Bunge Global SA (BG) 2015 Q2 法說會逐字稿

Welcome to the Q2 2015 Bunge earnings conference call. My name is Vanessa and I'll be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Mr. Mark Haden. Mr. Haden, you may begin.

Thank you, Vanessa, 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 Presentation.

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

I would 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 Drew Burke, Chief Financial Officer. I will now turn the call over to Soren.

Thank you, Mark, and good morning to everybody.

The second quarter was disappointing. And while we anticipated and communicated weakness, the actual EBIT was lower than we expected. Strong headwinds in our softseed crush and our Brazil foods businesses, as well as end of the quarter price volatility that led to temporary loss in grain positions, were the primary contributors to the lower results. Approximate EBIT variances compared to last year include $90 million lower in softseed crush, $45 million lower in Brazil edible oils and milling, $50 million in oilseed distribution and $50 million from temporary grain position losses mentioned earlier. These grain losses have since been recovered during July.

While the second quarter was tough, our year-to-date results and returns are better than 2014 and we expect 2015 to be a year of growth in both. Full year Agribusiness EBIT should exceed $1 billion. Food will be somewhat lower than last year, but supported by ongoing improvements to our operations. Sugar & Bioenergy will be EBIT and cash flow positive, and overall Agri-Foods returns will be approximately 10%, well above our WACC. And we are committed to reaching our 2017 EPS target of $8.50 a share.

Let me provide a little more detail on the market and our results, starting with the challenges, which spread across several parts of our business. In Agribusiness, sharply lower energy prices, poor bio-diesel economics and farmer retention led to margin contraction in the softseed complex. Grain origination margins from the [fob] and the US were sharply lower than last year. Argentine origination was constrained by strikes and farmer retention early in the quarter, and Black Sea origination was quiet. Oilseed distribution and trading margins were under pressure, and grain distribution trading positions were impacted as wheat futures spiked during the last days of the month.

In Food & Ingredients, we felt the full impact of the recessionary conditions in Brazil. Economic conditions have led consumers to reduce purchases and in many cases trade down in value. B2B customers have reduced inventories and re-priced products in order not to lose market share. The end results in edible oils was an approximate reduction of 15% in volume and a margin contraction of 20%, in addition to currency translation effects. Milling results in Brazil experienced similar volume reductions, but we managed to keep steady margins in local currency. The headwinds were strong, but mostly temporary. While we expect the challenging season in canola processing and continued softness in the Brazilian food and ingredients market, we have already recovered the Q2 distribution and trading losses in Agribusiness and many parts of our business will benefit from favorable conditions and macro trends.

Looking at our key markets, we see many positive signs. New crop sunseed margins are looking better with larger crops across most of the Europe and the Black Sea. Soy crush results have been in line with expectations, with a recovery in China offset by reductions in South America and the Europe. And we expect the value of our soy crush capacity for the balance of the year to be at or above last year's levels. Demand for soy mill was strong in the US and Brazil, and world soy mill trading consumption is forecast to expand 3% to 5%.

After a slow start, farmer selling in Brazil is at its historical place and we expect continuous brisk pricing of new crop beans and corn on any price or currency rally. Large crops and strong export programs from both the Black Sea and North America and a generally undersold producer should support grain origination and trading in the second half of the year. And in North America we expect solid growth in our refined and packaged oil business, benefiting from ongoing cost and supply chain improvements. And in Mexico we expect a good second half in milling volumes. Given the competitive and economic pressures in several of our markets, we are intensifying our focus on programs to improve operational efficiency. They are well underway and making a meaningful difference, and the rate of impact will increase as we move forward. The programs have yielded $50 million year to date, and here are some examples.

In Brazil Foods & Ingredients, we are improving our supply chain costs thoughtfully to increase focus on OEE, supply chain planning, and reduction in logistics cost. In North America, we are consolidating Food & Ingredients volumes as a result of operational improvements with our freed-up capacity. In Agribusiness, we are bringing our crushing plants to new levels of yield and energy efficiency. And in logistics, we have reduced execution costs to the lowest level in years. Our SG&A, while benefiting from weaker currency, continues to fall as this year of gross profit, and we are very conscious about building scale from our current structure.

