Q2 2020 Bunge Ltd Earnings Call
Good day and welcome to the <unk> Limited second quarter 2020, <unk> earnings release Conference call.
All participants will be in listen only that should you need assistance. Please protect all conference specialist by pressing star keep all it by zero.
After today's presentation there'll be an opportunity to ask question.
Please note this event is being recorded.
I would now like turn the conference over to roots M. wine Sir. Please go ahead.
Thank you operator, thank you for joining us this morning.
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 funky dotcom under events and 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 remind you that today's presentation includes forward looking statements that reflect buggies current view with respect to future that's the natural for formats and industry conditions.
These forward looking statements are subject to various risk and uncertainties.
He has provided additional information and 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.
Chief Executive Officer, Greg Hackman, and Chief Financial Officer, Jonathan I'll, now turn the call over to Greg.
Thank you were saying good morning, everyone.
Turning to slide three you can see the agenda for todays call.
[laughter] I'll start with an overview of the second quarter, then handed over to John who will go into more detail on our performance.
Oh sure how we're thinking about the second half a year and calls with some remarks on the second quarter, how that fits in with what we discussed during our business update last month before opening the wind up for your questions.
[laughter] I want to start by wishing you all well I hope you're families and colleagues are safe and healthy. This is a relentless challenge where all facing.
I'd also like the very pointedly, thank our team for their hard work resilience and focus on.
Our results in the first half of 2020 or a testament to their dedication to getting the job done.
I couldn't be prouder.
Well I'd like to thank all of you joined us for virtual business update meeting last month.
We appreciate the positive feedback we've received and we look forward to continuing the dialogue.
With that let's turn to the quarter starting on slide four [laughter].
Funky delivered a very strong second quarter with operations, reflecting the way, we intend to run the business going forward and demonstrating the benefit of our new operating model leadership team and mindset.
Performance across all of our core business is excellent.
Drawing execution has committed crush capacity.
Exceptional coordination trade flows.
Great risk management lots to capture above average margins and deliver solid top and bottom line results.
[laughter] across the platform, we hit record capacity utilization and crushing.
Reduced unplanned downtime about 20% year over year and had the lowest operating quarter costs for soy crush in the last three years.
We realized the benefit from the risk management decisions, we made in the first half a year.
And we earn new business with our focus on innovation and a collaborative approach with customers.
We generated strong free cash flow, well still being disciplined capital allocation.
We continue to execute on our key priorities.
Including refining the portfolio and gaining momentum on reducing costs.
[noise] Agribusiness had outstanding performance this quarter with improved performance in essentially every part of the business.
In oilseeds as we expected prior period timing losses were reversed as gains.
Average global replacement soy crush margins across the quarter or $27.
Because of our active risk management and effective use of working capital to capture market opportunities.
We will execute and an average of $40 per metric ton.
In grains performance in Brazil was exceptional as we benefited from increased farmer selling as local prices increase with the devaluation of the Brazilian real.
So don't ingredients continues to gain traction and demonstrated our nimbleness and flexibility in the current environment.
Even as food service demand fell off as a result of lockdowns around the world.
Our growing strength with CPG food processors, and renewable diesel producers, including new customer wins in those areas offset the coleman related impacts in foodservice.
As covert continues to present challenges for our customers are increasingly turning to bony because the resilience of our value chain model can provide innovative solutions that will continue to benefit our relationships going forward.
With the backdrop of great commercial execution, we continue to focus on optimizing our portfolio and recently entered into an agreement to sell the asset to the small non core food business in Brazil, the produces tomato sauces.
We've also officially closed our white Plains office and are well adjusted to our Saint Louis headquarters and interim remote working situation.
In short, we're very pleased with the results this quarter I'm very pleased with our overall momentum.
Given the strong Q2, our outlook for the full years now higher.
I'll now turn it over to John I'll walk you through the financials and some of the puts and takes related to our outlook.
Thanks, Greg Good morning, everyone. You may have noticed that we updated the format of earnings press release, we did this for a couple of reasons.
One we wanted to more clearly differentiate our core businesses from our non core businesses and secondly, we wanted to provide a cleaner format for detailing individual segment performance.
We hope you find these changes beneficial.
Now, let's turn to the earnings highlights on slide five.
Our reported second quarter earnings per share were $3.47 compared to $1.43 in the second quarter 2019.
Adjusted EPS for $3.88 in the second quarter versus the dollar 52 in the prior year.
