This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk08: Good morning and welcome to the Bungie fourth quarter 2022 earnings release and conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Ruthann Wisner, Vice President of Investor Relations. Please go ahead.
spk06: Thank you, Drew, and thank you for joining us this morning for our fourth quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the Investors section of our website at bungie.com. under events and presentations. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to slide two and remind you that today's presentation includes forward-looking statements that reflect Bungie's current view with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bungie has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and we encourage you to review these factors. On the call this morning are Greg Heckman, Bungie's Chief Executive Officer, and John Kneppel, Chief Financial Officer. I'll now turn the call over to Greg.
spk13: Thank you, Ruthann, and good morning, everyone. We capped off another exceptional year for Bungie with a solid fourth quarter performance. Our continued strong results speak to the flexibility of our platform and team, which, as I've said before, are built to adjust and even excel in volatile times. In this year that had more than its share of ups and downs, our team proved their ability to help our customers, both farmers and end users globally, manage risks, and navigate food security issues against the backdrop of regional conflict, weather impacts, and many other factors. I want to thank the team for their continued dedication to strong execution, which allowed us to build on our positive momentum and deliver our fourth consecutive year of earnings growth. We're focused on our mission and it shows in our financial results. Looking at the fourth quarter numbers, Adjusted core segment EBIT came in above last year's results, largely driven by strong performance across all regions in refined and specialty oils. John will go into our results in more detail, but I want to note our performance reflects our rigorous and disciplined approach to the business, including our focus on operating costs and the returns on capital we're investing. Looking ahead to 2023, We expect the market environment to be similar to 2022, with many of the same drivers still in place. That includes a globally tight crop supply, strong demand for our core protein meal and vegetable oil products, and the continued impact to global trade of commodity price volatility and supply chain disruptions. We also expect to see global demand for feedstocks and related services for renewable fuels continue to grow. Based on what we see in the market and the forward curves today, we expect full year adjusted EPS of at least $11 per share for 2023. And with that, I'll hand the call over to John to walk through the results and the outlook in more detail.
spk02: Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on slide five. Our reported fourth quarter earnings per share was $2.21 compared to $1.52 in the fourth quarter of 2021. Our reported results included a negative mark-to-market timing difference of 56 cents per share and a negative impact of 47 cents per share related to one-time items. Adjusted EPS was $3.24 in the fourth quarter versus $3.49 in the prior year. Full year results for 2022 were $10.51 versus $13.64 in 2021. Adjusted full-year EPS was $13.91 versus $12.93 in the prior year, an increase of nearly $1 per share. Adjusted core segment earnings before interest and taxes, or EBIT, was $804 million in the quarter versus $766 million last year. Agribusiness finished with an outstanding year with another strong quarter that was in line with last year. In processing, results were primarily driven by North America, which benefited from the combination of large soy and canola crops and strong meal and oil demand. Partially offsetting this strong performance were lower results in Europe and South America. Europe was negatively impacted by higher energy costs and lower volume that included increased planned downtime and the idling of our operations in Ukraine. In South America, tight bean supplies reduced margins. In merchandising, higher results in global grains were more than offset by low results in global oils marketing, which had a particularly strong prior year. Refined specialty oils finished another record year with strong fourth quarter results of $222 million, up $68 million compared to last year. All regions performed well in the fourth quarter, benefiting from strong food and renewable fuel demand, with notable year-over-year improvements in Europe, Asia, and South America. In milling, the loss in the quarter is primarily driven by low origination volume and high supply chain costs, reflecting the small Argentine wheat crop that negatively impacted our merchandising operations. Results in the prior year benefited from contributions from our Mexico wheat mills, which we sold in the third quarter of 2022. Corporate and other was in line with last year. A decrease in corporate expenses primarily related to the timing of performance-based compensation accruals, was offset by results in our captive insurance program and lower results in Bungie Ventures. Improved results in our non-core sugar and bioenergy joint venture were primarily driven by higher sugar prices, which more than offset lower ethanol margins. For the quarter, report of income tax expense was $131 million compared to $64 million for the prior year. The increase was due to higher pre-tax income and a year-to-date adjustment in actual geographic earnings mix. Adjusting for notable items and mark-to-market timing, the