Q3 2021 Bunge Ltd Earnings Call
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Good morning, and welcome to the <unk> Limited third quarter 2021 earnings release and conference call.
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I'd now like to turn the conference over to Ruth Ann why Sir. Please go ahead.
Thank you operator, 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 investors section of our website at buggy dot com 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 slide two and remind you that today's presentation includes forward looking statements that reflect <unk> current view with respect to future events financial performance and industry conditions. These forward looking statements are subject to various risks and uncertainties.
He has provided additional information in 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 Neville, Chief Financial Officer, I'll, now turn the call over to Greg.
Thank you Ruth Ann and good morning, everyone.
Turning to the agenda on slide three.
I'll start with some highlights of the third quarter and how we're thinking about the remainder of the year before handing it over to John Who'll go into more detail on our performance I'll then share some closing thoughts before opening the line for your questions.
Let's start with an overview of the quarter turning to slide four.
I want to begin by thanking our team for an exceptionally strong quarter their ability to remain focused on execution helped us deliver our eighth consecutive quarter of earnings growth.
In the second half of 2021, we've seen a shift in the challenges created by the Covid operating environment.
We've moved away from having to adjust to the fluctuations that came from lockdowns like the change in demand from foodservice to food processors.
Instead, we're adapting to an environment that is driven by an uneven global recovery. This dynamic demand is driving increases in commodity and energy prices and creating many supply chain challenges.
Our team has remained agile and I'm proud of how we've navigated this market shift.
We also responded well to unforeseen disruptions like the great work our team did manage any impact from hurricane Ida in North America.
We also continue to set high watermarks across a number of our key operating metrics. We've done this all while continuing to prioritize the safety of our team their families and communities as Covid remains with us.
In addition to solid operational execution are positioning and approach to risk management allowed us to capture opportunities quickly when the market conditions changed.
This was especially true as crush margins improved over the late summer when oilseed prices dropped and oil values expanded due to tightening supply.
The strength of our global platform and footprint continue to provide benefits.
In the face of broad logistical disruptions, our integrated value chains and owned ports have helped us to continue supporting customers at both ends of the supply chain.
This quarter and our results over the last year and a half have shown the power of our global network and operating model.
Looking ahead, we continue to see a dynamic set of factors and we're more confident than ever in our ability to react and manage well to capture market opportunities.
As part of our work to continue positioning bogie for the structural shift we are seeing in the consumer demand for sustainable fuel in.
In September we announced our proposed proposed joint venture with Chevron.
As a key step we will increase production of renewable feedstocks by nearly doubling the combined capacity of two soy crush facilities that will be contributed to the JV.
Chevron recognizes our expertise and oilseed processing and farmer relationships as well as our commitment to sustainable agriculture, and we recognize chevron's expertise in refining and distribution.
Partnering with a global leader in energy is a significant step forward in building the capability to make change at scale to help reduce carbon in our own and our customers' value chains.
This partnership will establish a reliable supply from farmer to chevron's downstream production and distribution so the in fuel consumer.
It also allows us to better serve our farmer customers by accessing demand and the growing renewable fuel sector.
It will also enable us to pursue new growth opportunities together and lower carbon intensity feedstocks as well as consider feedstock pretreatment investments.
In addition to the Chevron JV transaction, we announced an agreement to sell our wheat mills in Mexico to Grupo <unk>.
As part of continuously looking for ways to improve our portfolio. We concluded the business was not in line with our long term strategic goals and we're pleased with the outcome of selling to a well respected wheat Miller, we expect the sale to be completed in 2022.
Turning to our segment performance results in agribusiness were driven by strong execution and better than expected market environment.
And processing, we benefited from higher margins in soy and soft crush in the northern hemisphere.
Merchandising results were better than expected and very strong compared to prior year.
Results in refined and specialty oils improved in all regions with particular strength in North America, driven by strong demand from food service and renewable diesel.
We're also seeing continuous improvement in our innovation pipeline, it's enabling us to launch exciting new products to the market.
I'd like to congratulate our team for their efforts to help customers with creative solutions.
This innovation capability as well as our skill at solving supply chain issues have helped create a step change in many long term customer collaborations and commitments.
Our team is also making measurable progress improving sustainability across our operations and investments.
Knowing the launch of the Bhangi sustainable partnership in Brazil earlier. This year, we have already improved the visibility into our indirect supply and high priority regions to approximately 50%.
And that's exceeding our 2021 target of 35%.
And while we still have work to do having this insight into our supply chain will help us meet our industry, leading non deforestation commitments.
And finally regarding our noncore businesses I want to call out the role our sugar JV has had on our year over year improvement. We're pleased that this business has been performing well in a challenging weather market.
Additionally, bung debentures had a successful quarter as a result of the Benson Hill I P O.
