Cargill has reported an 88% drop in profits in the second quarter, as volatile financial markets hit its commodity-based trading and asset management businesses.
The Minneapolis-based agribusiness giant reported $100m of profit from continuing operations for the quarter to November 30, 2011, down from $832m for the prior year period. The figures don't include results from Cargill's recently divested majority stake in feed and fertilizer firm The Mosaic Company.
Meanwhile, revenues were up 17% to $33.3bn – representing the third consecutive quarter in which the company has reported tighter margins.
"The second quarter was significantly below expectations, especially in contrast to last year when we posted our strongest quarter ever," said Cargill chairman and CEO Greg Page.
As a private company, Cargill does not publish its full financial results, nor give a detailed breakdown of performance across its five business divisions, but it said in a statement that earnings for its food ingredients and applications sector on a combined basis was the largest contributor to second-quarter earnings, and almost matched last year's near record performance.
However, its meat businesses were “well off last year’s record earnings pace”, as they faced higher livestock and feed costs.
"Our commodity-based trading and asset management businesses faced significant challenges,” Page said. “First, 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. Finally, we recognized a significant number of one-time items, including asset impairments, and acquisition and integration expenses."
For other business divisions, the company said that earnings were solid in agricultural services but lower than in the previous year, and its origination and processing segment was negatively affected by “the challenges of operating in commodity markets driven more by the volatile political environment than by the underlying supply and demand fundamentals” as well as its performance in the sugar market.
Strong performance in risk management was more than offset by weaker results in the financial segment, the company said, due to ongoing global economic turmoil, and its industrial earnings were moderately down on higher freight expenses.
Page added that he was optimistic about Cargill’s earnings prospects for the rest of the year.
"Cargill has been through difficult cycles before, made changes and emerged stronger for it,” he said. “We are confident that the actions we are taking to create a more agile enterprise will better position us in the current economic environment."