Q3 2020 Bunge Ltd Earnings Call
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Please note. This event is being recorded I would now like to turn the conference over to Ruth then why Karen. Please go ahead.
Thank you Melissa and thank you for joining us this morning for our third quarter earnings call before we get started I want to let you know that we have slides to accompany our discussion. These can be found in the investor section of our website at <unk> Dot com under investor presentations reconciled.
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 slide two and remind you that todays presentation includes forward looking statements that reflect buggies current view with respect to future events financial performance and industry conditions. These.
These forward looking statements are subject to various risks and uncertainties.
He has provided additional information in its reports on file with the FCC concerning factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review these factors on.
On the call. This morning are Greg Hackman, Buggies, Chief Executive Officer, and John Dapple, Chief Financial Officer, I'll now turn the call over to Greg.
Thank you Ruth I am.
Good morning, everyone.
Turning to slide three you can see the agenda for today's call.
With an overview of the third quarter, then hand, it over to John who will go into more detail what our performance although.
Well then share how we're thinking about the rest of the year and 2021 before opening the line for your questions.
So let's start with the quarter turning to slide four.
We had an exceptional quarter I couldn't be more proud of our team's outstanding execution.
We achieved record crush utilization across our global footprint.
We remain agile identifying opportunities and moving quickly to capture them as market conditions evolved.
These results and our performance over the past few quarters reflect the meaningful changes we've made.
With a more global integrated operating model improved portfolio and increased financial discipline.
This is even more impressive considering our cobot protocols and how many members of the team had been working remotely.
During the quarter, we continued rewiring the way we do business.
And we made further progress on our portfolio initiative with additional announcements expected before the end of the year.
With most of the work to the best of our non core assets behind US. We're now able to look ahead and effectively address or business needs down the road.
On an ongoing basis, we'll look for opportunities to continuously improve our portfolio to ensure we are well positioned over the long term.
Last quarter, we called out a number of drivers that could change our outlook for the third quarter.
In most cases the movements were positive and the team did a great job of adjusting as things developed.
Hi, crush margin curves, we noted they've begun to increase.
That improvement continued through the quarter in several regions and margins ended the quarter much higher than the forward curves indicated in July.
The tightening of vegetable oil across the complex. We noted last quarter continued, particularly in South America and Europe.
We're seeing the demand for oil improving the food channel as we move through the cobot environment.
And has been widely noted biofuels are creating incremental demand.
We noted China was purchasing aggressively in the U.S. and.
And we saw continued strong soybean flows to China, which helped to further tighten global supplies.
We also saw China start buying corn.
The impact of the situation in Argentina on our business is largely unchanged from last quarter.
While the current environment does not allow us to fully utilize our Argentine system, we have flexed, our global platform to meet customer demands.
Finally, we noted that many customers were in the spot market.
As we moved through the third quarter customers began to lock in their needs.
And as I said, our AG and food teams did a great job executing as we helped customers at both ends of the value chain manage their risk.
Our teams continue to do an excellent job collaborating with our customers find solutions to their evolving needs related to cobot.
We believe this quarter fully demonstrate the we have the right portfolio and the right team focused on the right things.
Internally, we're faster more efficient and more data driven than ever.
We've internalized our approach to risk management over the past 18 months.
And it's become ingrained in the way our teams do their jobs on a day to day basis throughout our value chain.
Before handing it over to John I, just want to stress that in our view the team's execution was nearly flawless this quarter based.
Based on Q3 results and improving market trends, we now expect that we'll end the year with adjusted EPS in the range of $6.25 to $6.75.
And while we can't assume everything will always go perfectly given the inherent volatility in the global AG business. We are confident in our ability to protect our margins on the downside man.
Managed earnings at risk and expand on both when the opportunity exist.
And with that I'll hand, the call over to John now to walk through the financial results in detail.
And will then close with some additional thoughts and the rest of the year and 2021.
Thanks, Greg.
Good morning, everyone.
You may have noticed that we made an additional change to the format of our earnings press release.
We have included a line item for Mark to market timing differences will provide a clearer assessment accompany quarterly and year to date results.
No that are adjusted results, which in the past you've excluded certain gains and charges well no no also exclude mark to market timing differences.