The Sugar & Bioenergy segment saw record quarterly crops of 7.3 million tons, but with slightly lower income from trading and distribution. We continue to drive improvements across all mills in agriculture and explore strategic alternatives. We have all our sugar hedged and we are comfortable with the ethanol price picture for the remainder of the year, which should lead to both positive EBIT and cash flow, with results skewed towards the fourth quarter.

In summary, while the second quarter results was a disappointment we are convinced of a full year of growth in both earnings and returns. The foundation of our business is strong and our optimism for significantly better results in the second half of the year is well-founded. And overall, Bunge is a stronger company and better positioned to weather challenges due to the improvements we have made to our operations. Our strong four-quarter trailing returns reflect these changes. There is more work to be done, but the path is clear and our goals unchanged.

I will now turn it over to Drew, who will provide some additional detail in the quarter and our outlook.

Good morning.

Let's turn to page 4 and the earnings highlights. Our total second quarter adjusted EBIT was $152 million, compared to a strong prior year result of $418 million. On a six-month basis, adjusted EBIT was $525 million and higher than the prior year's $493 million. Our earnings per share on a fully diluted and adjusted basis was $0.51 in the second quarter versus $1.76 in the prior year. On a year-to-date basis, our fully diluted and adjusted EPS is higher than the prior year at $2.12 versus $1.67 in 2014.

Agribusiness adjusted EBIT in the second quarter was $134 million and below the prior year result of $311 million. The primary shortfall was in oilseeds due to weak performance in our softseed crushing business and our distribution business. Soy crushing results were in line with the prior year. Both Canadian and European softseed results were well below prior year, reflecting high seed costs and lower vegetable oil demand. Canadian margins were significantly weaker than prior year. Both margins and volumes were lower this year than last in our trading and distribution business, primarily in the Middle East and Asia. Soy crush results were in line with prior year, as improvement in our Asian business offset declines in Europe and South America. United States results were slightly higher than prior year. Volumes increased from prior year led by our United States and Asian businesses.

Our grains business second quarter EBIT was $71 million versus $82 million in the prior year. Our volumes were down 10% from prior year, reflecting lower origination volumes in North America, in Argentina, and reduced export volumes as margin opportunities were less attractive. Grain origination results were slightly below prior year as an increase in Brazil driven by strong farmer selling late in the quarter was offset by reductions in the United States and Argentina. Distribution results were below prior year due to lower volumes in margins. As Soren mentioned, they were also impacted by mark-to-market charges on our grain positions due to the high volatility of commodity prices at quarter end. Prices corrected in early July and these positions recovered.

Our food business reported EBIT of $29 million versus $90 million in the prior year. The major portion of the decline was in Brazil, where deteriorating economic conditions impacted consumer consumption levels and buying patterns led to reduction in both volumes and margins. The decline was primarily strong in our edible oils business. Results in our US corn milling business were below with strong prior year, primarily due to reduce demand from the cereal and brewing industries.

Our profit improvement and cost savings programs continue to make progress. We have announced the closure of the United States edible oils facility. We will move the volumes previously supplied by that plant to other Bunge facilities, resulting in more effective capacity utilization and lower cost. Our Brazilian team has been quickly adapting the business model and cost structure to mitigate the effects of the current situation and building a stronger basis for future growth. Our sugar business reported an EBIT loss of $12 million versus a profit of $6 million in the prior year. Our sugar industrial business was near breakeven, and most importantly continues to hit its targets for cost reductions and cash flow generation. Our crop is coming in as expected and our plants are running well.

