Shares of the giant agribusiness could sprout 15% higher if a new CEO can keep the unexpected from happening again.
After leaving investors hungry in the two previous quarters, the agricultural trading giant Bunge finally delivered a healthy meal in the second quarter: It made a profit of $262 million, or $1.76 a share, on revenue of $16.8 billion, topping Wall Street profit estimates by nearly 30%. The shares' subsequent 9% pop could be the start of a feast that pushes them another 15% higher over the next year or so.With growing evidence of emerging markets' rising middle class and its craving for better, healthier food, a company that buys, processes, and transports grains and oilseeds in markets all over the world would seem well positioned. But in the past, Bunge has stumbled over unexpected obstacles. In the first quarter, for instance, it had to write down $31 million from a sugar futures hedge as prices spiked. Even after the recent jump, Bunge's cheap shares (ticker: BG) are flat in 2014, versus a 15% rise for agricultural-products providers.
Photo: Courtesy of Bunge
Four quarter revenue run rates, in billions of USD.Soren Schroder, 52, who was named to the CEO spot in 2013, is trying to limit the volatility of a generally low-margin business. Schroder told shareholders the company has been "somewhat frustrated" it hasn't done better. "Our customers and our investors expect higher levels of performance and a disciplined approach to improvement," says Schroder, a Dane who worked for Cargill and Continental Grain before joining Bunge's executive ranks in 2000.Founded by a German merchant, Johann Peter Gottlieb Bunge, in 1818, the company began as an import-export business in Amsterdam. Boasting a $12 billion market cap, Bunge today employs 35,000 people and operates more than 400 facilities in more than 40 countries. Wall Street expects the company this year to generate revenue of $63 billion and an adjusted profit of $910 million.Nearly 75% of revenues and 65% of profits come from agribusiness. First, there's grain—wheat, barley, and corn—sold to feed and food processors. Then come oilseeds such as soybeans, canola, and sunflower seeds, used in the creation of vegetable oils. Finally, there are milling and oil-products operations, which account for 18% of revenue and nearly 30% of profit. These units turn the grains and oilseeds into food for humans and feed for livestock. Bunge is involved in almost every step of food creation and distribution, brokering crops among farmers, milling for bakers, and crushing feed, plus handling many in-between steps. It owns and operates ports, grain elevators, ships, mills, barges, and railcars that store and move these items around the world.....MORE
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