John will give you more details on the impact of that investment in the quarter.
We also repurchased $100 million in shares and our board authorized a new $500 million repurchase program, demonstrating our confidence in the business.
This reflects our balanced approach to capital allocation, where the return of capital to shareholders is always evaluated along with other investment opportunities.
And before handing the call over to John I wanted to note that we've increased our outlook for 2021, reflecting our strong third quarter results and continued favorable market trends.
For the full year, we now expect to deliver adjusted EPS.
But at least $11.50.
We expect the strong momentum to carry over into 2022.
So with that I'll turn the call over to Jon to walk through our financial results in more details.
Thanks, Greg and good morning, everyone, let's turn to the earnings highlights on slide five.
Our reported third quarter earnings per share was $4 28, compared to $1 84 in the third quarter of 2020.
Our reported results included a negative mark to market timing difference of 22 cents per share and <unk> 70 per share gain on the sale of our U S interior grain elevators, which closed back in early July.
Adjusted EPS was $3.72 in the third quarter versus $2 47 in the prior year.
Just a core segment earnings before interest and taxes or EBIT was $698 million in the quarter versus $580 million last year, reflecting higher results in agribusiness and refine our specialty oils.
In processing higher results in North America, European soft seeds, and our Asian, and European destinations soy value chains, all benefited from improved margins.
These were partially offset by lower results in South America, where margins were down from a strong prior year.
And merchandising improved performance was primarily driven by higher results in ocean freight due to strong execution and our global vegetable oil value chain, which benefited from increased margins.
And refine our specialty oils the strong performance in the quarter was primarily driven by higher margins and volumes in North American refining, which continued to benefit from a recovery in foodservice and increased demand from the renewable diesel sector.
Higher margins in Europe, largely driven by favorable product mix also contributed to the improved performance.
Results in South America, and Asia were slightly higher than last year.
In milling lower results in the quarter were driven by Brazil, where higher volume and lower unit costs were more than offset by lower margins.
<unk> in North America were comparable with last year.
The increase in corporate expenses during the quarter was primarily related to performance based compensation accruals.
The gain in other was primarily related to our Bungie ventures investment and Benson L, which went public during the quarter.
Improved results for our noncore sugar and bioenergy joint venture were primarily driven by higher prices and sales volumes of ethanol and sugar.
For the quarter GAAP basis income tax expense was $92 million compared to $38 million for the prior year.
The increase in income tax expense was due to higher pretax income.
Net interest expense of $38 million was below last year, resulting from higher interest income related to the resolution of an historical value added tax matter.
Let's turn to slide six.
Here you can see our continued positive EPS and EBIT trends adjusted for notable items and timing differences over the past four fiscal years, along with the most recent trailing 12 month period.
This is an exceptional performance and I Echo Greg's appreciation of the amazing execution by our global team.
Slide seven compares our year to date SG&A to the prior year.
We achieved underlying addressable SG&A savings of $25 million of which approximately 75% was related to indirect costs.
Looking ahead, we are monitoring cost inflation globally. It will be working hard to offset this impact where we can while still making the necessary investments in our people processes and technology.
Moving to slide eight for the most recent trailing 12 month period, our cash generation, excluding notable items and mark to market timing differences were strong with approximately $1 9 billion of adjusted funds from operations.
This cash flow generation was well in excess of our cash obligations over the past 12 months, allowing us to continue to strengthen our balance sheet.
Turning to slide nine.
During the quarter, we received two credit rating upgrades.
Moody's raised us to be double eight two and Fitch upgraded us triple B, both with stable outlooks.
This now puts us at our target rating of Triple B <unk>, two with all three rating agencies.
The chart on this slide details our year to date capital allocation of adjusted funds from operations.
After allocating $137 million to sustaining Capex, which includes maintenance environmental health and safety and $25 million preferred dividends, we had approximately $1 $1 billion of discretionary cash flow available.
Of this amount, we paid $250 million in common dividends and invested 102 million in growth and productivity capex and repurchased $100 million of common shares, leaving approximately $725 million of retained cash flow.
Our pace of Capex spend this quarter was below our expectations due to supply chain related delays, which we don't see improving by year end.
As a result, we are reducing our 2021 capex forecast by about $100 million and will be rolling over these projects into next year.
In addition, we have a nice pipeline of growth and productivity investments that are under consideration, which will likely which will likely lead to a higher than baseline spend for the next couple of years.
We will provide more details on our outlook during our Q4 earnings call in February.
The $100 million of share repurchases in the quarter completed our $500 million authorization.
Greg mentioned earlier bunkers board has authorized a new $500 million program.
Earlier this year, we increased our quarterly common dividend by 5% in.