effective tax rate for the full year was 17% compared to approximately 16% for the prior year. Debt interest expense of $76 million in the quarter was up compared to last year due to higher interest rates partially offset by lower average debt levels. Also impacting the quarter were foreign currency borrowings in certain countries where interest rates were high. However, the incrementally higher borrowing costs were fully offset with currency hedges reported in gross margin. Let's turn to slide six where you can see our positive EPS and EBIT trends adjusted for notable items and timing differences over the past five years. This not only demonstrates the power of our global asset networking capabilities, but also the continued outstanding performance by our team. Each of these years brought a different set of rapidly changing circumstances, and the team successfully navigated through them while also executing on numerous company initiatives. As shown on slide seven, our full-year addressable SG&A increased modestly year over year, reflecting a resumption of more normal business activities, as well as increasing investments to strengthen our capabilities and to drive growth. particularly in technology. We expect higher SG&A in 2023 related to these initiatives, which we have considered in our outlook. Slide 8 details our capital allocation of the approximately $2.4 billion of adjusted funds from operations that we generated in 2022. After allocating $306 million to sustaining CapEx, which includes maintenance, environmental health and safety, and $8 million to preferred dividends, on shares now converted to common equity, we had approximately $2 billion of discretionary cash flow available. Of this amount, we paid $341 million in common dividends, invested $249 million in growth and productivity capex, and repurchased $200 million of common shares. The approximately $1.3 billion of retained cash flow was invested in additional working capital and toward reducing debt. As we laid out in our earnings growth framework in the second quarter of last year, we expect to repurchase about $250 million of stock each year, but actual amounts could vary. During 2023, we expect to deplete the remaining $300 million of our existing $500 million program, which was announced in October 2021, and approve an additional share repurchase program. Moving to slide nine, we finished 2022 with a total capex spend of $555 million, which was about $50 million lower than we expected in our Q3 forecast. The primary drivers of the reduction were supply chain delays on long lead time equipment, as well as additional project planning time as we look more closely for opportunities to offset inflationary pressures. We expect continued delays in 2023, which are reflected in our current outlook. Lead times for simpler equipment and parts are showing signs of normalizing. However, due to increased project costs, we are reassessing the scope and timing of certain discretionary investments. As shown on slide 10, at year end, readily marketable inventories, or RMI, exceeded our net debt by approximately $3.2 billion. This reflects our use of retained cash flow and proceeds from portfolio actions to fund working capital while reducing debt. Slide 11 highlights our liquidity position. At year end, all $6.7 billion of our committed credit facilities was unused and available. This provides a sample liquidity to manage our ongoing capital needs. Please turn to slide 12. For the trailing 12 months, adjusted ROIC was 21.6%, well above our RMI adjusted weighted average cost of capital at 6.6%. ROIC was 15%, also well above our weighted average cost of capital at 6%. The spread between ROIC and adjusted ROIC reflects how we use RMI in our operations as a tool to generate incremental profit. Moving to slide 13. For the year, we produced discretionary cash flow of approximately $2.1 billion and a cash flow yield of 20%. Please turn to slide 14 in our 2023 outlook. As Greg mentioned in his remarks, Taking into account the current margin environment and forward curves, we expect full year 2023 adjusted EPS of at least $11 per share. In agribusiness, full year results that are forecasted to be down from last year, the slightly higher results in processing are more than offset by lower results in merchandising, which had a very strong prior year. While we are not forecasting the same magnitude of margin-enhancing opportunities that we captured in the past year, we do see potential upside to our outlook if strong demand and tight commodity supplies continue throughout the year. In refined and specialty oils, we expect a favorable environment to continue in 2023. However, we expect segment results to be modestly down from 2022's record year, which reflect very strong results in all regions. In milling, full year results are expected to be down from last year, but in line with historical performance. In corporate and other, results are expected to be in line with the last year. In non-core, full-year results in our sugar and bioenergy joint venture are expected to be in line with the last year. Additionally, the company expects the following for 2023. An adjusted annual effective tax rate in the range of 20% to 24%. However, note that this will ultimately be driven by geographic earnings next to the company. Net interest expense in the range of $380 million to $410 million. Capital expenditures in the range of $800 million to $1 billion, down slightly from our earlier expectation of just over $1 billion due to the reasons discussed earlier. And depreciation and amortization of approximately $415 million. With that, I'll turn things back over to Greg for some closing comments.
