Mark Haden - Bunge Ltd. Soren W. Schroder - Bunge Ltd. Thomas Michael Boehlert - Bunge Ltd..

Adam Samuelson - Goldman Sachs & Co. Thomas Simonitsch - JPMorgan Securities LLC Evan Morris - Bank of America Merrill Lynch Farha Aslam - Stephens, Inc. David Cristopher Driscoll - Citigroup Global Markets, Inc. Brett W. S. Wong - Piper Jaffray & Co.

Robert Moskow - Credit Suisse Securities (USA) LLC Heather Jones - Vertical Trading Group LLC Vincent Stephen Andrews - Morgan Stanley & Co. LLC Kenneth Bryan Zaslow - BMO Capital Markets (United States).

Good day, and welcome to the Bunge Limited First Quarter 2017 Earnings Release and Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mark Haden, Vice President of Investor Relations. Please go ahead..

Thank you, Nicole, and thank you, everyone, for joining us this morning. Before we get started, I want to inform you that we have prepared a slide presentation to accompany our discussion. It can be found in the Investors section of our website at bunge.com under Investor Presentations.

Reconciliations of non-GAAP measures disclosed verbally on this conference call to the most directly comparable GAAP financial measures are posted on our website in the Investors section.

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 views 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 encourages you to review these factors.

Participating on the call this morning are Soren Schroder, Chief Executive Officer; and Tom Boehlert, Chief Financial Officer. I'll now turn the call over to Soren..

Thank you, Mark, and good morning, everyone. Despite a slow start, we're confident of delivering a good year with solid earnings growth although somewhat reduced to reflect the delay in pricing by South American producers.

Farmers in South America still have to price over 70% of their crops – record crops and have held back in expectation of better prices. In downstream in both meat and consumer foods, margins are good and demand is strong, with little incentive for end users to forward purchase.

We're in the middle of planting another large crop in North America, which will accelerate the global growth in inventories of both corn and beans, which would eventually lead to lower prices in order to encourage demand and clear the market.

This standoff between supply and demand has reduced forward commercial activity dramatically, translating to a negative effect on our margins this quarter. But fundamentals remain strong. Projected soy meal demand growth of 4% will lead to an 8 million ton increase in soy crush year-over-year.

Major origin crush will be up 5.5 million tons alone, but the next quarter is showing record crush rates in South America, with Argentina running at full capacity. Despite these positive demand and capacity utilization trends, soy crush margins have been weak, except in the U.S. where margins are fair.

The challenge is in South America and Europe where current margins of $23 to $25 a ton are $7 to $8 per ton below our expectations. We believe this will improve in the coming months. Cash flow requirements will drive farmer pricing and global end users will want to protect good downstream margins at lower prices.

The fundamentals of both crush and trade are favorable, and markets will adjust to reflect the current supply and demand imbalances. And if that happens and global commercial activity increases, the value of our assets and global network gives us confidence that we'll be able to grow earnings in Agribusiness for the year.

In Foods, we had a strong quarter in oils, with Brazil leading the way due to excellent full chain management of both crush and downstream oils. We've seen good traction in growing B2B market shares globally and new value added products are coming to market across North America, Brazil and Europe.

Walter Rau is running at record volumes and we've been successful in wining global RFPs with key customers, which will lift earnings later in the year and into 2018. We expect strong volume and earnings growth in oils for the year. And as the largest producer of soft oils globally, we are committed to growing our global oils business.

And we are encouraged by our opportunities to develop new products and customer relationships which meet current consumer food trends. In Milling, margins and volumes were challenging in both Mexico and Brazil.

Both regions experienced slow demand in the face of consumer uncertainty and we are working diligently to secure key customer requirements and to optimize costs further. In recent years, we've developed a unique regional milling footprint in Brazil and Mexico, which will shine when the economy is stabilized and growth returns to the regions.

We're not standing still and waiting for markets and margins to improve. We expect that a very competitive environment will remain across all segments, and therefore, we are focused on driving cost and productivity initiatives globally. With high inflation and stronger local currencies in most emerging markets, this is especially important.

Our industrial and commercial improvement programs delivered $22 million in the first quarter and are on track to deliver $100 million for the full-year. We reduced CapEx by $50 million, and we'll continue to be very focused on managing working capital tightly to ensure our returns remain well above cost of capital.

In recent years, we have invested in global technology to help us transact in a more standardized and efficient manner. We see this as an important building block to improve our overall cost position, and over the next quarters, we'll describe our plans to reduce global SG&A. In Sugar & Bioenergy, we're convinced to have another step-up in earnings.

We are pursuing different alternatives to achieve a reduction in exposure and preparing the business accordingly, including the possibility of an IPO or partnership. We're committed to our strategy of creating the leading global Agri-Foods company focused on grains and oil seeds.

And we are convinced we'll grow earnings this year despite the difficult start and that our long-term earnings outlook as presented in our December Investor Day is intact. Now, I'll turn the call over to Tom, who will give you more detail on the financials and the outlook for the year..

Thank you, Soren, and good morning, everybody. Let's turn to the earnings highlights on slide 4. Reported first quarter earnings per share from continuing operations were $0.31 compared to $1.60 in the first quarter of 2016. Adjusted earnings per share were $0.35 in the first quarter and $1.41 in the prior year.

Total segment EBIT in the quarter was $133 million versus $322 million in the prior year. On an adjusted basis, segment EBIT was $139 million. Agribusiness had a slow first quarter with EBIT of $109 million compared to $282 million in the first quarter of 2016.