We also adjusted the prior year Accordingly.
We think this change further improve transparency and we hope your understanding of our financial performance.
Now, let's turn to the earnings highlights on slide five.
Our reported third quarter earnings per share was $1.84 compared to a loss of $10.57 in the third quarter 2019.
Adjusted EPS was $2.47 in the third quarter versus the dollar 28 in the prior year.
Our reported results included a 14 cents income tax benefit related to the reversal of a deferred tax valuation asset and 85 cents of negative mark to market timing differences that were excluded to arrive at adjusted EPS.
Adjusted core segment earnings before interest and taxes or EBIT was $581 million in the quarter versus adjusted EBITDA of $287 million in the prior year, primarily driven by results in agribusiness, we're adjusted EBIT was $467 million compared to $174 million last year.
As Greg noted higher agribusiness results in the quarter, reflecting strong execution throughout the value change, especially in managing the capacity of our assets global trade flows and risk.
In oilseeds soy crush results were higher in South America, Europe, and Asia, where margins expanded from strong meal and vegetable oil demand, partially offset by slightly lower results in the U.S.
Softseed processing results increased in all regions driven by the increase in vegetable oil prices and record capacity utilization.
Lower variable per unit costs also contributed to improved performance.
Results from our oilseeds trading and distribution operations were up compared to last year due to increased margins and favorable positioning.
Results in Greens improved primarily driven by origination in South America, which benefited from strong execution and farmer selling this crop prices in local currency increased during the quarter.
In edible oils results of $67 million trended favorably and were up 16 million or about 30% from the second quarter results were down from a strong year ago period.
Higher earnings in Brazil in Asia, which benefited from improved demand in food processor and consumer retail channels.
Were more than offset by lower earnings in North America and Europe.
Year to date, adjusted EBIT was higher than last year, reflecting our broad diverse portfolio and the excellent execution of our teams. During this challenging period of COVID-19 related lockdowns restrictions.
In milling hi results in Brazil, primarily driven by increased volumes were slightly offset by lower margins in Mexico.
Results in our us operations were comparable to last year.
In fertilizer higher segment results reflected improved performance in our Argentine operation driven by higher margins, partially offset by lower volumes.
In corporate and other total adjusted segment EBITDA included expenses of $94 million from corporate an income of 2 million from either.
This compared to expenses of 65 million from corporate and the loss of $4 million in other from the prior year.
The increase in corporate expenses during the quarter was driven by higher performance based compensation accruals on strong financial performance.
Results for our 50 50 joint venture with BP benefited from higher year over year average sugar and ethanol prices in local currency as well as improved industrial efficiency and costs.
Earnings in the third quarter of last year benefited from no depreciation as those assets were classified as held for sale.
For the three and nine months ended September Thirtyth 2020 income tax expense was $38 million and 151 million, respectively compared to a tax benefit of $28 million and expenses 70 million for the three and nine months ended September Thirtyth 2019, respectively.
The increase in income tax expense during 2020 is driven by higher pre tax income.
Net interest expense of 51 million was in line with our expectations.
Now, let's turn to slide six.
Here you can see are positive, earning trend adjusted for notable items and timing differences over the past three full years long with the trailing 12 month performance for the three most recent quarter ends.
Slide seven compares our Q3 SG and eight to the prior year.
Adjusting for notable items, our SG need this quarter was up $66 million.
Significant increase in performance based compensation accruals due to our improved financial performance as well as other specified items, such as inflation and foreign currency fluctuations accounted for a net increase of $82 million, partially offset by underlying SGN a savings of $16 million.
Moving to slide eight for the trailing 12 month period, our cash generation, excluding notable items and mark to market timing differences were strong with approximately $1.6 billion of adjusted funds from operations.
The cash flow generation enable us to comfortably fund our cash obligations over the last 12 months and fund approximately $800 million of our increase in readily marketable inventories.
As you can see on slide nine this allowed us to strengthen our balance sheet at the end of the third quarter, 89% of our net debt was used to finance readily marketable inventories. This.
This compares to about 70 cents, 70% last year.
Turning to slide 10 at the end of the quarter, we had committed credit facilities of approximately $4.3 billion with 3.6 billion available at.
