Bunge Limited (BG) Q2 2021 Earnings Call Transcript

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Bunge Limited (BG 1.03%)
Q2 2021 Earnings Call
Jul 28, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Bunge Second Quarter 2021 Earnings Conference Call. [Operator Instructions]

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

Ruth Ann Wisener -- Vice President of Investor Relations

Thank you, operator, and thank you for joining us this morning for our second quarter earnings call. 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 measures 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 Greg Heckman, Bunge's Chief Executive Officer; and John Neppl, Chief Financial Officer.

I'll now turn the call over to Greg.

Gregory Heckman -- Chief Executive Officer

Thank you, Ruth Ann, and good morning, everyone. So turning to the agenda on Slide three. I'll start with some highlights of the second quarter before handing it over to John, who will go into more detail on our performance. I'll then share some closing thoughts on how we're thinking about the remainder of the year before opening the line for your questions. Let's start with an overview of the quarter, turning to Slide four. I want to start by thanking the team for great execution in a highly volatile quarter.

We're very pleased with how we've managed our operations as well as our earnings at risk with the appropriate level of discipline. We also helped our customers navigate and manage through the volatility of this quarter that came from weather issues, domestic and international supply chain challenges and other complexities in the current environment. Turning now to our segment performance. Results in Agribusiness were down versus a very strong quarter last year but exceeded our expectations as the team effectively managed trade flows and capacity utilization.

We set quarterly and year-to-date records in soy crush volume, capacity utilization and lower unplanned downtime. Additionally, we reduced power consumption to an all-time low in our European rapeseed crush operations. While we faced complexities in the quarter related to freight, transportation and other areas that affected many other companies and industries, our results clearly demonstrate that with our commercial and industrial teams working closely together, we have built resilient supply chains that allow us to be successful through a range of macro environments.

Results in Refined and Specialty Oils improved in most regions, with particular strength in North America. In the U.S., we saw foodservice demand come back stronger and faster than and anticipated, and we're experiencing a greater impact from renewable diesel demand than we expected. In response to the higher demand for Refined and Specialty Oils, we've been working to find greater efficiencies to increase supply. We've also worked with our food customers to help them manage their risk as well as reformulate products where it makes sense.

The multiple drivers behind the strength in edible oils gives us confidence there are significant growth opportunities ahead of us. I also want to highlight that this was a strong quarter for our noncore Sugar JV. As we've noted in the past, we continue to assess our strategic options regarding this business, but we're very pleased with the improvement over the last year. Taking into account our year-to-date results and based on what we can see now in the forward curves, we are increasing our outlook for the year and expect to deliver adjusted EPS of at least $8.50 for the full year 2021.

Despite the global volatility, we have confidence in our ability to deliver in the back half of the year, based on the business already committed, the crush outlook and the demand for Refined and Specialty Oils. As we look ahead, we're confident that the performance of our operating model and market trends provide support for a higher mid-cycle earnings. So in our June 2020 business update, we outlined our earnings baseline of $5 per share.

With the changes we've made in our business as well as the fundamental shifts in the marketplace, we're taking that baseline EPS up to $7, and that's a $2 increase. And consistent with last time, this reflects our existing portfolio only and does not include any future growth investments. I'll now hand the call over to John to walk through the financial results, the 2021 outlook and additional detail on the updated earnings baseline. I'll then close with additional thoughts on some of the trends we're seeing.

John Neppl -- Chief Financial Officer

Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on Slide five. Our reported second quarter earnings per share was $2.37 compared to $3.47 in the second quarter of 2020. Our reported results include a negative mark-to-market timing difference of $0.24 per share. Adjusted EPS was $2.61 in the second quarter versus $1.88 in the prior year. Adjusted Core segment earnings before interest and taxes for EBIT was $550 million in the quarter versus $564 million last year, reflecting lower results in Agribusiness partially offset by improved performances in Refined Specialty Oils and Milling.

In processing, higher results in North America and Argentina were more than offset by lower results in Europe and to a greater extent in Brazil, which reflected a decreased contribution from soybean origination due to an accelerated pace of farmer selling last year. In merchandising, improved performance was primarily driven by higher results in ocean freight due to strong execution and positioning in our global corn and wheat value chains, which benefited from increased volumes and margins. In Refined and Specialty Oils, the outstanding performance in the quarter was largely driven by higher margins and record capacity utilization in North American refining, which benefited from strong foodservice demand and increased demand from the growing renewable diesel sector.