The $173 million decrease resulted from a $46 million decrease in oil seeds and a $127 million decrease in grains. Global soy crush volumes were slightly higher than the comparable quarter in the prior year, but the increase was more than offset by weaker margins.

Costs increased as a result of the appreciation of the Brazilian real, inflation in Argentina, and charges related to the acquisition of the soy crush plants in Europe. Outside of China, soy crush margins were lower than year ago levels.

Demand has been good, but margins were negatively impacted by slow farmer selling in South America and ample supplies of soy meal. Soft seed results improved compared to a year ago.

Higher volumes and margins reflected an increase in our crush capacity in the Ukraine, larger canola crops in Canada, and sunseed crops in Europe and the Black Sea, and improved vegetable demand. The decrease in grains was primarily driven by weaker results in origination and distribution.

While volumes increased primarily in the U.S., structural margins remain pressured by destination customers only covering short-term needs and by slow farmer selling in South America. Risk management activities in oilseeds and grains produced less income this quarter compared to a very strong result a year ago.

Overall, Agribusiness results were lower than the comparable period last year, primarily as weaker margins and higher costs were only partially offset by higher volumes. Risk management performance was solid, but lower than last year.

Food & Ingredients EBIT decreased by $7 million to $45 million in the first quarter of 2017 compared to $52 million in the first quarter of 2016. The decrease was attributable to the fact that the first quarter of 2016 included a $12 million mark-to-market gain in Edible Oils.

Backing that amount out from last year's results, Edible Oils improved by $18 million, while Milling decreased by $13 million. The increase in Edible Oils was primarily the result of higher volumes and margins in Brazil, reflecting a tight oil supply in the first quarter, partially offset by lower unit margins in the U.S.

as a result of competitive pressures. The decrease in Milling EBIT was primarily the result of lower volumes in Mexico and Brazil, which were partially offset by higher volumes in the U.S. Margins in the U.S. and Mexico were lower than the prior quarter due to soft market demand.

Sugar & Bioenergy quarterly adjusted EBIT was negative $11 million versus negative $14 million in the prior year. Our mills began operating in the second half of March, as the sugarcane harvest got underway, and production will increase into the second quarter.

Biofuels made a positive contribution, which was offset by a loss associated with our renewables oil joint venture. Fertilizer EBIT was negative $4 million in the first quarter compared to positive $2 million in the first quarter of 2016. First quarter tax expense was $28 million, resulting in a 34% reported tax rate.

The high effective tax rate was primarily due to the disproportionate effect of losses from entities with no tax benefit in a period of relatively low taxable income. This disproportionate impact should normalize over the course of the year, and we continue to expect our full year tax rate to be in the range of 24% to 27%.

Before I move on, I'd like to mention that total consolidated SG&A increased quarter-over-quarter by $64 million to $378 million in the first quarter of 2017. This increase was the result of stronger foreign currencies, costs relating to acquisitions closed during the period, and timing of certain accruals.

We would expect that the quarter-over-quarter variance will narrow in subsequent quarters and relate primarily to the effects of changes in foreign exchange and costs related to acquired businesses. As I mentioned on the call in February, SG&A is an area of opportunity and particular focus going forward.

We are committed to making our administrative and commercial processes more uniform and efficient around the world, reducing our cost base. We plan to launch a substantial project to achieve this in the coming months. Internal resources have been allocated and the planning process has begun.

We'll be in a position to talk about specific cost reduction targets and timing once this plan is in place. Let's turn to slide 5 and our cash flow highlights. We generated $1.3 billion of funds from operations in the past 12 months.

Even in a relatively weak quarter, the graph demonstrates our ability to generate substantial cash flow over a 12-month period. Let's turn to page 6 and our capital allocation process. Our top priorities are to maintain both a BBB credit rating, as well as access to committed liquidity sufficient to comfortably support our Agribusiness flows.

We are rated BBB by all three rating agencies and had $4.8 billion of available committed credit at the end of the first quarter. Within that capital structure and liquidity framework, we allocate capital amongst CapEx, portfolio optimization, and to shareholders in a manner that provides the most long-term value to shareholders.

We invested $182 million in CapEx in the quarter, of which $62 million related to the Sugar business, primarily for sugarcane planting. We closed the previously announced acquisitions of the two European oilseed processing plants and a specialty oil producer in Turkey, and we paid $67 million in dividends to shareholders.

Looking forward, we will be repaying $850 million of notes that mature on the second quarter of this year and expect to close on the Minsa transaction later this year. Let's turn to slide 7 and our return on invested capital.

Our trailing four quarter average return on invested capital was 6.3% overall and 7.2% for our core Agri and Foods business, 20 basis points over our cost of capital. Our goal is to earn 2% of our cost of capital on the Agri and Foods business.

The decrease in return from the prior quarter was almost entirely due to lower EBIT in the first quarter of 2017 versus the first quarter of 2016. Let's turn to the 2017 outlook on page 8. In the Agribusiness, we expect good demand for protein and oil and record soybean and soft seed crops.

This should increase capacity utilization rates and crush margins, as large crops become commercialized as the year progresses. Soy processing margins have been below our expectations to date. We do expect margins to improve as farmer selling picks up and customers replenish pipelines.

However, as a result of this delay, we are adjusting our full year 2017 EBIT range to $800 million to $925 million weighted to the second half of the year.

We expect second quarter EBIT to be close to that of the second quarter last year, assuming a modest pickup in margins and an increase in the rate of farmer selling as compared to the first quarter of this year. Although, I would emphasize that market dynamics can change quite quickly.

