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Bunge Ltd (NYSE:BG)
Q2 2020 Earnings Call
Jul 29, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Bunge Limited Second Quarter 2020 Earnings Release and Conference Call. [Operator Instructions]

I would now like to turn the conference over to Ruth Ann Wisener. Please go ahead.

Ruth Ann Wisener -- Investor Relations

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 two 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.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Thank you, Ruth Ann, and good morning, everyone. Turning to slide three, 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 line up 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 four. 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 continue 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 noncore 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.

John W. Neppl -- Chief Financial Officer

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 noncore 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 five. 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 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 for food from food processors and retail channel, 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 noncore segment, Sugar & Bioenergy results for this quarter, which are noncash, 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 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.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

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 priorities 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.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Vincent Andrews with Morgan Stanley. Please go ahead

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you and good morning everyone. 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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. I think that's a good assessment.

Vincent Andrews -- Morgan Stanley -- Analyst

Okay. And then on farmers selling in Brazil, the slides, you had a couple of good comments about the records of past utilization rate and the lowest quarterly operating cost for soy crush. How much of that is a function of just the rate at which the Brazilian farmer is selling, which is allowing you to run at those in those conditions versus the good work you guys have been doing just sort of on operations, irrespective of what the farmers are doing?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

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 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.

Vincent Andrews -- Morgan Stanley -- Analyst

Okay, thank you very much. I'll pass it along.

Operator

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

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thank you. Good morning, everyone. 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 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.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Sure. Yes. Current crush replacement margins are in the U.S. around mid-20s; mid- to high single digits in Brazil; low single digits in Argentina. And then you've got Europe and China both in the mid-20s. Now that being said, even in the last couple of weeks, we've seen the curve start to improve a little bit. So as usual, we don't have a lot of visibility into Q4. And as usual, we have more locked in Q3 than we do in Q4, but that's not unusual. And then the kind of the broader, I think, keys to watch on the crush, the flags are as we know, we've seen the strong exports with the farmer selling in Brazil, the strong exports there to China, and then we've seen China increasing their purchases here in the U.S. And the question will be what pace will that continue on as well as we've got the crop developing here in the U.S., a big, big corn crop, but the bean crop is developing very well. So it looks like we'll have a big harvest and then how the farmer decides to commercialize that. So those are the key flags here as we watch the second half develop.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. That's very helpful. And then just to clarify kind of the revised outlook. So you're now expecting Agribusiness up 100 about $100 million year-on-year. So relative to where you laid that out in with 1Q in late April, that was it's about $150 million or so kind of delta to the positive. You increased the Edible Oils outlook. How much and how much did sugar is sugar expected to be worse than the prior outlook? Just to clarify. And am I rolling up those pieces properly?

John W. Neppl -- Chief Financial Officer

Yes. Adam, I would say, on Edible Oils, even though we had a little bit better second quarter than expected, over the whole year, if you look back versus where we were in April, we've actually taken the number down slightly. And then Sugar, I'd say probably in the $30 million range in terms of our the impact of that from a P&L standpoint versus April. And reminder that that's a noncash recording of the investment in the underlying JV.

Adam Samuelson -- Goldman Sachs -- Analyst

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?

John W. Neppl -- Chief Financial Officer

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 nonrecourse 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.

Adam Samuelson -- Goldman Sachs -- Analyst

I appreciate the color. I'll pass it on.

Operator

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

Tom Simonitsch -- JPMorgan -- Analyst

Thank you and good morning. 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.

John W. Neppl -- Chief Financial Officer

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 kind of net to close to 0. 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.

Tom Simonitsch -- JPMorgan -- Analyst

Sorry. $0.55 above current consensus?

John W. Neppl -- Chief Financial Officer

Yes. Upside I'm sorry, upside in Agribusiness, that $100 million is roughly $0.55.

