Q2 2023 Bunge Limited Earnings Call
Good day and welcome to the Bunkering and limited second quarter 2023 earnings Conference call.
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I would now like to turn the conference over to Ruth Analyzer. Please go ahead.
Thank you Rocco and thank you for joining us this morning for our second quarter earnings call before we get started I want to let you know that we have slides to accompany our discussion. These can be found in the investors section ever website at <unk> dot com under events and presentations reckon.
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 monkeys current view with respect to future events financial performance and industry conditions.
Forward looking statements are subject to various risks and uncertainties, but 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, <unk>, Chief Executive Officer, and John <unk>, Chief Financial Officer, I'll now turn the call over to Greg.
Thank you Ruth Ann.
Good morning, everyone.
To start by thanking the team for their dedication and focus throughout the quarter.
Our performance proves that we can execute on big strategic moves like integrate into our business combination agreement side Terra.
Well continuing to keep our eye on the ball operationally.
We clearly had a lot going on over the past several quarters and this team stayed sharp in our day to day business delivering outstanding results and continuing to serve our customers at both ends of the value chain.
At the same time, we capitalize on this unique opportunity to enhance the bhangi franchise for the future.
John and I, along with the entire leadership team are extremely proud of this work.
We continue to make progress on our combination with by Terror and filed our preliminary proxy statement in connection with the proposed transaction last week.
We're excited to bring our teams and assets together to create a premier agribusiness solutions company.
To address some of the most pressing needs of the 21st century across food feed and fuel.
Turning to the second quarter, it was a dynamic environment and our team showed agility they.
They did a great job of managing against the downside and being smart with the opportunities that were available.
In particular, we were able to use our footprint and value chain connectivity to optimize margins as market conditions changed later in the quarter.
While volatility can provide opportunities it's difficult to predict the timing and where within the value chain those opportunities for upside will appear.
However, our ability to execute and rapidly changing environment gives us confidence that we can create value over the long term.
We also saw benefits from our investments in maintenance and productivity with improved reliability and reduced the amount of unplanned downtime across our platform.
Looking ahead to the remainder of the year and based on the forward curves today and on the market environment.
Which from a macro and geopolitical which is one that from a macro environment and the G. O is as Geo politically complex as we've ever seen.
We're increasing our full year adjusted EPS outlook to at least $11 75 per share.
I'll hand, the call over to John now to walk through our financial results and outlook in more detail and we'll then close with some additional thoughts John .
John Thanks, Greg and good morning, everyone, let's turn to the earnings highlights on slide five.
Our reported second quarter earnings per share was $4.09 compared to a $1 34 in the second quarter of 2022.
Our reported results included a positive mark to market timing difference of 59 cents per share and a negative impact of 22 <unk> per share related to one time items.
Adjusted EPS was $3.72 in the quarter versus $2 97 in the prior year.
Adjusted core segment earnings before interest and taxes or EBIT was $893 million in the quarter versus $709 million last year.
Agribusiness adjusted results of $674 million were up compared to last year.
In processing higher results in the quarter reflected better year over year performance across all value chains, driven in part by strong, Brazil, soybean origination, which contributed to higher crush results in Brazil, and our destination crush operations in Europe and Asia.
In the U S results were also higher as we entered the quarter with a significant portion of our capacity locked in at higher margins.
And merchandising power results in global oils, and grains were more than offset by lower results in our financial services and ocean freight operations, which had difficult comparisons to a particularly strong prior year.
Refining of specialty oils continued its trend of strong performance don't results were slightly lower than last year.
Our results in North America, driven by foodservice and fuel demand were offset by slightly lower results across Europe , South America and Asia.
In milling lower results in the quarter were primarily driven by our South American operations, which were negatively impacted by the small Argentine wheat crop.
Segment results in the prior year benefited from effective risk management of our supply chain during a period of high market volatility.
The increase in corporate expenses in the quarter, primarily reflected planned investments in growth and productivity related initiatives that will pay off in future periods.
Lower other results related to our captive insurance program and buggy ventures.
Results on our noncore sugar and bioenergy joint venture included a $39 million benefit from the reversal of a valuation allowance.
In addition, improved results reflected higher sugar prices that more than offset lower ethanol prices.
Adjusting for notable items net interest expense of $78 million in the quarter was down slightly compared to last year as higher average variable rates were offset by higher interest income.
For the six months of the year.
Income tax expense was $381 million compared to $144 million in the prior year.
The increase was primarily due to higher pre tax income in 2023 as well as a change in geographic earnings mix.
Let's turn to slide six where you can see our adjusted EPS and EBIT trends over the past four years, along with the trailing 12 months.
Our team continues to deliver excellent performance, especially when considering the rapidly changing market conditions. We have faced while also executing on a variety of internal initiatives to improve our capabilities.
