Q4 2022 Bunge Ltd Earnings Call
Speaker 3: Good morning and welcome to the Bungie 4th quarter 2022 earnings release and conference call. All participants will be in listen only mode. Should you need assistance please signify conference specialists by pressing star than zero on your telephone keypad. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star than one on your telephone keypad. To withdraw your question please press star than two. Please note this event is being recorded. I would now like to turn the conference over to Ruth Ann Weisner, vice president of investor relations. Please go ahead. Thank you Drew and thank you for joining us this morning for our 4th quarter earnings call.
Speaker 4: 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 Bungie.com under events and presentations. Reconciliation of non- GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well.
Speaker 5: I'd like to direct you to slide two and remind you that today's presentation includes forward-looking statements that reflect Bungie's current view with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risk and uncertainties.
Speaker 6: Bungee 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.
Speaker 7: On the call this morning, her Greg Heckman, Bungie's Chief Executive Officer, and John Neppel, Chief Financial Officer. I'll now turn the call over to Greg. Greg.
Speaker 8: Thank you Ruth Ann. Good morning everyone.
Speaker 9: We capped off another exceptional year for Bungee with a solid fourth quarter performance.
Speaker 10: Our continued strong results speak to the flexibility of our platform and team, which as I've said before are built to adjust and even excel in volatile times.
Speaker 11: In this year that had more than a share of ups and downs.
Speaker 12: Our team proved their ability to help our customers, both farmers and end users globally.
Speaker 13: Manage risks and navigate food security issues against the backdrop of regional conflict, weather impacts, and many other factors.
Speaker 14: I want to thank the team for their continued dedication to strong execution.
Speaker 15: which allowed us to build on our positive momentum.
Speaker 16: and deliver our fourth consecutive year of earnings growth.
Speaker 17: We're focused on our mission and it shows in our financial results.
Speaker 18: Looking at the fourth quarter numbers, adjusted core segment EBIT came in above last year's results, largely driven by strong performance across all regions in refined and specialty oils.
Speaker 19: John will go into our results in more detail. What I want to note are performance reflects our rigorous and disciplined approach to the business.
Speaker 20: including our focus on operating costs and the returns on capital we're investing.
Speaker 21: Looking ahead to 2023, we expect the market environment to be similar to 2022, with many of the same drivers still in place.
Speaker 22: That includes a globally tight crop supply, strong demand for our core protein meal and vegetable oil products,
Speaker 23: and the continued impact to global trade of commodity price volatility and supply chain disruptions.
Speaker 24: We also expect to see global demand for feedstocks and related services for renewable fuels continue to grow.
Speaker 25: Based on what we see in the market and the forward curves today, we expect full-year adjusted EPS of at least $11 per share for 2023.
Speaker 26: And with that, I'll hand the call over to John to walk through the results and the outlook in more detail.
Speaker 27: Thanks Greg and good morning everyone. Let's turn to the earnings highlights on slide 5.
Speaker 28: A reported fourth quarter earnings per share was $2.21, compared to $1.52 in the fourth quarter of 2021.
Speaker 29: Our reported results included a negative mark-to-market timing difference of $0.56 per share and a negative impact of $0.47 per share related to one-time items.
Speaker 30: Adjusted EPS was $3.24 in the fourth quarter versus $3.49 in the prior year.
Speaker 31: All your results for 2022 were $10.51 versus $13.64 in 2021.
Speaker 32: Adjusted full year EPS was $13.91 versus $12.93 in the prior year, an increase of nearly $1 per share.
Adjusted course segment earnings before interest in taxes or EBIT was $804 million in a quarter versus $70, $766 million last year.
Agribusiness finished with an outstanding year with another strong quarter that was in line with last year.
In processing, results were primarily driven by North America, which benefited from the combination of large soy and canola crops and strong meal and oil demand.
Personally, offsetting the strong performance were lower results in Europe and South America.
Europe was negatively impacted by higher energy costs and lower volume that included increased planned downtime and the idling of our operations in Ukraine.
