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Bear of the Day: Bunge Limited (BG)

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About the Company

Bunge Limited, based in White Plains, NY, is a leading agribusiness and food company with integrated operations all over the world—in about 40 countries. It is a global leader in oilseed processing, and grain & oilseed marketing. The company has four business segments 1) Agribusiness, 2) Sugar & Bioenergy 3) Food & Ingredients and 4) Fertilizers.

The company came out with its IPO in 2001 and has expanded though many significant acquisitions since then.

Disappointing Fourth Quarter Results

BG released its results for the fourth quarter of 2012 on February 7, 2013. The quarter resulted in a loss of $1.99 per diluted share from continuing operations, before adjustments.

Disappointing results were mainly due to weak performance by the Agribusiness segment and a loss in the Sugar & Bioenergy segment. Rising corn costs, foreign exchange losses and weak global economic conditions hurt the results.

Results included after-tax non-cash charges of $683 million, primarily goodwill impairment of $327 million in Sugar & Bioenergy segment and provisions of $298 million in discontinued operations. Improved results in wheat milling, which benefited from improved margins, were more than offset by lower results in corn milling and rice milling.

Revenue though up 9% to $17.04 billion from $15.69 billion, came in below consensus estimate of $18.69 billion.

Adjusted earnings came in at $0.57 per diluted share, significantly below the consensus estimate of $2.36 per share.

The company’s risk management failed as the hedges did not work out as planned.

The company also announced the retirement of its long time CEO Alberto Weisser, who will be replaced by Soren Schroder, the head of the company’s North America unit.

Downward Revisions

After poor results, seven analysts have revised their estimates for fiscal 2013 downwards. Current Zacks consensus estimates are--EPS of $1.00 for the current quarter and $7.37 for the year.

The Bottom Line

As the company generates most of its revenues from its Agribuinesss segment, it remains vulnerable to commodity price, weather and foreign exchange trends. Further the company does not have any pricing power and operates on thin margins.

BG is currently Zacks Rank # 5 (Strong Sell) stock and it has a longer-term recommendation of “Underperform”. Further the Zacks Industry rank of 208 (out of 265) also indicates further weakness in the short term.

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