Bunge Ltd

NYSE:BG

Earnings Call Analysis

Bunge's Strong 2023, Upswing in Processing & Milling

In 2023, Bunge delivered strong financial results, progressing in strategic developments while managing robust day-to-day operations. The company is set to merge with Viterra, and it has made significant strides in expanding its plant-based food and feed ingredient operations, including initiating construction of a soy protein plant in Indiana and acquiring an oil refinery in Louisiana. Adjusted full-year EPS hit $13.66, slightly below 2022's record, yet Q4 saw adjusted EPS of $3.70, up from the previous year. They generated $2.5 billion in adjusted funds from operations and spent $1.1 billion in capital expenditures, with plans to invest $1.2 billion to $1.4 billion in 2024. The company maintains a robust liquidity position, with ready marketable inventory exceeding net debt by about $3.5 billion, and a leverage ratio of just 0.2x.

Robust Adjusted Returns and Cash Flow Highlights

The company has demonstrated strong performance with an adjusted Return on Invested Capital (ROIC) of 18.4%, significantly outstripping its weighted average cost of capital at 7%. Moreover, the company has been efficient with its investments, generating a robust discretionary cash flow of approximately $2 billion and a high cash flow yield of 18.2%.

Anticipated Financial Metrics for 2024

Looking ahead, the executives expect the full year 2024 to yield an adjusted EPS of approximately $9, with key segments like Agribusiness expected to decline from the previous year's peak, and Milling projected to perform better Year-Over-Year (YoY). For investors, one should note the anticipated adjusted effective tax rate of 21-25%, net interest expense ranging from $300 million to $330 million, and significant investments captured in the capital expenditure forecast of $1.2 billion to $1.4 billion, alongside expected depreciation and amortization at around $450 million.

Operational Optimization and Investment in Digital Transformation

The company is investing in strategic areas such as digital capabilities and global infrastructure, aiming to meet long-term demand growth for its products and services, while also working towards closing the combination with Viterra, which should enhance asset diversification and serve customers more effectively.

Visibility and Seasonal Trends

Visibility is a recurring theme, with the first quarter often offering the most clarity. They highlight an inverted crush curve with limited Q1 liquidity and expect to see hesitancy in farmer selling and meticulous purchasing from consumers as the market rebalances. This informs the company's nimble approach to supply and demand dynamics.

Response to Evolving Market Conditions

The company has a track record of managing external expectations well and is positioned to do so across market cycles. Their focus remains on efficiency, agility, and aligning rewards with stakeholders, ensuring they are prepared for any potential downswing in the cycle.

Moderate Impact from Viterra in 2024

The anticipated completion of the Viterra deal in 2024 is expected to have a mild to neutral impact on that year's earnings, considering integration costs. However, the deal promises long-term benefits and a stronger position in crush and storage markets.

Capital Expenditure Allocations

Approximately $720 million to $840 million will be allocated to discretionary CapEx in 2024, targeting mid-teens returns on these multiyear projects, which include collaborative endeavors such as the Chevron joint venture plant. Additionally, the impending acquisition of CJ Selecta is anticipated to be immediately accretive post-completion later this year.

Major Influencers on Performance for 2024

Weather events, geopolitical factors, and shifts in demand dynamics—especially around vegetable oil supply and biofuel demand—are expected to be pivotal in shaping the year's performance. Currently, disruptions are not widely predicted, contributing to cautious optimism in the company's forecast.

Share Buybacks and Future Growth

The company plans to complete a $400 million share buyback in the first half of the year and maintains a positive outlook toward reaching an $11 EPS target in the future, despite some delays in project timelines.

Performance Outlook Across Regions

Performance expectations are mixed across different geographies, with Argentina improving from the previous year, the EU exhibiting strength in meal demand, and the US expecting a robust Q1 with potential softness in the subsequent quarters before a potential uptick in Q4 with the new crop.

Anticipated Earnings Distribution Throughout the Year

Earnings are expected to be nearly evenly split between the first and second halves of the year, with a slight predilection for the former. The company expects a balanced performance across the year, albeit with a 60-40 distribution favoring the first half.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Bunge Global SA Fourth Quarter 2023 Earnings Release and Conference Call. [Operator Instructions] Please note that this event is being recorded. I would like now to turn the conference over to Ruth Ann Wisener. Please go ahead.

[Ruth Wisener, executive]

Thank you, Maria, 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 Investor Center on our website at bunge.com under Events and Presentations. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are posted on our website as well. I'd like to direct you to Slide 2 and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge 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, Bunge's Chief Executive Officer; and John Neppl, Chief Financial Officer.

I'll now turn the call over to Greg.

