Marubeni Cuts Gavilon’s Profit Outlook Due to U.S. Drought

Marubeni Corp. (8002), a Japanese trading company that closed its biggest takeover of Gavilon Group LLC in July, cut its profit estimate for the U.S. grain collector by almost two-thirds this year.

Due to the continuing impact of last year’s U.S. drought, Gavilon may post net income of 5.4 billion yen ($55 million) to 5.5 billion yen in the fiscal year ending March 31, Marubeni Chief Financial Officer Yokihiko Matsumura said at a briefing in Tokyo today. Matsumura in August forecast more than 15 billion yen in profit from Gavilon this year, including gains expected from a revaluation of the asset.

“With the ongoing impact from the drought and escalating competition, the margins continue to be bad” and the asset revaluation may now be booked next year, Matsumura said. The U.S. unit should earn 15 billion yen in profit next year, excluding any revaluation gains, he said.

Japan’s biggest agricultural trader paid $2.7 billion for Gavilon’s equity, and assumed debt that in 2012 stood at $2 billion, to secure North American grain supply and better compete with market leader Cargill Inc. in Asia. With Gavilon, Marubeni’s grain handling doubled to more than 55 million metric tons a year, the trader said last year.

Marubeni fell 2.1 percent to 747 yen today in Tokyo, while the benchmark Topix index slid 0.7 percent. The company said in a separate statement that it cut its forecast for operating profit this year to 170 billion yen from 175 billion yen.

Marubeni first announced the accord to buy Omaha, Nebraska-based Gavilon from a group of funds led by Ospraie Management LLC in May 2012. The trader waited more than a year for permission from China’s antitrust authorities to close the deal, which was amended to exclude Gavilon’s energy unit.

Ospraie Management said Nov. 6 it agreed to sell the energy unit of Gavilon to NGL Energy Partners LP for $890 million in cash.

Marubeni’s net income for the first six months ended Sept. 30 rose 23 percent to 111.8 billion yen, a record, from 91.1. billion yen a year earlier, Matsumura said today. About half of the increase was due to the weakening of the yen, he said.

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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