Slide seven details our capital allocation of the approximately $1 $4 billion of adjusted funds from operations that we have generated year to date.
After allocating $181 million to sustaining Capex, which includes maintenance environmental health and safety, we had approximately $1 2 billion of discretionary cash flow available.
Of this amount, we paid $180 million in common dividends and invested $360 million in growth and productivity related capex, leaving approximately $630 million of retained cash flow.
We have not purchased any shares this year as a result of our discussions to combined with Vitaros How's.
However, we recently announced that our board has expanded our existing share repurchase program to $2 billion.
We want to be in the market as soon as possible and we expect that a meaningful portion of these repurchases will be executed prior to the close by Terra transaction with the remainder to be completed within 18 months of that date.
As shown on slide eight at quarter end readily marketable inventories, our rmi exceeded our net debt by approximately $3 $6 billion.
This reflects our use of retained cash flow to fund working capital while reducing debt.
Yeah.
Slide nine highlights our liquidity position.
At quarter end, all $5 $7 billion of our committed credit facilities was unused and available providing us ample liquidity to manage our ongoing capital needs.
And working with our key banking partners. We also recently secured $8 billion in the form of term loan commitments to fund our combination with Vitaros.
Please turn to slide 10.
So the trailing 12 months adjusted ROIC was 23% well above our Rmi adjusted weighted average cost of capital of seven 7%.
ROIC was 15, 1% also well above our weighted average cost of capital of 7%.
Moving to slide 11.
For the trailing 12 months, we produced discretionary cash flow of approximately $2 $1 billion and a cash flow yield of 19, 2%.
Please turn to slide 12, and our 2023 outlook.
As Greg mentioned in his remarks, taking into account the first half of the year results and the current margin environment in forward curves. We have increased our full year 2023, adjusted EPS outlook to at least $11 75 per share.
In agribusiness full year results are forecasted to be down from last year that was slightly better than our prior outlook as higher results in processing are more than offset by lower results in merchandising.
However, depending on how market conditions evolve over the remainder of the year, there could be upside to our segment outlook.
We refined our specialty oils full year results are expected to be up from our prior outlook and in line with last year's record performance.
In milling full year results are expected to be lower than our prior outlook and significantly down from a strong prior year.
In corporate and other results are expected to be in line with last year.
Yeah.
And noncore full year results in our sugar and bioenergy joint venture are expected to be in line with last year.
Additionally, the company expects the following for 2023.
And adjusted annual effective tax rate in the range of 20% to 24%.
Net interest expense in the range of $350 million to $370 million, which is down from our prior outlook of $360 million to $390 million.
Capital expenditures in the range of 1 billion to $1 $2 billion, which is up 200 million from our prior outlook, reflecting the purchase of a U S oil refinery during the second quarter.
And depreciation and amortization of approximately $415 million.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John .
Before turning to Q&A I want to offer a few closing thoughts looking.
Looking ahead, we remain focused on executing our top strategic priorities. So we can better serve the needs of customers, both farmers and in consumers regardless of the market environment.
Over the last several years, we've seen more volatility in the market.
And we're all managing through challenges, including food security market access and the increasing demand for sustainable food feed and fuel production.
As the world's population continues to grow it will take a collective effort in the industry to more efficiently address these challenges and buggy has an important role to play.
Together with by Tara, we will be able to utilize our combined platforms and capabilities to more broadly and rapidly expand our work to support sustainable and transparent value changed this.
This includes promoting sustainable practices, such as low carbon product streams.
Celebration of regenerative agriculture to reduce G. H G emissions and importantly, full end to end traceability across major crops.
During the quarter, we announced the creation of a regenerative agricultural program in Brazil in partnership with <unk> to support Brazilian farmers in the transition to low carbon agriculture, offering technical support tools products and services.
The program has already enrolled large scale farmers covering more than 250000 hectares.
We also launched the strategic alliance and commercial agreement with nutrient AG solutions to support U S farmers and the implementation of sustainable farming practices that will help increase the development of lower carbon products.
This alliance will further strengthen buggies connection with farmers in the U S and create value for participants across all our value chains.
We continue to evaluate and execute on our pipeline of bolt on M&A opportunities as we work through the process of combining with Vitaros.
And overall, we're well positioned to deliver on our purpose of connecting farmers to consumers to deliver essential and sustainable food feed and fuel to the world.
I'll always looking for ways to improve.
And with that we'll turn to Q&A.
Thank you.
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Today's first question comes from Ben Theurer with Barclays. Please go ahead.
Yeah. Good morning, Greg John Congrats on the very strong results first of all.
Thank you.
So it's like a kind of two sided question obviously, thanks for the clarity on the guidance increase in what you're implying into it but in the commentary in the release.
