UPDATE 3-Cargill earnings boosted by big U.S. crop harvest

Thu Jan 9, 2014 5:35pm EST

By Christine Stebbins

CHICAGO Jan 9 (Reuters) - U.S. agribusiness giant Cargill Inc on Thursday reported a 36 percent rise in quarterly profit, supported by a bigger U.S. crop harvest in 2013 that led to lower grain prices and boosted profit margins on meat sales.

Minneapolis-based Cargill, a top global commodities trader, reported net earnings of $556 million for the second quarter ended Nov. 30, up from $409 million a year ago.

Revenues slid 7 percent from a year ago to $32.9 billion.

"Earnings improved in three of our four segments," said Cargill's new CEO David MacLennan, who took over to lead the multinational after Greg Page stepped down on Dec. 1.

Cargill, the top exporter of U.S. grain and oilseeds, benefited from replenished grain supplies following a bumper U.S. corn and soybean harvest after the 2012 drought. This boosted export prospects and grain processing volumes and also improved profits in its meat and ethanol businesses.

"The impact on supply and demand caused prices for agricultural commodities to come down from last year's highs, providing relief to Cargill's animal nutrition and protein segment," the company said in a statement. "Larger export volumes and increased operating efficiencies also contributed to stronger results, especially in beef processing."

Cargill's meat business came under stress in 2013 from high feed costs that prompted many ranchers to reduce the size of their herds, pushing the U.S. cattle supply to a 60-year low. This cut beef volumes as well as profit margins.

"The animal nutrition which includes the beef and other protein segment did a little better than we expected," Standard & Poor's analyst Chris Johnson said. Johnson upgraded Cargill's outlook to "stable" from negative last September after its beef business improved.

U.S. exports of corn rose 43 percent in the quarter. Bigger stocks of corn triggered a 40 percent decline in prices, which renewed interest by overseas buyers in the leading grain exported by the United States, the world's top grain exporter.

Rivals Archer Daniels Midland and Bunge have also struggled due to tight crop inventories, last reporting disappointing earnings for the quarter ended Sept 30. Both will report quarterly earnings in the coming weeks. Together with Louis Dreyfus Corp, the four are often referred to as the "ABCD" group that handles the bulk of world grain trade.

"Cargill's earnings were generally in line with Fitch's expectations for the current ratings and stable outlook," said Judi Rossetti, an analyst with Fitch Ratings, which changed its outlook to stable from negative last month.

ENERGY SECTOR WEAK

Cargill, one of the world's largest privately held corporations, had revenue of $136.7 billion for fiscal 2013, which would have placed it No. 10 on the Fortune 500 list of publicly held companies.

While Cargill's quarterly results rose in three of its four business segments, its animal protein group showed the most improvement and its food ingredients and applications sector was the largest contributor to the quarter.

A pick up in demand for specific products, like cocoa powder and corn-based ethanol, added to earnings, the company said.

Cargill's agricultural services division, which includes its grain sourcing, handling and processing, was the only sector with earnings below a year ago despite an improvement from North American operations.

"In certain markets, Argentina in particular, there has been a build up across the industry in oilseed crush capacity. So that was a negative affect on crush volumes," Cargill spokeswoman Lisa Clemens told Reuters.

Cargill's industrial and financial segment was up slightly from last year but the energy unit, which includes trading in petroleum, coal, power and gas, declined.

"The energy businesses are heavily dependent on trading and trading goes through different cycles of performance," Clemens said.

Cargill's size and scope continued to expand in the 67 countries where it operates and employs 142,000 people.

"Their mergers and acquisitions activity continues to be in line," S&P analyst Johnson said. "The industry as a whole might be in a position to having a little more cash on their balance sheet." He said S&P was looking for agribusiness companies in general to use cash flow to fund acquisitions.

Cargill said it began making ethanol at its Fort Dodge, Iowa, mill purchased in 2011. The company expanded its oilseed processing plant in West Fargo, North Dakota, and began building a sunflower seed crush plant in southwestern Russia, its first crushing facility in Russia.

The company also bought a minority stake in a deep sea port terminal in Novorossiysk on the Black Sea.

Asked about its proposed joint venture with ConAgra Foods and CHS Inc to form a giant flour company announced in March of 2013, Clemens said the terms were still being reviewed by the Department of Justice and has received all regulatory approvals outside the United States.

"We're still proceeding forward," Clemens said.

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