Q2 2021 Bunge Ltd Earnings Call
Good morning, and welcome to the buggy second quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
Zero on your telephone keypad. After today's presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then 1 on your telephone keypad to withdraw your question. Please press Star then 2 please note. This event is being recorded I would now like to turn.
The conference over to Ruth and Weitzner. Please go ahead.
Thank you operator, and thank you for joining us this morning for our second quarter earnings call before we get started I want to let you know that we have slides to accompany our discussion. This can be found on the investors section of our website and buggy dot com under events.
And presentations reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are posted on our website as well.
And I'd like to direct you to slide 2 and remind you that today's presentation includes forward looking statements that reflect buggies current view with respect to future events.
<unk> financial performance and industry conditions. These forward looking statements are subject to various risks and uncertainties buggy.
And he has provided additional information and its reports on file with the SEC 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 the call. This morning are Greg Heckman, Buggies, Chief Executive Officer, and John <unk>, Chief Financial Officer.
I'll now turn the call over to Greg.
Thank you Ruth Ann and good morning, everyone.
So turning to the agenda on slide 3.
I'll.
Some highlights of the second quarter before handing it over to John who will go into more detail on our performance.
And I will then share some closing thoughts on how we're thinking about the remainder of the year before opening the line for your questions.
Let's start with an overview of the quarter turning to slide 4.
Want to start by thanking the.
Start with for great execution, and a highly volatile quarter.
We're very pleased with how we've managed our operations as well as our earnings at risk, where the approach with the appropriate level of discipline.
We also helped our customers navigate and manage through the volatility of this quarter that came from weather issues domestic and international supply chain.
<unk> and other complexities and the current environment.
Turning now to our segment performance.
Results and agribusiness were down versus a very strong quarter last year, but exceeded our expectations as the team effectively managed trade flows and capacity utilization.
We set.
And Charlie and year to day records and soy crush volume capacity.
Utilization and lower unplanned downtime.
Additionally, we reduced power consumption to an all time low and our European Rapeseed crush operations.
While we face complexities and the quarter related to freight transportation and other.
Areas that affected many other companies and industries our results clearly demonstrate with our commercial and industrial teams working closely together, we have built resilient supply chains that allow us to be successful through a range of macro environments.
Results and refine and specialty oils improved in most regions with particularly.
Quarter strength in North America and.
And the U S. We saw foodservice demand come back stronger and faster than anticipated and.
And we're experiencing a greater impact from renewable diesel demand than we expected.
And response to the higher demand for refined and specialty oils, we've been working to find greater efficiencies to increase.
Particularly well.
We've also worked with our food customers to help them manage their risk as well as re formulate products, where it makes sense.
The multiple drivers behind the strength and edible oils gives us confidence there are significant growth opportunities ahead of us.
Well so on a highlight that this was a strong quarter for our noncore sugar.
Supply V.
As we've noted in the past we continued to assess our strategic options regarding this business, but we're very pleased with the improvement over the last year.
Taking into account our year to date results and based on what we can see now and the forward curves we are increasing our outlook for the year and expect to deliver.
Adjusted EPS of.
But at least $8.50 for the full year 2020.1.
Despite the global volatility, we have confidence and our ability to deliver and the back half of the year.
Based on the business already committed the crush outlook and the demand for refined and specialty oils.
On a joke ahead, we're confident that the performance of our operating model and market trends provide support for a higher mid cycle earnings.
So and our June 2020 business update we outlined our earnings baseline of $5 per share.
With the changes, we've made and our business as well as the fundamental.
Shifts and the marketplace, we're taking that baseline EPS up to $7 and that's a $2 increase.
And consistent with last time.
This reflects our existing portfolio only and does not include any future growth investments.
I'll now hand, the call over to Jon to walk through the financial results.
As we look at 2020, 1 outlook and additional detail on the update and earnings baseline.
And then close with additional thoughts on some of the trends we're seeing.
Thanks, Greg and good morning, everyone.
Let's turn to the earnings highlights on slide 5.
Our reported second quarter earnings per share was $2.37.
<unk> and that's compared to $3.47, and the second quarter of 2020.
Our reported results included a negative mark to market timing difference of 24 per share.
Adjusted EPS was $2.61, and the second quarter versus $1.88, and the prior year.
Adjusted core segment earnings before interest and taxes, or EBIT was $550 million and a quarter versus $564 million last year, reflecting lower results and agribusiness, partially offset by improved performances and refine and specialty oils and milling.
