Bunge Limited Q2 2003 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ken Zazlow - Morgan Stanley - Analyst : Good morning. Looking at the agribusiness results, they were, I guess somewhat uninspiring. Can you give a little bit more color to why the performance lagged, I guess last year, particularly in light of South America and the cost of energy from Cereol. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Ken Zazlow - Morgan Stanley - Analyst : Just one more follow-up on that, have we hit rock bottom in the U.S.? July's soy crush margins look much stronger. If things work out, or they stay the same, I guess (indiscernible) comparisons in soy crush-- Can this be basically the bottom of the cycle?

Question: Ken Zazlow - Morgan Stanley - Analyst : Great. Thank you.

Question: David C. Nelson - Credit Suisse First Boston - Analyst : Good morning. Before I go to the more fundamental issues, in terms of,---sometimes we have issues with reversals of tax reserves have been conservative looking forward in that regard?

Question: David C. Nelson - Credit Suisse First Boston - Analyst : In the March quarter, you ended up having a -- beating expectations by quite a bit, because you had a reversal of I thought it was Argentina?

Question: David C. Nelson - Credit Suisse First Boston - Analyst : Okay. In Brazil, ADM is talking about some expansions they've had, particularly of elevators. Do you see any risk of excess capacity developing there at this point?

Question: David C. Nelson - Credit Suisse First Boston - Analyst : Lastly, trans-fat, you can't pick up a newspaper anymore without reading about consumer concerns there, and new labeling requirements that will go into effect in 2006. How do you, with So Lei now, positioning yourself for some potential upside there?

Question: David C. Nelson - Credit Suisse First Boston - Analyst : Okay great. Thank you very much.

Question: David C. Driscoll - Salomon Smith Barney - Analyst : Good morning. First I'd just like to say it's a fantastic result in fertilizers congratulations on that. Second, Hunter, congratulations on the new job and good luck.

Question: David C. Driscoll - Salomon Smith Barney - Analyst : I have a reasonably detailed question here. So as Bunge is the largest soybean player in Brazil, I'm curious what you're seeing in Brazil specifically. The perception is, is that the Brazilian farmers holding beans in what appears to be a lower-priced forward scenario, so I have three questions related to this. Number one -- and I think the North American market is ripe with this speculation is, are the beans really there? In South America? Or are some of the statistics inaccurate, whether they be the export statistics or the actual production statistics? The second question on this on, following that one is, if the beans really are there, then why on earth would the Brazilian farmers be holding these beans when they face a declining price scenario? And then the last question, again relating to all of this is, you sort of alluded to it a moment ago, Alberto, but how did these factors affect your profitability in the third quarter and maybe more importantly in the fourth quarter when both South America and North America are head to head competing in the export market?

Question: David C. Driscoll - Salomon Smith Barney - Analyst : Can you guys tie this again back to the fourth quarter specifically -- I guess what I've been struggling with for a while is just understanding what happens in the export market. When the largest South American crop ever, you know, which of course every single year that metrics is true, but when the largest crop ever is very significant in the fourth quarter, when the U.S. is historically strong, you know, at this moment, Alberto, I think you mentioned that capacity was much better balanced than it had been previously. It is my supposition that that's due to the shutdown, the idling of the capacity that we've seen many of the North American players, such as yourself take. However, I question whether or not the industry truly will remain with keeping those facilities idle in the fourth quarter, when that's the moment when North America needs to crush and needs to make their money. So the question seems to be that if South America runs full out in the fourth quarter what's going to happen in the North American business and to those margins specifically?

Question: David C. Driscoll - Salomon Smith Barney - Analyst : Great, just a one - a detail question. Could you give us some guidance on SG&A, and then maybe specifically if you could talk about SG&A and the agribusiness side and again on the fertilizer side, the sequential numbers were up significantly in the agribusiness side. And of course fertilizers, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. although that may be just related to what happened in the quarter on prices. Do you have any comments on that? Any help you might be able to give us?

Question: David C. Driscoll - Salomon Smith Barney - Analyst : The second part of the question was just specific on the SG&A side with, you know, the agribusiness side, those numbers, I think as we discussed a bit in the last quarter was up enormously over the first quarter from a year ago, so we've seen 64 million in the first quarter, 79 million this quarter. I'm just trying to get a sense of where I should expect these numbers to come out.