Last week, we closed on a $1.25 billion revolving credit facility was $250 million is committed and $1 billion is uncommitted.
This facility further strengthens our liquidity.
In addition, we had a cash balance of $291 million at the end of the third quarter.
Slide 11 summarizes our capital allocation.
Year to date adjusted funds from operations, which excludes notable items that mark to market timing differences was approximately $1.3 billion.
After allocating 160 million to sustaining capex to include maintenance environmental health and safety and 25 million to preferred dividends, we had approximately $1.1 billion of discretionary cash flow available.
Of this amount, we pay $212 million in common dividends to shareholders invested 70 million in growth and productivity Capex.
And during Q2 bought back $100 million of our stock.
The remaining cash flow of approximately 730 million was used to strengthen our balance sheet.
Please turn to slide 12.
On our business update in June we introduced two complimentary return metrics that we believe reflect performance of our business.
One of those metrics as adjusted ROI, see which recognizes merchandising ROI as a tool to generate incremental profit.
For the trailing 12 months adjusted ROI see was 30.8% or 7.2 percentage points over on my adjusted weighted average cost of capital of 6.6%.
ROI see was 10.9% 4.9 percentage points over our weighted average cost of capital of 6% and well above our stated target of 9%.
Detailed calculations of these metrics are in the appendix of this presentation.
Moving to slide 13.
The second complementary metric, we introduced was cash flow yield, which is the ratio of discretionary cash flow to adjusted book equity.
This measure emphasizes cash generation and complements other earnings and return metrics.
Here, you can see cash flow yield over the last three full years as well as for the trailing 12 months for the three most recent quarter ends.
Measured against our cost of equity is 7%.
For the trailing 12 month period, ending September 32020, we produced a cash flow yield of 22%.
Please turn to slide 14, and our 2020 outlook.
As Greg mentioned in his remarks, we now expect full year adjusted earnings excluding notable items and mark to market timing differences between 625 and 675 a share.
In agribusiness, our improved outlook reflects our third quarter year to date results the current market environment in forward curves.
Good edible oils, we now expect adjusted full year results to be up compared to last year due to strong performance of our consumer businesses and growing biofuel demand.
Expected full year adjusted results in milling continue to be in line with last year.
In fertilizer, we now expect full year adjusted results to be slightly higher than last year.
Corporate and other is expected to be comparable to last year, when excluding Bundy ventures.
We also expect an adjusted annual effective tax rate in the range of 20% to 22% net.
Net interest expense of approximately $230 million.
Capital expenditures in the range of $375 million to $400 million and depreciation depreciation and amortization of approximately $430 million.
With that I will turn things back over to Greg for some closing comments.
Thanks, John.
Before turning to Q and say I want to give you a few closing thoughts.
While we cant fully predict how the markets will evolve based on what we see now we expect many of the favorable trends to carry through the balance of 2020 and into 2021.
Looking longer term, we expect underlying demand for our core products remained strong.
We also expect additional global demand for vegetable oil due to the growth of Biofuels, both from conventional biodiesel as well as incremental growth in renewable diesel which is the drop in fuel chemically identical to crude based diesel but.
With our strengthened oilseed processing.
In addition to our worldwide origination and distribution capabilities, we are well positioned to meet market demands and capitalize on this growth.
On clothing.
I can tell you we're confident and all the changes we've made a bungalow.
We are confident in our global platform, our operating model and our financial approach.
Most importantly, we are confident our team.
Our continuing ability to identify and capture the opportunities ahead of us.
And with that I'll open the call to your questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your test.
So if you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then queue at this time, we will pause momentarily to assemble our roster.
The first question today comes from Ben Bienvenu.
<unk> of Stephens, Inc. Please go ahead.
Hey, good morning, congratulations on the results.
Thank you very much good morning.
So if we rewind back to this summer at your Investor Day, you outlined.
$5 mid cycle earnings number and embedded within that was.
A return to an average crush environment and a dollar of self help.
I think your guidance clearly suggests as with the fundamental environment more broadly that you're above mid cycle funding.
Fundamentals, but I'm curious where you are in your journey to deliver against that one dollar of self help and within that I know.
De leveraging and repositioning the balance sheet as an important component of that self help.
Story.
With these results how do you think about getting to an investment grade rated.