It's South America type bean supplies reduced margins.
In merchandising, higher results in global grains were more than offset by low results in global oil's marketing, which had a particularly strong prior year.
Refine especially oil is finished another record year with strong fourth quarter results of 222 million dollars, up 68 million compared to last year.
All regions performed well in the fourth quarter, benefiting from strong food and renewable fuel demand, with notable year-over-year improvements in Europe , Asia, and South America.
In milling, the loss in the quarters primarily driven by low origination volume and high supply chain costs, reflecting the small Argentine wheat crop that negatively impacted our merchandising operations.
Results in the prior year benefited from contributions from our Mexico wheat mills, which we sold in a third quarter of 2022.
Corporate another was in line with last year.
A decrease in corporate expenses primarily related to the timing performance-based compensation of croubles, was offset by results in our captive insurance program and lower results in bungie ventures.
Improve results in our non-core sugar and bioenergy joint venture were primarily driven by higher sugar prices, which more than offset lower ethanol margins.
For the quarter, a report of income tax expense with $131 million compared to $64 million for the prior year.
The increase was due to higher pre-tax income and a year-to-date adjustment in actual geographic earnings next.
Adjusting for notable items and mark-to-market timing, the effective tax rate for the full year was 17% compared to approximately 16% for the prior year.
Yet interest expense of $76 million in the quarter was up compared to last year due to higher interest rates partially offset by lower average debt levels.
Also impacting the quarter were foreign currency borrowings in certain countries where interest rates were high.
However, the incrementally higher borrowing costs were fully offset with currency hedges reported in gross margin.
Let's turn to slide 6 where you can see our positive EPS and EBIT trends adjusted for notable items and timing differences over the past five years.
This not only demonstrates the power of our global asset networking capabilities, but also the continued outstanding performance by our team.
Each of these years brought a different set of rapidly changing circumstances, and the team successfully navigated through them while also executing on numerous company initiatives.
As shown on slide 7, our full year addressable SG&A increased modestly year over year, reflecting a resumption of more normal business activities, as well as increasing investments to strengthen our capabilities and to drive growth, particularly in technology.
We expect higher SG&A in 2023 related to these initiatives, which we have considered in our outlook.
So light eight details are capital allocation of the approximately $2.4 billion of adjusted funds from operations that we generated in 2022.
After allocating $306 million to sustaining CAPEX, which includes maintenance, environmental health, and safety,
and $8 million to prefer dividends.
on shares now converted to common equity.
We had approximately $2 billion of discretionary cash flow available.
Of this amount we paid 341 million dollars in common dividends, invested 249 million dollars in growth and productivity capex, and repurchased 200 million dollars of common shares.
The approximately $1.3 billion of retained cash flow was invested in additional working capital and toward reducing debt.
As we laid out in our earnings growth framework in the second quarter of last year, we expect to repurchase about $250 million of stock each year, but actual amounts could vary.
During 2023, we expected to plead the remaining $300 million of our existing $500 million program, which was announced in October 2021, and approve an additional share repurchase program.
Moving to slide 9, we finished 2022 with a total CapEx spend of $555 million, which was about $50 million lower than we expected in our Q3 forecast.
The primary drivers of the reduction were supply chain delays on long lead time equipment, as well as additional project planning time as we look more closely for opportunities to offset inflationary pressures.
We expect continued delays in 2023, which are reflected in our current outlook.
Lead times for simple equipment and parts are showing signs of normalizing.
However, due to increased project costs, we are reassessing the scope and timing of certain discretionary investments.
I shall show it on slide 10 that you're in readily marketable inventories or RMI exceeded our net debt by approximately $3.2 billion.
This reflex are used to retain cash flow and proceeds from portfolio actions to fund working capital while reducing debt.
Slide 11 highlights our liquidity position.
At year end, all $6.7 billion of our committed credit facilities was unused and available.
This provides a sample liquidity to manage our ongoing capital needs.
Please turn to slide 12.
For the trailing 12 months, adjusted ROIC was 21.6%, well above our RMI adjusted weighted average cost to capital at 6.6%.
