March 28, 2019 / 1:38 PM / 2 months ago

UPDATE 3-Cargill Q3 profit jumps 14 pct; cost cuts offset swine fever, trade war

(Adds details about Latin America M&A, poultry business)

By P.J. Huffstutter

CHICAGO, March 28 (Reuters) - Grains trader Cargill Inc on Thursday reported a 14 percent jump in fiscal third-quarter 2019 net earnings, as spending cuts buoyed profits that were weighed down by factors as varied as the U.S.-China trade war, swine fever in Asian hogs and slumping U.S. ethanol prices.

The Minnesota-based food commodities firm, the largest privately-held U.S. company, reported a slump in revenues for all four business units.

During the quarter, the trade war did show signs of thawing as China, traditionally the top U.S. soybean buyer, again began buying agricultural commodities, albeit at much lower volumes than in the past.

Cargill noted that African swine fever hit production of pork in China, the world’s top hog market, eroding animal nutrition business results.

“The trade turbulence also negatively affected soybean crush operations in China, as did lower demand for soybean meal for feed following the culling of hogs to control the spread of African swine fever,” the company said in its earnings statement.

“In North America, soy and canola crush operations ran at high capacity, but the near absence of the Chinese market for plentiful U.S. soybean stocks reduced profitability.”

U.S.-China trade tensions and other supply chain disruptions continued to drag on earnings in origination and processing, the company’s primary grain-trading unit. Earnings for its starches and sweeteners business also slumped as U.S. ethanol prices hit historic lows.

BEEF BRIGHT SPOT

The biggest bright spot was the North American beef business, boosted by domestic and export demand for beef and egg products. Growing sales of aquatic feeds in the North Sea region and North America also bolstered the animal nutrition and protein business.

The company said those struggles were “offset by reduced spending among corporate functions and other cost reductions.”

Cargill did not provide a break-out of cost cuts but executives in recent months have described using technology to make staff meetings cheaper to run; simplifying human resources operations and shifting research projects to cloud-based computer systems.

Cargill, the second-largest U.S. beef packer, has been overhauling its corporate structure in recent years, largely in reaction to a fundamental shift in its core business model: acting as the middleman between farmers and companies that buy their grain.

But that 150-plus year traditional model has been squeezed by mounting competition, a global grain glut, shifting global trade flows and a rise in digital tools and on-farm storage that gives producers more control in traditional sales channels.

Cargill said its net earnings on a U.S. GAAP basis for the quarter ended Feb. 28, 2019, were $566 million, up 14 percent from $495 million a year earlier.

Cargill’s third-quarter revenues fell 4 percent to $26.9 billion, bringing the year-to-date figure to $83.5 billion. The company’s quarterly adjusted operating earnings were $604 million, up 8 percent from $559 million.

LATIN AMERICA PUSH

The company also is continuing its focus on Latin America - despite challenges in Venezuela brought on by an economic crisis - and could invest up to $1 billion in the region over the next five years, Chief Executive Officer David MacLennan told Reuters this week.

Cargill recently bought Colombian poultry processors Pollos El Bucanero and Campollo and expects to invest between $200 and $300 million in the Andean country in the next two years, MacLennan said, mostly to improve efficiency and expand two processing plants.

The company blamed higher production costs at its poultry processing joint ventures in the Philippines and U.K. for much of its decline in global poultry results. But two recently acquired chicken processors, Campollo in Colombia and Konspol in Poland, “both got off to a good start,” it said. (Additional reporting by Shanti S Nair in Bengaluru; Editing by David Gregorio)

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