Debt profile and what does that milestone means for you in terms of capital allocation flexibility.
Thanks, Ben this is John.
I think we're well underway on the dollar of self help.
A couple of things yet that yet to close the grain sales course, the proceeds from that and the proceeds from larger and a Mayo deal.
Deal neither of those are closed yet which is part of the <unk> dollar and balance sheet as we.
From up the balance sheet in terms of the cost saving side I think we're well on our way there. We've we've shown good progress both.
The SG ne side and on the industrial side. So we feel very confident that we'll get the 50 to 60, we talked about there and then we're we're continuing to improve our underlying business and a number of ways. One of those was in specialty that we were focused on as part of that improvement.
In terms of in terms of going forward and thinking about how we are performing relative to investment grade credit rating I think we are definitely heading in the right direction I think our metrics continue to improve we're having good dialog with the rating agencies and I think they're they're pleased with the progress.
And so you know our goal of course is to get back to solid triple B with S&P on stable outlook and get an upgrade with.
With Moody's and.
Again, I can't predict when that will happen, but I think we're doing all the right things and ultimately from a capital allocation standpoint, you know with the cash generation that we've been able to produce we're taking a hard look at it our what we need to do going forward here.
Okay, Great My second question.
Is it related to the sugar and bio energy business, which I know is not core to your business and by definition is noncore.
Are your release it wasn't included in the outlook I know part of that is because it's non core but the results are materially improves Im curious what you think that portends as it relates to the prospect of divesting that business and kind of how you think about.
Your your remaining business and kind of reallocation of funds. If you were to consummate sales the sugar business.
Well I don't think the recent the recent improvements certainly while we're very happy with that obviously I don't think it changes our long term plans with that business.
You know that the team the team that that is running its a very solid team. We've got a great partner NBP. So we're very happy with the current arrangement but.
Our goal long term again, it hasn't changed which is two divested that business overtime, whether through a sale.
BP or an IPO or some other ultimate exit.
But in the meantime, we'll we'll continue to support them as best we can.
Long term, we'll see what the opportunities are when that when that occurs it's going to be at least 12 to 18 months out before something happens or most likely.
And we'll see what opportunity we have with that capital at that point in time.
Okay, great. Thanks, and best of luck with the remainder of the year.
Thank you very much.
The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.
Hi, yes, thanks, good morning, everyone.
Good morning.
So I guess my first question just trying to think about.
The current operating environment and kind of what you put up in the.
In the third quarter.
I mean, it just seems like if I look at the fourth quarter outlook.
It's actually given kind of how robust crush margins.
Have trended you're only seemingly implying you agribusiness unit.
But flat year on year I want to make sure that.
About right is that just the way you hedged or so let me think about kind of how strong crush margins have moved in the U.S. in Europe.
And certainly domestically in Brazil.
How that the crush outlook kind of really layers into your outlook right now.
Sure, yes, the nearby spot replacement margins definitely are very robust.
And you are correct on your analysis of the fourth quarter, a little little less than last year right now and we're looking at.
What the what the curves are telling US right we've seen the increase in cash.
Crush margins of course higher oil demand higher meal demand.
Prices up that has moved the the buyers back spot and the curves reflect that so as it unfolds, we'll see we'll see how that works if it continues to.
Improved kind of a week in a month at a time here sure Theres upside in Q4.
Absolutely, but that's not what it's telling US right now and then of course the concern is.
Cobot is kind of.
Rearing its head again, what impact that will have now while we're watching it closely because as we've talked about it does affect demand for both.
Food and fuel, we do think that as we've been through the cycle once people to adjust their supply chains, we still have people.
Eating.
More at home than a than away from home that the shift won't be as dramatic and that people are more prepared so even with the role and we're we're hoping that doesn't have the same impact, but we are watching it closely.
Okay. That's helpful color and then I guess my second question something you alluded to in the prepared remarks, just on the opportunity with the with the growth in renewable diesel and I was hoping to hear you elaborate a little bit more on that and how you think funky is positioned to benefit there and assets in particular that might be advantaged and how.
You would think about or how the industry, we think input cost capacity in the us to sell that that oil needs.
Yes, I think bug is very well positioned I mean, the fact that.
[noise] needs will be met.
