UPDATE 3-Bunge looks to next harvests after earnings sink
By Tom Polansek
CHICAGO, July 25 (Reuters) - Agribusiness company Bunge Ltd on Thursday reported a sharp drop in quarterly earnings caused by tight crop supplies, and it forecast massive U.S. harvests will boost trading and processing volumes.
Bunge, one of the world's largest agricultural trading houses, is anxiously awaiting the autumn soy and corn harvests after a historic drought slashed production last year. The company also grappled with reduced harvests due to poor weather in Argentina and the Black Sea region.
Export demand for crops should be strong in the second half of the year because prices have dropped on expectations of large harvests, said Drew Burke, Bunge's chief financial officer, adding that buyers have been waiting to make purchases.
Still, inventories will likely remain scarce until the fourth quarter because planting delays in the spring will postpone the start of the U.S. harvest.
"Our oilseed processing and merchandising operations in North America and Europe will continue to be impacted by low capacity utilizations due to tight supplies until new crops are harvested," Burke said.
Bunge is among the four large players known as the "ABCD" companies that dominate the flow of agricultural goods around the world. The others are Archer Daniels Midland Co, Cargill Inc and Louis Dreyfus Corp.
The company, which makes money by buying, selling, transporting and processing crops, reported net earnings of $110 million for the second quarter that ended June 30 compared with $265 million for the same quarter a year ago.
Revenue for the quarter was $15.5 billion, below analysts' expectations of $15.8 billion, according to Thomson Reuters I/B/E/S. A year ago, revenue was $14.5 billion.
Bunge earned 75 cents per share, below the average analyst estimate of $1.30 and the $1.78 per share earned a year earlier.
"The grain handling volumes were just bad," Chief Executive Soren Schroder told analysts on a conference call, referring to the United States.
Rival ADM said in May that it, too, would struggle with a lack of volume until the autumn U.S. harvests. ADM is set to report earnings on Aug. 6.
Bunge shares were little changed in midday trading and are up about 2 percent year to date. ADM shares were up nearly 1 percent and have jumped about 32 percent this year.
Schroder, who took the helm on June 1, said performance "must improve." The company is reducing 2013 capital expenditures by $200 million to $1 billion and will postpone certain "growth projects" to boost results, he said. Plans for 2014 also are under review.
Bunge has an opportunity to "use better what already exists," rather than expanding its capacity further, he said on the call. He added that specific details on projects will be released at a later date.
"Projects that more immediately improve efficiencies and competitiveness - and that generate faster payback - will be priorities for Bunge," he said.
The weak quarterly results took analysts by surprise.
"It was anything but clear that you would see this level of decline from the year ago period," Citi analyst David Driscoll told Schroder on the call.
Strong margins and volumes in Brazil, which harvested a record soy crop this year, helped blunt the impact of tight supplies elsewhere in the world. Bunge executed record volumes in Brazil amid logistical delays at ports, according to the company.
"While Brazil was strong as expected, all other regions were flat to down," JPMorgan analyst Ann Duignan said.
The outlook for the second half of the year is "upbeat," she added.
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