Tom Simonitsch -- JPMorgan -- Analyst

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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. What we saw, the big driver, of course, is around U.S. foodservice and where we talked about from a QSR we're a little over-indexed to QSR and to the big QSR, so April was down about 40%. But then, during the rest of the quarter, we saw a strong recovery. Some of that, no doubt, was pipeline filling, but we saw levels get to year ago levels. Now as that's kind of leveled off, we think that it stabilized between the balance of what business moved over to the retail or CPG space and versus how foodservice where some of the closings coming back out were probably net of 15%. And we expect that to probably be pretty wavy on the demand as things open and close and we manage through COVID through the balance of the year.

Tom Simonitsch -- JPMorgan -- Analyst

As helpful, thank you. I'll pass it on.

Operator

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

Ben Bienvenu -- Stephens, Inc. -- Analyst

Thanks, good morning everyone.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Good morning, Ben.

Ben Bienvenu -- Stephens, Inc. -- Analyst

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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

We're definitely optimistic about what's happening overall. There has been some of Q3 pulled into Q2 in South America. But with the programs that are building in the U.S., we're definitely seeing very good port margins there. I think the way what you'll have to weigh there is how the buying continues for the program for the rest of the year on export out of the U.S. versus the farmer commercializing what's to be a very big crop.

Ben Bienvenu -- Stephens, Inc. -- Analyst

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?

John W. Neppl -- Chief Financial Officer

Yes. Ben, I'll take that. So with respect to some of our projects that we're working on, let's I'll go give you a quick rundown of things we've talked about before first. And obviously, our Brazil merger in the mayo business we had announced previously, still under way, still in regulatory in Brazil, but moving along. And I think we feel pretty confident we'll get that closed this year. We've talked before about the U.S. grain asset sale. With the review there, it's probably we've talked before, late Q4, Q1 type event to get that closed. I think we still feel pretty confident in that timing. And then we do have another project that we've been working on. I would say it's been a little bit COVID-related, but it's moving, it's moving slowly, but it's moving forward. And it's just really at the pace of how we can work that with our counterparty. But all those things, we're pretty positive on how they're moving. And then on the other side, with the announcement of Imcopa, that's progressing. Again, from a regulatory and timing standpoint, it's probably slowed down a little bit, but we still feel pretty comfortable with where that's headed.

Ben Bienvenu -- Stephens, Inc. -- Analyst

Good luck with the back half thank you.

Operator

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

Ken Zaslow -- Bank of Montreal -- Analyst

Hey, good morning everyone.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Good morning, Ken.

Ken Zaslow -- Bank of Montreal -- Analyst

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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

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.

Ken Zaslow -- Bank of Montreal -- Analyst

Okay. And then the second question is, in terms of the crush margin outlook, obviously, U.S. crush margin is getting better. Can you talk about why you think it's getting better, the longevity of that?

And then also China and Europe seem to be very strong as well. Can you talk about the underpinnings there? And again, it seems like China has changed as they are expanding their hog herd. Is that the derivation of why Chinese crush margins are is that a foreshadowing for the globe?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. I think a couple of the big drivers around let me talk to meal first and then oil. A couple of big drivers, of course, around meal demand, have not only been the imports of protein into China, which, of course, has helped the meal demand in those exporting countries. But the big one of the big drivers is how quick China's sales of hogs have come back. And their meal demand has recovered much more quickly than any of us have thought.

And then, of course, the U.S. where we've got historically high numbers in chicken and hogs has been good for demand, and those numbers have not tailed off as quickly as everyone had predicted. And then on the oil side, as we talked, the oil demand has come back quicker than we thought here in the U.S., and that's not only on the food side, but on the renewable diesel. So we continue to see strong demand there and see some definitely some tailwinds going forward, not only second half of 2020, but into 2021 around renewable diesel. Probably the laggard right now and the one that we'll watch is biodiesel in Europe, which has been a little bit slower coming back.

Ken Zaslow -- Bank of Montreal -- Analyst

I really appreciate it. Thank you, guys.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Thank you, Ken.

