Bunge Global SA (BG) Earnings Call Transcript & Summary

Okay. I think we're going to get going here with our next presentation from Bunge. So since joining Bunge in 2019, CEO, Greg Heckman, has engineered a comprehensive transformation across the company's operations, portfolio mix, execution, risk management and capital allocation. The business improvements have positioned Bunge to realize a sustained upward earnings trajectory and returns well in excess of its cost of capital in the coming years. We're grateful to have you join us today, Greg. Thank you for being here. And I'd also like to welcome CFO, John Neppl, who's been with Bunge for the last 4 years, joining about 2 weeks after Greg, if I'm not mistaken, right around the same time. So I appreciate you both joining us today.

Thanks for having us. Great to be here.

So maybe if I start kind of at a high level, you've established an earnings growth framework to increase mid-cycle earnings from $8.50 to $11 by the end of 2026. Maybe if you reflect on how you're tracking in terms of the initiatives to build that baseline? Are there areas where progress has been faster, slower, maybe reflect on how it's gone so far?

Sure. One, real proud of the team and the progress that we've been making. As you think about the external environment, we've definitely had a few things outside of our control that you didn't expect. But the things that were within our control, of course, where we've been able to make investments in the asset base and some of the debottlenecking, some of the brownfield projects, we've made great progress. I think you've seen that in the performance in our improved operating rates, less unplanned downtime, higher capacity utilization. And so really pleased about that. No doubt with COVID and with some of the supply chain problems, some of the greenfield projects haven't developed as fast, but we're really starting to see the progress on that. And then, of course, on the M&A front, we probably got the biggest pipeline of opportunities that we've seen the entire time, and that's really across our entire platform, whether it's continuing to look for opportunities to strengthen or fill in any areas of weakness in our leading oilseed crushing platform and the origination or distribution that supports that, any areas to improve, of course, around the wheat milling or our dry corn milling that makes sense. And then, of course, in the plant proteins area. We've announced a greenfield there and continue to make some progress on our growth. And then our specially oils, our plant lipids business, especially fats and oils, we continue to grow, just announcing regionally a bolt-on there. And then the renewable feedstocks area continues to just be an area that a number of opportunities continue to roll out of, and we can talk some more on that later, but whether it's the joint venture with Chevron or the things that we're doing with some of the input providers and ultimately around regenerative ag. So really excited about the different areas that we've got to put capital to work.

The guidance for this year is $11 plus. So still at the high end. You're talking about some things -- the operating environment has obviously been very, very conducive. You've also said that you don't expect to return to kind of your baseline over the course of the time frame, I believe, is the way you've kind of talked about it. So can you talk about the durability of that $11 plus or maybe the bridge from this year's outlook to the 2026 goals, I guess, how are you thinking about the moving pieces?

Yes. I think when we look at the big drivers of that today, we're performing better than kind of when we built this baseline, looking at long-term crush margins, long-term refining margins. Those things today are still above kind of how we view the long term and what we're seeing, especially on the refining side, is that pre-treatment capacity is slower to come online and the durability of our refining margins have been there. And so what we're really expecting is as we move forward through 2023 and through 2024 for that -- those margins to largely stay in place in terms of on the refining side. And as we're investing in capital, that's going to build up the base business, that should ultimately -- potentially refining margins start to come down maybe a little later than we expected, say, '25 time frame, we should see the benefits of some of these capital projects. So very simply, we don't see ourselves getting back to the $8.50 baseline based on how we look at the next few years.

Got it. Okay. That makes sense. And I guess one of the big changes within the business has been the risk management side as well and how you kind of approach -- how your approach to risk management has evolved. So can you talk about that and how that has enabled or change kind of the fundamental look for the company?

Sure. We're really proud of how we manage the risk in our assets and not only for ourselves but our customers. I think one of the key things is that we've driven it through the entire organization. And when we think about risk management, the Chief Risk Officer reports directly to me, so he's appeared to the commercial team and is really a partner to the commercial team. And so when you think about our billions of dollars of investment in storage handling, processing, distribution assets, those are all just earnings at risk until you hedge them up. So we're constantly thinking about the environment that we're operating in, the earnings power that we have and that the risk that we are managing to lock in those earnings at risk. If you have the half to take risk out forward, and the team is working very well together. It's also the making data available to the team and the analysis and our proprietary data as well as how we worked out with external data. That's continuous improvement. And the changes that we've made in the systems and the visibility that the team has to spend their time running analysis, running stress scenarios, looking out forward about what we believe about margins and getting those earnings at risk hedged in. So we're really, really proud of what we've done there. We do believe it's industry-leading, and we'll continue to develop it.

