Bunge Global - Q2 2023

Transcript

Operator (participant)

Good day, welcome to the Bunge Limited Second Quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Ruth Ann Wisener. Please go ahead.

Ruth Ann Wisener (VP of Investor Relations)

Thank you, Rocco, and thank you for joining us this morning for our second quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the investor section of our website at bunge.com under Events and Presentations. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to slide two and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and we encourage you to review these factors.

On the call this morning are Greg Heckman, Bunge's Chief Executive Officer, and John Neppl, Chief Financial Officer. I'll now turn the call over to Greg.

Greg Heckman (CEO)

Thank you, Ruth Ann. Good morning, everyone. I wanna start by thanking the team for their dedication and focus throughout the quarter. Our performance proves that we can execute on big strategic moves, like entering into our business combination agreement with Viterra, while continuing to keep our eye on the ball operationally. We clearly had a lot going on over the past several quarters. This team stayed sharp in our day-to-day business, delivering outstanding results and continuing to serve our customers at both ends of the value chain. At the same time, we capitalized on this unique opportunity to enhance the Bunge franchise for the future. John and I, along with the entire leadership team, are extremely proud of this work. We continue to make progress on our combination with Viterra and filed our preliminary proxy statement in connection with the proposed transaction last week.

We're excited to bring our teams and assets together to create a premier agribusiness solutions company, built to address some of the most pressing needs of the 21st century across food, feed, and fuel. Turning to the second quarter, it was a dynamic environment. Our team showed agility. They did a great job of managing against the downside and being smart with the opportunities that were available. In particular, we were able to use our footprint and value chain connectivity to optimize margins as market conditions changed later in the quarter. While volatility can provide opportunities, it's difficult to predict the timing and where within the value chain those opportunities for upside will appear. Our ability to execute in rapidly changing environments gives us confidence that we can create value over the long term.

We also saw benefits from our investments in maintenance and productivity, with improved reliability and reduced the amount of unplanned downtime across our platform. Based on the forward curves today and on the market environment, which from a macro and which is one that, from a macro environment and is as geopolitically complex as we've ever seen, we're increasing our full-year adjusted EPS outlook to at least $11.75 per share. I'll hand the call over to John now to walk through our financial results and outlook in more detail, we'll then close with some additional thoughts. John?

John Neppl (CFO)

Thanks, Greg. Good morning, everyone. Let's turn to the earnings highlights on slide five. Our reported second-quarter earnings per share was $4.09, compared to $1.34 in the second quarter of 2022. Our reported results included a positive mark-to-market timing difference of $0.59 per share and a negative impact of $0.22 per share related to one-time items. Adjusted EPS was $3.72 in the quarter versus $2.97 in the prior year. Adjusted core segment earnings before interest in taxes, or EBIT, was $893 million in the quarter versus $709 million last year. Agribusiness adjusted results of $674 million were up compared to last year.

In processing, higher results in the quarter reflected better year-over-year performance across all value chains, driven in part by strong Brazil soybean origination, which contributed to higher crush results in Brazil and our destination crush operations in Europe and Asia. In the U.S., results were also higher as we entered the quarter with a significant portion of our capacity locked in at higher margins. In merchandising, higher results in global oils and grains were more than offset by lower results in our financial services and ocean freight operations, which had difficult comparisons to a particularly strong prior year. Refined and Specialty Oils continued its trend of strong performance, though results were slightly lower than last year. Higher results in North America, driven by food service and fuel demand, were offset by slightly lower results across Europe, South America, and Asia.

In Milling, lower results in the quarter were primarily driven by our South American operations, which were negatively impacted by the small Argentine wheat crop. Segment results in the prior year benefited from effective risk management of our supply chains during a period of high market volatility. The increase in corporate expenses in the quarter primarily reflected planned investments in growth and productivity-related initiatives that will pay off in future periods. Lower other results related to our captive insurance program and Bunge Ventures. Results on our non-core sugar and bioenergy joint venture included a $39 million benefit from the reversal of a valuation allowance. In addition, improved results reflected higher sugar prices that more than offset lower ethanol prices.

Adjusting for notable items, net interest expense of $78 million in the quarter was down slightly compared to last year, as higher average variable rates were offset by higher interest income. For the six months of the year, income tax expense was $381 million, compared to $144 million in the prior year. The increase was primarily due to higher pre-tax income in 2023, as well as a change in geographic earnings mix. Let's turn to slide six, where you can see our adjusted EPS and EBIT trends over the past four years, along with the trailing 12 months. Our team continues to deliver excellent performance, especially when considering the rapidly changing market conditions we have faced, while also executing on a variety of internal initiatives to improve our capabilities.

Slide seven details our capital allocation of the approximately $1.4 billion of adjusted funds from operations that we have generated year to date. After allocating $181 million to sustaining CapEx, which includes maintenance, environmental, health, and safety, we had approximately $1.2 billion of discretionary cash flow available. Of this amount, we paid $180 million in common dividends and invested $360 million in growth and productivity-related CapEx, leaving approximately $630 million of retained cash flow. We have not purchased any shares this year as a result of our discussions to combine with Viterra. However, we recently announced that our board has expanded our existing share repurchase program to $2 billion.

We want to be in the market as soon as possible. We expect that a meaningful portion of these repurchases will be executed prior to the close of the Viterra transaction, with the remainder to be completed within 18 months of that date. As shown on slide eight, at quarter-end, Readily Marketable Inventories, or RMI, exceeded our net debt by approximately $3.6 billion. This reflects our use of retained cash flow to fund working capital while reducing debt. Slide nine highlights our liquidity position. At quarter end, all $5.7 billion of our committed credit facilities was unused and available, providing us ample liquidity to manage our ongoing capital needs. In working with our key banking partners, we also recently secured $8 billion in the form of term loan commitments to fund our combination with Viterra. Please turn to slide 10.