Our results include a net 41 cents charge, primarily related to a provision against an east receivable dating back to 2015 that now deemed uncollectibles part of an anticipated legal settlement.
Adjusted core segment earnings before interest and taxes for EBIT was $943 million in the second quarter adjusted EBIT of $287 was in the prior year.
Primarily driven by results in agribusiness, where EBIT was $843 million compared to $211 million last year.
As Greg noted higher agribusiness results in the quarter reflected strong execution throughout the value change, particularly in managing risk committed crust capacity and global trade flows.
Results also benefited from approximately $380 million, a timing differences related to expected Q1, reversals and new mark to market gains.
In oilseeds strong soy processing results were driven by higher margins in South America, Europe, and Asia, largely reflecting the actions we took in the first quarter to lock in capacity.
This was partially offset by lower margins in North America.
Softseed processing results were higher in all regions.
You may recall, we carried into the second quarter, a mark to market balance of approximately $295 million. A previously reported timing losses related to open forward oilseed processing contracts and hedges against sales through our downstream edible oils customers.
As anticipated approximately $155 million of these timing losses reversed in the second quarter upon executing a portion of these contracts.
In addition, as results of the decrease in global crush margins and the recovery and vegetable oil prices during the quarter, we recorded nu mark to market gains of approximately $145 million on open contracts at the end of the quarter.
This reduced our care carryforward balance on open oilseed contracts to net gain of less than $10 million, which will reverse in the coming quarters.
Results in grains improved driven by most areas of the business.
Origination benefited from increased farmer selling in Brazil with the rise in local prices caused by the devaluation the Brazilian real.
North America origination also showed improvement compared to a challenging year ago period.
Hi results and trading a distribution were driven by improved margins and favorable positioning.
Ocean freight also had a strong quarter driven by excellent execution as well as approximately $75 million of gains from the reversal of mark to market timing, primarily related to bunker fuel hedges that negatively impacted the first quarter.
In edible oils, we observed a steep drop in food service and biofuel demand due to covert 19 related restrictions at the beginning of the second quarter as discussed on our first quarter earnings call.
However, as a quarter developed refinery margins improved driven by increased demand for food from food processors, and retail channel along with partial recovery and biofuel demand.
This margin improvement combined with growth in new customers as well as lower costs resulted in higher earnings all regions.
And milling hi results in Brazil, primarily driven by increased foods processor in consumer demand as well as decreased cost.
More than offset lower results in North America, which were negatively impacted by business mix.
In fertilizer higher segment results reflect improved performance in our Argentine operation, which benefited from higher margins and volumes as farmers accelerated purchases in anticipation of higher local prices.
In corporate and other total adjusted segment EBIT included expenses of $56 million from corporate and income of $2 million from buggy ventures. Another.
This compared to expenses $60 million from corporate and a gain of $146 million from buggy ventures and other for the prior year period, primarily reflecting our investment and beyond me.
In our non core segment.
You're going to bio energy results for this quarter, which are noncash reflect our share of the results of the 50 50 joint venture with BP.
By contrast, second quarter 2019 reflected a 100% ownership of the Brazilian sugar and bioenergy operations that we contributed to the joint venture in December 2019.
Additionally results of the joint venture or report on one month lag.
Lower results in the quarter were primarily driven by approximately $70 million foreign exchange translation losses on U.S. dollar denominated debt of the joint venture due to depreciation of Brazilian real.
Also contributing to the decline in earnings were lower Brazilian ethanol prices driven by the drop in global oil prices.
For the quarter ended June 30, 2020 income tax expense was $168 million.
Net interest expense of $56 million was inline with our expectations.
Let's turn to slide six.
This like compares our Q2 SGN eight of the prior year adjusted SGN excludes notable items.
For Q2, our adjusted SGN, I was $28 million lower than last year of which $20 million reflects our organizational redesign actions an increased focus on managing costs.
An additional 8 million reflects the net impact of such items as inflation foreign currency fluctuations changes in our parameter and performance based compensation essentially adjustments to enable an apples to apples assessment of our actions to manage costs.
We recognize a portion of our savings due to covert 19 related restrictions such as reduced travel some of which may be a temporary impact. However, we strongly believe we won't returned to pre pandemic levels as we've all learned to operate differently.
Moving to slide seven cash flow highlights.
For the trailing 12 month period, our cash generation was a struggle with strong at $1.3 billion of adjusted funds from operations.
The cash flow generation enable us to comfortably find our capex and dividend and to meaningfully reduce debt.
