Bunge Global SA Q2 FY2020 Earnings Call

Good day, and welcome to the Bunge Limited Second Quarter 2020 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 Ruth Ann Wisener. Please go ahead.

Thank you, operator, and thank you for joining us this morning. 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 Chief Executive Officer, Greg Heckman; and Chief Financial Officer, John Neppl. I'll now turn the call over to Greg.

Thank you, Ruth Ann, and good morning everyone. Turning to slide 3, you can see the agenda for today's call. I'll start with an overview of the second quarter and then hand it over to John, who will go into more detail on our performance. I'll share how we're thinking about the second half of the year, and close with some remarks on the second quarter, and how that fits in with what we discussed during our business update last month, before opening up the line for your questions. I want to start by wishing you all well, and hope your families and colleagues are safe and healthy. This is a relentless challenge we're all facing. I'd also like to very pointedly thank our team for their hard work, resilience, and focus. Our results in the first half of 2020 are a testament to their dedication to getting the job done, and I couldn't be prouder. Last, I'd like to thank all of you who joined us for a virtual business update meeting last month. We appreciate the positive feedback we've received, and we look forward to continuing the dialogue. With that, let's turn to the quarter starting with slide 4. Bunge delivered a very strong second quarter with operations reflecting the way we intend to run the business going forward and demonstrating the benefit of our new operating model, leadership team, and mindset. Performance across all of our core businesses was excellent. Our strong execution in committed crush capacity, exceptional coordination of trade flows, and great risk management allowed us to capture above-average margins and deliver solid top and bottom line results. Across the platform, we hit record capacity utilization in crushing, reduced unplanned downtime about 20% year-over-year, and had the lowest operating quarter costs for soy crush in the last three years. We realized the benefit from the risk management decisions we made in the first half of the year and we earned new business with our focus on innovation and a collaborative approach with customers. We generated strong free cash flow while still being disciplined with capital allocation and continued to execute on our key priorities, including refining the portfolio and gaining momentum on reducing costs. Agribusiness had outstanding performance this quarter with improved performance in essentially every part of the business. In oilseed, as we expected prior period timing losses were reversed as gains. Average global replacement soy crush margins across the quarter were $27. But because of our active risk management and effective use of working capital to capture market opportunities, we were able to execute at an average of $40 per metric ton. In grains, performance in Brazil was exceptional as we benefited from increased farmer selling as local prices increased with the devaluation of the Brazilian real. Food & Ingredients continues to gain traction and demonstrated our nimbleness and flexibility in the current environment. Even as food service demand fell off as a result of lockdowns around the world, our growing strength with CPG food processors and renewable diesel producers, including new customer wins in those areas, offset the COVID-related impacts in foodservice. As COVID continues to present challenges for our customers, they are increasingly turning to Bunge because the resilience of our value chain model can provide innovative solutions that will continue to benefit our relationships going forward. With the backdrop of great commercial execution, we continue to focus on optimizing our portfolio and recently entered into an agreement to sell the asset to the small non-core food business in Brazil that produces tomato sauces. We've also officially closed our White Plains office and are well-adjusted to our St. Louis headquarters and interim remote working situation. In short, we're very pleased with the results this quarter, and very pleased with our overall momentum. Given the strong Q2, our outlook for the full year is now higher. I'll now turn it over to John, who'll walk you through the financials and some of the puts and takes related to our outlook.