spk13: Thanks, John. Before turning to Q&A, I want to offer a few closing thoughts. This past year demonstrated the critical role we play in global food security and maintaining flows of crops from farmers to consumers. To ensure we can continue to deliver, we further strengthened our core business and built relationships with partners whose capabilities complement Bungie's. For example, our Riggio joint venture with UPL began operating in the fourth quarter. providing end-to-end solutions to farmers in Brazil. We also announced a partnership with BZ Group in France to strengthen our global platform by connecting with BZ's network of independent farmers to bring more opportunities and flexible solutions to them and end users globally. During 2022, we made great progress on our commitment to finding innovative, sustainable solutions in the renewable space, including our JV with Chevron, our partnership with Covercrest, and our JV with Oliko. We continue to innovating and investing in plant-based lipids and proteins. At our R&D and innovation facilities, our team is working alongside customers as they create unique solutions with plant-based ingredients. We continue to investing in data science and technology to better connect farmers and consumers by making our operations even more efficient and delivering real-time insights to help us manage our business. And science and technology are also key as we continue to make great strides in our sustainability efforts. Thanks to expanding satellite monitoring, we were able to announce this week that through the Bungie Sustainable Partnership, we have now achieved traceability and monitoring for 80% of our indirect supply chain in the Brazilian Cerrado. This is in addition to our ability to trace 100% of direct purchases in the priority regions of South America. Improving traceability through our indirect sources of product is a critical step in meeting our industry leading goal of achieving deforestation free supply chains in 2025. While we're proud of the progress we've made, a more sustainable tomorrow requires everyone across the value chain to work together. Bungie's approach will continue to be grounded in solid science, proven technologies, and credible methodologies. With our critical place in the global food supply chain, we look forward to continuing to engage with other companies and organizations in the food and agricultural sectors to find new solutions and importantly, connect with tens of thousands of farmers around the world on these critical issues. And with that, we'll turn to Q&A.
spk08: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Adam Samuelson with Goldman Sachs. Please go ahead. Thanks. Good morning, everyone.
spk13: Good morning. Good morning.
spk07: So, Greg, John, I guess the first question is really on capital allocation. And I just, the company didn't buy back any stock in the quarter. The kind of net debt is half your readily marketable inventories or nearly half your readily marketable inventories. CapEx is actually taking longer to ramp. I just would love to get your thoughts on why the dry powder is just sitting there and the context of where you see risk-adjusted returns that could be higher than buying back your own stock at the levels of
spk02: to where it's been trading at for the last few months yeah i think you know adam uh as we look forward and kind of back to my comments we do expect to we we didn't get all of the 250 million bought last year that we we you know kind of laid out in our strategic plan but we absolutely expect to be caught up on that this year and and seek authorization for an additional plan um We are committed to share buyback. As I said, we obviously didn't get it done last year at the 250 level, but that is going to continue to be an important part of our allocation, and we do expect to make up some ground here in 2023. Okay. All right.
spk07: I think that's helpful. I guess I would still just push back or maybe get your further thoughts. I mean, how you think about your balance sheet capacity at this juncture would seem like there's a Has there been acquisition opportunities that may or may not have come through as you might have hoped for at some point in 2022? I'm just trying to get a sense of with the balance sheet where it is, kind of seems like the cash is there.
spk02: Yeah. Well, you know, we're always looking at opportunities and have been for a number of years. And I think as we were in fourth quarter looking at a lot of opportunities, we just thought it was prudent not to step into the market at that point. But But again, I mean, going forward, I agree with you. We think our balance sheet is extremely strong and we're well positioned to get more aggressive on the buyback side.
spk07: Okay.
spk13: And I just add, we're looking at a bigger portfolio of opportunities than we've seen in a long time. And yeah, some of them are going to happen and some of them aren't, but we're going to stay disciplined. I think that's the point I wanted to make.
spk07: Okay. Maybe just on the outlook for 2023, and you talked about potential sources of upside in agribusiness if commodity markets remain tight. Can you just give us some framework on certainly the processing side and where you see crush margins around the world as we sit here today, and particular geographies that you think are the areas that are more likely sources of upside at this juncture?