ROIC was 15%.
It's also well above our weight of average cost of capital is 6%.
The spread between ROIC and adjusted ROIC reflects how we use RMI in our operations as a tool to generate incremental profit.
Moving to slide 13.
For the year we produce discretionary cash flow of approximately $2.1 billion in a cash flow yield of 20%.
Please turn to slide 14 in our 2023 outlook.
As Greg mentioned in his remarks, taking into account the current margin environment and curve. We expect full year 2023 adjusted EPS of at least $11 per share.
In agribusiness, full year results that are forecasted to be down from last year, as slightly higher results in processing are more than offset by lower results in merchandising, which had a very strong prior year.
While we are not forecasting the same magnitude of margin-enhancing opportunities that we captured in the past year, we do see potential upside to our outlook if strong demand and tight commodity supplies continue throughout the year.
In refining specialty oils, we expect the favorable environment to continue in 2023.
However, we expect segment results to be modestly down from 2022's record year, which reflect very strong results in all regions.
In milling, full year results are expected to be down from last year, but in line with historical performance.
In corporate another, results are expected to be in alignment the last year.
The non-core, full-year results in our sugar and bioenergy joint venture are expected to be aligned with the last year.
Additionally, the company expects the following for 2023.
an adjusted annual ineffective tax rate in the range of 20 to 24 percent.
However, note that this will ultimately be driven by geographic earnings mix of the company.
Net interest expense in the range of $380 million to $410 million.
Capital expenditures in the range of $800 million to $1 billion down slightly from our earlier expectation of just over $1 billion due to the reasons discussed earlier.
and depreciation and amortization of approximately $415 million.
With that, I'll turn things back over to Greg for some causing comments.
yeah.
Thanks, John .
Before turning to Q&A, I want to offer a few closing thoughts.
This past year demonstrated the critical role we play in global food security and maintaining flows of crops from farmers to consumers.
To ensure we can continue to deliver, we further strengthened our core business and built relationships with partners.
whose capabilities complement bungees.
For example, our RIGEO joint venture with UPL began operating in the fourth quarter, providing end-to-end solutions to farmers in Brazil.
We also announced a partnership with BZ Group in France to strengthen our global platform by connecting with BZ's network of independent farmers to bring more opportunities and flexible solutions to them and end users globally.
During 2022, we make great progress on our commitment to finding innovative, sustainable solutions in renewable space.
including our JV with Chevron, our partnership with CoverCress, and our JV with Aliko.
We continue to innovating and investing in plant-based lipids and proteins.
At our R&D and Innovation Facilities, our team is working alongside customers as they create unique solutions with plant-based ingredients.
We continue to invest in data science and technology.
to better connect farmers and consumers by making our operations even more efficient.
and delivering real-time insights to help us manage our business.
And science and technology are also key.
as we continue to make great strides in our sustainability efforts.
Thanks to expanding satellite monitoring, we were able to announce this week that through the Bungie Sustainable Partnership, we have now achieved traceability and monitoring for 80% of our indirect supply chain in the Brazilian Cerrado.
This is in addition to our ability to trace 100%
of direct purchases in the priority regions of South America.
Improving traceability through our indirect sources of product is a critical step in meeting our industry-leading goal of achieving deforestation-free supply chains in 2025.
While we're proud of the progress we've made, a more sustainable tomorrow requires everyone across the value chain to work together.
Bungie's approach will continue to be grounded in solid science.
proven technologies, incredible methodologies.
with our critical place in the global food supply chain.
We look forward to continuing to engage with other companies and organizations in the food and agricultural sectors to find new solutions and importantly connect with tens of thousands of farmers around the world on these critical issues.
And with that, we'll turn to Q&A.
We will now begin the question and answer session. To ask a question you may press star than one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If 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 Adam Sandelson with Goldman Sachs. Please go ahead. Yes, thanks. Good morning, everyone.
All right.
Good morning. So Greg, John , I guess the first question is really on capital allocation and I just.