In May of next year, we will again review our dividend with consideration for the recent increase in our earnings baseline from $5 to $7 per share in the success and strengthening our balance sheet.
So as we have been demonstrating we will continue to take a balanced and disciplined approach to capital allocation.
As you can see on slide 10 by quarter end readily marketable inventories exceeded our net debt by approximately $1 1 billion a significant change from a year ago.
Please turn to slide 11.
For the trailing 12 months adjusted ROIC was 19, 4% 12, eight percentage points over our Rmi adjusted weighted average cost of capital of six 6%.
<unk> was 13, 7% seven seven percentage points over our weighted average cost of capital of 6% and well above our previously stated target of 9%.
The spread between these metrics reflects how we use rmi and our operations as a tool to generate incremental profit.
Moving to slide 12.
For the trailing 12 months reproduce discretionary cash flow of approximately $1 6 billion and a cash flow yield is 21, 6%.
The decline in cash flow yields in the prior year reflects a growth in book equity of the company.
Please turn to slide 13 in our 2021 outlook.
As Greg mentioned in his remarks, taking into account our strong third quarter results and favorable market trends, we've increased our full year adjusted EPS from $8 50 to $11 50.
Our outlook is based on the following expectations.
In agribusiness results are expected to be up from our previous outlook and now forecasted to be higher than last year.
And refining of specialty oils results are expected to be up from our previous outlook and well above last year.
We continue to expect results in milling to be generally in line with last year.
Excluding buggy ventures, corporate and other is expected to be lower than last year, driven by higher performance based compensation a portion of which was historically allocated to the segments.
Additionally, the company now expects the following for 2021.
And adjusted annual effective tax rate in the range of 15% to 17%.
Net interest expense in the range of 202 hundred $10 million.
Capital expenditures in the range of $350 million to $400 million and depreciation and amortization of approximately $420 million.
In noncore full year results in the sugar and bioenergy joint venture are now expected to be up considerably from the prior year.
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.
As John and I noted, we expect a strong close to 2021, driven by agribusiness and refined and specialty oils.
Looking ahead, we expect favorable market conditions to continue and we're confident in our ability to capture the upside from opportunities while minimizing the downside.
Just on what we can see right now we would expect EPS to be well above our baseline for the next couple of years driven by higher than baseline assumptions for refining specialty oils and soft seed crushing.
And we will continue to deploy cash we generate to create value by investing in growth projects with strong returns and returning capital to shareholders.
In closing, we're very pleased with our team's strong performance and our revised outlook.
In today's environment, we're right, where we need to be.
Key participant in the global food and agricultural network.
We're excited about our role in the accelerating shift in demand for sustainable food feed and fuel and the growth. We have ahead of us.
We'll now open the line for your questions.
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Yeah.
Our first question today comes from Ben <unk> with Barclays. Please go ahead.
Thank you very much and good morning, Greg John Congrats on the very strong results and thanks for beating and raising again the guidance.
Thanks Ben.
Well down now in light of your closing remarks, a question related to that so you're you basically said that you think this is going to be able to be above baseline for the next couple of years and I think the importance of your life on the years like multiple years now what's driving.
That sustainable lasting better environment worse as what you saw when you in first place put out your expectation just in summer of last year, you Didnt raised it. This summer so what has changed since then within the underlying fundamentals to.
Really.
Put you in that situation that you now can say that you expect it to last above that level for the next couple of years and then with that cash flow you. All generating do you think you can accelerate some of the investments and by the way I. Appreciate very much do you also think of shareholders returning them cash, but what is it.
CUNY Ts do you see in the market, where do you still want to invest in to maybe be in a position to even server increase what you've just did to the baseline of UBS.
Okay.
There Ben but [laughter], Yeah, Let me let me start by just a quick reminder, remember that was an earnings framework.
When we first put it outright with early in the turnaround and we were right at the at the front end of Covid. So once we had a good understanding.
Understanding of kind of how the environment was improving.
Our new operating model, how that was working.
Then we updated that framework. So as you just referenced so what we've now reflected remember the framework is an ability to look at kind of average margins on soy crush.
Soft crush as well as.
Our specialty in edible oils business, so what we see coming in the in the next couple of years as we talked about so one we continue to see the focus and.
And in the talent of this team to continue to operate well.
We see the stronger demand from.
Refined fuel I think we see the.
You know the long term kind of a lack of capital that has been invested in this industry.
And we see that the the refined and specialty oils, we expect that run rate that we see here in Q3 based on the demand from food service and in refining.
To carry through 'twenty.
2022 so we think that you know roughly $150 million a quarter.
<unk> is a pretty good run rate.
Maybe a little less little more you know each quarter, but we think that that'll be a pretty good ratable for 2022. So that of course will be above that that baseline earnings and then with the with the demand as well around renewed.