Let's turn to page 5 and our return on invested capital. This continues to be a major point of emphasis for us. We continue to focus on ensuring our investments in capital expenditures and working capital are generating the appropriate rate of return. Our returns continued to be above our cost of capital in 2014 results. For total Bunge, we achieved the return on invested capital of 7.9%. And for our core Agribusiness and food businesses, our return on invested capital was 9.6%, 2.6% above our weighted average cost of capital.

Let's turn to Page 6 and our cash flow highlights. For the six months ended June 30, our cash used for operating activities was $300 million versus cash use of $791 million in the prior year. The improvement primarily reflects higher earnings, continued focus on working capital management, and a reduction in commodity prices. We continue to have a strong liquidity position, with $4.2 billion available under committed and unused lines of credit.

Let's turn to page 7 and our capital allocation priorities. Our first priority is to maintain an investment grade credit rating with the BBB target. After that, we allocate funds based on the alternative that provides the best long-term value to our shareholders. For the six months ended June, we have returned $316 million to shareholders by repurchasing $200 million of shares and paying $116 million in dividends. We made an acquisition that increases our value added capabilities on our US food business. Our capital expenditures were $222 million. Our target for the year remains $850 million. Spending on our larger projects will step up as the year progresses.

Let's turn to page 8 and the outlook. We expect to achieve a 2015 return on invested capital for combined Agribusiness and foods businesses of approximately 10%, which is three points over our cost of capital. Agribusiness should have a strong second half, with full year segment profit exceeding $1 billion. In oilseeds, demand is expected to be strong, with USDA projecting growth in global soymeal consumption of 5% and in soy oil of 4%.

Overall crush margins are solid. South America should experience good volumes and margins through the third quarter, with export demand moving back to the US in the fourth quarter. While China margins have come down, they are still well ahead of prior year. The softseed environment is likely to be mixed, with sunseed recovering as new crops become available, but rapeseed margins are likely to remain depressed due to smaller crops and weak vegetable oil demand due to biodiesel consumption.

In grains, there is a large safrinha crop in Brazil and farmer selling is increasing with the Brazilian real depreciation. Large US and Black Sea crops should provide origination opportunities and allow us to run our assets at high utilization rates later in the year. Our food business will rebound from the weak second quarter performance, but will still face headwinds from weak economies and the translation impact of translating global earnings into US dollars.

We expect second half results to be better than the first half, but below the prior year's second half. We do expect to achieve our 2017 goals as the Brazilian and certain Eastern European economies get back on track. Brazil is the major challenge for us in foods. We will continue to reduce our cost structure, but still invest in our brands to maintain our market share. The immediate outlook is that margins will remain under pressure for the third quarter, but should show improvement as we move into the fourth quarter.

Packaged oil should benefit from a more balanced domestic market, as soy crushing seasonally slows and demand stabilizes. Wheat millings have not declined as strongly, and we expect sequential improvement in demand. The Brazil food market continues to be a key area for us and we remain confident that it will provide the appropriate returns and growth opportunities as the Company works through its economic difficulties. It is also important that we have a full value chain business in Brazil, and our Agribusiness results should more than offset the weakness in foods. In Europe, we expect improvement in margins as new crop arrives and raw material costs decline. In North America, we expect our oils business to continue to benefit from the results of our profit improvement programs. Our Mexican wheat milling business continues to perform well. Our industrial sugar business is entering the seasonally stronger second half of the year. We expect to be solidly profitable in the second half and to achieve a full year of profit and generate free cash flow. Ethanol demand remains strong. The crop has developed nicely and normal weather patterns will support achievement of our targets.

We will now return the call to the operator to take your questions.

(Operator Instructions)

Ann Duignan, JPMorgan.

Can we talk about Europe a little bit -- way down results this quarter. But given everything we're hearing about weather conditions so variable across the region in Europe, can you talk about the upcoming crop, and how that might end up being smaller than expected and weigh on performance going into next year?

Yes, I think it is very varied. So, we could spend a lot of time going through all the different pieces. I think what's relevant to us is that the Ukrainian and Russian wheat export programs look to be intact -- big crops -- as big as last year, and in some cases, bigger are good for us. Exports should be strong.

