gradually improve.
And.
If we saw a meat exports to China that of course would would help the.
The ssds helped protein prices to recover.
And offset.
Some of the risk on the lower animal numbers.
That we've seen kind of in tandem with this quick cutback in foodservice demand.
That's helpful. Thank you and could you maybe provide some color on the foodservice exposure as you as well as business by region and maybe just some more detail on why Brazil will say, we can plus.
Yep.
Hi, Good service.
If you look we're of course more more heavily index to North America Us in Canada.
And to the larger QSR ours.
Which quite frankly, they have fared better through this and probably expect them to recover more quickly.
If you think about.
Geographically we saw this happened in China first than Europe, and then it's moving east to west in the us in arriving.
South America last so as we start to see the recovery in China of course, we're watching that that very very closely.
Brazil generally when we get the big.
Depreciation and the reality that is good for agribusiness, which courses the bigger part of our business, but that does provide some headwinds.
On on the food side of the business and I think Thats, that's what we're seeing down there.
That's great. Thank you I'll pass it on.
Our next question comes from Heather Jones from Allergens Research. Please go ahead with your question.
Good morning, Thanks for taking my question.
Morning, Heather.
So I wanted to ask just a real quick detail question.
Elevators, you sold do they generate any meaningful positive EBIT.
No not really no just minimal.
Okay.
And then just going to edible oils and I.
Fully appreciate the.
Fully appreciate the lack of visibility, but just to give us some sense of.
On a you mentioned at the beginning of the at the end of.
The multicast April it was about a quote dark is could be and now you're seeing green shoots.
Could you give us a sense of amino we.
Looking at edible oils going back to Q2 18 levels.
Made roughly $10 million I mean could it be a loss I mean, if you could just give us a sense of the range of outcomes for Q2.
Hi.
Yes, I think it's too early rate we saw in late March early April right. The us down a combined 40%.
Then the full full service restaurants were up 70%. So how this opens and comes back.
If we have any.
Reinfection rates and re closing it can really changed that we're trying to understand the.
What's the restocking versus the demand. So look we're seeing some some positive signs and we're seeing some orders pick up but it's way too early to.
To declare in any victory.
Yes, I would just state.
I am sorry, as John I was just going to say I don't I don't think we're anticipating any any kind of a negative result out of edible oils in Q2, though.
Okay perfect no wanted to talk about.
Animal protein production around the world So.
There are signs.
Not just anecdotes from the data showing that there's.
Some liquidation effort underway and boilers and and lot of anecdotes at the same thing is going on on the Hawk side.
And it seems like.
Fortunes for the.
Protein producers in South America have started to.
Get much more difficult. So wondering if you can walk us through what your anticipation is for.
Neil demand.
Early part of the year in and.
And then how you see that evolving in late 2020 going into 2021.
With that question makes sense.
Yes, let me let me take let me take a cut if I don't know hit the Mark here you can you can redirect out of that no no doubt as hard as foodservice came off we're seeing.
Reductions in poultry here in the US it is coming off.
Hi base in 2020, and I think everyone is trying to.
To figure out how quickly it will come down and as we restart does that start to send a signal.
Where it where it stabilizes.
There's not as good a data of course on the hogs, but definitely reduction there as well and I think thats also related to when do we start to see some demand come back and how does the industry.
Where does it stabilize and or do we see exports.
Protein to China, which which helps the pricing and lead so as that's down.
Little bit I think Thats, where we were looking at some of the offsets of higher wheat feeding and less ddgs around so that inclusion rates offset some of the lower animal numbers.
The other if you just look at the Fps Indeed, as we ran hard here. So far this year on on our crush rates margins were good. We also were uncomfortable having third parties in our facilities.
Doing maintenance so.
Things that we could push back.
Around maintenance, we did and ran hard we're now starting to do those projects so that alone.
We will bring crushed out a little bit from a supply side and then as we said last year. We're we're managing margins. So we'll run.
We'll run for for margin and we'll run the crush to to meet demand, but even in the U.S. here, we probably between maintenance and adjusting some of what we've cut crush almost 10%.
And then.
The world on animals.
China definitely seeing.