As you can see on slide eight we continue to strengthen our balance sheet that the ended the second quarter nearly 85% of our debt was used to finance readily marketable inventories compared to about 70% for the same time of year ago.
Turning to slide nine we have committed credit facilities of approximately $4.3 billion were 3.6 billion available at the end of the quarter and we had a cash balance of $277 million.
Moving to slide 10, and our summary of capital allocation.
Year to date adjusted funds from operations was $817 million.
After allocating $85 million to assist sustaining capex, which includes maintenance environmental health and safety and 17 million to preferred dividends, we had $715 million of discretionary cash flow available.
Of this amount, we paid $142 million in common dividends to shareholders invested $42 million and growth and productivity Capex and bought back $100 million of our stock.
The retained cash flow of $431 million was used to pay down debt.
Please turn to slide 11.
Our business update last month, we introduced to complimentary return metrics that we believe better reflects the performance of our business.
One of those met metrics was a ROIC, which recognizes merchandising ROI as a tool to generate incremental profit.
For the trailing 12 months, a ROIC was 11.7%.
5.1 percentage points over our in my adjusted weighted average cost of capital 6.6%.
ROIC was 9.6% 3.6 percentage points over our weighted average cost of capital of 6%.
Detailed calculations of these metrics are in the appendix of this presentation.
Moving to slide 12, the second complimentary metric, we introduced as cash flow yield, which is a ratio of discretionary cash flow to the adjusted book equity.
This measure emphasizes cash generation and complements earnings and return metrics.
Sure you can see cash flow yield over the past five years as well as for the trailing 12 months, ending Q2 measured against or cost of equity 7%.
For the trailing 12 month period, ending June 30, after adjusting the book value for CTG changes, we produced a cash will yield at just over 19%.
Please turn to slide 13, and our 2020 outlook.
As Greg mentioned in his remarks, we're increasing our 2020 EPS outlook based on our stronger than expected second quarter.
In agribusiness based on first half results the current market environment and forward curves, we expect to full year results to be approximately $100 million higher than last year's results in the second half results weighted toward the fourth quarter.
The net of oils, we expect modest improvement compared to our previous outlook. Despite a stronger than expected second quarter. The business will likely continue to face headwinds from covert 19 in the second half.
Expected results in billing continue to be inline with last year.
We also expect an adjusted annual effective tax rate in the upper end of the 19% to 23% range.
Net interest expense of approximately $230 million and cap capital expenditures in the range of 375 million $400 million.
And depreciation amortization or approximately $400 million.
The outlook of the sugar and bioenergy joint venture has declined from the previous forecast to reflect the impact of foreign exchange volatility in the first half the year.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John.
As we wrap up it's clear that we're managing the business to maximize economic results and value creation for the long term not any one calendar quarter.
Accounting requirements can create timing differences that smoothed out over time.
The mark to market losses, we recorded in the first quarter. The reverse this quarter as expected. Our good example of this.
During our business update meeting last month, we forecasted a strong second quarter, which ended up being even stronger than expected.
We highlighted our new leadership team and our new approach to risk management.
And you can see our execution this quarter.
We emphasize our progress against our key priorities of improving financial discipline.
Optimizing our portfolio and changing our operating model to drive excellent performance.
We've continued to execute on each of those areas.
We stress greater transparency and accountability and you're seeing that in our reporting today.
And finally, we told you that we're taking actions that have set us up to get to an earnings baseline of $5 per share with additional upside.
Well, there's more work to be done we're moving into right direction, we're operating better than we have in many years and we're making progress every day.
And with that.
We'll open the line for your questions.
Thank you we will now begin the question and answer session.
Yes. Good question you make Dar that's spot on your touched.
If you're using of speakerphone, please pick up your handset for pressing the keys.
So what's your your question. Please press Star then too.
At this time, we'll pause momentarily to assemble are there.
Thanks.
My first question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Thank you and good morning, everyone.
Good morning.
So just wanted to understand.
A little bit better the results in the first half versus less than half in second half I think what's happened is that.
Everything that happened in the first quarter is now reversed in the second quarter, you carry very little into the back after the year. So obviously very strong execution. Because you said you realize 40 bucks a ton versus I guess.
The spot or the market how relapse rates would have been would have been a 27. So whatever I thought you were going reverse in the second half of the year has already happened. So I got to take that out now I just have to consider what I think are what the market looks like in terms of what crush margins are all else equal is that correct.
