July 19, 2017 / 9:40 PM / a year ago

UPDATE 2-Bunge cutting costs, restructuring as grains glut stings

(Adds analyst comment, details on upcoming earnings release)

By Karl Plume

CHICAGO, July 19 (Reuters) - Agricultural commodities trader Bunge Ltd said on Wednesday it was cutting costs and restructuring its global operations in response to tough market conditions and its shares fell in after-hours trading.

Bunge, which was targeted for a possible takeover by commodities trader Glencore Plc in May, said it would cut capital expenditure targets for 2018 and 2019 and that its second-quarter profit would fall below the range of analysts’ estimates.

Massive global grain stockpiles and low prices following four years of bumper harvests around the world have dragged down profits for Bunge and other global grains traders, including rivals Archer Daniels Midland Co, Cargill Inc and Louis Dreyfus Co.

The companies, known as the ABCDs of grain trading, have tried to diversify away from commodities trading through asset sales and buying higher-value businesses like flavorings and natural ingredients.

“Current fundamentals in the ag cycle are challenging, so companies are increasingly focusing on reducing costs,” said Farha Aslam, food and agribusiness analyst with Stephens Inc.

But while the new initiatives have begun to generate some stronger results, a downturn in commodities markets has more than offset the gains and mergers are now being touted as an option. Bunge’s chief executive, Soren Schroder, said in May that his company could lead consolidation.

Bunge expects its latest plans would reduce overhead costs by $250 million once the plan is fully implemented by the end of 2019. The company will give detailed second-quarter results on Aug. 2, one day after ADM reports its earnings.

Limited farmer sales of crops in South America, home to a large share of Bunge’s elevators and processing plants, squeezed margins for the company’s agribusiness division, its largest in terms of revenue. Farmers are holding back supplies in the hope of better prices for their crops.

“Market conditions during the second quarter were challenging, driven by unprecedented farmer retention in South America, which pressured margins throughout the chain,” Chief Executive Soren Schroder said in a statement.

It would be Bunge’s second consecutive weak quarter after first-quarter profit fell 82 percent. Bunge said it expects stronger results in the second half of 2017.

The company scheduled a conference call to discuss the plan on Thursday at 11:00 a.m. EDT (1500 GMT).

Bunge shares fell 3.4 percent to $76.00 in after-hours trade. (Reporting by Karl Plume in Chicago; Editing by Tom Brown, Richard Chang and Diane Craft)

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