Thanks, Greg, and good morning, everyone. You may have noticed that we updated the format of our earnings press release. We did this for a couple of reasons; one, we wanted to more clearly differentiate our core businesses from our non-core businesses; and secondly, we wanted to provide a cleaner format for detailing individual segment performance. We hope you find these changes beneficial. Now, let's turn to the earnings highlights on slide 5. Our reported second quarter earnings per share was $3.47 compared to $1.43 in the second quarter of 2019. Adjusted EPS was $3.88 in the second quarter versus $1.52 in the prior year. Our results include a net $0.41 charge, primarily related to a provision against an aged receivable dating back to 2015 that is now deemed uncollectible as part of an anticipated legal settlement. Adjusted core segment earnings before interest and taxes or EBIT was $943 million in the second quarter adjusted EBIT of $287 million in the prior year, primarily driven by results in Agribusiness where EBIT was $843 million compared to $211 million last year. As Greg noted, higher Agribusiness results in the quarter reflected strong execution throughout the value chains, particularly in managing risk, committed crush capacity, and global trade flows. Results also benefited from approximately $380 million of timing differences related to expected Q1 reversals and new mark-to-market gains. In Oilseeds, strong soy processing results were driven by higher margins in South America, Europe, and Asia, largely reflecting the actions we took in the first quarter to lock in capacity. This was partially offset by lower margins in North America. China soy processing results were higher in all regions. You may recall we carried into the second quarter a mark-to-market balance of approximately $295 million of previously reported timing losses related to open forward oilseed processing contracts and hedges against sales to our downstream edible oils customers. As anticipated, approximately $155 million of these timing losses reversed in the second quarter upon executing a portion of these contracts. In addition, as a result of a decrease in global crush margins and the recovery in vegetable oil prices during the quarter, we recorded new mark-to-market gains of approximately $145 million on open contracts at the end of the quarter. This reduced our carryforward balance on open oilseed contracts to a net gain of less than $10 million which will reverse in the coming quarters. Results in grains improved driven by most areas of the business. Origination benefited from increased farmer selling in Brazil with the rise in local prices caused by the devaluation of the Brazilian real. North America origination also showed improvement compared to a challenging year ago period. Higher results in trading and distribution were driven by improved margins and favorable positioning. Ocean Freight also had a strong quarter driven by excellent execution, as well as approximately $75 million of gains from the reversal of mark-to-market timing primarily related to bunker fuel hedges that negatively impacted the first quarter. In Edible Oils, we observed a steep drop in foodservice and biofuel demand due to COVID-19-related restrictions at the beginning of the second quarter as discussed on our first quarter earnings call. However, as the quarter developed, refinery margins improved, driven by increased demand from food processors and retail channels, along with partial recovery in biofuel demand. This margin improvement combined with growth in new customers, as well as lower costs resulted in higher earnings in all regions. In Milling, higher results in Brazil, primarily driven by increased food processor and consumer demand, as well as decreased costs, more than offset lower results in North America, which were negatively impacted by business mix. In Fertilizer, higher segment results reflect improved performance in our Argentine operation which benefited from higher margins and volumes as farmers accelerated purchases in anticipation of higher local prices. In Corporate and Other, total adjusted segment EBIT included expenses of $56 million from corporate and income of $2 million from Bunge ventures and other. This compared to expenses of $60 million from corporate and a gain of $146 million from Bunge ventures and other for the prior year period primarily reflecting our investment in Beyond Meat. In our non-core segment, Sugar & Bioenergy results for this quarter which are non-cash reflect our share of the results of the 50-50 joint venture with BP. By contrast, second quarter 2019 reflected our 100% ownership of the Brazilian Sugar & Bioenergy operations that we contributed to the joint venture in December 2019. Additionally, results of the joint venture are reported on a one-month lag. Lower results in the