Renewable diesel and refined fuels overall continued support for soft seed crushing kind.
Kind of driven by the oil side of that and so we expect those to be above our baseline earnings as well.
And then as far as the you know the speed of growth I mean, we are absolutely focused as the transformation is done we've turned the the resources to focus on the growth. We will continue to do the organic things right the number of.
Debottlenecking projects already underway.
And we are the you know the timing of doing growth is at the right time when the when the numbers are right and that allows us we let the numbers drive drive the investment, but we've got we've got the balance sheet now where it needs to be and I think we've.
We've shown that we can execute and so we've earned that earn that right to grow and with the.
With kind of the changing landscape between as you think about the growth rate. We continue to grow our are our leading global crushing business and of course, the distribute the origination and distribution that that supports that as well as our other associated grain processing businesses to serve the producer we've.
We've got our specialty and refined oils business really hitting on all cylinders right now and position and looking not only through organic growth, but where we have some some opportunity for for bolt on acquisitions, and then of course, the trend and plant proteins is right.
Right in the in the sweet spot of not only supporting growth in our you know in our plant lipids business, but are in.
Our developing plant protein business, so that'll be a multiyear build but.
Absolutely excited about that trend that's in place and then of course on the on the renewable fuels and renewable diesel and sustainable aviation fuel and the changes that are happening. There. So just there's a lot of levers to pull.
For growth and so we can be.
Very thoughtful and as I said, let the numbers drive that drive our decisions.
As you pointed out the $7 baseline is our is our footprint as of today or as of when we put it together a few months ago and as we grow as we have an opportunity to invest in good projects.
And the landscape changes will continually update that well I should say on a periodic basis as material things change.
Perfect well with that and I'll leave it here, thanks, again and congrats.
Thank you.
Our next question comes from Luke Washer with Bank of America. Please go ahead.
Hi, good morning, and congrats good results.
Obviously, a great quarter.
Looking at your guide for the full year, obviously, its a low end number at 11 50, but clearly a pretty big chunk here from 850, 211 50, but the implied guide for four key was closer to $2, which is obviously on EPS, which is obviously much lower than the <unk> and <unk>.
Slower than the <unk> of last year, and I know that this is a floor, but as.
As we think about the fourth quarter you have crush margins that are in pretty good you have elevation margins. There are good the outlook looks very strong so.
Is there anything in the fourth quarter that would temper your expectations and how is the visibility looking at the fourth quarter.
Yeah.
Well you know part of it is is the timing right I mean part of the performance here in Q3 was.
The timing of what we did have a open on crush.
Definitely not extended out as far as when crush last time, we were together crush margins were definitely.
Definitely depressed and as we as we saw that rally.
We were able to benefit from that this quarter, but we were also hedging Q4, then as people are going out farther on the curve. So we definitely caught part of this last move but not all but as we've as we've hedged Q4 out and we like the momentum and where thats carrying into Q1 and.
And we can see that and that's why we feel good about getting getting off to a to a very good start here in 2022.
Yeah.
Great and then as you think about baseline I know you set a new baseline of seven only a quarter ago, but it feels like maybe even <unk> beat your expectations is there any change in the way youre looking at the outlook structurally whether it's part of your business or the <unk>.
Industry more broadly or are things pretty much the same missed that when you set that baseline.
Yeah, I think the.
The way we look at the framework is the same I think what we've seen what we've seen change.
Are the continued strength from the recovery of <unk>.
<unk> around refined.
And specialty oils from the foodservice side, while we've seen with the continued demand being added from the renewable diesel sector, what it's going to take here in multi years to do the work to build some of the supply that's going to be needed.
And just the overall operating environment.
Come clear and made it confidence for us to look out and say look above where the baseline model is refined and specialty oils are going to outperform that soft seed crush is going to outperform that because that that framework is built built around averages. So some of it's our ability to continue to execute in a really tough environment right.
The we're suffering from the same challenges around labor and wages and energy inflation in.
At.
The back end of Covid here.
So the confidence in the team to stay focused and really drive the big earnings engine here, while we're continuing to work well.
On the growth opportunity. So it's definitely environment externally, but internally. It's also as we continue to you know to get reps here with our with our eighth straight quarter of improved results.
And I think look it's important that the $7 was never intended to be a forecast or what we felt like the the necessarily the earnings power would be at a company in any given environment. It was based on.
As Greg called it a framework based on average historical what we kind of call it mid cycle margin structure.
The company should be able to hit $7 share, but obviously in the environment. We're in today, we're performing substantially above that because a lot of the a lot of the assumptions. We made in that model, we're exceeding those today and as well as we go forward and have an opportunity to invest some of this excess cash flow.
We hope to be able to update that model over time to a higher number.
It sounds good and maybe I can sneak.
