Big Earnings Drop at Cargill Indicates Caution on Agribusiness Players

Privately held agribusiness giant Cargill today reported that net earnings for the company’s third fiscal quarter ending in February fell 42% year-over-year to $445 million. Sequentially earnings rose from $409 million in the company’s November quarter. Third-quarter revenues rose a scant 1% year-over-year, to $32.2 billion, but fell from $35.2 billion sequentially.

The company’s North American business was hit hard by the lingering drought in the U.S., and four of the company’s five business segments posted lower results than a year ago.

The only one of the company’s five business segments to post higher earnings than in the same quarter a year ago was the industrial segment, which produces a variety of non-food products. Earnings were lower in the company’s agricultural services, origination and processing, food ingredients, and risk management and financial services segments. The continuing effects of the drought in North America, the currency devaluation in Venezuela, and “difficult economic conditions” in other regions .

Cargill’s results could offer a glimpse of what we might expect from two large publicly traded agribusiness firms: Archer Daniels Midland Co. (NYSE: ADM) and Bunge Ltd. (NYSE: BG). ADM is scheduled to report earnings on April 30th, and the consensus estimates call for earnings per share (EPS) of $0.59 on revenues of $21.3 billion. In the same quarter a year ago, ADM posted EPS of $0.78 on revenues of $21.2 billion. Given Cargill’s experience, those numbers might be optimistic.

Bunge reports results on April 25th and the consensus estimates call for EPS of $0.97 on revenues of $14.02 billion. In the same period a year ago, Bunge posted EPS of $0.69 on revenues of $13.45 billion. Bunge had a terrible fourth quarter (ending in December 2012), following a writedown of $683 million, but revenues were also soft, missing the consensus estimate of $18.81 billion by about $1.77 billion.

As we’ve noted before, commodity prices are falling as stockpiles grow, not only in the U.S. but in China and other countries as well. These are hardly the conditions that presage growth for these agribusiness behemoths.

Shares of ADM are down more than 2% in the early afternoon today at $32.63 in a 52-week range of $24.38 to $34.28.

Shares of Bunge are down about 1% at $68.84 in a 52-week range of $57.10 to $80.99.