For the trailing 12 months, adjusted ROIC was 20.3%, well above our RMI adjusted weighted average cost of capital of 7.7%. ROIC was 15.1%, also well above our weighted average cost of capital, 7%. Moving to slide 11. For the trailing 12 months, we produced discretionary cash flow of approximately $2.1 billion and a cash flow yield of 19.2%. Please turn to slide 12 in our 2023 outlook. As Greg mentioned in his remarks, taking into account the first half of the year results and the current margin environment and forward curves, we have increased our full year 2023 adjusted EPS outlook to at least $11.75 per share.

In agribusiness, full-year results are forecasted to be down from last year, though slightly better than our prior outlook, as higher results in processing are more than offset by lower results in merchandising. However, depending on how market conditions evolve over the remainder of the year, there could be upside to our segment outlook. In Refined and Specialty Oils, full-year results are expected to be up from our prior outlook and in line with last year's record performance. In Milling, full-year results are expected to be lower than our prior outlook and significantly down from a strong prior year. In Corporate and Other, results are expected to be in line with last year. In Non-Core, full-year results in our sugar and bioenergy joint venture are expected to be in line with last year.

Additionally, the company expects the following for 2023: an adjusted annual effective tax rate in the range of 20%-24%, net interest expense in the range of $350 million-$370 million, which is down from our prior outlook of $360 million-$390 million, capital expenditures in the range of $1 billion-$1.2 billion, which is up $200 million from our prior outlook, reflecting the purchase of a U.S. oil refinery during the second quarter, and depreciation and amortization of approximately $415 million. With that, I'll turn things back over to Greg for some closing comments.

Greg Heckman (CEO)

Thanks, John. Before turning to Q and A, I want to offer a few closing thoughts. Looking ahead, we remain focused on executing our top strategic priorities, so we can better serve the needs of customers, both farmers and end consumers, regardless of the market environment. Over the last several years, we've seen more volatility in the market, and we're all managing through challenges, including food security, market access, and the increasing demand for sustainable food, feed, and fuel production. As the world's population continues to grow, it will take a collective effort in the industry to more efficiently address these challenges, and Bunge has an important role to play. Together with Viterra, we will be able to utilize our combined platforms and capabilities to more broadly and rapidly expand our work to support sustainable and transparent value chains.

This includes promoting sustainable practices such as low carbon product streams, the acceleration of regenerative agriculture to reduce GHG emissions, and importantly, full end-to-end traceability across major crops. During the quarter, we announced the creation of a regenerative agricultural program in Brazil, in partnership with Orígeo, to support Brazilian farmers in the transition to low carbon agriculture, offering technical support, tools, products, and services. The program has already enrolled large-scale farmers covering more than 250,000 hectares. We also launched a strategic alliance and commercial agreement with Nutrien Ag Solutions to support U.S. farmers in the implementation of sustainable farming practices that will help increase the development of lower carbon products. This alliance will further strengthen Bunge's connection with farmers in the US and create value for participants across all our value chains.

We continue to evaluate and execute on our pipeline of bolt-on M&A opportunities as we work through the process of combining with Viterra. Overall, we're well positioned to deliver on our purpose of connecting farmers to consumers to deliver essential and sustainable food, feed, and fuel to the world, while always looking for ways to improve. With that, we'll turn to Q and A.

Operator (participant)

Thank you. If you would like to ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset, before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Benjamin Theurer with Barclays. Please go ahead.

Benjamin Theurer (Managing Director and Head of LatAm Equity Research)

Yeah, good, good morning, Greg, John. Congrats, on the, on very strong results, first of all.

Greg Heckman (CEO)

Thanks, Ben.

Benjamin Theurer (Managing Director and Head of LatAm Equity Research)

So it's like a kind of a two-sided question. Obviously, thanks for the clarity on the guidance increase and what you're implying into it. But in the commentary in the release, you talk about, like, the potential upside, depending on market conditions. And I'd really like to understand and maybe ask you to flex a little bit on the upside, what are factors that could drive that earnings higher? And what's the potential here? Also, in light of, like, just the general market conditions, you've talked about the geopolitical stress, we talked about weather, there's El Niño coming in. How does this all kind of combine and play a role to potentially help you boost earnings above what is that at least $11.75 target? Thank you.

Greg Heckman (CEO)

Sure. let, let me start here, and John can add in if I miss anything here. Look, I think we feel good about the at least $11.75, you know, we're, we're also trying to evaluate the, the landscape on what's the size of the plus as we go forward. If you look, the meal and oil demand drivers continue to be intact. You look globally and between pork and poultry, the numbers are stable. It looks like wheat is not going to be as competitive as it's a little tighter, so that should help meal as far as inclusion in the rations. Just generally, food and fuel demand for oil both remain solid.

When you think about the upside, right, merchandising is always the one that's, that's tough to forecast. You know, not only the timing of it, but where within the value chain and within those, those opportunities are, are gonna happen. Look, I think what we've seen in the last four years and, and, and the challenges, and again, here in this last quarter, that this team does a heck of a job when the opportunity is there on, on bringing it home and executing. We'll continue to focus on that. You know, China, I think there's still the opportunity for improved demand there, with the recovery. That's, that's one we're watching.

