Q4 2023 Bunge Global SA Earnings Call
Operator: Good morning and welcome to the Bungie Global SAE fourth quarter 2023 earnings release and conference call. All participants will be in English only mode.
Good morning, and welcome to the bungalow about let's see first quarter 2023 earnings release and conference call.
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Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.
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Operator: To read all your questions, please press star, then two. Please note, this event is being recorded. I would like now to turn the conference over to Ruth Ann Wisener. Please go ahead.
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Ruth Ann Wisener: Thank you, Maria, and thank you for joining us this morning for our fourth quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the Investor Center on our website at bunge.com under Events and Presentations. Reconciliations of Non-Gap Measures to the Most Directly Comparable Gap Financial Measures are posted on our website as well.
Ruth: Thank you Maria and thank you for joining us this morning for our fourth quarter earnings call before we get started I want to let you know that we have slides to accompany our discussion. These can be found in the Investor Center on our website at <unk> dot com under events and presentations.
Ruth: Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are posted on our website as well.
Ruth: I'd like to direct you to slide two and remind you that today's presentation includes forward looking statements that reflect <unk> current view with respect to future events financial performance and industry conditions.
Ruth Ann Wisener: I'd like to direct you to slide two and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge 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, Bunge's Chief Executive Officer, and John Neppl, Chief Financial Officer. I'll now turn the call over to Greg. Thank you, Ruthanne, and good morning, everyone.
Ruth: These 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.
Ruth: On the call. This morning are Greg Heckman, Buggies, Chief Executive Officer, and John <unk>, Chief Financial Officer, I'll now turn the call over to Greg.
Okay.
Gregory A. Heckman: Thank you Ruth Ann.
Gregory A. Heckman: And good morning, everyone.
Gregory A. Heckman: 2023 was a significant year for Bunge with both our continued strong financial performance and progress on our long-term strategy. I want to thank the team for their exceptional execution on our day-to-day business, while also focusing on key projects for First and foremost, we announced our pending combination with Viterra to create a premier agribusiness solutions company. We received overwhelming shareholder approval, and our team's been hard at work planning for a successful integration when we close the transaction, which we expect to occur later this year. We continue engaging with relevant authorities in countries around the world as we make progress on regulatory approval. In addition to the Vitera transaction, we announced the planned acquisition of CJ Select, a leading fully integrated manufacturer and exporter of soy-based products in Brazil.
Gregory A. Heckman: 2023 was a significant year for bogey with both our continued strong financial performance and progress on our long term strategy.
Gregory A. Heckman: I want to thank the team for their exceptional execution on a day to day business, while also focusing on key projects for the future.
Gregory A. Heckman: First and foremost we announced our pending combination with by Terra to create a premier Agribusiness solutions company.
Gregory A. Heckman: We received overwhelming shareholder approval and our team has been hard at work planning for a successful integration when we close the transaction.
Gregory A. Heckman: Which we expect to occur later this year.
Gregory A. Heckman: We continue engaging with relevant authorities in countries around the world as we make progress on regulatory approvals.
Gregory A. Heckman: In addition to the by Terra transaction, we announced the planned acquisition of C. J select Oh.
Gregory A. Heckman: A leading fully integrated manufacturer and exporter of soy based products in Brazil.
Gregory A. Heckman: We broke ground on our soy protein concentrate plant in Morristown, Indiana, with construction on track for a 2025 commission. We also completed the acquisition of a state-of-the-art oil refinery in Avondale, Louisiana. This facility, which has multi-oil capabilities, builds on our ability to provide value-added oils to our food customers in North America and is already exceeding our initial performance expectations. And in the next few months, we'll be commissioning our new multi-oil refining and packaging plant in India. These growth initiatives will enable us to meet the rising demand for plant-based food and feed ingredients.
Gregory A. Heckman: We broke ground on our soy protein concentrate plant in Morristown, Indiana with construction on track for a 2025 commissioning.
Gregory A. Heckman: We also completed the acquisition of a state of the art oil refinery in Avondale, Louisiana.
Gregory A. Heckman: This facility, which is multi well capabilities built on our ability to provide value added oils to our food customers in North America and is already exceeding our initial performance expectations.
Gregory A. Heckman: And in the next few months, we'll be commissioning, our new multi oil refining and packaging plant in India.
Gregory A. Heckman: These growth initiatives will enable us to meet rising demand for plant based food and feed ingredients.
Gregory A. Heckman: Investments to enhance our existing footprint are also paying off in improved overall performance.
Gregory A. Heckman: Investments to enhance our existing footprint are also paying off in improved overall performance. Our team continued to execute on planned capital projects, which, when combined with our focus on operational excellence, enabled us to reduce oilseed processing unplanned downtime to a historic low. Making better use of our capacity directly hits the bottom line. These investments were also made with an eye towards advancing our work in sustainability. Running Our Plants More Efficiently improves our performance against our science-based targets, and we're committed to continuous improvement of our operation, while expanding regenerative agricultural programs and engaging with the industry to do our part to reduce carbon emissions across the entire supply chain. We're proud of our team's many accomplishments in 2023, a year in which Bunge was selected to be part of the S&P 500.
Gregory A. Heckman: Our team continued to execute on planned capital projects.
Gregory A. Heckman: When combined with our focus on operational excellence enabled us to reduce oilseed processing unplanned downtime.
Gregory A. Heckman: Historic low.
Gregory A. Heckman: Making better use of our capacity directly hits the bottom line.
Gregory A. Heckman: These investments were also made with an eye towards advancing our work in sustainability.
Gregory A. Heckman: Running our plants more efficiently improves our performance against our science based targets.
Gregory A. Heckman: And we're committed to continuous improvement of our operations, while expanding regenerative agricultural programs and engaging with the industry to do our part to reduce carbon emissions across the entire supply chain.
Gregory A. Heckman: We're proud of our team's many accomplishments in 2023.
Gregory A. Heckman: Year in which bogie was selected to be part of the S&P 500.
Gregory A. Heckman: This is a landmark moment for our company and reflective of the work we've accomplished to transform our business over the last several years. Looking at the fourth quarter specifically, we delivered strong adjusted EBIT, driven by record results in processing and improved results in milling. During the quarter, we continue to return capital to shareholders through stock repurchases and dividends.
Gregory A. Heckman: A landmark moment for our company and reflective of the work we've accomplished to transform our business over the last several years.
Looking at the fourth quarter, specifically, we delivered strong adjusted EBIT.
Gregory A. Heckman: Driven by record results in processing and improved results in milling.
Gregory A. Heckman: During the quarter, we continued to return capital to shareholders through stock repurchases and dividends.
Gregory A. Heckman: Looking ahead as we've been reminded over the past few years, the only constant is change.
Gregory A. Heckman: Looking ahead, as we've been reminded over the past few years, the only constant is change. Each year brings its own set of challenges and opportunities, and the team has shown we can navigate with agility and speed. Based on the current margin environment and forward curves, the market dynamic in 2024 looks to be different than what we experienced in 2023. And, as often happens, forward visibility is limited at this point in the year.
Each year brings its own set of challenges and opportunities.
Gregory A. Heckman: And the team has shown we can navigate with agility and speed.
Gregory A. Heckman: Based on the current margin environment and forward curves.
Gregory A. Heckman: The market dynamic in 'twenty 'twenty four it looks to be different than what we experienced in 2023.
Gregory A. Heckman: And as often the case forward visibility is limited at this point in the year.
Gregory A. Heckman: For the full year, we expect to generate adjusted EPS of approximately $9.
Gregory A. Heckman: For the full year, we expect to generate adjusted EPS of approximately $9.00. John will go through our forecast in more detail. I want to reiterate that the work we've done to transform Bunge has created a company better equipped to operate in any market environment. And with the combination of Bunge and Viterra, we'll continue to improve our global platform, making it more efficient and resilient, allowing us to better serve our customers at both ends of the value chain. I'll hand the call over to John now to walk through our financial results and outlook in more detail, and I'll then close with some additional thoughts. Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on slide five. The reported fourth quarter earnings per share was $4.18 compared to $2.21 in the fourth quarter.
Gregory A. Heckman: John will go through our forecast in more detail.
John: I want to reiterate that the work we've done to transform bhangi has created a company better equipped to operate in any market environment.
John: And with the combination of buggy and by Terra will continue to improve our global platform.
John: Making them more efficient and resilient, allowing us to better serve our customers at both ends of the value chain.
John: I'll hand, the call over to John now to walk through our financial results and outlook in more detail.
John: I'll, then close with some additional thoughts.
John: Got it thanks, Greg and good morning, everyone, let's turn to the earnings highlights on slide five.
John: Our reported fourth quarter earnings per share was $4.18 compared to $2 21, since the fourth quarter of 2022.
John: Our reported results included a positive mark to market timing difference of a dollar per share and a negative impact of <unk> 60 per share primarily related to acquisition and integration costs associated with our announced business combination with vitaros as well as the fixed asset impairment charge.
John W. Neppl: Our reported results included a positive mark-to-market timing difference of $1.08 per share and a negative impact of $0.60 per share, primarily related to acquisition and integration costs associated with our announced business combination with Viterra, as well as a fixed asset impairment. Adjusted EPS was $3.70 in the fourth quarter versus $3.24 in the prior year. Full year 2023 earnings per share was $14.87 versus $10.51 in 2022 Adjusted full-year EPS was $13.66 versus a record $13.91 in the prior year.
John: Adjusted EPS was $3.70 in the fourth quarter versus $3 24 in the prior year.
John: Okay.
John: Full year 2023 earnings per share was $14 87.
John: $10.51 in 2022.
John: Adjusted full year EPS was $13 66 sets versus a record $13.91 in the prior year.
John: Okay.
John: Adjusted core segment earnings before interest and taxes or EBIT was $881 million in the quarter versus $804 million last year.
John W. Neppl: Adjusted Core Segment Earnings Before Interest and Taxes, or EBIT, was $881 million in the quarter versus $804 million last year. Agribusiness had a strong close to the year. Processing results in the quarter were up $132 million, primarily related to South America, Europe, and Canada, more than offsetting low results in the U.S., which had a difficult comparison to a particularly strong prior year. Results in Asia were comparable to last year. And merchandising results in the quarter were down in all businesses, reflecting lower volatility.
John: Agribusiness had a strong close to the year processing results in the quarter up $132 million, primarily related to South America, Europe, and Canada more than offsetting lower results in the U S, which had a difficult comparison to a particularly strong prior year.
John: Results in Asia were comparable to last year.
John: And merchandising results in the quarter were down in all businesses, reflecting lower volatility.