quarter were primarily driven by approximately $70 million of foreign exchange translation losses on U.S. dollar-denominated debt of the joint venture due to depreciation of the Brazilian real. Also contributing to the decline in earnings were lower Brazilian ethanol prices, driven by the drop in global oil prices. For the quarter ended June 30, 2020, income tax expense was $168 million. Net interest expense of $56 million was in line with our expectations. Let's turn to slide six. This slide compares our Q2 SG&A to the prior year. Adjusted SG&A excludes notable items. For Q2, our adjusted SG&A was $28 million lower than last year, of which $20 million reflects our organizational redesign actions and increased focus on managing costs. The additional $8 million reflects the net impact of such items as inflation, foreign currency fluctuations, changes in our perimeter, and performance-based compensation, essentially adjustments to enable an apples-to-apples assessment of our actions to manage costs. We recognize a portion of our savings is due to COVID-19-related restrictions such as reduced travel some of which may be a temporary impact. However, we strongly believe we won't return to pre-pandemic levels as we have all learned to operate differently. Moving to slide seven, cash flow highlights. For the trailing 12-month period, our cash generation was strong at $1.3 billion of adjusted funds from operations. The cash flow generation enabled us to comfortably fund our CapEx and dividend and to meaningfully reduce debt. As you can see on slide eight, we continue to strengthen our balance sheet. At the end of the second quarter, nearly 85% of our debt was used to finance readily marketable inventories compared to about 70% for the same time a year ago. Turning to slide nine. We have committed credit facilities of approximately $4.3 billion with $3.6 billion available at the end of the quarter, and we had a cash balance of $277 million. Moving to slide 10 and our summary of capital allocation. Year-to-date adjusted funds from operations was $817 million after allocating $85 million to sustaining CapEx which includes maintenance environmental health and safety and $17 million to preferred dividends. We had $715 million of discretionary cash flow available. Of this amount, we paid $142 million in common dividends to shareholders, invested $42 million in growth and productivity CapEx and bought back $100 million of our stock. The retained cash flow of $431 million was used to pay down debt. Please turn to slide 11. On our business update last month, we introduced two complementary return metrics that we believe better reflect the performance of our business. One of those metrics was AROIC which recognizes merchandising RMI as a tool to generate incremental profit. For the trailing 12 months AROIC was 11.7%, 5.1 percentage points over our RMI adjusted weighted average cost of capital of 6.6%. ROIC was 9.6%, 3.6 percentage points over our weighted average cost of capital of 6%. Detailed calculations of these metrics are in the appendix of this presentation. Moving to slide 12. The second complementary metric we introduced was cash flow yield which is a ratio of discretionary cash flow to the adjusted book equity. This measure emphasizes cash generation and complements earnings and return metrics. Here you can see cash flow yield over the past five years as well as for the trailing 12-months ending Q2 measured against our cost of equity of 7%. For the trailing 12-month period ending June 30, after adjusting the book value for CTA changes, we produced a cash flow yield of just over 19%. Please turn to slide 13 and our 2020 outlook. As Greg mentioned in his remarks, we are increasing our 2020 EPS outlook based on our stronger-than-expected second quarter. In Agribusiness, based on first half results, the current market environment, and forward curves, we expect our full-year results to be approximately $100 million higher than last year's results and the second half results weighted toward the fourth quarter. In Edible Oils, we expect modest improvement compared to our previous outlook. Despite a stronger-than-expected second quarter, the business will likely continue to face headwinds from COVID-19 in the second half. Expected results in milling continue to be in line with last year. We also expect an adjusted annual effective tax rate in the upper end of the 19% to 23% range. Net interest expense of approximately $230 million and capital expenditures in the range of $375 million to $400 million and depreciation and amortization of approximately $400 million. The outlook of the Sugar & Bioenergy joint venture has declined from the previous forecast to reflect the impact of foreign exchange volatility in the first half of the year. With that I'll turn things back over to Greg for some closing comments.