Sneak in just one more on your investment invention Hill.
Are you guys, what's your relationship with them and how do you plan to get involved or are you guys working together how is that relationship.
Well, it's really like all the investments we do in our Bhangi ventures, I mean, we kind of use that as an innovation platform as a as a knowledge building platform, where we're looking at things that could.
Enhance our stickiness with how we work with customers that could lower our cost it can be new technologies to enhance our business or frankly, it could be new technologies that can be a threat to our business and so we make investments based on.
The company themselves and.
How it fits with the knowledge that that we want to continue to earn whether we do business. That's that's a separate decision that's at arm's length, whether we have a commercial relationship depending on the products and services that that company does and so some of our bunge ventures portfolio companies, we do business with because it makes sense in some are pure.
Investments, we do do a little bit of business with Benson Hill.
Sounds good thank you.
Our next question comes from Tom Simons Synched with J P. Morgan. Please go ahead.
Thank you and good morning, everyone.
Alright.
Especially a clarification when you say 150 million a quarter is a fair run rate for refined and special deals for.
For next year can you clarify how that compares to your baseline.
Okay.
Yeah, It's I don't know the exact number in front of me on the baseline, but its considerably above what we had in the $7 baseline driven really by the refining margins in that business from what we're saying.
When we when we assumed it on the baseline or is probably closer to maybe $100 million a quarter.
So youre looking at.
Probably at least a couple of hundred million dollars difference between the $7 baseline and where we are today.
That's very helpful. Thank you and maybe could you provide some more color around what you're seeing in your milling business you know what needs to happen for that segment to grow beyond this year.
Well we.
We are.
We continue to make investments in our corn milling business here in the U S to serve customers.
And in South America as well we've.
Started another another mill back up here last year and continue to make investments there, but it's really working with customers, that's where we've got the connection to.
Through our supply chain network wherever we've got crossover with customers, where there, especially.
And refined oils business.
And where we think we've got the scale to be relevant to customers.
And the connection to have an edge to win to win long term, so you'll see us leverage around <unk> around our strengths.
Thank you I'll pass it on.
Thank you.
Our next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yeah. Thanks, good morning, everyone.
Good morning good.
Morning.
So maybe following up on Tom's question in thinking about how you are.
The discrete areas, where you're seeing upside to that baseline framework I think you called out the soft seed side is soft seed crush as well I think back in July.
Planning assumption had been about $50 a ton of kind of.
Gross margin in that in the on the 10 million tons that are saying that you do for soft seed how have you framed the upside to that from the market environment looking forward.
Yeah.
Yeah.
You know I think we well you know what we've.
Looked at we called the refined out because that was a little a little more ratable and it's the big moving number.
As I know you guys trying to think about 2022.
We're carrying good momentum in.
Q1 in both soft and soy we can see that and then of course not as much visibility out to the balance of the year, but just kind of when we look at the smbs around the soft and what we expect that we expect that to perform above baseline we didn't really quantify it.
But we're definitely comfortable that it will contribute above baseline. So that's why we wanted to call it out as well.
Okay and can I just ask on the distinction in terms of top state and not and not the soy crush is there I mean, clearly the vegetable oil demand broadly that whole complex and is tied to the demand is very robust is they're more concerned about the demand on protein that would lead you to be.
Incrementally constructive.
On soybean crush or is it simply just the lack of visibility beyond the first quarter.
No. Its just lack of visibility I don't think from the macros were were fairly constructive with what we're carrying into Q1 and then we'll see how things are how things develop and how things develop in crops in the second half definitely it looks like we're probably going to have.
You know bill some stocks in oilseeds and that that should actually be good from an environment, but you know what's going to happen yet on getting things planted and seen the weather develop and so on.
Got it and if I could just squeeze another one in there just given some of the inflation that you're seeing across the environment. It seems like things were handled quite well through the third quarter, but how should we think about rises in energy prices.
Logistics labor, just impacting the business and particularly energy and thinking about Europe.
Some of the issues there specifically.
Yeah Energy you know, we think about as another input right just like oilseeds is one of the one of the costs in the Cogs and so.
It's part of the risk management is we're trying to manage the earnings at risk in our assets.
Definitely seen I think more kind.
Kind of violent moves in those as we've seen you know normally those are part of.
You know part of what goes into the crush margin as repricing and so those will get passed along and of course when you see moves like we've seen here is sometimes depending on the region. It may take.
A little longer to get those passed along but the other thing we have as you know.
With a global footprint, then we'll pull back crush margins get squeezed by the energies will pull crush back in that region and we can run harder in another region. So again, that's one of the things about the global network.
Very helpful. So it's just another one of those things around another dislocation and.
And disruption that we have to manage.
I would just say you know.
Adam on the.
