Bunge Global SA (BG) Earnings Call Transcript & Summary

The merch business, if you think that was Viterra had a much bigger footprint than we did at Bunge, especially in wheat and in the feed grains wheat, barley, corn. So again, the teams couldn't work on that until close. So as we've been bringing the teams together, bringing the assets together, there's definitely not only optimizing the flows that we have but then looking at the customer set and where we may have had someone that we were the primary meal supplier, but didn't have the ability of Bunge to serve them on the feed grains. We're now able to have completely different conversations with that customer be very strategic and grow with some of the fastest-growing global customers and really change that dialogue, whether we're helping them with budgeting, helping them manage logistics or inventories or if we're doing things on the supply chain to provide them deforestation-free soy, if they want regenerative ag on the feed grain side and then to track that all the way through the value chain. So we're able to wrap that with some services as well. So the complete package will partially be running it better the same way, but also then growing with customers and adding some services. And then ultimately, it will be about environment and seeing the environment improve. We had heavy supply and demand balance for quite a while in the feed grains. That looks like that's starting to change, some of that on yield, some of that were the challenges on nutrients because of the Gulf war where you saw some shift in what the farmer planted. And then we've got now some of the supply trapped in Russia and Ukraine as some of those ports and ships have been targeted. We're seeing less shipping availability there than since the beginning of the war. And that's going to call on some of the other origins around the world, Australia and Canada and some of that to serve those end users. So we're seeing things start to tighten up and then, of course, El Nino and watching how that may develop is also going to be key to watch. So one is the things we can control and then being prepared for those that we can't.

Okay. Within that, I think you currently source a little over half directly, grains from farmers, but you target more like 2/3 little bit over time. What would be the advantages of achieving that target? How does that improve the financials of the business?

Yes. Number 1 is helping the farmer be successful. We need the farmers to be profitable. We need them to be expanding. We need those communities to be healthy. So the more that we can acquire directly from the farmer more that we can send the signals all the way from when they make the planting decision to when they want a market that works for them to manage their risk the better we can do on touching being the first touch that then whether we're going to end up processing that or shipping it to a certain market, it hasn't been blended down by someone else touching it. So from -- we have more optionality, if you will, on the decisions of where that can go to manage the quality. And a lot of the focus, if you think about as we brought Viterra together, they were originating to serve a marketplace. Well, when you look at Viterra and Bunge together, you want to start with your highest margin, most important processing assets and make sure that you've expanded that drawing arc, and you're using all the assets there and to source directly and get the highest share of the origination that you should be to serve your assets. So it's very important to us, and we want to have those relationships. As we say, the land doesn't move. The origination assets don't move, the processing assets don't move. So you want to have that relationship and make sure that you're connecting those value chains where you should.

Okay. Wrapping up on the sectors, tropical oils, specialty ingredients. You've highlighted the new Amsterdam Tropical Oils refinery and the fractionation facility is a major project that's going to come online in 2027. So what portion of the earnings uplift comes from volume growth mix versus like operational efficiencies from that as we move into next year? Because if I remember right, you had like a little bit of like in-flight projects, and this is one of them. So maybe give us a little bit of a direction how to think about this for 2027.

Yes. Look, I think the project was really done for 2 reasons. One is to be able to provide additional offerings and capability that we didn't have previously. And the second one is get to become a low-cost producer in Europe. We are consolidating 2 plants into that operation effectively, one, even transitioning as we speak. And as soon as we're up and running and throughout '27, we'll be transitioning the activity from another plant. So it's really about driving customer offerings and becoming more efficient. And so we're pretty excited about it. It's been a long time coming, but the fact that we're running oil through the pipes today is a good sign and the team is excited. Customers have been coming to visit. And I think a lot of it now from this point forward is going to be customer qualification and getting them up to speed on the capability. But we see that as a flagship asset for us going forward in Europe.

And John said it, but I think it's worth saying again, we end up running 1 facility instead of 2. We've got more capabilities, a lower cost footprint, and it's serving high-value customers with our lowest carbon footprint of any facility.

Within that segment, you also have the combination of the Morristown soy protein concentrate facility in the IFF protein business, which was acquired. So what are the milestones you're monitoring here to determine like just return rates and growth? And how is that combination coming along?