With vegetable oil.
There will be some adjustment, depending on which oils are needed to be adjustment in the food market as well.
As the market reformulate, so on those that can in the food and fuel to decide.
Which oils are going to use but the bottom line is more demand and that that will be positive in the fact that we.
Work across the soil the soft oils and that also have polman. Our portfolio. We think we're in a great position with our global platform to to serve not only the growing fuel demand, but to continue to serve all of our food customers as well.
Okay, Great I will.
Got it thanks very much.
Thank you.
The next question is from Ben There of Barclays. Please go ahead.
Hey, Good morning, Greg John first of all Ken Congrats on the results clearly that was that was a strong quarter.
Just thank you very much.
I had one question goes in line a little bit of what.
Adam was just asking about the dynamics into the fourth quarter and just to understand a little bit.
We're seeing that strong demand and obviously, we're still trying to basically work through now through.
The.
Crop from the U.S. and there's obviously going to be.
Strong market dynamics so.
How should we think of that carrying over in that profitability with the demand looking a little bit beyond the fourth quarter and what youre guiding with that one to 150 EPS for the quarter, but if we look into 2021, where do you think the mark is going to hit two considering the strength and the more recent.
Quarter in what continues to like you beat the fourth quarter in terms of crush margin.
Yeah, No you're correct the environment is very good right now.
And I would say if you had to.
If you had to say you think it's probably best to continue here in the in the fourth quarter.
We are watching it closely thats not what the curve say, but as we work through Q4 and.
In the next 30 to 60 days.
If that momentum continues then I believe that Jerry we think that carries right into Q1.
And so you come into 2021.
With a lot of momentum.
So.
No right now we like the way the environment looks were always cautiously optimistic but.
Very good right now in fields and that's why we went ahead and guided up in total that's because of our confidence in how the environment feels and that we do believe.
That will carry into Q1, and then we'll see where it goes from there.
Okay perfect. Thank you very much.
You bet.
Your next question comes from Tom Simon niche of JP Morgan.
Hi, good morning, everyone.
Tom.
Morning.
What was the Q3 contribution from the satisfies us grain elevators unit seemed to divest I was just curious if you still view that divestment as three cents to 2021 earnings at current run rates.
It was.
The business did not perform well in Q3. It was it was a slight loss and yes. So it would still be accretive at divestiture just on the transaction itself without any reinvestment of the capital.
Okay. Thanks, and can you elaborate on your expectations.
Hi, crush into 2021 have exposed the tax cuts through January moved the needle little in terms of some setting will crush capacity utilization.
Okay.
Argentina continues to be.
Yes, really really bound up right the farmer being very reluctant marketer.
There is a lot of lot of discussion.
A lot of.
Guesses about how it might unfold, but the producer as then.
Very resilient and that of course as you've seen it's been tough.
Tough on on margins and tough on utilization rates. So I'm sure glad we're running a global system.
And the team in Argentina is doing a great job in a very tough environment, we've been there decades, and we've got a lot of experience but.
Right now, we don't see that situation improving.
Until there is some clear direction.
[music].
Thanks, and if I could just tag on one last question, you're not excluding mark to market impacts from your results can you elaborate on why you are making that change now.
Yes, it's really been it's been an effort to try to provide a little bit of clarity around how mark to market. How we think about it we have been verbalizing it over the last.
Few years frankly, but.
But it has created a lot of confusion at times for people. So we just thought it was cleaner to just show it in here and our adjusted results rather than giving adjusted results and then saying and on on top of that here is the mark to market impact.
I think it just doesn't but consistent with our promise to continue with more transparency and granularity about the results to try to help everyone understand the buggy earnings power better.
Thank you I'll pass it on.
Thank you.
Our next question comes from Vincent Andrews of Morgan Stanley.
Thank you good morning, congratulations on the results and thank you for making that mark to market adjustment I think to make life a lot easier for everybody.
Many many.
Many headaches many mornings over the years from.
Turning to reconcile.
What that was and was and then what was coming back what was going away what might come back later on so.
Good idea.
I just want to finish one of the thoughts from earlier and Greg I think you said it sort of bio mission, but it doesn't sound like you have any desire to be a owner operator or construction or in the construction of a renewed an actual renewable diesel facility, but rather you want to be on the.