We expect the Food & Ingredients business to continue its upward momentum in Edible Oils and show strong year-over-year improvement on higher volumes and margins.

However, due to weaker than expected start in Milling, anticipated soft consumer demand and challenging competitive environments in Brazil and Mexico, we are adjusting our full year 2017 EBIT range to $245 million to $265 million. In the second quarter, we expect EBIT to be similar to the first quarter's result depending on how Milling performs.

On to slide 9, regarding Sugar, we expect the environment for sugar and ethanol to remain positive, and combined with the efficiency improvements made in recent years, to result in EBIT in the range of $100 million to $120 million in 2017. A substantial portion of our sugar production is hedged at levels that support this outlook.

Similar to past years, results will be seasonally weak until the second half of the year. We expect Fertilizer EBIT to be approximately $25 million for the year, which would be earned primarily in the second half of the year, corresponding to the planting season in Argentina.

And we've reduced our CapEx forecast for the year by $50 million to a range of $700 million to $750 million. We will now open the call for questions..

Thank you. We will now begin the question-and-answer session. Our first question comes from Adam Samuelson of Goldman Sachs. Please go ahead..

Yes, thanks. Good morning, everyone..

Good morning, Adam..

Maybe first, wanted to go into the guidance reduction for the full year, really understand the pieces of where you really took down the range versus the outlook that you gave in mid-February.

And how much of that was simply the first quarter coming in weaker than you thought versus lower expectations on farmer selling or crush margins later in the calendar year?.

Yeah. I think it is really a timing issue here. Everything we said back then and at Investor Day, we believe will come true, but the delay in pricing that we experienced in the first three months, almost four months now of the year, is hard to make up for. That's really the bottom line. So we've just pushed the timetable out a bit.

We are expecting gross margins to improve somewhat to get to the middle of the range that we just announced, the $7 to $8 a ton, particularly in Brazil, Argentina and Europe. To meet the middle of that range, we think that's very likely.

As you know, farmers are well undersold, both in Argentina and Brazil, and we've got a big corn crop coming within the next couple of weeks. So we think that'll all happen, and lower prices, as we expect them to unfold over the next months, should incur some end user coverage, which is what we've been missing.

So it is really – to cut it to the essence, it's really about just pushing the timetable out, making up – clearly, that we can't make up for the – or it's unlikely that we'll make up for the first three months, although it is possible. We've seen it before. But to be realistic, we decided to adjust for that..

So, Soren, I want to clear, because, I mean, timing-wise, if it's farmer selling in South America, you took your EBIT guidance in Agribusiness down $100 million, $125 million for the year.

Are you saying the crop will get sold and price this year at similar margins, less of the crop will be priced at expected margins, or you will end up being able to buy less of the crop at lower margins? I'm trying to understand which of those three it is..

No, I mean, we think that we will make up for a lot of the pent-up, let's say, under pricing by farmers as the summer and year progresses. So the grain origination, grain distribution, oil distribution pieces of our global franchise we really haven't adjusted.

It is just that the margins in crush that we didn't realize in the first three months will be hard to make up for. That's really the net adjustment..

Okay. That's helpful. And then, maybe on crush, can you talk about the impact in Argentina and the U.S. of this pending biodiesel trade case and the impact that could have if Argentina can't export the biodiesel and what that could do to the vegetable oil balances in the U.S.

and how on a net basis that impacts the company?.

Yeah. It is a big thing. Still to be determined exactly how it all works out. But if Argentine biodiesel is prevented from entering the U.S. because of duties or other things, then to meet the mandates for biodiesel and advanced fuels, the U.S. industry will have to produce it alone. And that'll be difficult given the installed capacity in the U.S.

I don't think we have enough. But it'll create an enormous demand for vegetable oil, both of soybean oil and canola oil, which will be very positive to crushing margins in both Canada and the U.S. So that part would be a big boost to North American crushing margins, both in soft seeds and in soy crush.

The flip side, of course, is that biodiesel margins, which have been good in Argentina, won't be there and the industry won't run, and that soybean oil will then go out as export oil to the world market. For Bunge, the net balance, I think over a period of, let's say, six to nine months, would be a fairly sizeable net positive.

You're talking about maybe a $20 million reduction in income in Argentina from biodiesel compared to the entire fleet of crushing capacity in the U.S. and Canada getting a boost in margins..

And that's not presently embedded in the outlook?.

No, no, no, not at all..

Okay..

We're assuming things stay as they are now. We're assuming that forward -.

All right..

– marketing in the U.S. is adequate. As I mentioned in my introductory remarks, U.S. crushing margins are actually performing as we would have expected it to. And the main reason for that is that we've had liquidity by the farmer, big crops, good yields, farmer has been a willing seller of soybeans in the U.S.

And that's exactly what we aren't seeing in South America yet, but we expect that we will..

All right. That's helpful. I'll pass it on..

Our next question comes from Ann Duignan of JPMorgan. Please go ahead..

Good morning. This is Tom Simonitsch on behalf of Ann.

Perhaps, firstly, could you expand on the weakness in Milling in Mexico that you experienced in Q1 and just maybe describe how your expectations may have changed in that market for 2017?.

Yes. The first quarter in Mexico was weak. It was the weakest quarter we've had in Milling since we really started in Mexico. And it was all really on the back of failing consumer demand.

Consumer confidence in Mexico, if you look at some of the indicators, sort of hit a recent low in, I guess, late January or early February, and the result was a reduction in overall volume of about 15% for the market. Our volumes were down a little bit as well. The combination of both though puts tremendous pressure on margins.