In fact, we are right in the middle of harvest as we speak, and yields are coming in better than we expected. I think that's also the case in other parts of Europe, in wheat in particular. Where we have, let's say, challenges is in the European, specifically the east European corn crops, where hot weather during pollination has really hurt yield potential. So, that's the downside, not necessarily for us because it might very well mean that you will open the flow of Brazilian corn to Europe that should speak to our strength.

So, in general, on the grain side, I think it's mostly positive, strong wheat exports, and potential for some dislocation in corn as the year progresses. Sunseed crops -- we are still looking at sunseed crops that are better than last year, both in Russia and the Ukraine, and most of eastern Europe. On the other hand, rapeseed crops, which have just been harvested or are being harvested is off by 2 or 3 million tons, but that was largely known early on. So, that's pretty much how we see it.

Okay, I appreciate the color. It's good to know that Ukraine/Russia is a net positive.

And then switching to Brazil, we understand the consumer, and the weight on the consumer in the region, but can you talk a little bit about farmer sentiment, and whether you would expect an expansion in acres this upcoming year or what are you hearing kind of feet on the street from Brazilian farmers?

Within the Brazilian economy, the agricultural sector is probably faring the best. That is key here, and that is why, on balance, Bunge Brazil will be okay despite the challenges in the domestic consumer side of things.

I don't think that we expect a large expansion of acreage, probably a modest one. I think we're talking more about possible future -- further yield improvements in both corn and beans next year. So, we do expect bigger crops in 2016 than in 2015, but I am not sure if we really believe it will be a meaningful acreage expansion.

Okay, I'll leave it there and get back in line. Thank you.

Okay, thank you.

Vincent Andrews, Morgan Stanley.

Just want to follow up on Food & Ingredients. I mean, I understand where the weakness is coming from. I guess where I wanted to get more clarity is why it really happened so dramatically this quarter? Like, why didn't it happen a year ago? Why didn't it happen last quarter? And I apologize if you addressed this in the prepared remarks, I was on another call, but what actions you can really take around these issues, and how much of them are structural or secular versus have some cyclicality to it that might improve?

Yes. I mean, we saw early signs, I suppose, in the first quarter. But really, it all came to a screeching halt in terms of consumer off-take in the middle of the second quarter. And that happened particularly in edible oils at the same time as the crushing industry was ramping up its seasonal crush.

And so, a combination of excess oil in the market, and companies like ourselves and retailers, who saw demand simply falling off a cliff, led to a re-pricing and the flush-out of inventory, so to speak. And that put tremendous pressure on margins. So, it all did happen really within a very condensed period of time, and compared to what was a good year in the second quarter last year.

From what we can tell, the markets are beginning to stabilize. Volumes have stabilized and are creeping back up. And I suspect that, in edible oils, it will probably take us through the third quarter to get margins back to where we historically would be, and probably the fourth quarter, where oil supply in Brazil balances out better as crush rates ramp back down again to put a little bit more balance in supply and demand of the edible oil sector. In milling, the volume drop was almost as much as in edible oils, so reflecting the same trends, but also there we have seen a small pickup in volume as we have gotten into July.

So, to me, it feels like the second quarter, at least in our sector, was when there was a shock to the system, and everybody realized that there was a major recessionary issue on the table, and the markets adjusted all at once. So, it will be a slow rebuild, but we are seeing things stabilize and slowly move into better territory.

And of course, at the same time, we are hard at work to do what we can to trim cost and improve supply chain efficiencies, making sure that our clients get up to better OEEs that we cut our logistics cost, as we have been successful in doing in other parts of the world. And this just puts a little bit more pressure on us in doing it faster there to adjust. But coming out of this, I suspect that we will be even stronger than we were going into it.

To follow up on the milling side, I presumably -- I know you have a big customer in cereal, and I think you have a big customer in beer as well, who are having some challenges. Are there other places you can put that product, whether it is in the United States or somewhere else, or are you really dependent on the volume trends in cereal and beer?

