Cargill profits plunge 88 percent

Cargill profits plunge 88 percent

Mike Hughlett
Minneapolis Star Tribune
January 10, 2012

Cargill Inc. posted its weakest quarterly profit in a decade Tuesday -- well below its own forecasts -- as the company continued to face financial market turmoil and cyclical downturns in some of its key businesses.

The Minnetonka-based agribusiness giant, a venerable commodity trader and producer of everything from chocolate to salt, saw fiscal second quarter earnings plummet 88 percent from a year earlier, bottoming at $100 million.

It was the second straight quarter in which Cargill's earnings were down steeply from a year ago, and the worst quarter as far as total earnings since 2001's fourth quarter, when the firm lost $87 million.

"The depth of Cargill's earnings decline is concerning," Judi Rossetti, a debt analyst at Fitch Ratings, said in an e-mail. "However, Cargill did generate several years of very strong earnings in recent years, so it is important to view Cargill's current earnings struggles from that perspective."

Cargill's sales during its fiscal second quarter ending Nov. 30 were $33.3 billion, up 17 percent from $28.5 billion a year earlier. But last year's second quarter earnings were $832 million.

Chief Executive Greg Page said in a news release that the quarter was "significantly below expectations, especially in contrast to last year when we posted our strongest quarter ever."

Still, Page said he is optimistic for a turnaround.

"Cargill has been through difficult cycles before, made changes and emerged stronger for it. We are confident that the actions we are taking to create a more agile enterprise will better position us in the current economic environment."

In recent months, Page has communicated to Cargill's more than 100,000 worldwide employees about the need to change aspects of the company's culture, notably to become more nimble, speed up decision making and cut down on "process for the sake of process."

At the same time, the company has been dealing with rising costs -- they were up 16 percent in its last fiscal year ending May 31, and increased further during its first quarter, according to an internal Cargill e-mail obtained by the Star Tribune.

Cargill has reacted by reducing capital spending and cutting costs, including a rare system-wide layoff of up to 2,000 people -- 1.5 percent of its global workforce -- that the company announced in December. That layoff includes under 250 people in Minnesota, where the company employs about 6,600, mostly in the Twin Cities.

Market swings

Once again last quarter, the company said its extensive commodity trading and asset management business were buffetted by wild market gyrations due to the European financial crisis.

Markets have been driven more by political uncertainties than supply and demand fundamentals, Page said in a news release. That's caused Cargill to lower its risk profile in commodity trading, and less risk can translate into less return.

Cargill also noted that the performance of its big sugar business, which includes both trading and production, was "poor" during the last quarter.

The Switzerland-based head of Cargill's global sugar business left the company abruptly about a week after its most recent quarter ended.

Cargill has also continued to face cyclical profit pressures in some of its key business, notably soybean and meat processing. The company's meat business posted one of its weakest quarters during the second quarter, compared with one of its best quarters a year ago.

While Cargill is privately held, it issues publicly-traded debt, so its financial performance is monitored by Fitch and other debt ratings agencies.

Despite the grim second quarter, Rossetti said Fitch is not likely to downgrade Cargill's debt ratings, unless current earnings trends continue "beyond the near term."

Chris Johnson, a debt analyst at Standard & Poor's who follows Cargill, had a simililar conclusion. "This is a cyclical company, and directionly it's in a cyclical trough," Johnson said.

Gee... corporations are supposedly sitting on tons of dough and keeping all the eeeeevil profits for themselves.

TexasBlue wrote:Gee... corporations are supposedly sitting on tons of dough and keeping all the eeeeevil profits for themselves.

Yeah... that's the propaganda isn't it.

The article didn't say that the company was going to go bankrupt, did it? So it may very well have huge profits stashed away, that doesn't change the current profit situation...

BubbleBliss wrote:
The article didn't say that the company was going to go bankrupt, did it?

Nobody ever said that it was or even suggested that.

BubbleBliss wrote:So it may very well have huge profits stashed away, that doesn't change the current profit situation...

If they had huge profits stashed away, the article would've said such. No corporation can "hide" profits.

BubbleBliss wrote:
The article didn't say that the company was going to go bankrupt, did it So it may very well have huge profits stashed away, that doesn't change the current profit situation...

No, it didn't say they were going bankrupt. But given the facts that they reduced capital spending, implemented cost cutting measures and laid off 2000 employees, I think it's fairly safe to say they're not sitting on a mountain of cash reserves.

Dbl, is there a law on corporations posting what they made in profits?

I know they can't hide them. No bank would allow that (on US soil).

TexasBlue wrote:Dbl, is there a law on corporations posting what they made in profits

I know they can't hide them. No bank would allow that (on US soil).

Yes, any publicly traded company must file detailed annual reports on earnings and expenditures. And they also file quarterly reports on earnings as well.

dblboggie wrote:

TexasBlue wrote:Dbl, is there a law on corporations posting what they made in profits

I know they can't hide them. No bank would allow that (on US soil).

Yes, any publicly traded company must file detailed annual reports on earnings and expenditures. And they also file quarterly reports on earnings as well.

I figured there had to be a law.

How about them there beans, Bubbles?

No matter. The company can still have huge cash assets... buildings, trucks, planes, ships, machines, patents, etc. I'm aware that every company has to submit an annual report. Those people who have no experience in such accounting things probably won't be able to read much information out of them.

Laying off employees and other cost cutting measures doesn't mean the company is doing bad, it just means that it's not doing as well as the previous year. If those company didn't cut costs, their stocks would fall and their investors would possibly abandon them. If Apple was to sell less IPhones next year, they'd try to cut costs as well, even though they're the biggest company in the world just to make up for the loss and to keep their stock share steady.

BubbleBliss wrote:
No matter. The company can still have huge cash assets... buildings, trucks, planes, ships, machines, patents, etc. I'm aware that every company has to submit an annual report. Those people who have no experience in such accounting things probably won't be able to read much information out of them.

Laying off employees and other cost cutting measures doesn't mean the company is doing bad, it just means that it's not doing as well as the previous year. If those company didn't cut costs, their stocks would fall and their investors would possibly abandon them. If Apple was to sell less IPhones next year, they'd try to cut costs as well, even though they're the biggest company in the world just to make up for the loss and to keep their stock share steady.

Actually Bubbles, assets such as buildings, equipment, etc., are not considered as "cash" assets but as "fixed" or "capital" assets. As such, they are not considered as liquid assets and would do little, if anything, to offset business losses. In fact, attempting to sell off such assets (which could only be sold at a loss) would be unadvisable due to their obvious utility in production should things turn around, but also due to the fact that such capital assets represent real tax savings as said assets are amortized over time.

As for those annual reports, those people responsible for reporting on businesses have, or have access to, the needed expertise to decipher those reports. And you can be sure that the shareholder versions of those reports are going to be written in such a way as to be understood by most lay shareholders.

As for your 2nd paragraph, that is fairly accurate, save that Apple is hardly the biggest company in the world.

True, but those assets still mean that the company is not going broke because they are after all assets a company can benefit from if needed. Also, depending on the type of assets, they may very well be used to offset business losses. Owning and renting property to other companies or people, investments in property that can be sold for a profit, etc. can all be used to offset business losses. That occurs more than you'd think.
Your claim that those assets can only be sold at a loss is thereby false.

We were talking about regular people looking into the annual reports, not people who have expertise in that field or shareholders.

And Apple is very well the biggest company in the world, it passed Exxon just last year, even tho it has been an on/off battle for the top.

http://www.guardian.co.uk/business/2011/aug/09/apple-pips-exxon-as-worlds-biggest-company