So, we believe that will stabilize as the – and it already has to some extent, as the year progresses. It feels like it was a first quarter shock, a lot of uncertainty politically, and people just staying close to the best, so to speak. And this will change as the year goes on.

So we think the second quarter will show improvement and we'll be nicely profitable, and then we'll gain momentum into the third and fourth quarter. But, year-over-year, we expect Milling results in Mexico to be slightly weaker than the prior year..

That's helpful. Thank you. And then just if I could ask, what are your expectations for U.S.

planted acres? Do you share the USDA's view on Prospective Plantings, or has your own view changed?.

Yeah. I think at this point, that's what we're going by, so significant increase in soybean plantings and reduction in corn, but overall an acreage base that's close to a record and, in all likelihood, outlook for another significant crop..

That's great. Thank you very much. I'll pass it on..

Okay..

Our next question comes from Evan Morris of Bank of America. Please go ahead..

Good morning, everyone..

Good morning, Evan..

Just first question on farmer selling. I know you identified that as sort of a – a couple of months ago, as a big swing factor for the year, started off slow, kind of talked about 70% not commercialized yet. Just trying to get a sense as to – and I know margins will play a part in this.

But what's that percentage that you need these farmers to commercialize to kind of get to the range, the midpoint of the range? I mean, is it 50%? Is it 90%? And sort of what do you think those trigger points are right now that the farmers looking at as sort of the combination between crop prices and currency?.

Well, you have to go through sort of each country and each crop by percentage to get a real feel. But to give you an idea, in Brazil, at the end of the first quarter, 41% of the crop had been sold. That was about 18% less than prior year and on the base of a much bigger crop. So it's a huge shortfall in pricing as of the end of March.

We expect that by the end of the second quarter, we will be closer to 70% price. So between May and June – because April has been a little bit slow as well, but between May and June, we'll see a significant pickup in pricing as we get closer to harvesting the safrinha, the winter corn crop.

And in Argentina, only 7% or 8% of the bean crop was priced at the end of March. So there, as you go through the next couple of quarters, we would expect that to get up to 50% or 60%. So there's a lot of pricing right in front of us.

And as we get to the end of the year, of course, most of it will be priced, although both Argentina and Brazil will likely carry fairly sizeable inventories of both corn and beans into the new year just because the world market doesn't need all of it.

But there's a lot of pricing right in front of us, and there's a lot of commodities that have been delivered that have not been priced yet. So farmers have harvested the crops, delivered them into the commercial system and have deadlines by which they have to price their various crops. So it's right in front of us.

And so, to answer the second part of your question, what will trigger it? Part of it is just the clock. Contracts will specify by when you have to price unpriced deliveries. So that's one aspect. And the other one, of course, is days where you have weakness in the real, which we saw partly last week. You will have a quick flurry.

In fact, we had a couple of days last week where we really had a pickup in pricing in Brazil. Some of the best days we've had all year. It doesn't take much, or a rally in Chicago as we had it earlier this week.

And finally, of course, it's just the cash flow needs of farmers beginning to plan for their intentions and investments in seed and fertilizer and so forth as we get into the third quarter. So between now and, I guess, July, August, we should get back to a more normalized percentage of crop priced.

And that is what we believe will ultimately drive not only volumes but margins in the late part of the second quarter and the third and the fourth..

Okay. Thank you. And then just a sort of broader question, and I guess it's been what a couple, three years now that the industry has sort of entered the start of the calendar year with pretty high expectations only to have them, I guess, lowered throughout the year. We're seeing that pattern already starting.

I guess why shouldn't investors start to get concerned maybe that there are structural impediments now in the industry that may not have been there a few a years ago, that may prevent you from reaching your growth objectives, or just even growing on a sustained basis? I mean, you look at ADM yesterday, and they essentially lowered their ROIC outlook.

So just trying to get a sense as to what's maybe changing and what still gives you that level of confidence that you can still sort of meet those objectives..

Yeah. No, it's a fair question. I think it's a combination of many things. We have been – our business is cyclical, and we are now a couple of years into one of the low cycles – low points of the cycle with low commodity prices and farmers globally who are resisting the new reality.

And many of them in a position and better capitalized than they were previously with additional storage at the farm and ways of financing crops that they didn't have. So there's no doubt a structural shift in the ability of farmers globally to hold on to their crops.

That doesn't mean it's a good thing for them to do that, but that's what they're doing, but it can't go on forever. We cannot keep building global inventories in corn and soybeans, eventually the crops have to come to market and will come to market.

And that is why our outlook for earnings growth really is based more on capacity utilization than anything else. The big pillar in our Agribusiness machine is global crush.

And although we've seen a delay in margins expanding here in the first quarter, capacity utilization is ticking up as we predicted it to, and convinced that within this year and then moving on into 2018 and 2019 that that trend will continue and that we will get the boost in margins, simply as we get closer to maxing out capacity.

We're not assuming that we return to the margins in grain origination and distribution than we had maybe four or five years ago. We know that part of the world has gotten more competitive and we are trying to do everything we can to adjust accordingly. Part of it is through our current initiatives around supply chain and productivity.

The next step will be what Tom alluded to, which is a major effort on SG&A, streamline how we operate and process business around Bunge, which we've been working on for a while, and we think time is now right.

But overall, we're optimistic that our Agribusiness earnings will grow, as we've outlined, but it'll be in a different way than they did historically. And then, of course, we are confident that we'll be able to grow earnings significantly in Foods over the next few years. That's a different business and one that we're building step-by-step.

It's taking a little longer than we would have liked, but it's coming along..