Improved results in South America were due to the combination of higher margins and lower costs, more than offsetting lower volumes. Europe benefited from increased volumes and margins from higher capacity utilization and product mix. In Milling, higher volumes, lower costs and good supply chain execution in South America were the primary drivers of improved performance in the quarter. Results in North America were comparable with the last year. The increase in corporate expenses during the quarter was primarily related to performance-based compensation accruals, a portion of which was not allocated out to the segments as was done in previous years.

The increase in Other was related to our captive insurance program. Improved results in our noncore Sugar and Bioenergy joint venture were primarily driven by higher ethanol volume and margins. Prior year results were negatively impacted by approximately $70 million in foreign exchange translation losses on U.S. dollar-denominated debt of the joint venture due to significant depreciation of the Brazilian real. For the six months ended Q2, income tax expense was $242 million compared to an income tax expense of $113 million in the prior year. The increase in income tax expense is due to higher year-to-date pre-tax income, partially offset by a lower estimated effective tax rate for 2021.

Net interest expense of $48 million was below last year, primarily driven by lower average variable interest rates, partially offset by higher average debt levels due to increased working capital. Let's turn to Slide six. Here, you can see our continued positive earnings trend adjusted for notable items and timing differences over the past four fiscal years, along with the most recent trailing 12-month period. This improved performance not only reflects a better operating environment, but also the increased coordination and alignment of our global commercial, industrial and risk management teams due to our new operating model.

Slide seven compares our year-to-date SG&A to the prior year. We have achieved underlying addressable SG&A savings of $20 million, of which approximately 80% is related to indirect costs. Through our team's disciplined focus on costs, we were able to continue to achieve savings even when compared to last year, which was already lower as a result of the pandemic and the actions we took to reduce spending. Looking ahead, we are monitoring cost inflation in many markets, especially in Brazil, and we'll be working to offset this impact where we can while still making the necessary investments in our people, processes and technology.

Moving to Slide eight. For the most recent trailing 12-month period, our cash generation, excluding notable items and mark-to-market timing differences, was strong with approximately $2 billion of adjusted funds from operations. This cash flow generation was well in excess of our cash obligations over the past 12 months, allowing us to strengthen our balance sheet. Shortly after quarter end, we closed on the sale of our U.S. grain interior elevators, receiving additional cash proceeds of approximately $300 million and another $160 million for net working capital.

Slide nine details our year-to-date capital allocation of adjusted funds from operations. After allocating $76 million to sustaining capex, which includes maintenance, environmental, health and safety and $17 million to preferred dividends, we had approximately $800 million of discretionary cash flow available. Of this amount, we paid $141 million in common dividends and invested $57 million in growth and productivity capex, leaving over $600 million of retained cash flow. As you can see on Slide 10, readily marketable inventories now exceed our net debt with the balance of RMI being funded with equity. Please turn to Slide 11.

For the trailing 12 months, adjusted ROIC was 18.4%, 11.8 percentage points over our RMI adjusted weighted average cost of capital of 6.6%. ROIC was 13%, seven percentage points over our weighted average cost of capital of 6% and well above our stated target of 9%. The spread between these return metrics reflects how we use RMI in our operations as a tool to generate incremental profit. Moving to Slide 12. For the trailing 12 months, we produced discretionary cash flow of approximately $1.7 billion and a cash flow yield of nearly 24%. Please turn to Slide 13 for our 2021 outlook.

As Greg mentioned in his remarks, taking into account our strong Q2 results and our outlook, we have increased our full year adjusted EPS from $7.50 to at least $8.50, above last year's record of $8.30. Our outlook is based on the following expectations. In Agribusiness, full year results are expected to be up modestly from the previous expectations but still down from a very strong 2020. In Refining and Specialty Oils, we expect full year results to be up from our previous outlook and significantly higher compared to last year due to our strong first half results and positive demand trends in North America.

We continue to expect results in Milling and Corporate and Other to be generally in line with last year. In noncore, full year results in our Sugar and Bioenergy joint venture are expected to be a positive contributor. Additionally, the company expects the following for 2021: an adjusted annual effective tax rate in the range of 17% to 19%, which is down from our previous outlook of 20% to 22%; net interest expense in the range of $220 million to $230 million, which is down $10 million from our previous expectation; and capital expenditures in the range of $450 million to $500 million, which is up $25 million from our previous forecast; and depreciation and amortization of approximately $420 million.

