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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to the Bunge Limited Third Quarter 2021 Earnings Release and Conference call. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Ruth Ann Wisener. Please go ahead.
Thank you, operator and thank you for joining us this morning for our third quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the Investors section of our website at bunge.com under Events and Presentations. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well.
I’d like to direct you to Slide 2 and remind you that today’s presentation includes forward-looking statements that reflect Bunge’s current view with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review these factors.
On the call this morning are Greg Heckman, Bunge’s Chief Executive Officer; and John Neppl, Chief Financial Officer.
I will now turn the call over to Greg.
Thank you, Ruth Ann, and good morning, everyone. Turning to the agenda on Slide 3, I’ll start with some highlights of the third quarter and how we are thinking about the remainder of the year before handing it over to John, who will go into more detail on our performance. I will then share some closing thoughts before opening the line for your questions.
Let’s start with an overview of the quarter, turning to Slide 4. I want to begin by thanking our team for an exceptionally strong quarter. Their ability to remain focused on execution helped us deliver our eighth consecutive quarter of earnings growth. In the second half of 2021, we have seen a shift in the challenges created by the COVID operating environment. We have moved away from having to adjust to the fluctuations that came from lockdowns like the change in demand from foodservice to food processors. Instead, we are adapting to an environment that is driven by an uneven global recovery. This dynamic demand is driving increases in commodity and energy prices and creating many supply chain challenges.
Our team has remained agile and I am proud of how we have navigated this market shift. We also responded well to unforeseen disruptions, like the great work our team did managing the impact from Hurricane Ida in North America. We also continue to set high watermarks across a number of our key operating metrics. We have done this all while continuing to prioritize the safety of our team, their families and communities as COVID remains with us.
In addition to solid operational execution, our positioning and approach to risk management allowed us to capture opportunities quickly when the market conditions changed. This was especially true as crush margins improved over the late summer when oilseed prices dropped and oil values expanded due to tightening supply. The strength of our global platform and footprint continue to provide benefits. In the face of broad logistical disruptions, our integrated value chains and owned ports have helped us to continue supporting customers at both ends of the supply chain.
This quarter and our results over the last 1.5 years have shown the power of our global network and operating model. Looking ahead, we continue to see a dynamic set of factors and we are more confident than ever in our ability to react and manage well to capture market opportunities. As part of our work to continue positioning Bunge for the structural shift we are seeing in the consumer demand for sustainable fuel, in September, we announced our proposed joint venture with Chevron. As a key step, we will increase production of renewable feedstocks by nearly doubling the combined capacity of 2 soy crush facilities that will be contributed to the JV. Chevron recognizes our expertise in oilseed processing and farmer relationships as well as our commitment to sustainable agriculture. And we recognize Chevron’s expertise in refining and distribution.
Partnering with a global leader in energy is a significant step forward in building the capability to make change at scale to help reduce carbon in our own and our customers’ value chains. This partnership will establish a reliable supply from farmer to Chevron’s downstream production and distribution to the in-fuel consumer. It also allows us to better serve our farmer customers by accessing demand in the growing renewable fuel sector. It will also enable us to pursue new growth opportunities together in lower carbon intensity feedstocks as well as consider feedstock pretreatment investments. In addition to the Chevron JV transaction, we announced an agreement to sell our wheat mills in Mexico to Grupo Treemax. As part of continuously looking for ways to improve our portfolio, we concluded the business was not in line with our long-term strategic goals and we are pleased with the outcome of selling to a well-respected wheat miller. We expect the sale to be completed in 2022.
Turning to our segment performance, results in Agribusiness were driven by strong execution and better than expected market environment. In processing, we benefited from higher margins in soy and soft crush in the Northern Hemisphere. Merchandising results were better than expected and very strong compared to prior year. Results in Refined & Specialty Oils improved in all regions, with particular strength in North America, driven by strong demand from foodservice and renewable diesel. We are also seeing continuous improvement in our innovation pipeline, enabling us to launch exciting new products to the market. I would like to congratulate our team for their efforts to help customers with creative solutions. This innovation capability as well as our skill at solving supply chain issues, have helped create a step change in many long-term customer collaborations and commitments.
Our team is also making measurable progress, improving sustainability across our operations and investments. Following the launch of the Bunge sustainable partnership in Brazil earlier this year, we have already improved the visibility into our indirect supply in high-priority regions to approximately 50% and that’s exceeding our 2021 target of 35%. And while we still have work to do, having this insight into our supply chain will help us meet our industry leading non-deforestation commitment. And finally, regarding our non-core businesses, I want to callout the role our sugar JV has had in our year-over-year improvement. We are pleased that this business has been performing well in a challenging weather market. Additionally, Bunge Ventures had a successful quarter as a result of the Benson Hill IPO and John will give you more details on the impact of that investment in the quarter.