Company didn't buy back any stock in the quarter. The kind of net debt is half your readily marketable inventories or about nearly half your readily marketable inventories. CapEx is actually taking longer to kind of ramp. And so I just would love to get
your thoughts on kind of what kind of where the dry powder, why the dry powder is just sitting there. And the context of where you see risk adjusted returns that could be higher than buying back your own stock at the levels of where it's been trading after the last few months.
Yeah, I think, you know, Adam, as we look forward and kind of back to my comments, we do expect to, we didn't get all of the 250 million bought last year that we, you know, kind of laid out in our strategic plan, but we absolutely expect to be caught up on that this year and seek authorization for an additional plan.
We are committed to share buyback. You know, as I said, we obviously didn't get it done last year at the $250 level. But that is going to continue to be an important part of our allocation. And we do expect to make up some ground here in 2023.
Back.
Okay.
Alright, I think that's helpful. I guess I would still just push back or maybe get your further thoughts. I mean, how you think about your balance sheet capacity at this juncture would seem like there's a...
Has there been acquisition opportunities that may or may not have come through as you might have hoped for at some point in 2022? I'm just trying to get a sense of with the balance sheet where it is, kind of seem like the cash is there. I'm just trying to get a sense of what the balance sheet is.
Yeah, well, you know, we're always looking at opportunities and have been for a number of years. And I think as we as we were in fourth quarter looking at a lot of opportunities, we just thought it was prudent not to step in on the market at that point. But again, I mean, going forward, I agree with you. We think our balance sheet is extremely strong and we're well positioned to get more aggressive on the pie backside.
Okay. Can I just add, we're looking at a bigger...
you know, portfolio of opportunities and we've seen in a long time. And yes, some of them are going to happen and some of them aren't, but we're going to stay disciplined. I think that's the point I wanted to make.
Okay. Maybe just on the outlook for 2023 and just need to talk about potential sources of upside in agribusiness of commodity markets kind of remain tight. You just give us some framework on certainly the processing side and kind of where you see kind of...
of the question margins around the world as we sit here today and kind of particular geographies that you think would be are areas that are more likely sources of service us upfront um
at this juncture.
Sure, yeah, let me start here. Yeah, if you look at the outlook of at least $11, that's up $1.50 from the call we made at the same time last year. And so I think, you know, if you frame that up, it's the favorable environment that
We saw in 22 is carrying in with continued strong demand for both meal and oil. We continue to see tight S and Ds and we expect the volatility to continue here this year.
So the other thing is, you know, we've continued to get more reps in our operating model, right? We continue to improve the data transparency.
And what we've got with the tight Argentine crop, you know, with the dryness there, you know, that crop's probably going to be in the mid-30s versus 44 last year, and that tightness will continue all year, and the curves are reflecting that. And so, as you know, in the outlook, we're always looking at the curves, and so they've given us more visibility this year because of the Argentine.
point. That's all helpful color I'll pass it on. Thanks.
Thank you. Good to see you.
The next question comes from Ben Torter with Barclays. Please go ahead.
Perfect. Thank you very much. Good morning, Greg, John .
So actually just following up on that on the guidance, I can't, obviously impressive on RPO, which you were able to deliver in 22 and the outlook is definitely encouraging for 23, fair to assume better than 21. But help us understand.
What has changed so much in RPL versus
your baseline guidance from just a few months ago, where you basically looked into a significantly lower level, and we're basically a double here. So what is it in the market that's been driving it so much higher, and how do you actually think of this environment going forward, also in light of what you published back in July , August when it came to the...
continue to grow and I think that's why we saw improvement from all regions.
So, the...
You know, the food demand has stayed strong and that is even without you know China coming out of COVID recertainty a little bit of improvement in oil demand there that could improve throughout the year from a global SND.