Okay. Perfect. Thank you for that. I will pass it along..

Our next question comes from Farha Aslam of Stephens. Please go ahead..

Hi. Good morning..

Good morning..

Just to follow on to your last answer, which was on grain origination, that margins are going to be lower than four or five years ago.

Could you share with us a little bit more color on where we should expect margins going forward versus where they were four or five years ago, perhaps around the world, because you do have grain origination around the world?.

It's a tough one to answer exactly, Farha. I don't know if I can even give you an accurate answer. But if you say order of magnitude, and don't hold me to the numbers exactly, but you want to get a feel..

Yes. That's correct..

If the average sort of first touch margin four or five years ago was $8 to $10 a ton, it's probably $3 a ton less now or maybe $4 a ton, something like that. That's the order of magnitude. But it is not scientific. This is my gut feel..

And that's around the world or particularly (34:48).

Yeah. I think that's sort of a – they're average of the U.S. and South America. I think that would be about right..

And can you reduce costs over time $3 to $4 to offset the hit?.

Yes. Yes, we can, and we have been and it will accelerate. To give you an idea, in the U.S., we're operating with higher volumes but with 20 less facilities than we had in 2013.

We've been very aggressive in taking facilities out that weren't competitive and channeling that volume into more efficient facilities and upgrading them so that they can handle the increased volume. And that's making up for some of it, but it's not enough. We need to do more..

Okay. And you always have a great handle on kind of crush margins around the world.

Could you just walk us through China, South America, Europe and the U.S., kind of where current crush margins are in soy and where we can expect them to go as we get greater availability and as we go through the north-south switch that's going to happen in the next few months?.

Right. So in South America, Argentina and Brazil are sort of rather similar, somewhere in the $20 to $25 range for the moment. We would expect that to go closer to $30 as we get into the next couple of quarters where the industry will run at capacity. In the U.S., margins have been in the high 20s, low 30s.

We would expect that to hold and then to increase to $40, $45 as we get into the fourth quarter or late third quarter. Europe is similar to South America in the mid 20s at the moment. We would expect that to expand to about $30, $35 as we get into the next couple of months.

And in China, margins have been positive in the $15 to $20, so close to covering forecast, which is a bit better than we've seen in recent years.

But with the heavy arrivals of soybeans over the next couple of months, we expect that Q2 and part of Q3 margins will be under pressure, probably go down $5 to $6 a ton, and then recover in the fourth quarter as it did last year to end up in the mid to high 20s..

That's helpful. Thank you..

Okay..

Our next question comes from David Driscoll of Citi. Please go ahead. David, your line is now open..

Yes. Sorry. I was on mute. Thank you. Good morning..

Hi, David..

Wanted to just ask a little bit about just kind of how the flow of information comes to you guys and then just a bit of a question on why the low farmer selling is so impactful to the industry right now.

Because I get this question from just so many investors, where back at the Analyst Day and then even on January, you certainly seem to have a very good positive stance on what was going to happen. And then, here we are a few months later with a very poor result relative to the history of first quarters for Bunge.

So I'm just wanting to understand – it's a tough business. I mean, I get that.

But I'd like you to explain to us a little bit on, when farmer selling is slow and you're paying up for the product in South America, why aren't you able to charge higher prices to your end customers? Why does the industry accept such low returns? And then, related to all of these, kind of why is the visibility so low? And if I could just make a final statement here.

From my point view, I don't really know what occurred that was so different, i.e., the South American crop grew, it was harvested early, much in line with expectations, the production numbers kept getting raised, but it wasn't like a shocker. So, today, on the other hand, is a shocker. You look at the numbers and they're not good.

And then, it's – what happens over the course of time that makes this business so difficult to have visibility on? And then, again, back to that farmer selling issue. Why can't you charge more, given this industry seems to be not very rational and wanting to accept such low returns? Thank you..

Well, thanks, David. That's a mouthful. I think the first part, why our margins where they are, given that we are running at high rates of utilization. We should be earning more as an industry. And I think that is a fair point and I agree with that.

What is happening at the moment – what's happened in the first quarter is that when you have to pull beans from farmers, despite the size of the crop, and you have to sort of push the product to end users who are not ready to buy anything more than the next couple of weeks because they don't see any reason to, that dynamic alone puts a squeeze on margins, as opposed to an environment where a farmer who's a willing seller and kind of pushes the beans on to the market, and an end user who is demanding the product because their margins are good.

I mean that's a good environment to have. That's just not the one we had in the first quarter, and it's because there are conflicting signals. Farmers don't like prices and end users have no reason to extend full coverage because they see there's even more coming down the pike.

So we're trapped at this time where that dynamic has overwritten – or was overriding the fundamentals of capacity utilization, which ultimately will come true. There's no question that as we ramp up the balance of the year and into next year, capacity utilization will dictate that we get better margins.

It also speaks to the fact that we're in an industry where some consolidation probably is not a bad thing and too many people trying to do the same thing. The industry is still not disciplined in a way and that's one of the reasons this is occurring.

So it's a commercial dynamic really at the moment, not a fundamental supply and demand dynamic, which is the one that we are sort of – that we are projecting our growth and income on over the next years, but it will change. (41:33).

Will you argue this – yeah. Go ahead, please..

You asked the second question about visibility. Visibility comes obviously month by month or as we see even weekly pricings or daily pricings from farmers in South America. And I do think that we made a point of sort of indicating that our Agribusiness range was likely to be at the lower end of it, as we went through the quarter.

