October 11, 2011


Cargill's Q1 income plummets 66%



Although Cargill Inc.'s revenue increased by a third, it reported on Monday (Oct 10) that its Q1 profit dipped by 66% as buoyant markets restrict opportunities for the company.


According to the Wall Street Journal, the US conglomerate, whose activities range from grain handling and storage to meat packing and energy trading, said four of its five business units reported lower earnings compared with a year ago as it reported its second straight quarter of decline.


Privately-held Cargill said it was focused on regaining momentum in earnings after reporting a record full-year profit for fiscal 2011. Listed rivals including Archer Daniels Midland Co. (ADM) and Bunge Ltd. (BG) seemed unaffected by Cargill's caution, with their stock caught in the broader bounce Monday. Both were recently up by more than 2%.


"It was a tough quarter," Cargill Chief Executive Greg Page said. "With results down from recent levels, we are focused on regaining our earnings momentum."


The company, which posted record earnings in the fiscal year ended May 31, also saw earnings decline in the fourth quarter by 7%.


Commodity markets have swung wildly in recent months as global economic uncertainty and currency fluctuations have prompted investors to move money in and out of commodities. This "risk, on, risk off" dynamic prompted a "disciplined approach to risk-taking," the company said.


During Cargill's first-quarter, which ended August 31, spot-month CBOT corn futures soared to a record high of US$7.99 3/4 per bushel, plunged to US$6.15 and then rebounded to as high as US$7.65 before the quarter closed. They have since plummeted again, falling below US$6.


The suburban Minneapolis-based company's earnings were also hit by acquisition-related expenses and costs stemming from US flooding, which increased freight costs and required it to take steps to protect the supply chain. Flooding throughout the northern Plains, particularly along the Missouri River, was a problem throughout the summer.


For the quarter ended August 31, Cargill, whose diverse businesses range from grain merchandising to meat processing to energy trading, posted a profit of US$236 million, down from US$693 million a year earlier. Revenue rose 34% to US$34.6 billion.


The year-ago results did not include an additional US$190 million in earnings from its majority investment in fertiliser producer Mosaic Co. (MOS), which the company sold in a deal completed in May.


Cargill, like other US agricultural exporters, has benefited from rising food prices and the expanding middle class in emerging economies such as China and India. Its agriculture services segment, which includes grain handling and storage, reported increased earnings in the quarter.


But earnings fell in the grain origination and processing segment and its animal protein business. The company's food ingredients segment "nearly matched" a record performance last year, the company said. Cargill does not disclose earnings results within each segment.


The company has emphasised that it has a strong balance sheet following the sale of the Mosaic stake, which was worth about US$20 billion.


Cargill recently made a series of acquisitions across Asia, North and South America, culminating in one of its largest ever takeovers, the EUR1.5 billion (US$2.04 billion) purchase of Dutch animal feed maker Provimi Group.


The company invested more than US$3 billion in acquisitions and expansions in the prior fiscal year, a record for the company.