Shifting to our updated mid-cycle baseline. The waterfall chart on Slide 14 shows the areas and magnitude of increased earnings being primarily driven by what we see as a structural improvement in the oilseed market fundamentals. This is due to increased vegetable oil demand by the renewable diesel industry and greater benefits as a result of the change in our operating model to a global value chain approach. Turning to Slide 15 and the drivers behind these increases. Consistent with our approach in June 2020, we introduced -- when we introduced our $5 baseline, we were defining our long-term average oilseed crush margin range by using the weighted average of our footprint over the past four years plus the trailing 12 months.

This increases our average soy crush margin by $1 a metric ton to a range of $34 to $36 per metric ton and, more significantly, it increases our average softseed crush margin, which is more sensitive to oil demand, by about $10 a metric ton to a range of $48 to $52 per metric ton. We feel these ranges reflect more reasonable normalized numbers in the go-forward structural market environment. We have also increased the normalized earnings of our oilseed origination and distribution businesses and our merchandising subsegment, reflecting the more coordinated and aligned approach within the value chains from our new operating model.

The approximate 30% increase in Refined and Specialty Oils earnings is driven by a higher capacity utilization in North American refining and increased contribution from specialty oils due to improvement initiatives that are underway. Importantly, we assume that margins in North American refining normalize back to historical averages as we expect in time that the renewable diesel industry will add pretreatment capabilities to their facilities.

There are no changes from our prior baseline in Milling. Corporate and Other are down primarily due to higher performance-based compensation from the increase in our baseline. There is no change in the assumed contribution from our Sugar and Bioenergy JV. Net interest expense is reduced by approximately $25 million compared to the $5 baseline, reflecting debt paydown from strong cash flow in 2021 and normalized working capital. Given potential tax policy changes in the future, we are increasing our estimated effective tax rate by two percentage points.

It's important to note that our earnings baseline of $7 is not earnings powered. Aside from upside that may come from higher-margin environment, we have a number of opportunities that we are pursuing that can drive earnings upside as summarized on Slide 16. Strengthening our Oilseeds platform with targeted acquisitions is a top priority. Expanding our industry-leading Refined and Specialty Oils position to serve new and existing customers with differentiated products and services is an area of opportunity. We're also excited about the growth and demand for renewable feedstocks and plant-based proteins. And finally, we're continuing to invest in technology that will drive increased efficiency throughout our global operations.

Turning to Slide 17. At a $7 per share baseline, we should generate approximately $1.4 billion of adjusted funds from operations. After allocating capital to sustaining capex and preferred and common dividends to shareholders, we should have about $800 million of discretionary cash available annually for reinvestment in the business or returns to shareholders. This is an increase of approximately $200 million of cash per year from our $5 baseline. With that, I'll turn things back over to Greg for some closing comments.

Gregory Heckman -- Chief Executive Officer

Thanks, John. Before opening the call to Q&A, I want to offer a few closing thoughts. From where we sit, it's clear there's a structural shift underway in the consumer demand for sustainable food, feed and fuel. The conversations we've been having with existing and new customers are significantly different than they were even just six months ago. We're pleased with our position to help support meaningful change. And with our global platform, we have the ability to do so at scale. Consumers have demonstrated they will pay more to get what they care about, and it's our job to provide these alternatives to our customers. To meet this demand, we work with customers on sourcing sustainable alternatives under -- or helping them reformulate. We help food and feed customers source ingredients to minimize the carbon impact of moving them, and we work with fuel customers to source and transport feedstock for renewable fuels.

Importantly, we do all of this with the goal of driving value back to farmers to allow them to invest in stewardship, to support regenerative agriculture and to encourage production in optimal locations, which means getting the highest production per acre using the least amount of inputs. We're really excited about the role we can play in this accelerating shift. I want to end by thanking the team again for their continued incredible execution.

And with that, I'll open the call to your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Robert Moskow with Credit Suisse. Please go ahead.

Robert Moskow -- Credit Suisse -- Analyst

Hi, Thanks for the question. Good morning. I wanted to know when you've developed your baseline assumptions, did you consider a what-if scenario? If soybeans suddenly go back to historical levels, like $8, $9 a bushel because of a supply response, does that affect your baseline? And -- or do you just think the margins that you can make with all the renewable diesel activity and plant-based are structurally high, so it doesn't matter?

