An uncharacteristic global layoff at Cargill Inc. comes at a time when a confluence of cyclical trends is bedeviling the Minnetonka-based agribusiness giant.
There are tough conditions in such key businesses as soybean and beef processing. World markets are turbulent due to the European financial crisis. At the same time, Cargill has seen its operational and administrative expenses expand at an uncomfortable rate.
So, the company is cutting costs, slowing capital expenditures and trying to instill a greater sense of urgency in its culture -- i.e. less process and more agile decisionmaking.
In early December, the company announced it would lay off 1.5 percent of its global workforce -- up to 2,000 people. That includes "under 250" in Minnesota, said Cargill spokeswoman Lisa Clemens, or less than 3.8 percent of the company's 6,600 workers here, most of whom are professionals in the Twin Cities.
The company appears to have gotten large-scale job cuts out of its system. "There's no other shoe to drop," Chief Executive Greg Page said Friday in an interview with the Star Tribune.
He noted, too, that the firm isn't facing any negative structural changes in its major businesses. Still, "A lot of the big fundamental cycles in the important businesses are relatively unchanged," Page said.
The layoffs followed one of the worst quarters at Cargill in five years, and the firm's third consecutive quarter of declining earnings. And two debt analysts who follow the company aren't expecting much improvement when Cargill releases its second fiscal quarter earnings this week.
So what's eating Cargill?
In addition to cyclical issues, chief operating officer David MacLennan said an ongoing increase in competition is a factor. The old "ABCD" order of the commodity business -- Archer Daniels, Bunge, Cargill and Dreyfus -- has been supplanted by a more dynamic playing field, he said. "It's a new world with competitors who are very agile."
There are ascending powerhouses to contend with: Noble Group, Asia's largest commodity firm, for instance, and Glencore International, which recently went public valued at $61 billion. "We need to make sure we're agile and fast moving so we can make the quick decisions to get to the profit opportunities before they do," MacLennan said.
Cargill, with a hand in everything from chocolate making to palm oil processing, is one of the world's largest privately held companies, with over $100 billion in sales last year and 130,000 employees in more than 63 countries.
When the layoffs were unveiled, one Cargill employee who asked not to be identified said he witnessed a lot of "crying in the cubicles" at his Twin Cities office.
Cargill is a particularly sought-after local employer: It placed second last year in the Star Tribune's ranking of top large company workplaces in Minnesota, a list based on workers' view of their jobs.
Still, Cargill employees knew some sort of workforce cut was coming. In an October e-mail to employees obtained by the Star Tribune, Page wrote that "while not something we take lightly, it's inevitable that jobs will be eliminated as a result of some of the decisions we make."
The e-mail addressed a "continuing decline in [Cargill's] financial performance," and came on the heels of a 66 percent drop in fiscal first quarter profits to $236 million. Cargill's earnings were down 7 percent year over year in its previous quarter, too.
Page also noted in the e-mail that expenses at Cargill were up 16 percent in its fiscal year ending May 31 from the year earlier, and increased further during the first quarter. The prescription: reducing costs and decreasing capital spending, though Page said in an interview no current projects will be halted.
"Any place we had cement in the ground or steel in the air, we're carrying out all of those projects," Page said.
Another part of the prescription for Cargill is cultural. Page wrote in the e-mail: "We also need to change certain aspects of our culture -- the drive for perfection, the need for consensus, process for the sake of process -- that slow us down, ultimately costing us time, expense and sales."
MacLennan said this does not mean a fundamental change in Cargill's culture -- its ethics and its integrity with employees and customers. "It's more of a change in how we work," he said.
"I think Cargill people work very hard and work very much in the spirit of collaboration."
While the company wants to retain that spirit, it needs to speed up its execution, MacLennan said. Instead of talking "to 20 different people to make a decision ... maybe eight people are OK."
Cargill's employees are spread from Venezuela to Vietnam, and its businesses are just as diverse: The malt in the beer you drink, the sweetener you put in your coffee, the salt sprayed on icy roads all come from its vast network of factories, mines and mills.
But some key Cargill businesses are in the midst of cyclical downturns. Take soybean processing, where profit margins have been crimped. Cargill is a soybean colossus, turning the oilseed into grist for human and animal food worldwide.
Soybean processing capacity has been growing faster than demand. Agriculture has been "a fashionable investment" so a lot of capital has been pouring into new soybean plants, Page said. "The number of soybeans out there and the number of soybeans that need to be processed are out of balance."
Just this past week, Cargill announced that due to soy meal overcapacity, it will close its Des Moines soybean crushing facility, though it will also invest at least $20 million to modernize another crushing plant in Cedar Rapids, Iowa.
Cargill is also one of the biggest U.S. beef processors, and profits have been trimmed in that industry as drought has afflicted the Southwest. With grazing lands parched, cattle are ultimately coming to slaughterhouses with less meat on their bones. Rising retail prices for beef in a tough U.S. economy haven't helped.
And there's the market gyrations caused by the European sovereign debt crisis, which Cargill cited in October as key reason for its ugly first quarter. Markets were so volatile -- moving much more on political headlines than supply and demand fundamentals -- that Cargill kept an inordinate amount of its vast trading stash on the sidelines.
That's money that's not making money. At the same time, Cargill is a huge cotton trader, and turmoil in the cotton markets has hurt.
"Over time, we have made very good money in the cotton business," Page said. "This year won't be one of those years."
Mike Hughlett • 612-673-7003