[Gregory Heckman, executive]

Thank you, Ruth Ann, and good morning, everyone. 2023 was a significant year for Bunge with both our continued strong financial performance and progress on our long-term strategy. I want to thank the team for their exceptional execution on our day-to-day business while also focusing on key projects for the future. First and foremost, we announced our pending combination with Viterra to create a premier Agribusiness solutions company. We received overwhelming shareholder approval and our team has been hard at work planning for successful integration when we close the transaction, which we expect to occur later this year. We continue engaging with relevant authorities in countries around the world as we make progress on regulatory approvals. In addition to the Viterra transaction, we announced the planned acquisition of CJ Selecta, a leading fully integrated manufacturer and exporter of soy-based products in Brazil. We broke ground on our soy protein concentrate plant in Morristown, Indiana, with construction on track for a 2025 commissioning. We also completed the acquisition of a state-of-the-art oil refinery in Avondale, Louisiana. This facility, which has multi-oil capabilities, builds on our ability to provide value-added oils to our food customers in North America, and is already exceeding our initial performance expectations. And in the next few months, we'll be commissioning our new multi-oil refining and packaging plant in India. These growth initiatives will enable us to meet rising demand for plant-based food and feed ingredients. Investments to enhance our existing footprint are also paying off an improved overall performance. Our team continued to execute on planned capital projects, which when combined with our focus on operational excellence, enabled us to reduce oilseed processing unplanned downtime to a historic low, making better use of our capacity directly hits the bottom line. These investments were also made with an eye towards advancing our work in sustainability, running our plants more efficiently improves our performance against our science-based targets, and we're committed to continuous improvement of our operations while expanding regenerative agricultural programs and engaging with the industry to do our part to reduce carbon emissions across the entire supply chain. We're proud of our team's many accomplishments in 2023, a year in which Bunge was selected to be part of the S&P 500, a landmark moment for our company and reflective of the work we've accomplished to transform our business over the last several years. Looking at the fourth quarter specifically, we delivered strong adjusted EBIT driven by record results in processing and improved results in milling. During the quarter, we continued to return capital to shareholders through stock repurchases and dividends. Looking ahead, as we've been reminded over the past few years, the only constant is change. Each year brings its own set of challenges and opportunities, and the team has shown we can navigate with agility and speed. Based on the current margin environment and forward curves, the market dynamic in 2024 looks to be different than what we experienced in 2023. And as often the case, forward visibility is limited at this point in the year. For the full year, we expect to generate adjusted EPS of approximately $9. John will go through our forecast in more detail. I want to reiterate that the work we've done to transform Bunge has created a company better equipped to operate in any market environment. And with the combination of Bunge and Viterra, we'll continue to improve our global platform making it more efficient and resilient, allowing us to better serve our customers at both ends of the value chain.

I'll hand the call over to John now to walk through our financial results and outlook in more detail and I'll then close with some additional thoughts. John?

[John Neppl, executive]

Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on Slide 5. Our reported fourth quarter earnings per share was $4.18 compared to $2.21 in the fourth quarter of 2022. Our reported results included a positive mark-to-market timing difference of $1.08 per share and a negative impact of $0.60 per share primarily related to acquisition and integration costs associated with our announced business combination with Viterra as well as a fixed asset impairment charge. Adjusted EPS was $3.70 in the fourth quarter versus $3.24 in the prior year. Full year 2023 earnings per share was $14.87 versus $10.51 in 2022. Adjusted full year EPS was $13.66 versus a record $13.91 in the prior year. Adjusted core segment earnings before interest and taxes, or EBIT, was $881 million in the quarter versus $804 million last year. Agribusiness had a strong close to the year, Processing results in the quarter of $132 million, primarily related to South America, Europe and Canada, more than offsetting lower results in the U.S., which had a difficult comparison to a particularly strong prior year. Results in Asia were comparable to last year. In Merchandising, results in the quarter were down in all businesses, reflecting lower volatility. Refine and Specialty oils finished a record year with strong fourth quarter results of $212 million. Performance for the quarter was down slightly from last year as higher results in North and South America were more than offset by lower results in Europe and Asia. In Milling, improved results in the quarter were primarily driven by our South American operations, reflecting higher margins due to the combination of lower wheat costs and a more favorable pricing environment. Results in U.S. corn milling also improved. Corporate and other improved from last year. Higher corporate expenses related to investments and growth initiatives were more than offset by positive results in our captive insurance program and Bunge Ventures. In our noncore sugar and bioenergy joint venture, results were lower as higher sugar prices were more than offset by lower ethanol prices. For the quarter, reported income tax expense was $219 million compared to $131 million for the prior year. The increase was primarily due to higher pretax income and geographic earnings mix. Adjusting for notable items and mark-to-market timing differences, the full year adjusted effective income tax rate was 23% compared to 17% for the prior year. Net interest expense of $115 million in the quarter was up compared to last year, primarily due to higher interest rates. Also impacting the quarter were foreign currency borrowings in certain countries where interest rates were high. However, the incrementally higher borrowing costs were offset with currency hedges reported within EBIT.

Let's turn to Slide 6, where you can see our EPS and EBIT trends adjusted for notable items and timing differences over the past 5 years. The strong performance reflects our team's continued excellent execution in a favorable operating environment, while also delivering on a variety of initiatives to position the company for long-term growth.

Slide 7 details our capital allocation. In 2023, we generated approximately $2.5 billion of adjusted funds from operations, which was up by approximately $110 million versus '22's record performance. After allocating $488 million to sustaining CapEx, which includes maintenance, environmental health and safety, we had approximately $2 billion of discretionary cash flow available. Of this amount, we paid $383 million in common dividends, invested $634 million in growth in productivity related CapEx, which is up significantly from $249 million last year, and repurchased $600 million of Bunge shares, leaving $361 million of retained cash flow for the year.