Definitely southwards up and then seeing chicken up.
And though in Brazil chicken was only up slightly with the numbers, we were seeing but pork was up and of course covert just arriving to South America. So we're going to have to all watch that closely.
And how would you characterize the industry in Brazil. So it's.
With the decline there Santa demand there because it kind of it yes.
Producers need to scale back.
I know the U.S.
The most rational but is the industry down there relatively rational would we see a pullback in crush there do you think.
Okay.
Well, we're we're the.
We're the largest down there and.
It's always a trade off for that's there if it doesn't make sense to crush will export beans.
So we're.
We're running this this machine for the best returns and the highest profit.
Thank you so much.
Okay.
Thank you.
Once again, if you would like to ask your question. Please press Star One. Our next question comes from Robert Moskow from Credit Suisse. Please go ahead with your question.
Hi.
Good morning.
My question and answer.
But one follow up on the debt.
The sugar JV.
Said it was complex.
Recall to deploy hedge the currency out of it.
Can you explain a little bit why.
Just had a futures contracts that were short real.
I wouldn't that have.
Hedged out that currency exposure or it is just not work that way.
Well, yes. The team the team was working on this really.
The thoughtfully after the close the transaction and they had it was it was on the slate to actually hedge out about half of the debt.
And frankly, they just got caught with Cove, it and they were working with a number of banks down there to do the hedge transaction. It just got cost prohibitive really is the issue and the banks.
The market down there were probably I'll say more reactive than they were here in terms of the impact to Cove, It and financial markets down there were in a bit more disarray added just became cost prohibitive and difficult to get it done and so they're continuing to work on it I think that.
We're optimistic we'll get it done I mean timing hasn't been great, but but the team is focused on it as well as executing underlying business, but so we do expect to be able to get something done here hopefully this quarter.
Thanks, and then maybe and maybe you've mentioned this already but just in terms of FX exposure.
How should I look at it from a forecasting perspective for the segment like it is today if currency stays the same.
What kind of hit should I expect in Twoq, you and maybe Threeq you.
Well if the currency stays the same now I think you'll see a similar impact in Q2 as we saw in Q1.
Again, we closed we closed March around 5.2, I think on the rate and that was about.
Comparable uptick to what we saw in Jan fab or DCN fab. So I would expect a similar impact on the debt side on the translation loss.
In terms of the underlying business.
It's going to depend a lot of things because it is it is.
The ethanol sugar.
Portion that is dollar business and so.
Thats going to depend on a number of other factors not just the currency exchange rate. So.
But on the translation loss I think for Q2, I would expect something similar absent the a big change from here.
Q3, really no way to predict that at this point.
So.
Well this isn't a big swing our expectation that started the year. You also said that overall as you expect to be lower than than what you thought at the start of the year to what extent, we say that.
That's related to the sugar business.
And versus the core business.
Yes, I would say probably the biggest delta we've had from our initial forecast of sugar.
We've got as Greg mentioned little bit weakness on the edible oil side, we feel good about agribusiness, but sugar is the biggest delta for sure and a you know we're supporting team down there to try to get to try to see what we can do but we've got a good team down there. It's just a tough environment right now for that business. So, but BP is committed to we're committed to.
If it were constant work has having a lot of dialog with the team and and feel feel confident we got the right team running at its just a tough environment, but that isn't that is definitely the biggest move right now.
Yeah.
To reiterate on on the agribusiness, we still see the lightest cited living our original outlook.
On edible oils, the course with what's happened here with Covidien foodservice.
That will be off some of it just depends how quick recovery is how much that's often in the big Delta as John said.
Sure and bio energy and.
So there's a lot to play out there as we just come out in a drop in and.
So seeing how things shake out, but the team's doing a good job. We've got the right team we've got the right partner in.
We'll keep you updated.
Okay. Thank you.
Yep.
And ladies and gentlemen at this time in showing no additional questions I'd like to turn the conference back over to management for any closing remarks.
Thank you very much for joining the call today and I'm happy to assist with any follow up questions you have.
And with that ladies and gentlemen will conclude today's conference call. You. Thank you for joining today's presentation. You may now disconnect your lines.