No, I mean, specifically talking about the US market, which is corn milling. So, it's not wheat milling. It's corn milling. We have been affected by the trends that you spoke about. And what we are doing -- and this takes a little time, but we are working on it, is to replace some of those volumes with, let's say, products that speak to current trends.

So, for example, non-GM corn, organic products, ancient grains and various types of extruded products are going to the snacking industry, which is still growing. So, it's a process that will take some time, but we are finding ways to replace volume that used to go into those traditional sectors with other volumes that we believe speak to current trends. But again, it's a process that will take some time.

Okay, thanks very much.

Farha Aslam, Stephens, Incorporated.

Could you share with us some color regarding what the impact of maybe mark-to-market was in this quarter that you expect to get back in the next quarter? Because it clearly sounds like you have gotten some of it back already, and that's part of what's giving you confidence in the second half of the year.

Yes, to give us the mark-to-market we have referred to earlier is in our grain business. And if you looked at where we did see big wheat crops coming, and feel very much fundamentally that we would want to be selling ahead of buying, and be out in front of it. But as we got to the end of the quarter, if you look at how we traded, it got extremely volatile and spiked up, and that's what caused us to take a loss.

The market settled back down in the first week of July, and all of that loss was recovered. So, we have all of that loss back at the moment.

That was the bulk of it? Is there anything with soy crushing and did you lock in margins that you'll get back in the back half of the year?

We ended the quarter relatively balanced on soy crush. We have a global soy crush business. So, in certain markets, we ended up with a negative mark-to-market, and other are positive. There is some difference there, but it is not significant as we move through the rest of the year.

Great. And then, could you just share with us some more color on crush margins in China? In your release, you had highlighted that they are below what you had experienced in the second quarter, but still above year over year. Could you just put some numbers or context around that commentary?

Yes, they are very volatile, as you have noticed. I would say that second half of the year, average crush margins are probably somewhere in the mid-teens dollars per ton. That compares to margins that were zero or even negative at the same time last year. And they have come down from a level that was probably closer to [$30] in the earlier part of this year.

So, they are in the mid-range of what I would say -- of where we started out and where we are. So, call it about $15 for the balance of the year.

That's helpful, thank you. And then, my final question relates to export demand that you see out of both Brazil and North America. Given the slowdown in China, do you expect that to impact their imports of grain, and will that impact your second half?

Yes, I would say that, on grains, China is sitting on a large pile of corn. So, it's unlikely that you will see any corn imports.

As far as soybeans are concerned, we had a very, very strong flow of soybeans from South America, from Brazil in particular, during April, May and June, that has built inventories in China, and that probably means that the early part of the US export season will be a little slower than it was last year. And you can see that reflected in the open export sales of soybeans compared to last year. We were off by 6 or 7 million tons. So, I would say, in general, a slower start to the US season than last year, but still a strong pool of exports, in general, on a global basis between grains and oilseeds.

Great, that's helpful. Thank you.

Okay.

David Driscoll, Citi Research.

This is Cornell Burnette in with a few questions for David.

Hey, Cornell.

Hi, Cornell.

Okay, very good. The first one is just, looking at the guidance for the back half of the year, it seems like a good improvement in Agribusiness trends versus the first half. And just wanted to know what gives you confidence that you can get there, given your comments that China is probably doing not as well as you have seen first-half margins come in.

And then, some of the ongoing issues that you would expect with the softseed crushing margins? And also, if you could remind us what percentage of your total crush would come in softseeds?

Let's start with the last one first. It's between 15% and 18%, depending on the quarter, is represented by sun and canola/rape crush. Well, couple of things. First of all, our overall crush volumes for the second half will be up year on year by, I would say, about 7%, 8%. So, that's a good beginning.