And processing higher results in north.
And circa and Argentina were more than offset by lower results in Europe and to a greater extent and Brazil, which reflected a decreased contribution from soybean and origination due to an accelerated pace of farmer selling last year.
And merchandising improved performance was primarily driven by higher results and ocean freight due.
And Mary execution and positioning and our.
Global corn, and we value chains, which benefited from increased volumes and margins.
And refined and specialty oils, the outstanding performance and the quarter was largely driven by higher margins and record capacity utilization and North American refining, which benefited from strong foodservice.
The strength and increased demand from the growing renewable diesel sector.
Improved results and South America were due to a combination of higher margin and lower costs more than offsetting lower volumes.
Europe benefited from increased volumes and margins from higher capacity utilization and product mix.
And.
Milling higher volumes lower costs and good supply chain execution, and South America were the primary drivers of improved performance and the quarter.
Results in North America were comparable with the last year.
Okay.
The increase and corporate expenses during the quarter was primarily related to performance based compensation.
Demand.
A portion of which was not allocated out to the segments as was done in previous years.
The increase and other was related to our captive insurance program.
Improved results and our noncore sugar and bioenergy joint venture were primarily driven by higher ethanol volume and margins.
Are your results were negatively impacted by approximately $70 million and foreign exchange translation losses on U S. Dollar denominated debt of the joint venture due to significant depreciation and the Brazilian real.
For the 6 months ended Q2 income tax expense was $242 million compared to.
Per income tax expense of 113 million and the prior year.
The increase in income tax expenses due to higher year to date pre tax income, partially offset by a lower estimated effective tax rate for 2021.
Net interest expense of $48 million was below last year, primarily driven by lower average variable.
2 interest rates, partially offset by higher average debt levels due to increased working capital.
Let's turn to slide 6.
Here you can see our continued positive earnings trend adjusted for notable items and timing differences over the past 4 fiscal years, along with the most recent trailing 12 month period.
This improved performance not only reflects a better operating environment, but also the increased coordination and alignment of our global commercial industrial and risk management teams due to our new operating model.
Slide 7 compares our year to date SG&A to the prior year.
We have achieved underlying addressable.
SG&A savings of $20 million of which approximately 80% is related to indirect costs.
Through our team's disciplined focus on costs, we were able to continue to achieve savings even when compared to last year, which was already lower as a result of the pandemic and the actions we took to reduce spending.
Looking.
Looking ahead, we are monitoring cost inflation, and many markets, especially in Brazil, and we will be working to offset this impact where we can while still making the necessary investments and our people processes and technology.
Moving to slide 8.
For the most recent trailing 12 month period, our cash generation.
Ration, excluding notable items and mark to market timing differences was strong with approximately $2 billion and adjusted funds from operations.
This cash flow generation was well in excess of our cash obligations over the past 12 months, allowing us to strengthen our balance sheet.
Shortly after quarter and we closed on the sale of our.
Brain interior elevators, receiving additional cash proceeds of approximately $300 million and another 160 million for net working capital.
Slide 9 details our year to date capital allocation of adjusted funds from operations.
After allocating $76 million to sustaining capex.
<unk>, which includes maintenance environmental health and safety and 17 million of preferred dividends and we had approximately $800 million and discretionary cash flow available.
Of this amount, we paid 141 million and common dividends and invested $57 million and growth and productivity capex, leaving over 600 million net retained cash flow.
And as you can see on slide 10 readily marketable inventories now exceed our net debt with the balance of Rmi being funded with equity.
Please turn to slide 11.
For the trailing 12 months adjusted ROIC was 18.4% 11.8 percentage points over.
Ex Rmi adjusted weighted average cost of capital of 6.6%.
Our ROIC was 13% 7 percentage points over our weighted average cost of capital of 6% and well above our stated target of 9%.
The spread between these return metrics reflects how we use rmi and our operations as a tool to generate incremental.
There are a profit.
Moving to slide 12.
For the trailing 12 months, we produced discretionary cash flow of approximately $1.7 billion and a cash flow yield of nearly 24%.
Please turn to slide 13 for 2021outlook.
As Greg mentioned in his remarks, taking into account our strong Q2 results and our outlook. We have increased our full year adjusted EPS from 752 at least 850.
Above last year's record of $8.30.
Our outlook is based on the phone from your expectations.
And agribusiness full year results.
<unk> are expected to be up modestly from the previous expectations, but still down from a very strong 2020.