Moving to Slide 8. We finished 2023 with a total CapEx spend of approximately $1.1 billion and expect to invest $1.2 billion, $1.4 billion in 2024. Our sustaining CapEx has been higher, reflecting post-pandemic catch-up and increased investments in operational and reliability where we're already seeing the benefits through reduced unplanned downtime. Also, our discretionary spend is up due to executing on our pipeline of growth projects, many of which are multiyear investments. We expect continued elevated spend in 2025 as we complete these projects.

As shown on Slide 9, at year-end readily marketable inventory, or RMI, exceeded our net debt by approximately $3.5 billion. This reflects our use of retained cash flow to fund working capital while reducing debt. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA was 0.2x at the end of the fourth quarter.

Slide 10 highlights our liquidity position. At year-end, all $5.7 billion of our committed credit facilities was unused and available. This provides us ample liquidity to manage our ongoing capital needs.

Please turn to Slide 11. For the trailing 12 months, adjusted ROIC was 18.4%, well above our RMI adjusted weighted average cost of capital of 7.7%. ROIC was 14.3%, also well above our weighted average cost of capital of 7%.

Moving to Slide 12. For the trailing 12 months, we produced discretionary cash flow of approximately $2 billion and a cash flow yield of 18.2%.

Please turn to Slide 13 and our 2024 outlook. As Greg mentioned in his remarks, taking into account the current margin environment and forward curves, we expect full year 2024 adjusted EPS of approximately $9. Note that this forecast excludes any pending acquisitions that are expected to close during the year. In Agribusiness, full year results were forecasted to be down from last year's record performance, primarily due to lower results in processing where margins have compressed in most regions. Results in merchandising are forecasted to be down slightly from last year. In Refine and specialty oils, full year results are expected to be down from the record prior year, reflecting an environment of increased supply, particularly in the U.S. In Milling, full year results are expected to be up from last year. And in Corporate and Other full year results were also expected to be up from last year. In noncore, full year results in our sugar and bioenergy joint venture are expected to be down considerably from last year reflecting lower Brazilian ethanol prices. Additionally, the company expects the following for 2024: An adjusted annual effective tax rate in the range of 21% to 25%; net interest expense in the range of $300 million to $330 million; capital expenditures in the range of $1.2 billion to $1.4 billion; and depreciation and amortization of approximately $450 million.

With that, I'll turn things back over to Greg for some closing comments.

[Gregory Heckman, executive]

Thanks, John. Before turning to Q&A, I want to offer a few closing thoughts. So we're proud of the work we've done to optimize our business, and we're always looking for ways to drive continuous improvement. We've got a clear set of priorities, continue that work in 2024 and we're confident that we'll end the year as an even stronger Bunge. We're making great progress towards closing our combination with Viterra, which will increase diversification across assets, geographies and crops, providing us with more optionality and capability to serve customers. And we continue to invest in our people and global infrastructure. Through effective training and proper tools, we can safely and reliably meet our customers' needs. We're also working on a number of initiatives to best equip our team for the future, including strengthening our digital capabilities. We're making these investments to meet the longer-term demand growth for our products and services. And while always looking for opportunities to improve, we are well positioned to deliver on our critical mission of connecting farmers to consumers to deliver essential food, feed and fuel to the world.

And with that, we'll turn to Q&A.

[Operator]

[Operator Instructions] The first question is from Ben Bienvenu of Stephens.

[Ben Bienvenu, analyst]

Over the last several years, there's clearly been building tailwinds for the business. You've capitalized on it very nicely. As we get to this point in the cycle, some of those tailwinds certainly moderate as expressed in your guidance. And you noted, Greg, that as usual, but particularly now there's maybe a little bit less visibility into the business looking forward. If you can think through your business segments, can you help us understand where you feel like you have the most visibility versus the lease and some of the key things that you're focused on to maybe gain greater visibility for the year as we move through the year?

[Gregory Heckman, executive]

Yes, sure. Thanks, Ben. I think as usual, the first quarter is where we have the most visibility and then it starts to kind of reduce as we go out. Having the global platform, of course, is very helpful. And so as we look across crush today and as we said and we look at the curves and what they give us, they're all inverted with some pretty limited liquidity beyond Q1. And then we're in that what we do have visibility to and you kind of think about history, we're in that transition as markets get a little more balanced on supply and demand, that producers generally don't like selling lower prices, and they've got room to storage. So you see a little bit generally reluctant selling as we transition from the farmer. And then the end consumer, we see them having an incentive to wait. So they're becoming also more short purchased and buying in the spot as prices are balancing and the supply chain is not quite as tight. So -- those are some of the key things that we watch that, of course, affect both crush and merch and our refined in specialty oil and milling altogether.

[Ben Bienvenu, analyst]

Okay. Very good. My second question is related to a similar dynamic as we kind of have shifting wins in the cycle, operationally, organizationally, tactically, you all have positioned the business to maximize earnings power as the cycle was accelerating to the upside over the last number of years. Externally, you've done a masterful job of managing expectations, and I think your track record of guiding conservatively as well established at this point. As we get to a slightly different backdrop, how does your focus internally change, if at all? How do the changes that you've made historically positioned you to also maximize earnings power as we see more balanced supply/demand. And then how, if at all, does your external expectation management change in this sort of environment, if at all, versus what we've seen in the last several years?