As we look at the weighted average crush margin throughout our system, Argentina, Brazil, China, southern Europe and the US, the value, at least at the moment, is at least as good as it was at the same time last year. So, we are looking at the open value of our crush capacity, if you take into account the increased volume as being bigger in dollar terms than it was at the same time last year. So, that's one thing, we feel good about our global soy crush for the second half of the year.

Softseeds, I think it's a balancing act. I think we expect better margins in sunseed, maybe a little bit less in canola, but already, starting in the second half of last year, canola margins started coming down. So, net-net, it's probably about a breakeven, so to speak. But grain-handling margins, both in the Black Sea, in the US, and I think continuously also in Brazil and Argentina, where we have a longer tail to the crop and will be crushing longer as well, should net be a positive for us.

So, I think we have a fairly good idea of where we have the upside versus last year. Of course, a lot of the crush still has to be locked in. We have got some of it locked up, but not all of it; but the outlook is pretty promising. So, we feel good about saying that our results in the back half of this year should be at least as good as last year.

Okay, very good. And then, one more on the food products side, I believe you guys indicated earlier that your long-term projections for profits there are still in line with where they have been. I believe you were looking for something like $470 million in from product profitability by 2017. And I just wanted to know, if we continue to see weakness in the Brazilian economy and maybe some of the other economies where you play in, how can you still get to that number? What are some of the things that -- additional initiatives that you might take to offset some of this weakness in the markets, if it persists?

Yes, the number was $475 million by 2017, that we have spoken about. Many of the things that we can do to sort of counter the negative trend in consumer volumes, we are already doing, and is part of our ongoing improvement efforts. So, it's about making our plants more efficient. It's about reducing supply chain costs, logistics cost, rationalizing where we can.

Drew gave an example of where we have done that in the US. There may be other opportunities to do the same. So, really -- a hard focus on cost and efficiencies is what we can do.

And I was saying, in terms of how this will roll into the $475 million by 2017, the timing of course is a little tricky given the economic conditions in many of the emerging markets where we have food businesses. But in the case of Brazil, I feel good about saying that if we don't exactly hit it there in food, we will likely exceed in Agribusiness. That is the flip side of the coin in a place like Brazil where we are facing headwinds in the domestic market in Brazil, but all the export-oriented flows and activities that we have there really should benefit. So, the sum total of the number is by 2017 and, therefore, our $8.50 target we still feel is intact.

Very good, thank you.

Kenneth Zaslow, BMO Capital Markets.

This is Patrick Chan in for Ken.

Hi, Patrick.

Hi, just a quick question about, I guess canola crush margins. I know additional capacity is coming online from one of your competitors sometime this year. So, I guess, does that change your margin structure going forward in that market?

I would say that's priced already. And reality is that there is -- even though the canola crop is smaller than the peak two years ago, there is still ample seed to fill all the capacity that exists in Canada. The real question is how much seed leaves to Canada for export. It's about 50/50 what's used domestically and what goes for export.

So, I think the crushing industry in Canada is probably fairly sized at the moment. And it really is a matter of how much seed goes to places like Japan and then China. But I think that most of the impact of the new capacity that's come on, is already reflected in the margin structure.

I guess, switching geographies a little bit then, in terms of Argentina, you had indicated that the crush time period will be a little bit longer this year. But given how the elections are taking place sometime in October, do you -- what do you think the cadence of farmers selling will be in terms of soybeans going forward?

So far, we have experiencing a nice pickup in farmer selling in Argentina sort of towards the end of the second quarter and now also through July. We have continued to price briskly in Argentina. I think that will stay with us probably for another -- through August, I would say, maybe even middle of September. So, Argentina should be at full speed crush through September, and that's good for us. We have a lot of capacity that's now running at full.

But I do expect that we will see a slowdown in farmer pricing as we get into around election time. And then, depending on the outcome of the election, it may be a complete shut off for the balance of the year or not. We don't know yet. But I would say a continued pace of good pricing for the next month, month and a half, and then we will take a pause and see what the election brings.