Yes, I think thats a good assessment.
And then on farmer selling in Brazil. The slides you had a couple of good comments about the record capacity utilization rate.
The lowest quarterly operating costs, mostly cost how much of that as a function of just the rate at which the Brazilian farmers, selling which is which is allowing you to write those in those conditions reverses.
Good work you guys, you've been doing just sort of on operations irrespective of what departments.
But I think both.
No doubt the team.
Did a great job of being in position to take advantage of.
The opportunities that we saw weather was the the farmer selling.
Driven by the the action, Brazil real.
In Brazil.
And which not only helped drive the the strong exports there, but our our crush utilization, but also a even in the U.S., where we saw.
The opportunity with margins, where we were able to.
Run hard to delay some maintenance.
And of course improved on unscheduled downtime to go ahead and capture those margins while they were there so definitely a combination of environment, but definitely the team executing very well in this environment.
Okay. Thank you very much I'll pass it along.
Thank you.
Our next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone. Good morning, Adam.
So maybe first just continuing on Vince's point on on on second half.
Expectations, and maybe it would love to get year, reflecting on what.
As stated so I didn't softseed crush margins are today around the world when in the margins that we see have.
Have come down pretty pretty notably from where they had been earlier in the year.
And just your thoughts and positioning around that and I guess, maybe opportunities to exceed that kind of visible crush kind of margin with some of the origination and sourcing activities you have and leverage evidence in the network.
Sure.
Current crush.
Replacement margins are in the U.S. around mid Twentys.
Mid to high single digits in Brazil, low single digits in Argentina, and then you've got Europe and China, both in the in the mid Twentys.
Now that being said even in the last couple weeks.
We've seen the curve start to improve a little bit.
So as usual, we don't have a lot of visibility into Q4 and as usual we have more locked in Q3.
And then we do in Q4, but that's that's not unusual.
And then the you know the kind of the broader I think keys to watch on the crush the flags are.
As we know.
We've seen the strong exports with the farmer selling in Brazil, the strong exports there.
China, and then we've seen China, increasing their purchases here in the us.
And the question will be what pace will that continue on.
As well as we've got the crop developing here in the U.S., a big big corn crop, but the bean crop is developing very well. So it looks like we'll have a big harvest and then how the the farmer decides to commercialize that so those are the key blacks here as we as we watch the second half develop.
Okay. That's.
That's very helpful and then just.
Clarify kind of their revised outlook is units it outspending agribusiness up 100 bed $100 million year on year, so relative to where you laid that out in.
With one Cuba in late April.
That was $150 million, so kind of delta the to the positive.
You increase the edible oils outlook some how much.
And how much did did sugar in cigarettes be worse, because then than the prior outlook just to clarify and am I.
Following up those pieces properly.
Yes, Adam I would say on edible oils, even though we had a little bit better.
Second quarter than expected over the whole here, if you look back versus where we were in April we've actually taken the number down slightly.
And then Shoger I'd say, probably in the $30 million range in terms of or the impact of that from a piano standpoint versus April and reminder, that that's a noncash recording of the investment in the underlying.
JV.
Okay. That's helpful. Just.
In terms of.
Hey, there's an issue around hedging on the on the JV level debt.
We will execute hedges to eliminate that.
Eliminate that and FX translation impact going forward.
Yes, so the JV has been working on hedging that and at the end of June They had 150 million of unhedged their target is to hedge have to 700 million.
To get to $350 million for us because the debts non recourse.
To us.
No it would've been a case of us putting a hedge on just to impact reported earnings, which then effect is basically if FX position.
We manage our exposure to the reality much broader level for the company rather than on any specific individual exposure and while that is our reported earnings impact from a cash standpoint. It doesn't it doesn't really impact us. So we made the decision not to do anything on our books, because we look at a more globally from a real standpoint, but they are making progress and.
Terms of getting that covered.
All right I appreciate the color I'll pass it on thank you.
Our next question comes from Tom Simonette with JP Morgan. Please go ahead.
Thank you and good morning.
Werent I'm wondering.
Sorry, if I missed this but can you tell outside the 20 cents EPS guidance I think you Division you guided Toronto, we 70, it started the year and load it direction last quarter lets say seems just frame.
It's in a range of Red is is that initial threeseventy guides.
Yes. So if you look at kind of where we were coming into the quarter here I think.
Average consensus was to 83 somewhere in that range.
And the way we look at it.
