Earnings Preview: Monsanto Company - Analyst Blog

Missouri-based agricultural company, Monsanto Company (MON) is scheduled to report its first quarter results on January 6, 2010. The current Zacks Consensus Estimate for the first quarter is a penny per share.

FourthQuarter & Fiscal 2010 Summary

On October 6, Monsanto announced weak results for the fourth quarter and fiscal 2010. During the quarter, net loss was $143 million compared with a loss of $233 million in the corresponding quarter of 2009. Loss per share (excluding a restructuring expense) was 9 cents compared with an EPS (earnings per share) of 2 cents in the year-ago quarter.

Monsanto reported below the Zacks Consensus Estimate of a loss of 6 cents per share, but was at the lower end of the company's guidance range of $(0.09)-$0.11. The decrease was attributable to a fall in gross margin and simultaneously an increase in costs and expenses.

Revenues inched up 3.9% to $1,953 million from $1,879 million during the same period in the previous year. The growth was attributable to the 6.8% increase in revenues from Seeds and Genomics segment, which contributes approximately 50% of total revenue.

During the year, net income decreased to $1,109 million from $2,109 million in fiscal 2009. Earnings per share (excluding a restructuring expense) almost halved to $2.41 from $4.41 in 2009. However, it was well within the company's guidance range of $2.40-$2.60. Revenues declined 10.4% to $10,502 million from $11,724 million in the previous year.

For further details please follow the link: Monsanto Reports Weak Numbers

First Quarter 2011 Outlook

Management did not provide guidance for the first quarter of fiscal 2011, but the Zacks Consensus Estimate remained at one cent per share in the last 30 days.

The Zacks Consensus Estimate for fiscal 2011 also remained stagnant at $2.79 per share. However, fiscal 2012 estimate increased by a penny to $3.30 in the last 7 days.  

For fiscal 2011, management expects EPS in the range of $2.72-$2.82 and anticipates free cash flows in the range of $800-$900 million.

With respect to earnings surprises, Monsanto had a mixed track record in the preceding four quarters with an average negative earnings surprise of 86.59%. This signifies that the Zacks Consensus Estimate surpassed Monsanto by that measure.

Our Recommendation

We are optimistic on the improved visibility on the yield performance of SmartStax corn seed and RR2Y (Roundup Ready 2 Yield) soybean seed in the coming years.

Monsanto also aims at growth through acquisitions. The company acquired Aly Participacoes Ltda. and the assets of WestBred LLC in 2009. In 2010, Monsanto acquired Chesterfield Village research center from Pfizer Inc. (PFE) for $435 million and a 19.9% stake in InterGrain Pty Ltd, an Australian cereal breeder.

Although the agricultural productivity segment has encountered significant market changes last year, the company's pipeline of agricultural biotechnology products stands unmatched in the industry. Further, Monsanto announced its intention to increase the production capacity of glyphosate, a major product of that segment, which is expected to boost net revenue in the coming years.

On the flip side, we are concerned about the decrease in the prices of Roundup herbicides, which forced fiscal 2010 EPS to plummet to $2.41, almost half of $4.41 in fiscal 2009. Further, a slower market recovery and an intensely competitive environment pose additional challenges for the company.

Monsanto competes head-to-head with Syngenta AG (SYT). We maintain our Neutral recommendation on the stock. The stock at present retains its Zacks #3 Rank (short-term Hold rating).

 
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