Great. On the capital deployment side, you talked about some of the projects you have in place today, what that means for '25 and '26 as maybe you start to see some easing of some of the underlying fundamentals elsewhere. How do you think about the right level of growth CapEx for the business over the next several years? Obviously, the return profile is very good. You have a lot of cash. You have a lot of costs coming in potentially going forward. So is there a case to accelerate it? I guess, how are you weighing that positive, negative.

I mean ultimately, we look at returns first, and the opportunities have to be there. I think the -- when you look at the cash flow we've been able to generate over the past few years, we've obviously built a lot of capacity for additional CapEx and when you look at the amount available for that, it really breaks down between what do we have for M&A opportunity, what do we have for CapEx, what do we have for share buyback and ultimately, returns are a big driver of that. Frankly, today, our biggest probably limitation might be our internal ability to execute on the many projects at a time. So we've got a very robust list of not just CapEx, but M&A opportunity. And because we have the capital to do really kind of all of that, we have to manage that against our -- how we feel about execution risk. And so -- but in terms of whether it's CapEx or M&A or share buyback, it's really driven by the returns and the strategic opportunity, but we're doing all 3.

So we're going to -- and maybe this is a good time to touch on M&A, but certainly, we'll hit on that here going forward. But when you think about shaping the portfolio over time, the plans and priorities around that, you have sustainability projects that you're working on, some of the other things that you mentioned off the top, what is the plan to shape the portfolio kind of longer term? You've talked about of 15%, I think, ROIC on your projects. Is that still the right way to think about it? Some of these seem like maybe a little more higher margin projects. So how do you think about all of that?

Yes. I'll let John talk to the terms. But when you think about the stack of projects that we have and whether it's organic or M&A, it's really about executing our strategic priorities. It's like how do we accelerate where we want to get to. I mean we're really proud of how resilient the portfolio has been the last 4 years with all the different challenges and opportunities that have come at us. So as we think about that global platform, it's how do we continue to fill in any of the geographies where we have weakness and whether that's around the crush, whether that's around the origination, it's around the special oils. But the real change has been the focus on sustainability in the last 3 years and how that's driving. So if you look at whether it's our joint venture with Chevron and so that we're really partners and understanding how to go from the farmer to their retail customer to have the most efficient change to supply them with renewable feedstocks for renewable diesel today, but long term, that could be sustainable aviation fuel to then taking that relationship and investing in CoverCress together and continuing to develop a cover crop as well as if you look at our relationship with Corteva, we talked about our ability to work with them for several years. And it's a long-term commitment to develop a seed that can have a value to the farmer that produces it. But ultimately, after we crush it, they have a higher -- a better amino acid profile for the poultry producer. And so those are commitments with the right partners to make investments for the long term. And then that, of course, has led to as renewable diesel has gotten more important. Now with Corteva and Chevron, we're now making investment in winter canola. So another high oil seed crop that can be another profit point for the producer, but also to increase the amount of renewable feedstock to serve that industry so we can continue to serve food, feed and fuel industry. So it all continues to weave together as well as the assets to support that.

Yes. From a return perspective, I mean, ultimately, we look at a risk-adjusted return requirement everywhere we do business. And if it's something that we view as core, it's in a country or an area where we're very strong and we're very familiar, we'll accept returns below 15%, but they got to be double digit. But if it fits right, somewhere in that 11% to 13% range is an unreasonable but that'd be on a kind of a bigger strategic project. But when we look at things like debottlenecking and brownfield and small capacity expansion projects, we're seeing things -- still seeing things well north of that number. And so on a blended rate we're probably close to that 15% number.

And from an M&A perspective, I mean, how does that fit into the broader shaping of the portfolio is -- and I guess, as we sit here, is it a good environment? Is there a bigger project, smaller -- I mean smaller sizes? Like how do you think about what makes sense right now for the business?