We also repurchased $100 million in shares and our Board authorized a new $500 million repurchase program, demonstrating our confidence in the business. This reflects our balanced approach to capital allocation, where the return of capital to shareholders is always evaluated along with other investment opportunities. And before handing the call over to John, I wanted to note that we have increased our outlook for 2021, reflecting our strong third quarter results and continued favorable market trends. For the full year, we now expect to deliver adjusted EPS of at least $11.50 and we expect the strong momentum to carryover into 2022.
So with that, I will turn the call over to John to walk through our financial results in more details.
Thanks, Greg and good morning everyone. Let’s turn to the earnings highlights on Slide 5. Our reported third quarter earnings per share, was $4.28 compared to $1.84 in the third quarter of 2020. Our reported results included a negative mark-to-market timing difference of $0.22 per share and a $0.78 per share gain on the sale of our U.S. interior grain elevators, which closed back in early July. Adjusted EPS was $3.72 in the third quarter versus $2.47 in the prior year. Adjusted core segment earnings before interest and taxes or EBIT were $698 million in the quarter versus $580 million last year, reflecting higher results in Agribusiness and Refined & Specialty Oils. In processing, higher results in North America, European soft seeds and our Asian and European destination soy value chains all benefited from improved margins. These were partially offset by lower results in South America, where margins were down from a strong prior year.
In merchandising, improved performance was primarily driven by higher results in ocean freight due to strong execution and our global vegetable oil value chain, which benefited from increased margins. In Refined & Specialty Oils, the strong performance in the quarter was primarily driven by higher margins and volumes in North American refining, which continued to benefit from the recovery in foodservice and increased demand from the renewable diesel sector. Higher margins in Europe, largely driven by favorable product mix, also contributed to the improved performance. Results in South America and Asia were slightly higher than last year.
In milling, lower results in the quarter were driven by Brazil, where higher volume and lower unit costs were more than offset by lower margins. Results in North America were comparable with last year. The increase in corporate expenses during the quarter was primarily related to performance-based compensation accruals. The gain in other was primarily related to our Bunge Ventures investment in Benson Hill, which went public during the quarter. Improved results for our non-core sugar and bio-energy joint venture were primarily driven by higher prices and sales volumes of ethanol and sugar. For the quarter, GAAP basis income tax expense was $92 million compared to $38 million for the prior year. The increase in income tax expense was due to higher pre-tax income. Net interest expense of $38 million was below last year, resulting from higher interest income related to the resolution of an historical value-added tax matter.
Let’s turn to Slide 6. Here, you can see our continued positive EPS and EBIT trend adjusted for notable items and timing differences over the past four fiscal years, along with the most recent trailing 12-month period. This is an exceptional performance, and I echo Greg’s appreciation of the amazing execution by our global team.
Slide 7 compares our year-to-date SG&A to the prior year. We achieved underlying addressable SG&A savings of $25 million, of which approximately 75% was related to indirect costs. Looking ahead, we are monitoring cost inflation globally and we will be working hard to offset this impact where we can while still making the necessary investments in our people, processes and technology.
Moving to Slide 8, for the most recent trailing 12-month period, our cash generation, excluding notable items and mark-to-market timing differences, were strong with approximately $1.9 billion of adjusted funds from operations. This cash flow generation was well in excess of our cash obligations over the past 12 months, allowing us to continue to strengthen our balance sheet.
Turning to Slide 9, during the quarter, we received two credit rating upgrades. Moody’s raised us to Baa2 and Fitch upgraded us BBB, both with stable outlooks. This now puts us at our target rating of BBB and Baa2 with all three rating agencies. The chart on this slide details our year-to-date capital allocation of adjusted funds from operations. After allocating $137 million to sustaining CapEx, which includes maintenance, environmental, health and safety, and $25 million to preferred dividends, we had approximately $1.1 billion of discretionary cash flow available. Of this amount, we paid $215 million in common dividends, invested $102 million in growth and productivity CapEx, and repurchased $100 million of common shares, leaving approximately $725 million of retained cash flow.
