April 7, 2011

 

Monsanto announces Q2 financial results in line with mid-teens earnings growth opportunity

 

With half its fiscal year complete, Monsanto said a solid sales season for its US seeds and traits business, and disciplined approach to spending have positioned the company to realise its mid-teens earnings growth opportunity this year and set a strong foundation for coming seasons. 

 

In reporting its earnings results for the quarter ending February 28, 2011, the company highlighted performance tracking with projections in both the seeds and genomics and agricultural productivity segments that affirms its full-year ongoing earnings per share guidance. The company also increased its free cash flow guidance for the full-year, driven by better than expected working-capital management and a strong economic climate in agriculture.

 

"We came into this year with an operational plan built around creating value for our customers," said Hugh Grant, chairman, president and chief executive officer for Monsanto. "It was a plan that was designed for balanced growth - across crops, across geographies and through a combination of mix and volume improvements.  We exist to serve our farmer customers, and it is rewarding to see this plan is resonating with them.  Given the tempo of the year, we are where we should be, and we have the right pieces and the right execution to feel very good that mid-teens earnings growth in 2011 is on track."

 

Net sales increased US$239 million, or 6%, in the three-month comparison driven by volume in both the seeds and genomics and agricultural productivity segments.  Net income in the second quarter was US$1 billion.

 

Gross profit rose 10% in the quarter to US$2.3 billion, with margins higher due to cost improvements.  For the first six months, gross profit is up 10% or US$288 million.

 

Operating expenses were up US$2 million in the second quarter compared to the prior year. In the three-month comparison, selling, general and administrative (SG&A) expenses decreased 2%.  R&D expenses increased as the company continues to manage more projects in advanced pipeline phases.

 

Earnings per share (EPS) for the second quarter was US$1.88 on an as-reported basis, and US$1.87 on an ongoing basis. EPS for the first six months of fiscal year 2011 was US$1.88 on an as-reported basis, and US$1.89 on an ongoing basis.

 

The second quarter saw a continuation of the strong start to the year.  For the first half of fiscal year 2011, cash flow from operations was a source of US$1.4 billion compared to US$256 million in the first half last year. Net cash required by investing activities for the first half of fiscal year 2011 was US$524 million, compared to US$345 million for the same period of fiscal year 2010. 

 

Net cash required by financing activities for the first half of 2011 was US$668 million, compared to net cash required of US$259 million for the same period of fiscal year 2010.  The company continues to make progress on its current US$1 billion, three-year share repurchase authorization, spending US$114 million on repurchases in the second quarter for a total purchase of US$381 million for the first half of the fiscal year.

 

Free cash flow was a source of US$917 million for the first half of fiscal year 2011, compared to a use of US$89 million for the first half of fiscal year 2010.

 

The company affirmed its previously announced ongoing EPS guidance and raised its full-year free cash flow guidance for fiscal year 2011 to the range of US$900 million to US$1.1 billion.  The company expects net cash provided by operating activities to be US$1.8 billion to US$2.1 billion, and net cash required by investing activities to be approximately US$900 million to US$1 billion for fiscal year 2011.

 

The company confirmed full-year 2011 ongoing EPS guidance is in the range of US$2.72 to US$2.82.  Full-year 2011 EPS guidance on an as-reported basis is in the range of US$2.66 to US$2.79.

 

The Seeds and Genomics segment consists of the company's global seeds and related traits business.

 

In total, sales for Monsanto's Seeds and Genomics segment in the second quarter of fiscal 2011 increased 5% or US$173 million, driven by global unit volume growth and a mix upgrade in the US.

 

While it's early in the season, the company indicated sales are pacing to meet the mid-teens millions of US acres it had expected for both its Genuity^® Roundup Ready 2 Yield^® soy and the Genuity^® reduced refuge corn family this year.  This brings a positive mix improvement across Monsanto's US soy and corn portfolios.

 

Globally, the company saw higher branded corn sales in Brazil, the US and Europe in the quarter.  In US corn, the company has made significant product and pricing strategy moves, identifying lead products in each of the major geographies while making all products available across areas to meet farmers' needs.  Genuity^® SmartStax^®, which provides the broadest spectrum of insect and weed control, is receiving strong interest in heavy rootworm areas of the Northern Corn Belt. Genuity^® VT Triple PRO^® and Genuity^® VT Double PRO^® are complementing the Genuity^® SmartStax^® build-out, with Genuity^® VT Triple PRO^® generating strong interest in the South as Genuity^® VT Double PRO^® does the same in areas with an established doubles market. 

 

The cotton business also is performing well this year, with mix and volume improvements led by second-generation trait offerings and continued breeding gains.  The company maintained a positive outlook for vegetables, with the gross profit decline attributed primarily to sales mix timing, which is expected to normalise over the rest of the year.

 

The Agricultural Productivity segment consists of the crop protection products and lawn-and-garden herbicide products.

 

Over the last year, the company has made fundamental changes in the crop protection business in particular as it relates to Roundup^® and other glyphosate-based herbicides.  With this quarter, the structural changes made to this segment are now reflected in the company's financial statements. 

 

In the Agricultural Productivity reportable segment, the company has consolidated the Roundup^® and other glyphosate-based herbicides, selective chemistry and lawn-and-garden businesses.  The company made this change because the Agricultural Productivity segment now is managed as one business, and the ongoing operations of that business reflect the restructuring that is now complete.

 

Sales in the second quarter of fiscal 2011 for Monsanto's Agricultural Productivity segment increased 10%, with gross profit improvement as well as a function of volume and cost improvements primarily related to production efficiencies following the restructuring.