Probably the biggest dealt in our forecast now is the 100 million I mentioned in agribusiness.
And the rest of its kind of all offsets a net kind of net to close to zero. So if you think about 100 million you know from an EPS standpoint, that's around 55 cents.
Roughly and so that's kind of how we're thinking about right now.
So I 55 cents above.
Correct Yeah.
Upside upside I'm, sorry upside in agribusiness that hundred million is of roughly 55 cents.
Okay, and then just on the added loans I think youre.
EBIT of 51 million was about double what you had guided to Q2. So can you just help us reconcile the outperformance in the course of with the comments that type of 19 headwinds are likely to linger.
Yeah.
What we what we saw the big driver courses around us foodservice and where we talked about from a QSR were little over index. The QSR into the to the Big QSR. So April is down about 40%, but then during the rest of quarter, we saw strong recovery.
Some of that no doubt was pipeline filling but we saw levels get to two year ago levels now as that's kind of leveled off we think that stabilized between the balance of what business moved over to.
The retailer CPG space and versus how foodservice with some of the closings coming back out, but probably net off 15% and we expect that the probably be pretty wavy on the demand is things open and close and we managed through co but through the balance of the year.
That's helpful. Thank you I'll pass it on.
Our next question comes.
From Ben Ben venue.
Please go ahead.
Thanks, Good morning, everyone.
You bet environment.
I wanted to revisit origination in the back half the year for you in particular.
Greg that's going to be kind of the key factor as it relates the performance for the balance of the year, but just as we sit here today you've already seen.
And some renewed buying from China for U.S. soybeans, Brazil's soybean balance sheet is pretty tight with their strong exports.
There's some corn crop issues in China, and we've seen their prices with iron units. They've also smokers are so just curious.
Recognizing there's variability, but and how the crop fares in the U.S. through the balance the year and.
No inherent volatility in that business. How optimistic are you know about origination for your business and about half of the year.
You know we are definitely I'm optimistic about what's happening overall, there has been some of.
Q3 pulled into Q2 in South America.
But with the programs that are that are building in the U.S., we're definitely seeing very good core.
Margins there.
I think the way we know what you'll have to way there is how the buying continues for the program for the rest of the year on export out of the U.S. versus the farmer commercializing what's to be a very big crop.
Okay great.
On portfolio optimization, you noted that small sale of the tomato sauce business or would you guys were in process on selling another large asset.
I think last update you had given co that wasn't a huge disruptor to the progress for growth discussions and broader portfolio optimization discussions.
But I think there had been a little bit of a slowdown kind of where are we in all of that and how how are those discussions going broadly.
Yes, Ben I'll take that.
So with respect to some of our projects that were working on lets I'll give you a quick rundown of things we've talked about for first and observed Brazil Margarine, a mail business, we had announced previously I still underway still and regulatory and Brazil, but moving along and I think we feel pretty confident we'll get that closed this year, we've talked with.
For about the U.S. grain asset sale.
You know with with the review there it's probably we've talked before late Q4 Q1 type event to get that close I think we still feel pretty confident and that timing.
And then we do have another project that we've been working on I would say, it's been little bit covert related but it's moving it's moving slowly, but it's moving forward and it's just really at the pace of of how we can work that was our counterparty, but all those things were pretty positive on on how they're moving.
And then on the on the other side with a.
The announcement of and co am Copa that's progressing again from a from regulatory and timing standpoint, as price slow down a little bit, but we still feel pretty comfortable with where that's headed.
Okay, great good luck with the back half.
Thank you.
Our next question comes from Ken Zaslow.
Bank of Montreal. Please go ahead.
Good morning, everyone.
Once again.
Couple of questions. One is can you talk about the new business that you earned and what does that entail. He said that in the opening remarks can you just talking about that.
Yeah, I think what we've really seen is there continues to be a little bit of magic in the specialty fats and oils of loaders that we added into the legacy bogeys portfolio of or commodity oils, and then our global footprint. So.
What we've been able to do would help people solve the problems whether it's the switch over in the product mix. We saw as people went from eating away from home to eating at home.
To where they were making it a and using our global platform.
To help them solve problems that they understand a long term that the power buggy and our ability to move and be nimble and our new operating model definitely supported that.
The gets us in a and then less transactional and more partnership.
Relationship with with folks and not on single product, but on the portfolio products and services were able to bring so we we definitely like the progress that we're making and it's the right kind of growth with the right customers.
