Helped by the strong performance of its core agribusiness segment, Bunge (NYSE: BG) posted second-quarter profits that came in ahead of Wall Street estimates. And the future looks promising. Is there an investment opportunity here?
A look at the numbers
Year-over-year revenues for the quarter surged 32%, from $10.97 billion to $14.48 billion, as supply constraints around the world inflated grain prices. The proof is in companies such as PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS), which have reported strong quarterly earnings on higher demand for agricultural products.
Foreign exchange gains of $77 million enabled Bunge to post a profit of $316 million this quarter. That figure, however, was down 82% from the year-ago quarter's earnings of $1.77 billion, which got a boost from asset sales of $2.44 billion.
Bunge's total debt increased to $5.02 billion from $3.84 billion a year ago. However, it sports a current ratio of 1.9, and its interest coverage ratio stands at 5.8, so squaring off its short-term debt liabilities shouldn't be a difficulty.
Short-term plans
Last time out, analysts pointed to an export ban in Russia for a rise in grain prices. The Black Sea region has played a major part in the global grain trade in recent times, and now that trade has resumed there, agribusiness producers are looking to cash in. Archer Daniels Midland (NYSE: ADM) is planning to expand its operations there, and Bunge is looking to follow suit.
Bunge appears to be on track with its global expansion plans, as it sees increased earnings from foreign markets in the long run. It recently entered into a deal with SEACOR Holding (NYSE: CKH) to help build a river grain export terminal in Illinois. This terminal has access to a number of international and domestic ports and will help Bunge effectively transport grains in and out of the country.
The Foolish bottom line
Bunge sees its agribusiness segment driving growth through the year, helped by harvests in the Northern Hemisphere and more emphasis on product in the face of lesser supply. However, it expects its oilseed segment to affect margins as a result of excess processing capacity in South America. Investors should take note.