Gregory Heckman -- Chief Executive Officer

Yes, I'll start and let John come in. But yes, it's a holistic look at history as well as what's currently happening with the key supply and demand factors. And sure, we're seeing -- coming forward in the next couple of years, the market is doing its work, right? We're drawing more supply out. But the thing that is different this time is it wasn't one big crop shortage that's caused these higher prices. It's been demand and a structural demand shift in a number of areas. So yes, we rerolled all that into the thinking.

Robert Moskow -- Credit Suisse -- Analyst

Okay. And then one quick followup also on the baseline. Some agtech companies are introducing soybean varieties that require less processing so that the -- I guess, the protein can be extracted cheaper. Is that a structural benefit to you? Is it material enough to improve your earnings? Or -- because I guess you would get cheaper byproducts as a result.

Gregory Heckman -- Chief Executive Officer

Yes. How we think about technology, look, is the largest global LC crusher. We're, of course, working with people on seed technology. We're working on cover crops. We're working at continually becoming more efficient in our own operations. So as we're seeing the demand not only on the traditional food business and the feed customers, but now on the renewable diesel and the growth in the plant proteins, it's going to draw more innovation into the space. And as the largest operator here, it's our job to be in step with that and find ways to take advantage of that. So we're excited about it.

John Neppl -- Chief Financial Officer

But I would say, Rob, this is John. We haven't baked any sort of, I'll say, new technology into our thinking and our numbers. So it's really based on what's here today, what we're operating today and in what we think is a reasonable outlook on margin environment. So anything that would bolster, improve the margin environment for us going forward would be additive to that.

Robert Moskow -- Credit Suisse -- Analyst

Thank you.

Operator

The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Steve Haynes -- Morgan Stanley -- Analyst

Hey, This is Steve Haynes on for Vincent. Just wanted to ask -- it might be a little early to start talking about 2022, but when we think about your $7 baseline and maybe what might be implied for the second half of 2021? It might suggest something a bit lower than $7. So can you help us kind of think about where the exit rate for this year would kind of put us relative to your new baseline?

Gregory Heckman -- Chief Executive Officer

Yes. No, I'd say we see that differently. I think part of the confidence in raising the baseline to seven years is -- or to $7 and doing it this year is what we see in the momentum for the balance of this year and the structural shift in demand carrying into 2022 and 2023. We were very comfortable putting that baseline out there, because we feel we can exceed it here with what we're seeing right now for the next couple of years.

John Neppl -- Chief Financial Officer

Yes. I think it's important to note that the baseline and maybe it wasn't clear enough in my remarks, but it doesn't include the refining premiums that we're seeing today. It does include additional volume from refining as we go forward from the demand. But we did pull back the refining premiums to a more normalized level, assuming the long term that the energy consumers end up doing their own pretreatment. But for now, we're realizing much higher refining premiums than what we had built into the $7.

Steve Haynes -- Morgan Stanley -- Analyst

Thank you.

Operator

The next question comes from Adam Samuelson with Goldman Sachs.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, Thanks. Good morning everyone. So I guess, maybe first question, just on the revised 2021 outlook. And from the way you had characterized the increase in the press release and the prepared remarks, it doesn't seem like your second half outlook has really changed all that much from where you were in the first quarter or coming out of the first quarter. And I just want to confirm that that's true. And if so, just help us think about kind of the puts and takes around the world in terms of farmer selling, in terms of kind of the crush margin outlook that you see and the opportunities and risks as we think about the second half?

Gregory Heckman -- Chief Executive Officer

Sure. Yes, you see that correctly. And in fact, as always, we're looking at what we've delivered and then we're looking at the curves for the balance of the year. The curves are definitely weaker than the last time we talked. And so we've reflected that in the outlook. Now that being said, if you look historically, we'll be really surprised if they stay there, but that's what we see right now. You probably -- if we kind of talk around the world on the crush margin side, of course, North America is the strongest with China probably being the weakest. Europe has definitely felt some pressure as Argentina has ran harder this year and that meal got pushed out into Europe.But we're seeing Argentina now traditionally starts to slow down after harvest as well as the producer as we move toward an election, and maybe perceived higher risk of devaluation now starting to slow the marketing. So we'll see Argentine crush start to slow down.

As far as the farmer selling, of course, in Brazil, on the corn side, the producer has not been as quite as sold as prior, because you had a tough weather situation there in a smaller safrinha crop. Black Sea a little bit behind in corn, but in the U.S., just slightly ahead of history. And so the next kind of wave in corn selling will be, I think, as people see how the U.S. crop as the weather continues to play out and get a look at kind of what people feel comfortable about the yields, and we'll see the next marketing. The U.S. farmers pretty sold up on the 2021 crop, a little bit ahead of last year and I think that's really the story, again, of getting through the weather, which has got to play through August here, get comfortable with the yields and then we'll probably see another wave of marketing.