We're now seeing the dislocation from the small crop in Argentina start to play out here in the second half, and we're having to call on capacity in the rest of the world. With that dislocation, really, how will crush margins play out? That'll be a key to watch with a little bit possible upside there. Lastly, I think we saw it just starting the last time we all talked was the RD capacity starting to run better, seeing a little stronger demand for oil here in the U.S., and that's continued. We'll be watching closely how they run in the second half. I think those are some of the key flags. Weather's always out there. We've got to make this crop in North America. That's important.

Then, of course, the, the humanitarian corridor, now closed again, making it more difficult to get those supplies out of Ukraine, and creating more, more volatility and, and dislocation. Of course, you know, the market will do its job and, and try to bring, what it can out over land, but that situation, could change, you know, pretty, pretty rapidly. That's another one we continue to watch.

John Neppl (CFO)

Yeah, Ben, I'd also add that, you know, coming into Q3, we were fairly covered in terms of crush.

Upside, if there's upside in crush, it's more likely to come in Q4, where we're a lot more open in terms of our capacity. You know, margins are pretty weak in Brazil right now, so we'll keep an eye on that as well. You know, any improvement there obviously is going to be helpful.

Benjamin Theurer (Managing Director and Head of LatAm Equity Research)

Okay. Just one quick follow-up. You talked about the, the renewable diesel capacity. I mean, obviously, we got the final decision from EPA. How do you feel about, like, the final decision? No major change to what came out back November, December, but just like the market itself and how that's, that's going to, to play a role for the demand go forward for the feedstock you're providing?

John Neppl (CFO)

Yeah, I think when you, Ben, this is John. When you, when you look, when you look forward, one of the things we've done is modeled kind of the look based on RVO thresholds, it's still things are pretty tight going forward. Based on what's been announced in terms of crush capacity and what's going to be needed in terms of feedstock, what I would consider fairly modest capacity utilization numbers in the RD industry, things are still going to be very tight. We feel pretty good about where it's headed. You know, we, we obviously do a lot of business in the energy space and feel good about the volume increase that we're seeing and the commitment to that. We're, we're still bullish.

Benjamin Theurer (Managing Director and Head of LatAm Equity Research)

Perfect. Thanks. I'll pass it on.

Greg Heckman (CEO)

You bet.

Operator (participant)

Thank you. Our next question today comes from Salvator Tiano with Bank of America. Please go ahead.

Salvator Tiano (Equity Research Analyst)

Yes, thank you very much. Firstly, I just want. Good morning. I wanted to ask about the processing business performed extremely well. If you can tell us a little bit versus your expectations, did this outperformance come more from higher crush margins, or was it the better trading environment in Brazil for oilseeds that helped you there?

Greg Heckman (CEO)

Yeah, little, little bit of both. If you look, when we came into the quarter, the team had done a pretty good job of, of getting us, the capacity hedged out, during some of the, the crush margins. When things got weaker there for, a period of time during the quarter, we, we didn't have to participate. The team, I think, did a, a very good job on what capacity we did have open on, on being very patient. What we saw in the numbers and, and as Argentina crush was slowing down, that we felt things had to recover. They also did a great job with the capacity we did have open, to being very patient and, and hedging that out late in the quarter as, as things recovered.

We, we also saw the, the, you know, the tail end of, you know, the soybean harvest there in South America, and our origination footprint down there, as you know, is, is, is very good. The team did a great job. We not only got the benefit in the origination, in our crushing in Brazil, but of course, that feeds our destination crush in Europe and in, in Asia, and China, and, and Vietnam. We got the benefit as well in crushing there. Then, of course, as we got into the, the corn harvest then in Brazil, right on the back of the big bean harvest, you know, we, we had talked about things we thought were going to be pretty stressed from a, a logistics storage and handling.

You know, our footprint is set up to handle that domestic demand as well as that export demand. The team did a very good job managing that, not only in the bean origination, but then on the exports on the corn side. The corn value chain executed very well. Just real good execution across the opportunities.

Salvator Tiano (Equity Research Analyst)

Perfect. Thank you. I also wanted, the, wanted to ask a little bit about the Refined and Specialty Oils business. As the fuel demand was good, can you, especially in North America, can you let us know a little bit, how do your end markets look today versus a few years ago when we think about the food versus fuel demand?

Greg Heckman (CEO)

Sure. Look, the, the RS&O and, and the, the specialty oils, special fats and oils team continues to do a great job serving our customers there. You know, over 80% of our oil still is going into the food channels, even though the fuel is growing and very important to us. I think we're benefiting from what we saw on the back of the pandemic and the supply chain challenges, that we were there for our customers. We've grown with those key customers, and we continue to help innovate and supply them as we're seeing some of these value chains switch around with the growth in the fuel demand. I think you remember we have our new refinery that we bought from Fuji down in Louisiana.

That's been a great addition here in North America, continuing to, to serve our food customers, and the team's done a great job of kind of getting that folded into our network, and providing, you know, different seed and tropical oils to those customers as we bring all those food customers on and get them approved. So we've been excited about that. Just overall, the, the environment in North America has remained strong. We've seen some channel switching, right? We've seen a little bit of switch from packaged foods into or from packaged foods from the brands, maybe into private label, and we've seen some switching on the food service side, more into QSR, but that's not necessarily negative total overall volume for us in oil demand.

The consumer is doing a little bit of switching, but overall demand continues to be there.

Salvator Tiano (Equity Research Analyst)

Perfect. If I may just ask a little bit also for, for more clarity on, as we think about your oil volumes that do go into renewable diesel and generally renewable fuels, how would you compare the volumes that are, are sold as crude oil versus the volume that you sell as refined? Is there, is there a shift in the past few quarters towards selling more refined oil towards fuel, versus, crude oil?