We weren't seeing the pricing. I think that was fairly well-advertised. And if you add in the exceptional items that we highlighted in the press release, yeah, we didn't get above $150 million (42:13) for the quarter, but we got very close to it. So I think we have set expectations that this was going to be a soft quarter for exactly these reasons.

It ended up being a little bit softer, which only became clear as we finished up March. But in general, we were within the range..

Final question from me is just on your earnings power and stock buyback.

So if you believe that all of this is kind of just transitory in the first quarter, and if you believe that your earnings power in the outer years is benefited by the utilization rates, why not be an aggressive buyer of your stock at prices today because it certainly looks like it's going to open down considerably? Just like to hear you thoughts on capital allocation and just being sensitive to the stock prices for share repurchase..

Well, the share repurchases are very much a part of our capital allocation framework. And as you know, we've been active. In fact, we were last year at the same time quite active in buying back shares because the stock was under pressure. But as we've also said, I think, back in the last couple of calls, we have a few acquisitions to close on.

One, we just did with Cargill in Europe and we have the Minsa acquisition coming up here in the second quarter, and we have a commitment to maintaining a BBB credit rating. So we want to see how the next couple of months play out, but what you're saying makes absolute sense..

Thank you..

Our next question comes from Brett Wong of Piper Jaffray. Please go ahead..

Hi. Thanks for taking my questions. I wanted to ask, Soren, quickly. You mentioned some of the factors around the slow selling. Just wanted to touch on grain storage down there. It wasn't something that you brought up in your discussion.

I'm wondering if you can talk to what you think farmer storage is in the region and where inventory levels are now, and kind of timing aspects that could happen, as you mentioned, with the big corn crop coming..

Yeah. There's enough storage in the system between what is on farm and at the cooperative level and in commercial channels to accommodate the crop. I mean, that's what we are seeing. But there's a lot of unpriced commodity in the commercial system at the moment.

So what's been taken delivery off the farm and is now in the sort of the export channel or the cross channel, be it in Argentina or Brazil, a large part of it has not been priced yet. So farmers are kind of relying on commercial storage to make up for what they don't have themselves and get the crop off the fields without having to price it.

And the time is ticking on that, because that's obviously not open-ended, the market will not allow that to continue for very long. So that is one of the reasons we are fairly confident that pricing activity will increase here as we get into the last half of the second quarter.

And as you know, in our P&L, the P&L is triggered when we price, not when we receive. So, that's what we're looking for. But overall, between silo bags and the total storage system, it is not necessarily physical storage that is preventing the crops from being priced..

Okay.

And just a quick follow-up on that, what's the cost for farmers to hold with the commercial storage? And would they – what would force them to sell?.

Yeah. That depends on the market, very specific to Argentina and Brazil have very different systems and it's even different by regions. So I can't give you a clear answer to that, but the risk for our commercial no different than in the U.S.

to hold and eventually to use unpriced commodity is the carrying structure in the marketplace, and that risk has to be paid for. So somehow farmers will be charged for that. And I suspect that as they start adding that up, they'll realize that it's not a good proposition in the long run.

So I think there's going to be good incentive for farmers to step up pricing here as we get into May, June and July..

Okay. And then just wanted to touch on the long-term expectation (46:45) expectations for improved soybean crush utilization. And what we're hearing is that there's more and more co-ops that are looking to build out crush themselves.

So I'm just wondering as you guys look out over the years and you continue to see and expect this utilization across the crush assets to improve, does that factor in? And I know you are factoring in some capacity decrease, (47:09) but does that factor in kind of smaller guys bringing on capacity in and is that even meaningful?.

Yeah. It does factor in. Exactly how it turns out, only time will tell. But we are factoring in expansions by the industry, whether it's co-ops or not. But we are aware that in the U.S. in particular some co-ops have decided to expand capacity and that's been the case in the past, too.

As it looks like now, it all seems to be very rational and sort of controlled expansion. And I'm not aware of anything major from that angle in South America.

And in both cases, we are very happy to partner when those types of opportunities come up as we've done in so many occasions in the past, where you share capacity and find a way to utilize the assets better together than by everybody building their own, so to speak..

Excellent. Thanks so much, Soren..

Okay..

Our next question comes from Rob Moskow of Credit Suisse. Please go ahead..

Hi. Soren, I just had a couple of follow-ups. One was I think you mentioned that the farmers also have different financing options at their disposal than maybe they've had in the past. I wanted to know if you could clarify what you meant by that.

And then also, when you look at headlines in the papers about what happened to ADM and Bunge and others, the word global glut keeps coming up, global glut of grain. And you mentioned yourself your customers don't have any kind of sense of urgency to buy because they know there's more coming down the pike.

So, let's say, the farmers do what the farmers have to do, but isn't it possible for that the next year or two or even more that your customers will continue to behave in that manner, and it's going just impact your forward selling?.

Yeah. Well, the first thing, so, for example, in Argentina at the moment, there is cheap financing available to farmers as a result of the large inflow of capital to the country over the last three or four months. That's typically not been the case.

So that was one of the things that I mentioned that is now preventing the type of selling that you would expect in Argentina and why most commercials are running at almost negative inventories at a time when they should be building up. So that's one example.

As for the other question, what will entice a forward consumer to extend – a consumer to extend coverage, it's obviously their margins, protecting their margins, and they're good across the chain, really, whether it is in feed or food, Europe, Asia, the Americas. Those are all good margins. And there's a lot to lose if you miss it, so to speak.

I do expect that with another record crop in the U.S. in the making that global market prices will reflect this and that we will get down to levels where it is almost silly not to extend coverage, whether it is full or partial.