And refine and specialty oils.
We expect full year results to be up from our previous outlook and significantly higher compared to last year due to our strong first half results and positive demand trends and.
Okay.
We continue to expect results and milling and corporate and other to be generally in line with last year.
And noncore full year results and our sugar and bioenergy joint venture are expected to be a positive contributor.
Additionally, the company expects the following for 2020.1.
And.
And adjusted annual effective tax rate and the range of 17% to 19%, which is down from our previous outlook of 20% to 22%.
Net interest expense and the range of $220.230 million, which is down $10 million from our previous expectation and.
And capital expenditures and the range of 450 to 500 million, which.
Which is up up $25 million from our previous forecast and depreciation and amortization of approximately $420 million.
Shifting to our updated mid cycle baseline.
The waterfall chart on slide 14 shows the areas and magnitude of increased earnings being primarily driven by what we see as a structural.
<unk> improvement and on the oilseed market fundamentals.
This is due to increased vegetable oil demand by the renewable diesel industry and greater benefits as a result from the change and our operating model to a global value chain approach.
Turning to slide 15, and the drivers behind these increases.
Consistent with our.
Our approach and June 2020, we introduced when we introduced our $5 baseline we are defining our long term average oilseed crush margin range by using the weighted average of our footprint over the past 4 years plus the trailing 12 months.
This increases our average soy crush margin by a $1 per metric ton to a range of 34 to $36.
Per ton and more significantly increases our average soft seed crush margin, which is more sensitive to oil demand by about $10 a metric ton to a range of 48 to $52 per metric ton.
We feel these ranges reflect more reasonable normalized numbers on a go forward structural market environment.
We are also increase.
<unk> and normalized earnings of our oilseed origination and distribution businesses and our merchandising sub segment, reflecting the more coordinated and aligned approach within the value chain from our new operating model.
The approximate 30% increase and refine our specialty oils earnings is driven by a higher capacity utilization and North American.
<unk> and refining and increased contribution from specialty oils due to improvement initiatives that are underway.
Importantly, we assume that margins in north American refining normalized back to historical averages as we expect and time that the renewable diesel industry will add pre treatment capabilities to their facilities.
There are no changes from our prior baseline and milling.
Corporate and other are down primarily due to higher performance based compensation from the increased and our baseline.
And there is no change and the assumed contribution from our sugar and bioenergy JV.
Net interest expenses reduced by approximately 25.
Compared to the $5 baseline, reflecting debt pay down from strong cash flow and 2021 and normalized working capital.
Given potential tax policy changes and the future we are increasing our estimated effective tax rate by 2 percentage points.
It is important to note that our earnings baseline of.
<unk> is not earnings power.
Aside from upside that may come from higher margin environment, we have a number of opportunities that we're pursuing that can drive earnings upside as summarized on slide 16.
Strengthening our oilseeds platform with targeted acquisitions as a top priority.
<unk>, our industry, leading refine and specialty oils position to serve new and existing customers with differentiated products and services and area of opportunity.
We're also excited about the growth and demand for renewable feedstocks and plant based proteins and finally, we're continuing to invest and technology that will drive increased efficiency throughout.
And <unk> operations.
Turning to slide 17.
And a $7 per share baseline, we should generate approximately $1.4 billion of adjusted funds from operations.
After allocating capital to sustaining capex and preferred and common dividends to shareholders, we should have about $800 million.
On a global discretionary cash available annually for reinvestment and the business returns to shareholders.
This is an increase of approximately $200 million of cash per year from our $5 baseline.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John.
Before opening the call to Q&A.
I want to offer a few closing thoughts.
From where we sit it's clear there is a structural shift underway and the consumer demand for sustainable food feed and fuel.
The conversations we've been having with existing and new customers are significantly different than they were even just 6 months ago.
And we're pleased with our position.
And to help support meaningful change and with our global platform, we have the ability to do so at scale.
Consumers have demonstrated they will pay for more to get what they care about.
And it's our job to provide these alternatives to our customers.
To meet this demand we work with customers on sourcing sustainable.
<unk> alternatives.
We're helping them reformulate.
We help food and feed customers source ingredients to minimize the carbon impact of moving them.
And we work with fuel customers to source and transport feedstock for renewable fuels.
Importantly, we do all of this with the goal of driving value back to <unk>.
Farmers to allow them to invest and stewardship to support regenerative agriculture and to encourage production and optimal locations, which means getting the highest production per acre using the least amount of inputs.
