Cargill to Likely Slow Pace of Divestitures

Cargill Inc. is likely to slow its pace of divestitures in the coming year as a wide-ranging revamp of the agricultural giant starts to show results.

After shedding about $2.4 billion worth of assets in the past year, including pork-processing plants, a steelmaking venture and crop insurance, Cargill aims to run its trading and food-production operations more profitably and invest in businesses where the company can claim a leading position, its chief financial officer said Wednesday.

Cargill over its past fiscal year has invested about $3 billion in new and established businesses ranging from aquaculture to meat-processing, part of a longer-running effort by Chairman and Chief Executive David MacLennan to refocus the 151-year-old agricultural conglomerate on higher-margin products and services that are in step with consumers' evolving preferences.

"In 2016 we had a very big year in terms of portfolio realignment," Cargill CFO Marcel Smits said in an interview. In terms of asset sales, "2017 is not going to be at the scale of 2016."

Cargill, the largest U.S. private company in terms of sales, is working to improve its performance following several years of declining profits and agricultural-market pressures. The family owned Minnesota company on Wednesday reported a 50% increase in full-year earnings for its fiscal 2016, though profits fell 15% after adjusting for gains on asset sales and other one-time events.

Cargill's annual sales have dropped by about one-fifth since 2013, partly reflecting lower prices for commodity crops like corn and soybeans as global supplies have swelled. While rising grain supplies have provided cheaper raw materials for processing, they have muted some market swings that create trading opportunities for grain merchants like Cargill and rivals Archer Daniels Midland Co. and Bunge Ltd.

In response Cargill has sold and spun off businesses and is reorganizing others, such as its food ingredients division, which makes vegetable oils for deep fryers and malts for brewers. Cargill replaced the division's five managers with one and fused 25 business units into five global product groups, which Mr. Smits said helped it deliver the highest profits among Cargill's businesses in the quarter ended May 31. Cargill also has rolled out new products, like non-GMO vegetable oils.

Mr. Smits said Cargill is making similar changes to its core grain trading and processing business, which recorded a rare loss in Cargill's fiscal fourth quarter partly because its traders were on the wrong side of a 5.6% surge in soybean prices in May. The company aims to boost efficiency in its processing plants as it exits other businesses like retail stores that sell farm supplies to farmers.

The portfolio shifts, which have included the $1.5 billion acquisition of a Norwegian fish-feed producer and expansion of Cargill's for a possible sale or revampingU.S. meat processing capacity, reflect a change in Cargill's thinking, prioritizing profitability over diversification and expansion, Mr. Smits said.

"In the past Cargill would've said, if businesses make a decent return, that's good," he said. "The real shift is, that's not good enough. We have to be clear we can be leaders in the industry."

He said Cargill will continue to evaluate its many lines of business, some of which continue to struggle. Cargill's industrial and financial services division lost money in both the quarter and Cargill's fiscal year, which the company said stemmed from an adjustment to contracts in its ocean shipping business. The company recorded a small loss for the quarter in its energy business and profits in its metals business, both of which are under review for a possible sale or revamping.

Cargill reported a fiscal fourth-quarter loss of $19 million, which doesn't include gains on sales and other one-time events, compared with a $230 million profit for the same quarter last year. Including deals and other charges, Cargill earned $15 million in the quarter ended May 31, compared with a $51 million loss for the prior-year period.

Corrections & Amplifications: Cargill's $230 million profit in the fourth quarter of last year doesn't include gains on sales and other one-time events, An earlier version of this article incorrectly stated the profit was an unadjusted figure.

Revenue for the quarter declined 5% to $27.1 billion.

Write to Jacob Bunge at [e-mail]

(END) Dow Jones Newswires

August 10, 2016 16:15 ET (20:15 GMT)

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