John W. Neppl: Refinery Specialty Oils finished a record year with strong fourth-quarter results of $212 million. However, performance for the quarter is down slightly from last year, as higher results in North and South America were more than offset by lower results in Europe and Asia. In milling, improved results in the quarter were primarily driven by our South American operations, reflecting higher margins due to the combination of lower wheat costs and a more favorable pricing environment. Results in U.S. corn milling also improved. Corporate Another improvement last year was higher corporate expenses related to investments and growth initiatives were more than offset by positive results in our captive insurance program and Bunge Ventures. In our non-core sugar and bioenergy joint venture, results were lower as higher sugar prices were more than offset by lower ethanol. For the quarter, reported income tax expense was $219 million, compared to $131 million for the prior year. The increase was primarily due to higher pre-tax income and geographic earnings met. Adjusting for notable items and mark-to-market timing differences, the full-year adjusted effective income tax rate was 23% compared to 17% for the prior year.
John: Refinance specialty oils finished a record year with strong fourth quarter results of $212 million.
John: Performance for the quarter was down slightly from last year as higher results in North and South America were more than offset by lower results in Europe and Asia.
John: In milling improved results in the quarter were primarily driven by our South American operations, reflecting higher margins due to the combination of lower wheat costs and a more favorable pricing environment.
John: Results in U S corn milling also improved.
John: Corporate and other improved from last year higher corporate expenses related to investments in growth initiatives were more than offset by positive results in our captive insurance program and buggy ventures.
John: And our noncore sugar and bioenergy joint venture results were lower as higher sugar prices were more than offset by lower ethanol prices.
John: For the quarter reported income tax expense was $219 million compared to $131 million for the prior year.
John: The increase was primarily due to higher pre tax income and geographic earnings mix.
John: Adjusting for notable items in mark to market timing differences the full year adjusted effective income tax rate was 23% compared to 17% for the prior year.
John: Net interest expense of $115 million in the quarter was up compared to last year, primarily due to higher interest rates.
John W. Neppl: Net interest expense of $115 million in the quarter was up compared to last year primarily due to higher interest rates. Also impacted in the quarter were foreign currency borrowings in certain countries where interest rates were high. However, the incrementally higher borrowing costs were offset by currency hedges reported within eBay. Now, let's turn to slide six, where you can see our EPS and EBIT trends adjusted for notable items and timing differences over the past five years. The strong performance reflects our team's continued excellent execution in a favorable operating environment while also delivering on a variety of initiatives to position the company for long-term growth. Slide seven details our capital allocation. In 2023, we generated approximately $2.5 billion of adjusted funds from operations, which was up by approximately $110 million versus 22's record performance. After allocating $488 million to sustaining CapEx, which includes maintenance, environmental health, and safety, we had approximately $2 billion of discretionary cash flow available.
John: Also impacting the quarter were foreign currency borrowings in certain countries, where interest rates were high.
John: However, they are incrementally higher borrowing costs were offset with currency hedges reported within EBIT.
John: Let's turn to slide six where you can see our E. P. S. In EBIT trends adjusted for notable items and timing differences over the past five years.
John: This strong performance reflects our team's continued excellent execution and a favorable operating environment. While also delivering on a variety of initiatives to position the company for long term growth.
Slide seven details our capital allocation.
John: And 2023 we generated approximately $2 $5 billion of adjusted funds from operations, which was up by approximately $110 million versus 20 two's record performance.
John: After allocating $488 million, just sustaining capex, which include maintenance environmental health and safety, we had approximately $2 billion of discretionary cash flow available.
John W. Neppl: Of this amount, we paid $383 million in common dividends, invested $634 million in growth and productivity-related CapEx, which is up significantly from $249 million last year, and repurchased $600 million of Bunge shares, leaving $361 million of retained cash flow for the year. Moving to slide eight, we finished 2023 with a total CAPEX spend of approximately $1.1 billion and expect to invest $1.2-$1.4 billion in 2024. Our sustaining CapEx has been higher, reflecting post-pandemic catch-up and increased investments in operations and reliability. We were already seeing the benefits through reduced unplanned downtime.
John: Of this amount, we paid $383 million in common dividends invested $634 million in growth and productivity related capex, which is up significantly from $249 million last year, and repurchased $600 million of buggy shares, leaving $361 million retained cash flow for the year.
John: Moving to slide eight we finished 2023 with a total capex spend of approximately $1 $1 billion and expect to invest one point to $1.4 billion in 2024.
John: Our sustaining capex has been higher reflecting post pandemic catch up and increased investments in operational reliability, we were already seeing the benefits through reduced unplanned downtime.
John: Also our discretionary spend is up due to executing on our pipeline of growth projects, many of which are multiyear investments.
John: We expect continued elevated spend in 2025 as we complete these projects.
John: As shown in slide nine at year end readily marketable inventory, our rmi exceeded our net debt by approximately $3 $5 billion.
John W. Neppl: Also, our discretionary spend is up due to executing on our pipeline and growth projects, many of which are multi-year investments. We expect continued elevated spend in 2025 as we complete these projects. It's shown on slide nine that your unreadily marketable inventory, or RMI, exceeded our net debt by approximately $3.5 billion. This reflects our use of retained cash flow to fund working capital while reducing debt. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA, was 0.2 times at the end of the fourth quarter. Slide 10 highlights our liquidity position. At year-end, all $5.7 billion of our committee credit facilities were unused and available.
John: This reflects our use of retained cash flow to fund working capital while reducing debt.
John: Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA was 0.2 times at the end of the fourth quarter.
John: Slide 10 highlights our liquidity position at year end, all $5 $7 billion of our committed credit facilities was unused and available.
John: This provides us ample liquidity to manage our ongoing capital needs.
John: Please turn to slide 11.
John: For the trailing 12 months adjusted ROIC was 18, 4% well above our Rmi adjusted weighted average cost of capital of seven 7%.
John: Our ROIC was 14, 3% also well above our weighted average cost of capital of 7%.
John: Moving to slide 12.
John: For the trailing 12 months reproduced discretionary cash flow of approximately $2 billion and a cash flow yield of 18, 2%.
John W. Neppl: This provides us with ample liquidity to manage our ongoing capital. Please turn to slide 11. For the trailing 12 months, adjusted ROIC was 18.4%, well above our RMI adjusted weighted average cost of capital of 7.7%. ROYC was 14.3%, also well above our weighted average cost of capital of 7%. Moving to slide 12, for the trailing 12 months, we produced a discretionary cash flow of approximately $2 billion and a cash flow yield of 18.5%. Please turn to slide 13 in our 2024 outline. As Greg mentioned in his remarks, taking into account the current margin environment and forward curves, we expect full year 2024 adjusted EPS of approximately $9.00. Note that this forecast excludes any pending acquisitions that are expected to close. In agribusiness, foliar results are forecasted to be down from last year's record performance, primarily due to lower results in processing, where margins have compressed in most regions. Results in merchandising are forecasted to be down slightly from last year.
John: Please turn to slide 13 in our 'twenty 'twenty four outlook.
John: As Greg mentioned in his remarks, taking into account the current margin environment in forward curves.
John: Expect full year 2024, adjusted EPS of approximately $9.
John: Note that this forecast excludes any pending acquisitions that are expected to close during the year.
John: In agribusiness full year results were forecasted to be down from last year's record performance, primarily due to lower results in processing, where margins have compressed in most regions.
John: Results in merchandising are forecasted to be down slightly from last year.
John: We refine our specialty oils and full year results are expected to be down from a record prior year, reflecting an environment of increased supply, particularly in the U S.
John: In milling full year results are expected to be up from last year.
John: And in corporate and other full year results are also expected to be up from last year.
John: The noncore full year results in our sugar and bioenergy joint venture are expected to be down considerably from last year, reflecting lower Brazilian ethanol prices.
John: Additionally, the company expects the following for 2024.
John: And adjusted annual effective tax rate in the range of 21% to 25%.
John: Net interest expense in the range of 300 and $330 million.
John: Capital expenditures in the range of 1.2 to $1 $4 billion, and depreciation and amortization of approximately $450 million.
John W. Neppl: In refiner's specialty oils, full-year results are expected to be down from the record prior year, reflecting an environment of increased supply, particularly in the U.S. In milling, full-year results are expected to be up from last year, and Incorporated and other full-year results are also expected to be up from last year. In non-core, full-year results in our sugar and bioenergy joint venture are expected to be down considerably from last year, reflecting lower Brazilian ethanol prices. Additionally, the company expects a following for 2020. An adjusted annual effective tax rate in the range of 21 to 25 percent.
John: With that I'll turn things back over to Greg for some closing comments.
Gregory A. Heckman: Thanks, Sean.
Okay.
Gregory A. Heckman: Before turning to Q&A I want to offer a few closing thoughts.
Gregory A. Heckman: So we're proud of the work we've done to optimize our business.
Gregory A. Heckman: And we're always looking for ways to drive continuous improvement.
Gregory A. Heckman: We've got a clear set of priorities.
Gregory A. Heckman: Continue that work in 'twenty 'twenty, four and we're confident that we'll end the year isn't even stronger buggy.
Gregory A. Heckman: We're making great progress towards closing our combination with like terror, which will increase diversification across assets geographies and crops, providing us with more optionality and capabilities to serve customers.
Gregory A. Heckman: And we continue to invest in our people and global infrastructure.
Gregory A. Heckman: Debt interest expense in the range of $300 to $330 million; capital expenditures in the range of $1.2 to $1.4 billion, and depreciation and amortization of approximately $450 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. We're proud of the work we've done to optimize our business. And we're always looking for ways to drive continuous improvement. We have a clear set of priorities.
Gregory A. Heckman: Through effective training and proper tools, we can safely and reliably meet our customers' needs.
Gregory A. Heckman: We're also working on a number of initiatives to best equip our team for the future, including strengthening our digital capabilities.
Gregory A. Heckman: We're making these investments to meet the longer term demand growth for our products and services.
Gregory A. Heckman: And while always looking for opportunities to improve.
Gregory A. Heckman: We're well positioned to deliver on our critical mission of connecting farmers to consumers to deliver essential food feed and fuel to the world.
Gregory A. Heckman: We'll continue that work in 2024, and we're confident that we'll end the year as an even stronger Bunge. We're making great progress towards closing our combination with Vitera, which will increase diversification across assets, geographies, and crops, providing us with more optionality and capability to serve customers, and we continue to invest in our people and global infrastructure so that, through effective training and proper tools, they safely and reliably meet our customers'
Speaker Change: And with that we'll turn to Q&A.
Speaker Change: Yeah.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble Lovell Sir.
Speaker Change: The first question is bamjan venue of Stephens. Please go ahead.
Bamjan: Hey, good morning, everybody.
Bamjan: Hi, good morning, Ben.
Ben: So over the last several years, there's clearly been building tailwind for the business you've capitalized on it very nicely.