Question: David C. Driscoll - Salomon Smith Barney - Analyst : Great. Thanks a lot, everybody.

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : Good morning everybody. The one thing that we've been struggling with a little bit since Cereol was acquired and integrated is trying to get a better sense as to how Cereol is going to impact the seasonality of results. Perhaps you can kind of touch on that a bit, with particular attention to agribusiness.

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : And then kind of as I guess a follow-up to I guess maybe it was David's question, but the reason why the fact -- if the farmers are holding the beans that Euro came from an inventory position, is because you're vertically integrated, you sell them fertilizer and you can kind of get the beans back when you need them?

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : Last question, Bill, if you could update us on some of the other non-operating kind of metrics for both this year and maybe looking into 2004 in terms of CAPEX, depreciation, completion, amortization, tax rate, interest expense, those kinds of things?

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : 6% and 7%. Okay. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Congratulations. Hunter, good luck.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : The lower tax rate in the quarter of 33% is just strictly a function of currency?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : It's just, you know, I'm trying to fully understand the impact of South American currencies on your business. I guess after two years, I sort of understand it. It's the tax rate line that sometimes confuses me a little bit of how much you build into your operating performance, your non-GAAP measure, the adjustments in tax rates. When you say the quarter was up 15% does that factor in the tax rate benefit?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : But if you wanted to get a pure number, because you are getting a tax rate gain, that would be lower?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : But then if it's increasing your tax rate, why don't we see it in this quarter? In the operating rate of 33%?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : I have you as a 36% tax rate last year.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Yeah.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Okay, I was just looking at the quarter on quarter. I'll talk about it off-line. Just the optimism you have towards two things I just want to address. And you've been very, very conservative with your earnings guidance over the last two years to the point where, you know, some people said you've low balled, but currency has obviously been difficult to predict. What kind of currency in South America are you building into this second half earnings forecast? Are you assuming stable rates in South America, or devaluation? If you can just talk about what you're building into the forecast.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Okay. And just why you think that -European, I mean, Cereol had a big European soybean crush business, why you're optimistic about margins in that area -- Alberto, I think you were the one who said it. You were optimistic about European crush margins, I'm just trying to -- I guess I see the demand side, but, you know, I'm just curious why that area would do well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : And then just in terms of fertilizer, you know, to the extent if I were to characterize the last year, when the North American crop came in short last year, it added some incremental acreage and demand in Brazil and Argentina, and that helped your fertilizer business, which has really been nothing short of sensational for the last couple years, but on the margin it helped your business on the short crop in the U.S. Why wouldn't the reverse be true? If you have the mother of all crops here, and again the crop's not made, why wouldn't that on the margin hurt your fertilizer business down there?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Okay, well thanks a lot. WILLIAM M. WELLS and ALBERTO WEISSER :You're welcome. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Good morning,

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Hunter before you get deported, let me tell you it's been a pleasure and I wish you very good luck.

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Just ask about China a little bit, I think everything else had been pretty well beaten to death here. In China, you act as both agent as well as processor? Is that correct or incorrect?

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : But don't you----your crushing plants in China do they use -- what is their source of raw material?

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : You're building them, though, right?

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Okay. Then let me ask about --

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Is that a decision that's going to be reserved until later or you're going to not be a processor of beans in China?

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Okay. As far as your plans for expansion, you've tabled some plans for expansion in the United States, vis-a-vis soybeans. Is that still in effect, or has that that been finalized, you will not be expanding any crushing capacity in the U.S.? Or that's a decision also to be reserved until later?

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Isn't really the key to this, ---what has helped in the U.S. outlook considerably is that Cargill and Archer, and maybe your planned deferral , if you will, of expansion of assets in the U.S. has had its impact on capacity and why in the name of common sense would anyone even think about increasing when for the first time in about three years we're starting to make money in the soybean crushing area here in the U.S..