Of course, the integration, bringing the teams together, the onboarding, bringing the customer focus together. So we've got some ongoing customer business. But then as we commercialize that plant, going through all the approvals, it takes a little longer with the food customers. But as we qualify them at the new plant and bringing up our capacity utilization over time. And then these are customers that a lot of them were selling a lot of our specialty fats and oils to as well. So we, again, want to continue to cross-sell and grow on both categories. But very, very excited that another great new facility with great capabilities to sort of the high-value area, but with a very good cost position.

Yes. I think a couple of other things. One is market share. We're really focused on gaining market share. And I think given the offerings that we're going to have and some of the unique products we're going to be able to produce, we feel like we're going to be in a good position for that. And if you look forward, I mean, you're seeing protein in Pop-Tarts and just about everything now donuts. And I mean they're putting protein and everything. And the profile of some of the products we're offering fit really well into that with neutral taste and texture, which is really critical for some of those food opportunities. And we're pretty excited about the timing of this plant coming online. When you think about GLP-1s and the focus on protein intake, it's going to be -- it's going to create some real opportunity.

Are you seeing actually some sort of like consumer weakness in some of these more like specialty segments, specialty oils, et cetera in certain areas, but then others maybe not so much just like the protein piece you've just highlighted. And how do you react to that? Is there anything you can do about or if it's just at the end consumer is weak and there's just not the demand for the raw materials you have to live with it.

Yes. Our goal is always to use our creative solution centers and work with our customers. And it can -- what their needs are continues to evaluate based on the consumer. We're seeing kind of 2 things. One, those serving more of the cost-conscious consumer. They're looking where can they reformulate based on things that are happening in the market and taking a cost focus. And then some of those that are serving that consumer that's not as price sensitive and some of the stronger brands, they're continuing to innovate because they want to bring forward new SKUs, new product line extensions. And so we're working with them on new, which seems really odd that you've got cost saving projects going as well as new product launch work on innovation at the same time. But that is kind of the market that we're living in today.

Okay. Got it. Coming back on one of the things around Viterra and obviously, you said it's just a year, synergies are just coming along and is working together, the budgeting like making guidance, et cetera, of that business. Obviously, it's a massive operation. It's large, right? I mean it's 2 big companies that went together. You've laid out earlier in the year, a couple of like opportunities as to what EPS accretion would look like, which was Viterra related. So 6 months into it, where do we stand right now more or less on the Viterra piece? And where do you -- what do you think about the time line of the Viterra's piece, in particular, as to the baseline moving on EPS accretion?

Yes. Well, I can start, Greg, and then -- so there were really 3 components we laid out related to Viterra. One was cost synergies which -- and I'll talk about that in a minute and then commercial and network synergies. And then there was a third piece of kind of capital structure related around debt, debt refinancing, share buyback. We completed the capital -- kind of the capital structure portion, it's been largely completed. We finished our share buybacks earlier this year related to Viterra, and then we've done the refinancing of most of their debt and at the lowest credit spreads we ever borrowed in the history of Bunge as a result of getting a credit upgrade at the close. So that part has been executed. On the cost side, the SG&A synergies we had originally estimated about $250 million over 4 years, we recently, well back at Investor Day increased that to $350 million, and we're trying to accelerate that by a year. And I would say we're well on our way there. We expect about $190 million in '26. We had communicated that earlier in the year. And we feel like a lot of momentum into capturing those 2 pieces. So the things we can control, I think we're doing a really nice job and Greg can certainly comment on the commercial side.

Do you want to talk about where we're on a run rate versus realized?

Yes. Well, yes, by the end of the year, we'll be over $200 million run rate on cost synergies. So we're going to realize in the P&L $190 million this year. And so we'll be very close to our original $250 million target run rate by the end of this year, but we're not stopping. We think we're going to capture another $100-plus million. And then we won't stop, right? I mean, we're going to keep looking for opportunity.

And then if you remember, we talked about the commercial synergies, why we won't report on those. Those will have to be seen -- you'll have to see that at the bottom line in the gross margin. Now the teams couldn't work on that until we close. But they've been doing a fantastic job of really thinking through how we're going to grow with the right customers, how we're going to optimize the network on where we're going to put capital in our assets where we do need debottlenecking, which assets we may not run. We may sell a random asset here and there. And those you'll see proven out over time. But we want to be the partner of choice, not just for the customers but with our providers. If you think about transportation providers, we've taken that focus, whether it's truck, rail, barge, container, ocean-going vessel to make sure that we're using the importance that we have to those providers that we're operating on the best contract that each one of us had and that when we think about how we're negotiating going forward are lowering that cost between the end consumer and the farmer and that benefits both of them.