But no, the teams continue to do a very nice job. And even on the food side where there's been some inflation, you think about our tech services people working with customers as they reformulate to try to work with inflation. So there's just a lot going on there both with the food.
level outside the US is what we saw this year. And then relative back to the, you know, our strategic financial plan, we knew, you know, RSO, the whole refined specialty always business was going to overperform, or perform very well here in the near term, but, you know, over time we've modeled in in our baseline that...
that refining premiums would decline eventually. Now what we're seeing is, you know,
projects taking longer to happen and possibly a longer runway on these strong margins that we built in ultimately. So we feel pretty good about where we are now and we'll just watch long-term what happens with refining capacity.
Okay, perfect, very clear. Thank you very much. And then the second question is really just about the general flex, obviously, that we're going to have within the guidance. And one of that is that if you could elaborate maybe a little more detail on the tax rate, which obviously is a relatively wide range, but also significantly higher than in the last two years. Is that all?
In Brazil, for example, taxable income to be much higher in 2023, and that's one of our highest rated jurisdictions in terms of tax rate. We also had, over the last couple of years, as we've cleared off some historical audits, we've had some one-time valuation releases that
that impacted our effective tax rate. But it is a wide range at this point. Because of the mix in geography, it's sometimes a little difficult early in the year to predict. But we'll fine tune that as we move through the year.
Perfect, well thank you very much and congrats on a very strong 2022.
Thank you.
The next question comes from Manav Gupta with UBS. Please go ahead.
So I just have one quick question. On December 15th, you made an announcement that you are looking to invest in a new protein concentrate facility. I think 550 million was the CAPEX. Help us understand why this investment, why is it a good strategic fit?
And then what kind of earnings uplift can you expect from this investment? And I'll turn it over after that. Thank you.
Yeah, both start on the strategy and the junk talk of the numbers. But now look, we continue to see growth in the plant protein space. We're already serving customers with the lipids, which are the specially fats and oils that give.
the taste and the mouth feel and the bite to a lot of those products. And we are on the plant protein side, we are a commodity supplier today of a many of those products. So this is a natural adjacency, this is a natural valuing up of our commodity streams, similar to what we're doing in the lessethon and some other areas.
So we're a natural, we have a right to win, we can be in a cost competitive position, and frankly, we've got our customers asking for us to be there as a supplier, and they want to work with us. And that's why we already did last year a multi-million dollar improvement in our innovation and R&D facility, and we're already working with customers.
putting our lipids with plant proteins and developing new and different products. So we're excited about this. We've also seen as that space continues to develop.
you know, don't think of it's not just alt meats, it's all plant protein opportunities, whether it's non-dairy, whether it's plant butters, and that trend is in place and it's up to the right. And the other thing I think we've seen shake out in the last two years is that, you know, soy is going to be the winner.
and kind of modeled that in, but this project won't be completed until roughly sometime in 2025.
So it's gonna take a bit of time, you know, from a development standpoint, getting that all wrapped up and getting the construction actually completed.
Thank you so much and congrats on a great course. Thank you so much and congrats on a great course.
Thank you very much.
The next question comes from Thomas Palmer with J.T. Morgan.
Please go ahead.
Thanks and good morning.
Morning. Welcome.
I wanted to ask on just the expected cadence of earnings in 23.
Does the outlook you kind of lay out assume stronger earnings for instance in the first half of the year and then and then some erosion in the back half or their segments where earnings might be more lumpy than in others.
Yeah, I would say the way we're looking at it right now, Tom, is when we look at the 11, at least $11, I'd say our bias is a little bit skewed toward the first half of the year, and then within the first half, a little bit toward the first quarter. So that's kind of how I'd think about it if I was laying it out. And obviously where we think the biggest opportunity is going to be is in merchandising.
or inside the first half.
But we will be, our first quarter will be lower than last year. We had extremely strong last year, first quarter, I think north of $4 a share.
Okay, thank you for framing that. And then I just wanted to maybe ask on the CapEx piece. So the presentation and then your comments, you noted the reassessment of scope and timing of some projects due to a recent spike in costs.
A couple quarters ago you laid out this longer term capex, I guess it's combined capex and M&A ultimately of 3.3 billion. Is that number still intact? Does that need to have moving pieces where the M&A component maybe is less? I'm just trying to understand.