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : I certainly hope so, Alberto. If we look at, also the prospects, or ,demand in the U.S. versus demand in the world, aren't we going to have to continue to expand that international demand if animal numbers will be down in the U.S.? Is that what you guys are really looking for? To keep the demand curve pretty stable and rising? Is the international demand for the U.S. product, not necessarily U.S. demand alone? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : That must be my Toronto accent, that's exactly what I meant. I'll translate it for you.

Question: G. Leonard Teitelbaum - Merrill Lynch Global Securities - Analyst : Thank you very much. A good quarter, and no reason to stop here.

Question: Christine McCracken - Mid-West Research - Analyst : Good morning.

Question: Christine McCracken - Mid-West Research - Analyst : I have a few follow-up questions that were addressed earlier. One on China specifically. They've been relatively disruptive in the last couple months, buying and then stopping ships at the port. How is this impacting your flow of the business? It looked pretty good in the quarter, what is your outlook going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. ALBERTO WEISSER ; You're right, it has been a little bit let's call it a little bit disruptive, but with the kind of flow I think that we all have, that can be mitigated and can be rearranged, the ships and so on. So it did not affect our business in any relevant way, in any significant way. It is more like bureaucratic little things. We continue being surprised about the strong demand of China so we believe as I said a bit earlier, as the economy grows; and the diet changes, we expect the growth in China to continue.

Question: Christine McCracken - Mid-West Research - Analyst : Alright, and then you had mentioned that you're expecting a fairly good crop I think in Europe. We're hearing reports that there's actually some drought conditions, particularly in central Europe. Is that expected to impact your businesses there?

Question: Christine McCracken - Mid-West Research - Analyst : Can you give us a rough breakdown? Sun versus rape.

Question: Christine McCracken - Mid-West Research - Analyst : Alright, I can follow up with you later.

Question: Christine McCracken - Mid-West Research - Analyst : One last question, you know, about a year ago or so on the foreign sales credit I guess debate, that looked like it might affect companies like Bunge. Has there been any progress there? Do you expect that to impact your outlook?

Question: Christine McCracken - Mid-West Research - Analyst : All right. Thanks.

Question: David C. Driscoll - Salomon Smith Barney - Analyst : I just wanted to come back with a quick follow-up on something you said a moment ago. So in 2000, we saw good bean crops in both South America and North America, but that was when we had, I think, the worst North American margins that we've ever seen. This would apparently contradict the statements that low bean prices are good for crushers, so I think, if I may, that what you guys are saying is that the low bean prices projected for the fourth quarter should be a good result for you. I guess the only thing I'm coming back at you with is that we saw low bean prices back in 2000, and that did not result in good margins. So is there some color that you might be able to add to this?

Question: David C. Driscoll - Salomon Smith Barney - Analyst : Okay great, thanks a lot, everybody.

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : I think in the release you listed that the volumes for the consolidated corporation were up 5% excluding Cereol, but I don't think that you adjusted the operating performance numbers for excluding the acquisition. So that's up 15. Do you have that number, ex Cereol, and obviously excluding the gain.

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : Well, you were assuming that Cereol is going to be, I guess it was 8% to 10% accretive? Is that for the year, isn't that correct?

Question: Eric R. Katzman - Deutsche Bank Securities, Inc. - Analyst : Okay, so all right. Maybe I can try to back into it. Thank you.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Hello again. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : On the highest soybean crush margins in China right now? I know you're not crushing there but to the extent you look at different crush margins around the world, aren't the highest margins in China?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Well, I'm just saying to the extent you find yourselves disadvantaged not being there, I don't know if that's been the case in the past, but just to take Lenny's question and go forward a step further with it, Alberto.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : No, that's good. Hunter, can you refresh me a bit, when you reported calendar 2002 earnings, which were 266, you talked about a level of profits that kind of came from really just unusual currency trends, and I think you actually quantified it in that late conference call. Was it 30, 40cents? Do you remember what that number is?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : 40 million after tax? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : So basically 40 cents --.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : One more time, why that won't flow against you in the current currency environment, or is it and you're just kind of offsetting it?

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Okay. Thanks again.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Okay, I'm sorry. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: John M. McMillin - Prudential Securities, Inc. - Analyst : Okay. I'll be watching thanks.