Bunge Stays Alive Despite Agribusiness Bungles

By Gregory S. Davis | February 23, 2009 AAA

Months after the termination of the planned merger between Corn Products International (NYSE:CPO), and Bunge Limited (NYSE:BG) agribusiness competitors reported fourth quarter results for 2008. Did the change in direction help or hurt either company's long-term prospects in the agribusiness market?

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Bunge Maintains Positive Outlook Despite Negative Q4
Bunge's net sales dropped 12% to $10.9 billion for Q4 2008 from the same period a year ago, despite a 6% increase in metric tons of agriculture production. In addition, earnings from Bunge's agribusiness and fertilizer segments, before interest and taxes, were down from the previous year by 13% and 23%, respectively. Weak demand for soybean oil and meal, combined with the availability of substitutes, resulted in the lower net sales results. The negative fourth quarter results were not enough to offset an otherwise successful year, as total net sales increased 39%. In addition, the company's earnings per share (EPS) increased 30%, from $5.95 to $7.73.

Corn Processing International Stays Syrupy Sweet
Beverages from Coca-Cola (NYSE:KO) and a variety of foods from Kraft (NYSE:KFT) just wouldn't be the same without the Corn Products International-supplied high fructose corn syrup. Corn Products International, Bunge's former merger partner, also reported a difficult fourth quarter, as net sales increased less than 1%, to $900 million, over the same period last year. An improved price/product mix sold in North America led the company's net sales for the final quarter of 2008. However, its sales in South America, Asia and Africa lagged due to unfavorable currency translations and the regional effects of economic headwinds. On a brighter note, Corn Products International reported record sales for the year of $3.94 billion and a 36% increase in EPS, from $2.59 in 2007 to $3.52 in 2008.

ADM Oils Its Way To Earnings Increase
Archer Daniels Midland
(NYSE:ADM) also reported a 1% increase in net sales, to $16.7 billion, for its fiscal second quarter ended December 31, 2008. The agribusiness giant was able to increase EPS 25%, or 91 cents, over the previous year. However, its earnings increase primarily can be attributed to the positive effects of LIFO inventory valuations on the company's corporate business segment. Furthermore, ADM's sweet-tooth-friendly corn processing segment took a back seat to profits generated by its oilseed processing and agricultural services, including transportation and merchandising. (Learn more about the different methods of inventory calculation in our related article Inventory Valuation for Investors: FIFO and LIFO.)

Final Thoughts
The decision not to move ahead with the agribusiness merger appears to have been the right call, given the current environment of tight credit and wavering commodity demand. While Q4 2008 was difficult for most agribusiness players, the rapid growth of the world population is reason enough for investors to take notice.

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