And we're really excited about the role we can play and this accelerating shift.
I want to end by thanking the team.
Team again for their continued incredible execution.
And with that I'll open the call to your questions.
We will now begin the question and answer session.
And I ask any question you May Press Star then 1 on your telephone keypad.
If you are using a speakerphone please pick.
Handset before pressing the keys.
And at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Robert Moskow with credit.
<unk> Suisse. Please go ahead.
Hi, Thanks for the question good morning.
And Rob Warner on them.
And I wanted to know when and when you develop your baseline assumptions.
Did you consider.
Well, what if scenario if it's soybean suddenly go back.
To historical levels, you know like $8.9, a bushel because of a supply response.
Does that affect your baseline and.
And or did you just take the margins that you can make with all of the renewable diesel activity and and plant based or are structurally high so it doesn't matter.
Right.
Yeah, and then I'll start and let John come in but yeah. It's a it's a holistic look at history.
And as well as what's currently happening with the the key you know supply and demand factors and you know sure we're seeing.
Coming forward and the next couple of years, the market's doing its work right. We're.
We're drawing more and more supply out, but the thing that is different.
This time is it wasn't 1 big crop shortage. This caused these higher prices, it's been demand and <unk>.
Structural demand shift and a number of areas. So yeah, we we rolled the rebuild all that into the thinking.
And then 1 quick follow up also on.
And the baseline.
And some AG tech companies are introducing soybean varieties that require less processing.
So that the I guess, the the protein can be extracted cheaper and.
Is that a structural benefit to you is it material enough.
And to improve your earnings or because I guess, you would get cheaper.
<unk> products as a result.
Yeah, how do we think about technology because the large.
As the largest global Oilseed Crusher, we're of course working with people on seed technology, we're working on cover crops.
Working on continually becoming more efficient and our own operations. So.
As as we're seeing the demand not only on the traditional food business and.
And the feed customers, but now on the renewable diesel and the growth and the plant proteins, it's going to draw more.
And into the space and as the largest operator here.
It's our job to be in step with that and find ways to take advantage of that so.
And we're excited about it.
But I would say Rob this is John we haven't baked any sort of you know I'll.
And I'll say, a new technology into our and and into our thinking and our numbers. So it's really based on what's what's.
Innovation, what we're operating today.
And and what we think is a reasonable outlook on margin environment. So anything that would would bolster improve the market.
Margin environment for us going forward would be additive to that.
Alright, thank you.
Yep.
The next question comes from Vincent Andrew.
Andrew <unk> with Morgan Stanley. Please go ahead.
And this is Steve Haynes on for for Vince and I, just wanted to ask and might be a little early to start talking about 2020.2 but.
And when you think about your $7 baseline and maybe what might be implied from the second half.
Uh huh.
2021 and I might suggest something a bit lower than and 7 bucks. So can you help us kind of.
Thinking about where you are.
And the exit rate for this year would kind of put us relative to your share in your baseline.
Yeah, No I'd say, we see it we see that differently I think part of the confidence in raising the baseline.
And to 7 years.
And to $7 and doing it this year is what we see and the momentum for the balance of this year.
And the the structural shift in demand carrying into 'twenty, 2 and 'twenty 3.
And we were very comfortable putting that baseline out there because we feel we can exceed it here with what we're seeing right now for the next couple of years.
Yeah, I think it's important to note that the baseline and and maybe it wasn't clear enough and my remarks, but it doesn't include the refining premiums that we're seeing today. It does include additional volume from refining as we go forward from the demand, but we did we did pull back to refining premiums to a more normalized level assuming.
Long term that the energy.
And consumers and doing their own pre treatment, but for now we're realizing much higher refining premiums and what we have built into the $7.
Thank you.
The next question.
Assuming lumps from Adam Samuelson with Goldman Sachs.
Please go ahead.
Yes, thanks, good morning, everyone.
Good morning.
And so I guess, maybe first question just on the revised our 2020.1 outlook and.
From the way you had character.
<unk> closed.
The increase and the population and in the prepared remarks.
It does it doesn't seem like your second half outlook has.
It really changed all that much from where you were in and the first quarter or coming out of the first quarter and I just want to confirm that that's true and.
And if so just help us.
Try it out kind of the puts and takes around the world in terms of farmer selling in terms of kind of the crush margin outlook that you see.
And the opportunities and risks interest.
Thinking about the second half.
Sure Yeah, you, you'll see that correctly and in fact.
As always we're looking at what we've delivered.