If that longer term investment is also adjusted, given that reference spike in costs.
Yeah, we have not yet canceled any project that we had on that list. Timing is, you know, we're assessing timing. We're also assessing the design of some of those projects, given the inflationary pressures, looking for value engineering ways to make it more efficient.
But ultimately, that plan is still pretty much intact. I think we still feel pretty good about the timing on the commissioning down the road, so we haven't yet adjusted our long-term view on those. So at this point,
still on holding to what we had but we'll see as we go forward. I think the other thing you want to keep in mind, I don't think it's specific to Bungie or even specific to this industry, right? It's more expensive to build things whether it's the labor of the equipment and the interest cost or and it's taking longer.
to build things. But what that has done for our installed asset base is keeping margins hour and it's keeping.
the environment stronger for a longer period of time. So I think that allows us to have the discipline do these projects the right way and still build them. So it's probably pushed out the amount of time that we're able to kind of over-earn versus the model because of the environment.
And then the projects will just come in a little bit later. Yeah, maybe one of the things to add, Tom, would be that we've been able to keep largely on track with our maintenance type projects. And when you're in a margin environment like we are right now globally, it's important to keep your assets running smoothly. So we're pretty pleased, at least, that we've been able to.
Stay on on track and on time with all of our key maintenance projects Okay, great. Thanks for the details.
The next question comes from Salvatore Tiano with Think of America. Please go ahead.
Thank you very much, Gregor. So my first question is on the Argentinian drought and you didn't mention the impact on crash margins. So I'm just wondering if you can provide some more details on this impact both in Latin America crash margins but also how it is impacting globally margins.
Thank you very much.
Sure. No, you're exactly right. You've got to look at the entire global setup. And I think that's one of the things that's allowed us to, you know, perform in a variety of different situations the last few years is the great diversification and it's the best-reuse management is the geographical footprint of Bungie.
So, as we look at Argentina, you're right, the curves are going to be much lower, it's going to be very stressed from a crush margin, and volumes are going to be lower because of the weather, right? The crop is small all year.
to your comment as you're hearing some beans moving into Argentina. We've heard those rumors as well that you know some people getting positioned when it's close that they're securing supplies for safety. So I think that says how tight people think the S&Ds are going to be. What that means to the rest of the world is that we see soy...
last year with the COVID-0 policy. And as it started to come out of COVID, we've seen a little better oil demand. We've seen the curves start to improve, as well as the spot margins. So we'll watch that. That'll be a key one to watch how that demand accelerates here for the balance of the year as they come out of COVID.
but it definitely looks better than last year. Brazil is up versus last year, right? Very big bean crop coming in there.
And then in the EU, the curve looks better than last year. Part of that is less soybean meal imports, of course, coming out of South America. And the other is we had a warm winter, luckily, and we've got lower energy prices.
And that will not only benefit soy, but that lower energy cost will benefit soft as well. And if you look at soft, why we're thinking about it on a year over year, those margins will be up versus 22 in both North America and Europe on seed supply and then on better energy outlook in Europe . So.
pretty good setup really for the bungie portfolio here as we look at 23.
Perfect, thank you. And just as a second question, you spoke about the CAPEX. I'm just wondering on the sustaining side, I think your guidance implies a 20% to 30% increase in, actually more 20% to 45% increase in sustaining CAPEX. And I'm wondering why is that?
Is it just inflation or anything else that has changed this year? Yeah, it certainly inflation is playing into just about everything on the CAPX side. But it's also because of the timing of some of these bigger projects and our decision to you know reassess some of those, it's given us an opportunity to...
to maybe accelerate some of the maintenance work that we would have maybe pushed off for another year or two.
some of the maintenance work that we would have maybe pushed off for another year or two. Perfect. Thank you very much.
The next question comes from Stephen Haines with Morgan Stanley . Please go ahead.
Hi, and thanks for taking my question. I just wanted to ask, kind of going back to some of the delays on the CapEx side of things.