Operator

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

Heather Jones -- Heather Jones Research -- Analyst

Good morning. First, I want to say thank you for the new layout on the press release. It was I really like it. It's made a lot things a lot more helpful and more clear. Just a quick details question. When you all were talking about your full year outlook for sugar, the real has appreciated considerably since the end of May, which I think is the end of Q2 for sugar. When you guys are talking about your full year outlook, are you assuming there's no appreciation in the real from Q2 or are you assuming the current rate?

John W. Neppl -- Chief Financial Officer

Yes. When we Heather, this is John. So when we put in the forecast, it's probably a week ago or so that we finalized that, maybe a little bit less than a week ago. And we took some of that into consideration, but we don't assume going forward any big change one way or the other. So it we've got the remember we're the reporting of that is the end of May for our June 30. So any change from May to the end of June would be reflected in Q3. And then, of course, all the way through August will be recorded in our September number. So we don't have a big assumption one way or the other in there in terms of where it's headed. But obviously, that will have an impact going forward.

Heather Jones -- Heather Jones Research -- Analyst

All right. And then I wanted to ask about meal demand. So Greg, you mentioned hog and chicken numbers, and those have held up fairly well. But our understanding is that a lot of these hog guys have taken their rations down to levels basically maintenance rations. And more recently, it seems like that soybean meal inclusion rate has bottomed and is starting to move higher again. Would what you're seeing, does that agree would that agree with that observation?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. Yes, it's generally I don't know if they can on that kind of detail, but yes, generally, I'm not 100% sure of the driver, but the demand has not come off as fast as we thought. In the U.S., the demand has stayed there. And then, of course, 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.

Heather Jones -- Heather Jones Research -- Analyst

And in China, given because I'm glad you mentioned that because it seems like the demand growth is outpacing the adding the number of animals that have been added. So would you all attribute that to the fact that it's large commercials that are the ones that are adding the hogs and so their inclusion rates tend to be higher? Or is there something else that we're that I might be missing?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

No. That's what we're seeing that it is it is the inclusion rate because it's the professional commercial operations that are coming back up, which is how they've come up as quickly as they have.

Heather Jones -- Heather Jones Research -- Analyst

Okay. And my final question's 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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. We agree.

Heather Jones -- Heather Jones Research -- Analyst

Okay, all right, thank you so much.

Operator

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

Ben Theurer -- Barclays -- Analyst

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, 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.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

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.

Ben Theurer -- Barclays -- Analyst

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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. 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.

Ben Theurer -- Barclays -- Analyst

Okay. Okay, that's clear. Okay, perfect. Thank you very much. I'll pass it on

Gregory A. Heckman -- Chief Executive Officer And Board of Director

You bet. Thank you.

Operator

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

Robert Moskow -- Credit Suisse -- Analyst

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?

John W. Neppl -- Chief Financial Officer

Notwithstanding the any fluctuation in currency, I think our expectation is that there should be a small contribution from sugar in the second half to flat to 0. We don't expect underlying operational losses to continue in the second half based on what we can see. So it's all going to be dependent upon the exchange rate now how that impacts the reported numbers from the debt.

Robert Moskow -- Credit Suisse -- Analyst

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?

John W. Neppl -- Chief Financial Officer

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

Robert Moskow -- Credit Suisse -- Analyst

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

John W. Neppl -- Chief Financial Officer

No. That's for the full year. So that's looking at the overperformance in the first half and then projecting taking a look at the second half. For the full year, we're calling it up $100 million, OK?

Robert Moskow -- Credit Suisse -- Analyst

There is the math lesson. Thank you very much

John W. Neppl -- Chief Financial Officer

We've had no problem. Rob. Thanks. Our next question comes from Ben Kallo with Baird. Please go ahead

Ben Kallo -- Baird -- Analyst

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.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Sure. Yes. So I'll start with cash flow yield. So as you look at the cash that we generated through the first half of the year, I think net number after all allocation was $432 million. And as we looked at the first half, you can imagine, capex was a little underspent, just given COVID-related timing and impact on the ability to get some projects done. We do expect that to pick up a bit in the second half. Certainly, of course, our normal dividends were in there, and that will be pretty standard with the second half of the year. When we were looking at the opportunity for stock buyback in the first half of the year, it was really looking at as we always do, we're looking at the opportunity for risk-adjusted return and where is the stock trading and what do we have in the pipeline in terms of projects. And we just felt like it was a good time to step into the market. We'll continue to look at it.