[Gregory Heckman, executive]

Well, I just would start by saying the same things that we've been focused on really work in all environments. And I think we talked as we were going, we were always thinking about trying to build the company for the bottom of the cycle, which you hope you never experienced. But if we have that mindset and we have our costs in position to be the most efficient regardless of where you are in the cycle, that we have our business organized in our operating model to have the most nimble and agile and ability to react to whatever the external factors that we can't control in the market and that we ensure that we have got our rewards systems, in alignment with our stakeholders and with our investors and with our customers at both ends of the value chain that we're kind of -- we're going to operate the same on the things that we can control. And I think we talked about it in the past, this -- you got to continue to think about it. This is a big feed, food and fuel global infrastructure, right, to serve our customer. And we still have the billions of dollars of assets. We still got the tens of thousands of customers. We've still got the millions of tons of physical flows, and that's the embedded optionality that exists. And so while we don't control the markets, we do control how we manage day-to-day. So we stay focused on what we can control and then unlock that value as we're helping balance supply and demand across our businesses for our customers at both ends of the value chain. And that's just -- that's kind of maniacal focus every day.

[Operator]

The next question is from Manav Gupta with UBS.

[Manav Gupta, analyst]

Congrats on a very strong quarter. You came in well ahead of expectations. So congrats on that.

[Gregory Heckman, executive]

Thank you.

[Manav Gupta, analyst]

My question here is it's more of a help if you could provide you have a $9 guidance for 2024, which we think is conservative. But help us understand if Viterra does close on, let's say, July 1, then where could this $9 go based on the current environment? Whatever help you could provide would be highly appreciated.

[John Neppl, executive]

Sure, Manav. This is John. I think what we've communicated in the past, I think our view is on Viterra close in 2024 will be mildly accretive to flat in the first year, we've got a lot of synergy costs, a lot of integration costs to incur. And certainly for the first 6 to 12 months, there'll be a lot of work around integration and focus on that. I think we love the business, and I think the long term is outstanding, especially when you look at environment like we're going into. But I wouldn't expect a significant impact on the $9 in this year.

[Gregory Heckman, executive]

I might add, the 1 thing that we have spoken about is how the businesses are so different with us being much stronger in the processing and the much stronger on the origination, storage handling and distribution. So if you do have a market that moves more into a contango or a carry that does benefit where you have more storage. So I think that when we talk about the diversification and the crops we handle and in the asset footprints and the geographies, that would be 1 of the things that we'd be thinking about depending on when we close and what the environment looks at when we talk about the outlook at those times.

[Manav Gupta, analyst]

My quick follow-up here is it looks like the discretionary CapEx for 2024 is going to -- probably going to be somewhere between $720 million to $840 million. Help us understand where this money is being spent, the kind of returns? And when do we start seeing these projects come online, so we can start giving you the benefit of earnings associated with this CapEx?

[John Neppl, executive]

Sure. Yes. So we embarked really the last year and the year before on some pretty large multiyear projects. And most of those things like are build-out with our Chevron joint venture plant in or Amsterdam, our new oils plant are specialty proteins plant in Indiana. All those things are our plant in India. All of those things are have been multiyear -- well, India is coming on later this year. Most of those are still going to be in build-out phase through 2025. So we really expect them to start contributing in 2026. And we target a mid-teens return on average on most of our projects. Some could be a little lower, some could be higher. So that's the CapEx side. And then certainly, on the M&A with -- as we announce CJ Selecta that we're hoping to close later this year, that 1 -- the beauty of that 1 is it will be immediately accretive when we get that 1 executed and closed. But I wouldn't expect too much contribution in 2025 on those because they're really going to be coming online late in the year, and it takes a little bit of time for commissioning. So most of those most of those will start contributing in 2026. And then on the M&A side, we continue to look at a lot of smaller opportunities not anything of the magnitude of Viterra or CJ Selecta necessarily, but there's a lot of smaller bolt-on opportunities that we're working as well that we'll keep you updated on.

[Operator]

The next question is from Ben Theurer with Barclays.

[Benjamin Theurer, analyst]

Just want to congrats from my side.

[Gregory Heckman, executive]

Thank you.

[Benjamin Theurer, analyst]

Just 2 ones to follow up. So 1 actually associated a little bit with the M&A and the contribution of it, capital allocation in general. Can you maybe frame to the audience how you think about the buyback left over for the Viterra deal? Because if I remember right, you said you wanted to have done about half of it, of the $2 billion that was announced until the close. So that would leave you with, I guess, some around about $400 million. Just that we can think about, is that something you target for in the first half? And then aside from it with that contribution and you've laid it out nicely right now on the 2026 and the returns, et cetera, if we would have to go back to somewhere like the mid-cycle EPS framework, remember, a few quarters ago, you've laid this out, and I think you said back then like $850 million on the base business, but with all the buybacks and accretions and projects and M&A, et cetera, it was more like a $10 and $11. Is that -- does that still hold even if we're thinking about around $9 for 2024, if these projects would be around?

[John Neppl, executive]

Sure. So we'll start with share buyback. And the $400 million, I think our expectation right now is we will execute that in the first half of the year. And we've committed to doing at least that $400 million by close of the transaction. So we expect to do that. And then we'll see from there as we go forward. With respect to our outlook for 2026 and $11, I think we still feel very positive with that and right on track. While the CapEx is maybe been delayed a little bit from a timing standpoint. We got a little bit of a late start on some of these -- as costs went up and we went back and took a look at projects, we've actually picked up pace on the M&A side a little bit. So we feel very good about our trajectory against that $11-plus by 2026 and have no reason to change it at this point.