Operator: We're also working on a number of initiatives to best equip our team for the future, including strengthening our digital capabilities. We're making these investments to meet the longer-term demand growth for our products and services. And while always looking for opportunities to improve, we are well positioned to deliver on our critical mission of connecting farmers to consumers to deliver essential food, feed, and fuel to the world. 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, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Ben: As we get to this point in the cycle some of those tail wins, certainly moderate that as expressed in your guidance and you noted Greg that's yeah.
Ben: As usual, but particularly now there's maybe a little bit less visibility into the business looking forward.
Speaker Change: If you can think through your business segments can you help us understand where you feel like you have the most visibility versus the leafs and some of the key things that you're focused on to gain greater visibility for the year as we move through the year.
Speaker Change: Yeah sure. Thanks.
Speaker Change: Thanks Ben.
Speaker Change: I think you know as usual the the first you know.
Operator: To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from Ben Bienvenu of Stevens. Please go ahead. Good morning, everybody. Good morning, Ben.
Speaker Change: Quarter is where we have the most visibility and then it starts to kind of redo says we go out having the the global platform of courses is very helpful and so as we as we look across crush today and and you know as we said when we look at the curves and what they give us their they're all in.
Gregory A. Heckman: So over the last several years, there's clearly been building tailwinds for the business, and you've capitalized on it very nicely. As we get to this point in the cycle, some of those tailwinds certainly moderate, as expressed in your guidance. And you noted, Greg, that, as usual, but particularly now, there's maybe a little bit less visibility into the business looking forward. If you can think through your business segments, can you help us understand where you feel like you have the most visibility versus the least? And some of the key things that you're focused on to maybe gain greater visibility for the year as we move through the year? Yeah, sure. Thanks, Ben.
Speaker Change: <unk>.
Speaker Change: With some pretty limited liquidity beyond Q1.
Speaker Change: And then we're in that well, we do have visibility to and you kind of think about history. We're in that transition as markets get a little more balanced on supply and demand that producers generally don't like selling lower prices and they've got room to storage. So you see a little bit Gen.
Speaker Change: Really reluctant.
Speaker Change: Selling as we transitioned from the farmer.
Speaker Change: And then the in consumer.
We see them.
Speaker Change: Having.
Gregory A. Heckman: I think, you know, as usual, the first quarter is where we have the most visibility, and then it starts to kind of reduce as we go out. Having a global platform, of course, is very helpful. And so as we look across Crush today, and, you know, as we said, and we look at the curves and what they give us, they're all inverted, with some pretty limited liquidity beyond Q1. And then we're in that, what we do have visibility to, and you kind of think about history, we're in that transition, as markets get a little more balanced on supply and demand, that producers generally don't like selling for lower prices, and they've got room for storage, so you see a little bit of generally reluctant selling as we transition from the farmer and then the end consumer. We see them having an incentive to wait, so they're Those are some of the key things that we're watching that, of course, affect both Crush and Merch and our refined and special oil and milling altogether. Okay, very good. My second question is related to a similar dynamic, as we kind of have shifting winds in the cycle.
Speaker Change: Now a an incentive to wait so they are becoming also more short purchased and in buying in the spot is as prices are balancing in the supply chain is not quite as tight. So those are some of the key things that we're watching that of course affect both crush and merch and R. R.
Speaker Change: Refined and special oil and milling is Oh altogether.
Speaker Change: Okay very good my second question is related to a similar dynamic as we kind of have shifting.
Speaker Change: Shifting wins in the cycle.
Speaker Change: Operationally organizationally.
Speaker Change: Tactically you all have positioned the business to maximize earnings power as the cycle was accelerating to the upside over the last number of years.
Externally you you've done a masterful job of managing expectations.
And I think your track record of guiding conservatively is well established at this point as.
Speaker Change: As we get to a slightly different backdrop, how old is your focus internally changed if at all how did the changes that you've made historically position Youtube also maximize earnings power as we see more balanced supply demand and then how if at all does your external expectation may change and this sort of environment if at all.
Speaker Change: Versus what we've seen in the last several years.
Speaker Change: Well I just would would start by saying the same things that we've been focused on really work in all environments and I think we talked as we were going we were always thinking about trying to build the company for.
Gregory A. Heckman: Operationally, organizationally, tactically, you all have positioned the business to maximize earnings power as the cycle has been accelerating to the upside over the last number of years. Externally, you've done a masterful job of managing expectations. And I think your track record of guiding conservatively is well established at this point. As we get to a slightly different backdrop, how does your focus internally change, if at all? How do the changes that you've made historically position you to also maximize earnings power as we see more balanced supply and demand? And then how, if at all, does your external expectation management change in this sort of environment, if at all, versus what we've seen the last several years? Well, I would start by saying, you know, the same things that we've been focused on really work in all environments.
Speaker Change: The bottom of the cycle, which I hope you never you never experience, but if we have that mindset.
Speaker Change: And we have our costs in.
Speaker Change: In position to be the most efficient regardless of where you are in the cycle that we have our business organized in our operating model to have the.
Speaker Change: The most nimble and agile and an ability to react to whatever the external factors that we can't control in the market.
Speaker Change: We ensure that we have got our reward systems.
Speaker Change: In alignment with our stakeholders and with our investors and with our customers at both ends of the value chain that we're kind of we're going to operate the same on.
Gregory A. Heckman: And I think we talked, as we were going, we're always thinking about trying to build the company for, the bottom of the cycle, which, you know, you hope you never experience, but if we have that mindset and we have our costs in position to be the most efficient, regardless of where you are in the cycle, that we have our business organized in our operating model to have the most nimble and agile and ability to react to whatever the external factors that we can't control in the market, and that we ensure that we have got our rewards systems in alignment with our stakeholders and with our investors and with our customers at both ends of the value chain, that we're kind of, we're going to operate the same on the things that we can control. And, you know, I think we talked about it in the past, this, you've got to continue to think about this is a big feed, food and fuel, global infrastructure, right, to serve our customer. And we still have the billions of dollars of assets. We still got the tens of thousands of customers. We've still got the millions of tons of physical flows, and that's the embedded optionality that exists.
Speaker Change: On the things that we can control and you know I think we talked about it in the past. This you got to continue to think about this as a big feed food and fuel global infrastructure right to serve our customer and we still have the billions of dollars of assets. We still got the tens of thousands of customers. We've still got the millions of tons of physical flows and.
Speaker Change: That's the embedded optionality that exists and so while we don't control the markets. We do control how we manage day to day. So we stay focused on what we can control and then unlock that value as we're helping balance supply and demand across our businesses for our customers at both ends of the value chain and that's just that's kind of a maniacal focus every.
Speaker Change: Hey.
Speaker Change: Okay, great. Thanks, so much thanks for taking my questions.
Speaker Change: Thanks Ben.
Speaker Change: The next question is from Manav Gupta with UBS.
Manav Gupta: Good morning, guys. Congrats on a very strong quarter you came in well ahead of expectations. So.
Manav Gupta: That's on back my question.
Manav Gupta: It's more of a help if you could provide.
Manav Gupta: Do you have a $9 guidance for 2020, food, which we think is kind of dead weight them, but help us understand if light data does close on let's say July one and it could this $9 school based on the current environment, what they might help you could provide would be it would be highly appreciated.
Manav Gupta: Sure Manav. This is John I think you know what we've what we've communicated in the past our view is on on by Terra close.
Gregory A. Heckman: And so while we don't control the markets, we do control how we manage day-to-day. So we stay focused on what we can control and then unlock that value as we're helping balance supply and demand across our businesses for our customers at both ends of the value chain. And that's just, that's kind of a maniacal focus every day. Great. Thanks so much.
In 2024 will be mildly accretive.
John: You know to flat in the first year. We've got you know a lot of a lot of synergy cost a lot of integration costs to incur and certainly for the first six to 12 months.
There'll be a lot of work around integration and focus on that I think we love the business.
John: And I think the long term is outstanding, especially when you look at environment like we're going into but I wouldn't expect a significant impact on the $9 in this in this year.
Ben Bienvenu: Thanks for taking my question. Thanks. The next question is from Manav Gupta with UBS. Good morning, guys.
Manav Gupta: Congratulations on a very strong quarter. You came in well ahead of expectations. So congrats on that. My question here is, and it's more of a help if you could provide, you have a $9 guidance for 2024, which we think is conservative, but help us understand if WITERA does close on, let's say, July 1, then where could that $9 go based on the current environment? Whatever help you could provide would be highly appreciated.
John: I might add though the one thing that we have you know.
John: Spoken about is how the businesses are so different with us being much stronger in the processing and then much stronger on the origination storage handling and distribution. So if you do have a market that moves more into a contango or a carry of.
John: That does benefit where you have more storage. So I think that when we talk about the diversification in the crops. We handle and then the the asset footprints in the geographies that would be one of the things that we'd be thinking about depending on when we close and what the environment looks at when we talk about the outlook at those times.
John W. Neppl: Sure, Manav, this is John. I think, you know, what we've communicated in the past, I think our view on VITERA close, you know, in 2024 will be, you know, mildly accretive to flat in the first year. We've got, you know, a lot of synergy costs, a lot of integration costs to incur. And certainly for the first 6 to 12 months, you know, there'll be a lot of work around integration and focus on that. But I think we love the business.
Speaker Change: Thank you my quick follow up here is it looks like the discrete any capex for 'twenty 'twenty four is probably going to be somewhere between seven and 28 to 40 million.
Help us understand where this money's being spent the kind of Mcdonald's and when do we start seeing these projects come online. So we can start giving you the benefit of earnings associated with this capex. Thank you sure. Yeah. So we are we embarked.
Speaker Change: Really last year and the year before on some pretty large multi year projects.
Speaker Change: And most of those things like our or build out with our Chevron joint venture our plant in Rotterdam, Amsterdam, our new oils plant are.
Gregory A. Heckman: And I think the long term is outstanding, especially when you look at the environment we're going into, but I wouldn't expect a significant impact on the $9 in this this year. I might add that the one thing that we have spoken about is how the businesses are so different, with us being much stronger in the processing and much stronger on the origination, storage handling, and distribution. So if you do have a market that moves more into a contango or a carry, that does benefit where you have more storage. So I think that when we talk about the diversification in the crops we handle and in the asset footprints and the geographies, that would be one of the things that we would be thinking about depending on when we close and what the environment looks like when we talk about the outlook at post time. Thank you.
Speaker Change: Specialty proteins plant in Indiana, all of those things are our plant in India. All of those things are have been multi year, while India's coming on later this year. Most of those are still going to be in build out phase through 2025, So we really expect.
Speaker Change: To start contributing in 2026, and we target a mid teens return on average on most of our projects some could be a little lower some could be higher.
Speaker Change: So that's the Capex side, and then certainly on the M&A with is we announced C. J selected that we're hoping to close later this year that one you know beauty of that one is it'll be immediately accretive when we get that one executed and closed but I wouldn't expect.
Speaker Change: <unk>.