spk13: Sure. Yeah, let me start here. Yeah, if you look at the outlook of at least $11, you know, that's up $1.50 from the call we made the same time last year. And so I think, you know, if you frame that up, it's the favorable environment that we saw in 22 is carrying in with continued strong demand. For both meal and oil, we continue to see tight S&Ds. And, you know, we expect the volatility to continue here this year. So the other thing is, you know, we've continued to get more reps in our operating model, right? We continue to improve the data transparency. And what we've got with the tight Argentine crop, you know, with the dryness there, you know, that crop's probably going to be in the mid-30s versus 44 last year, and that tightness will continue all year, and the curves are reflecting that. And so, as you know, in the outlook, we're always looking at the curves, and so they've given us more visibility this year because of the Argentine situation. And then we've got more done in our RSO book in both food and fuel than we did a year ago. So, I think that's the visibility versus a year ago that gave us the confidence to call the at least 11 at this point.
spk07: And that's all helpful, Connor. I'll pass it on. Thanks. Thank you.
spk13: Thanks, Adam.
spk08: The next question comes from Ben Torter with Barclays. Please go ahead.
spk03: Perfect. Thank you very much. Good morning, Greg, John.
spk02: Morning, Ben.
spk03: So actually just following up on that, on the guidance, obviously impressive on RPO, what you were able to deliver in 22, and the outlook is definitely encouraging for 23, fair to assume better than 21. But help us understand what has changed so much in RPO versus Your baseline guidance from just a few months ago, where you basically looked into a significantly lower level, and we're basically at double here. So what is it in the market that's been driving it so much higher? And how do you actually think of this environment going forward, also in light of what you published back in July, August, when it came to the baseline update?
spk13: Yeah, the RSNO segment continues to be very strong, and what we saw was really driven by all regions globally. Now, North America, of course, has been the big driver with what we're seeing in the renewable green diesel, but really biofuels globally continue to grow, and I think that's why we saw improvement from all regions. So the food demand has stayed strong. And that is even without, you know, China coming out of COVID, we're starting to see a little bit of improvement in oil demand there that could improve throughout the year from a global S&D. But, no, the team's, you know, continued to do, you know, a very nice job. And even on the food side where there's been some inflation, you think about our tech services people working with customers as they, you know, reformulate to try to work with work with inflation. So there's just a lot going on there, both with the food and the fuel demand.
spk02: But I would add, Ben, that our call down next year right now is principally outside the U.S. I think we feel very good about the S&Ds in the U.S. We had an exceptional year in 2022 globally, and we're not calling maybe the same level outside the U.S. as what we saw this year. And then relative back to our strategic financial plan, We knew RSO, the whole refined specialty oils business, was going to overperform or perform very well here in the near term. But over time, we modeled in our baseline that refining premiums would decline eventually. Now, what we're seeing is projects taking longer to happen and possibly a longer runway on these strong margins that we built in. you know, that we built in ultimately. So we feel pretty good about where we are now, and we'll just watch long-term what happens with refining capacity.
spk03: Okay, perfect. Very clear. Thank you very much. And then the second question is really just about the general flex, obviously, that we're going to have within the guidance and One of that is, if you could elaborate maybe a little more detail on the tax rate, which obviously is a relatively wide range, but also significantly higher than in the last two years. Is that all geographic mix or what's behind that higher, call it mid-point 5% to 6% higher tax rate that you're seeing for this year versus the last two years?
spk02: Yeah, the biggest single drivers are assumption around geographic mix. We do expect In Brazil, for example, taxable income to be much higher in 2023, and that's one of our highest rated jurisdictions in terms of tax rate. We also had, you know, over the last couple of years, as we've cleared off some historical audits, we've had some one-time valuation releases that impacted our effective tax rate. But, you know, it is a wide range at this point. You know, because of the mix of geography, it's sometimes a little difficult early in the year to predict, but We'll fine-tune that as we move through the year.
spk03: Perfect. Well, thank you very much, and congrats on a very strong 2022. Thank you.
spk13: Thank you.
spk08: The next question comes from Manav Gupta with UBS. Please go ahead.
