Monsanto Beats on Q3 Earnings, Misses on Revenues - Analyst Blog

Monsanto Company MON reported disappointing results for the third quarter of fiscal 2014 (ended May 31, 2014). The company recorded earnings per share from continuing operations of $1.62, beating the Zacks Consensus Estimate of $1.55 by 4.5%. However, reported earnings were below the year-ago figure of $1.66 per share.

Revenues: Third-quarter revenues of $4.250.0 million fell short of the Zacks Consensus Estimate of $4,368.0 million. However, revenues were roughly flat year over year.

On a segmental basis, revenues from Seeds and Genomics edged down 0.5% year over year to $3.0 billion. Revenues from Agricultural Productivity increased 1.3% year over year to $1.2 billion.

Cost & Margins: Monsanto's gross profit margin was 55% compared with 53% recorded in the prior-year quarter. Operating expenses were recorded at $1,082.0 million, higher than $1,024.0 million in the year-ago quarter.

Selling, general and administrative, and research and development expenses, as a percentage of net sales, were recorded at 15.0% and 10.0%, respectively.

Balance Sheet/Cash Flow: Exiting fiscal third-quarter 2014, Monsanto's cash and cash equivalents were approximately $1.9 billion compared with $3.8 billion at the end of fiscal second-quarter 2014. Long-term debt was roughly flat with the prior quarter at $3.0 billion.

In the nine months ending May 2014, cash flow from operations was $371.0 million, down considerably from $786.0 million in the year-ago quarter. Total capital spending was roughly $688.0 million as against $459.0 million spent in the nine months ended May 2013.

With approximately $1.1 billion remaining in the company's current share repurchase program, the company announced a new two-year $10 billion share repurchase authorization. This includes the authorization for an accelerated share repurchase program worth $6 billion.

Outlook: Seeds and Genomics segment sales are expected to grow in the coming quarter, leading to a rise in margins as well as earnings. Moreover, the company intends to benefit from its Climate acquisition. Based on this, management anticipates earnings per share for fiscal 2014 toward the higher end of the $5.10 to $5.20 range. On an as-reported basis, the company expects to earn $5.12 to $5.22 per share, up from the previous range of $5.02–$5.22.  However, the company continues to foresee headwinds of 15 to 20 cents from foreign currency impacts.

Management also raised its free cash flow expectation to the range of $700.0 million to $800.0 million from the earlier projection of $600.0 million to $800.0 million. Cash flow from operating activities is anticipated in the range of $2.9 billion to $3.3 billion. Moreover, cash required for investing activities are expected to be within $2.2 billion and $2.5 billion. 

Additionally, the company intends to double its ongoing earnings per share by fiscal 2019, driven by growth in the corn seeds and traits business. Monsanto also plans to realign its net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio to 1.5 by the end of fiscal 2015.

Monsanto currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Gruma S.A.B. de CV GMK, Limoneira Company LMNR and Wilmar International Limited (WLMIY). While Gruma S.A.B. sports a Zacks Rank #1 (Strong Buy), Limoneira and Wilmar International have a Zacks Rank #2 (Buy).