Okay and then my second question is in terms of the crush margin outlook. You, obviously, you, especially as it is getting better can you talk about why using is getting better.
Longevity of that and then also China and Europe seem to be very strong as well can you talk about the underpinnings, there and again it seems like China has.
Changed as they are expanding that has heard is that the derivation of why Chinese crush margins are is that a foreshadowing for the for the globe.
Yeah, I think a couple of the big drivers around let me talk to the meal first and then oil a couple of big drivers of course around meal demand if not only been the the imports.
A protein into China, which of course has helped the meal demand.
In in those exporting countries, but the big one of the Big drivers is how quick China's solvent hogs have come back in their meal demand has recovered much more quickly.
And then any others have thought and then of course, the U.S., where we've got.
Historically high numbers.
In chicken in hogs has been good for demand in those numbers have not tailed off.
As quickly as everyone had predicted.
And then on the on the oil side, you know as we talk to the oil demand has come back quicker than than we thought here in the U.S. and that's not only on the food side.
But on the renewable diesel so we continue to see strong demand there and see some definitely some some tailwinds going forward not only second half a 20 that into a into 21 around renewable diesel probably the laggard right now in the one that will watches biodiesel in Europe.
Which has been a little bit slower coming back.
Great I really appreciate it thank you guys.
Thank you Ken.
Our next question comes from Heather Jones with Heather Jones Research. Please go ahead.
Good morning.
Heather.
First I want to say, thank you for the new lay out all the press release I.
I really I really like it is made a lot. Thanks, a lot more helpful.
Yes.
Just a quick details question when Youre talking about your full year outlook for sugar.
The real has appreciated considerably since the end of May which I think is the end of Q2 for sugar.
When you guys are talking about your full year outlook are you assuming there's no appreciation in the real from Q2 or are you assuming the current rate.
Yes, when we had to this John so when we put in the forecast, it's it's probably a week ago or so that we finalize that maybe a little bit less than a week ago, and we took some of that into consideration, but we don't assume going forward any big change one way or the other.
So it you know we've got the remember were the reporting of that as the end of May for our June 30, So any any change from a made to the ended June would be reflected in Q3, and then of course all the way through August will be recorded in in our September number. So we don't have a biggest.
Sumption, one way or the other in there in terms of where it's headed.
But obviously that'll have an impact going forward.
Alright, thank you.
I wanted to ask about meal demand. So Greg you mentioned haugan chicken numbers and those have held up fairly well.
But our understanding is that a lot of these hall guys have taken the Russians down to levels basically maintenance rations and more recently it seems like that soybean meal inclusion rate has.
Bob I'm, just trying to move higher again.
Wood.
What you're seeing does that agree with would that agree with that observation.
Yeah, Yeah, I'd say generally I don't know that Canada, [laughter] on that kind of detailed but yeah generally not a 100% sure the driver, but the demand has not come off as fast as we thought.
In the U.S. demand has stayed there and then of course in China, we've not only seeing the animal numbers, but the inclusion rates in China that we have seen is driving the demand there and then of course, there was less ddgs as the ethanol industry was not running as well.
So I think Thats, where we saw some of the some of the inclusion rate just from a from a protein side.
And in China, the given because I'm glad you mentioned that because it seems like the demand growth is.
Is outpacing the adding the number of animals that have been added so.
Would you attribute that to the fact that its large commercial that are the ones that are adding the hogs and so their inclusion rates tend to be hires or something else that we're now might be missing.
No. That's that's what we're saying that it is.
It is the inclusion ray because it's the it's the professional commercial operations that are coming back up which is how they've come up as quickly as they have.
Okay and my final question, you mentioned strong U.S. port elevation margins I mean, our numbers are showing.
Very strong much stronger than last year.
In both beans and corn.
Thats consistent with your observation cars a year on year strength.
Yes, we'd agree.
Okay alright. Thank you so much thank you.
Our next question comes from Ben <unk> with Barclays. Please go ahead.
Hey, good morning, correct John.
Thanks for taking my question congrats on the strong results.
Thank you.
Please follow up on on the foodservice piece and you've mentioned that basically was it was very much into pressure in April and then personally.
With filling rates going higher into May June one of you've been seeing was in July in terms of the pace of demand on foodservice and how do you think this is going going to turn out just to understand a little bit how much maybe was just anticipated and now weakness into free Q.
This is how the underlying business is actually doing that will be my first question.