And then in Brazil, of course, we're behind prior year, which last year was pretty special, the way things formed up and with what happened with the FX and the heavy marketing. So we didn't really expect that to repeat. But overall, curve is pretty weak, but historically, we'll be really surprised if they stay there. And in fact, we're starting to see a little glimmer of improvement in China even this week.

Adam Samuelson -- Goldman Sachs -- Analyst

All right. That's really helpful. And then just a follow up on the new baseline. And I guess I'm trying to think about kind of where some of the pluses could come from on the capital allocation front. And I guess, first, it doesn't include really anything significant in terms of the Sugar JV or potential proceeds from kind of eventual sale or IPO of that business. And then if I'm looking at the excess kind of funds from operations that you would be generating in that scenario, just how we thought about the reinvestment or repurchase kind of benefits of that in the $7?

John Neppl -- Chief Financial Officer

Yes, Adam, this is John. We haven't assumed anything. So let's take Sugar, we kind of assumed status quo for Sugar. So not any additional contribution in terms of from earnings or additional impact from a divestment of that business. We've kind of left it as is, which we think is pretty conservative. And on the growage front, we have not assumed any big growth capital investments in that number. So as we talked about on one of the slides, anything that we do from an investment standpoint and growth projects will be additive to the number.

Adam Samuelson -- Goldman Sachs -- Analyst

Got it. So to be clear there, I mean, after your common dividend, you're going to be at -- there about 7% of equity cap today per year roughly that's been allocated, effectively from a growth capital perspective or reinvest or return to shareholder perspective?

Gregory Heckman -- Chief Executive Officer

Correct. So you can kind of think of that baseline as being sort of a '20, '23-ish number. But clearly, over time, either we're going to invest in growth projects or we're going to buy back stock, one or the other. We're not going to continue to accumulate cash forever. And both of those would be upside from the $7.

Adam Samuelson -- Goldman Sachs -- Analyst

That's really helpful, Thank you. The next question comes from Ben Bienvenu with Stephens. Please go ahead.

Ben Bienvenu -- Stephens -- Analyst

Hey, Thanks. Good morning everybody. I want to follow on Adam's question there just on capital allocation. And if I look on Page 16 in your slides, the buckets you provided, are those in order of importance or attractiveness and/or the opportunities that exist today? And if so, could you talk through that? If not, could you also just talk about where you see the greatest opportunities? And how you think about -- I know you've talked about wanting to make a risk-adjusted return profile in your investment paradigm that you put into place? Can you talk about that relative to the decision to buy back stock? And to Adam's point, on a yield basis, the stock is going to be quite cheap. So I would imagine that increases your hurdle rate for the stuff you would want to buy.

Gregory Heckman -- Chief Executive Officer

Yes. Let me start on the projects, and then I'll let John take it from there. But no, I think what's exciting now is we've turned to the growth phases, so the teams are really working across all the growth platforms and they'll be competing for that capital as we put it to work. And then as you said, and I'll let John talk to that, it always competes versus buybacks, right? That's always a baseline as well. But look, we're excited what we're doing on our Oilseeds platform as well as the origination distribution businesses. So we're doing all the debottlenecking. We're looking at some brownfield opportunities and then, of course, even looking at some greenfield opportunities, because there's going to be more capacity needed to meet this demand growth.

We'll continue to support our strong areas, but we're also looking to fill in some areas and whether that's with bolt-ons or if we can do something meaningful on the acquisition side. I mean we feel we're as good as anyone to do that. We've shown that we can execute and we're building the cash and looking for those strategic opportunities. Our specialty oils business, you saw a better performance there across that business and really gaining momentum. So we'll continue to look at not only the organic growth, but where we have bolt-on acquisitions or tuck-in acquisitions in that business. We really like that. And with all the reformulation and innovation that's going to be going on with customers is what's happening in the oil complex. We're really glad to have that in the portfolio.

And then, of course, what's happening in plant proteins, that trend is firmly in place. That's a business that will be a slower build for us. We're working with the customers and really working backwards in how we build that business. And so we'll be thoughtful. And again, it is about the returns. We're not going to run out and overpay for anything to do that. We're going to maintain our discipline around capital allocation. And lastly, on the renewable feedstocks, it supports really all of the business, but it's not only the products to serve that new demand, which is in the oil, which is really important. As you know, historically, a lot of times, the oil has been the drag for crush which just makes that no longer the case.