Service side of the equation and supply side of the equation is that correct.
Yes, that's correct, we want to be there to serve that growth.
But we want to do what we're core and what we're best at and so we'll work with with our customers. We will look at places.
Where it makes sense.
If it's de bottlenecking refinery or adding storage and handling.
Capabilities to help manage customer supply chains, but we'll look at the context of anything we do with our network that serves all of our food and fuel customers. So as we improve our network we get that Optionality. So we didn't we definitely want to work hand in glove, but we'll be very disciplined about putting a.
Capital to work in long lived assets and make sure. It's an area, where we have the right to win.
Okay and the other thing I wanted to just make sure I better understood with the comments, you're making about fourq and into next year and customers being back sort of in the spot market.
Is that to imply that there isn't a tremendous amount of liquidity.
In sort of the out months to try to lock in what's going on or am I glad that wrong.
No that's correct and as that kind of the nature generally you know of this of this industry is that there is always more liquidity in the near quarter.
In the following quarter.
And the curves kind of gun.
Got to reflect that.
[music].
Not only liquidity, but.
[laughter] that you're going to have to show me that these margins are going to stay here and so that's that's what's reflected in our outlook.
Okay, and if I could sneak one last quick one then I just would ask if you can reconcile for us.
You talked about the Argentine farmers not a seller of the Brazilian farmers then.
Quite a seller. This year. If you can just sort of help us understand where that is in terms of what you've already bought and how much of that you've already kind of gone through versus how much is left for them to sell and how much is left for them to process I'm just trying to understand if you know as we think about the fourth quarter. It maybe that's one of the reasons why.
There is a bit of a step down sequentially. It's just there's just less to do with the Brazilian farmer for the rest of the year until next year's harvest.
Yes, you're absolutely correct some of that some of that business.
First from the Brazilian farmer has been pulled forward versus normal selling patterns. So they're around 50% sold right now and they have even started to nibble at the 2022 crop selling a little bit of that so.
With the change in the reality been a profitable situation and so.
That's definitely been the timing has been moved up on that.
Okay, great Thanks, and congratulations again.
Thank you very much.
The next question comes from Robert Moskow of Credit Suisse.
Hi, Thanks, and Great news today.
Thank you Rob.
Hi.
Regarding like the parabolic move in soybean meal demand can you talk a little bit about the fundamentals driving that.
Do you have a sense of where China is in terms of rebuilding its take heard.
And what have you seen in response at your questions on these in China.
Yes, our our credit facilities of run run very well in China. This year and that's really been on the back of the China.
Recovered not only the oil demand recovered, but as we talked about that poor occurred has been the augers been getting built back much more quickly than we thought.
The other factor is we had talked that we expect inclusion rates to be higher as the professional.
Operations came up and we saw that as well so I think the kind of the market believes there are about half way back.
From pre coven level so they.
They've still got a ways to go but that has been a big spar.
Part of of that meal demand, so I think global pork up.
They were up 4%.
China, leading that but it's also U.S. and you in Brazil are also up.
Right.
And then on the global Chicken was up just a bit as well, but trying to put that in place early that demand is still there as the port comes back.
And then also some increase in Brazil, he USA in India. So it's it's good broad demand.
All right Okay great.
And then a follow up I just started Kobe that I think.
Your company and several others were.
Thinking about the possibility of just.
The lower demand for food because when you shift from.
The foodservice channel into the retail channel people, just kind of naturally eat a little bit less.
Are we past that kind of situation now is and if and if so.
Do you think it's because people have returned to normal closer to normal patterns or is there something else do we not have to worry about that anymore. I guess is my question.
Yeah. It has demand has rebounded I think more more quickly than everyone thought.
Repeatedly from home prices the center the grocery store has been very very strong.
The QSR has returned.
Very quickly.
The smaller foodservice the the street business Thats been hurt.
Very badly in so thats pull foodservice down.
In total, but the CPG strength has been stronger than we thought and making that up so we definitely.
Over forecast the impact.
That would have.
So now it's as Yep. So now as we continue to watch cold Winter I think we're not as concerned we're always concerned but not as concerned since we've been through that cycle wants.
Great. Okay. Thanks, a lot.