On the wages side, I mean like everybody else, we're subject to wage inflation not only in the U S, but globally, but.
We feel like if if we can maintain our position as being a low cost producer in the industry.
As other struggle, we should we should come out on top and so were obviously managing that effectively as we can but.
The availability of labor is our primary concern, especially in the environment. We're in right now margin environment and we will continue to manage at first and then the inflation will pass along what we can and are going to continue to focus on being a low cost operator.
Okay that color.
Really helpful I'll pass it on thanks.
Our next question will come from Vincent Andrews with Morgan Stanley. Please go ahead.
Thank you and let me reiterate a congratulations on the quarter.
Can I just ask you know has anything changed about you know since since you guys came in.
Have you how is your sort of risk parameters involved.
You know now that you're a couple of years in an E.
A great quarters in a row and better operating environment or are you are you taking bigger swings at anything or is it still the same or has something changed about the philosophy.
Absolutely not one of the things.
About our philosophy, we said all along right is to manage the risk appropriate for the earnings power of the company.
And the environment that we operate within and that is.
As our risk teams and our commercial teams work.
Hand in glove assessing the dynamic environments that we're in and looking at the earnings at risk out in the out in the forwards of our assets and as we've said that those those earnings are just at risk until we can you know.
Book, the Oilseeds and book, the energy and sell the oil and sell the meal and our crushing or the same hedging the inputs and outputs in our in our grain processing or in our distribution assets.
So I think what you know the big thing that changes, we're operating as one bhangi and we are using.
Our information as one company to execute better for our customers.
We're using our global network to flex in a time, where dislocation has kind of become the norm with almost less globalization and more regionalization.
And quite frankly, there you know there is still.
A lot of embedded optionality in tens of thousands of customers and millions of tons of physical flows and the and the liquidity in those physical flows for us to manage the risk for ourselves and our customers.
And it exists when you when you Act like one Big Global company.
And you run that business in a very disciplined way.
Okay, and you mentioned.
Obviously, the South America's planning now and you know.
We don't have whatever crop they wind up having but I think I heard you say that that there'll probably be some build in oilseeds inventory. It was obviously a logical assumption, but I also thought I heard you said that would be that would be good for you or did you say good for the environment or just how are you thinking about sort of how next year could play out in the in the scenario, where lets say, Brazil, and Argentina have a very.
Large crop.
Sure.
Yeah, but it looks like being planning is off to a record start down in Brazil, I think we can close to 50% planted.
And we're seeing I think right now estimates are expected for there to be bigger soy crops and in the U S, Argentina and in Brazil, and I would say in the in the strong demand environment. We've got right you've got palm continuing to have problems on the on the supply side and just globally oils.
Not only from the renewable diesel and renewable fuels.
<unk> side, but now with Paul I'm, a little bit of a supply. So oil continues to remain strong we continue to see.
What we expect to be some growth in meal demand.
Next year.
So.
That is you know that is a more favorable operating environment now as I said the crops have gotta get grown in the the weather's got a got a show up and then how the farmer markets and everything has to develop but net.
Net net feels feels pretty good I think that's why even though we're not calling out all the all the specifics is why we say we feel that are you.
You know, we can be well above the earnings framework here for the next couple of years.
Absolutely.
Okay. Thanks very much.
Thank you.
Thanks Vincent.
Our next question will come from Ben Yeah.
With Stephens. Please go ahead.
Hey, Thanks, good morning, everybody.
Good morning, Bill I wanted to revisit this discussion around capital allocation and and just hear your thoughts around whether or not there's been any consideration around whether you could raise your rois vehicles, obviously, you've steadily raised your <unk>.
Each line earnings power framework scenario that you.
Think about characterizing the company with.
When when you think about what progress you've made at bhangi over the last two years.
And you think about.
You're lying earnings power of the business does it make sense to raise that threshold for Aro I see and when you look at the pipeline of potential opportunities.
Is there a robust set of opportunities organic or inorganic.
Seed.
She threshold.
Well, let me start and I'll hand over to John the one the one thing is that the the main but the only time, we talk about that that threshold on ROIC as quarterly with with you all because we have the teams focused on competing for working capital based on it and you don't.
How there are.
Returns on.
Competing for risk capital based on how their return on invested capital and how they are you know a ROIC C where we're looking at how effective we are in working capital. So we're constantly driving to get the best return possible not kind of just jump jump over the hurdle, we needed that framework when we were talking to investors, but frankly.
We are driving in competing against are always trying to improve the lowest returning internal internally and to grow the businesses that are the highest returning.
Yeah, Ben and I would just say that.
Certainly with where we've been able to get to in terms of our ROIC and our adjusted ROIC metric, which we think is an important way all sort of measure of the business. There's no doubt that I think we feel like we're at a different plateau today.