[Benjamin Theurer, analyst]

Okay. Perfect. And then a quick follow-up. As we think about the guidance for this year and maybe magnitude of changes that you're foreseeing right now? I know and Ben brought this up early on about the visibility, and I know about the challenges 2Q onwards. But as you look at it today, where do you think the biggest downside versus 2023 is within, call it, maybe a key for processing merchandising and refined and specialty oils?

[Gregory Heckman, executive]

I think if you look at the big flags, the big puts and takes that we're thinking about it at the highest level, of course, the geopolitically and weather, right? And so while we're getting a more balanced S&D situation globally. We're kind of 1 weather event from really tightening things up and that could bring some volatility back. And then the other offset is around it at a high level, if you think about demand. And so lower prices should spur more demand. That's what we've seen [indiscernible] and then it's really how quickly we see that. And even if you take an anecdote on the food side, we're seeing all of our food customers innovation projects, which had spent the last 2 years being cost reduction type programs are now really focused on growth. So product development new products and line extensions. And then you take the kind of under that umbrella, some of the big drivers, of course, it's the veg oil, S&D in North America because as we saw it play out in '23 and it will continue in '24. We've got a new industry with new demand building. The market is doing its work, supply is adjusting. And it can be pretty sensitive to that oil pipeline, veg oil prices in North America, which, of course, is very sensitive to the crush margins in North America. And the other, of course, is Argentina, where you've got a weather situation there much better than last year where bean production should maybe be double what last year was and you've got a new government in place. And so how their policies and incentives play out. I think that's a big 1 to watch. And then, of course, you always have got to think about China not only their economy and how it develops the macro just from an overall demand and then, of course, how they think about stocks building. So I think those are the kind of the big flags that we think about. Right now, if you look at the curves and the outlook, people aren't predicting much disruption at this point.

[Operator]

The next question is from Adam Samuelson with Goldman Sachs.

[Adam Samuelson, analyst]

So maybe continuing along that kind of line of questioning. As we think about kind of the approximately $9 EPS, it would seem to imply, give or take $1 billion of segment profit reduction on a year-on-year basis. And just helping -- can you help dimensionalize the segments where that's coming? Presumably merchandising processing is the largest contributor, but at least frame kind of what kind of year-on-year decline you're currently kind of thinking about for refined specialty oils, sugar just to help put the decline in processing in better context? And then I got a follow-up.

[John Neppl, executive]

Yes, Adam, this is John. I think there are really 3 big drivers to the year-over-year change. And the largest is what we're assuming on the processing side, certainly globally. That's probably I'd say, close to 80% of the variance. When you look at the gross variance, we have some things that are going to be up, we expect to be up. But that's a big piece of it. And then the other big drivers are so refined specialty oils being down, from probably a couple of hundred million from where we finished this year in 2024. And then the other 1 is sugar, we're calling down given ethanol prices and environment in Brazil. But then we have some other things going in the other direction to ultimately get to the change. But certainly, the largest is the processing segment at this point.

[Adam Samuelson, analyst]

Okay. That's helpful. So I mean within that processing, if it's 80 or so percent, that implies something like a $70 to $80 -- sorry, $15 to $20 a ton lower kind of global kind of crush margin decline on your footprint. Can you help frame kind of regions where that is kind of a larger kind of headwind versus not and how more North America crush and soymeal and the return of Argentina to the export market in the second quarter, kind of is factoring into your kind of the regional balance of your network?

[Gregory Heckman, executive]

Yes, I can -- again, let me start. Let's start on that. Yes. So if you think about -- and maybe back into it from soft seeds, we still expect those to be strong but kind of down slightly. They'll be off some from '23, but should still be good in both Europe and North America. But soy is really the 1 as you've called out. So I think everything will be softer. If you look at the regions, except Argentina, which Argentina was a drag last year to everything, and we had to cover it with the global system. So now you'll see Argentina be better as we get into harvesting Q2, and you start to see the crush come up there. Of course, it will be, as we said, the government policies and how the farmer markets, but that will be key. South America Brazil continues to currently be strong on new crop, but of course, it's inverted as well where we're seeing farmer liquidity be slower there. And then the EU right now, pretty strong in the spot, and that's been on meal demand. But again, the curves are inverted there as well. In the U.S., while the Q1 is good, of course, we see the curves kind of be that weaker in Q2 and 3 and then contemplate a better Q4 with the new crop. And then I think the farmer selling, which I said is just -- it's slower on all regions, and they'll be very hesitant here until the market kind of settles out and we see some direction.

[Operator]

The next question comes from Steven Haynes with Morgan Stanley.

[Steven Haynes, analyst]

If I could just come back to the guidance for '24 real quick. I was hoping maybe you could give a bit more color on how you see that maybe phasing out over the course of the year. I would imagine that 1Q maybe has some favorability in it still from the back half of 2024. So I know you don't give quarterly guidance, but if you can maybe help size like your expectations for the first quarter versus the balance of the year, that would be helpful.

[John Neppl, executive]

Yes. Steven, this is John. we're looking today when we look forward at our forecast, we're expecting it to be pretty closely balanced between first half, second half, actually, pretty close to 50-50. And I would say, waiting on the first half of the year, more 60-40, and on the back half of the year kind of the mirror image more of a 40-60. That's kind of how we're seeing the year at this point.