Delivered and then we're looking at the curves for the balance of the year the curves that are definitely weaker.
And then the last time, we talked and so we've reflected that in the outlook now that being said.
If you look historically will be really surprised if they stay there, but that's what we see right now you're probably.
If we kind of talk around the world on the on the crush margin side of course, North America is the strongest.
With China, probably being the weakest.
Europe has definitely felt some pressure as Argentina has ran harder this year.
And that.
That means <unk>.
Got pushed out and into Europe, but we're seeing Argentina now true as traditionally starts to slow down after harvest.
As well as the producer as we move towards.
On election, and and maybe perceived higher risk and devaluation and now starting to slow the marketing. So we will see Argentine crush start to.
<unk> start to slow down.
As far as the farmer selling and of course in Brazil.
On the corn side.
The producer has not been as quite as sold as prior because.
You had a tough tough weather situation, there and a smaller supreme your crop.
See a little bit behind and in corn.
But in the U S. Just slightly ahead of historical.
And so the next kind of wave and corn selling will be I think as people see how U S crop as the weather continues to play out and get a look at it.
And what people feel come.
Black yields and we'll see the next marketing.
The U S farmers pretty sold up on the 2021 crop.
A little bit ahead of last year, and I think that's really the story again of getting through the weather, which has got a got a play through August here and get comfortable with the yields and then we'll probably.
From about another another wave of marketing.
And then in Brazil of course were behind prior year, which last year was pretty special away things.
Formed up and and with what happened with the FX and and the heavy heavy marketing. So we didn't really expect debt to repeat.
But overall.
We see them.
It was pretty weak, but historically.
And we'll be really surprised if if they stay there and in fact, we're starting to see a little a little glimmer of improvement and China, even this week.
And that's really helpful. And then and then just a follow up on the new baseline and I guess I'm trying.
Think about kind of where some of the pluses to come from on the on the capital allocation front and I guess first it doesn't include really anything significant in terms of the sugar JV or potential proceeds from kind of eventual sale or IPO of that business and then if I'm looking at the excess funds from operations.
Trying to think that you would be generating and that scenario.
And we thought about the reinvestment.
Or.
And our repurchase kind of benefits of that and in the $7.
Yeah. Adam This is John we haven't we haven't assumed anything so let's take sugar, we kind of assume status quo for sugar.
Operations not any additional contribution in terms of from earnings.
Or additional impact from a divestment of that business, we've kind of left it as is.
Which we think is pretty conservative and and on the on the growth front, we have not assumed any big growth capital investments and that number so as we talked about on 1 of the slides.
Anything that we do from a investment standpoint and growth projects will be additive to the number.
Got it and that's supposed to be clear there I mean after your common dividend youre going to be and.
Youre going to be and there's about 7 percentage of equity cap today per year.
Roughly that dry allocated and effectively from a growth capital perspective on reinvent.
From a return to shareholder perspective.
Correct. So you can kind of think of that baseline as being sort of a 2020.3 ish number, but clearly over time, either either we're going to invest and growth projects and we're going to buy back stock and 1 of the other.
And I'm going to continue to accumulate cash forever and both of those would be upside from the $7.
And that's really helpful I'll pass it on thanks.
The next question comes from Ben B, and the new <unk> with Stephens.
Please go ahead.
Hey, Thanks, and good morning, everybody.
Hey, Good morning, Hey, Ben I wanted to follow on Adam's question, there just on capital allocation and if I.
I look on page 16, and your slides the buckets you provided.
Are those in.
Order of importance or attractiveness and or the opportunities that exist today.
And if so could you talk through that if not could you also just talk about where you see the greatest.
Entities and how you think about I know you've talked about wanting to make a risk adjusted.
<unk> profile and your investment paradigm that you're putting in place.
Can you talk about that relative to the decision to buy back stock and Adams.
On a yield based on the stock is going to be quite cheap.
Pretty much on that increases your hurdle rate for the stuff that you would want to buy.
Yeah, Let me let me start on on the projects and then I'll, let John take it from there, but no I think what's exciting now is we've turned to the growth phases.
And they're really working across all of the growth platforms and and there'll be.
And I think for that capital.
As we put it to work and then as you said and I'll, let John talk to that it always competes versus buybacks right. That's always a baseline as well, but look we're excited on what we're doing on R. R.
Oilseed platform as well as the origination distribution businesses. So.
Competing all the Debottlenecking.