Yes, it feels to us like its settling out down about 15% and of course, that's kind of kind of wave is things open and close and there's no pipeline filling and then working off but I think down 15 is what our team feels.
Okay, and if we if we think about it I mean in the medium long term and what you would you be showing within the agribusiness piece and I mean, clearly it was it was an outstanding quarter and you've you've mentioned all the benefits from the mark to market.
But if we look into it.
With what likely the crops going to be in the U.S. and would Brazil, and Argentina is doing as well how do you think more medium long term.
Bill of profitability, and where do you where do you see margins going do you really think what kind of be next year at that roughly mid $30 crush margin level that you've highlighted about a month ago or do you think it's still too early to get there.
That looked at.
The curves will continue to change the outlook, we're giving you today is on the curves that we can see and then of course in the in the business update the number we spoke to you know was a baseline.
To deliver that $5 earnings so that based on what you believe the market's doing you can adjust it against that baseline we were we weren't making a prediction for crush margins for 21, there. Okay. Okay. A few okay perfect. Thank you very much I'll pass it on.
Thank you.
Our next question comes from Robert Moskow with Credit Suisse. Please go ahead.
Hi, Thanks for the question I might be.
Let me my model and correctly here, but if I start at that I think you said two dollar and 80 cents base.
And add 100 million to that I'm getting.
According your math, you know something around $3.40 for the year.
But oh my model spitting out a much higher number.
Maybe we're using the wrong base or maybe I'm I'm, just understanding that the communication on sugar here.
So.
Start there are you expecting sugar to operate at a loss in the back half of the year.
Yeah, not notwithstanding the any fluctuation in currency I think our expectation is that that there should be a small contribution from sugar in the second half to flat to zero, we don't expect.
Underlying operational losses to continue in the second half.
Based on what we can see so it's all going to be dependent upon the the exchange rate now what how that impacts the reported numbers from from the debt.
And we'll then maybe I'll just try the math here year to date. Your adjusted EPS is up like $2 and 50, Sir I think it's it is $2.50.
Especially in the back half will look similar.
To the back half of last year, I think if you kind of net all that out doesn't that get you a much higher number like closer to $5.
Yes, no we're not we're not calling the second half.
Consistent with last year's second half maybe that maybe there was some confusion there.
Yeah. Good access agribusiness was up 100 million compared to the second half of last years out right now no. That's for the full year. So that's looking at the over performance in the first half and then projecting taking a look at the second half it for the full year, we're calling it up 100.
Okay, Oh, there is to that's awesome. Thank you very much you bet no problem Rob Thanks.
Our next question comes from Ben color with Baird. Please go ahead.
Hi, guys. Thank you for all the clarity maybe just on on the cash flows yield.
What the use of proceeds.
I think I asked this on in June, but what's the plan for the share repurchase and then could you just talked to us about or why and and remind me.
You know how how that changes.
In the second half the are too so as we see the uptick there it looks like there was in the quarter.
Thank you.
Yeah, So I'll start to cash flow yield so as you look at the casualty generated through the first half of the year Anik net net number after all allocation was 432 million and as we looked at the first half you can imagine capex was a little under spent just given covert related you know a timing and impact.
John you know.
If the ability to get some projects Don we do expect that to pick up a bit in the second half.
Certainly a course or normal dividends, we're in there and that will be pretty pretty standard with the second half of the year. When we were looking at the opportunity.
For stock buyback and key in the first half of the year. It was really looking at as we always do we're looking at the opportunity for risk adjusted return and wherever the stock trading and you know what do we have in the pipeline in terms of projects and we just felt like it was a good time to step into the market will continue to look at it we always do.
As we communicated.
You know a month ago, it or business update you know the second half a year I think well expect you know earnings to be more modest and they are for the first half of the year.
We're also looking at Capex likely picking up we also you'll see in our Q, We announced we're making 65 million dollar contribution or pension plan to take advantage some tax opportunities.
I have a small impact on cash flow in second half, but well continue to assess all of that.
In terms of Aram I was very seasonal certainly our growth in second quarter related to the strong origination in South America.
We were well ahead of our normal pace in terms of farmer, selling and our ability to to get hold of the crops. So we feel very good about how we're positioned there and then of course in Q4 will have a big growth in our am I, because the north American harvest, so well expect to see that but again, we're managing that you know in.
Smart way.
Making sure that when we invest in or am I, we're getting a return on that.
Maybe just coming back to also I think what was the.
Throughout that ran through everyone's questions. Before me is that we're trying to square away the second half numbers.
