Bunge income slips in year despite strong fourth-quarter finish

by Eric Schroeder
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WHITE PLAINS, N.Y. — A strong finish to the fiscal year in all operating segments led to higher fourth-quarter earnings at Bunge Ltd. but was not quite enough to generate a year-over-year income gain for the global agribusiness and food company. Bunge in the fiscal year ended Dec. 31 posted net income of $521 million, equal to $4.28 per share, down 2% from $530 million, or $4.43, in fiscal 2005.

During the year, the company incurred impairment and restructuring charges of $24 million, including $20 million in the agribusiness segment, $2 million in the fertilizer segment and $2 million in the edible oil products segment. Offsetting the decline was a $58 million net credit and a $29 million gain on the sale of assets.

A year earlier, Bunge sustained restructuring and impairment charges of $49 million.

"Bunge finished 2006 on a promising note," said Alberto Weisser, chairman and chief executive officer. "Our team did an excellent job of delivering results and produced strong second-half performances in all of our operating segments. We expect 2007 to be a year of improved earnings."

Mr. Weisser said Bunge has seen signs of improvement in its Brazilian agribusiness and fertilizer markets during the past several months, but challenges remain, including the strong real.

"But higher commodity prices, large new corn and soybean crops and continued government support have improved farm economics in the country and should translate into more crop sales and larger fertilizer purchases in 2007," Mr. Weisser said. "Steps taken in late 2005 and early 2006 to restructure our Brazilian businesses, lower costs and enhance our foreign currency risk management should position Bunge to benefit from improving Brazilian market conditions.

"The emerging biofuels industry is creating higher demand for our core products and is materially influencing global supply and demand. Bunge is taking a focused approach to the biodiesel and corn ethanol industries. We are making minority investments in well-positioned assets and acting as a raw material and service supplier to biofuels producers. Our overall strategic focus remains on the agribusiness and food industries, where we see great opportunity driven by strong demand for our core products. To capitalize on this growth, we will continue to enhance the balance, integration and efficiency of our global network of assets."

Net sales during the year rose 8% to $26,274 million, up from $24,377 million in fiscal 2005. Aggregate sales volume fell 2% to 114.9 million tonnes from 117.2 million last year.

Results for the fourth quarter were much improved for the company. In the fourth quarter ended Dec. 31, net income jumped 77% to $264 million. Meanwhile, sales rose 14% to $7,683 million.

Operating profit in the company’s Milling Products segment rose 10% to $69 million. For the fourth quarter, operating profit soared 75% to $21 million behind higher wheat milling margins. Bunge also benefited from low raw material costs as it purchased much of its inventory prior to the rise in prices. Net sales in the segment climbed 12% to $965 million for the year and advanced 10% to $251 million for the quarter.

Operating profit in the Agribusiness segment fell 69% in the year to $86 million, down from $275 million. Fourth-quarter profit, meanwhile, jumped sharply to $68 million after posting a loss of $4 million in the same period a year ago. Bunge said stronger agribusiness results in the fourth quarter were driven by improvements in South America, where higher oilseed processing margins more than offset lower volume.

Sales in the Agribusiness segment rose 9% to $19,106 million during the year, and for the fourth quarter gained 18% to $5,516 million.

Operating profit in the Edible Oil Products division grew 132% for the year to $86 million behind a 6% gain in sales to $3,601 million. For the quarter, Bunge posted an operating profit of $15 million, up sharply from profit of $6 million in the fourth quarter of fiscal 2005. Bunge said results improved primarily due to volumes and margins in Brazil.

Sales in the Fertilizer division fell 3% to $2,602 million during the year, but operating profit climbed 149% to $202 million. For the fourth quarter, Bunge rebounded from an operating loss of $25 million in the previous year to an operating profit of $88 million in the fourth quarter of fiscal 2006. Sales in the fourth quarter of fiscal 2006 were $918 million, up 3%.

Looking toward 2007, Mr. Weisser said Bunge will continue to invest to capitalize on its growth opportunities.

"In 2007, we will expand capacity at our sunseed crushing plant in Martfu, Hungary, to grow our presence in Eastern Europe, build a new wheat mill in northeastern Brazil to improve production efficiency and continue increasing our fertilizer mining and production operations to meet future growth in Brazilian agriculture," Mr. Weisser said. "We will complete our two Canadian crushing and refining capacity expansion projects and increase our presence in the global sugar and sugar-based ethanol markets. Also, our oilseed processing facilities in Ukraine, Russia and Spain and our new grain and fertilizer terminals in the port of Santos, Brazil will come fully online during 2007, supplying real benefits to our business."

Bill Wells, chief financial officer, said Bunge expects 2007 net income guidance of $590 million to $610 million, representing $4.56 to $4.71 per share. Approximately $30 million during the year will be related to a gain on the sale of assets, he said.

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