And we're looking at some brownfield opportunities and then of course, even looking at some greenfield opportunities because theres going to be more capacity needed to.
To meet this demand growth.
We will continue to support.
Support our strong areas, but also looking to fill in some areas and whether that's with with.
And we're doing so if we can do something meaningful on the acquisition side I mean, we feel as good as anyone to do that we've shown that we can execute and and we're building the cash and and looking for those strategic opportunities.
Our specialty oils business and you saw better performance there across.
That business and really gaining momentum.
Bolt on and you need to look at not only the organic growth, but where we have a bolt on acquisitions or tuck in acquisitions and that business, we really really like that and with all the reformulation and innovation that's going to be going on with customers is what's happening and the the oil complex.
And we're really glad to have that and the portfolio and then of course, what's happening and plant proteins.
<unk> and.
And that trend is firmly in place that's a business that'll be a slower build for us.
Where we're working with the customers and really working backwards and how we build that business and so we'll be thoughtful and again. It is about the returns we're not going on going to run out and overpay for anything.
To do that we're going on we're going to maintain our dis.
<unk> and around capital allocation and <unk>.
Lastly on the renewable feedstocks.
It supports really all of the business, but it's not only the products to serve that new demand, which is which is in the oil which is really important as you know historically a lot of times. The oil has been the drag for crush.
Which just makes that no.
No longer the case, but it's not only the products, but it's the services that'll be wrapped around that and as we work with people because the conversations are everybody wants a lower carbon impact and that's whether that's in feed food or fuel and so as we work with our producers to.
And to help them.
Deliver that low.
Carbon product and <unk>.
Work it all the way through the value chain into our customers, whether it's on the <unk> side of the BDC side. So teams are working very hard.
The portfolio rationalization over and we've turned to growth and.
This is a this is we're doing we're doing the hard work now.
But lots of great opportunities and we're excited about it.
Yes, Ben in terms of in terms of returns I think we've talked before about how we think about the allocation process and we.
Look holistically from the top of the house on where the best opportunities are and and we obviously adjusted.
Adjusted return requirements based on.
And geography based on familiarity with that business, how bolts and closely with what we're doing or if it's an adjacency.
But in any event and we're looking at things that are accretive to our targeted ROI.
ROIC so and.
And again it's.
Pretty disciplined centralized approach you know and we do expect.
Frankly, as we're generating additional cash down the road.
To utilize that debt availability to continue to look at growth opportunities.
I do expect for next year with the pipeline of Capex that we have that will probably.
We see a ramp up and capital spending next year over what we're expecting this year.
Okay great.
Greg You mentioned, China crush and starting to.
Maybe get a little bit better could you talk more broadly about China and the demand backdrop. There I know there were some.
Corn cancellations and a couple of weeks ago rattled the grain markets.
We've seen what pork prices have done how do you feel about where we are on the on the curve for demand from China.
And how that bears out both on crush and origination as we move forward.
Okay.
Sure.
Let's start by the demand has been very solid there. If you look at the USDA as forecast and corn imports.
To be 3 times last year. So that's a that's a different story than we have seen historically and so yes, there'll be some ups and downs, but the trend has been.
And more and been up and we think that that that's going to repeat and be sustainable the higher corn prices did cause some wheat feeding.
1 thing about as they've rebuilt that commercial industry right, they're running lease cost formulation now and when there were some some we released from the reserve with the corn high corn prices.
They reformulated and wheat being 4 points higher on protein that did hurt meal demand. So we felt that we think we're kind of getting to.
To the tail end of that.
And then as you said hog margins have soften but that seems to have stabilized.
And then crush margins.
We are under pressure.
This was all happening at the at the same time, but again that seems to have stabilized and historically if you look at that then that industry.
The marginal producers will pullback and those crush margin as well.
We will.
Recover so.
A good about the the long term there, but there'll always be some up and ups and downs and in the demand look.
Okay. Thanks for the comments and congratulations.
Thank you.
The next question comes from Luke Washer would think of them.
And we feel please go ahead.
Hi, good morning.
Good morning.
I wanted to ask about the refined.
On the refined soybean oil versus the crews and soybean oil John I think you talked about you expect that to come down as it relates to your new $7 EPS.
<unk> baseline.
But we're seeing a lot of renewable diesel capacity coming on over the next really 3 to 4 years and this premium seems to have blown out and you're double of what it historically has been so when you think about that going forward do you see that coming down sooner than later or do you think with all of this renewable diesel capacity and most.