But it's not only the products, but it's the services that will be wrapped around that and as we work with people because the conversations are, everybody wants a lower carbon impact, and that's whether that's in feed, food or fuel. And so as we work with the producers to help them deliver that lower carbon product and work it all the way through the value chain into our customers, whether it's on the B2B side or the B2C side. So teams are working very hard. The portfolio rationalization over, and we've turned to growth and this is -- we're doing the hard work now but lots of great opportunities, and we're excited about it.

John Neppl -- Chief Financial Officer

Yes, Ben, in terms of returns, I think we've talked before about how we think about the allocation process. And we look holistically from the top of the house on where the best opportunities are and we obviously adjust return requirements based on geography, based on familiarity with that business, how it folds in closely with what we're doing or if it's an adjacency. But in any event, we're looking at things that are accretive to our targeted ROIC. So -- and again, it's a pretty disciplined centralized approach. And we do expect frankly, as we're generating additional cash down the road to utilize that availability, to continue to look at growth opportunities, I do expect for next year with the pipeline of capex that we have that we'll probably see a ramp-up in capital spending next year over what we're expecting this year.

Ben Bienvenu -- Stephens -- Analyst

Okay. Great. Greg, you mentioned China crush starting to maybe get a little bit better. Could you talk more broadly about China and the demand backdrop there? I know there were some corn cancellations a couple of weeks ago that rattled the grain markets. We've seen what pork prices have done. How do you feel about where we are on the curve for demand from China and how that bears out both in crush and origination as we move forward?

Gregory Heckman -- Chief Executive Officer

Sure. Look, let's start by -- the demand has been very solid there. If you look at -- the USDA is forecasting corn imports to be three times last year, so that's a different story than we have seen historically. And so yes, there'll be some ups and downs, but the trend has been more and been up, and we think that that's going to repeat and be sustainable. The higher corn prices did cause some wheat feeding. One thing about as they've rebuilt that commercial industry, right, they're running lease cost formulation now and when there was some wheat released from the reserve with the corn -- high corn prices, they reformulated and wheat being four points higher on protein, that did hurt meal demand. So we felt that.

We think we're kind of getting to the tail end of that. And then as you said, hog margins have softened, but that seems to have stabilized. And then crush margins were under pressure. This was kind of all happening at the same time. But again, that seems to have stabilized. And historically, if you look at that in that industry, the marginal producers will pull back and those crush margins will recover. So we feel good about the long term there, but there will always be some ups and downs in the demand look.

Ben Bienvenu -- Stephens -- Analyst

Ok, Thanks for the comment and Congratulations.

Gregory Heckman -- Chief Executive Officer

Thank you.

Operator

The next question comes from Luke Washer with Bank of America. Please go ahead.

Luke Washer -- Bank of America -- Analyst

Hi, Good morning. I wanted to ask about the refined -- the premium on the refined soybean oil versus the crude soybean oil. John, I think you talked about you expect that to come down as it relates to your new $7 EPS baseline. But we're seeing a lot of renewable diesel capacity coming on over the next really three to four years, and this premium seems to have blown out to the near double of what it historically has been. So when you think about that going forward, do you see that coming down sooner than later? Or do you think with all this renewable diesel capacity and most likely a lot of them are bringing on those pretreatment facilities, too, soon? We could see that premium really last for a few years here.

John Neppl -- Chief Financial Officer

Yes. We're really looking at normalization over time, but it's tough to predict how quickly that will happen. I think our view would be over the next year or two, it's going to be -- it will remain elevated. You're right, and we're seeing premiums nearly double what they have been historically. And a lot of the demand that's coming on in the near term won't have pretreatment. So it's really going to be a question of how fast and over what period of time. So we wanted to be conservative in our $7 baseline that we didn't assume extended time period of elevated margins in that area. But certainly, it's possible that, that will happen.

Gregory Heckman -- Chief Executive Officer

Yes. Here in the near term, you're exactly correct. We're starting to see the benefits of that already, and we really haven't seen the volume really start to pick up yet. That will happen here in the second half. And then to your point, it will take a couple of years for some of that to get built. But we wanted to separate the near-term environment from what we had put in the long-term baseline.

Luke Washer -- Bank of America -- Analyst

Yes. To take advantage, it looks like debottlenecking some of your oil. Are you exploring any greenfield potential too, to build a new crush plan? Or right now, it's just really focused on debottlenecking?