Our pace of CapEx spend this quarter was below our expectations due to supply chain-related delays, which we don’t see improving by year end. As a result, we are reducing our 2021 CapEx forecast by about $100 million and we will be rolling over these projects into next year. In addition, we have a nice pipeline of growth and productivity investments that are under consideration, which will likely lead to a higher than baseline spend for the next couple of years. We will provide more details on our outlook during our Q4 earnings call in February. The $100 million of share repurchases in the quarter completed our $500 million authorization. As Greg mentioned earlier, Bunge’s Board has authorized a new $500 million program. Earlier this year, we increased our quarterly common dividend by 5%. In May of next year, we will again review our dividend with consideration for the recent increase in our earnings baseline from $5 to $7 per share and the success in strengthening our balance sheet. So, as we have been demonstrating, we will continue to take a balanced and disciplined approach to capital allocation.
As you can see on Slide 10, by quarter end, readily marketable inventories exceeded our net debt by approximately $1.1 billion, a significant change from a year ago.
Please turn to Slide 11. For the trailing 12 months, adjusted ROIC was 19.4%, 12.8 percentage points over our RMI adjusted weighted average cost of capital of 6.6%. ROIC was 13.7%, 7.7 percentage points over our weighted average cost of capital of 6% and well above our previously stated target of 9%. The spread between these metrics reflects how we use RMI and our operations as a tool to generate incremental profit.
Moving to Slide 12, for the trailing 12 months, we produced discretionary cash flow of approximately $1.6 billion and a cash flow yield of 21.6%. The decline in cash flow yield from the prior year reflects a growth in book equity of the company.
Please turn to Slide 13 and our 2021 outlook. As Greg mentioned in his remarks, taking into account our strong third quarter results and favorable market trends, we have increased our full year adjusted EPS from $8.50 to $11.50. Our outlook is based on the following expectations. In Agribusiness, results are expected to be up from our previous outlook and now forecasted to be higher than last year. In Refined & Specialty Oils, results are expected to be up from our previous outlook and well above last year. We continue to expect results in milling to be generally in line with last year.
Excluding Bunge Ventures, corporate and other is expected to be lower than last year driven by higher performance based compensation, a portion of which was historically allocated to the segments. Additionally, the company now expects the following for 2021: an adjusted annual effective tax rate in the range of 15% to 17%; net interest expense in the range of $200 million to $210 million; capital expenditures in the range of $350 million to $400 million; and depreciation and amortization of approximately $420 million. In non-core, full year results in the Sugar & Bioenergy joint venture are now expected to be up considerably from the prior year.
With that, I will turn things back over to Greg for some closing comments.
Thanks, John. Before opening the call to Q&A, I want to offer a few closing thoughts. As John and I noted, we expect a strong close to 2021 driven by Agribusiness and Refined & Specialty Oils. Looking ahead, we expect favorable market conditions to continue and we are confident in our ability to capture the upside from opportunities while minimizing the downside. Based on what we can see right now, we would expect EPS to be well above our baseline for the next couple of years, driven by higher than baseline assumptions for Refined & Specialty Oils and softseed crushing. And we will continue to deploy cash we generate to create value by investing in growth projects with strong returns and returning capital to shareholders.
In closing, we are very pleased with our team’s strong performance and our revised outlook. In today’s environment, we are right where we need to be, a key participant in the global food and agricultural network. We are excited about our role in the accelerating shift in demand for sustainable food, feed and fuel and the growth we have ahead of us. We will now open the line for your questions.
We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Ben Theurer with Barclays. Please go ahead.
Thank you very much and good morning, Greg, John. Congrats on the very strong results and thanks for beating and raising again the guidance.
Thanks, Ben.
Well done. Now, in light of your closing remarks, a question related to that, so you basically said that you think this is – you are going to be able to be above baseline for the next couple of years. And I think the importance here lies on the years like multiple years. Now, what’s driving that sustainable lasting better environment versus what you saw when you in, first place, put out your expectation just in summer of last year? You didn’t raise it this summer. So, what has changed since then within the underlying fundamentals to really put you in that situation that you now can say that you expect it to last above that level for the next couple of years? And then with that cash flow you’re all generating, do you think you can accelerate some of the investments? And by the way, I appreciate very much that you also think of shareholders, returning them cash. But what opportunities do you see in the market? Where do you still want to invest in to maybe be in a position to even further increase what you just did to the baseline EPS?
