Cargill Doesn't See Clouds Lifting Yet From Agriculture Rout

  • Third-quarter income rises as company changes its business mix
  • Crude oil, shipping led to loss in industrial, financial unit

Cargill Inc., the 151-year-old company that’s one of the biggest players in the global agriculture markets, sees no improvement on the horizon for slumping crop prices.

"Barring weather events, we don’t anticipate a near-term improvement in market conditions for agriculture,” Chairman and Chief Executive Officer David MacLennan said Thursday in an earnings statement.

Soybean, corn and wheat prices have posted three straight annual losses, and the slump is hurting earnings across the industry. Monsanto Co., the world’s largest seed company, on Wednesday posted a decline in fiscal second-quarter profit. While many agriculture companies are turning to consolidation to fight through the rout, Cargill has reacted by reorganizing and tightening its focus -- a strategy that paid off in the fiscal third quarter as profits climbed.

"With agriculture and energy markets as tough as we’ve seen in a long time, we’re pleased with the gain in earnings achieved this quarter,” MacLennan said.

Rising Income

Net income rose to $459 million in three months through February from $425 million a year earlier, Minneapolis-based Cargill said Thursday in a statement. Sales declined 11 percent to $25.2 billion. Adjusted operating earnings rose in food and ingredients and origination and processing segments while falling in animal nutrition and protein. Cargill posted a quarterly loss in the industrial and financial unit.

Amid the commodity rout, MacLennan said Cargill is working to create an organization with a “competitive business portfolio” and better manage supply chains, products and services. Its steps including consolidating a diverse group of 70 businesses into five groups and improving the product mix to meet customers’ changing needs, spokeswoman Lisa Clemens said in a telephone interview Thursday.

The largest closely held company in the U.S. announced in November plans to scrap its two-tier executive leadership structure in favor of a single team. Executive departures in recent months have included the head of the company’s cotton unit.

Cargill also has been reshaping its portfolio as well as its leadership over the past year. Its Black River Asset Management investment unit has been broken up and spun off, while it sold its U.S. pork business to Brazil’s JBS SA and exited steel production by selling a stake in an Ohio mill. Cargill also bought Archer-Daniels-Midland Co.’s chocolate business and a salmon feed producer.

Food Segment

The food and ingredients segment, the biggest contributor to fiscal third quarter adjusted operating earnings, was helped by “ongoing efforts to strengthen commercial and operational execution” across edible oils, malt, starches and sweeteners, and texturizers, according to the company.

Cargill is working to match its products and services to demand for healthier foods with “cleaner labels,” Clemens said in an e-mail. That includes canola and soybean oils made from crops that are not genetically modified, alternatives to trans-fat and a growing portfolio of low-calorie sweeteners, she said.

While adjusted operating earnings in animal nutrition and protein “decreased slightly” mostly because of conditions in the beef industry, Cargill’s U.S. turkey operations had a “strong performance.” The turkey unit has “overhauled” how it does business over the last couple of years, Clemens said.

The origination and processing segment “increased moderately” from last year. While sales by U.S. corn farmers “slowed due to low prices,” Argentina’s re-entry into export markets under its new administration increased corn shipments, Cargill said. The company was able to more fully use its assets in Argentina, Clemens said.

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