[Steven Haynes, analyst]

Okay. And then maybe just another quick follow-up on the back half and what you're kind of assuming for the size of the U.S. crop and how to think about maybe what some of the different scenarios are there. I think you alluded to 4Q being a little bit better because of the U.S. crop, but maybe if we have a larger-than-expected crop in the back half, like what do you think that would mean for the outlook that you've currently laid out?

[Gregory Heckman, executive]

Yes. I'd say if you look kind of at a high level, right, we get the Brazil crop coming in probably the bean production being in the mid-150s. And that's versus last year, we were around 160 million metric tons. I mentioned Argentina being production to be around 50 million tonnes there, which is about double what it was last year. And then I think as that sorts out and the market sends the right signals, we'll see how the acres work here in North America, right, and how many bean acres that we end up with and how the growing season plays itself out. But we do need to have a good growing season here in North America, but have no reason right now to plan on anything else.

[Operator]

The next question is from Salvator Tiano of Bank of America.

[Salvator Tiano, analyst]

Yes. So the first question I want to ask is specifically about the guidance. And I know you mentioned many times the forward curves in most cases are inverted for crush margins. But -- and I understand that's how you give the outlook. But let's say, we're sitting here 3 from 6 months from now. And who do you expect the crush margins to indeed be that low? As you said, liquidity is linked at kind of on the forward curve. So is there a chance that simply things will revert and the outlook for the year may be better?

[Gregory Heckman, executive]

Well, I think that's why we've been consistent about using the forward curves and what we currently see in the environment when we do give the outlook because that way, it kind of doesn't flop around depending on our forecasting of what we see in the markets and versus what the public forecasters are saying they see in the market. But that's why I do think those flags that we've called out, right? Weather is always key how that farmer is going to market, the marketing pattern and how much on-farm storage that they've got to affect that and how their financial condition is from a liquidity standpoint. And then the big demand drivers, right, as we talked about, how quickly does demand bounce back on the food side, which is the 1 we can see snap back pretty quickly. And on feed, it looks like animal numbers, roughly flat, chicken's probably up a little bit. Pork might be down a little bit globally. But so the animals are still in place and how quick do they add animals from a demand standpoint. As that profitability has returned in the animal sector, I think they've seen the worst on their profitability in industry. And then this veg oil market is pretty sensitive. If you look globally, palm is not increasing at the production growth that it had historically. And at the same time, they're adding domestic biofuel demand globally on the palm side. So oil tightening up somewhat from a global perspective, while you are growing is in general, renewable diesel specifically and SAF kind of to come in the future. So you've got a new industry that's trying to decarbonize its liquid fuels because we can do that with vegetable oils, low-CI feedstocks and help them do it at scale. And the market has been sending that signal that we can supply those feedstocks, and we've seen quite a bit of demand that will be coming on in that segment. And so that oil leg can really affect the crush and that's why we call that flag out, and that will be a key 1 to watch as well. So it should be a really interesting 12, 18-month kind of transition here, not only on the crops, but as demand continues to grow as well and as customers kind of move back to trying to drive growth versus cost savings.

[Salvator Tiano, analyst]

Okay. Perfect. The second question is on merchandising specifically. I guess in Q2, Q3, it was kind of a wash when you consider the $75 million to $100 million EBITDA you've given in normalized earnings but Q4 was well below that. Would you say now merchant -- we are an environment on the [indiscernible] merchandising will actually be below that normalized level or are we still mid-cycle and Q4 was just an anomaly?

[Gregory Heckman, executive]

Yes. So I think we call merch should be slightly down here in '24 versus '23. And right now, that's probably got it slightly below where we're at in our baseline model. But again, merchandising is the toughest 1 to forecast and is the first 1 to react if we get some policy changes that affect flows and/or weather any weather issues that affect production. And I'll tell you, as we continue to grow more yield on the same amount of acres, and we're seeing more volatile weather patterns, both dry and wet that affect production and logistics that probably just long term leads to more volatility. So the merchandising will be the 1 that absorbs that on the short-term changes.

[Operator]

The next question is from Thomas Palmer with Citi.

[Unknown Analyst]

I wanted to ask a little more on the demand pull you're seeing from renewable diesel. I mean it really has been a kind of key driver over the last couple of years in terms of crushing refined oil. The industry, obviously, responding on the crush side with added capacity in part to support this industry. I guess what's the visibility in terms of that demand pull at this point in terms of absorbing some of this increased supply that's coming from the added crush capacity, are we still a little bit in wing mode? At different points, you've kind of noted that maybe curves aren't showing it, but you are at least in touch with customers who are showing optionality for that increased demand pull on a forward basis?