Greg Heckman (CEO)

I know, I, I think as the, and as the industries come up, right, there hasn't been as much pretreatment built in the beginning. I, I, we haven't seen any big changes in the mix of refined versus crude. I think we've all talked about that going forward in the, you know, coming years, we expect maybe to see some of that switch move from refined and, and move back to see the amount of crude grow. That doesn't mean refined will go down, but you may see the crude demand grow as pretreatment comes in, but the demand for oil overall increase. I, I think that's we're looking out 2024 and, and beyond. Don't, don't really see any big, big switch here in 2023, I don't think, in our book.

Salvator Tiano (Equity Research Analyst)

Perfect. Thank you very much.

Operator (participant)

Thank you. Our next question today comes from Ben Bienvenu with Stephens. Please go ahead.

Ben Bienvenu (Managing Director and Senior Research Analyst)

Hey, thanks. Good morning, and congrats on the exceptional quarter.

Greg Heckman (CEO)

Thanks, Ben.

Ben Bienvenu (Managing Director and Senior Research Analyst)

I wanna ask a little bit about the kind of another follow-up question on the processing business, just because 2Q was so exceptional. When you look to the back half of the year, the curves are quite constructive. It looks as though, as you said, the supply-demand factors for meal and oil are positive. Can you tease out a little more, you know, as you look to the back half, what in the second quarter was kind of unique to the second quarter that's maybe inherently difficult to predict recurring in the back half versus just uncertainty broadly for the segment?

Greg Heckman (CEO)

Yeah, well, I think, you know, in the second quarter, of course, we had the, the last of the Brazilian harvest, right? The, the origination there. I think the, the focus really here in the second half comes to Argentina, where you had the crop that was, you know, 44 million tons in 2022, and here in 2023, it's probably in the, in the low 20s. We're gonna really feel that, that crush missing in Argentina, that export of, of meal and oil. That will, will be the key, how that plays out here for the balance of, of Q3 and Q4. Then continuing to make the crop in North America and seeing the, the, the bean crop come in for Q4 to support the, the crush margins there in the U.S.

The other is, it, it looks like, you know, some of the, the global demand and primarily demand to China being filled by, by South America, that keeps the beans home in the U.S., which is probably constructive to crush there. Those are be some of the, the key things to watch as well.

Ben Bienvenu (Managing Director and Senior Research Analyst)

Okay, fair enough. My, my second question is a little bit longer term oriented. You guys filed your proxy statement late last week. There were a number of interesting things in there. The long-term forecast that you presented, I'm curious if you could give us some context around kind of the, the confidence level in those forecasts, recognizing it's hard to forecast the business over a long time period. Presumably, you know, those were presented to the board, you know, as justification for the, the value of the Viterra deal. Can you talk a little bit about the assumptions that went into those forecasts? As they, they look pretty constructive.

Second, in the proxy, there were some incremental synergies that you called out as well, and kind of the extent that you can shed light on how you arrived at, at those synergies above and beyond the $250 million would be of interest as well.

John Neppl (CFO)

Su`re, Ben, I can take that. In terms of the, in terms of the long range forecast, our forecast is principally what we rolled out a year ago in our strategic financial model in terms of getting to the $12 a share by 2026, the $11-$12, the $11 plus the upside, probably into 2026 and 2027. Very much the basis of our forecast was driven off of that same, that same outlook, and we still feel like that's largely intact. You know, we didn't have to do a lot of recreation to, to develop those forward numbers. We already had them. And I've obviously tweaked those a little bit here and there, but largely right on track. With respect to Viterra, you know, they don't, they didn't have a forward forecast.

They don't do one. We, we did put something together that we felt was a pretty good indication of baseline for them over the next several years, and obviously, our goal would be to outperform, outperform that as we move forward. In terms of the synergies, you know, we disclosed $250 million at the time we made the announcement. That was focused solely on cost. In the proxy, we also included about $80 million of what we would call kind of operating synergies, so things around logistics and, and procurement and things that weren't purely cost related, but where we, we saw some opportunity from an operational standpoint.

None of that includes the, what we, what we consider commercial synergies, the way we're gonna operate going forward and the opportunity that the combined company is gonna have from a, you know, commercial standpoint, transactional standpoint. Still a bigger number than what we used in our modeling and what we used in the announcement and what we used in our original accretion calculation, but still not including the upside that we see in the commercial side going forward.

Ben Bienvenu (Managing Director and Senior Research Analyst)

No, that's great. Thanks so much, Greg, John. Appreciate you taking my questions.

John Neppl (CFO)

You bet. Thank you.

Greg Heckman (CEO)

Thanks, Ben.

Operator (participant)

Thank you. Our next question comes from Manav Gupta with UBS. Please go ahead.

Manav Gupta (Executive Director)

Guys, my question relates to an announcement you made about a month ago, where you are acquiring some businesses in Argentina with your partner, Chevron. Help us understand the, the, the thought process behind this acquisition. The broader question is, Chevron obviously wants to go much bigger in sustainable aviation fuel. They will need a lot of feedstock. Do you see your partnership with Chevron extending beyond where it is right now?

Greg Heckman (CEO)

Yeah, we, we love our partnership with Chevron. It has, you know, we're just at the beginning of that relationship, but we're very like-minded about each leveraging our strengths individually as well as collectively. I think that's an example of an opportunity that we identified to invest in another Novel Seed that could create a low CI feedstock for, as you say, not only renewable diesel, but maybe long-term sustainable aviation fuel. So you'll see us continue to look for those opportunities, not just in North America, but globally, as shown by the Argentine investment to do things that meet the needs of the marketplace, because we can serve both food and fuel. The market will work.

