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Cargill reports 'very good year'

St. Paul Pioneer Press/Tom Webb
August 18, 2006

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How big is Cargill? So big that in just the last year, the agribusiness giant …

• Added 25,000 employees, roughly as many people as live in White Bear Lake.

• Grew revenue by $4.1 billion, a jump the size of a Fortune 500 company.

• Reported total revenue of $75.2 billion, which makes it Minnesota's largest corporation, surpassing even titans like Target, 3M and UnitedHealth — at least for now.

Thursday was earnings day at Cargill, a once-a-year occasion when the privately owned, Minnetonka-based company pulls back the curtain on its worldwide grain, food and trading operations. Cargill said it earned $1.54 billion in fiscal 2006, if you include a writedown on its Mosaic fertilizer investment. If you don't, it earned $1.73 billion, or 13 percent more than last year.

"We had a very good year, we're very happy with it," said William Veazey, its senior vice president and chief financial officer.

Some other big players in the food business, notably Archer Daniels Midland, have shifted their focus to ethanol and the lucrative energy sector. Cargill does own ethanol plants, and is building more, and those were "nicely profitable this year," Veazey said.

"But clearly we're not following the path that ADM is following. … We are clearly a food and food-ingredients company," he said.

Cargill's recent major acquisitions sharpen that focus. In April, Cargill closed on its purchase of the food-ingredients operations of a European firm called Degussa, with an concentration on food flavorings, colorings and textures. To Veazey, the deal was "a cornerstone piece of moving into flavor and textures" as a supplier to the food industry, and complements Cargill's traditional commodities role as "a provider of bulk ingredients."

Alfred Marcus, a professor at the University of Minnesota's Carlson School of Management, sees that sort of move as playing to Cargill's strengths, while not straying too far from its traditional business.

"I think Cargill has been quite innovative — but not in the way of fundamentally changing who they are and what they do," Marcus said. "For a basic commodity company, they've shown a lot of capacity to learn and change and innovate, surprisingly I would say."

The yearly earnings report is a reminder of Cargill's size and scope. The company operates in 63 countries and now has 149,000 employees. In the past year, it added to its portfolio vast palm oil plantations in the South Pacific, beef processors in Canada, chocolate makers in Europe, soybean processing in South America, gum factories in China, sugar refineries in Louisiana, cocoa processors in Ghana, and feed mills in Vietnam.

"I think they're about three times the size of 3M, and about seven times the size of General Mills, just to give a sense of the magnitude of their operations, which are everything and everywhere," Marcus said.

But details about Cargill's business are hard to come by, in part because its operations are strictly business-to-business, in part because they are spread out all over the globe, but also because the private company still guards its privacy.

The company provided some nuggets about how its five major segments performed last year. The best performer was its risk-management and financial segment, which includes energy trading, asset management, and even a unit that buys and sells distressed assets like corporate debt and credit-card debt. The latter is pure finance, not food, but "the business has been very successful," Veazey said.

Cargill's farm commodities businesses reported increased earnings, and ag services was "up slightly" from a year ago, Veazeysaid. Its food ingredients business, however, lagged behind year-ago levels. And its industrial segment was down, partly because of its exit from most of its steel interests.

"Steel is clearly not core to a food manufacturer," Veazey said in an interview. "That was a good business, but it was sold to free up the resources" necessary to allow Cargill to "move up the value chain (in the food industry) and be the supplier of choice."

Cargill's biggest financial hit came from Mosaic Co., a publicly held fertilizer business that was spun off from Cargill in 2004. Plymouth-based Mosaic is still mostly owned by Cargill, and when Mosaic took a major restructuring charge earlier this year, it showed up as a $190 million noncash charge on Cargill's books, too.

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