You talk about like the potential upside depending on market conditions, and I really like to understand and maybe ask you to flex a little bit.
On the upside what are the factors that could drive that earnings higher and whats the potential here often in light of like just the general market conditions, you've talked about the geopolitical stress we talked about wherever there is el Nino coming in so how does this all kind of combine and player.
Our role to potentially help you boost earnings above what is that at least at least 11 75 target. Thank you.
Sure, let me start here and Jonathan can add in if I Miss anything here look I.
I think we feel good about the at least $11 75, and you know we're we're also trying to evaluate the landscape on what's the size of the plus.
As we go forward, but if you look the meal and oil demand drivers continue to be intact.
Look globally between pork and poultry the numbers are stable it looks like wheat is not going to be.
As competitive as it is a little tighter so that should help meal as far as inclusion in the rations and and just generally food and fuel demand for oil both remained solid so when you think about the upside right merchandising.
As always the one that's tough to forecast.
You know not only the timing of it but where within the value chain within.
Those those opportunities are going to happen, but look I think what we've seen in the last four years and the challenges and again here in this last quarter.
This team does a heck of a job when the opportunities are on on bringing it home in executing and so we'll continue to focus on that.
China I think there's still the opportunity for improved demand there with the recovery. So that's that's one we're watching.
And then.
We're now seeing the dislocation from the small crop in Argentina start to play out here in the second half and we're having to call on capacity in the rest of the world. So with that dislocation really how will crush margins play out so that'll be a key to to watch with a little bit possible upside there and then lastly, I think we saw it.
Just starting the last time, we all talked was the Rd capacity starting to run better.
Seeing a little stronger demand for oil here in the U S. And that's continued so we'll be watching closely how they run in the second half. So I think those are some of the key flags and of course weather is always out there we've got to make this crop in North America. That's important and then of course the humanitarian corridor.
Now closed again, making it more difficult to get those supplies out of Ukraine and.
And creating more more volatility and dislocation of course, you know the market will do its job and try to bring what it can out over land, but that situation could change pretty pretty rapidly. So that's another one we continue to watch.
Ben I'd also add that coming into Q3, we were fairly covered in terms of crush.
So upside if there is upside in crush it's more likely to come in Q4, where we're a lot more open in terms of our capacity.
And you know margins were pretty weak in Brazil, right now and so we'll keep an eye on that as well.
Improvement there obviously is going to be helpful.
Okay and then just one quick follow up you talked about the the renewable diesel capacity I mean, obviously, we got the final deficient from E. P. A how do you feel about like the final decision they'll make major change towards came out back in November December , but just like the market itself and how that's going to play a role for the demand.
Forward for the feedstock you are providing.
Yes, I think when you Ben this is John when you when you look when you look forward and.
One of the things we've done is modeled kind of a look based on RVO.
Thresholds, it's still things are pretty tight going forward based on what's been announced in terms of crush capacity and what's going to be needed in terms of feedstock.
What I would consider fairly modest capacity utilization numbers and the Rd industry things are still going to be very tight. So we feel pretty good about where it's headed.
We obviously do a lot of business in the energy space and feel good about the volume increase that we're seeing and the commitment to that and and so we're still bullish.
Yes.
Thank you and our next question today comes from Salvator Tiano with Bank of America. Please go ahead.
Okay. Thank you very much.
So unfortunately.
Good morning, I wanted to ask about the processing business performed extremely well.
If you can tell us will beat versus your expectations. It was.
Please.
Performance come more from a higher crush margins or was it the better trading environment in Brazil for oilseeds.
It helps you there.
Yes, little a little bit of both.
You look when we came into the quarter. The team had done a pretty good job of getting us the capacity hedged out.
During some of the the crush margin so when things got weaker there for a period of time during the quarter. We didn't have to participate and then the team I think did a very good job on what capacity we did have opened.
On being very patient and what we saw in the numbers and as Argentina crush was slowing down that we felt things had to recover. So they also did a great job with the capacity we did have opened.
To being very patient and and hedging that out late in the quarter as as things recovered we.
We also saw that.
The tail end of.
The soybean harvest there in South America, and our origination footprint down there as you know is very good.
Jim did a great job so we not only got the benefit.
The origination.
In our crushing in Brazil, but of course that feeds our destination crush in Europe and in Asia in China, and Vietnam. So we got the benefit as well in crushing there.
And then of course as we got into the the corn harvest than in Brazil, right on the back of that Big Bean harvest.
We had talked about things, we thought were going to be pretty stressed from a logistics storage and handling you know in our.
Footprint is set up to handle that domestic demand as well as that export demand and the team did a very good job managing that not only the bean origination, but then on the exports on the corn side in the core and value chain executed very well, so just real good execution across the opportunities.
Perfect. Thank you and I also wanted the wanted to ask a little bit above the refining specialty oils business.