There will continue to be innovation, and we're just really pleased to have a partner like Chevron to look at a number of these opportunities with.

John Neppl (CFO)

Yeah, I would just say, too, Manav, I'd add on top of that, that, you know, SAF absolutely is a, a long-term focus. I think, you know, a lot of what we're doing today with Chevron on the renewable diesel side will, will very much support a transition to SAF over time. As they look to do that, we'll be right here, you know, providing the, the necessary feedstock, both soybean oil and, and more and more of low CI feedstocks as well.

Manav Gupta (Executive Director)

We agree. It looks like a great partnership. My quick follow-up is, we have seen a very strong rebound in the soy crush spread in the U.S. The other regions are responding, but at a slower pace. Help us understand a little bit better, why has the U.S. crush spread rebounded so much faster than other places?

Greg Heckman (CEO)

I think some of it, how the farmer marketing responded. We saw some weather concerns. You saw the markets rally on those weather concerns, and that created an opportunity, you know, for the producer to market some more of their crops. That made the beans available here, even though we're in the old crop. Of course, the meal and oil demand has hung in there. You know, as we talked about, the animal numbers are still there. Animal profitability has improved a little bit. On the oil side, the food demand, why we're seeing channel switching, the food demand has hung in there, and the energy demand is growing. Just a good, good demand environment.

Manav Gupta (Executive Director)

Thank you for the detailed responses.

John Neppl (CFO)

Yeah. Thank you.

Greg Heckman (CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Adam Samuelson at Goldman Sachs. Please go ahead.

Adam Samuelson (VP of Equity Research)

Yes, thank you. Good morning, everyone.

Greg Heckman (CEO)

Morning.

John Neppl (CFO)

Morning, Adam.

Adam Samuelson (VP of Equity Research)

Morning. Maybe, just following up on Manav's last question, and you alluded to this in the prepared remarks about Brazil crush margins and maybe still being not- the forward curves being a little bit less robust. What, what do you think is holding back Brazil at this juncture from, from seeing the margin-- the crush margin strength that you're seeing in North America? Argentina export competition won't be there. You know, demand seems to be, seem to be healthy. What, what's holding back Brazil in particular? Because that does seem to be a, an important source of, of upside into or the plus in the l- in the second half guidance.

Greg Heckman (CEO)

Yeah. Brazil's been, pretty good until recently. I, I think we're encouraged, as, you know, we see less pressure from Argentina here in the second half. Now, look, we've got an election coming up, and a devaluation is, is possible, but we really are starting to feel, you know, the shortage of beans there in Argentina, and we're not going to feel it just in Brazil, but, but overall. I think we're, you know, I think we're encouraged for Q4, but the, the global system, it'll be more than just Brazil's got to step up. You know, we got lower energy costs in Europe, and there'll be less pressure from bean and oil exports out of Argentina in Europe as well. We think it's an encouraging setup.

John Neppl (CFO)

Yeah, I think on top of that, Adam, you know, we had really good, strong farmer origination in Q2, and since then, that has slowed down a bit, and we'll see, you know, how it transpires as we go through the balance of the year, whether liquidity will be there or not in Q4. You know, to Greg's point earlier, soybean oil is a little heavy in Brazil right now, you know, but demand to B12, we'll see how that plays out the balance of the year. Certainly an area where if things line up, there could be some upside.

Adam Samuelson (VP of Equity Research)

All right. Now, that's, that's very helpful. If I could just ask a follow-up on the origination side for Brazil on corn. Certainly, that was or seemed to be a nice contributor in the second quarter. Just can you be clear, a little bit clearer on what is actually assumed from a corn origination perspective in the second half of the year? It would seem that with a large safrinha crop and still some of the logistics pressures, that should be a pretty healthy contributor, both absolute and year-over-year in second half that didn't quite have last year.

Greg Heckman (CEO)

Yeah, it was definitely, helped contribute there in, in Q2. Then, of course, you know, we saw that some of that demand shift to Brazil from the U.S., as that, as that corn crop was, was harvested and the markets adjusted. That, of course, is in, is in our forecast, for the, you know, the book that we've got on and what we expect from execution is in our forecast for the second half. Although, as always, you know, with merchandising, you know, we're forecasting what we can see, and as things shift around, there could be, could be some continued, upside that the team will take advantage of as, as we get other dislocations and as, you know, things play out in the Ukraine as well, and as we get the final development of what's the size of that U.S. crop gonna be?

Adam Samuelson (VP of Equity Research)

Okay. All right, that's all, that's all very helpful. I'll, I'll pass it on. Thanks.

Greg Heckman (CEO)

Thanks, Adam.

John Neppl (CFO)

Thanks.

Operator (participant)

Thank you. Our next question comes from Steven Haynes with Morgan Stanley. Please go ahead.

Steven Haynes (VP of Equity Research)

Hey, thanks for taking my question.

Greg Heckman (CEO)

Yes.

Steven Haynes (VP of Equity Research)

Just wanted to ask a question on, your JV on the West Coast, with plans to triple soy meal capacity in the coming years. You know, given that it's on the West Coast, probably eliminate some destinations. You know, where, where are you kind of expecting that, that soy meal to end up? You know, more specifically, is it kind of targeting China or, or just, you know, kind of any thoughts generally on where you see some excess soy meal production from the U.S., finding its way overseas?