Likely a lot of them on bringing on those pretreatment facilities too soon we could see that premium really last for a few years here.
Yes, we're really we're really looking at normalization over time, but it's it's tough to predict how quickly that will happen and I think our view would be over the next year or 2 it's going to be.
We remain elevated.
Youre right and we're seeing we're seeing premiums nearly double what they have been historically.
And a lot of the demand that's coming on and the near term won't have pre treatment and so it's really going to be a question of.
How fast and.
Over what period of time, so we wanted to be conservative and are $7.
In line that we didn't assume extended time period.
Elevated margins and that and that area, but certainly it's possible that that'll happen.
Yeah and here in the near term Youre exactly you're exactly correct, we're starting to.
To see the benefits of that already and we really haven't seen the volume.
Really start to pick up yet that'll happen here and the second half and then to your point it will take a couple of years for some of that to get built but we wanted to separate the near term environment from what we had put in a long term baseline.
Yeah, and just take advantage, but it looks like and Debottlenecking. Some of your oil are you exploring any greenfield potential.
Central to to build a new crush plan on right now, it's just really focused on debottlenecking.
No.
Things on the table.
Got it okay helpful and maybe just 1 more quick 1 we're hearing a lot about supply chain disruption and particularly as it relates to ocean freight and it sounds like you and merchandising business. It's it's on.
Most helped you to some.
And on extent I guess could you frame how that helps your results or hurt your results and whether this disruption could last for a while and what that means from the back half of the year year.
Yeah. So the 1 the 1 thing about having a global system and over 30 of our own ports when there when there is tightness and there is.
Dislocation.
And it allows us to be able to help solve problems for customers and to manage our own processing businesses to serve customers with products. So from that standpoint, it becomes somewhat of an opportunity is it difficult is it challenging does it create a lot of complexity absolutely some of the other things a little more problematic.
<unk> no doubt, but they're not unique to us and our industry are unique to this industry alone, but if you look and North America, the shortage of truck drivers and the tightness in truck freight and that that's really challenging.
On the logistical side and you know we're all working through that and then of course, the tightness and containers globally has made some supply.
Pain management.
Difficult, but you switch modes of transportation, where you can and and work through.
Stocks try to manage stocks with customers to manage where you've got logistical risk, but that's part of having a great global platform and having a great team.
Sounds good thank you.
And.
The next question comes from Ben Palo with Baird.
Please go ahead.
Hey, Thanks for taking my question and congrats Greg and John.
And of course, Angela and housekeeping question on the on if you woke up on the JV could you just remind.
US what are the.
The period is where you can't you couldn't do anything spin or sell it and then I have a much broader question.
Sure Yeah, Ben now we're now on a per pass the timeline and which we could go out and market are on.
Our half a day ownership of the JV, so that that was it.
Between months and so we passed that about a month or so ago. So we have the ability to go up market are half.
At the same time.
We will have the ability to trigger IPO at the 2 year, Mark which is December 1 and certainly.
We're talking to our partner, we're assessing our opportunities down the road here we're keeping.
And I on whats happening and the Brazil financial markets as well as what's happening with raise on and their recent IPO a portion small IPO and relative to size of their business, but were watching that to see how the market reacts.
Over time here and certainly keeping our options open.
Got it and.
And then Greg you built the home since April 2019, and you know with the new $7 baseline.
And establishing a baseline and a new baseline yesterday.
Guess what.
And the $7 number has been on you.
And your control and your team's control.
And then being there versus macro environment.
And there's a structural change or or.
Temporary change.
And if you could spend and that's a lot there, but if you could slice it up into what you think has led to that $7 number from where you started from that'd be helpful. Thank you.
Sure.
Look a lot of it are the things within our controls and we're not we're not assuming any any big macros and that that is if you think right.
And what we've lived through the last 2 years.
Put aside the fact of trade war ASF and Covid.
What we've lived through as we change.
Portfolio, we're running a different set of assets and we've gone through all of the work at the same time of unwired those from from the machine as we did the divestitures I mean these are these are distracting.
Tough tough projects and.
Super proud of the team and what they've been able to do we changed the operating model.
This from on a global company.
And that that took rewiring right rewiring, the systems and the processes and we're still on the final throws of that and getting better information more quickly.
To all of our and industrial and commercial teams.
And then the disciplined approach that we're taking on risk management and.
And that really focusing on the assets and how were running the assets and how we're managing the earnings at risk in.
And those assets and in the tens of thousands of customers that we've got.
