Lower meat earnings drive down Cargill’s Q2

Compared to its "strongest quarter ever" in the year-earlier period, it could be argued that Cargill’s second quarter (Q2) in fiscal 2012 had few places to go other than down.

However, the privately-held agrifood giant, which releases limited earnings data on a quarterly basis, noted Tuesday its combined meat businesses "experienced one of their weakest quarters."

Minneapolis-based Cargill on Tuesday reported overall earnings of $100 million from continuing operations for the three months ending Nov. 30, down from $832 million in the year-earlier Q2. Six-month earnings fell from $1.53 billion to $336 million (all figures US$).

By comparison, Q2 revenues were $33.3 billion, up from $28.5 billion in the year-earlier period. Six-month revenues were $67.9 billion, up from $54.2 billion at the halfway mark in fiscal 2012.

Company CEO Greg Page, in a release, described Q2 as "significantly below expectations."

The company, whose Canadian operations are headquartered in Winnipeg, is one of Canada’s biggest merchandisers and food processors, and currently the country’s third-biggest grain handler. Its meat plants in Alberta and Ontario make up about 55 per cent of Canada’s beef processing market.

Worldwide, Cargill’s food ingredients and agriculture services businesses generated "solid earnings," Page said. "At the same time, our commodity-based trading and asset management businesses faced significant challenges."

For one, he said, commodity and financial markets were "driven more by political uncertainties than by underlying supply and demand fundamentals. Second, our performance in the sugar market was poor. Additionally, our meat businesses on a combined basis experienced one of their weakest quarters."

Furthermore, he said, Cargill in its Q2 booked "a significant number of one-time items, including asset impairments, and acquisition and integration expenses."

"Well off pace"

Cargill said its food ingredients and applications segment was its largest contributor to Q2 earnings, with its food ingredient businesses nearing the previous Q2’s "near-record" performance.

However, the company’s global group of meat businesses was "well off last year’s record earnings pace," citing the shrinkage in U.S. fed cattle supplies, which pressured margins in beef. Other meat units also faced higher raw material costs, Cargill said.

Earnings in the company’s agriculture services segment were also lower than in the prior Q2, "a period in which market opportunities for U.S. grain handling and export, and for global feed ingredient merchandising, were more favourable."

Costs related to Cargill’s recent takeover of the Provimi animal nutrition company were also booked in its ag services segment. Both the 2011 and 2012 results reported Tuesday excluded any earnings from Cargill’s now-divested majority stake in the Mosaic Co. fertilizer business.

Related story:

Cargill plans job cuts worldwide, Dec. 5, 2011

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