Update Bunge (BG)

10/29/2009 8:30 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

On October 22 Bunge (BG) reported disappointing revenue for the third quarter of 2009, missing Wall Street estimates by $900 million. And then the company guided Wall Street to expect earnings of just $3.10 to $3.50 for the full 2009 year instead of the $4.69 analysts had projected

Clearly Bunge hasn’t yet seen a turnaround in its markets.

The big problem seems to be fertilizer. Not only are demand down and price—as they are for all of the world’s fertilizer makers—but Bunge is still working through its inventory of higher priced raw materials. That last problem should be solved by December when, if the company is right about its sales projections, it will have worked through higher cost inventory and have brought costs in line with current market prices.

The company’s soy bean processing and edible oils businesses, however, produced a strong quarter that cancelled out some of the problems in the fertilizer segment. Looking forward, the company expects that a big harvest in North America plus a rebound in South American supply will give the company big crops to process at healthy margins since Argentina, which is expected to recover from 2009’s drought to produce a large crop in 2010, is low cost base of operations for Bunge.

Unfortunately, I expect that the weak third quarter earnings and the reduced guidance for the rest of 2009 will have a negative effect lasting more than a few days. On October 22, based on those weak results, Standard & Poor’s put the company’s corporate credit rating on watch with negative implications. The company’s $4.1 billion in debt is currently rated BBB-. The action by S&P isn’t a guarantee that the company will get downgraded but it is enough to make investors worry.

That’s never good for a stock’s price.

Full disclosure: I do not own or control shares of any stock mentioned in this post.
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