Al performance here in Q2 and.
Yeah, My math is not as good either but it looks like.
Hi, Good 90 cents EPS for the second half total.
I know you don't want go to that granularity, but why why do we expect a big.
Drop off or no there was a big mortgage market here in Q2, but why should we expect a big drop off earnings when it seems your commentary does it doesnt flux with that.
And.
Yeah, Michael sooner.
Yes.
I'd say you know we continue to look at and what the current curves are giving us and in the second half.
Now that can change quickly as you know as we saw last year in Q4, and we're definitely yeah, we're facing something I haven't seen before right. We're still working through the trade War, we've got Cove. It but we are facing it with a new bogey that's a different team in a different operating model. So we feel based on the opportunity that we see.
We'll get more than our share of that.
Sure some of the Brazil business was was pulled a little forward into Q2 from the second half, but the other side of that is we've got big crops coming in the U.S. and we'll see how the farmer markets markets is crop there.
And then how China continues as they work against the trade deal in fulfilling their obligations or been very aggressive here. The last couple of months.
And then we've got the oil complex, which feels like it continues to tighten really as we look across the complex.
You know if cobot improves that also helps the curve Argentina continues to be.
A challenging situation for for all of US operating there with the farming continuing to be a very reluctant marketers he protex.
Himself a financially.
As well as some of the the industry just Doug just continuing to struggle so.
Net net a lot of a lot of people are in the spot because of that uncertainty, they're seeing from their customers with covance. So a lot of meal and oil customers are spot buyers today, that's also giving us less visibility.
But the numbers are out there and we expect the business to be there.
I think we're very comfortable that were we remain nimble, we remain well positioned and we've got the right. The right team to take advantage the opportunities as they as they happen.
Thanks Joel.
Yes. Thank you.
Your next question is a follow up.
Slow with bank of Montreal. Please go ahead.
I appreciate the follow up can you tell us a little bit about the operational efficiencies. You said that you had record utilizations lower cost structure can you talk about what the premier is worth a year or two though where they are now.
And what is the key driver to the improvement of the of these metrics.
[noise] generating long been a key driver can.
We talked about.
We will downtime and that's one having the assets up and ready to run, but it's also how the industrial in the commercial teams are working together I'm getting the inputs, they're getting the products away.
Make sure that those plants stay up and running and of course, the first step before that is is making sure that we get the customer business done that's whether it's the customer selling as being on the origination side of the customer Brian the meal and oil.
So that we would manage those earnings at risk Weve locked men and were able to run our facilities.
A full and that's where the capacity utilization is coming from.
As as well as as I said the team.
Staying staying in step and making sure that we keep those those facilities running so it's been great coordination.
Yeah, we're looking at it as a global business. So we're able to move much faster as we move business around.
And frankly, we've been able to help customers solve some of their problems.
And that's that's been extra business for us as well.
And then the other thing we talked about as.
We're now scheduling the business as as a global company and being thoughtful about when we're taking our schedule downtimes to get the capacity utilization and make sure we're running where the margins are best.
I would just add that Ken we are focusing let me just like we are on the question a side, we're focused on industrial costs as well and I think the teams making.
Good progress there, it's not always visible because it's varied in the in the margin number, but although weve incurred a little bit excess cost here in the second quarter relative to Kogut I think we feel really good about where we're headed from a cost on the standpoint as well, it's going to take time, but but I think there's you know the team is making good progress on that as well.
So is it fair to say that the way you're moving the business between the risk management.
And operations again absent where the question part is but towards that $5 number.
And that in your control is still working that way there hasn't been any.
Put backs or anything like that it seems like the path continues to move towards that direction is that a fair way of saying it given that these little milestones at where you kind of giving us.
Absolutely we continue to be really pleased with the transformation.
We're ahead of our were ahead of our own schedule in several areas and on schedule and the others and all that in the in the midst of cobot. So couldnt be more pleased with the team the ability to execute for customers and I really challenging environment, but also continue to stay focused on the transformation I look we've still got more to do.
There is more self help to come.
There is more cost to get out as we finished the portfolio rationalization here at the end of the year and as we finish our re wiring.
But we're on track we know what we're doing and we got the right team doing it feel real good about things.
Great. Thank you very much.
Thank you Kent.
This concludes our question and answer session I'd like to turn the conference back up at our roots and one for any closing remarks.
Thanks for joining us today, and if you have any questions. Please feel free to reach out to it.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.