If you have any color in whether some of the potential RD customers are also seeing some delays and some of the projects that they're planning to ramp up in the near future as well.
Yeah, we haven't heard, you know, our conversations with industry participants is we haven't heard of anything around delaying projects specifically. You know, certainly there have been in the past year some slowdowns in terms of the bill primarily driven more by the margins on the...
on the oil and gas side, but as far as we can see from our side, everybody's still committed with moving forward as they've discussed before.
Okay, and then maybe just a quick second question if I can on maybe any updated thoughts on how you're thinking about the sugar JB and plans to take strategic action there.
Yeah, you know what?
We're pleased with the way it's been operating, but as we said before, we still don't expect to hold that long term. And we continue to look at our options there. And hopefully at some point down the road here, we have something to announce. But again, in the meantime, we're focused on running it.
Thank you.
Thank you.
Hello operator.
Thank you. The next question comes from Robert Moscow with Credit Suisse.
Thank you. The next question comes from Robert Moscow with credit sweeps. Please go ahead
Hi, good morning.
Everything has been really asked, but maybe just one modeling question on the on the interest expense It's obviously a lot higher in 23. Can can I assume that that will also in 23 be offset by Your FX hedges on the gross margin side similar to q4
or are they just not related to each other? And you're talking about overall interest expense increase? I didn't catch the first part. But yeah, some of it will be, not all of it. I mean, some of that's just indicative of when we went into 2022, three month LIBOR was less than a half a percent, and now it's more than a half a percent.
you know, hovering around 4% or so. So we're starting the year on much higher rates. And so that will have an impact. There will be some higher rates in countries where we're barring where we're hedging against that. So part of that will be offset in margin, but not all of it. Some of it will just be a symptom of starting out higher rates this year.
Okay, maybe a follow-up on refined oil. You said that international results in refined oil will probably be down year over year. Is there any specific reason for that? Like, obviously the US is doing well. Based on current live stream is the foreigners in the world likely to feel uncomfortable beforeooters? Absolutely not chemist Federal digestible oil now,
Is there any more color you can provide?
I think it's a reasonably modest decline off of what was a really strong record year. And I think, I wouldn't say we don't believe there's a way we could get back there. I think we're just not forecasting it at this point.
We have a little bit better visibility into the US S&Ds and we feel stronger about that remaining strong. The rest of it we'll see. I mean we'll certainly take the opportunity if it's there but it's just hard to forecast that at this point.
Yeah, we definitely got less visibility into the markets outside of North America. We've got a bigger book on there with food and fuel boats in North America.
Got it. Thank you.
The next question comes from Ben Callow with Beard. Please go ahead. Hey, thanks for taking my question and all the detail here. Just a question on the JV with Chevron. Could you just talk a little bit about any kind of requirements for capacity, you know, often?
whether renewable diesel, it sounds there or SAF, it sounds there. Thank you.
You bet. Ben, when we started this JV, it was principally focused initially around the two assets, KRO and Destrohan, that went into the joint venture. Those were performing pretty well. That was really a first step in looking at a number of opportunities.
for Chevron that we continue to look at. It takes time from a development standpoint to expand beyond that, but we're very actively engaged with them. I'd say it's been a great partnership, and I think we see a lot of opportunity down the road to continue to build on that.
And we do supply them in the commercial relationship from our entire system, not just those two assets. We were supplying them even before the JV and so it's a very holistic relationship.
And maybe just a lop on just on the IRA and any kind of benefits to you or the JV or how we should think about that impacting you guys.
Wait, I think...
you know in total you've got a new industry that's developing right and Net-net it's more demand. It's You know positive the renewable green diesel
We don't think it's going to be a straight line and I think some of the things around the IRA, everyone's trying to understand where there's leverage there for a number of things and not just around renewable green diesel but around lower carbon opportunities because ultimately with all of our customers and...
feed food and fuel are looking for lower carbon intensity products and we've got to find that value and drive that back to the farm gate to the producer, to the farmer, the one who's ultimately going to have to make that happen with those farmer grown crops. Yeah, I would say I would just add on I think two things we're looking at as well, you know, we expect to develop.
