Here's the truth behind Noble's sour gains from sugar production

Looks like Noble has to rethink its newly acquired Brazilian sugar mills.

According to Standard & Poor's, operating income from supply chain also fell 14% from the previous quarter and 10% year on year. The Brazilian sugar mills that Noble acquired in June 2011 performed below our expectation. Weak production in the second quarter of 2012, when harvesting was expected, demonstrates Noble's increased exposure to weather risk from its largest-ever acquisition.

Here's more from Standard & Poor's:

Lower-than-expected profitability in the agriculture business contributed to Noble's weak operating performance in the second quarter of 2012. Operating income in the segment dropped 69% year on year mainly due to negative crushing margin in China and poor sugar production due to heavy rain in Brazil.

Operating profit for the agriculture segment was slightly better than in the first quarter, which was also very weak. The operating profit of the energy and metals, minerals, and ores segments also fell quarterly, while the energy segment rose 37% year on year due to the favorable performance of the coal, oil, gas, and power businesses. Noble's net income improved significantly on both a quarterly and a year-on-year basis due to lower costs and US$63 million special dividends from the Gloucester Coal and Yancoal Australia merger.

Noble's total borrowings declined in the second quarter due to lower working capital. The company's funds from operations (FFO) for the 12 months ended June 30, 2012, improved compared with that in the 12 months ended March 31, 2012, with the ratio of FFO to adjusted debt improving to 14%, from 12%. We expect the ratio to further improve to 20% in the second half of 2012 due to capital proceeds from the merger of Noble's erstwhile consolidated subsidiary Gloucestor Coal and Yancoal Australia.