Gregory Heckman -- Chief Executive Officer

No, everything is on the table.

Luke Washer -- Bank of America -- Analyst

Got it. Okay. Helpful. And maybe just one more quick one. I was hearing a lot about supply chain disruption, particularly as it relates to ocean freight. And it sounds like in your merchandising business, it's almost helped you to some extent. I guess could you frame how that's helped your results or hurt your results and whether this disruption could last for a while? What that means for the back half of the year here?

Gregory Heckman -- Chief Executive Officer

Yes. The one thing about having a global system and over 30 of our own ports, when there is tightness and there is dislocation, it allows us to be able to help solve problems for customers and to manage our own processing businesses to serve customers with products. So from that standpoint, it becomes somewhat of an opportunity. Is it difficult? Is it challenging? Does it create a lot of complexity? Absolutely. Some of the other things, a little more problematic, no doubt, but they're not unique to us in our industry or unique to this industry alone. But if you look in North America, the shortage of truck drivers and the tightness in truck freight, and that's really challenging on the logistical side, and we're all working through that. And then, of course, the tightness in containers globally has made some supply chain management very difficult. But you switch modes of transportation where you can and work through stocks, try to manage stocks with customers to manage where you've got logistical risk, but that's part of having a great global platform and having a great team.

Luke Washer -- Bank of America -- Analyst

Thank you.

Operator

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

Ben Kallo -- Baird -- Analyst

Hey, Thanks for the question. Congrats, Greg and John. First a housekeeping question. On the JV, could you just remind us what the period is where you can't -- you couldn't do anything to spin or sell it? And then I have a much broader question.

John Neppl -- Chief Financial Officer

Sure. Yes. Ben, we're now in a -- we're past the time line in which we could go out and market our half of the ownership of the JV, so that was at 18 months. And so we passed that about a month or so ago. So we have the ability to go out market our half. At the same time, we'll have the ability to trigger IPO at the two year mark, which is December 1. And certainly, we're talking to our partner, we're assessing our opportunities down the road here. We're keeping an eye on what's happening in the Brazil financial markets as well as what's happening with Raizen and their recent IPO of a portion -- it's a small IPO relative to the size of their business, but we're watching that to see how the market reacts over time here and certainly keeping our options open.

Ben Kallo -- Baird -- Analyst

Got it. And then, Greg, you've been at the helm since April 2019. And with the new $7 baseline and like ADM establishing a baseline, a new baseline yesterday, I guess what of the $7 number has been under your control and your team's control of getting there versus the macro environment, whether it's a structural change or it's a temporary change? And if you could -- I know that's a lot there, but if you could slice it up into what you think has led to that $7 number from where you started from, that would be helpful.

Gregory Heckman -- Chief Executive Officer

Sure. Look, a lot of it are the things within our controls. We're not assuming any big macros in that. That is, if you think, right, what we've lived through the last two years, put aside the fact of trade war, ASF and COVID, what we lived through is -- we changed this portfolio. We're running a different set of assets. And we've gone through all the work at the same time of unwiring those from the machine as we did the divestitures. I mean, sure, these are distracting, tough projects and super proud of the team and what they've been able to do. We changed the operating model on a global company, and that took rewiring, right, rewiring the systems and the processes, and we're still in the final throes of that and getting better information more quickly to all of our industrial and commercial teams.

And then the disciplined approach that we're taking on risk management, and that really focusing on the assets and how we're running the assets and how we're managing the earnings at risk in those assets in the tens of thousands of customers that we've got. And then as we've talked about the discipline around our industrial and seeing -- making improvements in how we run those assets and how the industrial and commercial teams work together and looking at the best of Bunge globally to learn from ourselves as we think like a global company and make that systemic improvement that we get to keep. And then we've done this in some really tough environments and with a lot of people remotely, and that's given us a lot of confidence, even since a year ago, when we were putting this baseline out amid this change.

So this is the underlying -- the company here, the great global platform, the great team and the way that we're operating and getting some miles with it. Now the environment has improved. So when you say a $7 baseline, remember, that's a framework. So when you see the crush margins higher than what's in the baseline, that's showing how the over improvement is there, and that's happening in soy and soft crush. And when you see the edible oil volumes and now margins on the refining overages higher than what's in the model, and that's what we were speaking to. That's overperforming the baseline. And that's what we talked about. We're comfortable with what we're seeing here for the next couple of years, and that's why it was time to raise the baseline and also why we were comfortable raising the outlook for this year.