Okay. A lot there, Ben. But yes, let me start by just a quick reminder. Remember, that was an earnings framework. And when we first put it out right, early in the turnaround and we were right at the front end of COVID. So once we had a good understanding of kind of how the environment was improving, our new operating model, how that was working, then we updated that framework, so as you just referenced. So what we’ve now reflected – remember, the framework is an ability to look at kind of average margins on the soy crush, the soft crush as well as our specialty and edible oils business. So what we see coming in the next couple of years, as we talked about, so one, we continue to see the focus and the talent of this team to continue to operate. We see the stronger demand from refined fuel. I think we see the long-term kind of the lack of capital that has been invested in this industry. And we see that the Refined & Specialty Oils, we expect that run rate that we see here in Q3 based on the demand from foodservice and refining to carry through 2022. So we think that roughly $150 million a quarter is a pretty good run rate, maybe a little less, a little more each quarter, but we think that, that will be a pretty good ratable for 2022. So that, of course, will be above that baseline earnings. And then with the demand as well around renewable diesel and refined fuels overall, continued support for softseed crushing kind of driven by the oil side of that. And so we expect those to be above our baseline earnings as well. And then as far as the speed of growth, I mean, we are absolutely focused as the transformation is done. We’ve turned the resources to focus on the growth. We will continue to do the organic things, right, a number of debottlenecking projects already underway. And we – the timing of doing growth is at the right time when the numbers are right and that allows – we let the numbers drive the investment. But we’ve got the balance sheet now where it needs to be. And I think we’ve shown that we can execute. And so we’ve earned that right to grow. And with the – with kind of the changing landscape between – as you think about the growth, right, we continue to grow our leading global crushing business and, of course, the origination and distribution that supports that as well as our other associated grain processing businesses to serve the producer. We’ve got our specialty and refined oils business really hitting on all cylinders right now and position and looking not only through organic growth, but where we have some opportunity for bolt-on acquisitions. And then, of course, the trend in plant proteins is right in the sweet spot of not only supporting growth in our plant lipids business, but in our developing plant protein business. And that will be a multiyear build, but absolutely excited about that trend that’s in place. And then, of course, on the renewable fuels and renewable diesel and sustainable aviation fuel and the changes that are happening there. So just there is a lot of levers to pull for growth. And so we can be very thoughtful and as I said, let the numbers drive our decisions.
Yes. And Ben, as you pointed out, the $7 baseline is our footprint as of today or as of when we put it together a few months ago. And as we grow, as we have an opportunity to invest in good projects and the landscape changes, we will continually update that. Well, I should say, on a periodic basis as material things change.
Okay, perfect. I will leave it here. Thanks again and congrats.
Thank you.
Our next question comes from Luke Washer with Bank of America. Please, go ahead.
Hi, good morning and congrats on good results. Obviously, a great quarter, looking at your guide for the full year, obviously, it’s a low-end number at $11.50, but clearly, pretty big jump here from $8.50 to $11.50. But the implied guide for 4Q is closer to $2, which is obviously on EPS, which is obviously much lower than 3Q and much lower than 4Q of last year. And I know that this is a floor, but as we think about the fourth quarter, you have crush margins that are good. You have elevation margins that are good. The outlook looks very strong. So is there anything in the fourth quarter that would temper your expectations? And how is the visibility looking in the fourth quarter?
Well, part of it is the timing, right? I mean part of the performance here in Q3 was the timing of what we did have open on crush. People definitely not extended out as far. And we crush – last time we were together, crush margins were definitely depressed. And as we saw that rally, we were able to benefit from that this quarter, but we were also hedging Q4 then as people are going out farther on the curve. So we definitely caught part of this last move, but not all of it as we’ve hedged Q4 out. And we like the momentum and where that’s carrying into Q1. And we can see that, and that’s why we feel good about getting off to a very good start here in 2022.
Great. And then as you think about baseline, I know you set the new baseline of 7 only a quarter ago, but it feels like maybe even 3Q beat your expectations. Is there any change in the way that you’re looking at the outlook structurally, whether it’s part of your business or the industry more broadly? Or is it so things pretty much the same as when you set that baseline.
Yes. I think the way we look at the framework is the same. I think what we’ve seen change are the continued strength from the recovery of COVID around Refined & Specialty Oils from the foodservice side, what we’ve seen with the continued demand being added from the renewable diesel sector, what it’s going to take here in multi years to do the work to build some of the supply that’s going to be needed. And just the overall operating environment, has become clear and made it confident for us to look out and say, look, above where the baseline model is, Refined & Specialty Oils are going to outperform that. Softseed crush is going to outperform that, because that framework is built around averages. So some of it’s our ability to continue to execute in a really tough environment, right? It’s – we’re suffering from the same challenges around labor and wages and energy inflation and the back end of COVID here. So the confidence in the team to stay focused and really drive the big earnings engine here while we’re continuing to work on the growth opportunities. So it’s definitely environment externally, but internally, it’s also as we continue to get reps here with our eighth straight quarter of improved results.