Speaker Change: Too much contribution in 2025 on those because they're really going to be coming online late in the year and it takes a little bit of time for commissioning. So most of those most of those will will start contributing in 2026 and then on the M&A side. You know we continue to to look at a lot of our smaller opportunities.
John W. Neppl: My quick follow-up here is that it looks like the discretionary CAPEX for 2024 is probably going to be somewhere between $720 million and $840 million. Can you help us understand where this money is being spent, the kind of returns, and when do we start seeing these projects come online so we can start giving you the benefit of earnings associated with this CAPEX? Thank you.
Speaker Change: Not anything of the magnitude of Vitaros C. J selected necessarily but theres a lot of smaller bolt on opportunities that were working as well that will keep you updated on.
Speaker Change: Thank you so much.
Speaker Change: Yeah.
Speaker Change: The next question is from Ben.
Ben: With Barclays.
Ben: Yeah. Good morning, John Greg that's what congrats from my side. Thank you.
John W. Neppl: Sure. We embarked last year and the year before on some pretty large multi-year projects. Most of those things, things like our build-out with our Chevron joint venture, our plant in Amsterdam, our new oils plant, our specialty proteins plant in Indiana, and our plant in India, all of those things have been multi-year. While India is coming on later this year, most of those are still going to be in the build-out phase through 2025, so we really expect them to start contributing in 2026. And we target a mid-teens return on average on most of our projects. Some could be a little lower; some could be higher.
Ben: Just a Q1 some two follow ups, so one actually associated a little bit with with the M&A and the contribution of the capital allocation in general can you maybe frame to be audience. How you think about the buybacks left over for the vitale ideal because if I ever.
Ben: Remember right. You said you wanted to do have done about half of it of the 2 billion that was announced until the close so that would leave you with I guess some round about 400 million. Just so we can think about is that something you would target for in the first half and then aside from it with that contribution and you've laid it out nicely right now on the 2026.
Ben: And the returns et cetera, if we would have to go back to similar like the mid cycle E. P. S framework I remember a few quarters ago, you you've laid this out and I think you've set back then like eight to <unk> 50 on the base business, but with all the buybacks and accretions in projects and M&A et cetera. It was more.
John W. Neppl: So that's the CAPEX site, and then certainly on the M&A with, you know, as we announce CJ Selecta that we're hoping to close later this year, that one, you know, the beauty of that one is it'll be immediately accretive when we get that one executed and closed, but I wouldn't expect, you know, too much contribution in 2025 on those because they're really going to be coming online late So most of those will start contributing in 2026, and then on the M&A site, you know, we continue to look at a lot of smaller opportunities, not anything of the magnitude of a VITERA or a CJ Selecta, but there's a lot of smaller bolt-on opportunities that we're working on as well that we'll keep you updated on. Thank you so much, www.larryweaver.com. The next question is from Ben Theurer with Barclays. Good morning, John Gregg, as well; congratulations from my side.
Ben: Like a 10 and 11 is that does that still hold even if were thinking about and around nine for 2024, if we if these projects would be around.
Speaker Change: Sure. So we'll start with share buyback and the $400 million I think our expectation right. Now is we will execute that in the first half of the year and you know we.
Committed to doing at least that 400 million by close of the transaction. So we expect to do that.
Speaker Change: And then we'll see from there as we go forward with respect to our outlook for 2026 and $11 I think we still feel very positive where that and right.
Right on track.
Speaker Change: Well the Capex has maybe been delayed a little bit from a timing standpoint, we got a little bit of a late start on somebody's costs went up and we went back and took a look at projects.
Speaker Change: We've actually picked up pace on the M&A side, a little bit. So we feel very good about our trajectory against that that $11 plus.
Benjamin M. Theurer: Just two ones to follow up. One is actually associated a little bit with the M&A and the contribution of it to capital allocation in general. Can you just maybe explain to the audience how you think about the buybacks left over for the Viterra deal? Because, if I remember right, you said you wanted to do about half of it, of the two billion that was announced until the close. So that would leave you with, I guess, some roundabout 400 million.
Speaker Change: 2026, and and have no reason to change it at this point.
Speaker Change: Okay, Perfect and then a quick follow up as we think about the guidance for this year and maybe the magnitude of changes.
Speaker Change: That you were foreseeing right now I know and been brought this up early on about the visibility and I know about the challenges to Q onwards, but as you look at it today, where do you think the biggest downside versus 2023 years within call. It maybe it's a key for processing merchandising.
John W. Neppl: Just so we can think about it, is that something you target for in the first half? And then aside from that, with that contribution, and you've laid it out nicely right now on the 2026 and the returns, et cetera, if we would have to go back to somewhere like the mid-cycle EPS framework, I remember a few quarters ago, you laid this out, and I think you set back then like 850 on a base business, but with all the buybacks and accretions and projects and M Does that still hold, even if we're thinking about around nine for 2024? If these projects are around, Sure.
Speaker Change: Refined and specialty oils.
Speaker Change: I think if you look at the the big flags, the big put and takes that we're thinking about it you know at the highest level of course.
Speaker Change: The Geo politically and.
Speaker Change: And weather right and so while we're getting a more balanced F&D situation globally, where kind of you know one weather event from really tightening things up and that could bring some volatility back.
Speaker Change:
Speaker Change: And then the other offset is around it at a high level you can think about demand and so you know lower prices should spur more demand. That's what we've seen historically and then it's really how quickly we see that and even if you taken an anecdote on.
Speaker Change: On the food side, we're seeing all of our food customers' innovation projects, which had spent the last two years being cost reduction type programs.
John W. Neppl: So we'll start with the share buyback and the $400 million. I think our expectation right now is that we will execute that in the first half of the year. And, you know, we committed to doing at least that $400 million by the close of the transaction. So we expect to do that, and then we'll see from there as we go forward. With respect to our outlook for 2026 and the $11, I think we still feel very positive about that and right on track. While the CapEx has maybe been delayed a little bit from a timing standpoint, you know, we got a little bit of a late start on some of these costs went up, and we went back and took a look at projects.
Speaker Change: Are now really focused on growth so product development.
Speaker Change: New products and line extensions.
Speaker Change: And then you take the kind of under that umbrella of some of the big drivers of course, it's the veg oil S. N D in North America.
Speaker Change: Because as we saw it play out in in 'twenty three and then it will continue in 'twenty. Four you know, we've got a new industry with new demand building the market's doing its work supplies adjusting and it can be pretty sensitive to that oil pipeline a.
Speaker Change: Veg oil prices and in North America, which of course is a is really sensitive to the crush margins.
Speaker Change: In North America and.
John W. Neppl: We've actually picked up the pace on the M&A side a little bit. So we feel very good about our trajectory against that $11 plus by 2026 and have no reason to change it at this point. Okay, perfect.
Speaker Change: The other of course is Argentina, where you've got a weather situation, they're much better than last year were being production should maybe be double what last year was and you've got a new a new government in place and so how have their policies and incentives play out I think that's a big one.
Gregory A. Heckman: And then quick follow-up, as we think about the guidance for this year and maybe the magnitude of changes that you're foreseeing right now, I know, and Ben brought this up early on about the visibility, and I know about the challenges to come, but as you look at it today, where do you think the biggest downside versus 2023 is within, call it maybe the key four, processing, merchandising, and refined and specialty oil? I think if you look at the big flags, the big puts and takes that we're thinking about it, you know, at the highest level, of course, geopolitically and weather, right? And so while we're getting a more balanced diet.
Speaker Change: To watch and then of course, you always have got to think about China.
Speaker Change: Not only their economy and how it develops.
Speaker Change: <unk> develops the macro just from an overall demand and then of course, how they think about stocks building. So I think those are those are the kind of the big flags that we think about right. Now if you. If you look at the at the curves are and the outlook people are predicting much disruption at this point.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thanks Ben.
Speaker Change: The next question is from Adam Samuelson with Goldman Sachs.
Adam Samuelson: Yeah. Thank you and good morning, everyone.
Adam Samuelson: Yes, good morning, Hi, so maybe continuing long that kind of line of questioning maybe.
Gregory A. Heckman: S&D situation globally. We're kind of, you know, one weather event from really tightening things up, and that could bring some volatility back. And then the other offset is around it at a high level. You think about demand. And so, you know, lower prices should spur more demand. That's what we've seen historically. And then it's really, you know, how quickly we see that.
Adam Samuelson: If you think about kind of the.
Adam Samuelson: Approximately $9 EPS would seem to imply give or take $1 billion of segment profit reduction on a year on year basis, and just helping can you help dimensionalize.
Adam Samuelson: Yeah.
Adam Samuelson: <unk>.
The segments, where that is coming presumably a merchandising a processing is the largest contributor but at least frame kind of what kind of year on year decline your.
Gregory A. Heckman: And even if you take an anecdote on, On the food side, we're seeing all of our food customers' innovation projects, which had spent the last two years being cost-reduction-type programs, are now really focused on growth, so product development, new products, and line extension. And then you take the kind of under that umbrella, some of the big drivers, of course, it's the veg oil, S&D in North America, because as we saw it play out in 23 and it will continue in 24, you know, we've got a new industry with new demand building, the market's doing its work, supply's adjusting, and it can be pretty sensitive to that oil pipeline, veg oil prices in North America, which, of course, is fairly sensitive to the crush margin, in North America, and, You know, the other, of course, is Argentina, where you've got a weather situation there much better than last year, where bean production should maybe be double what last year was. And you've got a new government in place.
Adam Samuelson: Currently kind of thinking about for refined specialty oils sugar just to help put the decline in processing and in better context, and then I got a follow up.
Adam Samuelson: Yeah. Adam This is John I think there are really three big drivers to the year over year change in the largest is what we're assuming on the processing side certainly globally.
John W. Neppl: Yeah, that's probably.
John W. Neppl: I would say close to 80% of the of the variance when you look at the gross variance we have some things that are going to be up we expect to be up but that's a big piece of it and then the other big drivers RSO refining of specialty oils being down.
John W. Neppl: You know from probably a couple hundred million from from where we were we finished this year.
John W. Neppl: In 2024, and then the other one is sugar, we're calling down.
John W. Neppl: You know given ethanol prices and environment in Brazil, but then we have some other things going the other direction to ultimately get to the change, but but certainly the largest is the processing segment at this point.
Gregory A. Heckman: And so how their policies and incentives play out, I think that's a big one to watch. And then, of course, you always have got to think about China, not only their economy and how it develops the macro just from overall demand, but then, of course, how they think about building stocks. So I think those are kind of the big flags that we think about. Right now, if you look at the curves and the outlook, people aren't predicting much disruption at this point. Thank you very much.
Speaker Change: Okay. That's helpful. So I mean within that processing, if its 80 or so percent that implies something like a 77% 70 to $80 I'm.