spk01: So I just have one quick question. On December 15th, you made an announcement that you are looking to invest in a new protein concentrate facility. I think $550 million was the capex. Help us understand why this investment, why is it a good strategic fit, and then what kind of earnings uplift can you expect from this investment? And I'll turn it over after that. Thank you.
spk13: I'll start on the strategy, and I'll let John talk to the numbers. But, no, look, we continue to see growth in the plant protein space. We're already growing. serving customers with the lipids, which are the especially fats and oils that give the taste and the mouthfeel and the bite to a lot of those products. And we are, on the plant protein side, we are a commodity supplier today of many of those products. So this is a natural adjacency. This is a natural valuing up of our commodity streams, similar to what we're doing in lecithin and some other areas. So we're a natural. We have a right to win. We can be in a cost-competitive position. And frankly, we've got our customers asking for us to be there as a supplier, and they want to work with us. And that's why we already did, last year, a multimillion-dollar improvement in our innovation and R&D facility. And we're already working with customers, putting our lipids with plant proteins and developing new and different products. So We're excited about this. We've also seen, as that space continues to develop, you know, don't think of it as not just alt-meats. It's all plant protein opportunities, whether it's non-dairy, whether it's plant butters. And that trend is in place, and it's up to the right. And the other thing I think we've seen shake out in the last two years is that, you know, soy is going to be the winner. And soy is going to be the winner from a cost basis. from a taste, from a functionality. And, you know, frankly, that's a good outcome for Bungie.
spk02: Yeah. And in terms of returns, you know, any projects like this, we look for, you know, a minimum of 12% to 15% return. So you can kind of model that in. But this project won't be, you know, completed until roughly sometime in 2025. So it's going to take a bit of time, you know, from a development standpoint, getting that all wrapped up and then getting the construction actually completed.
spk01: Thank you so much and congrats on a great quarter.
spk13: Thank you. Thank you very much.
spk08: The next question comes from Thomas Palmer with JP Morgan. Please go ahead.
spk11: Thanks and good morning. Morning. I wanted to ask on just the expected cadence of earnings in 23. Does the outlook you kind of lay out assume stronger earnings, for instance, in the first half of the year and then some erosion in the back half? Are there segments where earnings might be more lumpy than in others?
spk02: Yeah, I would say the way we're looking at it right now, Tom, is when we look at the at least $11, I'd say our bias is a little bit skewed toward the first half of the year and then within the first half a little bit toward the first quarter. So That's kind of how I think about it if I was laying it out. And obviously where we think the biggest opportunity is going to be is in merchandising. And that's always difficult to predict the timing and the magnitude. But that could very well be realized a little lumpier or could be, you know, over the year kind of evenly. It's just going to depend on opportunities. But at this time, I'd bias a little toward the first half and a little bit toward first quarter inside the first half. But we will be, you know, our first quarter will be lower than last year. We had an extremely strong last year first quarter, I think, north of $4 a share.
spk11: Okay. Thank you for framing that. And then I just wanted to maybe ask on the CapEx piece. So the presentation and then your comments, you noted the, you know, reassessment of scope and timing of some projects due to a recent spike in costs. A couple quarters ago, you laid out this longer-term CapEx, I guess it's combined CapEx and M&A ultimately of $3.3 billion. Is that number still intact? Does that need to have moving pieces where the M&A component maybe is less? I'm just trying to understand if that longer-term investment is also adjusted given that reference spike in costs.
spk02: Yeah, we have not yet canceled any project that we had on that list. Timing is, you know, we're assessing timing. We're also assessing the design of some of those projects given the inflationary pressures. looking for value engineering ways to make it more efficient. But ultimately, that plan is still pretty much intact. I think we still feel pretty good about the timing on the commissioning down the road, so we haven't yet adjusted our long-term view on those. So at this point, we're still holding to what we had, but we'll see as we go forward.
spk13: I think the other thing you want to keep in mind, I think, I don't think it's specific to Bungie or even specific to this industry, right? It's more expensive to build things, whether it's the labor, the equipment, and the interest cost, and it's taking longer to build things. But what that has done for our installed asset base, right, is keeping margins higher and it's keeping the environment stronger for a longer period of time. So I think that allows us to have the discipline, do these projects the right way, and still build them. So it's probably pushed out the amount of time that we're able to kind of over-earn versus the model because of the environment. And then the projects will just come in a little bit later.