Thanks, John. As we wrap up, it's clear that we're managing the business to maximize economic results and value creation for the long-term, not any one calendar quarter. Accounting requirements can create timing differences that smooth out over time. The mark-to-market losses we recorded in the first quarter that reversed this quarter as expected are a good example of this. During our business update meeting last month, we forecasted a strong second quarter which ended up being even stronger than expected. We highlighted our new leadership team and our new approach to risk management, and you can see our execution this quarter. We emphasized that progress is our key priority of improving financial discipline, optimizing our portfolio, and changing our operating model to drive excellent performance. We've continued to execute on each of those areas. We stress greater transparency and accountability, and you're seeing that in our reporting today. And finally, we told you that we're taking actions that have set us up to get to an earnings baseline of $5 per share with additional upside. While there's more work to be done, we're moving in the right direction, we're operating better than we have in many years, and we're making progress every day. And with that, we'll open the line for your questions.

Thank you. Our first question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you, and good morning, everyone.

Good morning.

So, I just want to understand a little bit better the results in the first half versus what's going to happen in the second half. And I think what's happened is that everything that happened in the first quarter has now reversed in the second quarter, and you carry very little into the back half of the year. So, obviously, very strong execution, because you said you realized $40 a ton versus, I guess, the spot of the market, however you want to phrase it, would have been at $27. So, whatever I thought you were going to reverse in the second half of the year has already happened, so I got to take that out and now I just have to consider what I think or what the market looks like in terms of what crush margins are all else equal. Is that correct?

Yes. I think that's a good assessment.

Okay. Regarding farmers selling in Brazil, you mentioned some impressive comments about the record past utilization rate and the lowest quarterly operating cost for soy crush. How much of that is due to the pace at which Brazilian farmers are selling, which enables you to operate under those conditions, compared to the effective operations you have been managing regardless of farmers' actions?

Well, I think it's both. No doubt the team did a great job of being in position to take advantage of the opportunities that we saw, whether it was the farmer selling, driven by the action in the Brazilian real in Brazil, and which not only helped drive the strong exports there, but our crush utilization. But also, even in the U.S., where we saw the opportunity with margins where we were able to run hard to delay some maintenance, and of course improved on unscheduled downtime to go ahead and capture those margins while they were there. So, definitely a combination of environment, but definitely the team executing very well in this environment.

Okay. Thank you very much. I’ll pass it on.

Thank you.

Our next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

Good morning, Adam.

So, maybe first just continuing kind of, on Vincent's point on second half expectations, and maybe I would love to get your reflection on what the state of soy and softseed crush margins are today around the world. I mean the margins that we see have come down pretty notably from where they had been earlier in the year, and just get your thoughts and positioning around that, and I guess maybe opportunities to exceed that kind of visible crush kind of margin with some of the origination and sourcing activities that you have and the leverage you have in the network.

Current crush replacement margins in the U.S. are around the mid-20s, mid- to high-single-digits in Brazil, and low-single-digits in Argentina. Europe and China are also in the mid-20s. Recently, we have observed a slight improvement in the curve. We typically have more visibility into Q3 than Q4, which is not uncommon. Key factors to monitor regarding the crush include strong exports driven by farmer sales in Brazil, robust exports to China, and an increase in Chinese purchases from the U.S. The critical aspect will be the continuation of this pace alongside the crop development in the U.S., which shows a significant corn yield and a promising soybean yield. Ultimately, how farmers decide to market these crops will be crucial as we progress through the second half of the year.

Okay. That's very helpful. Just to clarify the revised outlook, you're now expecting Agribusiness to rise by about $100 million year-on-year. This represents an increase of approximately $150 million compared to what was projected in the first quarter in late April. You also raised the Edible Oils outlook. How much is sugar expected to decline from the previous outlook? Am I correctly summarizing those aspects?

Regarding Edible Oils, I would say that despite having a slightly better second quarter than we anticipated, our overall projection for the year has been adjusted downward a bit compared to where we stood in April. As for Sugar, I would estimate an impact of around $30 million on our profit and loss statement since April. It's important to note that this reflects a non-cash accounting of our investment in the underlying joint venture.

Okay. That's helpful. And just to clarify in terms of the hedge, I mean services around the hedging on the JV level debt. Are you able to execute hedges to eliminate that FX translation impact going forward?

Yes. So the JV has been working on hedging that. And at the end of June, they had $150 million of it hedged. Their target is to hedge half the $700 million to get to $350 million. For us because the debt is non-recourse to us, it would have been a case of us putting a hedge on just to impact reported earnings which then affect just basically FX position. We manage our exposure to the real at a much broader level for the company rather than on any specific individual exposure. And while that's a reported earnings impact from a cash standpoint, it doesn't really impact us. So, we made the decision not to do anything on our books because we look at it more globally from a real standpoint, but they are making progress in terms of getting that covered.

All right. I appreciate the color. Excellent, thank you.

The next question comes from Tom Simonitsch with JPMorgan. Please go ahead.