[Gregory Heckman, executive]

Yes. We see it continue to grow. I think there's going to be another 1.4 billion gallons of RD capacity come online in the first half I think some of the complexity, right, is it isn't just a veg oil game as they grow their demand. The market sent some signals when the pipelines got tight. And so we saw UCO imports. And so as we balance some of that supply and demand understanding did we soak up some surpluses and what will be the ongoing rate of some of these imported UCOs and other kind of low-CI feedstocks as the market kind of works to balance itself out as that demand comes on. So it's a bit of no doubt, a complicated picture on that. And then, of course, you've got policy changing, right, as we move from a blender's credit to a producer's credit in '25 in the end markets adjust to that. And then, of course, you've got even things like the card policy where they've signaled that they've got the ability to make changes if the feedstock is available. And now the market is sending signs that the feedstock is available. So we think this will be pretty dynamic in -- but net-net, we have increased demand that continues to grow globally, and then we'll see what other policy things happen generally kind of around the world and specifically around things like SAF. So the other is how well their new RD operations come up to speed on catalysts and whatnot. Do they need the vegetable oil to be the dilution for some of these other low-CI feedstocks and some of these imported feedstocks. So it also depends kind of how they run and then also the shift that we said all along, we expect to see at some point as these pretreatment facilities come up and we see some of the refined oil demand move into crude demand. And so you may see it move from refining margins then into the crush margin. So while we like a complex picture to unwind, this 1 has really plenty of moving pieces.

[Unknown Analyst]

Yes, totally. Thank you. Just quickly on the share repo plans. I think as of the October earnings call, you spent the $134 million on repo taking you to what, $600 million between the back half of the year. Should we -- as we look at this coming year, expect maybe a more balanced cadence because it looks like you kind of stopped at least for the last couple of months of '23, but still have clearly meaningful plans as we look at the time period kind of before Viterra closes. So again, should that be a little more balanced on repo?

[John Neppl, executive]

Yes. I think -- well, our expectation is between now and, let's say, midyear, we'll have the other 400 but timing on close of Viterra is yet to be determined. But I think we won't wait around until we have news for that. I think we'll put it on a pace here to make sure that we're completed by midyear.

[Operator]

The next question is from Sam Margolin with Wolfe Research.

[Sam Margolin, analyst]

My question is on refining because it seems like that's the segment where the commodity headwinds are probably the most visible, but it sounds like there's a technology story there for you where you're either gaining share or maybe potentially getting some pricing power. And I wonder if you could just talk about the attributes of the yields in the new refineries that are adding value and how they accrue to the segment growth? And how should we think about that contribution?

[Gregory Heckman, executive]

I think on an overall, it's just the team has been running the refineries better. We set some records there in Q4 on volume and capacity utilization in our refineries. So we're just trying to run the system better to meet the demands. And then on our India refinery, that is new multi-oil capabilities as well as packaging, and that's to meet some current demand as well as some growth. We'll be commissioning that in the first half. That's for our Foods business. And then the Avondale refinery, which we bought here in Louisiana, that's really helping on the import of some of the tropical and soft oils to serve our customers with multi oil. And we were really at capacity there in serving our food customers here in North America. So that's freed up capacity and given us some extra capabilities and we also had some equipment headed for another facility that we've already pointed at Avondale, and we're going to expand that facility already. So we'll be doing that work during the year. So that's really about capabilities and flexibility on the food side, which is the other, as John talked about, a little farther out, but our Amsterdam facility, will be kind of the same thing. That's a great specialty oils market over there. We'll have really the most flexibility we think in Europe, we'll have the best carbon footprint and the lowest cost facility when we get that done, but that's just getting underway. So I'll be out in '26 before we have the benefits of that. But -- also with these new facilities, they're all improving the carbon footprint versus the facilities that we were running before. So we continue to focus on sustainability as we make those investments as well.

[John Neppl, executive]

Yes, Sam, I would add that food is still 75% to 80% of our volume on refined oil. So while energy certainly has been a nice demand for us, food is a big focus. We have very big downstream customers, and they depend on us from a traceability sustainability standpoint and to be able to provide a multi oil. So that's still the primary focus of that RSO segment.

[Sam Margolin, analyst]

Okay. That's super helpful. And then just a follow-up on capital allocation and the discretionary CapEx component. I think this year, it feels like it has more of the characteristics of sort of a trough year than maybe something structurally problematic. And so it makes sense that discretionary CapEx is still at the top of your Q. But I mean, is there anything that scenario that you can imagine that might cause you to decelerate growth CapEx or any market conditions specifically that you're watching for that could change -- maybe change the mix of your capital allocation and move growth CapEx kind of lower on the priority list?

[John Neppl, executive]

Yes. I don't -- I mean the reality is most of the projects that are in our growth pipeline now are all underway. So the bulk of it won't change because we're still -- we still believe those are great long-term projects. Certainly, around the fringes as new things come up, we may trade off between that and M&A, which we have done some of. We've seen some great bolt-on M&A opportunities and have allocated some capital in that direction instead. But I would say largely, our forward track here for '24 and '25 is pretty locked in from a CapEx standpoint.

[Operator]

The next question is from David Sunderland with Baird.

[Unknown Analyst]

Just 1 for me. I was curious about the cost structure for processing and RSO, maybe just how this has evolved as new capacity has come online in the industry? And maybe any comments you guys could give on variable cost changes over the last few years and how your cost structure compares to competitors would be helpful.

[John Neppl, executive]

Sure. This is John. Look, I think we have not been immune to the inflation that we saw over the last few years relative to kind of started during COVID and worked its way through. But what we've seen recently is energy prices coming off quite a bit, especially in Europe, which has lowered our variable costs over there quite a bit. I think our belief is that we're probably or probably close to the most efficient in the industry are certainly on par with others. And it's as you can imagine, higher cost areas generally is going to be U.S. with inflation and Europe with energy costs and inflation. But we also have some very low-cost production areas. Brazil certainly is an area where costs are much lower than the average and in Asia as well, but highly competitive. And I think, again, we've seen things come off certainly. And I think where we're focused on a lot of our capital recently on the -- especially on the sustaining side, has been focused on improvements in the efficiencies in the plants. I think we'll continue to be able to do a good job of offsetting some of the inflation that we're seeing just naturally. So we feel, I think, pretty good about where we are from an efficiency standpoint right now.