But reality is also that up until just recently, I don't believe that neither corn nor soybean prices have reflected this global glut that you're referring to. For some reason, markets have been very, very resilient and not reflected the buildup of stocks that is now three years into the making and with another one coming.

And I think there's a reckoning of that where prices will reflect it. And that I think will create the incentive for end users to extend their coverage, or, as we know, any kind of uncertainty that this might be over, that we have stopped the expansion in South America, which frankly I think we have at current prices.

So, at the current prices, we don't anticipate any additional acreage to come into production over the next year, and in the U.S. maybe for the next cycle, we will have a reduction in acreage as well. That combined with any kind of weather issue, whether it's in the U.S.

or in Europe or South America, I think would quickly ignite a round of forward buying like we haven't seen frankly for years because market structures were either inverted or prices were so high that it didn't make any sense. So, Robert, I mean, this can change very, very quickly.

And I think price will ultimately make it attractive for end users to extend coverage and any kind of – any hint of a disruption would create the same..

Got it. Thank you for the color..

Okay..

Our next question comes from Heather Jones of Vertical Group. Please go ahead..

Good morning. Thanks for taking my question. I had a just a real quick question. I don't know if I missed it. But if you've gave any color on what you're expecting for Agribusiness for Q2, could you repeat that? That's just a quick question I had..

Yeah. We're expecting it to look similar to last year, which was about $180 million of EBIT. And we're basing that on a modest increase in margins and a pickup in farmer selling to start to fill the gap of the year-to-date shortfall..

And, Soren, you mentioned, I mean the difference between where Q1 ended and where you're anticipating farmer selling to be at, at the end of Q2, is a pretty substantial jump and you mentioned a flurry of activity last week.

So I was wondering if you could give us an update on where it is today so we can have a better sense of how achievable those projections are, as far as the end of Q2..

Yeah. I think what Tom just said is about how we feel at the moment. But, clearly, May and June should be big months for us, and they could be really big. And if it doesn't occur in Q2, it will in Q3. I mean, we are at the cusp of all this pricing coming at us. So, right now, I think the best number that I can give you is what Tom just said.

It could be higher, I guess, it could also be lower, but I think it's a good point to have..

I think I miscommunicated. I mean, can you give us an updated sense of where the farmer selling is? So you mentioned like where is it at, yeah..

Yeah. Okay. So we expect roughly – I believe it was about 9% additional selling in April, so that would bring us up to about 50% sold in Brazil, maybe a little bit more. So we still have about 20% to price sort of to meet our projections between now and the end of the second quarter..

Okay.

And as the commercialization timeframe gets pushed out, I mean do you think we run the risk of a significant proportion being pushed to 2018, just honestly given the logistical challenges of marketing such a large bean and corn crop at the same time? I mean, as it gets pushed out, does it make it more likely that some of it gets pushed to 2018?.

Well, we've reduced the guidance for the Agribusiness because of this time effect that we don't think we can make up for the shortfall in the first quarter. So that was a reason for taking the lower end of the range down to $800 million.

But most of the – let's say, the P&L for us is more a matter of when we price rather than the volumes we actually move. So it's more about pricing, what has already been delivered into the system and pricing subsequent crops.

And as you remember last year in Q3, which is typically the quarter in which we price a lot of the next year's crop in South America, it was very, very low for us. There was a big variance in the Q3 result. So that's the type of thing that will be more important to, say, the P&L realization as the year progresses as opposed to handling more crop.

And we do expect the Agribusiness volumes to be up 7%, 8% for the year and they were up about that in the first quarter and that is all within our ability to handle. So that's not the physical part of it is not an issue.

It's really the pricing which triggers the P&L and that doesn't have to be commodity that is executed to deliver in the current year. That can be for the subsequent year. So it's really about unfreezing the liquidity from the producer, which, as I mentioned, we believe will be happening here over the next couple of months..

I'm honestly surprised of how confident you sound that it's going to be priced and you've sort of commented a few minutes ago about the market won't allow this to continue, which seems like that's what's giving you your confidence. So I was wondering if you could elaborate what you mean by the market's not going to allow this to continue..

So what I – okay, it was perhaps a wrong choice of words. What I meant was that commodities that have been delivered and not priced. There are commercial agreements as to when they have to be priced by. So it's a timing effect that is contractual. That's all I meant by that..

Okay. And you mentioned M&A earlier, and that was going to be one of my questions..

Yeah..

So, as someone else alluded to earlier in Q&A, I mean this has been going on for several years and the glut, to use a cliché, has only gotten worse.

What is your sense about the appetite for M&A? Because it seems like, clearly, the farmers have become more sophisticated, and not just in U.S., the South America, and no one talks about it that much, but in other regions as well and large customers are disintermediating.

So it seems like there's got to be some M&A at the top and with the commercial grain handlers.

And so, I was wondering if you could give us a sense of what you think that appetite is relative to, say, a year ago? I mean, is it becoming increasingly obvious that something has to happen?.

I think it is. I think to be very frank, yeah, I think consolidation, in which ever form, is becoming more obvious that it's needed at the grain handling level or global distribution. I think that is a fair point.

The way we've gone about that so far is by being very active in building regional partnership, whether it was with AMAGGI last year in Brazil, with Wilmar in Vietnam. What we're doing in Canada is in partnership. Most of what we've done in Argentina over the years has been in partnership, Paraguay. And we'll continue to pursue that.

It doesn't mean we won't look at anything bigger than that. But somehow combining, creating efficiency, synergies, findings ways to operate at higher levels of utilization and at lower cost with others in the industry is clearly a path forward that we are very interested in pushing, promoting. And we've done what we could so far..