And lastly, in China, there has been a lot of talks about the hog market slowing down, and do you see that as a structural shift down in soybean meal demand? I know you are a little bit more positive year over year in the Chinese market, but given how the hog producers there or the markets over there are importing more pork going forward, what do you think the impact will be?

Well, we still look at soymeal growth domestic consumption in China as being positive, somewhere in the 5% -- 5%, 6% plus area for this year. And despite the reduced production in China of pork, inclusion and formulation of soybean meal continues to rise. So, I think that's the reason why we continue to see growth in offtake, and we are really seeing that despite what you might hear in terms of reduction in the local production and more imports. So, the trend towards sort of very efficient production still means an increase in the soy inclusion rate, and I think that's the biggest driver of growth at the moment.

Great, thank you.

Adam Samuelson, Goldman Sachs.

So, I guess my first question is the Agribusiness guidance, for at least $1 billion for the year, which would imply at least about $535 million or so for the back half, which would only be up about $30 million year over year. In the fourth quarter of 2014 you had an $80-million mark-to-market reversal. And you had a $30-million China inventory loss on Chinese soybeans. You had trading losses late in June that you said have reversed.

And, Soren, you just went through the market mosaic for both oilseeds and grains, and the general balance was reasonably constructive. I wasn't really detecting a lot of big negatives year over year in that mix. What am I missing?

I don't think you are missing much. I think what we said was the $1 billion was sort of what we felt was bracketing the downside of Agribusiness. And it can obviously -- it can be more than that, and we hope and expect that it will.

So, to say that we should be able to, let's say, exceed last year's last half without taking into account the $80 million, I would say I feel very comparable about that. And I would say that I feel comfortable about that, even including the $80 million, if you know what I mean.

So, I think the $1 billion is sort of the downside of the range, and it can be -- it can be more than that. And as Drew mentioned, and you alluded to, we've started the third quarter with a little wind in the back from the recovery of the position issues we had at the end of the second quarter.

Okay, that's helpful.

Switching gears, Argentina -- take the previous question a little bit differently. I mean, there is a -- Argentina's soybean inventories are very high; they've had a record crop; the farmers have been storing them for years as a currency hedge. Say the election goes as most people expect, and that there is a devaluation that does happen sometime late this year or early in 2016, that could be a flood of soybeans that hits the global market. How does that benefit or hurt your Business in aggregate given your disparate exposures?

I would say that, so long as the US domestic market remains as buoyant and strong as it is at the moment, where the majority of the growth that we expect from our US crushing activities are really oriented towards domestic off-take. I think on net balance, it will be positive for us.

It should mean that we have the Argentine industry running at full speed, even prior harvest, and we have a sizable presence in Argentina. So, I think with the domestic US outlook being so positive, I think it will be net positive for us going into early next year.

Okay. And then a quick one: I think in the prepared remarks, you alluded to continuing to evaluate the strategic options on sugar, but any update on sugar that you can provide at this point?

No, other than we are pursuing all the various alternatives, but are very conscious about striking the right balance of timing and value to shareholders. And so, I don't have anything new to report to you, and we will as soon as we do have something.

In the meantime, as Drew mentioned, we continue to make nice strides on running the Business, and it's not a drain to the Company anymore. We are going to be cash flow positive and profitable at the end of the year. And so, we are in the mode that we would like to see something faster rather than not, but patient in terms of value and outcome.

All right, great, thanks. I'll pass it along.

Okay, thanks.

Sandy Klugman, Vertical Research.

Thank you. So, it's increasingly looking like we will have another large corn crop in North America. But given the price declines we have seen since mid-July, and the increases we have seen in on-farm storage capacity over the past several years, are there any concerns that this will negatively impact your origination capabilities in the fall, if farmers elect to hold on to grain as they did last year?

Well, farmers are already sitting on a significant amount of the total stocks. So, two large crops in a row, you would expect that we would return to more normal marketing patterns -- that's what I think. But it's still too early to call the crop. But I would expect a more normal marketing pattern in both -- well, corn in particular, because last year soybean marketing was actually quite aggressive. So, I think more return to normal patterns this coming season if the crop holds.