John W. Neppl: Sorry.
John W. Neppl: 15 to $20 a ton lower kind of.
John W. Neppl: Global kind of crush margin decline.
John W. Neppl: On your on your footprint can you help frame kind of regions.
John W. Neppl: Ware.
John W. Neppl: That where that is kind of a a larger kind of headwind versus not and how.
Adam Samuelson: Thanks Ben. The next question is from Adam Samuelson with Goldman Sachs. Yes, thank you. Good morning, everyone. Adam
John W. Neppl: More in North America crush and in soy meal, and the return of Argentina to the export market in the second quarter kind of is factoring into your kind of the regional balance of your network.
Operator: Morning. Hi. So maybe continuing along that kind of line of questioning, as we think about kind of the approximately $9 EPS, it would seem to imply, can we take a billion dollars of segment profit reduction on a year-on-year basis? And just helping, can you help dimensionalize, segments where that's coming, presumably retail processing is the largest contributor, but at least frame kind of what kind of year on your decline you're currently kind of thinking about Hey Adam, this is John.
Speaker Change: Yes, I can.
Speaker Change: Okay, Let me start I'll start on that yeah. So if you if you think about.
Speaker Change: And maybe get back into it from from soft seeds, we still expect those to be strong, but kind of down slightly.
Speaker Change: You know there'll be off some from from 'twenty, three but it should still be good in both.
Speaker Change: Europe, and North America, but soy is really the one is as you've called out so I think everything will be softer.
Speaker Change: If you look at the regions, except Argentina, which Argentina was a drag last year.
Speaker Change: To everything and we had to cover it with the global system. So now Youll see Argentina would be better as we get into harvest in Q2.
John W. Neppl: I think there are really three big drivers of the year-over-year change, and the largest is what we're assuming on the processing side, certainly, globally. You know, that's probably, I'd say, close to 80% of the variance. When you look at the gross variance, we have some things that are going to be up, we expect them to be up, but that's a big piece of it. And then the other big drivers are, so we find, especially oil, being down, you know, from probably a couple hundred million from where we finished this year in 2024. And then the other one is sugar, which we're calling down, you know, given ethanol prices and the environment in Brazil. But then we have some other things going the other direction to ultimately get to the change, but certainly the largest is the processing segment at this point. Okay, that's helpful.
Speaker Change: And you start to see the crush come up there.
Speaker Change: Of course, it will depend on as we said the government policies and how the farmer markets.
Speaker Change: But that'll be you know that'll.
Speaker Change: That'll be key South America, you know Brazil.
Speaker Change: Brazil continues to currently be strong on new crop, but of course, it's inverted as well, where we're seeing farmer liquidity be slower.
Speaker Change: There.
Speaker Change: And then the U U right now pretty strong in the spot and that's been on on meal demand, but again the curves are inverted there as well.
Speaker Change: In the U S. Why the Q1's good of course, we see the the curves kind of be that weaker in Q2, and three and then contemplate you know a better Q4.
Gregory A. Heckman: So I mean, within that processing, if it's 80 or so percent, that implies something, what, a 70, 70, 70 to $80, Sorry, $15 to $20 a ton lower kind of global crush margin decline on your footprint. Can you help frame kind of regions where that is kind of a larger kind of headwind versus not and how more North America, crush and soy meal, and the return of Argentina to the export market in the second quarter are factoring into your kind of regional balance. Yeah, I can do that. Do you want me to do it?
Speaker Change: With the with the new crop.
Speaker Change: And then.
Speaker Change: You know I think the farmer, selling which I said, it's just it's always slower on all all regions and they'll be.
Speaker Change: You know there'll be very hesitant here until the market kind of settles out and we see some direction.
Speaker Change: Okay.
Speaker Change: Right that's really.
Speaker Change: Really helpful helpful color I'll pass it on thanks.
Speaker Change: Thank you Adam.
Speaker Change: The next question comes from Steven <unk>.
Steven: So with Morgan Stanley.
Steven: Hey, good morning, and thanks for taking my question.
Steven: If I can just come back to the guidance for 'twenty for real quick.
Steven: I was hoping maybe you could just.
Steven: Give a bit more color on on how you see that.
Steven: Maybe phasing out over the course of the year and would imagine that.
Speaker Change: <unk> maybe.
Speaker Change: As you know some favorability in it still from the back half of <unk>.
Gregory A. Heckman: Let me start. I'll start on that. Yeah. So if you think about, and maybe a back into it from soft seeds, we still expect those to be strong, but kind of down slightly, you know; they'll be off some from from 23, but should still be good in both. Europe and North America, but soy is really the one, as you've called out, so I think everything will be softer if you look at the regions, except Argentina, which was a drag last year to everything, and we had to cover it with the global system, so now you'll see Argentina be better as we get into, you know, harvesting Q2, and you start to see the crush come up there.
Speaker Change: 24, So I know you don't give quarterly guidance, but if you could maybe help size like your expectations for the first quarter.
Speaker Change: First is the balance of 50 year that would be helpful. Thank you.
Speaker Change: Yeah, Stephen this is John.
John W. Neppl: We're looking today when we look forward at our forecast, we're expecting it to be pretty closely balanced between first half second half actually pretty close to 50, 50, and I would say waiting on the on the first half of the year more 60 40.
John W. Neppl: On the back half of your kind of a mirror image more of a 40 60.
John W. Neppl: Kind of how we're seeing the ear at this point.
Speaker Change: Okay, and then maybe just another quick follow up on.
Speaker Change: The back half and what.
Speaker Change: You're kind of assuming for.
Speaker Change: The size of the U S crop and you know how to think about maybe what some of the different scenarios are there I think you alluded to.
Speaker Change: <unk> being a little bit better because of the U S crop but.
Gregory A. Heckman: Of course, it'll depend on, as we said, government policies and how the farmer markets. But that'll be, you know, that'll be key. South America, you know, Brazil continues to, you know, currently be strong on new crops, but of course, it's inverted as well where we're seeing farmer liquidity be slower there. And then, the EU right now, pretty strong in the spot, and that's been on meal demand, but again, the curves are inverted there as well. In the U.S., while Q1 is good, of course, we see the curves kind of be that weaker in Q2 and 3 and then contemplate, you know, a better Q4 with the new crop. And then... I think the farmer selling, which I said, it's just it's slower in all all regions and they'll be, You know, they'll be very hesitant here until the market kind of settles out All right, that's some really helpful color. I'll pass.
Speaker Change: Maybe if we have a larger than expected crop in the back half like well what do you think that would mean for.
Speaker Change: The outlook that you've currently laid out thank you.
Speaker Change: Yeah, I'd say, if you look kind of at a high level right, we get the Brazil crop.
Speaker Change: Coming in probably a bean production being in the mid 100, Fifty's and that's you know versus last year, we were around 160 million metric tons, I mentioned, Argentina being production by around 50 million tons, there, which as you know about double what it was last year and then I think as that sorts out.
Speaker Change: And the market since the right signals, we'll see how the acres are.
Speaker Change: Work here in North America, right and how many bean acres that we ended up with and how the growing season.
Speaker Change: You know plays itself out, but we do need to you know we do need to have a good.
Speaker Change: A good growing season here in North America, but have no reason right now to plan on anything else.
Speaker Change: Okay. Thank you.
Speaker Change: The next question is from Salvator Tiano of Bank of America.
Speaker Change: Okay.
Salvator Tiano: Yes, thank you very much.
Adam Samuelson: Adam, the next question comes from Steven Ayens with Morgan Sound. Hey, good morning, and thanks for taking my question. If I could just come back to the guidance for 24 real quick.
Salvator Tiano: So the first question I wanted to as a.
Salvator Tiano: Specifically about the guidance and I know you mentioned many times that the.
Salvator Tiano: Forward curves in most cases, our budget for for crush margins.
Salvator Tiano: And I understand that's how you'd give the outlook but.
Salvator Tiano: Let's say, we're sitting here three from six months from now and.
Operator: I was hoping maybe you could... give a bit more color on how you see that. Maybe phasing it out over the course of the year would imagine that. OneQ maybe has some favorability, and it's still from the back half of 2024.
Salvator Tiano: Would you expect the crush margins to indeed be that low.
Salvator Tiano: As you said equally easily but kind of on the forward curve. So he is very simply.
Simply things will revert and you know the reality for the year may be better.
John W. Neppl: So I know you don't give quarterly guidance, but if you can maybe help size your expectations for the first quarter versus the balance of the year, that would be helpful. Stephen, this is John.
Speaker Change: Well I think that's why we've been consistent about using the forward curves and what we currently see in the environment. When we do give the outlook because that way it kind of doesn't.
John W. Neppl: We're looking today, when we look forward at our forecast, we're expecting it to be pretty closely balanced between the first half and the second half, actually pretty close to 50-50, and I would say waiting for the first half of the year to be more 60-40, and on the back half of the year, kind of the mirror image, more of a 40-60. That's kind of how we're seeing the year at this point. Okay, and then maybe just another quick follow-up on the back half and what you're kind of assuming for the size of the US crop and, you know, how to think about maybe what some of the different scenarios are there. I think you alluded to 4Q being a little bit better because of the US crop, but Maybe if we had a larger-than-expected crop in the back half, what do you think that would mean for the outlook that you've currently laid out? Thank you.
Speaker Change: You know flop around depending on our forecasting of.
Speaker Change: What we see in the in the markets and versus what the public forecasters are saying they see in the market.
Speaker Change: But that's why I do think those those flags that we've called out right weather's always key how that farmer is going to market the marketing pattern and how much on farm storage.
Speaker Change: They've got to effect that and how their financial condition is from a liquidity.
Speaker Change: Standpoint.
Speaker Change: And then and then the big demand drivers right as we talked about how how quickly does demand bounce back on the food side, which is the one we can see snapback pretty quickly and on feed it looks like animal numbers, you know roughly flat chicken's, probably up a little bit pork might be down a little bit globally, but so the animals are still in place and how.
Gregory A. Heckman: Yeah, I'd say if you look kind of at a high level, right, we get the Brazil crop, you know, coming in probably with bean production in the mid-150s, and that's, you know, versus last year, we were around 160 million metric tons. I mentioned Argentina, bean production being around 50 million tons there, which is, you know, about double what it was last year. And then I think as that sort out and the market sends the right signals, we'll see how the acres work here in North America, right, and how many bean acres that we end up with and how the growing season, you know, plays itself out. But we do need to, you know, we do need to have a good growing season here in North America, but we have no reason right now to plan on anything else.
Speaker Change: Quick do they add animals from a demand standpoint.
Speaker Change: Is that profitability has returned in the in the animal sector I think they've seen the worst and their profitability as an industry.
And then you know this this mismatch.
Speaker Change: This veg oil markets pretty sensitive if you look globally you know.
Speaker Change: Palm is not increasing at the.
