By Christine Stebbins
CHICAGO Jan 9 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
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
"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
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.