* Earnings strong despite U.S. drought
* Revenue up 6 percent to $35.2 billion
* Focus turns to capital investments, away from acquisitions
By Christine Stebbins
CHICAGO, Jan 9 U.S. agribusiness giant Cargill
Inc reported a four-fold increase in quarterly
earnings on Wednesday, tapping its global command of cash
markets and food processing and posting strong profits from
trading operations after a poor performance a year ago.
The strong results came as the United States, the world's
top food producer and exporter, struggled with the consequences
of its worst drought in more than 50 years. Commodity prices
rose and fell sharply during the September-November quarter as
fears of crop losses gripped the markets.
Cargill's expertise in worldwide markets helped it navigate
the turbulence, company officials said. Cargill is a top trader
in dozens of commodity markets, from cocoa and sugar to
livestock, grains and cotton.
"Given Cargill's strength in analysis and risk management,
logistics, we are able to match those to the market conditions,"
said Cargill spokeswoman Lisa Clemens.
"A year ago our markets were dominated by political and
macroeconomic uncertainty," she said, citing the European debt
crisis which hurt trading results a year ago.
Minneapolis-based Cargill, one of the world's largest
privately held businesses, said net earnings soared to $409
million for the quarter ended Nov. 30 from $100 million a year
earlier. Quarterly earnings a year ago were Cargill's worst
Revenue rose 6 percent to $35.2 billion.
It was Cargill's second straight quarter of strong earnings
after weak results in fiscal 2012 prompted Standard & Poor's to
downgrade the company's outlook to negative.
But in a reflection of persistent market volatility,
Cargill's second-quarter earnings were half of the $975 million
the company posted in the June-August quarter. Revenues,
however, continued to grow from the $33.8 billion of the prior
"Second quarter net earnings showed significant improvement
versus the year-ago period, which was unusually weak. However,
earnings were down sequentially versus a very strong first
quarter," said Judi Rossetti, an analyst for Fitch Ratings.
"Earnings volatility is likely to continue, particularly due
to low commodity supplies and shipping concerns related to the
U.S. drought and high raw material and feed costs in U.S. beef
processing," she said, noting that Fitch is unlikely to make a
rating change based on Wednesday's report.
Fitch's current outlook for Cargill is "negative."
Smaller rivals like Archer Daniels Midland and Bunge
faced similar pressures but have also emerged from a
period of poor earnings amid volatile commodity markets.
Cargill's chief executive said the company would be more
restrained toward acquisitions in 2013, focusing on its large
capital investment to grow the company's earnings.
"We have a record $2.4 billion of large projects under
construction in 13 countries," CEO Greg Page said in a
statement. "As these facilities come on line, they strengthen
Cargill's supply chain, risk management and innovation
Earnings rose in four of five Cargill business segments,
with its grain processing and origination division posting the
strongest results. Cargill's ability to hedge, source and ship
grain and oilseeds gave it a competitive advantage as the
drought roiled the markets.
Food ingredients and applications was the only segment down
from a year ago as weak economies continued to affect margins as
well as demand among Cargill's customers. Excess capacity in the
North American ethanol market also pressured margins and
But Cargill's animal protein business posted a profit versus
a year-ago loss. Though results were tempered by higher
livestock feeding costs, its meat businesses benefited from
improved volumes and margins.
Fallout from the drought - including fears of another
drought this summer - will continue to be a wild card for
Cargill and other agribusinesses.
The United States is traditionally the largest exporter of
wheat, corn and soybeans, and large companies like Cargill
handle most of the tonnage for those shipments. The 2012 drought
pushed corn prices to historic highs before profit-taking set
"We see the impact of the drought as still playing out. What
happens over the next six months will be important," Cargill's
Clemens said. "By the time we hit March, April, May, that's
going to be a low period for U.S. exports and that's related to
the drought-reduced crop."
The U.S. Department of Agriculture is forecasting corn
exports will fall to a 38-year low.
Cargill is a bellwether for the world agricultural economy.
If it were a public company it would rank No. 13 on the Fortune
list of the largest U.S. companies for 2011.