Thank you guys.
Thank you.
The next question comes from Ben Ngan-Venu with Stevens. Please go ahead.
Thanks, good morning everybody.
Morning, baby, I'm more of a bed.
I want to revisit kind of the architecture of the guidance for this year. You make a comment on your agribusiness segment that there could be potential outside of the current S&D holds throughout the year.
Is it that right now you have visibility into the first half of this year because of what's going on in South America and Argentina and perhaps as we get to a trend line yield in the back half of this year you might see loosening in S&D or is it just hey this is how we typically done things the last few years we guide as far out as we can see on the...
we have been right. It's what we can see, it's what the curve show and as we talk about calling it a dollar and a half higher than we did a year ago, it's because we do have more visibility with what's booked on the RSO side for feed and fuel as well as with the tight Argentine crop, the curves are reflecting that.
You know, that's given us the confidence to feel really good about the at least $11. And I think the question really is going to be around what's the size of the plus and there are a number of moving pieces. But you look meal and oil demand that those drivers continue to be intact. You've got good global poultry and pork numbers.
there's good food and fuel demand for oil so that's that's in place.
The sources of upside of course are the merchandising right which is always the toughest one to call So when we have the least visibility to and I think that one is most driven by you know dislocations
and tight S&D's globally in volatility. And so that's one where we talk there is.
opportunity and upside for that and that's kind of always the case in the merch even if you remember how we talk about it in the model and how we've talked about it in the outlooks in the past.
And then you've got China, right? The improved demand coming from China. We're starting to see just a little bit of that on the oil demand side, but that'll be key to watch. And I think there's a lot of belief that that could come back maybe faster and stronger than some thought.
And then, you know, the dislocations not only matter to the
to the merch business, but they matter to the Crush margins, right? As we have to turn Crush on to meet the customer demand in different parts of the world, and it looks right now like our Crush is going to run really hard outside of everywhere, except Argentina.
will be coming online in the second half of the year in North America. And then we've got a really large Brazil crop setting up on the bean crop as well as a good corn crop.
And then you've got what we believe will be a gradual build back to be 15 in Brazil. So that demand coming probably starting in April and building as they kind of try to match versus inflation.
So, you know, we think the dollars are going to be there exactly which value chain they're going to fall in or exactly which quarter they're going to fall in. That's always different in this business. What I do have the confidence is with our geographic platform and our team is that we'll capture that and that's what we've tried to continue to prove.
Okay, very helpful. Thank you, Greg. My second question is going back to capital allocation, following up on Adam's question around the buyback. And I hate to beat you up on this, Greg and John , but it seems as though you could do both. You could pursue your capital allocation program that you have, or capital expenditure program that you have.
and with the leverage profile of the business, buy back the stock? Because I think you would agree that the stock is a pretty good value here. Is the conservatism that you referenced, John , is that just, hey, that's in your DNA? Or is it...
We have so many other opportunities that have not come to fruition that we need to stay conservative to remain opportunistic more broadly than just the buyback. I just want to understand a little bit more specifically what that comment meant.
Yeah, I think, look, the answer is we're going to do both going forward. I think we have had a lot of opportunities that we've been assessing, including share buyback. But I think we're very committed to share buyback as part of the program. And I think we're highly confident we'll get the remaining $300 million done this year in our current program and get a new program in place. And I think we're very confident.
And as we move forward, we fully intend on doing a mix of both growth, a mix of all growth M&A and share by back.
Okay, very good. Good luck with the rest of the year.
Okay, very good. Good luck with the rest of the year. Thanks, Ben. Thanks, Ben.
This concludes our question and answer session. I would like to turn the conference back over to Greg Heckman when he closes your remarks.
Thank you.
So thanks again for joining us today and for your interest in Bungie. We're really proud of the team and the performance we've delivered in 2022 and our call for 23 and we're absolutely committed to continuously improving Bungie and serving our customers. So we look forward to speaking with you again soon.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.