And I think, Luke, it’s important that the $7 was never intended to be a forecast or what we felt like the necessarily the earnings power would be of the company in any given environment. It was based on, as Greg called it a framework, based on average historical, what we kind of call mid-cycle margin structure the company should be able to hit $7 a share. But obviously, in the environment we’re in today, we’re performing substantially above that because a lot of the assumptions we made in that model, we’re exceeding those today. And as well as we go forward and have an opportunity to invest some of this excess cash flow, we hope to be able to update that model over time to a higher number.
Sounds good. And maybe I can sneak in just one more on your investment in Benson Hill. Are you guys – what’s your relationship with Benson Hill? Do you plan to get involved? Are you guys working together? How is that relationship?
Well, it’s really like all the investments we do in our Bunge Ventures, I mean we kind of use that as an innovation platform as a knowledge building platform where we’re looking at things that could enhance our stickiness with how we work with customers that could lower our costs. It could be new technologies to enhance our business, or frankly, it could be new technologies that could be a threat to our business. And so we make investments based on the company themselves and how it fits with the knowledge that we want to continue to earn, whether we do business, that’s a separate decision. That’s at armed length, whether we have a commercial relationship depending on the products and services that, that company does. And so some of our Bunge Ventures portfolio companies, we do business with because it makes sense and some are pure investments. We do do a little bit of business with Benson Hill.
Sounds good. Thank you.
Our next question comes from Tom Simonitsch with JPMorgan. Please, go ahead.
Thank you. Good morning, everyone.
Good morning, Tom.
Firstly, a clarification, when you say $150 million per quarter is a fair run rate for refinery specialty or for next year, can you clarify how that compares to your baseline?
Yes. It’s – I don’t have the exact number in front of me on the baseline, but it’s considerably above what we had in the $7 baseline, driven really by the refining margins in that business and what we’re seeing. When we assumed it on the baseline, it’s probably closer to maybe $100 million a quarter. So you’re looking at probably at least a couple of hundred million difference between the $7 baseline and where we are today.
That’s very helpful. Thank you. And maybe could you provide some more color around what you’re seeing in your milling business? What needs to happen for that segment to grow beyond this year?
Well, we continue to make investments in our corn milling business here in the U.S. to serve customers, and in South America as well. We started another mill back up here last year and continue to make investments there. But it’s really working with customers. It’s where we’ve got the connection to our supply chain network, where we’ve got crossover with customers with our specialty and refined oils business and where we think we’ve got the scale to be relevant to customers in the connection to have an edge to win long-term. So you’ll see us leverage around our strengths.
Thank you. I will pass it on.
Thank you.
Our next question comes from Adam Samuelson with Goldman Sachs. Please, go ahead.
Yes, thanks. Good morning, everyone.
Good morning, Adam.
Good morning. So, maybe following up on Tom’s question and thinking about how your – the discrete areas where you’re seeing upside to that baseline framework, I think you called out the softseed side, softseed crush as well. Think back in July, the baseline assumption had been about $50 a ton of kind of gross margin in that on the 10 million tons that – or so that you do for softseed. How have you framed the upside to that from the market environment looking forward?
Yes. I think we – what we’ve looked at, we called the refined out because that one is a little more ratable and it’s the big moving number as I know you guys are trying to think about in 2022. We’re carrying good momentum in Q1 in both soft and soy. We can see that and then, of course, not as much visibility out to the balance of the year. But just kind of when we look at the S&Ds around the soft and what we expect, we expect that to perform above baseline. We didn’t really quantify it, but we’re definitely comfortable that it will contribute above baseline. So that’s why we wanted to call it out as well.
Okay. And can I just ask on the distinction in terms of softseed and nut the soy crush is there mean clearly, the vegetable oil demand broadly, that whole complex is tight as is very robust. Is there more concern about the demand on protein that wouldn’t lead you to be incrementally constructive on soybean pressure? Or is it simply just lack of visibility beyond the first quarter?
No, it’s just lack of visibility. I think from the macros, we’re fairly constructive with what we’re carrying into Q1. And then we will see how things develop and how things develop in crops in the second half, definitely looks like we’re probably going to have build some stocks in oil seeds, and that should actually be good from an environment. But a lot’s got to happen yet on getting things planned and seeing weather develop and so on.
Got it. And if I could just squeeze another one in and just given some of the inflation that you’re seeing across the environment, it seems like things were handled quite well through the third quarter. But how should we think about rises in energy prices, logistics, labor, just the impact in the business and particularly energy and thinking about Europe, given some of the issues there, specifically.