Ben Kallo -- Baird -- Analyst

Thank you.

Operator

The next question comes from Ken Zaslow with Bank of America -- excuse me, Bank of Montreal. Please go ahead.

Ken Zaslow -- Bank of America -- Analyst

Hey, Good morning guys.It's still Ken with Bank of Montreal. [Speech Overlap] Just a couple of questions. One is, I wanted to confirm that you're actually increasing your implied EBITDA for mid-cycle more than what you're increasing the EPS given that you're raising the tax assumptions. Is that a fair assumption? So the EBITDA, the assumption is actually stronger than even the EPS raise from $5 to $7, if I didn't imply?

John Neppl -- Chief Financial Officer

Yes. That's the -- the biggest driver is tax. And then we do have a small increase in share count just over time through normal comp, equity comp structure, but that's pretty minimal. But those would be the two drivers.

Ken Zaslow -- Bank of America -- Analyst

So the EBITDA is going -- is increasing -- your mid-cycle EBITDA is increasing at a faster case than your EPS?

John Neppl -- Chief Financial Officer

Right. Correct. Yes.

Ken Zaslow -- Bank of America -- Analyst

Okay. So cash flow matters? Okay. I just want to make sure. The second question...

John Neppl -- Chief Financial Officer

It definitely matters.

Ken Zaslow -- Bank of America -- Analyst

Right. That's what I'm saying. Effective tax rate is less important than the EBITDA that's associated with it. That's what I'm saying. I just want to make sure. If I did it implicitly, I can back into what the EBITDA calculation would be, and it would be higher than the EPS group. That's what I just want to make sure.

John Neppl -- Chief Financial Officer

Yes.

Ken Zaslow -- Bank of America -- Analyst

Second question, is there any reason not to believe that 2022 will be at least mid-cycle numbers? Just making sure I got that just through all the context.

Gregory Heckman -- Chief Executive Officer

Yes. You're correct. And with what we see right now, we expect it to be above mid-cycle numbers. I think the next couple of years -- yes, the next couple of years with the momentum and what we see here, and look, it takes time to build things, whether that's capacity or pretreatment or some of the things that have to happen, it's -- some of the oil that has to find its way into the U.S., that's complicated. So there's a big shift going on, and it's going to take some time for that to happen.

Ken Zaslow -- Bank of America -- Analyst

Okay. And not getting ahead of myself, but I get the sense that you're trying to continue to build on the mid-cycle earnings over time through capex. So if in three years or whatever the years are, as you build the capacity and use your capital judiciously, there is -- you're trying to build a higher mid-cycle earnings over time as well, right? This is not the end of the mid-cycle number. Is that a fair way of thinking about it?

Gregory Heckman -- Chief Executive Officer

That is correct. No, no, this is the beginning, if you will. So if we make an acquisition, we'll come in and talk about what change that makes to the baseline. When we make a sizable capital investment, we'll come in and talk about what change that makes to baseline. So those will be probably the next things you hear about the baseline are when we make investments and the difference that makes to the underlying earnings power of the machine.

John Neppl -- Chief Financial Officer

Yes. Think of it another way, Ken, to hit $7 over time as we reinvest capital wisely in the company, it lowers that bar on the need -- the margin we need to get to $7 will drop. So today, we're at, call it, 35 and 50 over time as we reinvest, those numbers would go down in terms of the margins we would need to hit $7. That's another way to look at it.

Ken Zaslow -- Bank of America -- Analyst

Thank you. Thanks alot

John Neppl -- Chief Financial Officer

Thank you.

Operator

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

Gregory Heckman -- Chief Executive Officer

Thank you. Just want to thank everybody again for your interest in Bunge. To wrap up, we're really pleased with the continued outstanding performance. We're pleased to be able to revise our outlook. This global platform just continues to demonstrate its resiliency. And with our role in the global food supply chain, we're in a great position to benefit from what we see as an accelerating shift in demand for sustainable food, feed and fuel, and we look forward to talking to you again soon. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Ruth Ann Wisener -- Vice President of Investor Relations

Gregory Heckman -- Chief Executive Officer

John Neppl -- Chief Financial Officer

Robert Moskow -- Credit Suisse -- Analyst

Steve Haynes -- Morgan Stanley -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Ben Bienvenu -- Stephens -- Analyst

Luke Washer -- Bank of America -- Analyst

Ben Kallo -- Baird -- Analyst

Ken Zaslow -- Bank of America -- Analyst

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