Sunday, January 3, 2010

Monsanto Company Inc. (NYSE: MON): First Quarter Earnings Preview 2010

. Sunday, January 3, 2010

By Stock Wizard

Monsanto Company Inc. (NYSE: MON), the world's biggest seed company, is scheduled to release financial results for the fiscal first quarter on Wednesday, January 6, 2010. Analysts, on average, expect the company to report breakeven per share on revenue of $1.98 billion. In the year ago quarter, the company reported earnings of 98 cents per share on revenue of $1.98 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. Monsanto has been named "2009 Company of the Year" by Forbes Magazine. In its fiscal 2009 Monsanto sold $7.3 billion of seeds and seed genes, versus $4 billion for second-place DuPont ( NYSE: DD) and its Pioneer Hi-Bred unit. Monsanto netted $2.1 billion on revenue of $11.7 billion for fiscal 2009 (ended Aug. 31). Its sales have increased at an annualized 18% clip over five years; its annualized return on capital in the period has been 12%.

Early in October, the company reported that its fourth quarter net loss widened to $233 million, or $0.43 per share, from $172 million, or $0.31 per share, in the prior year quarter. Revenue dropped to $1.88 billion from $2.05 billion in the previous-year quarter. Analysts, on average, expected the company to report earnings of $0.01 per share on revenue of $1.97 billion.

In December, agricultural products giant reaffirmed its forecast of a "small ongoing loss" in the first quarter and reaffirmed its fiscal year 2010 ongoing earnings per share outlook range. The company said it continues to expect ongoing earnings per share for the first quarter in a range of a loss of $0.05 or less, and reported earnings in a range of loss of $0.07 per share or less. The St. Louis, Missouri-based company projects free cash flow for the first quarter of $1.8 billion, primarily reflecting the year-over-year decrease in the glyphosate business.

For fiscal year 2010, Monsanto reaffirmed its outlook for ongoing earnings per share range of $3.10-$3.30, and reported earnings outlook range of $2.85-$3.11 per share. Analysts expect the company to report earnings of $3.29 per share for the year. The company also reiterated its outlook for free cash flow for the full year in a range of $900 million-$1 billion, including the after-tax cash effect from a restructuring of about $250 million. The company continues to expect net cash provided by operating activities for the year between $2 billion and $2.2 billion, and net cash required by investing activities to be about $1.1 billion to $1.2 billion.

The company is quite confident about its ability to attain its financial targets in 2012. Monsanto is focusing on three key elements that it expects will enable it to double its 2007 gross profit in 2012. The key elements are the launches and rapid penetration of Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybean products as well as rapid trait penetration in Brazil and Argentina. It plans to lower costs by as much as $250 million annually, with about one-third of that range realized in 2010. The full benefit of the savings is expected to be realized beginning in fiscal year 2011.

According to Monsanto, seeds and traits, targeted to account for 85% of the company's business in 2012, is expected to cross the $5 billion gross profit mark for the first time in 2010 by creating new value for growers and increasing their profitability on farm. Gross profit for corn is projected to be in the range of $3.1 billion to $3.2 billion. For soybeans, gross profit is expected to increase to about $950 million, driven in part by the full commercial launch of Genuity Roundup Ready 2 Yield and greater penetration of first-generation Roundup Ready in Brazil. Cotton, which experienced a better than expected gross profit result in 2009, is forecast to increase to about $375 million gross profit in 2010 with the launch of new varieties and penetration of second-generation Bollgard in India. Vegetable gross profit is estimated to increase to about $525 million.

In November, Monsanto said that it intends to accelerate the launches of its Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybean products. The company expects to launch Genuity SmartStax with initial commercial opportunity of more than 4 million acres in 2010. Monsanto expects an unconstrained supply by 2012, so as to enable the company to meet market demand a year earlier than originally anticipated. Monsanto also expects a more rapid conversion to the Genuity Roundup Ready 2 Yield soybean platform. The company had recently increased the launch-year expectation of the soybean platform for 2010 to 8 million to 10 million acres.

Looking beyond 2012, Monsanto estimates that its R&D pipeline can deliver more than $8 billion in gross sales at the farmgate through biotechnology and breeding in 2020, with upside opportunity through product and geographic expansions.

The company 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 increased competition and price pressure. Monsanto officials said future gross profits from the Roundup herbicide business would drop by half to about $1 billion annually by 2012 from $2 billion in 2009 as the company grapples with increased competition in the sector. Roundup, once flagship of Monsanto's agricultural chemicals business, in the future should amount to less than 15 percent of the company's total gross profit.

The agribusiness company declared a dividend of 26.5 cents per share during fiscal first quarter.

In terms of stock performance, Monsanto shares have gained nearly 11% over the past one year.

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