Thank you and good morning. Sorry, if I missed this but can you clarify the 2020 EPS guidance? I think you'd originally guided to around $3.70 at the start of the year and lowered it directionally last quarter. So, if you could just frame your guidance in a range or relative to that initial $3.70 guide that would be very helpful?

Yes. So if you look at kind of where we were coming into the quarter here, I think average consensus was $2.83 somewhere in that range. And the way we look at it probably the biggest delta in our forecast now is $100 million I mentioned in Agribusiness. And the rest of it kind of all offsets, net to close to zero. So, if you think about $100 million from an EPS standpoint that's around $0.55 roughly. And so that's kind of how we're thinking about it right now.

Sorry. $0.55 above current consensus?

Yes. The upside in Agribusiness is around $100 million, which translates to approximately $0.55.

Okay. And then just on the Edible Oils, I think your EBIT of $51 million was about double what you had guided for Q2. So can you just help us reconcile the outperformance in the quarter with the comments that COVID-19 headwinds are likely to linger?

Yes. The main factor we observed was in the U.S. foodservice sector, particularly in quick-service restaurants (QSR). In April, we experienced a decline of about 40%. However, during the remainder of the quarter, we witnessed a significant recovery. While some of this was likely due to filling the pipeline, levels reached were comparable to the previous year. Now that growth has leveled off, we believe it has stabilized between the shift of some business to retail or consumer packaged goods and the foodservice sector, where some closures were likely around 15%. We anticipate demand will fluctuate as more establishments open and close while we navigate through COVID for the rest of the year.

That’s helpful. Thank you. I'll pass it on.

Our next question comes from Ben Bienvenu with Stephens Inc. Please go ahead.

Thanks. Good morning everyone. I wanted to revisit origination for the back half of the year and 4Q in particular. Greg, you know that's going to be kind of the key factor as it relates to the performance for the balance of the year. But just as we sit here today, you've already seen some renewed buying from China for U.S. soybeans. Brazil's soybean balance sheet is pretty tight with their strong exports. There's some corn crop issues in China and we've seen their prices move higher as they've also sold through reserves. So just curious, recognizing there's variability, both in how the crop fares in the U.S. through the balance of the year and inherent volatility in that business, how optimistic are you about origination for your business in the back half of the year?

We are certainly hopeful about the overall situation. Some of the third quarter activity has been moved to the second quarter in South America. However, in the U.S., we are seeing strong port margins thanks to the developing programs. What you need to consider is how purchasing for the program continues for the remainder of the year regarding exports from the U.S. compared to how farmers are commercializing what is expected to be a substantial crop.

Okay. Great. On portfolio optimization, you noted a small sale of a tomato sauce business. I believe you guys were in process on selling another large asset. I think last update you had given COVID wasn't a huge disruptor to the progress of the discussions and broader portfolio optimization discussions. But I think there had been a little bit of a slowdown. Kind of where are we in all of that? And how are those discussions going broadly?

Yes, Ben, I’ll take that. Regarding some of our ongoing projects, I’ll first give you a brief overview of what we’ve mentioned before. Our merger in Brazil concerning the mayo business, which we announced earlier, is still in progress and under regulatory review in Brazil, but we believe we will close this deal within the year. We’ve also mentioned the sale of our U.S. grain assets, which we anticipate will close around late Q4 or Q1, and we remain confident in that timeline. Additionally, we have another project that has been somewhat affected by COVID, but it is progressing, albeit slowly, based on the pace we can maintain with our counterparty. Overall, we are optimistic about the progress of these initiatives. Regarding the Imcopa announcement, it is moving forward as well; although it may have slowed a bit from a regulatory and timing perspective, we still feel good about its trajectory.

Great. Good luck with the half.

Thank you.

Thank you.

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

Hey. Good morning, everyone.

Good morning, Ken.

Good morning, Ken.

Just a couple of questions. One is can you talk about the new business that you earned and what does that entail? You said that in the opening remarks. Can you just talk about that?