As we go forward here and look at our opportunities we've got.
We feel like a pretty good pipeline of opportunities and certainly our goal will be to two to raise at 9% to something north of that and I think if I remember back even a year and year and a half ago, Greg made a point that once we get to nine will raise it.
Well above nine and certainly.
We've got.
Enough momentum in the business improvement of the operating model and I think some attractive investment opportunities that we should be able to raise that as we head into next year and take a look at our plan for for next year and what we believe we can do.
We'll come back on that.
Yeah, Okay. That's great. Thank you.
Secondly, the sugar and bioenergy business I know it's noncore.
Forming considerably better than we've seen over the last couple of years I know that you were in our higher priced sugar and ethanol environment currencies.
Currencies more in your favor than it's been over the last few years I assume that hasn't changed any considerations you have around how relevant that businesses in your portfolio.
And what do you think the appetite is in the markets to make some strategic decision.
With that business.
At first it has not changed our view long term of that.
Plans are still like I said the business, we're certainly happy with the current performance. It makes it a lot easier to hold it until we until we can find the right buyer, but we.
We are actively in that process and it takes time, obviously to get the right the right.
Counterparties in the REIT structure, but but we're actively looking at it today and you know our goal would be to get that done as soon as we can but at the same time, we want to balance speed with value.
But certainly I think we think that that that business is worth a lot more today than it was a year or two years ago and so we're optimistic that we'll we'll get something done.
Okay, great, Thanks, and best of luck.
Thank you.
Our next question comes from Rob Moskow with Credit Suisse. Please go ahead.
Hi, Ed.
Just some kind of macro questions.
Do you do any work internally to try to figure out how far along China is in rebuilding its pig herd.
Africa After African swine fever.
And and how thats influencing their their exports or imports of us away.
And then I had a second question about.
Soy planting intentions.
With energy cost as high as they are.
With that.
Salt in more crop rotation into soy away from corn next year and if so does that make a difference to you or not.
<unk>.
Yeah. Thanks, Rob on the on China, you know we've definitely seen.
They're in the late stages of rebuilding that herd and you've seen those margins come off a little bit of a herd reduction.
In the places, where they've where they've really built too fast as they kind of outpaced their demand.
We haven't seen any major impact.
From a F S impact continue.
So of course that that will have some effect, we believe that'll have some effect on their imports.
Of Oh.
Meet no doubt.
So that continues that continues to develop.
And I'm, sorry, second part of the question somebody.
The energy.
Oh, yeah, the energy the higher energy prices.
In total actually are supportive for demand for renewable fuels.
And it looks like I think we're in a we're in a situation here for a while where everybody believes though there'll be higher crude and higher.
Energy prices.
Here for a few years as we kind of work through the you know the transition the you know a lower carbon energy footprint.
Foot print and we do think that that will be a net net friendly.
And as far as the corn, the corn versus soy acres.
Yeah, Theres no theres no doubt that you know.
The market's sending the signal on on oilseeds, but I think it's more than just.
Corn versus soy you know, we'll have to watch wheat, as well and Oh, and and and the other oilseeds to kind of see the fight for acres that one hasn't hasn't played out yet, but that'll be a real interesting point here over the over the next few years as the market's sending the signals for us to build some additional additional capacity capacity.
D and additional acres to the Akers <unk> production per acre to serve the demand.
And maybe I'll sneak one more and then have you done any tracking of global capacity for soy crush.
Because you know youre not the only one that's increasing capacity right now for renewable fuels any sense as to what that's done to <unk>.
Global crush capacity so far this year.
Yeah, So as we think about global crush capacity.
A couple of things.
One of course, we're always watching it closely and I think if you remember you know all the way back maybe Investor day, when we talked about we need some additional global crush capacity right, whether it's a weather problem you know our government problem.
Now we've seen an energy problem Kurt.
Curtailing some some.
Some run time and in China and that to get that.
To get that balance right I think what's interesting you know this year when we saw Argentina run harder through the first half than they did prior year and margins stay good globally and I think that that tells tells us something.
As well in and then as they didn't run as hard.
Later in Q3, and then we saw global a global margins then rebound again. So there's we're definitely we're tracking all the projects that are announced and then we'll actually track all the projects that actually get built we don't think there'll be exactly the same.
And you know look with what it takes to permit in order projects in order.
Equipment and get the labor in place that that extra crush coming in we're watching it's out there you know two and a half three years before it starts making a real difference.
So we're you know we you know we continue to look at.
Where we're going to put.
Our expansions and of course, you know we.
We announced the expansion we're gonna have will be on the water and that allows us to not only serve the domestic market with meal, but to be able to export to get to the world market and so as we make expansions in our own footprint, we want to be very very thoughtful about as energy goes through this transition in the next 10 to 15 years, which they fee.