Thank you.
The next question comes from Ken Zaslow of Bank of Montreal.
Hey, good morning, everyone.
Yeah.
So when you think about the.
The five dollar number you guys use the average five year and I think everybody thinks of that as a mid cycle number but is it really a mid cycle number or is it something that's just an average of five years and the reason I say that is.
As I look forward I mean would you see that is representative of the future not just for this year, but going forward when you have.
A rebuild in China eight renewable diesel.
Change as well.
Is that really considered mid cycle or is it just continues the last five years and thats, what we should that after that.
Yes, I think.
We definitely looked at history, I think give us maybe John is a six years, yes, yes six years of history.
What we Didnt put in there right, we didnt end copas not in there we really didn't build any food growth. There is no no plant protein growth Theres no renewable diesel growth. So it was the that's why we called the baseline it's not earnings power baseline earnings.
And then we looked at the historical.
Crush margins and that of our system you know waited for our system and that was around 34 now just to give you. Some some benchmark on that on a year to date, we're at we're at about 40 versus.
Versus that benchmark at 34, and I think you're seeing that in the earnings that us taking the the earnings up for the year and then as that momentum.
Continues into into 2021.
That's kind of what will be anchoring off of as we think about that.
My follow up to that is also when you are thinking about that you might my sense is you probably didn't think that China would be buying or that there would be a free market gives might we haven't had a free market in call. It 810 years. So so.
When you think about that how does elevation margins or export margins play into that as well im assuming thats excluded from the 34, and that's just something that kind of ebbs and flows, but but with China demand.
Demand is that something thats more structural or how do you think about that and I have one more after that I'll leave it there.
Yes, yes.
That definitely wasn't in our numbers. So that's that's been.
An increase and that's been a positive increase as that continues I'd say the entire underlying this feels a lot more sustainable than.
And then at the time, we talked about it.
And then my final question is previously you said that when you get to a certain level of margins and when you start to get your business in a certain order you will have the you have earned the right to participate in new businesses and in participate in businesses that.
The previous bogey was not able to can you talk about in elaborate what what is your right.
What businesses now do you have it right earn in does that look going forward I'll leave it there.
Sure. Thanks.
Sure and I think we're we're at that point as we talk about we're finishing the portfolio work, we've got a couple more.
Sales were probably announce before the end of the year, one small one one a little more sizable and Weve really turned to look at the growth and as we start to have the cash from earnings and closing the deals.
To invest that that's the fund the tension in the system the team competing for that capital because we're going to be very disciplined about how we put that capital to work, but we'll continue to think about where we improved to protect or improve our foot pad footprint in our agribusiness. So any any regional consolidation that makes.
Since.
The other is we'll continue to build on our specialty fats and oils.
Footprint, that's a business, we believe that there'll be some some tuck in bolt on acquisitions to improve either our product.
Or our geography offerings to customers again, we'll be disciplined about those values, we announced one deal on the plant protein side.
And as to excel.
Exciting place that trend and plant protein growth that is in place that's a place where we have a right to win we've got a great team. That's working on that we've got a real nice pipeline of projects, you'll be hearing more about that in the future as we roll things out, but we're working with customers customers that we already have relationships with on the fats and oils side.
Broadly and that we have specifically in providing the fats and oils that make those protests plant proteins taste, good and have the mouth feel on the bite that.
That we all love so much.
And then on the renewable diesel side as we talked about the benefit of that demanded it.
It lifts the entire oil market across our food and fuel platform and we'll look for those opportunities to serve those customers and again that as thinking through that lens as we make improvements in our agribusiness footprint to serve all our customers. So we're really excited about the performance of the team were.
Got it about having the earnings at this point where were really at the inflection point starting to move in into growth.
And excited to have some real new opportunities in this industry around growth and plant proteins and renewable diesel which is.
New demand as well as just good.
Good demand continues to be a up into the right. So.
Like so excited about what we're doing here, Ken and really really proud of the team. So looking looking forward to talking to you again after the next quarter.
Thank you very much.
Thank you get.
This concludes our question and answer session I would like to turn the conference back over to her as Dan Smith for any closing remarks.
Thanks for joining the call today, and if you have any questions. Please sales or feel free to reach out have a good day.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.