Speaker Change: Production growth that it had historically and at the same time, they're adding domestic biofuel demand.
Speaker Change: Globally on the palm side, so oil tightening up somewhat from a global perspective, while you are rowing biofuels.
Speaker Change: In general renewable diesel specifically in S. A F.
Speaker Change: Kind of to come in the future. So you've got a new industry, that's trying to decarbonize its liquid fuels, because we can do that with vegetable oils low Ci feedstocks.
Salvator Tiano: Thank you. The next question is from Salvator Tiano of Bank of America. Yes, thank you very much.
Speaker Change: And help them do it at scale and the market has been sending that signal that we can supply those feedstocks and we've seen quite a bit of demand that will be coming on in in that segment and so that oil leg can can really affect the crush and that's why we called that flag out and that'll be a key one to watch as well so it should be a really interesting 12.
Gregory A. Heckman: So the first question I want to ask is specifically about the guidance and I know you mentioned many times that the forward curves in most cases are inverted for crash margin, but And I understand that's how you give the outlook, but let's say we're sitting here three from six months from now and Who do you expect the crash margins to indeed be that low? As you said liquidity is limited kind of on the forward curve So is there a chance that simply things will revert and you know, the outlook for the year may be better, Well, I think that's why we've been consistent about using the forward curves and what we currently see in the environment when we do give the outlook, because that way it kind of doesn't.., you know, flop around depending on our forecasting of what we see in the markets versus what the public forecasters are saying they see in the market.
Speaker Change: The 18 month kind of transition here not only on the crops, but as demand continues to grow.
Speaker Change: As well and as customers kind of move back to trying to drive drive growth versus cost savings.
Speaker Change: Okay perfect.
Speaker Change: Question is on.
Merchandising spacing.
Speaker Change: I guess in Q3 was kind of a wash when you consider.
Speaker Change: The 75 to 100 million, maybe given a normalized earnings, but Q4 was well below that.
Speaker Change: Would you say now merchant weird environment somebody accidentally merchandise will actually be below that normalized level.
Gregory A. Heckman: But that's why I do think those flags that we've called out, right, weather's always key, how that farmer is going to market, the marketing pattern, and how much on-farm storage that they've got to affect that, and how their financial condition is from a liquidity standpoint. And then the big demand drivers, right, as we talked about, how quickly demand bounces back on the food side, which we can see snap back pretty quickly, and on feed, it looks like animal numbers are roughly flat, chickens probably up a little bit, pork might be down a little bit globally, but so the animals are still in place, and how quick do they add animals from a demand standpoint as profitability has returned in the animal sector? I think they' And then, you know, this vegetable oil market's pretty sensitive.
Speaker Change: Or are we still meet cycle and you know Q4 was just an.
Speaker Change: I know normally.
Speaker Change: Yeah. So I think we called Merck's should be slightly down here in 24 versus <unk> versus 'twenty, three and right now that's probably got it slightly below where we're at.
Speaker Change: In our in our baseline model.
Speaker Change: But again you know merchandising is the toughest one to forecast and it is the first one or.
Speaker Change: To react if we get some.
Speaker Change: Policy changes that affect flows and or whether.
Speaker Change: Any weather issues that affect production and and I'll tell you as we continue to grow.
Speaker Change: Now more yield on the on the same amount of acres and we're seeing more volatile weather patterns both.
Speaker Change: You know dry and wet that affect the production and logistics.
Speaker Change: That probably just long term leads to more volatility so the merchandising.
Gregory A. Heckman: If you look globally, you know, palm is not increasing at the production growth that it has historically, and at the same time, they're adding domestic biofuel demand globally on the palm side, so oil is tightening up somewhat from a global perspective. While you are growing biofuels in general, renewable diesel specifically, and SAF, you know, kind of to come in the future. So, you've got a new industry that's trying to decarbonize its liquid fuels because we can do that with vegetable oils, low CI feedstocks, and help them do it at scale, and the market's been sending that signal that we can supply those feedstocks, and we've seen quite a bit of demand that will be coming on in that segment. And so, that oil leg can really affect the crush, and that's why we call that flag out, and that'll be a key one to watch as well.
Speaker Change: We will be the one that that absorbs that on the short term changes.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: The next question is from Thomas Palmer with C T.
Thomas Hinsdale Palmer: Good morning, Thanks for the question.
Thomas Hinsdale Palmer: Good morning.
Thomas Hinsdale Palmer: I wanted to ask.
Thomas Hinsdale Palmer: A little more on the demand pull you're seeing from renewable diesel I mean, it really has been a key driver over the last couple of years in terms of crushing refined oil.
Thomas Hinsdale Palmer: The industry, obviously responding on the crush side with added capacity and in part to support this industry.
Thomas Hinsdale Palmer: I guess, what's the visibility in terms of that demand pull at this point.
Thomas Hinsdale Palmer: In terms of absorbing some of this increased supply that's coming from the added crush capacity.
Thomas Hinsdale Palmer: Are we still a little bit in waiting mode.
Thomas Hinsdale Palmer: At different points, you've kind of noted that maybe curves aren't showing up when you are at.
Thomas Hinsdale Palmer: In touch with customers, who were showing optionality for that increased demand Paul on a forward basis.
Gregory A. Heckman: So, it should be a really interesting 12, 18-month kind of transition here, not only on the crops but as demand continues to grow as well, and as customers kind of move back to trying to drive growth versus cost savings. Okay, perfect. The second question is about merchandising specifically.
Paul: Yeah, we we see it continue to grow I think theres going to be another.
Paul: One 4 billion gallons of already capacity come online in the in the first half of 'twenty four.
Gregory A. Heckman: I guess in Q23, it was kind of a wash when you consider the 75 to 100 million EBIT you gave in normalized earnings, but Q4 was well below that. Would you say now we are in an environment on the X cycle where merchandising will actually be below that normalized level, or are we still mid-cycle, and Q4 was just an anomaly? Yeah, so I think we call MERC should be slightly down here at 24 versus 23.
Paul: I think some of the complexity right is it isn't just a veg oil game as they grow their demand.
Paul: Market sent some signals when the pipeline Scott got tight and so we saw a U C O M.
Imports and so as we balanced some of some of that supply and demand understanding did we soak up some surpluses and what will be the ongoing rate of of some of these.
Gregory A. Heckman: And right now, that's probably got it slightly below where we're at in our baseline model. But again, merchandising is the toughest one to forecast and is the first one to react if we get some policy changes that affect flows and or weather, any weather issues that affect production. And I'll tell you, as we continue to grow, you know, more yield on the same amount of acres and we're seeing more volatile weather patterns, both, you know, dry and wet that affect production and logistics, that probably just long-term leads to more volatility. So the merchandising, you know, will be the one that absorbs that on the short-term change. Thank you very much. The next question is from Thomas Palmer, which is: Good morning. Thanks for the question. Good morning.
Paul: Imported <unk> and other.
Paul: Kind of a low ci feedstocks as the market kind.
Paul: It works to balance itself out as that demand comes on so it's it's a bit of a no doubt a complicated picture on that and then of course, you've got policy changing right as we as we move from a blenders credit to a producers credit.
Paul: In 'twenty five and.
Paul: In their end markets adjust to that.
Paul: And then of course, you've got even.
Paul: Things like the car policy, where they've signaled that they've got the ability to make changes if the feedstocks available now the market's sending signs that the feedstocks available. So we think it'll be pretty dynamic and Oh, but net net we have you know increased demand that continues to grow globally and then well.
Thomas Hinsdale Palmer: I wanted to ask you a little more on the demand pull you're seeing from renewable diesel. I mean, it really has been a kind of key driver over the last couple of years in terms of crushing refined oil. The industry is obviously responding on the crush side with added capacity in part to support this industry. I guess what's the visibility in terms of that demand poll at this point? In terms of absorbing some of this increased supply that's coming from the added crush capacity, are we still a little bit in waiting mode?
Paul: See what other policy things don't happen generally kind of around the world and specifically around things like S. A up so the.
Paul: The other is how well the new.
Paul: Already operations come up to speed on catalysts and whatnot do they need the vegetable oil.
Paul: To be the dilution for some of these other low Ci feedstocks and some of these imported feedstocks. So it also depends kind of how they run and then.
Paul: Also the shifts that we said all along we expect to see at some point.
Paul: As these pre treatment facilities come up and we say some of the refined oil demand move into crude demand and so you may see it move from refining margins then into the crush margin. So.
Gregory A. Heckman: At different points, you've kind of noted that maybe curves aren't showing it, but you are, you know, at least in touch with customers who are showing, you know, optionality for that increased demand pull on a forward bid. Yeah, we see it continue to grow. I think there's going to be another 1.4 billion gallons of RD capacity come online in the first half of 2024.
Paul: While our.
Speaker Change: Well, we like a complex picture to unwind. This one has really got plenty of moving pieces.
Yeah totally thank you.
Speaker Change: Just quickly on the share repo plan I think as of the October earnings call you you'd spent a $134 million on repo, taking you to what $600 million.
Gregory A. Heckman: I think some of the complexity, right, is it isn't just a veg oil game as they grow their demand. The market sent some signals when the pipelines got tight, and so we saw a UCO, imports, and so as we balance some of that supply and demand, understanding did we soak up some surpluses, what will be the ongoing rate of some of these imported UCOs and other kind of low CI feed stocks as the market kind of works to balance itself out as that demand comes on. So it's a bit of a, no doubt, a complicated picture on that, and then, of course, you've got policy changing, right, as we move from a blender's credit to a producer's credit in 25 and the RIN markets adjust to that, and then, of course, you've got even.., things like the CARB policy where they've signaled that they've got the ability to make changes if the feedstock's available.
Speaker Change: Between.
Speaker Change: The back half of the year.
Speaker Change: Should we as we look at this coming year expect maybe a more balanced cadence because it looks like you you kind of stopped at least for the last couple of months.
Speaker Change: 'twenty three but still have you know clearly meaningful plans as we look at the.
Speaker Change: The time period before it closes so again should that be a little more balanced on repo.
Speaker Change: Yeah, I think I think well our expectation is between now and let's say mid year, we'll have the other 400 bought you know timing on close of Bioterrorists, yet to be determined but I think we won't wait around until we have news for that I think we'll we'll put it on a pace here to make sure that were completed by mid year.
Speaker Change: Okay. Thank you.
Speaker Change: The next question is from Sam Margolin Wolfe research.
Sam Margolin: Hi, good morning, Thanks for taking the question.
Sam Margolin: Good morning, Mike.
Sam Margolin: My question is on refining because you know it seems like that's the segment, where you know the commodity headwinds are probably the most visible but it sounds like there's a technology story.
Sam Margolin: There for you, where you're either gaining share or maybe potentially getting some pricing power and I Wonder if you could just talk about the attributes of the of the yields in the in the new refineries that.