So fuel demand was good.
Especially in North America can you, let us know a little bit how does your and Marty how do your end markets look today versus a few years ago. When we think about the food versus fuel demand.
Sure look the the <unk> and in the specialty oils.
Bush of fats and oils team continues to do a great job, serving our customers. There you know over 80% of our.
Our oil still is going into the food.
Panels, even though the fuel is growing and very important to us.
And I think we're benefiting from what we saw on the back of the pandemic and the supply chain challenges that we were there for our customers and so we've grown with those key customers and we continue to help innovate and supply them as we're seeing some of these value change switch around with the growth in in the fuel demand I think you remember we.
We have our new refinery that we bought from Fuji down in Louisiana. That's been a Great addition, here in North America.
Continuing to serve our food customers and the team's done a great job of kind of getting that folded into our network.
And providing different seed and tropical oils to those customers as we bring all those food customers on and get them approved so we'd been.
Excited about that and just overall the environment in North America has remained strong we have seen some channel switching right, we've seen a little bit of switch from.
Packaged foods.
Into Q1 or from packaged foods from the brands maybe into private label and we've seen some switching.
On the foodservice side more into <unk>, but that's not necessarily negative.
Total overall volume for us in oil demand, but the consumer is doing a little bit of switching but overall demand continues to be there.
Perfect and if I may just high school adult so far.
For more clarity on how should we think about your oil volumes that do go into renewable diesel in Germany renewable fuels. How would you compare the volumes are sold as crude oil versus a whole new bedroom, you'll sell as refined and ease.
Is there a shift in the past few quarters towards selling more refined oil towards fuel versus crude oil.
I know I think as the as the industry has come up right there hasn't been as much pre treatment built.
In the beginning so we haven't seen any big changes.
In the mix of refined versus crude I think we've all talked about that going forward in the coming years.
We expect maybe to see some of that switch move.
From refined it and move back to see the amount of crude growth I mean that doesn't mean refiners will go down but you may see that crude demand grow as pretreatment comes in but the demand for oil overall increase but I think that's we're looking out 'twenty four and beyond.
Don't don't really see any big big switch here in 'twenty three I don't think in our book.
Perfect. Thank you very much.
Thank you and our next question today comes from Ben Bienvenu with Stephens. Please go ahead.
Hey, Thanks, good morning, and congrats on the exceptional quarter.
I went out I want to ask a little bit about the kind of a another follow up question on the processing business just because <unk> was so exceptional when you look to the back half of the year.
The curves are quite constructive.
Looks as though as you said the supply demand factors for me, Illinois are positive.
Can you tease out a little more.
As you look to the back half.
In the second quarter.
Was kind of unique to the second quarter, that's maybe inherently difficult to predict recurring in the back half versus just uncertainty broadly for the segment.
Yeah, well I think you know in the second quarter of course, we had the.
The last of the <unk>.
Brazilian harvest right and the origination there and I think.
The focus really here in the second half comes to Argentina, where you had the crop that was.
44 million tons in 'twenty, two and here in 'twenty three is probably in the in the low twenties.
And so we're going to really feel that.
Crush missing in Argentina that export of meal and oil.
So that will be the key how that plays out here for the balance of Q3 and Q4, and then continuing to make the crop in North America.
And seeing the.
The bean crop come in.
For Q4 to support the crush margins there in the U S and the other is it looks like.
You know some of the global demand and primarily demand to China being filled by by South America that keeps the beans home in the U S, which is probably constructive to crush there. So those are the some of the key things to watch as well.
Okay Fair enough and my second question is a little bit longer term oriented.
You guys have filed your proxy statement.
Last week, there were a number of interesting things in there.
The long term forecast that you've presented I'm curious if you could give us some context around.
Kind of the confidence level in those forecast recognizing it's hard to forecast the business over a long time period, but presumably.
Those were presented to the board.
You know as justification for the value of.
The Vitaros deal.
Can you talk a little bit about.
But largely right on track with respect to <unk> you know they don't they don't do they didn't have afford forecasts. They don't do one. So we we did put something together that we felt was a pretty good indication of baseline for them over the next several years and obviously.
Our goal would beat outperform outperform that as we move forward in terms of the synergies you know we had we disclose 250 million at the time, we made the announcement that was focused solely on cost in the proxy. We also included about $80 million of what we would call kind of operating synergies so things are.
Round logistics, and and procurement and things that weren't purely cost related but where we we saw some opportunity from an operational standpoint, but none of that includes what we what we consider.
Mercil synergies the way, we're gonna operate going forward in the opportunity that the combined company is gonna have from a commercial standpoint transaction standpoint.
So still a bigger number than what we used in our modeling what we used in the announcement and what we used in our original accretion calculation, but still not including the upside that we see in the commercial side going forward.