And then as we've talked about the discipline around our industrial and seeing making improvements and how we run those assets and how the.
Audrey on commercial teams work together and looking at the best of Bunge globally to learn from ourselves as we think like a global company.
And make that systemic improvement that we get to keep.
And then we've done this in some some really tough environments and with a lot of people remotely and that's given us a lot of confidence.
The investments a year ago, when we were putting this this baseline out amidst this change. So this is the underlying.
The company here the great global platform there.
Great team and.
The way that we're operating and getting some miles with it now the environment has improved so when you say a 7.
Even though our baseline and remember that's a framework. So when you see the crush margins higher than what's in the baseline that's showing how the over improvement is there and that's happening and soy and soft crush and when you see the edible oil.
Volumes and now margins on the refining overages higher than.
700, and the model and that's what we were speaking to that's over and over performing the baseline and that's what we talked about we're comfortable with what we're seeing here for the next couple of years and that's why it was it was time to raise the baseline and and also why we were comfortable.
Raising the outlook for for this year.
And what thank you.
The next question comes from Ken Zaslow with Bank of America.
Bank of Montreal. Please go ahead.
Hey, good morning, guys still staying with bank of Montreal.
Good morning.
Morning, Ken.
And you know you Didnt change jobs.
Yes.
Just a couple of questions 1 is.
Wanted to confirm that you're actually increasing your implied EBIT from mid cycle more than what youre, increasing the EPS given that you're raising the tax assumptions and that is that a fair assumption and the EBITDA debt assumption is actually stronger than even the EPS range from 5.
5 to 7 if I didn't and leukemia.
Right.
Yep. That's the biggest driver is tax and then we do have a small increase and share count just over time through normal comp equity comp structure, but thats pretty minimal, but those would be the 2 drivers.
So the EBITDA is going.
Increase in your mid cycle.
EBITDA.
It is increasing at a faster pace than your EPS.
Right correct Yep, Okay. So cash flow matters, okay, I just want to make sure.
And secondly, definitely matters.
Right, that's what I was just kidding effective.
The effective tax rate is less important and to EBITDA and that's associated with it that's what I'm, saying I just want to make sure.
Implicitly I can back into what the EBITDA calculation would be and it would be higher than the EPS.
I just wanted to sure.
E E.
Second question is there any reason not to believe that 2022 will be at.
At least mid cycle numbers, just making sure I got that.
Do all the context.
Yes.
Correct right with what we see right now we expect it to be above mid cycle numbers.
I think the next couple of numbers.
Yeah. The next the next couple of years with the momentum and what we see here and look it takes time to build things weather.
Whether that's capacity or pretreatment or so some of the things that have to happen. It's some of the oil that has to find its way into the U S. That's complicated.
And so there's a there's a big shift going on and it's going to take some time for that to happen.
Okay, and not getting ahead and myself, but.
And I get the sense that you're trying to continue to build on the mid cycle earnings over time through Capex. So in 3 years or whatever the years are as you.
Build the capacity and and use your capital judiciously.
And you're trying to build a higher mid cycle earnings.
Over time as well right. This is not the end of the mid cycle number is that a fair way of thinking about it.
And that is correct no no. This is the beginning if you will so if we make an acquisition will come in and talk about what changed that makes to the baseline when we make a sizable capital invest.
Earnings and will come in and talk about what changed that makes the baseline. So those will be probably the next things you hear about the baseline or when we make investments and the different that makes to the the underlying earnings power of the machine yes.
And can think of it another way you can to hit $7 overtime, as we reinvest capital wisely and the company it lowers.
And the bar on the the need the margin we need to get to $7 will drop so today, we're at call it.
35 and 50.
Over time as we reinvest those.
And those numbers will go down in terms of the <unk>.
Margins, we would need to hit 7 and that's another way to look at it.
With that I appreciate guys. Thanks, a lot.
You bet. Thank you.
This concludes our question and answer session.
And we'd like to turn the conference back over to Greg Heckman for any closing remarks.
Thank you.
Just wanted to thank everybody again for your interest and boundary to wrap up we're really pleased with the continued outstanding performance were completed to be able to revise our outlook.
This global platform just continues to demonstrate its resiliency and with our role and the global food supply chain, where and a great position to benefit from what we see is.
And thank all running shift and demand for sustainable food feed and fuel and.
And we look forward to talking to you again soon and thanks again.
The conference has now concluded you for attending today's presentation you may now disconnect.
And <unk>.
[music].