Yes. I think what we've really seen is there continues to be a little bit of magic in the specialty fats and oils at Loders that we added into the legacy Bunge portfolio of our commodity oils and then our global footprint. So what we've been able to do is help people solve their problems whether it's the switchover in the product mix we saw as people went from eating away from home to eating at home to where they were making it and using our global platform to help them solve problems that they understand long-term that the power of Bunge and our ability to move and be nimble and our new operating model definitely supported that. That gets us in a less transactional and more partnership relationship with folks and not on single product, but on the portfolio of products and services we're able to bring. So we definitely like the progress that we're making and it's the right kind of growth with the right customers.

Okay. The second question is about the outlook for crush margins. The U.S. crush margin is improving. Can you explain why you think this is happening and how sustainable it is? Additionally, China and Europe also appear to be performing strongly. Can you discuss what is driving this? It seems that China is changing as they expand their hog herd. Does this lead to the conclusion that Chinese crush margins are a precursor for global trends?

Yes. Let me address meal first and then oil. One of the main factors driving meal demand has been the imports of protein into China, which have boosted demand in exporting countries. Additionally, China's recovery in hog sales has been surprisingly swift, leading to a quicker rebound in meal demand than expected. In the U.S., historically high numbers of chickens and hogs have positively impacted demand, and these figures have not decreased as rapidly as many anticipated. On the oil side, we've seen a quicker recovery in demand than expected, particularly in the U.S., driven by both food needs and renewable diesel. We continue to experience strong demand and anticipate positive trends not only in the second half of 2020 but also into 2021 for renewable diesel. However, biodiesel in Europe has been recovering more slowly, and we will keep an eye on that.

Great. I really appreciate it. Thank you, guys.

Thank you, Ken.

Our next question comes from Heather Jones with Heather Jones Research. Please go ahead.

Good morning.

Good morning, Heather. First, I want to thank you for the new layout on the press release. I really like it. It's made things a lot more helpful and clearer. Just a quick question about the details. When you discussed your full year outlook for sugar, the real has appreciated significantly since the end of May, which I believe is the end of Q2 for sugar. When you refer to your full year outlook, are you assuming there's no appreciation in the real from Q2 or are you using the current rate? Yes. Heather, this is John. We finalized the forecast about a week ago and considered some factors. However, we don't anticipate any significant changes moving forward. It's important to note that the reporting period ends in May for our June 30 figures, so any changes from May to the end of June will show up in Q3. Additionally, any developments through August will be reflected in our September numbers. We don't have strong assumptions in either direction regarding future trends, but these factors will certainly affect our outlook going forward.

Thank you. I wanted to ask about meal demand. Greg, you mentioned that hog and chicken numbers have remained stable. However, we understand that many hog producers have reduced their feed to maintenance levels. Recently, it seems that the inclusion rate for soybean meal has reached a low point and is beginning to increase again. Does what you are observing align with that?

And then of course in China, we've not only seen the animal numbers, but the inclusion rates in China that we have seen is driving the demand there. And then of course there was less DDGs, as the ethanol industry was not running as well. So I think that's where we saw some of the inclusion rate, just from a protein side.

In China, it appears that the demand growth is exceeding the increase in the number of animals. Would you attribute this to the larger commercial operations being the ones adding the hogs, which typically have higher inclusion rates, or is there something else I might be overlooking?

No. What we're observing is that the inclusion rate is primarily due to the return of professional commercial operations, which is why it has increased so rapidly.

Okay. And my final question is on you mentioned, strong U.S. pork elevation margins. I mean, our numbers are showing, very strong much, stronger than last year, in both beans and corn. Is that consistent with your observation, as far as the year-on-year strength?

Yeah. We agree.

Okay. All right. Thank you so much.

Thank you.

Our next question comes from Ben Theurer with Barclays. Please go ahead.

Hey good morning. Greg, John, and thanks for taking my question. Congrats on the strong results. I wanted to quickly follow-up on the foodservice piece. And you've mentioned that, basically it was very much under pressure in April and then, partially with filling rates going higher into May and June. What have you been seeing within July in terms of the pace of demand on foodservice? And how do you think this is going to turn out? Just to understand a little bit, how much maybe was just anticipated? And now weakness into 3Q versus, how the underlying business is actually doing. That will be my first question.