Yes. Energy, we think about as another input, right, just like oilseeds, it’s one of the costs into COGS. And so it’s part of the risk management as we’re trying to manage the risk in our assets. We’ve definitely seen, I think, more kind of violent moves in those as we’ve seen. Normally, those are part of what goes into the crush margin as we’re pricing. And so those will get passed along. Of course, when you see moves like we’ve seen here, sometimes depending on the region, it may take a little longer to get those passed along. But the other thing we have is with the global footprint, then we will pull back crush if margins get squeezed by the energies. We will pull crush back in that region, and we can run harder in another region. So again, that’s one of the things about the global network that’s very helpful. So it’s just another one of those things around another dislocation and disruption that we have to manage.
Yes. I would just say, Adam, on the wages side, I mean, like everybody else, we’re subject to wage inflation, not only in the U.S., but globally. But I think we feel like if we can maintain a position as being a low-cost producer in the industry, as others struggle, we should come out on top. And so we’re obviously managing that as effectively as we can. But availability labors are primary concern, especially in an environment we’re in right now, margin environment. We will continue to manage that first and then the inflation will pass along what we can and continue to focus on being a low-cost operator.
Okay, the color is really helpful. I will pass it on. Thanks.
Our next question will come from Vincent Andrews with Morgan Stanley. Please, go ahead.
Thank you. And let me reiterate congratulations on the quarter and results, gentlemen.
Thank you.
Could I just ask, has anything changed about – since you guys came in, have you – how has your sort of risk parameters evolved now that you’re a couple of years in, and eight great quarters in a row and better operating environment. Are you taking bigger swings at anything? Or is it still the same? Or has something changed about the philosophy?
Absolutely not. One of the things about our philosophy, we said all along, right, is to manage the risk appropriate for the earnings power of the company and the environment that we operate within. And that is as our risk teams and our commercial teams work hand in glove, assessing the dynamic environments that we’re in and looking at the earnings at risk out in the forwards of our assets. And as we’ve said, those earnings are just at risk until we can book the oil seeds and book the energy and sell the oil and sell the meal in our crushing or the same hedging, the inputs and outsets in our grain processing or in our distribution assets. So I think what – the big thing that’s changed is we’re operating as One Bunge and we are using our information as one company to execute better for our customers. We’re using our global network to flex in a time where dislocation has kind of become the norm with almost less globalization and more regionalization. And quite frankly, there is still a lot of embedded optionality in tens of thousands of customers and millions of tons of physical flows and the liquidity in those physical flows for us to manage the risk for ourselves and our customers. And it exists when you act like one big global company and you run that business in a very disciplined way.
Okay. And you mentioned, obviously, that South America is planning now and they will have whatever crop they wind up having. But I think I heard you say that there will probably be some build in oilseeds inventory, which is obviously a logical assumption. But I also thought I heard you said that would be good for you, or did you say good for the environment, or just how are you thinking about sort of how next year could play out in the scenario where, let’s say, Brazil and Argentina have a very large crop?
Sure. Yes, it looks like bean planning is off to a record start down in Brazil. I think we are getting close to 50% planted. And we are seeing, I think right now, estimates are expected for there to be bigger soy crops in the U.S., Argentina and Brazil. And I would say in the strong demand environment we have got, right, you have got palm continuing to have problems on the supply side and just globally oils, not only from the renewable diesel and renewable fuels demand side, but now with palm a little bit of a supply. So, oil continues to remain strong. We continue to see what we expect to be some growth in meal demand next year. So, that is a more favorable operating environment. Now as I said, the crops have got to get grown and the weather has got to show up and how the farmer markets and everything has to develop. But net-net feels pretty good. I think that’s why even though we are not calling out all the specifics is why we say we feel that we can be well above the earnings framework here for the next couple of years.
Okay. So, just to follow-up on that, so even in that environment, you believe that there would be strong enough margins and enough sort of dislocation still in the market that you could be above that $7 figure?
Absolutely.
Okay. Thanks very much.
Thank you.
Thanks Vincent.
Our next question will come from Ben Bienvenu with Stephens. Please go ahead.
Hi. Thanks. Good morning everybody.
Good morning Ben.
Good morning Ben.
I want to revisit this discussion around capital allocation and just to hear your thoughts around whether or not there has been any consideration around whether you could raise your ROIC goals. Obviously, you steadily raised your baseline earnings power framework scenario that you think about characterizing the company with. When you think about what progress you have made at Bunge over the last 2 years and you think about the underlying earnings power of the business, does it make sense to raise that threshold for ROIC? And when you look at the pipeline of potential opportunities, is there a robust set of opportunities, organic or inorganic that exceed that ROIC threshold?
Let me start and I will hand over to John. The one thing is that the main – about the only time we talk about that threshold on ROIC is quarterly with you all because we have the teams focused on competing for working capital based on how their returns on competing for risk capital based on how their return on invested capital and how their AROIC, where we are looking at how effective we are in working capital. So, we are constantly driving to get the best return possible, not kind of just jump over the hurdle. We needed that framework when we were talking to investors. But frankly, we are driving and competing against always trying to improve the lowest returning internally and to grow the businesses that are the highest returning.