Greg Heckman (CEO)

Yeah, it's, it's definitely the Asian demand in general. You know, as a reminder, one of the, you know, great things about our team, we've got a, a lot of capillarity and granularity in our meal distribution and merchandising. Today, we market more meal than we produce. We actually have to buy market in from the market to serve our customers. We're excited about that investment out at Longview, to add meal handling capacity. We'll not only be able to handle more, it also make us more efficient, which will help serve those end customers and also provide a market as some of the additional crush comes on here in the U.S. You know, we're already -- we talked about the, at Destrehan, where we'll be expanding with our Chevron JV.

Our crush there will have swing to soft, but we're, if you remember right, we're right there at, at New Orleans, so again, able to export that meal. This is, kind of a parallel investment, if you think about it, in the PNW, to get that meal that naturally flows off the west into those Asian demand markets.

Steven Haynes (VP of Equity Research)

Okay. Thank you.

Greg Heckman (CEO)

Thank you.

John Neppl (CFO)

Thanks, Steven.

Operator (participant)

Thanks. Our next question today comes from Thomas Palmer, JPMorgan. Please go ahead.

Thomas Palmer (VP of Equity Research)

Good morning, thanks for the question. Your tone's been quite positive, I think, today, with a few call-outs about what could drive upside to guidance. I, I don't think there are any major concerns, maybe in the second half, but at the same time, you just beat by over $1 on the EPS side. Low end of your guidance was boosted by $0.75. I thought I'd at least ask, relative to your expectations, are there emerging risks that we should be monitoring as we look towards the second half of the year?

Greg Heckman (CEO)

I, I think where we're always managing, you know, the volatility and the dislocation, the things that, you know, went into our thought were, you know, one, there was probably some of that earnings that fell in Q2. There might have been a little bit of timing from Q3, so that's maybe why 100% of that didn't transfer into the year. Then, then, look, you can have, you know, two extreme of, of volatility, right? This humanitarian corridor, getting that supply out of Ukraine efficiently, you know, the not only the volume, but what it costs and the, the effect that has on the other origins in the world market to feed demand. You know, you still got the weather situation playing out in North America. What will that supply be on, on the corn, and the, and the bean side?

Then, of course, just the overall, how's the China demand continue to develop? Then you've got Argentina with the election cycle, with a possible devaluation. When I said it, if you look at it from a macroeconomic, as well as a geopolitical standpoint, I don't think we've probably ever seen quite as complex environment. Then you can go ahead and throw interest rates and the effect on FX and how that can affect exports as well. It's a pretty interesting dynamic environment. We're real glad that we've got this great global footprint to operate from and the great team that's running it, and I think that's what, you know, we've shown, that whatever the challenge, the team's been doing a great job of a great job of delivering.

There's, there's definitely a few uncertainties here in the second half.

John Neppl (CFO)

I think, Tom, given, you know, how we came into the quarter, coming into Q3 with, with quite a bit of our crush locked in Q3, probably won't get the upside, maybe if the market tightens and crush margins move up. Of course, Q4 is fairly open, but that's been where there's been the least amount of liquidity, and Brazil is still not super strong there. Again, areas where we take the curves, and then if things improve, it's gonna provide us some upside.

Thomas Palmer (VP of Equity Research)

Okay, thanks for that. maybe, just maybe follow up on the flow-through of earnings of these moving pieces. As we think about just the cadence of the second half of the year, if we think about the lower end of your guidance, is there a favorability? I mean, it seems like if things go better, right, it would be weighted to that fourth quarter. If it's just kind of more that, that baseline, guidance, how balanced would it be between the two quarters?

Greg Heckman (CEO)

Yeah, we're, we're weighted a little more toward fourth quarter today. Just, just the way we've put the forecast in today, it's already weighted a bit to Q4, just given what we, what we know about Q3 and what we see. It's probably, you know, close to 40-60. you know, maybe low 40s, high 50s between Q3 and Q4 is kind of how we think about it.

Thomas Palmer (VP of Equity Research)

Okay, thanks for that.

Greg Heckman (CEO)

You bet.

Operator (participant)

Thank you. Our next question today comes from Andrew Strelzik with BMO. Please go ahead.

Andrew Strelzik (Equity Research Analyst)

Hey, good morning. Thanks for taking the question. And you just touched on, on some of this, but I guess, you know, your first half earnings is typically over the last decade or so, like 30% or 40% of what you would generate on an annual basis. Last year was, you know, around 50%, and the guidance this year at the $11.75 would be more like 60%. You know, at, at, at the risk of being redundant, I guess, I mean, does it make sense that this year would be so much more first half weighted, absent, you know, kind of a, a, a particularly poor U.S. crop, understanding you just called out maybe a little bit of timing shift between 2Q and 3Q, but more, more broadly than that?

John Neppl (CFO)

Yeah, Andrew, I can start. Greg can hop in here. Look, I think, last year we were a little closer to 50/50. We were weighted still a little bit more toward the first half of the year. You know, every year is different. I think the dynamics are. You know, we, we feel really good about the first half that we had, and it's really probably more an indication of uncertainty in the second half than it is any sort of a an unusual trend of earnings between first half, second half. I think just looking at, as Greg alluded to, the geopolitical uncertainty, you know, crops playing out, weaker forward curves in some parts of the world that, you know, we're hoping firm up. That's just kind of how things look today.

I think, you know, I wouldn't point to, or I don't, I don't know that we can point to any shift sort of in the, the, the global market that, that caused us to earn more in the first half other than, to Greg's point, we pulled a little bit probably forward, just given the strong origination results in Brazil and how that impacted our, our crush in Europe and China. But we'll see. You know, I think that, you know, we hope to have some upside and, and we'll keep, we'll keep watching things.