[Operator]

The next question is from Andrew Strelzik with BMO.

[Andrew Strelzik, analyst]

First for me, I was hoping you could compare the current environment in the curves to the $8.50 EPS assumptions in the baseline more broadly? I guess it seems like for the most part, most of the profitability and margin structures are similar to those assumptions, especially on the crush side, if you were able to lock in the first quarter, a little higher. The exceptions maybe you said a little bit weaker on merchandising. And if a couple of hundred million lower unrefined oils is right, and I had the buyback you're -- the math is something like $10 plus, I think. And I understand the volatility of the environment, et cetera. But am I thinking about that correctly? Is there anything that else that's materially weaker than kind of the baseline assumptions?

[John Neppl, executive]

Yes, I can start, and Greg can jump in. I think actually, our margin assumptions right now for 2024 are better than the baseline marginally better than where we were in the 850 baseline assumptions. So we think that will hold for the year, if not improve. Where we're seeing a little -- and that's probably more on the soft side than the soy side, the higher assumption around margin structure and what we're seeing today. I think where we see the downside versus our baseline is really in merchandising. As we look forward, we have -- Greg pointed out, there's not a lot of visibility going forward in that. And based on how we finished '23, we kept a lower forecast in for them in '24, which is actually lower than what we have in our baseline. But on the other side, RSO's higher. So those are kind of the big things in terms of the commercial side of it. When you look at the nonbusiness part of it or the other items, interest expense is quite a bit higher than what we had in our baseline, driven by interest rates, certainly. And then a little bit higher effective tax rate as we've seen some tax legislation changes globally. So interest and taxes are higher so on the margin side, showing soft or higher from an expectation RSO is higher and then merchandising is lower. So it's kind of how I think about it.

[Gregory Heckman, executive]

And probably the only thing on the commercial side that we didn't mention, while the margins on crush are a little higher than the baseline. The volume is just a little bit lower and that's due to -- we exited Russia as a choice. And then in Ukraine, our volume is down with the war ongoing there.

[John Neppl, executive]

Yes. And maybe just 1 other thing to add, too. As you're thinking through this share buyback, certainly as we've done more of that than we had in our original baseline model, I think we modeled $250 million a year in our baseline assumption, and we of course, we've accelerated that with the Viterra transaction coming.

[Andrew Strelzik, analyst]

Okay. Great. That was super helpful. And I guess, maybe my other question, I'm used to thinking about the guidance in terms of a plus and you being asked about upside opportunities you've discussed, lot of the risks here, and I appreciate the change in the kind of guidance presentation to be approximately $9. But can you talk about where there might be upside opportunities if we're looking for those, where you think the greatest opportunities might lie throughout the year?

[Gregory Heckman, executive]

Yes. I think probably the same key ones China, always a big factor their economy and if it would speed up from a demand and then how China is going to think about any stock building because they can definitely make it change on these markets that are really still pretty close in the supply and demand balance, any type of weather situation at all. The balance sheets are pretty tight. We could see increased volatility, and that would also probably drive not only more farmer selling, but it would also drive the consumers to be further out on the curve and do more purchasing and they've gotten comfortable again where we had some just in case inventory building. Everyone's kind of forgotten the supply chain problems, and we've definitely seen customers pulling down stocks in that just-in-time inventory again. So if you saw any concern on S&Ds or supply chain problems and saw a build back that way. The overall growth in demand from the lower prices whether that's the animal industry adding capacity and/or the consumer responding across feed, food or fuel more quickly to the lower prices. And then Argentina always a very big driver, of course, in the size of their crop, how the farmer is going to commercialize that. And of course, a lot of that will be driven by the government policy and their ability to put the incentives out there in the way they want to with what they're trying to accomplish. And then, of course, importantly, biofuels in general, globally, how that continues to develop policy and how the different feedstocks are weighing off in the global oil balance with keeping palm in mind as well. So those are a few of the flags that we're watching carefully, and it should be a really interesting 12, 18 months here going forward as we have a number of things transitioning.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Greg Heckman for any closing remarks.

[Gregory Heckman, executive]

I'd like to thank everyone for joining us today and for your interest. And I guess I'd just like to wrap up by saying we've tried to reflect in our outlook what has changed for '24, but I sure want to also reflect what has not changed. And what hasn't changed, right, is there's long-term growth in demand for the things we make and the services that we provide with them, and that is across all 3 food, feed and fuel markets. the growth in biofuels, that's a near-term issue, and that trend is in place. The improvements in our operating model, those continue and we'll continue to focus on how to make sure that we don't stop with our focus on continuous improvement. Our '26 baseline target remains unchanged. We continue to have a great pipeline of projects and investments with good returns. Our pending acquisitions are on track and our share purchase commitment is ongoing. So those are things that haven't changed. We feel good about what we're doing. Very proud of our team, and we'll continue to stay focused. So thanks for your interest. Look forward to speaking to you again soon. Have a great day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.