Renewable feedstocks are a big part of that we also have the right lowest cost footprint for the long term and so that's why we continue to be very thoughtful about the long lived assets that we put in the ground.
Rob one other thing relative to the Chevron JV for example, they've been there've been other JV has announced a lot of those are greenfield builds.
They're going to take.
Number of years before their operational whereas because we're taking two existing plants and put in the joint venture were going to be up and running immediately with chevron. So we're pretty excited about that of course the expansion there.
We've talked about will come over time, but but certainly we're going to be able to hit the ground running with them.
Great. Thanks for the color.
Thank you.
Yeah.
Our next question comes from Ken Zaslow with Bank of Montreal. Please go ahead.
Hey, good morning, guys.
We're again.
When I think about refined oil it seems like both you and your competitor.
Uh Huh have done joint ventures, with the refiners right. So it almost seems like pretreatment.
May not be coming down the pike for all this.
Renewable diesel so refined oil margins may see longer than maybe we initially expected.
Can you make a comment on how you're thinking through the refined oil margins might actually the duration of them.
Well, we feel you know comfort.
Comfortable enough that we've now called them all the way through.
<unk> 22 above or above our baseline so that that says we're pretty confident because you know we're a little maybe conservative on on how far we like there to reach out with projections.
And look it will be.
You know the industry, we'll be making those decisions right.
Our industry on.
How we're serving the renewable diesel industry and renewable diesel industry, making the trade offs on can they make a return on investment on pre treatment and is pre treatment best built.
At refining at a renewable diesel production or somewhere else to gather other low Ci feedstocks and so the one thing. This is developing very quickly and that's one of the things. We're so excited about.
Our relationship with Chevron. This is a J b. This is a platform that we're starting and we're using the combined knowledge of two global industry leaders, where we've got the philosophy of leveraging each other's strengths, we're not trying to do chevron's expertise, they're not trying to ours, but we are trying to bring that together.
Gather everywhere from looking at the economics and understanding how the feedstocks work in the refinery understanding what we can do with the producer around regenerative bag in the supply chain developing other low Ci feedstocks and thinking about long term, how we grow together to meet those needs and take advantage of those opportunities. So I think.
The relationship and the way that we have formed that with Chevron is a little unique to some of the others.
In the industry and we think it's powerful and we're excited about the opportunities that that's going to generate.
But it's fair to say that slow down and the pre treatment.
Creation.
They should extend the refined oil margins for longer is that is that at least a fair assessment.
Absolutely its a direct trade off.
You know to using the the refining capacity.
You know in the in the oilseed crushing industry.
So and then I wanted to just I know, we talked about this a little bit with the cash deployment.
Honestly I'm not that clear so help me out the.
Pieces of it is that Theres a lot of projects that are in the pipeline for 2022.
And then beyond that there is opportunities that you'll be able to deploy cash more externally.
You talk about one the projects that you know and again youre not giving me the exact projects but.
How much cash do you think you can deploy over the next couple of years or internal I'm, assuming we could assume a 15 or so percent return on that and then the other part is how quickly do you want to deploy the cash for external opportunities and then I'll leave it there and I appreciate your time.
Yes, Ken this is John I think it's pretty conceivable that we.
We will probably sort of baseline capex historically has been call it $400 million to $450 million. The last two years can you cumulatively will be about 200 million below that run rate cumulative because of the under spend the last couple of years.
We will see.
That amount, probably you know assuming supply chains loosen up next year and we can get the get the equipment, we need in the labor.
We could conceivably see something in the $6 million to $700 million range I think easily in capex over the next couple of years a lot of that is projects that we've got in the pipeline that we're analyzing not going to say, we're going to do all of them, but it's everything from continued Debottlenecking. We've got a couple of Greenfields.
And then of course, we've got a couple of projects, we've already announced that that are going to take time.
We'll be part of that part of that number and then ultimately.
Ultimately, we're always going to be looking at the M&A side and any opportunity there might be there and I think we feel more confident today that we have a right to to be a consolidator in the industry. If the opportunity comes given given what we've been able to do so.
We're gonna look it all facets of it but I think what we can control we're going to certainly focus on very good projects organically.
And again as I said before we have a good pipeline of things everything from from Debottlenecking, Greenfields and things like that that were that were some underway in some we're still assessing.
Great I appreciate it thank you guys.
Thank you.
Ladies and gentlemen, this concludes our question and answer session.
And the conference back over to Greg Hackman for any closing remarks.
Yes.
Thanks, again for joining us today and thanks for your interest in bogey I want to thank the team again for continued incredible execution in what continues to be a very dynamic environment and it just continues to demonstrate the strength of buggy. We look forward to speaking with you again soon everybody have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.