spk02: Yeah. Maybe one of the things to add, Tom, would be that, you know, we've been able to keep largely on track with our maintenance type projects. And when you're in a margin environment like we are right now globally, you know, it's important to keep your assets running smoothly. So we're pretty pleased at least that we've been able to stay on track and on time with all of our key maintenance projects.
spk08: Okay, great. Thanks for the details.
spk02: You bet.
spk08: The next question comes from Salvatore Tiano with Bank of America. Please go ahead.
spk04: Yeah, thank you very much, Grant. Good job. So my first question is on the Argentinian drought, and you didn't mention the impact on crash margins. So I'm just wondering a little bit if you can provide some more details regarding on this impact both in Latin America crash margins but also how it is impacting globally margins and meal and oil prices. And also if you can comment a little bit on what you're seeing on trade flows there because we've been reading that recently Argentina is starting to actually importing soybeans from Brazil to start making use of its spare crashing capacity. Thank you very much.
spk13: Sure. No, you're exactly right. You've got to look at the entire global setup. And I think that's one of the things that's allowed us to perform in a variety of different situations the last few years is the great diversification. And it's the best risk management is the geographical footprint of Bungie. So as we look at Argentina, you're right. The curves are going to be much lower. It's going to be very stressed from a crush margins. and volumes are going to be lower because of the weather, right? That crop is small all year. To your comment, you're hearing some beans moving into Argentina. We've heard those rumors as well that, you know, some people getting positioned when it's close, that they're securing supplies for safety. So I think that says how tight people think the S&Ds are going to be. What that means to the rest of the world is that we see soy margins in total going to be about the same in 23 as in 22. We think the U.S. could be down slightly. The curve's currently down, right, versus last year. But that'll continue to play out. China was a, you know, very tough last year with the COVID zero policy. And as it started to come out of COVID, we've seen a little better oil demand. We've seen the curves start to improve as well as the spot margins. So We'll watch that. That'll be a key one to watch how that demand accelerates here for the balance of the year as they come out of COVID. But it definitely looks better than last year. Brazil is up versus last year, right? Very big bean crop coming in there. And then in the EU, the curve looks better than last year. Part of that is less soybean meal imports, of course, coming out of South America. And the other is we had a warm winter, luckily, and we've got lower energy prices. And that'll not only benefit soy, but that lower energy cost will benefit soft as well. And if you look at soft, why we're thinking about it on a year over year, those margins will be up versus 22 in both North America and Europe on seed supply and then on better energy outlook in Europe. So pretty good setup really for the bungie portfolio here as we look at 23.
spk04: Perfect. Thank you. And just as a second question, You spoke about the CapEx. I'm just wondering on the sustaining side, I think your guidance implies a 20 to 30% increase in, actually more a 20 to 45% increase in sustaining CapEx. And I'm wondering why is that? Is it just inflation or anything else that has changed this year?
spk02: Yeah, it's certainly inflation's playing into just about everything on the CapEx side. But it's also because of the timing of some of these bigger projects and our decision to reassess some of those, it's given us an opportunity to maybe accelerate some of the maintenance work that we would have maybe pushed off for another year or two.
spk04: Perfect. Thank you very much.
spk08: The next question comes from Stephen Haynes with Morgan Stanley. Please go ahead.
spk09: Hi, and thanks for taking my question. I just wanted to ask, kind of going back to some of the delays on the CapEx side of things, if you have any color in whether some of the potential RD customers are also seeing some delays in some of the projects that they're planning to ramp up in the near future as well.
spk02: Yeah, we haven't heard. Our conversations with industry participants is we haven't heard of anything around delaying projects specifically. You know, certainly there have been in the past year some slowdowns in terms of the bill, primarily driven more by the margins on the oil and gas side. But as far as we can see from our side, everybody's still committed with moving forward as I've discussed before.
spk09: Okay. And then maybe just a quick second question, if I can, on Maybe any updated thoughts on how you're thinking about the Sugar JV and plans to take strategic action there?