Oh, that's great. Thanks, so much Greg John I appreciate you taking my question.
You bet he spent.
Thank you and our next question comes from <unk> would you be yes. Please go ahead.
My question really needs to an announcement you need about a month ago.
Gliding some businesses in Argentina fit your partner Chevron, So help us understand the the the thought process behind this acquisition and I've got a question is Kevin obviously wants to go much visa and sustainable and aviation field. They will need a lot of feedstock. So do you see our partnership with Chevron extending b.
<unk> right now.
Yeah, We we love our partnership with Chevron It is.
Just at the beginning of that relationship, but we're we're very like minded about each leveraging our strengths individually as well as collectively and I think that's an example of a an opportunity.
That we identified to invest another novel seed that could create a low C. I feedstock for as you say not only renewable Lisa, but maybe long term sustainable aviation fuel.
And so you'll see us continue to look for those opportunities not just in North America, but globally as shown by the Argentine investment.
To to do things that meet the needs of the marketplace. Because we can serve both food and fuel the market will work there will continue to be innovation and we're just really pleased to have a partner like chevron to look at a number of these opportunities with.
Yeah, I would say say too I might add on top of that that you know essay up absolutely as a long term focus and I think you know <unk>.
What we're doing today with chevron on the on the renewable diesel side will well very much support a transition to I S. A F over time as they look to do that we'll be right here, you know, providing the necessary feedstock, both soybean oil and more and more of Lucy I feedstocks as well.
We agreed it looks like a great partnership my quick phone up is we have seen a very strong rebound in this link custom printed in the U S. The other agents responding <unk> at a slower pace. So help us understand a little bit better light has the U S. <unk> so much faster than other places.
I think some of it how the former marketing responded we saw some weather concerns you saw the the market's rally on those weather concerns and that created an opportunity.
For the you know for the producer to market some more of their crop so that made the beans available here, even though we're in the in the old crop and then of course, the meal and an oil demand has has hung in there you know as as we talked about.
Animal numbers are still there are animal profitability has improved.
A little bit and then on the on the oil side the food demand why we're seeing channels switching the food demand has has hung in there and the energy demand is growing so just a good good demand environment.
Thank you for the detailed responses.
Yeah. Thank you. Thank you.
Thank you and our next question comes from Adam Samuel set of Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
Good morning, Adam.
Maybe just following up on the knobs last question and you lose this in the prepared remarks about Brazil crush margins, maybe you're still being not the foreign cars being a little less robust.
What what do you think is holding back Brazil at this juncture from seeing the margin crush margins trying to hear something missing in North America, Argentina expert competition won't be there you know all of that and it seemed to me seemed to be healthy so what what's holding back Brazil in particular, because it does seem to be an important.
Source of of upside in to our the plus and the <unk> and the second half guidance.
Yep.
Brazil has been pretty good until until recently so.
I I think we're encouraged as <unk>.
We see less pressure from.
Argentina here in the second half look we've got an election coming up in a devaluation as possible, but we really are starting to feel you know the shortage of beans, there in Argentina, and we're not gonna feel it just in Brazil, but.
But overall, so I think we're.
Yeah, I think we're encouraged four Q4, but the the global system it'll be more than just Brazil has got to step up you know, we got lower energy costs in Europe .
And there'll be less pressure from.
Being an oil exports out of Argentina in Europe as well. So do you think it's a it's an encouraging setup.
Yeah, I think on top of that Adam we have really good strong form origination in Q2 and.
Since then they did that has slowed down a bit and we'll see how it transpires as we go through the balance of the your weather liquidity, you'll be there or not in queue for.
You too Craig's point earlier soy soybean oil is a little heavier.
And Brazil, right now you know, but demand to be 12, we'll see how that how that plays out the balance of the year, but certainly an area where things line up there can be some upside.
Alright, that's that's very helpful.
The second half of the year it would seem that.
With a with a large saphena crop uhm and it's still something religious expression or is that that should be a pretty healthy contributor both absolute and you're over here.
And second half getting quite up last year.
Yeah. It was it was definitely helped contribute there in in Q2, and then of course.
We saw that some of the demand shift to Brazil from the U S. A is that is that corn crop was was harvested in the market suggested.
That of course is in is in our forecast for the.
The book that we've got on and what we expect from execution as in our forecast for the second half, although as always with merchandising we're forecasting what we can see and as things shift around there could be it could be some continued upside that the team will take advantage of as as we get other dislocations and as you.
You know things play out in the Ukraine, as well and as we get the final development of what's the size of that U S crop gonna be.
Okay, Alright, that's all that's all very helpful.
Thanks.
Thank you and our next question comes from Stephen Morgan Stanley You. Please go ahead.
Mmm. Thanks for taking my question wanted to ask a question your J V on the West coast with plans to Triple.