Andrew Strelzik (Equity Research Analyst)

Okay, that's helpful. Thank you. My, my other question, you know, you referenced still looking at, at bolt-on M&A, and obviously you've been spending a lot of a growth capital that you've expected to come on really in 2025. I guess, number one, you know, with maybe a better operating environment, you know, how is the M&A market right now? How do those opportunities look? Number two, given the strong environment, does it, does it change, change the, the timeline for returns on those capital projects? Does it pull them forward? Are you still thinking that 2025 is really kind of the timeline to which you would start to realize that? Thanks.

John Neppl (CFO)

Yeah, I would say, I'll start, and then Greg can hop in here. I, I would say our, our capital, our CapEx pipeline, our growth capital is still pretty much on track in terms of timing. It is going to be, you know, 2025, 2026, as we start to realize those projects. A lot of them are big, multiyear builds, but we still feel very good about those. We're constantly challenging our assumptions and our view of those projects, and, and still feel very good about the what we have in the pipeline. In terms of the M&A side, you know, obviously our number one priority is Viterra, getting, getting ready for Viterra, on the integration planning side and thinking about how, how the organizations are going to run together.

You know, we're doing some pre-planning on our side, getting ready for that. That's, that's our number one priority. At the same time, we're still finding a good pipeline of smaller bolt-on M&A things. You know, as we said before, that hasn't changed our view of the CapEx and growth pipeline on the smaller bolt-on M&A. Viterra is going to be additive to that. We continue to be active there. There's, there's a lot of things going on, you know, maybe not all of them actionable, but certainly, we, we continue to be pretty busy on that front as well.

Greg Heckman (CEO)

Yeah, I think John pretty much covered it. I just. The one thing he asked from an environment, you know, we're definitely the complexity that we've, you know, spoken to, you know, is definitely for everyone, as well as you've got the highest interest rate environment than anyone has seen for a long time. So that is creating some opportunities on the bolt-on M&A and things to look at. As John said, Viterra is absolutely our number one priority, and we won't let anything get in the way of that.

Andrew Strelzik (Equity Research Analyst)

Great. Thank you very much.

John Neppl (CFO)

Yeah. Thanks, Andrew.

Operator (participant)

Thank you. Our next question today comes from Sam Margolin with Wolfe Research. Please go ahead.

Sam Margolin (Managing Director)

Hi. Hi, everybody.

John Neppl (CFO)

Morning.

Sam Margolin (Managing Director)

Got a follow-up on U.S. crush, and maybe I'll phrase it in a little bit of a different way. You've, you referred a number of times on the call to some crop uncertainty in the U.S., and the effect of this soybean supply uncertainty seems to be accruing to oil, because, as you say, that's where the demand is. I don't know. That seems like it, it might be a, a paradigm shift or something to flag, whereas, you know, normally you would expect a low soybean crop to, to compress the crush because you don't have enough input. Do you, do you see it that way, or is this something that you've seen before with, with light crops or crop uncertainty, or is there maybe nothing to see here?

Greg Heckman (CEO)

Yeah, I think the demand, you know, historically, right, oil's kind of been the laggard and, and meal in North America, and meal has been the driver for a long time. With this switch in additional demand from, from energy now, biofuels in general, but renewable diesel specifically, we're now seeing oil carry a higher share. You know, we kind of think that's there to stay. You know, the market, the market's going to do its work, you know, as that crop comes on and, the global market, you know, we're already seeing it'll probably be more fed that demand from South American beans, where more of the US beans will probably stay at home, and that'll help balance the crush and the demand for the meal and the oil.

Sam Margolin (Managing Director)

Okay, that's helpful. Then, just a follow-up, you know, you, you manage the volatility in, in crush really well. You, you talked about how you had a high, a high degree of your exposure locked in, and the back end of the year is a little more open. The curve is, like you say, it's pretty strong. Would you say, and maybe you don't want to give this away for competitive reasons, but is this kind of $1.40-$1.60 level in the forward crush, sort of a smash hedge, and you're only limited by liquidity, or, or would you play for upside?

Greg Heckman (CEO)

Yeah, look, I'm really proud of the, the team being very thoughtful, right? To focus on the earnings at risk in the assets, and that's not only the crushing, but the milling, as well as our export assets. When those margins are there, and we're constantly evaluating the, not only the public information, but our proprietary information and looking at the S&Ds. You're right, there is more liquidity close in than there is far- farther out, but when those margins are there, we'll hedge them out. I, I feel like the team is, is very focused on managing our risk, and we continue to stay focused. It, it depends on our earnings power, and it also depends on the environment that we're operating in, and we always push everything through those two lenses.

You know, real proud of the team staying, you know, absolutely focused on, on managing the risk in these assets.

John Neppl (CFO)

Yeah, Sam, I'd just add that, you know, we talk about the, the coverage in general terms, but obviously it's by geography. You know, or by value chain is how we see the opportunity. It can vary between value chains. So the U.S. versus, you know, South America versus Europe or destination crush in China. Coverage can vary depending on how we see the market going forward or how we see the forward curve. All in all, to Greg's point, I think, you know, we've been. Team's done a great job of taking, taking the opportunities when they're there. Liquidity sometimes can be a constraint, but generally speaking, I think the discipline that, that we, that we practice, you know, in the organization has, has shown to be very successful.

Sam Margolin (Managing Director)

Understood. Thank you.

Greg Heckman (CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Robert Moskow with TD Cowen. Please go ahead.

Robert Moskow (Managing Director)

Hi there.

Greg Heckman (CEO)

Hey, Rob.