We always do, as we communicated a month ago at our business update. In the second half of the year, I think while we'll expect earnings to be more modest than they are for the first half of the year, we're also looking at capex likely picking up. We also you'll see in our Q, we announced we're making a $65 million contribution to our pension plan to take advantage of some tax opportunities. That will have a small impact on cash flow in the second half, but we'll continue to assess all of that. In terms of RMI, it's very seasonal. Certainly, our growth in second quarter related to the strong origination in South America, we are ahead well ahead of our normal pace in terms of farmers selling and our ability to get a hold of the crop. So we feel very good about how we're positioned there. And then, of course, in Q4, we'll have a big growth in RMI because of North American harvest. So we'll expect to see that. But again, we're managing that in a smart way, making sure that when we invest in RMI we're getting a return on that.

Ben Kallo -- Baird -- Analyst

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 with that? And yes, maybe I'll just leave it there.

Gregory A. Heckman -- Chief Executive Officer And Board of Director

Yes. I'd say we continue to look at what the current curves are giving us in the second half. Now that can change quickly as we saw last year in Q4. And we're definitely we're facing something that we haven't seen before, right? We're still working through the trade war. We've got COVID, but we are facing it with a new Bunge, that's a different team and a different operating model. So we feel, based on the opportunity that we see, we'll get more than our share of that. Sure, some of the Brazil business was pulled a little forward into Q2 from the second half, but the other side of that is we've got big crops coming in the U.S. And we'll see how the farmer markets is cropped there, and then how China continues as they work against the trade deal and fulfilling their obligations. They've been very aggressive here in the last couple of months. And then we've got the oil complex, which feels like it continues to tighten, really, as we look across the complex. If COVID improves, that also helps the curve.

Argentina continues to be a challenging situation for all of us operating there with the farmer continuing to be a very reluctant marketer as he protects himself financially as well as some of the industry just continuing to struggle. So net-net, a lot of people are in the spot because of that uncertainty they're seeing from their customers with COVID. So a lot of meal and oil customers are spot buyers today. That's also giving us less visibility. But the numbers are out there, and we expect the business to be there. I think we're very comfortable that we remain nimble, we remain well-positioned, and we've got the right team to take advantage of the opportunities as they happen.

Ben Kallo -- Baird -- Analyst

All right. Thanks, John.

Operator

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

Ken Zaslow -- Bank of Montreal -- Analyst

I 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?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

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.

John W. Neppl -- Chief Financial Officer

And I would just add that, Ken, that we are focusing most likely on the SG&A side. We're focused on industrial costs as well. And I think the team is making good progress there. It's not always visible because it's buried in the margin number, but although we've incurred a little bit of excess cost here in the second quarter relative to COVID, I think we feel really good about where we're headed from a cost standpoint as well. It's going to take time, but I think there's the team is making good progress on that as well.

Ken Zaslow -- Bank of Montreal -- Analyst

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 toward 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 toward that direction. Is that a fair way of saying it given like these little milestones that you're kind of giving us?

Gregory A. Heckman -- Chief Executive Officer And Board of Director

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.

Ken Zaslow -- Bank of Montreal -- Analyst

Great, thank you very much.

Operator

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

Ruth Ann Wisener -- Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Ruth Ann Wisener -- Investor Relations

Gregory A. Heckman -- Chief Executive Officer And Board of Director

John W. Neppl -- Chief Financial Officer

Vincent Andrews -- Morgan Stanley -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Tom Simonitsch -- JPMorgan -- Analyst

Ben Bienvenu -- Stephens, Inc. -- Analyst

Ken Zaslow -- Bank of Montreal -- Analyst

Heather Jones -- Heather Jones Research -- Analyst

Ben Theurer -- Barclays -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Ben Kallo -- Baird -- Analyst

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