Cargill Reports Fiscal 2019 Third-Quarter Results

Cargill reported results for the fiscal 2019 third quarter and first nine months ended Feb. 28, 2019. Key measures include:

• Adjusted operating earnings were $604 million, up 8% from the $559 million earned last year. This brought earnings for the first nine months to $2.34 billion, a 2% decrease from the prior year.
• Net earnings on a U.S. GAAP basis for the quarter were $566 million, a 14% increase from $495 million in the year-ago period. For the nine-month period, net earnings declined 3% to $2.33 billion.
• Third-quarter revenues decreased 4% to $26.9 billion, bringing the year-to-date figure to $83.5 billion.

“Disruptions and uncertainty in the global business environment continued to present challenges during the quarter, but our teams captured greater efficiencies across the company,” says Dave MacLennan, Cargill’s chairman and chief executive officer. “We remain focused on our growth objectives. To achieve them, we are innovating what matters for our customers so they can win with consumers in local markets.”

Segment results

Adjusted operating earnings across Cargill’s four business segments were below the year-ago level. The difference was offset by reduced spending among corporate functions and other cost reductions.

Animal Nutrition & Proteinwas the largest contributor to Cargill’s adjusted operating earnings. Within the segment, earnings in North American protein exceeded the year-ago period, boosted by continued strong domestic and export demand for beef as well as consumer demand for egg products. Higher production costs at Cargill’s poultry processing joint ventures in the Philippines and U.K. contributed to a decline in global poultry results. Two recently acquired value-added chicken processors – Campollo in Colombia and Konspol in Poland – both got off to a good start as part of Cargill. Increased sales volumes for salmon feeds in the North Sea region and functional feeds in North America improved earnings in aqua nutrition, but animal nutrition results in total trailed the prior year due in part to the outbreak of African swine fever in China and other countries, as well as unfavorable dairy economics in the U.S.

Food Ingredients & Applicationsdelivered mixed results across the segment. Starches and sweeteners earnings declined on historically low ethanol prices in North America, and higher energy and raw material costs in Europe. Lower sales volume and higher operating costs in North America trimmed otherwise strong cocoa and chocolate performance in other regions. Edible oils pulled ahead of last year on good positioning and operating efficiencies. In North America, wintry weather slowed bioindustrial sales to the road construction industry; at the same time, icy and snowy road conditions drove demand for deicing products. Sales of salts for food and water quality applications also contributed to improved salt results.

In early March, Cargill announced its intent to acquire Smet, a Belgium-based supplier of chocolate and chocolate decorations. The purchase aligns with Cargill’s intent to accelerate growth in specialty ingredients, as Smet would broaden product offerings and services to artisan, chocolatier and foodservice customers. Subject to information and/or consultation procedures with the appropriate employee representative bodies, the transaction is expected to close in the first half of calendar 2019.

Earnings inOrigination & Processingreflected a challenging environment with ongoing trade tensions and other supply chain disruptions. In North America, soy and canola crush operations ran at high capacity, but the near absence of the Chinese market for plentiful U.S. soybean stocks reduced profitability. The trade turbulence also negatively affected soybean crush operations in China, as did lower demand for soybean meal for feed following the culling of hogs to control the spread of African swine fever. The segment’s European and South American operations both posted higher profits over the prior year, with soybean and soft seed processing leading the way in Europe, and corn and soybean origination improving in Brazil.

Announced last quarter, Cargill completed the formation of Grainbridge with Archer Daniels Midland. The technology joint venture will begin developing a suite of digital tools to give North American farmers market data and information on their grain marketing activities in a single platform at no cost to them.

Earnings in theIndustrial & Financial Servicessegment were negatively affected by the industrywide impact of a mining disaster in Brazil in January that required the mine owner to cut iron ore production and exports to China. The incident caused iron ore futures prices in China to rise sharply, and Capesize vessel freight rates to fall significantly. Ocean shipping rates began to strengthen by quarter end, but concerns about a slowdown in global growth continued to weigh on markets. Elsewhere in the segment, the risk management business, which develops diversified risk management strategies for a wide range of customers, put up a strong quarter with balanced performance across agriculture, energy, metals and other product lines.