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Text: Before we get started, I want to let you know that we have slides to accompany our discussion.
Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are posted on our website as well.
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.
Let's start with an overview of the quarter, turning to Slide four.
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 earnings per share 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 earnings per share 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.
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 earnings per share 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.
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.
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%.
As Greg mentioned in his remarks, taking into account our strong Q2 results and our outlook, we have increased our full year adjusted earnings per share 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.
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.

user
bunge sees fy adjusted earnings per share at least $8.50.
q2 gaap earnings per share $2.37.
sees fy adjusted earnings per share at least $8.50.
sees 2021 capital expenditures in range of $450 to $500 million.
qtrly adjusted earnings per share $2.61.
in agribusiness, results are expected to be modestly up from previous outlook, but still forecasted to be down from 2020.
now expects 2021 capital expenditures in the range of $450 million to $500 million.
updating mid-cycle earnings baseline with $2 per share increase reflecting structural changes in oilseed market environment.

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