Neil capacity in the coming years, and you know given that it's on the west coast, probably eliminate some destinations but.
You know, where you're kind of expecting that that's fine y'all to end up and you know more specifically is it kind of targeting China or or just you know kind of any thoughts generally on where you see some access to a meal production from U S. Finding its way overseas.
Yeah, It's it's definitely the Asian demand in general and.
As a reminder, one of the.
Great things about our team we've got a lot of cap.
Capillarity and granularity in our meal distribution and merchandising today wheat market more meal, then we produce we actually have to buy market in from from the market to serve our customers. So we're excited about that investment add a long view too to add meal handling.
<unk> capacity, so we'll be able to handle more it also make us more efficient which will help serve.
Those in customers and also provide a market as some of the additional crush comes on here in the U S. And you know we're already we talked about the industrial hand, where we'll be expanding with our chevron JV are crushed there will have swing to soft wherever if you remember right. We're right there in New Orleans, So again enabled.
To export that meal and so this is you know kind of a parallel investment if you think about it in the P. N W to get that meal that naturally flows off the west into those Asian demand markets.
Okay. Thank you.
Thank you Steven.
Alright next question today comes from Thomas Fomer J P. Morgan. Please go ahead.
Good morning, and thanks for the question your tones been quite positive I think today with a few call outs about what could drive upside of guided so I I don't think they're any major concerns maybe in the second half, but at the same time you just beat my over a dollar on EPS side well under your guidance was boosted by 75 cents. So I thought I'd.
At least as relative to your expectations are there are emerging risks that we should be monitoring as we look towards the second half of the year.
Well I think we're we're always managing you know the volatility dislocation the things that you know.
Went into our thoughts were one there was probably some of that earnings fell in Q2, there might've been a little bit of timing from Q3. So that's maybe why 100 per cent of that didn't transfer into the year and then and then look you can have two extreme of volatility right. This humanitarian corridor getting that supply out of.
Ukraine efficiently you know not only the volume, but what it costs and the the effect that has on the other origins in the world market to feed demand.
You still got the weather situation playing out in North America, what will that supply be on on the corn.
And the and the being side.
And and then of course, just the the overall how's the Chinese demand continued to develop and then you've got Argentina with the election cycle with a possible devaluation, so when I say it.
If you look at it from a macroeconomic Ah as well as a geopolitical standpoint, I don't think we've probably ever seen quite as complex environment. And then you can go ahead and throw interest rates and the effect on F X and what how that can affect.
Exports as well, it's it's pretty it's a pretty interesting dynamic environment, where real glad that we've got this great global footprint to operate from in and the the great team that's running it and I think that's what you know we've shown that whatever the challenge the.
The team has been doing a great job of.
A great job of delivering but there's there's definitely a few uncertainties here in the second half.
Yeah, and I think Tom given how he came into the quarter coming into Q3 with with quite a bit of a crush locked in Q3, probably won't get the upside maybe if the market tightens and crush margins move up of course, Q force fairly open, but that's been where there's been the least amount of liquidity in Brazil still not super strong.
There, but again areas, where we take the curves and then if things improve it's gonna provide us an upside.
Okay. Thanks for that and maybe just maybe follow up on the flow through of earnings and he's moving pieces as we think about just the cadence of the second half of the year. If we think about the lower ended up your guidance is there.
A favor ability I mean, it seems like if things go better right. It would be waiting for that fourth quarter, but if it's just kind of more of that that baseline guidance, how balanced would it be between the two quarters.
Yeah, <unk>, we're waited a little more toward fourth quarter. Today. So just just the way we put the forecast in today, it's already waited a bit to queue for just given what we what we know about Q3 and what we see it's probably close to 40 60, you know maybe <unk>.
Low forties high fifties between Q3, and Q4 is kind of how we think about it.
Okay. Thanks for that.
You bet.
Thank you and our next question today comes from Andrew <unk>. Please go ahead.
Hi, good morning, Thanks for taking the question.
You just touched on on some of this but I guess.
Your first time earnings is typically over the last decade, or so like 30 or 40% of what you would generate on an annual basis.
Last year was you know around 50% and the Guy who is this year.
At the 11 75 would be more like 60 per cent. So.
At the risk of being redundant I guess that does it make sense that issue would be so much more first have waited accident, you know kind of a particularly poor U S. Crop understanding you just called out maybe a little bit of time, you shift between <unk> more broadly than that.
Yeah, Andrew I can start and Greg can pop in here like I think yeah. It last year, we were a little closer to 50 50 were weight is still a little bit more toward the first half of the year, but you know every year is different I think the dynamics are you know, we we feel really good about the first half that we had and and it's really probably.
More an indication of uncertainty in the second half that it is any sort of an unusual trend of.