And it sounds like you have been pushing these partnerships, but it sounds like you agree that it needs to be on a larger scale as opposed to these more regional partnerships..

It can be at any scale..

But on a global basis, don't we need it at a larger scale to match what's happened on the customer source level?.

It could be, Heather. We're certainly open to look at anything that creates value for shareholders and makes us more efficient. So there's no argument against that..

Okay. Thank you so much..

You're welcome..

Our next question comes from Vincent Andrews of Morgan Stanley. Please go ahead..

Thanks and good morning. I guess it just seems to me that there's probably too much capacity at the origination crush level, particularly in South America, because giving the farmer the optionality to hold on to his crops for so long. So I guess the question to me is fairly simple.

Why isn't there a broader restructuring led by the large scale originators and crushers to reduce that optionality for the farmer and force him to market his product on a more ratable basis? Thanks..

I think farmers are smart and they will find ways to manage themselves in a very intelligent way. So that being said, I do agree with you that there is opportunity and we have participated in a lot of that over the years, and we will continue to pursue it to consolidate and make our global systems more efficient.

I think the grain handling piece is clearly an area of opportunity, I think more so frankly that crush. Crush, I think we can see that eventually capacity utilization will dictate improvement in margins. You have to, over the next two or three years, get to margins that encourage expansion. That is clearly not the case at the current margin structure.

So that is, I think, a bit of a separate discussion, but basic grain handling, I agree with you, and global distribution for that matter. There is plenty of room to consolidate and we are happy to participate and where we can, lead it..

Okay. And can I ask you on Sugar and Fertilizer? On Sugar, you've got hedges on this year that are favorable. Can you give us a rough size of that so we can adjust our 2018 estimate to assume that those hedge benefits don't recur? And then on Fertilizer, I was surprised. I see data showing fertilizer imports up into Brazil, up about 15% or so.

I would have thought that would have helped you year-to-date. And what am I missing on that? Thanks..

Well, the Fertilizer really for us is mostly Argentina. All we really have in Brazil is barter arrangements with various fertilizer suppliers and have pull through and activity in the first quarter there was very low. And Argentina is now in the part of the year where nothing really happens.

It's all second half, third and fourth quarter, as they plant their crops. But what was the first question? Sugar. Okay, Sugar hedges..

Sugar hedges..

Yeah, right, Sugar hedges. Yes, I mean we have hedged the vast majority of our sugar production for this year at very nice levels, which, as Tom said, gives us confidence that we will reach the range that we have indicated.

At current prices for sugar and the forward curve of the Brazilian currency, plus the productivity improvements that we expect to realize through the next cycle, we think we can hold similar earnings into next year without sugar going back up to where it was.

So around the $0.17 – $0.16, $0.17 level in the nearby we should be able to replicate this year's result next year by productivity improvements..

Okay. Thank you very much. I appreciate it..

Okay..

Our next question comes from Ken Zaslow of Bank of Montreal. Please go ahead..

Hey. Good morning to everyone..

Hi, Ken..

Just summary questions, just kind of making sure, a lot of things have been asked.

But, first of all, when you're talking about your delay of earnings, does that mean that you lose it permanently or that just moves into 2018? So the actual earnings cycle, although obviously it's a fiscal year and we care about December to December, does it change the earnings cycle around when the farmer does eventually sell?.

Well, I think the cycle, if you sort of look 12 months ahead all the time, is absolutely intact, so no changes there. But the first quarter, where we realized margins in the mid-20s in crush, for example, versus our early expectations of somewhere above 30%, that you can't make up for.

So, one of the reasons why we've reduced the guidance somewhat, but 12 months ahead, we feel the same way about the earnings power of the business as we did back at the beginning of the year..

Okay. One of your largest competitor yesterday came out and said, look, our WACC needs to be taken down and therefore, our return on invested capital, but you guys have a similar goal, where it's 200 basis points above your WACC as well.

Would that change again your earnings power in any way? And how do you think about? Is there any thoughts for you to adjust your WACC and then therefore take down your overall long-term earnings guidance?.

No, not at all..

Okay. Third question. When you're thinking about SG&A and reducing SG&A, it seems like there's something going on there.

Is that a permanent step up to earnings in the future? Will that be additive? Will that be just to make up for the increased capacity? How do you think about that relative number?.

I think, short-term, it will help bridge the gap to sort of the medium term projections that we gave, give us more confidence that we can get there without the markets helping us. In the longer term, I think it's a boost to overall earnings because the circumstances, as you know, can change very quickly.

It doesn't take much for this to be a glut, to be a market where global consumers are demanding what we produce and therefore, margins adjust very, very quickly. And in that kind of environment, it would obviously be in addition to.

But I think what we feel about it is that the environment is undeniably more competitive than it has been and we have to adjust. And we have invested and thought about this for quite a while, but Tom decided time is now. And we've made adjustments to SG&A over the last couple of years. We're down quite a bit.

Actually, if you go back over the last three or four years, our SG&A has fallen steadily. A lot of that has been because of foreign exchange, but a lot of it has also been structural improvements, particularly in Brazil that we've made. But we think we can take it another step up.

And as Tom mentioned, we will explain that in more detail as the program becomes more clear and we start implementing it over the next couple of quarters..

Great. Appreciate it. Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Hayden for any closing remarks..

Nicole, thank you, and thank you, everyone, for joining us this morning. And also, we will be participating on a variety of different investor conferences in the New York City area over the next month and a half. So we expect to see and hope to see many of you there. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..