Yes. The thing I think we're really proud of, and John has talked about, we've put ourselves in a financial position where we really have the flexibility to kind of pull all the levers right, whether it's the internal investments, whether it's bolt-on M&A, whether it's transformational M&A, of course, share buybacks are an important part of that. So all of that is available to us. I will say from an environment, seeing higher interest rates, seeing a world that has less globalization, where every origin, every destination is not available. So you've got a more complex world with the war in Ukraine, we expect the world to stay complex. We've seen what seem to be an outlier of a weather events, which now seems to be every year, whether it's Canada or Brazil or now Argentina this year that creates more volatility and more dislocation. So as we think about where to make those investments is how to continue to maintain the resiliency of that global platform and how to continue to build on to it. We are seeing with, I think, the higher interest rates and the environment, we're seeing some deals that we think are developing or could develop that we haven't seen for a while. We're seeing some deals that didn't happen a couple of years ago that continue to be on our priority list that may come back around. So look, we're going to continue to be disciplined. We're going to be very thoughtful. We've had to work very hard to shape this portfolio, to be the leader to be in a position to do the kind of deals with the other industry people like the Corteva, like the Chevrons, our Origeo in Brazil, where, again, we're doing a deal with UPL there surrounding the farmer, bringing them regenerative ag practices, while we're getting the right cocktail of inputs to them and then helping them market their product. And yesterday, we just announced a deal with Nutrien, and again, it's around that producer. And so it's driven from whether you're a feed, food or fuel customer, they're all talking to us about how do we get a lower carbon intensity into our products and give our consumers what they want. And to that, we've got to get some of that value, and we've got to drive that back to the producer. And it's these partners and the investments you'll see us make in the future that will help us do that for the farmer and for the producer because you've got to make change at scale. If you're really going to make a difference, it's about making change of scale and it's about doing it sustainably and so those partners are helping us do that because the producers, they love the productivity that they've been able to produce, right? That's how we fed a hungry world. So they don't want to give up that productivity in the volume, and they still want the price. And so as you bring them change, you bring them a different package around regenerative ag and a different package of inputs. It's got to make sense and they've got to be able to get to market and they've got to be able to do it at scale and sustainable year after year.

Speaking of carbon intensity and some of those dynamics. I want to get your kind of updated thoughts on the renewable diesel side. There have been delays, there has been some regulatory stuff, I guess, for some of the plants. You mentioned on the earnings call, starting to see some of the demand start to build. So maybe some of that is coming through. Do you think that the outlook for renewable diesel capacity has changed, the investment case has changed at all? Is this kind of the beginning of the ramp that you would have expected and we have some durability now moving forward?

Yes, I can start there. I think, look, we still believe the long-term trajectory is there. Certainly, there have been some delays driven by a couple of things. One has been there have been some operational issues in that space. And so that's maybe resulted in a little bit slower ramp-up of some of the investments that have been made. The other one is, frankly, petroleum crack spreads were pretty good there for a while. And I think what we saw were some of our customers certainly may be taking their time in the transition and maybe slowing it down a little bit. But we don't see that. And what's happened at the same time then is that anything around the refining side has also slowed down around the pre-treatment. So that's why we've enjoyed the refining margins a little longer than maybe what we originally expected. But long term, we see it there. And this recent RVO, the recent preliminary RVO numbers that came out, we think the market probably overreacted a little bit to that. It was really driven by, as you all know, probably supply expectations, not necessarily what the market can provide and what the market will demand. And ultimately, we're hopeful that the revised RVO numbers that come out will be constructive, but we still think, regardless of where those end up and the long-term trends are in place, renewables a stairway to sustainable aviation fuel and further use in the marine industry. And so we're optimistic long term that the SMDs are still there.

I'd probably add on one thing that we'll see where the next RVO comes out. But I think what's really good is that during the comment period, we've definitely seen the industry and the industry organizations really engaged with the policymakers and ensure that everybody is at least starting with the same set of facts. And the one thing the policymakers have been clear about is, look, they want to ensure that all constituents, feed and fuel and the farmers that everyone has met. So they're being thoughtful. They're taking the time. I think it will be a number of steps over the years of really building out a new industry. And it's important to what John said, it's starting with the renewable diesel. But the one thing that's been consistent with all of the energy companies that are our customers, right, because we sell them all, not just Chevron, is that they see renewable feedstocks and vegetable oil as being a very important part of their liquid fuels transition for the next 10 to 15 years, and they see renewable diesel as a really important pathway, ultimately, to sustainable aviation fuel and then we'll see where marine fuel plays out. But there will need to be some policy support for SAF and for marine long term. But look, it continues to develop, and that's why you see the investments being made in innovation around the seed side in innovation at the farm gate to lower the CI scores, drawing, calling on demand on the Ukko side and the market is doing its work when it's allowed to work.

You mentioned 10 to 15 years. So I don't want to get too caught up in like a very narrow period of time. But it's interesting when you think about the demand pull on feedstocks for renewable diesel, and some of the softness that we're seeing kind of on the vegetable oil side in the near term and now that we're starting to see some of the demand ramp, I guess, just trying to put it all together in my head, but the question is really longer term, how do we bridge to the feedstock that we need? I mean we have obviously crush capacity that's been announced and coming online. We probably need a bunch more. I don't know if you think globally, how does all of this play out?