John Neppl (CFO)

Hey, Rob.

Robert Moskow (Managing Director)

Hi. Maybe just a couple of follow-ups. You, you mentioned the, the demand outlook in China is, is still, you know, kind of up in the air. I, I want to know, do you have any more color on what you see in demand in China currently, you know, restaurant versus just packaged food demand or livestock? Then a quick follow-up.

Greg Heckman (CEO)

Yeah, the, the animal numbers have continued to hold up, you know, despite there being some margin compression there. The customers have been very spot, and I, I think one of our team talked about the margins are being like, like an accordion. They're kind of, you know, up and down, but, you know, the way we're set up over there and, and support that business, the team is, you know, very agile, and so we've been able to, to lock those margins when they are there. From a demand standpoint, you know, we think there continues to be some additional growth. I think, you know, our kind of anecdotal, what our team on the ground sees is the domestic demand is, is kind of back.

What we're really lacking are the, the places that we serve that are more, tourist or, you know, business travelers. The traffic there still we're seeing as, as down, although the domestic traffic is, is up. That's where the upside would have to come from.

Robert Moskow (Managing Director)

Got it. I don't know if I've heard you talk about this recently, but in a higher interest rate environment, I would imagine your balance sheet is a real competitive advantage. I was wondering if you could talk a little bit about how you've used it in your procurement practices in Brazil, how it's, it's helped you, maybe even in second quarter. Also, how, how does it impact the, the growers? You know, are their balance sheets impacted by rising debt costs, and does it make them more willing sellers?

Greg Heckman (CEO)

Yeah, I'll mainly talk to the macro, and maybe John will drill in a little bit. I think it. You're, you're exactly right. It is a competitive advantage for us. We are, you know, a non-bank lender. That relationship that we have with our origination customers as well as our consuming customers, right? Their facilities don't move, our facilities don't move. These are long-term relationships, and we want to help them be successful. The other thing is, if you look the last few years with some of the commodity finance things that have happened in the market, the banks have backed off on some of the commodity financing, and then with higher interest rates and tighter credit, you know, from a competitive standpoint, there aren't as many alternatives for people.

We, we do play that role as one of the services, whether it's with some of our minority investments, with our resellers, if it's with our long-term origination, you know, farmer partners, or even our end users. You know, our balance sheet, and John and team do a great job of protecting that and ensuring that we've got the liquidity to operate, because, you know, in this business, it's very different than an industrial business. The, the working capital is, it's like electricity. It is a, a bit the, the blood in the veins of this business, and it's an important thing, and that's, that's why we focus on ARI-- AROIC. And the team is constantly focused on making sure they do get a return on that working capital.

John Neppl (CFO)

Yeah, I would just add, Rob, that, you know, as we've strengthened our credit profile over the last, you know, couple of years, the industry, it's helped us from an advantage standpoint, because the industry and the market structure is ultimately gonna be on average interest rates. To the extent that we can borrow money cheaper than others, it should and does give us a somewhat of an advantage in terms of being able to fund, you know, the RMI that Greg talked about, and as well, provide the financing to the producers with the appropriate spread on it. You know, ultimately, we feel like, you know, through the Viterra acquisition, obviously, we've that's also viewed as very credit positive for us.

Again, should extend that, that advantage that we have in the market to, to borrow money cheaper and, and maintain that liquidity that we need.

Robert Moskow (Managing Director)

The farmers themselves, has this influenced their willingness to sell at all, or is it nothing like that?

John Neppl (CFO)

Well, they're, they're ultimately economic animals, and, and the cost to carry certainly, you know, is important to them. You know, and, and the market structure will have that cost to carry in it, but, but certainly, I think what it's done for us is, is tightened our relationship with the farmers. I don't know, Greg, you wanna, anything else there?

Greg Heckman (CEO)

Yeah, no, you know, we're always not only originating for our in-country demand, but for those markets that, those destination markets, right? Out of Brazil, where we're serving, you know, Europe and, and our Asian markets in China and Vietnam. You know, our ability to provide that liquidity and even, you know, like, 24, we haven't seen much, much marketing of the farmers yet, but when they're there, we have the, the capacity to be there when they wanna go to market and when they wanna hedge their risk. You know, we wanna stay, stay focused on, you know, helping, you know, our customers, not only the end consumers, but our customer, the farmer, be successful, manage their risk in this environment, and help them, you know, accomplish their, their profitability goals and their growth.

Robert Moskow (Managing Director)

That's great. Thank you.

Greg Heckman (CEO)

Thank you.

John Neppl (CFO)

Thank you.

Operator (participant)

Thank you. Our next question today comes from Brian Wright at ROTH MKM. Please go ahead.

Brian Wright (Managing Director and Senior Research Analyst)

Thanks. Good morning. Can you provide an update on the Viterra regulatory approval process and maybe some color on your term milestones and pathways for this process?

Greg Heckman (CEO)

Yeah, we're, we're early on. I think, you know, we talked about, we just saw, filed the proxy, and we are doing the, the regulatory filing. Early on in the, in the process, but we continue to engage and, and, you know, the asset bases are very highly complementary, so we look forward to engaging on the facts.

Brian Wright (Managing Director and Senior Research Analyst)

Thank you.

John Neppl (CFO)

Thank you.

Operator (participant)

Thank you. ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Greg Heckman for any closing remarks.

Greg Heckman (CEO)

Thank you, everyone, for your interest in Bunge. We're really excited about where we're at in the, in the stage of the company and, and the path of growth that we're on, and we look forward to speaking with you next time. Have a great week.

Operator (participant)

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.