Monday, December 27, 2010

Monsanto Co. (NYSE: MON): Q1 Earnings Preview

Monsanto Co. (NYSE: MON), the world's largest seed company, is scheduled to release fiscal first quarter earnings before the opening bell on Thursday, Januaruy 6, 2010. Analysts, on average, expect the company to report earnings of 2 cents per share on revenue of $1.80 billion. In the year ago quarter, the company reported a loss of 2 cents per share on revenue of $1.70 billion.

Monsanto Company provides agricultural products for farmers in the United States and internationally. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. 

In the preceding fiscal fourth quarter, the St. Louis, Missouri-based company's net loss was $143 million, or 26 cents per share, from $233 million, or 43 cents per share, in the year-earlier quarter. On an adjusted basis, the company reported a loss of 9 cents per share in the latest quarter. Revenue grew 4% to $1.95 billion from $1.88 billion. Analysts, on average, expected the company to post a loss of 6 cents per share on revenue of $1.82 billion.

At its last earnings call in October, the company said that its fiscal 2011 ongoing EPS guidance range is 13% to 17% growth, which translates to $2.72 to $2.82 after the 2010 ending point of $2.41. Monsanto eapects fiscal 2011 earnings in the range of $2.67 to $2.77 on an as-reported basis. The company anticipates free cash flows in the range of $800 to $900 million.  The company expects net cash provided by operating activities to be $1.7 billion to $1.9 billion, and net cash required by investing activities to be approximately $900 million to $1 billion for fiscal year 2011.

The company has been orchestrating a restructuring designed to move it away from its less profitable herbicide division and focus more on developing new strains of genetically engineered crops. Monsanto is creating a separate division for its struggling herbicide business to help stabilize and "better align spending and working capital needs" around the unit, which has been hurt by  generic competition and price pressure. The company now anticipates a steady-state gross profit contribution of $250 million to $300 million from the Roundup and other glyphosate-based herbicide business.

The company is now trying to spur growth by focusing on its seeds-and-traits business, positioning it for mid-teens earnings growth going forward. Corn seeds and traits contributed approximately 40.6% of total revenues in fiscal 2010. Monsanto also intends to increase corn plantation in Argentina, the world’s second-largest corn exporter, to 52%. However, Monsanto is also facing stiff competition in biotech seed market as its chief rival DuPont (NYSE:DD) is fast grabbing market share by offering products with fewer traits and at better prices.  Monsanto also faces foreign currency risk since a significant portion of its income comes from outside the U.S.

Broadly speaking, the agricultural sector has remained strong for the past few quarters as a result of strong pricing and robust demand. Farmers had been stingy during the previous year due to struggling crop prices. However, a recent drought in Russia has hurt wheat supplies, helping grain and oilseed prices grow. Also, the growing use of ethanol as a fuel has caused corn prices to skyrocket to over $6 per bushel. These positive market conditions have once again enabled farmers to take the necessary steps to ensure they are receiving maximum crop yields.

During the quarter in review, the company declared a quarterly dividend on its common stock of 28 cents per share. The dividend relates to the company's first quarter of its 2011 fiscal year. 

Among other developments, the company recently announced that Pierre Courduroux, currently the company’s finance lead for its global business operations, will move up to become the company’s new senior vice president and chief financial officer effective January 1. He’ll replace Carl Casale, who announced last month he’d be leaving his post as executive vice president and CFO to become president and CEO of CHS Inc.

In terms of stock performance, Monsanto shares have lost nearly 19% over the past year.

Full Disclosure: None.
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