Yes. I think the industry is really going to have to pull every lever, right? So the market has done some of the work that has incented some expansion in oilseed crushing, some of that will come in soy, some of that will come in soft, which is roughly twice as much oil. We announced our expansion in Destrehan down in the Gulf, which is part of our Chevron JV, that will have switch capacity. So we'll not only have the ability to do soy, but to do soft seed, whether it's a CoverCress or one or canola and then, of course, we're there at the port as far as if we have the opportunity to import soft seed in the global market and/or export the meal to meet the market. So we're thinking about optionality when we make the investments in our footprint as well. There's a lot of switch capacity globally. And as the market is calling on that oil, you'll see that switch capacity all run on soft seed rather than on soy, roughly 20% of our capacity is soft seed today, including the switch. And then, of course, ultimately, you'll see the U.S. has gone from being an export of oil to ultimately be an importer of oil. If you look at the investment we just made in the -- we bought the Fuji plant, a plant from Fuji down in the Gulf, in Avondale, that's a great fit for us. We were out of capacity on tropical oil to feed our food customers, their growth as well as any switching that they were doing. So we've been able to plug that right into our system. We're short human capital. So our ability in M&A sometimes is to add the human capital that allows us to execute. So we kept 90% of those employees. We've already got it in our SAF system. We're already serving food customers and we plugged it right in. We also had another expansion project where we had equipment on the way. We've been able to switch that equipment, it's headed for Avondale. We're going to triple the capacity of that by adding another line, and we'll continue to run the plant while we do that serving customers. So all of those things will help to solve it. And then all the cover crops that we talked about, the higher oil crops and the investment that is being made there, again, the market is driving the innovation to be able to serve food, feed and fuel.

And maybe just to add to that, we're building as well in Brazil, in particular, capability to source low CI feedstocks for both the U.S. and Europe. So that's underway. We've done some -- we've had some success there early, developing partnerships with some key animal processors and others down there. So we're pretty excited about that opportunity.

How do you frame maybe the sustainable aviation fuel opportunity relative to renewable diesel. I mean is that -- is it a bigger opportunity? And kind of how do you think about your role in SAF production over time with some of the partnerships that you have. Is that -- if you could put all the pieces together for us.

Yes. I think one of the keys with our joint venture with Chevron, right, is that it is a joint venture. It's not a supplier customer relationship. So we are able to talk about policy. We are able to talk about changes that we can make in the farm gate or in our refineries. They can talk about how things work in their refineries and where they believe their ultimate retail customer is going today and where they believe policy is going. When you think about policy together and communicate and give ourselves a different view through their lens or them through our lens. So we, of course, have that relationship with Chevron but we don't -- globally, we have the opportunity to work with them where they exist. In places they don't, we can work with others or places they are if we don't want to work with them or they don't work with us, we can work with others. So we're having those conversations with other energy companies, and we're looking for those opportunities to continue to connect with them to try to help build that out and build that low-cost, low CI supply chain as policy continues to develop.

And so the knock-on effects kind of globally as you think about the demand pools, whether it's in Canada or Europe or what have you? I mean, how do you think -- relative to kind of what you've already established? How do you think about the longer-term dynamics there?

We think they're very good. I mean if you look in Canada, right, now there's going to be policy, which should bring some additional canola demand -- canola processing on there to meet that demand around their R&D and we're not only going to meet it through expanding crush. We did the joint venture with Olleco in Europe around the collection of full life cycle oils, if you will, the collection of [ Ukko ]. We're excited about that. And what's been even amazing is how excited our end customers are about that and looking at where else we can replicate that globally. So the different growth levers that are appearing around the renewable diesel demand and ultimately, SAF, it's not even clear how it's all going to play out, but we've got a lot of resources working against it and we're fully engaged now.

That makes sense. You started to mention the meal side and kind of thinking through all the different dynamics as you're making your plans around capacity, et cetera, what is your comfort level that there is a home for all the meal that will be coming on, the ability to export or not export meal feels like there's some debate about that. Obviously, you see that as an opportunity. So can you just share your thoughts on how you see this playing out over the next several years?

Yes. We spend a lot of time looking at this and talking about it. So I think there's a number of factors to think about. One, there just continues to be the population growth. There's a natural growth in meal demand and in protein demand from population, from continuing growth in per capita consumption that's driven around per capita wealth. That's up and to the right, and you can argue what that is, but that plugs along. You've got continued commercialization around the world. What we saw in China as they commercialize their feeding industries, especially in the pork side and some in poultry. The inclusion rates. And so the inclusion rates go up as people commercialize their feeding operations. And then you've got kind of the shift that continues as we see pork and poultry to be favored over beef. And it looks like that trend continues to tick up because, of course, they are bigger users of protein meals. And then ultimately, meal, the feeders like to use it, right? It's a good product, things that we can do to value it up, like we were talking about the Corteva seed project around amino acids or other things that can be done to even make it more usable. We have a number of things that we're working on that side. But ultimately, they like to use soybean meal, it finds its way into the rations or protein meal.