spk02: Yeah, you know, look, we're pleased with the way it's been operating. But as we said before, we still don't expect to hold that long term. And we continue to look at our options there. And, you know, we hopefully at some point down the road here, we have something to announce. But again, in the meantime, we're focused on running it.
spk09: Thank you.
spk13: Hello, operator.
spk08: Thank you. The next question comes from Robert Moscow with Credit Suisse. Please go ahead.
spk12: Hi. Good morning. Good morning, Robert. I think everything's been really asked, but maybe just one modeling question on the interest expense. It's obviously a lot higher in 23. Can I assume that that will also in 23 be offset by your FX hedges on the gross margin side, similar to Q4, or are they not related to each other?
spk02: And you're talking about overall interest expense increase? I didn't catch the first part. But yeah, some of it will be, not all of it. I mean, some of that's just indicative of when we went into 2022, three-month LIBOR was you know, less than a half a percent. And now it's, you know, hovering around 4% or so. So we're starting the year on much higher rates. And so that'll have an impact. There will be some higher rates in countries where we're borrowing, where we're hedging against that. So part of that will be offset in margin, but not all of it. Some of it will just be a symptom of starting out with higher rates this year.
spk12: Okay. Okay. Maybe a follow-up on refined oil. You said that international results in refined oil will probably be down year over year. Is there any specific reason for that? Obviously, the U.S. is doing well. Is there any more color you can provide?
spk02: I think it's a reasonably modest decline from what was a really strong record year, and I think You know, I wouldn't say we don't believe there's a way we could get back there. I think we're just not forecasting it at this point. We have a little bit better visibility into the U.S. S&Ds, and we feel stronger about that remaining strong. The rest of it we'll see. I mean, we'll certainly take the opportunity if it's there, but it's just hard to forecast that at this point.
spk13: Yeah, we definitely got less visibility into the markets outside of North America. We've got a bigger book on there with food and fuel both in North America. Got it. Thank you.
spk08: The next question comes from Ben Callow with Baird. Please go ahead.
spk05: Hey, thanks for taking my question and all the detail here. Just a question on the JV with Chevron. Could you just talk a little bit about any kind of requirements for capacity, you know, off-takes? I think you probably already said this before, but just, you know, any kind of firm agreements on the off-take. And then has anything changed in – and your plans with the JV based on the IRA and whether renewable diesel incentives there or SAF incentives there. Thank you.
spk02: You bet. Yeah, Ben, when we started, you know, this JV, it was principally focused initially around the two assets, Cairo and Destrehan, that went into the joint venture. And those are performing pretty well. And but that was really a first step in looking at a number of opportunities for Chevron that we continue to look at. It takes time, you know, from a development standpoint to expand beyond that. But we're very actively engaged with them. I'd say it's been a great partnership. And I think we see a lot of opportunity down the road to continue to build on that.
spk13: And we do supply them in the commercial relationship from our entire system, not just those two assets. We were We were supplying them even before the JV, and so it's a very holistic relationship.
spk05: And maybe just to lop on, just on the IRA and any kind of benefits to you or the JV or how we should think about that impacting you guys.
spk13: Well, I think, you know, in total, you've got a new industry that's developing, right? And net-net, it's more demand. It's... you know, positive, the renewable green diesel, we don't think it's going to be a straight line. And I think, you know, some of the things around, you know, the IRA, everyone's trying to understand where there's leverage there for a number of things and not just around renewable green diesel, but around lower carbon opportunities, because ultimately all of our customers in feed, food and fuel are looking for lower carbon intensity products and And we've got to find that value and drive that back to the farm gate, to the producer, to the farmer, the one who's ultimately going to have to make that happen with those farmer-grown crops.
spk02: Yeah, I would say, I would just add on, I think two things we're looking at as well, you know, we expect to develop in the relationship with Chevron and others is low CI feedstocks is, you know, going to be something that we think there's some opportunity down the road. And then, of course, long-term SAF. is going to be an important component of that relationship.
spk05: Thank you, guys.
spk02: You bet. Thank you.
spk08: The next question comes from Ben Bienvenu with Stevens. Please go ahead.