Yes, Ben. I would just say that certainly, with where we have been able to get to in terms of our ROIC and our adjusted ROIC metric, which we think is an important way also to measure the business. There is no doubt that I think we feel like we are at a different plateau today as we go forward here and look at our opportunities, we have got – we feel like a pretty good pipeline of opportunities. And certainly, our goal will be to raise that 9% to something north of that. And I think if I remember back even a year and 1.5 years ago, Greg made a point that once we get to 9%, we will raise it well above 9%. And certainly, I think we have got enough momentum in the business, improvement of the operating model and I think some attractive investment opportunities that we should be able to raise that as we head into next year and take a look at our plan for next year and what we believe we can do, we will come back on that.
Yes. Okay. That’s great. Thank you. Secondly, the sugar and bioenergy business, I know it’s noncore. It’s performing considerably better than we have seen over the last couple of years. I know that you were in a higher-priced sugar and ethanol environment, currencies more in your favor than it’s been over the last few years. I assume that hasn’t changed, any considerations you have around how relevant that business is in your portfolio? And what do you think the appetite is in the markets to make some of the strategic decision with that business?
First, it has not changed our view long-term on that. I mean our plan is to still exit the business. We are certainly happy with the current performance. It makes it a lot easier to hold it until we find the right buyer. But we are actively in that process. And it takes time, obviously, to get the right counterparties and the right structure. But we are actively looking at it today and our goal would be to get that done as soon as we can. But at the same time, we want to balance speed with value. But certainly, I think we think that, that business is worth a lot more today than it was a year or 2 years ago. And so we are optimistic that we will get something done.
Okay, great. Thanks and best of luck.
Thank you.
Our next question comes from Rob Moskow with Credit Suisse. Please go ahead.
Hi, Just some kind of macro questions. Do you do any work internally to try to figure out how far along China is in rebuilding its pig herd after African swine fever and how that’s influencing their exports or imports of soy? And then I had a second question about soy planting intentions. With energy costs as high as they are, would that result in more crop rotation into soy away from corn next year? And if so, does that make a difference to you or not? Thanks.
Yes. Thanks, Rob. On China, we have definitely seen they are in the late stages of rebuilding that herd and you have seen those margins come off and a little bit of herd reduction in the places where they have really built too fast as they kind of outpace their demand. We haven’t seen any major impact from AFS impact continue. So, of course that will have some effect, we believe that will have some effect on their imports of meat, no doubt. So, that continues to develop. I am sorry, second part of the question?
The energy.
Yes, the energy – the higher energy prices in total actually are supportive for demand for renewable fuels. And it looks like, I think we are in a situation here for a while where we believe there will be higher crude and higher energy prices here for a few years as we kind of work through the transition, a lower carbon energy footprint. And we do think that, that will be net friendly. And as far as the corn versus soy acres, yes, there is no doubt that the market is sending the signal on oil seeds, but I think it’s more than just corn versus soy. We will have to watch wheat as well and the other oilseeds to kind of see the fight for acres. And that one hasn’t played out yet, but that will be a real interesting point here over the next few years as the market is sending the signals for us to build some additional capacity and additional acres and/or production per acre to serve the demand.
And maybe I will sneak one more in then. Have you done any tracking of global capacity for soy crush, because you are not the only one that’s increasing capacity right now for renewable fuels. Any sense as to what that’s done to global crush capacity so far this year?
Yes. So, as we think about global crush capacity, a couple of things. One, of course, we are always watching it closely. And I think if you remember all the way back, maybe Investor Day, and we talked about we need some additional global crush capacity, right, whether it’s a weather problem, a government problem. Now we have seen an energy problem curtailing some run time in China in that to get that balance right. I think what’s interesting this year when we saw Argentina run harder through the first half than they did prior year, and margins stayed good globally. And I think that tells us something as well – and then as they didn’t run as hard later in Q3, and then we saw global margins then rebound again. So, there is – we are definitely – we are tracking all the projects that are announced, and then we will actually track all the projects that actually get built. We don’t think they will be exactly the same. And look with what it takes to permit and order projects and order equipment and get the labor in place, that extra crush coming in or watch, it’s out there 2.5 years, 3 years before it starts making a real difference. We are – we continue to look at where we are going to put our expansions. And of course, we announced the expansion we are going to have will be on the water, and that allows us to not only serve the domestic market with meal, but to be able to export to get to the world market. And so as we make expansions in our own footprint, we want to be very, very thoughtful about as energy goes through this transition in the next 10 years to 15 years, which they feel renewable feedstocks are a big part of, that we also have the right lowest cost footprint for the long-term. And so that’s why we continue to be very thoughtful about the long-lived assets that we put in the ground.