Yes. It feels to us like it's settling out down about 15%. And of course, that's kind of wavy as things open and close and there's still pipeline filling and then working off. But I think down 15% is what our team feels.

Okay. And if we think about it, I mean in the medium long-term. And what's been showing within the Agribusiness piece. And I mean clearly, it was an outstanding quarter. And you've mentioned all the benefits from the mark-to-market. But if we look into it with what likely the crop is going to be in the U.S. and what Brazil and Argentina is doing as well, how do you think more of the medium-long-term level of profitability? And where do you see margins going? Do you really think we're going to be next year at that roughly mid-$30 crush margin level, as you've highlighted about a month ago, or do you think it's still too early to get there?

Yeah. Look, the curves will continue to change. The outlook we're giving you today is on the curves that we can see. And then of course in the business update, the number we spoke to was a baseline to deliver that $5 earnings so that, based on what you believe the market is doing you can adjust against that baseline. We were making a prediction for crush margins for 2021 there.

Okay. Thank you. Okay perfect. Thank you very much. I'll pass it on.

You bet. Thank you.

Our next question comes from Robert Moskow with Credit Suisse. Please go ahead.

Hi. Thanks for the question. I might be just doing my model incorrectly here. But if I start at that, I think you said $2.80 base. And add the $100 million to that, I'm getting according to your math something around $3.40 for the year. But my model is spitting out a much higher number. Maybe we're using the wrong base. Or maybe I'm misunderstanding that the communication on sugar here. So can I start there? Are you expecting sugar to operate at a loss in the back half of the year?

Despite any currency fluctuations, our expectation is that there should be a small contribution from sugar in the second half, potentially flat to zero. We do not anticipate underlying operational losses to persist in the second half, based on our current insights. Ultimately, this will depend on the exchange rate and how it affects the reported numbers from the debt.

Okay. Well then maybe I'll just try the math here. Year-to-date your adjusted EPS is up like $2.50 I think. It is $2.50. And now you're expecting the back half to look similar to the back half of last year, I think if you kind of net all that out. Doesn't that get you a much higher number like closer to $5?

Yes. No, we're not calling the second half consistent with last year's second half. Maybe, there was some confusion there.

But Agribusiness is up $100 million compared to the second half of last year. Is that right?

No. That's for the full year. We're looking at the strong performance in the first half and then evaluating the second half. For the entire year, we're estimating an increase of $100 million.

Okay. There is the last question. Thank you very much.

You bet. No problem, Rob. Thanks.

Our next question comes from Ben Kallo with Baird. Please go ahead.

Hey, guys. Thank you for all the clarity. Maybe just on the cash flow yield and maybe what the use of proceeds, I think, I asked this in June. But what's the plan for the share repurchase? And then could you just talk to us about RMI and remind me how that changes in the second half of the year too? So should we see the uptick there? It looked like there was in the quarter. Thank you.

Sure. I'll start with cash flow yield. In the first half of the year, we generated $432 million in net cash after all allocations. Capital expenditures were slightly below expectations due to COVID-related delays in project completions, but we anticipate some increase in spending during the second half. Our normal dividends will continue as planned for this period. Regarding stock buybacks in the first half, we assessed the risk-adjusted returns and the stock's trading position alongside our project pipeline, feeling it was an opportune time to participate in the market. We'll keep monitoring this. While we expect earnings to be modest in the second half compared to the first, we anticipate capital expenditures will increase as well. Additionally, we recently announced a $65 million contribution to our pension plan to leverage tax benefits, which will have a slight impact on cash flow in the latter half of the year. In terms of RMI, it is quite seasonal. Our growth in the second quarter was bolstered by strong origination in South America, exceeding our usual pace concerning farmers selling and crop acquisition, so we feel optimistic about our position there. In Q4, we expect significant growth in RMI due to the North American harvest, and we'll manage our investments in this area carefully to ensure we achieve good returns.