Earnings between first half second half I think just looking at is Greg alluded to the.
Geopolitical uncertainty you know crops, playing out weak weaker for curves in some parts of the world that.
We're hoping firm up that's just kind of how things look today, but but I think you know I wouldn't 0.2, right I don't know that we can point to any shift sort of and the the global market that that causes to earn more in the first half other than to Greg's point, we pulled a little bit probably forward just given the strong.
Origination results in Brazil, and how that impacted our our crushing Europe and China, but we'll see you know I think that.
We hope to have some upside and we will keep keep watching things.
Okay. That's helpful. Thank you and then my my other question.
You reference still looking at at both on M&A, and obviously, you've been spending a lot of a growth capital that you would expect to become an really in 2025, So I guess number one.
With maybe a better operating environment, how is the M&A market right now how would do those opportunities look and and number two given the strong environment does it does it change change the timeline for returns on those capital projects as it pulled up forward or are you still thinking of 2025 is really.
Kind of the timeline towards you would start to realize that.
Yeah, I would say, all starting and Greg and hop in here, but I I would say, our our capital R. Capex pipeline our growth capital still pretty much on track in terms of timing. It is gonna be you know 2025 2026, as we start to realize those projects <unk> a lot of them are big multi year builds, but we still feel very good about those.
We're constantly challenging our assumptions in our view of those projects and I still feel very good about that what we have in the pipeline in terms of the M&A side, you know obviously, our number one priorities right Tara getting getting ready for vice HERA on the integration planning side and thinking about how how the organizations are gonna run together.
You know we're doing some pre planning on our side getting ready for that that's that's our number one priority, but at the same time, we're still finding a good pipeline of smaller bolt on M&A things and you know as we said before.
That hasn't changed our view of the Capex and growth pipeline on the small bolt on M&A Vitale was gonna be additive to that so we continue to be active there. There's there's a lot of things going on you know maybe not all of them actionable, but certainly we continue to be pretty busy on that front as well.
Yeah, I think John pretty much covered it just the the one thing is from Ah environment.
We're definitely the complexity that we've you know.
You know is is definitely for everyone as well as you've got the highest interest rate environment than anyone has seen for a long time and so that that is creating some opportunities on the on the bolt on M&A and thanks to look at but as John said by terrorists absolutely.
Our number one priority and we won't let anything get in the way that.
Great. Thank you very much.
Yeah. Thanks, Andrew.
Thank you and our next question today comes from mine alone with Wolf Research. Please go ahead.
Hi, Hi, everybody good morning.
Got a follow up on U S crush and maybe I'll phrase it in a little bit of a different way, but you you referred a number of times on the call to some crop uncertainty.
In the U S and the effect of this.
Soybean supply uncertainty seems to be accruing to oil because as you say, that's where the demand is and so I don't know that seems like it it might be a a paradigm shift or something to flag, whereas you know normally you would expect a low soybean crop to to compress the crush because you don't have enough input do you use.
See it that way or is this something that you've seen before with with light crops or crop uncertainty or is it is it maybe is there may be nothing to see here.
Yeah, I think the demand you know historically right oils kind of been the laggard and and meal in North America and meal has been the driver for a long time and with this switch an additional demand from from energy now Biofuels in general, but renewable diesel specifically, we're now seeing or.
I'll carry a higher share and you know we kind of think that is there to that's there to stay but you know the market and the market is gonna do its work you know as that crop comes on and the global market. You know we're already seeing it would probably be more fed that demand from south American beans were more of the U S. B.
Will probably stay at home and and that'll help balance the crush and the demand for the meal and the oil.
In and crush really well you you talked about how you had a a high degree of your exposure locked in in the back into the ears, a little more open but the curve is like you say, it's a pretty strong would you say and maybe you don't want to give us a way for competitive reasons, but there's this kind of dollar $42 60 level.
And the forward crush sort of a smash hedge and you're only limited by liquidity or or would you play for upside.
Yeah look I'm really.
Really proud of the team being very thoughtful right to focus on the earnings at risk and the assets and that's not only the crushing but the milling as well as our export assets and when those margins are there and we're constantly evaluating not only the public information, but our proprietary information and and looking at the <unk>.
And you're right. There is more liquidity close in then there is farther out but when those margins are there will hedge them out and I I feel like the team is is very focused on range or risk and we continue to stay focused it it depends on our earnings power and it also depends on the environment that we're operating in and we always push everything through those two lenses.
So you know real proud of the team stay in you know absolutely focused on manage the risk in these assets Yeah. Sam I just add that you know we talk about the coverage in general terms, but obviously, it's by geography so by.
By value chain is how we see the opportunity. So it can vary between valley changed so U S vs.
Speaking I think the discipline that that we that we practice you know in the organization as is shown to be very successful.
Understood. Thank you.