Gregory A. Heckman: And now the market's sending signs that the feedstock's available, so we think this will be pretty dynamic, but net-net, we have, you know, increased demand that continues to grow globally. And then we'll see what other policy things happen generally kind of around the world and, you know, specifically around things like SAF. The other issue is how well their new... RD operations come up to speed on catalysts and whatnot. Do they need vegetable oil to be the dilution for some of these other low CI feedstocks and some of these imported feedstocks?
Sam Margolin: <unk> value and you know.
Sam Margolin: They accrue to.
Sam Margolin: Now to the segment growth and how we should how should we think about that contribution.
Sam Margolin: Yeah.
Speaker Change: Right right I think on an overall it's just.
Speaker Change: The team has been running the refineries better we set some records there in Q4 on volume and capacity utilization in our refineries. So we're just trying to run [noise] run the system better to meet the demands.
Speaker Change: And then on our India.
Speaker Change: Refinery that is.
Speaker Change: New multi oil capabilities as well as packaging and that's to meet.
Gregory A. Heckman: So it also depends kind of how they run and then also the shift that we said all along we expected to see at some point as these pretreatment facilities come up and we see some of the refined oil demand move into crude demand, and so you may see it move from refining margins then into the crush margin. While we like a complex picture to unwind, this one has really plenty of moving pieces. Yeah, totally.
Speaker Change: Some current demand as well as some growth we'll be commissioning that in the first half that's for our foods business.
Speaker Change: And then the the Avondale refinery, which we bought here in in Louisiana.
Speaker Change: That's really helping on the import of some of the tropical and.
Speaker Change: And soft oils to serve our customers with with multi oil and we were really at.
Speaker Change: Capacity there in serving our food customers here in North America. So that's that's freed up capacity and given us some extra capabilities and we also had some equipment headed for another facility that we've already pointed at Avondale, and we're going to expand that facility already.
Thomas Hinsdale Palmer: Thank you. Just quickly on the share repo plans, I think as of the October earnings call, you spent $134 million on repo, taking you to what, $600 million? [inaudible] the back half of the year. Should we, as we look at this coming year, expect maybe a more balanced cadence? Because it looks like you kind of stopped, at least for the last couple months of 23, but still have clearly meaningful plans, as we look at the time period kind of before VITERA closes. So again, should that be a little more balanced on a repo?
Speaker Change: So we will be doing that work during the year. So that that's really about capabilities and flexibility on the on the food side, which is the other as John talked about a little farther out, but our Amsterdam facility.
Speaker Change: We will be kind of the same thing that's a great specialty oils market over there we will have.
Operator: Yeah, I think I think well, our expectation is between now and let's say mid-year, we'll have the other 400 bought. Timing on the close of the biter is yet to be determined. But I think we won't wait around till we have news on that. I think we'll put it on a pace here to make sure that we're completed by mid year. Okay, thank you. The next question is from Sam Margolin with Wolf Research. Hi, good morning.
Speaker Change: Really the most flexibility.
Speaker Change: We think in in Europe, we will have the best carbon footprint and the lowest cost facility when we get that done but that's that's just getting underway. So that'd be up 26 before we have the benefits of that but also with these new facilities, they're all improving the carbon footprint.
Sam Margolin: Thanks for taking the question, morning. My question's on refining because, you know, it seems like that's the segment where, you know, the commodity headwinds are probably the most visible, but it sounds like there's a technology story there for you, where you're either gaining share or maybe potentially getting some pricing power. And I wonder if you could just talk about the attributes of the yields in the new refineries that are adding value and, you know, how they Well, I think on an overall basis, it's just...
Versus the facilities that we were running for so we continue to focus on sustainability as we make those investments as well.
Speaker Change: Yeah, Sam I would add that.
Speaker Change: You know food is still 75% to 80% of our volume unrefined oils, So well energy certainly has been a nice demand for us.
Speaker Change: Food is a big focus we have very big downstream customers and they depend on us from a traceability sustainability standpoint and to be able to provide a multi oil. So that's still the primary focus of that RSO segment.
Gregory A. Heckman: The team has been running the refineries better. We set some records there in Q4 on volume and capacity utilization in our refineries. So we're just trying to run the system better to meet the demands. And then on our India refinery, that is a new multi-oil capability as well as packaging, and that's to meet some current demand as well as some growth. We'll be commissioning that in the first half. That's for our food business.
Speaker Change: Okay. Thanks, that's Super helpful. And then you know just a follow up on capital allocation and.
Speaker Change: And the discretionary Capex component you know I I think this year it.
Speaker Change: It feels like it has more of the characteristics of a sort of a trough year than maybe something structurally.
Speaker Change: Problematic and so it makes sense that you know discretionary capex is still at the top of your Q, but I mean is there anything that you.
John W. Neppl: And then the Avondale Refinery, which we bought here in Louisiana, that's really helping on the import of some of the tropical and soft oils to serve our customers with multi-oil. And we were really at capacity there in serving our food customers here in North America. So that's freed up capacity and given us some extra capabilities. And we also had some equipment headed for another facility that we've already pointed at Avondale, and we're going to expand that facility already. So we'll be doing that work during the year. So that's really about capabilities and flexibility on the food side, which is the other, as John talked about, a little farther out, but our Amsterdam facility will be kind of the same thing. There is a great specialty oils market over there.
Speaker Change: The scenario that you can imagine that might cause you to decelerate growth.
Speaker Change: Growth capex or any market condition, specifically that you're watching for that could change maybe change the mix of your capital allocation and move growth Capex kind of lower on the priority list.
Speaker Change: Yeah, I don't I mean, the reality is most of the projects that are in our growth pipeline now are all underway.
Speaker Change: So the bulk of it won't change because we're still we still believe those are great long term projects.
Speaker Change: Around the fringes as new things come up we may trade off between that and M&A, which we have done some of our we've seen some great bolt on M&A opportunities and and have allocated some capital that direction instead, but I would say largely are or forward track here for 'twenty four 'twenty five is pretty locked in from a capex standpoint.
Gregory A. Heckman: We'll have really the most flexibility, we think, in Europe. We'll have the best carbon footprint and the lowest cost facility when we get that done. But that's just getting underway. So it'll be out in 26 before we have the benefits of that.
Right.
Speaker Change: I see thank you.
Speaker Change: Sure.
Speaker Change: The next question is from David Sunderland with Baird.
John W. Neppl: But also, with these new facilities, they're all improving the carbon footprint versus the facilities that we were running before. So we continue to focus on sustainability as we make those investments as well. Yeah, Sam, I would add that food is still 75 to 80 percent of our volume of refined oil. So while energy certainly has been a nice demand for us, food is a big focus. We have very big downstream customers, and they depend on us from a traceability and sustainability standpoint and to be able to provide a multi-oil.
David Sunderland: Hey, good morning, guys. Thanks for taking the question.
David Sunderland: I was just one for me was curious what the cost structure for processing and Arseno, maybe just how this has evolved as new capacity has come online in the industry and maybe any comments you guys can give on variable cost changes over the last few years and how your cost structure compares to competitors would be helpful.
Sure. This is John.
John W. Neppl: Look I think we have not been immune to the inflation that we saw over the last.
John W. Neppl: So that's still the primary focus of that RSO segment. Okay, thanks. That's super helpful.
John W. Neppl: You know a few years relative to kind of start during COVID-19 and worked its way through.
Sam Margolin: And then, you know, just to follow up on Capital Allocation and the discretionary CapEx component, I think this year feels like it has more of the characteristics of sort of a trough year than maybe something structurally problematic. And so it makes sense that, you know, discretionary CapEx is still at the top of your queue. But I mean, is there anything that this scenario that you can imagine that might cause you to decelerate growth capex or any market conditions specifically that you're watching for that could change, maybe change the mix of your capital allocation and move growth capex kind of lower on the priority list? Yeah, I don't. I mean, the reality is that most of the projects that are in our growth pipeline now are all underway.
John W. Neppl: But what we've seen recently is energy prices coming off quite a bit, especially in Europe, which has lowered our variable costs.
John W. Neppl: Over there quite a bit I think our belief is that that we're probably you're probably close to the most efficient in the industry are certainly you know on par with with others.
John W. Neppl: And it's you know.
John W. Neppl: As you can imagine the higher cost areas generally it's gonna be U S with with inflation and in Europe with energy costs and inflation, but.
John W. Neppl: We also have some some very.
John W. Neppl: Very low cost production areas, Brazil, certainly is an area where costs are much lower than average and in Asia as well, but highly competitive and I think again, we've seen we've seen things come off certainly and I think.
John W. Neppl: Where we're focused on a lot of our capital recently on the especially on the sustaining side has been focused on improvements in the efficiencies in the plants. I think we will continue to be able to do a good job of offsetting some of the inflation that we're seeing just naturally.
John W. Neppl: So the bulk of it won't change because we still believe those are great long-term projects. You know, certainly around the fringes as new things come up, we may trade off between that and M&A, which we have done some of. We've seen some great bolt-on M&A opportunities and have allocated some capital in that direction instead, but I would say largely our forward track here for 24 and 25 is pretty locked in from a CapEx standpoint.
John W. Neppl: So we feel I think pretty good about where we are from an efficiency standpoint right now.
Speaker Change: That's great I'll pass it on thanks, guys.
Speaker Change: Yeah.
Speaker Change: The next question is from Andrew first we the BMO.
Andrew: Hey, good morning, Thanks for taking the questions.
Andrew: First for me I was hoping you could compare the current environment and the curves to the $8 50, EPS assumptions in the baseline more broadly.
Sam Margolin: I see. Thank you. The next question is from David Sunderland. Hey, good morning guys. Thanks for taking the question, morning. Morning. Just one for me, I was curious about the cost structure for processing and RS&O, maybe just how this has evolved as new capacity has come online in the industry, and maybe any comments you guys could give on variable cost changes over the last few years and how your cost structure compares to competitors would be helpful. Sure, this is John.
Speaker Change: Yes, it seems like for the most part.
Most of the profitability and margin structures are similar to those assumptions, especially on the crush side. If you were able to lock in the first quarter a little higher.
Speaker Change: <unk>, maybe you spend a little bit weaker on merchandising and.
Speaker Change: If a couple of hundred million lower unrefined oils is right and I had the buyback.
Speaker Change: Math is something like $10, plus I think and I understand the you know the volatility of the environment.
Speaker Change: Environment, etcetera, but am I thinking about that correctly is there anything that else that's not.