Okay. Got it. Picking up on one thing. You said you finished the $2 billion buyback. Obviously, that was part of the transaction in first place. But you've also announced share buyback authorization to basically further return cash to shareholders aside from dividend also through buybacks. And I think you've a pretty sporty target here to really step that up. How should we think about the time line for this? And in terms of kicking in, when are you going to start doing those more accelerated buybacks?

Yes. So the way the framework was set up ultimately is what we said is we're going to start with adjusted funds from operations or cash flow. We're going to first take care of maintaining our assets. So we're going to spend call it, $700 million to $800 million a year on capital for maintenance of our existing footprint. Of that remaining amount, which we describe as discretionary cash flow, our target is to allocate 50% of that to shareholder returns that's going to come in the form of dividends and share buyback, which in the long run are going to be roughly about the same number. Over time, dividends will continue to grow probably at a modest rate. But what we're looking at is by 2030 to roughly be $700 million of dividends, $700 million of share buybacks. Between now and then, it will kind of steadily ramp toward that number. In '26, we've largely with the finishing our $250 million. We don't anticipate any more allocation to share buyback this year. It doesn't mean it won't happen. But really, our framework was built to start in 2027. May not happen on exactly a straight line, but over time, that's what our plan is. And so if there's an opportunity here or there, we'll see one way or the other. If there's no opportunities for us to deploy capital in a smart way elsewhere, we could accelerate buybacks even in excess of that. And then ultimately, when we get to 2030, the way we look at the numbers, once we get to that $13 baseline run rate, we're going to have excess cash that we think can drive us to that $15 number that we laid out, which will include additional share buyback over and above the normal framework, just given we believe we'll be generating a significant amount of cash flow by that point.

And one piece of that, I guess, is also CapEx coming down from roughly $2.6-ish billion this year. I think you guide $1.5 billion to $1.7 billion. You expect that to come down closer to $1 billion, $1.1 billion. But when should we expect that to be the case? Like what's like the phasing of that? And then as CapEx comes down and then obviously frees up cash for buybacks, what's like aside from buybacks, maybe the appetite for M&A?

Yes. So the trajectory we see -- so we said this year, $1.5 billion to $1.7 billion this year. Next year, we will largely have ramped down all of our mega projects with the exception of our plant in Amsterdam. We'll be finishing up around Q1. So some of that likely to spill into Q2 in terms of CapEx. Second half of '27, we should be much closer to our $1.1 billion run rate, which is about, again, $700 million to $800 million of maintenance and, call it, $300 million to $400 million of growth and productivity CapEx to be defined. We don't necessarily have specific projects today, but we think that generally, that will be about the run rate between improving our existing assets and maybe some opportunistic things. From an M&A standpoint, we'll see if those things come. And if something makes sense, meets our -- strategically makes sense, meets our hurdle rates, fills a gap in our footprint or something strategically we want to do, we'll allocate capital that way. But otherwise, it will be primarily share buyback and returns as we focus on really driving EPS ultimately.

Okay. Greg, in closing, any messages? We haven't touched on anything you would like to get definitely out there.

Yes. Well, I would just say, I couldn't be more proud of the team, the way that we've brought these businesses together the last year, nobody talks about whether they were Bunge and Viterra before, everybody is Bunge the way that we are working with our farmer customers as well as our consuming customers and all of the benefits that we thought that we would get, we're not all the way to bright, but we continue to make great progress. And in this world, whether you want to talk about the fact that we believe it's going to stay complicated, right? Globalization, which we all enjoyed for decades made the world an easier place to operate in our business. Every origin open to every destination. That feels like that's done, and that's done for a period of time. And so as we continue to increase yields without -- to increase the production to meet the growth in population and the increase in the income, the per capita consumption increases for fats and oils and animal proteins and protein meals. We've got to meet that with the same hectares in the same acres, and that means more production. And we've got a weather cycle that is definitely more violent. So when there is a production problem, it's a bigger issue to serve demand. And as I said, every origin is not open every destination. And so our capabilities not only help us manage our risk but help our customers manage their risk, and we've just -- we've never been in a better position. So it's funny to have a 208-year-old company that feels like a new company and that is really built for the complexity, whether it is the geopolitical or the weather or policy uncertainty. But as biofuels continues to grow, and it becomes complex to serve the customers. We've never been in a better position, and I know we can count on this team to deliver.

Perfect. Well, that's a wrap on time. Thank you very much. There will be no breakout.