Earnings Scorecard: Monsanto - Analyst Blog

Following the first quarter of fiscal 2011 results on January 6, the analysts covering Monsanto Company (MON) remain positive on the stock based on the strong orders for soybean seeds and 9 biotechnology projects advancement in the company‘s R&D pipeline for fiscal 2011. Monsanto also posted decent results with an EPS of 2 cents, a penny above the Zacks Consensus Estimate.

Quarter Highlights

Monsanto announced better-than-expected results for the first quarter of fiscal 2011. During the quarter, net income was $6 million compared with a loss of $19 million in the corresponding quarter of 2010.

EPS (excluding a restructuring expense) were 2 cents compared with a loss per share of 2 cents in the year-ago quarter. It surpassed the Zacks Consensus Estimate by a penny per share. The increase was due to higher revenue and lower operating costs.

Revenues inched up 7.8% to $1,830 million from $1,697 million during the same period in the previous year. However, the Zacks Consensus Estimate was $1,779.0 million. The growth in revenues was attributable to a 12.8% increase in revenues from Seeds and Genomics segment, which contributed approximately 64% of total revenue in the first quarter of fiscal 2011.

For further details follow the link: Monsanto Beats Zacks Estimate

Agreement of Estimate Revision

Monsanto has been continuously increasing its production and focusing on innovation and upgrading of technology to make farmers more productive. Further, improvement in the yield performance of SmartStax corn seeds and increase in the orders of RR2 and RR2Y (Roundup Ready 2 Yield) soybean seeds from single digit in fiscal 2010 to mid-teens for fiscal 2011 proves encouraging.

Hence, the analysts are confident of the company's market leadership and remain optimistic on the long-term performance. Moreover, Monsanto's capabilities in biotechnology and breeding research, which generate a rich product pipeline with 9 projects in fiscal 2011, are expected to drive long-term growth.

Thus, for the immediate quarter, out of 15 analysts following the stock, 4 have increased their estimates while none moved in the opposite direction in the last 7 days. For fiscal 2011, 6 out of 19 analysts covering the stock moved up their estimate, while one analyst decreased the earnings estimate in the last 7 days.

Lastly, for fiscal 2012, 8 out of 18 analysts have increased their estimates, while two of them followed the downward trend. Hence, in summary, the trend remained positive.

Magnitude of Estimate Revision

For the second quarter and fiscal 2011, estimates went up by 4 cents and 2 cents, respectively to $1.83 and $2.82 per share. Fiscal 2011 estimate is at the high-end of management's guidance range of $2.72-$2.82 per share. For fiscal 2012, estimate went up only by a penny to $3.31 per share.

With regard to earnings surprises, Monsanto has a mixed track record in the last four quarters preceeding the present quarter. In three out of the four quarters, Monsanto has a positive earnings surprise with an average positive surprise of 13.42%. This indicates that Monsanto has surpassed  the Zacks Estimate by that measure.

Our Take

We maintain our Neutral recommendation on Monsanto based on the improved visibility on the yield performance of SmartStax corn seed in the coming years. We are also encouraged by the 9 biotech project advances in the R&D pipeline for fiscal 2011. Strong orders for RR2Y and RR2 further enhance our long-term perspective on the stock.

Monsanto posted decent results for the first quarter with an EPS of $0.02, surpassing the Zacks Consensus Estimate by a penny. 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.

However, we are concerned about the decrease in the prices of Roundup herbicides and the slower market recovery. An intensely competitive environment also posts additional challenges for the company. Monsanto competes head-to-head with Syngenta AG (SYT). We maintain our Neutral recommendation on the stock. Hence, the stock at present retains its Zacks #3 Rank (short term Hold rating).

 
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