And maybe just coming back to, I think, what was kind of the thread that ran through everyone's questions before me is that we're trying to square away the second half numbers to the outperformance here in Q2. And my math is not good either. But it looks like that I'm getting to like a $0.90 EPS for the second half total. I know you don't want to go to that granularity, but why do we expect a big drop-off? I know there was a big mark-to-market here in Q2. But why should we expect a big drop-off in earnings, when it seems your commentary doesn't flesh out with that? And yes, maybe I'll just leave it there.

We are currently assessing the projections for the second half of the year, which can change rapidly, as we experienced last year in the fourth quarter. We are navigating unprecedented challenges, including the ongoing trade war and the impact of COVID-19. However, we are approaching these challenges with a revitalized Bunge, featuring a new team and an updated operating model. Based on the opportunities we are observing, we believe we will capture a significant portion of the market. While some business in Brazil was advanced into the second quarter from the second half, we are anticipating substantial crop yields in the United States. We will monitor how the farmer markets respond and how China progresses with their trade commitments. Recently, China has been very proactive. The oil market appears to be tightening, which is encouraging, and any improvement in COVID-19 conditions would positively impact our outlook. Argentina remains a difficult environment for all companies operating there, as farmers are hesitant to market their products due to financial concerns and industry struggles. Consequently, many customers are currently making spot purchases, which limits our visibility. Nonetheless, we are confident in our ability to adapt and are well-prepared with the right team to seize opportunities as they arise.

All right. Thanks all.

You bet. Thank you.

Our next question is a follow-up from Ken Zaslow with Bank of Montreal. Please go ahead.

Hey. Appreciate the follow-up. Can you tell us a little bit about the operational efficiencies? You said that you had record utilizations, lower cost structure. Can you talk about what the parameters were say a year or two ago, where they are now and what is the key driver to the improvement of these metrics?

Well, I think the operating model has been a key driver, Ken. We talked about unscheduled downtime. And that's one having the assets up and ready to run, but it's also how the industrial and the commercial teams are working together on getting the inputs there, getting the products away to make sure that those plants stay up and run. And then of course, the first step before that is making sure that we get the customer business done and that's whether it's the customer selling the beans on the origination side and the customer buying the meal and oil, so that we've managed those earnings at risk. We've locked them in and we're able to run our facilities full. And that's where the capacity utilization is coming from as well as, as I said, the team staying in step and making sure that we keep those facilities running. So it's been great coordination. We're looking at it as a global business, so we're able to move much faster as we move business around. And frankly, we've been able to help customers solve some of their problems and that's meant extra business for us as well. And then the other thing we talked about is we're now scheduling the business as a global company and being thoughtful about when we're taking our scheduled downtimes to again get the capacity utilization and make sure we're running where the margins are best.

I want to add that we are primarily focusing on SG&A and also on industrial costs. The team is making good progress in these areas. Although some improvements may not be immediately apparent in the margin numbers, despite having incurred some additional costs in the second quarter due to COVID, we feel optimistic about our cost management moving forward. It will take time, but the team is making significant strides in this regard.

So is it fair to say that the way you're moving the business between the risk management and the operations again absent where the crush margin is, but towards that $5 number, everything that's in your control is still working that way. There hasn't been any put backs or anything like that. It seems like the path continues to move towards that direction. Is that a fair way of saying it given like these little milestones that you're kind of giving us?

Absolutely. We continue to be really pleased with the transformation. We're ahead of our own schedule in several areas and on schedule in the others and all that in the midst of COVID. So couldn't be more pleased with the team the ability to execute for customers in a really challenging environment, but also continue to stay focused on the transformation. Now look, we've still got more to do. There's more self-help to come where there's more cost to get out as we finish the portfolio rationalization here at the end of the year, and as we finish our rewiring, but we're on track. We know what we're doing and we got the right team doing it. We feel real good about things.

Great. Thank you very much.

Thank you, Ken.

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

Thanks for joining us today. And if you have any questions, please feel free to reach out to us.

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