And I think, Rob, one other thing relative to the Chevron JV, for example, there have been other JVs announced. A lot of those are greenfield builds. They are going to take a number of years before they are operational, whereas because we are taking two existing plants and put in the joint venture, we are going to be up and running immediately with Chevron. So, we are pretty excited about that. Of course, the expansion that we have talked about will come over time, but certainly we are going to be able to hit the ground running with them.
Great. Thanks for the color.
Thank you.
Our next question comes from Ken Zaslow with Bank of Montreal. Please go ahead.
Hey, good morning guys.
Good morning Ken.
When I think about refined oil, it seems like both you and your competitor have done joint ventures with the refiners, right? So, it almost seems like pretreatment may not be coming down the pipe for all this renewable diesel. So, refined oil margins may stay longer than maybe we initially expected. Can you make a comment on how you are thinking the refined oil margins might actually – the duration of them?
Well, we feel comfortable enough that we have now called them all the way through ‘22 above our baseline. So, that is we are pretty confident because we are a little maybe conservative on how far we like to reach out with projections. And look, it will be – the industry will be making those decisions, right. Our industry, on how we are serving the renewable diesel industry and the renewable diesel industry making the trade-offs on, can they make a return on investment on pretreatment, and is pretreatment best built at refining, at renewable diesel production or somewhere else to gather other low CI feedstocks. And so, the one thing, this is developing very quickly. And that’s one of the things we are so excited about our relationship with Chevron. This is a JV. This is a platform that we are starting, and we are using the combined knowledge of two global industry leaders where we have got the philosophy of leveraging each other’s strengths. We are not trying to do Chevron’s expertise. They are not trying to do ours, but we are trying to bring that together everywhere from looking at the economics and understanding how the feedstocks work in the refinery, understanding what we can do with the producer around regenerative ag in the supply chain, developing other low CI feedstocks and thinking about long-term how we grow together to meet those needs and take advantage of those opportunities. So, I think the relationship and the way that we have formed that with Chevron is a little unique to some of the others in the industry. And we think it’s powerful. And we are excited about the opportunities that that’s going to generate.
But it’s fair to say the slowdown in the pretreatment creation probably should extend the refined oil margins for longer? Is that at least the fair statement?
No, absolutely. It’s a direct trade-off to using the refining capacity in the oilseed crushing industry.
And then I wanted to just – I know we have talked about this a little bit with the cash deployment. I would be honest, I am not that clear. So, help me out here. The – so pieces of it is that there is a lot of projects that are in the pipeline for 2022. And then beyond that, there is opportunities that you will be able to deploy cash more externally. Can you talk about, one, the projects that – and again, you are not going to give me exact projects, but how much cash do you think you can deploy over the next couple of years for internal – and I am assuming we could assume a 15% or so return on that? And then the other part is how quickly do you want to deploy the cash for external opportunities? And then I will leave it there, and I appreciate your time.
Yes. Ken, this is John. I think it’s pretty conceivable that we will probably – so our baseline CapEx historically has been, call it, $400 million to $450 million. The last 2 years, cumulatively, will be about $200 million below that run rate, cumulative because of the under-spend in the last couple of years. I think we will see that amount probably assuming supply chains loosen up next year, and we can get the equipment we need and the labor we could conceivably see something in the $600 million to $700 million range, I think easily in CapEx over the next couple of years. A lot of that is projects that we have got in the pipeline that we are analyzing. Not going to say we are going to do all of them, but it’s everything from continued debottlenecking. We have got a couple of greenfields. And then of course, we have got a couple of projects we have already announced that are going to take time and will be part of that number. And then ultimately, we are always going to be looking at the M&A side and any opportunity there might be there. And I think we feel more confident today that we have a right to be a consolidator in the industry if the opportunity comes given what we have been able to do. So, we are going to look at all facets of it, but I think what we can control, we are going to certainly focus on very good projects organically. And again, as I said before, we have a good pipeline of things, everything from debottlenecking greenfields and things like that, that were some underway and some we are still assessing.
Great. I appreciate it. Thank you.
Thank you.
Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks.
Thanks again for joining us today, and thanks for your interest in Bunge. I want to thank the team again for continued incredible execution in what continues to be a very dynamic environment, and it just continues to demonstrate the strength of Bunge. We look forward to speaking with you again soon. Everybody, have a great day.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.