Thank you that our next question comes from Robert <unk>. Please go ahead.
Hi, there.
Right right Alright, maybe just a couple of follow ups you mentioned the the demand outlook in China is is still you know kind of up in the air I Wanna know do you have any more color on what you see in demand in China currently.
Restaurant.
Versus just packaged food demand or for livestock.
And then a quick follow up.
Yeah. The the animal numbers have continued to hold up.
Despite there being some margin compression there the customers have been very spot.
And I I think one of our team [laughter] talked about the margins are being like like an accordion, they're kind of you know up and down but you know.
The way, we're set up over there and and support that business. The team is.
Very agile and so we've been able to to lock those margins. When they are there from a demand standpoint, we think there continues to be some additional growth I think.
You know are kind of anecdotal what our team on the ground sees is the domestic demand is is kind of back what we're really lacking are the the places that we serve that are more tourist or.
You know business travelers and the traffic there still we're seeing as as down although the domestic traffic is up so that's where the upside would have to come from.
Got it and I don't know if I've heard you talk about this recently, but in a higher interest rate environment I would imagine your balance sheet is a real competitive advantage and I was wondering if you could talk a little bit about how you have used it in your procurement practices in Brazil, how it helped you maybe even in the second quarter.
And also how how does it impact the the growers you know <unk>.
<unk> <unk> are their balance sheets impacted by rising that cost.
And does it make them more willing sellers.
Yeah, maybe like talk to a macro and maybe John I'm, drawing a little bit, but I think it you're exactly right. It is a competitive advantage for US. We are you know a nonbank lender that relationship that we have with [laughter] are origination customers as well as our consuming customers right or their facilities don't move our facilities.
Don't move these are long term relationships and we want to help them be successful.
The other thing is if you look the last few years with some of the commodity finance things that have happened in the market. The banks have backed off on some of the commodity financing and then with higher interest rates and tighter credit.
From a competitive standpoint, there aren't as many alternatives for people. So we we do play that role as one of the services, whether it's with some of our minority investments with our resellers, if it's with our long term origination farmer partners or even our our end user so.
Our balance sheet, and John and seem to have a great job of protecting that ensuring that we've got the liquidity would operate because you know in this business, it's very different than industrial business. The.
The the working capital is it's like electricity it is a bit the blood in the veins of of this business and it's an important thing and that's that's why we focus on a R. I a R O I C. A.
And the team is constantly focused on making sure they do get a return on that working capital.
Yeah, I I would just add robbed it you know as we've strengthened our credit profile over the last couple of years.
The industry, it's helped us from an advantage standpoint, because the industry in the market structure is ultimately going to be on average interest rates.
And to the extent that we can borrow money cheaper than others should and does give us a somewhat somewhat of an advantage in terms of being able to fund.
Might've, Greg talked about and as well provide the financing.
To the to the producers with the appropriate spread on it and you know ultimately we feel like you know through the <unk> acquisition. Obviously, we've that's been that's also viewed as very credit positive for us. So again should extend that advantage that we have in the market to to borrow money cheaper and.
And maintain that liquidity that we need.
And the farmers themselves has this influence their willingness to sell at all or is it like that.
Well, they're they're ultimately economic animals, and and the cost of carry certainly you know is important to them.
You know in in the market structure will have that cost to carry in it but but certainly I think what it's done for us is as tight a relationship where the farmers that on Greg you on it anything else Sir Yeah. No. You know, we're always not only originating for our in country demand, but for those markets that those destination markets right out of Brazil.
We're serving you know Europe and in our agent Martz in China, and Vietnam. So you know our ability to provide that liquidity and even like.
24, we haven't seen much much marketing of the farmers, yet, but when they're there we have the capacity to be there when they want to go to market and when I went ahead to their risk so.
We Wanna say stay focused on helping you know our customers not only in consumers, but our customer the farmer be successful manage their risk in this environment and help them you know accomplish their their profitability goals and their growth.
That's great. Thank you.
Thank you. Thank you.
Thank you and the next question today comes from Brian right at Ross. Okay. Yeah. Please go ahead.
Thanks. Good morning can you provide an update on the the interior of regulatory approval process and maybe some color on your turn milestones and pathways for this process.
So yeah. We're we're early on I think you know we talked about we just saw filed the proxy and we are doing the the regulatory filing so early on in the in the process, but we continued to to engage in in you know the asset base is a very.
Highly complimentary so we look forward to engaging on the facts.
Thank you.
Thank you.
Thank you and what is it.
This includes a question and answer session I'd like to turn the conference back over to Greg Heckman for any closing remarks.
Thank you everyone for your interest in Bhangi, we're really excited about where we're at in the in the stage of the company and the path to growth that were on and we look forward to speaking with the next time.
Have a great week.
Thank you Sir.
Conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.