John W. Neppl: You know, look, I think we have not been immune to the inflation that we saw over the last, you know, a few years relative to the kind of started during COVID and worked its way through. But what we've seen recently is energy prices coming off quite a bit, especially in Europe, which has lowered our variable costs over there quite a bit. I think our belief is that we're probably, or probably close to, the most efficient in the industry, or certainly, you know, on par with others. And it's, you know, as you can imagine, higher cost areas, generally, it's going to be the U.S. with inflation and in Europe with energy costs and inflation, but we also have some very, You know, very low cost production areas. Brazil certainly is an area where costs are much lower than average and in Asia as well, but it is highly competitive.
Speaker Change: Materially weaker than kind of the baseline assumptions.
Speaker Change: Yeah, I can I can start and Greg can jump in I think you know actually are.
Speaker Change: Our margin assumptions right now for 2024 are better than the baseline.
Speaker Change: Marginally better than where we were in the 50 baseline assumptions. So we think that will hold for the year not improve.
Where we are where we're seeing a little and that's probably more on the soft side the soy side.
Speaker Change: Higher the higher assumption around margin structure than what we're seeing today, I think where we see the downside versus our baseline is really in merchandising.
Speaker Change: As we look forward you know we have Greg pointed out there's not a lot of visibility going forward in that and based on you know how we finished 23, we've kept a lower forecast in for them and 24, which is actually lower than what we have in our baseline but on the other side RSO is higher so.
John W. Neppl: And I think, again, we've seen things come off, certainly, and I think, you know, where we've focused a lot of our capital recently, especially on the sustaining side, has been focused on improvements in the efficiencies in the plants. I think we will continue to be able to do a good job of offsetting some of the inflation that we're seeing just naturally. So we feel, I think, pretty good about where we are from an efficiency standpoint right now. That's great, I'll pass it on, thanks guys. Thank you. The next question is from Andrew Strelczyk with BMI. Hey, good morning.
Speaker Change: Those are kind of the big things in terms of the commercial side of it when you look at the non business part of it or the other items interest expense was quite a bit higher than what we had in our baseline driven by interest rates.
Speaker Change: Certainly and then a little bit higher effective tax rate as we've seen some tax legislation changes globally.
Speaker Change: So interesting interest and taxes are higher.
Speaker Change: Hum soy on the margin side, soy and soft or higher from a expectation RSO is higher and then merchandising slower so it's a.
Andrew Strelczyk: Thanks for taking the questions. First, for me, I was hoping you could compare the current environment and the curves to the 850 EPS assumptions and the baseline more broadly. I guess it seems like, for the most part, most of the profitability and margin structures are similar to those assumptions, especially on the crush side, if you were able to lock in the first quarter a little higher. The exceptions may be, as you said, a little bit weaker on merchandising.
Speaker Change: Kind of how I think about it.
Speaker Change: And probably the only thing on the commercial side that we didn't mention whether the margins on crush a.
Speaker Change: Or a little higher than the baseline the volumes just a little bit lower and that's due to you know we exited Russia.
Speaker Change: As a choice and then in Ukraine, our volume is down with the with the war ongoing there.
Speaker Change: Maybe just one other thing to add too as you're as you're thinking through this share buybacks.
John W. Neppl: If a couple hundred million lower on refined oils is right, and I add the buyback here, the math is something like $10 plus, I think. And I understand the volatility of the environment, et cetera. But am I thinking about that correctly? Is there anything else that is materially weaker than the baseline assumptions? Yeah, I can start, and Greg can jump in.
Speaker Change: Done more of that than we had in our original baseline model I think we modeled $250 million a year in our baseline assumption and of course, we can.
Speaker Change: Accelerated that with Vitol transaction coming.
Speaker Change: Okay great.
Speaker Change: Very helpful.
Speaker Change: And I guess, maybe my other question I'm used to thinking about.
Speaker Change: The guidance in terms of a plus and you're being asked about upside opportunities you've discussed.
Speaker Change: A lot of the risks here and I you know I appreciate the change in kind of the guidance presentation to the approximately $9, but can you talk about where there might be.
John W. Neppl: I think, you know, actually, our margin assumptions right now for 2024 are better than the baseline, marginally better than where we were in the 850 baseline assumptions. So we think that'll hold for the year, if not improve. Where we're seeing a little, and that's probably more on the soft side than the soy side, you know, the higher assumption around margin structure and what we're seeing today. I think where we see the downside versus our baseline is really in merchandising. You know, as we look forward, you know, we have a, Greg pointed out, there's not a lot of visibility going forward in that.
Speaker Change: Upside opportunities if we're if we're looking for those where you think the greatest opportunities might lie throughout the year. Thanks.
Yeah.
Speaker Change: Yeah I think.
Speaker Change: Probably the the same key ones you don't.
Speaker Change: China always a big factor their economy, and if if it would would speed up from a demand and then how China is going to think about any stock building because they can they can definitely make it change on on these markets that are really still pretty close and the supply and demand balance.
Speaker Change: The type of a weather situation at all.
Speaker Change: The balance sheets are pretty tight we could see increased volatility and that would also probably drive not only more farmer selling but it would it would also drive the consumers to be farther out on the curve and do more purchasing and they've gotten comfortable again, where we had some just in case inventory building ever.
John W. Neppl: And based on, you know, how we finished 23, we've kept a lower forecast for them in 24, which is actually lower than what we have in our baseline, but on the other side, RSO's higher. So those are kind of the big things in terms of the commercial side of it. When you look at the non-business part of it, or the other items, interest expense, you know, is quite a bit higher than what we had in our baseline driven by interest rates, certainly, and then a little bit higher effective tax rate, as we've seen some tax legislation changes globally. So interest and interest on taxes are higher.
Speaker Change: The ones kind of forgotten the supply chain problems and we've definitely seen customers pulling down.
Speaker Change: Stocks and in that just in time inventory again. So if you saw any concern on smbs are supply chain problems.
Speaker Change: And saw a build back that way.
Speaker Change: The overall growth in demand from the lower prices, whether that's animal industry, adding.
Speaker Change: Adding capacity.
Speaker Change: <unk>, the consumer responding across feed food or fuel more quickly to the lower prices.
Gregory A. Heckman: Soy on the margin side, soy and softer higher from an expectation RSO is higher, and then retail is lower. So that's kind of how I think about it. And probably the only thing on the commercial site that we didn't mention, while the margins on Crush are a little higher than the baseline, the volume's just a little bit lower, and that's due to, you know, we exited Russia as a choice, and then in Ukraine, our volume is down with the war ongoing there. Yeah, and maybe just one other thing to add, too, is you're thinking through this share buy I think we modeled $250 million a year in our baseline assumption, and of course, we've accelerated that with the Viterra transaction coming.
Speaker Change: And then Argentina always a very you know a very big driver of course, the size of their crop how the farmers going to commercialize that and of course, a lot of that'll be driven by the government policy and their ability to put the incentives out there in the way they want to with what they're trying to accomplish.
Speaker Change: And then.
Speaker Change: But of course importantly, biofuels in general globally.
Speaker Change: That continues to develop policy.
Speaker Change: And how the different different feedstocks are weighing off in the global.
Speaker Change: Oil balance with keeping palm in mind as well so.
Speaker Change: Those are those are a few of the flags that we're watching carefully and it should be a really interesting you.
John W. Neppl: Okay, great. That was super helpful. And I guess maybe my other question, I'm used to thinking about, you know, the guidance in terms of a plus and you being asked about the upside opportunities you've discussed. A lot of the risks here, and I appreciate the change in kind of the guidance presentation to the approximately $9, but can you talk about where there might be upside opportunities if we're looking for those, where you think the greatest opportunities might lie throughout the year? Yeah, I think the same key ones, you know, China, always a big factor, their economy, and if it would speed up from demand, and then how China is going to think about any stock building, because they can, they can definitely make a change in these markets that are really still pretty close in the supply and demand balance. Any type of weather situation at all, the balance sheets are pretty tight. We could see increased volatility, and that would probably drive not only more farmer selling, but it would also drive consumers to be farther out on the curve and do more purchasing.
Speaker Change: You know 12 18 months here going forward as we have a number of things transitioning.
Speaker Change: Great I appreciate the thoughts thank you very much.
Speaker Change: Thank you.
Ken Zaslow: This concludes our question and answer session I would like to turn the conference call over to correct. The Hoffman for any closing remarks.
Hoffman: I'd like to thank everyone for joining us today and for your interest and I guess I'd just like to wrap up by saying we've tried to reflect in our outlook what has changed for 24, but I sure want to also reflect what has not changed and what what hasn't changed right is there's long term growth and demand for.
Hoffman: The things, we make and the services that we provide with them and that is across all three food feed and fuel markets. The the growth in biofuels.
Hoffman: That's a near term issue and that trend is in place.
Hoffman: The improvements in our operating model those continue and we'll we'll continue to to focus on how to to make sure that we don't stop with our focus on continuous improvement.
Gregory A. Heckman: And they've gotten comfortable again where we had some just-in-case inventory building. Everyone's kind of forgotten the supply chain problems, and we've definitely seen customers pulling down stocks in that just-in-time inventory again. So if you saw any concern about S&Ds or supply chain problems and saw a build back that way... the overall growth in demand from the lower prices, whether that's the animal industry adding capacity or the consumer responding across feed, food, or fuel more quickly to the lower price. And then Argentina, always a very big driver, of course, in the size of their crop, how the farmer is going to commercialize that, and of course, a lot of that will be driven by government policy and their ability to put the incentives out there in the way they want to with what they're trying to accomplish.
Hoffman: 26 baseline target remains unchanged, we continue to have a great pipeline of projects and investments with good returns our pending acquisitions are on track and our.
Hoffman: Our share purchase commitment is ongoing so those are the things that haven't changed we feel good about what we're doing very proud of our team and we will continue to stay focused so thanks for your interest look forward to speaking to you again soon have a great day.
Hoffman: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Gregory A. Heckman: And then, of course, importantly, biofuels in general, globally, how that continues to develop policy, and how the different feedstocks are weighing off in the global oil balance, with keeping palm in mind as well. Those are a few of the flags that we're watching carefully, and it should be a really interesting 12-18 months here going forward as we have a number of things transition. I appreciate your thoughts. Thank you very much. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks. I'd like to thank everyone for joining us today and for your interest, and I guess I'd just like to wrap up by saying, you know, we've tried to reflect in our outlook what has changed for 24, but I sure want to also reflect what has not changed. And what hasn't changed, right, is that there's long-term growth in demand for the The growth in biofuels is a near-term issue, and that trend is in place.
Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Gregory A. Heckman: The improvements in our operating model continue, and we'll continue to focus on how to make sure that we don't stop with our focus on continuous improvement. Our 26 baseline target remains unchanged. We continue to have a great pipeline of projects and investments with good returns. Our pending acquisitions are on track. And our share purchase commitment is ongoing. So those are the things that haven't changed.
Gregory A. Heckman: We feel good about what we're doing, very proud of our team, and we'll continue to stay focused. So, thanks for your interest. I look forward to speaking to you again soon. Have a great day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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