Okay, that's fair. And then, your Business seems particularly difficult to forecast. I understand you are committing to an $8.50 EPS target, but I am just curious what drives your decision to tie that target to 2017 in particular, as opposed to leaving the timing more open-ended?

Well, we have a number of programs in place, roughly $325 million worth of EBIT improvement programs in both Agribusiness and Foods that we feel we can predict reasonably well over that period of time. So, a nice size chunk of the improvement in earnings comes from things we believe we can control internally. And the rest of it is judging what we believe are growth in global markets and pull on capacity, which we already have.

So, for example, soy crushing capacity over the period -- next couple of years should continue to tighten up, and margin structures should, over time, improve. And so, you impose that over our network; the same thing goes with grain handling and export. So, we are -- it's a combination of internal improvements and trends we see in business when posed over our existing network and with a view towards improving margins that allows us to be confident that we can reach those numbers.

Okay, thank you very much.

Evan Morris, Bank of America.

A lot of my questions were already asked, but I just have a couple of quick ones. On the Food & Ingredients guidance, just trying to understand -- so, you expect sequential improvement in the second half, but down year over year I guess, and then down for the full year as well. So, it will be down in the second half year over year, and you are saying down for the full year, year over year, as well?

What we are really saying, if you go back and look at the numbers we referred to, is we expect the second half to come in somewhere between $100 million and $160 million or so, in terms of EBIT in the Food & Ingredients business. That's obviously a pretty wide range, but it does reflect the pace of recovery in margins in the various markets. We can pretty well know how we can bring in our cost savings and the things we can do, so we can layer that in pretty accurately. And the bottom end of that range would be the markets don't really recover, and the upper end would be they come back pretty quickly.

Okay, that's helpful. And then, you made a comment earlier in the prepared remarks just saying, I think it was intensifying programs on operational efficiencies, I guess given some of the broader operating environment. Is that -- are you pulling forward -- does that mean you are pulling forward some of those cost savings that you had been targeting in Agribusiness and Food & Ingredients, or is it suggesting that you have turned over more rocks and you have found more cost savings than what you originally had alluded to or guided to?

I think it just speaks to us trying to accelerate, rather than having found more. Our estimates, $200 million in Agribusiness, $125 million in Foods until 2017, is still what we have as the guidepost. But given the environment in some of our markets, we want to pull as much of that fast -- fast-forward that as much as we can, if you know what I mean. So, it's really about intensifying the effort to get there quicker, rather than a larger number.

Okay. And then, maybe that brings you back to the question about the $8.50 in just the past. So, if you are going to accelerate some of these cost savings, but operating profits going lower, your base is lower this year than I guess we have originally expected or you expected to get. So, is it then, just to get from where we end this year, since you have already -- you are pulling forward some of those cost savings, it's really then just about base business growth is the key lever then between 2015 and hitting that $8.50 target? Is that potentially going to be the majority of the driver then of getting there?

I think that the way to think about it is the 2017 target was based on normalized market conditions in both Ag and Food. So, you would assume we are back to normal markets. And there were two major drivers for us to get there. One is the cost reduction program. The other is driving growth in our Business.

Other than the economic difficulties, we still feel we are on track with both of those trends; that we are getting the growth in the underlying business where, other than the market impact. When we set those targets, we already knew corn milling would be a little weaker and would have to reposition itself a little bit. So, that's not new to us. So, yes, it's a combination of growth in cost savings, and based on markets behaving in a normal way.

Okay, perfect, thank you.

We have no further questions. At this time, I will now turn the call back over to Mr. Hayden for closing remarks.

Thank you, Vanessa. And thank you, everyone, for joining us for the earnings call today.

Thank you, ladies and gentlemen. This concludes today's conference. We thank you for participating, and you may now disconnect.