spk10: Hey, thanks. Good morning, everybody. Morning, Ben. Good morning, Ben. kind of the architecture of the guidance for this year. You make a comment on your agribusiness segment that there could be potential upside if the current S&D holds throughout the year. Is it that right now you have visibility into the first half of this year because of kind of what's going on in South America and Argentina, and perhaps as we get to like a trendline yield in the back half of this year, you might see loosening in S&D? Or is it just, hey, this is how we've typically done things the last few years. We guide as far out as we can see on the curves, and then we'll just reassess as we get to mid-year. I kind of want to understand what's explicitly in the guide versus maybe less explicitly.
spk13: Yeah, let me start by, yeah, we're forecasting the same way we have been, right? It's what we can see. It's what the curves show. And as we talk about calling it a dollar and a half higher than we did a year ago, it's because we do have more visibility with what's booked on the RSO side for feed and fuel, as well as with the tight Argentine crop, the curves are reflecting that. And so, you know, that's given us the confidence to feel really good about the at least $11. And I think the question really is going to be around what's the size of the plus? And there are a number of moving pieces, but You look, meal and oil demand, those drivers continue to be intact, right? You've got good global poultry and pork numbers, and there's good food and fuel demand for oil. So that's in place. The sources of upside, of course, are the merchandising, right, which is always the toughest one to call. It's the one we have the least visibility to. And I think that one is most driven by, you know, dislocations and tight S&Ds globally and volatility. And so that's where we talk. There is opportunity and upside for that. And that's kind of always the case in the merch, even if you remember how we talk about it in the model and how we've talked about it in the outlooks in the past. And then you've got China, right? The improved demand coming from China. We're starting to see just a little bit of that on the oil demand side. But that'll be key to watch. And I think there's a lot of belief that that could come back maybe faster and stronger than some thought. And then, you know, the dislocations not only matter to the merch business, but they matter to the crush margins, right, as we have to turn crush on to meet the customer demand in different parts of the world. And it looks right now like our crush is going to run really hard outside of everywhere except Argentina. And then, as John said, you know, we're seeing the capital be deployed in the RD space. So it looks like that demand will be coming online in the second half of the year in North America. And then we've got a really large Brazil crop setting up on the bean crop as well as a good corn crop. And then you've got what we believe will be a gradual build back to B15 in Brazil. So that demand coming probably starting in April and building as they kind of try to match versus inflation. So we think the dollars are going to be there exactly which value chain they're going to fall in or exactly which quarter they're going to fall in. That's always different in this business. What I do have the confidence is with our geographic platform and our team is that we'll capture that. And that's what we've tried to continue to prove that we can do. And, you know, as I said earlier, you know, this is a good, you know, this is a good setup for Bungie globally. We like how it's set up. And, you know, we've got to watch the crops in North America to develop and watch things continue to play out.
spk10: Okay. Very helpful. Thank you, Greg. My second question is going back to capital allocation, following up on Adam's question around the buyback. And I hate to beat you up on this, Greg and John, but it seems as though you could do both. You could pursue your capital allocation program that you have, or your capital expenditure program that you have, and with the leverage profile of the business, buy back the stock. Because I think you would agree that the stock is a pretty good value here. Is the conservatism that you referenced, John, is that just, hey, that's in your DNA? Or is it we've got so many other opportunities that haven't come to fruition that we need to stay conservative to remain opportunistic kind of more broadly than just the buyback? I just want to understand a little bit more specifically what that comment meant.
spk02: Yeah, I think, look, the answer is we're going to do both going forward. I think we have had a lot of opportunities that we've been assessing, including share buyback. But, you know, I think we're very committed to share buyback as part of the program, and I think we're highly confident we'll get the remaining $300 million done this year in our current program and get a new program in place. And as we move forward, we fully intend on doing a mix of both growth, a mix of all growth, M&A, and share buyback.
spk10: Okay, very good. Good luck with the rest of the year.
spk02: Thanks, Ben.
spk10: Thanks, Ben.
spk08: This concludes our question and answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks.
spk13: Thank you. So thanks again for joining us today and for your interest in Bungie. We're really proud of the team and the performance we've delivered in 2022 and our call for 23. And we're absolutely committed to continuously improving
spk08: bungie and serving our customers so we look forward to speaking with you again soon the conference has now concluded thank you for attending today's presentation you may now disconnect
Disclaimer