Monsanto Conference Call Highlights

Monsanto

reported its second quarter earnings on April 2, 2014. Shares of the company are up 0.76 percent or $0.86 per share to $114.42. Below are some key takeaways from its conference call: Hugh Grant, Chairman and Chief Executive Officer: • Almost 80% of our gross profit growth in the quarter comes directly from Seeds, and in particular Corn and Soybeans. That's key is it means our Seeds & Traits business is delivering in the major areas and across the milestones that are critical to our success this year. • That in turn means that we're in good position to deliver growth today while also building the platforms that access the important longer-term opportunities in agriculture. So we're on track. We see real opportunity in the demand trends and we're focused on delivering. • Number one, despite the greater variability you see across the Ag sector this year, today we've confirmed our full-year guidance shown on Slide 5. This is a year where everyone in agriculture recognizes the market realities of softer commodity prices, more volatile global currencies, and some decrease in Corn acres in key markets like the Americas. • Next, the second quarter is actually the key proof point that in a softer commodity environment Monsanto is growing our core Seeds & Traits business. Almost 80% of our gross profit growth in the quarter comes directly from Seeds, and in particular Corn and Soybeans. • Third, that growth delivery is a direct function of the diversity that we have in a broader global portfolio. And within this balanced portfolio we have a strong line of sight that reinforces our confidence in both the strong second half and the punctuation on this year's total growth. • And that brings me to my final point. There's no doubt that the Ag environment has been more variable this year than it has been over the past several and while there's still a lot to play out I'm pleased that we've been able to demonstrate that our Seeds & Traits business can grow against that backdrop. Brett Begemann, President and Chief Operating Officer: • Come the end of the year we said that our Seeds & Traits business would return as the biggest driver of our growth. Within that, I said our focus would be on margins and specifically that we anticipated seeing significant margin expansion. • In the quarter the proof point is the margin expansion I mentioned. Corn margins are up approximately 2.5 points and a portion of that is the global mix benefit comes from our portfolio upgrade. • As we move to the northern hemisphere, despite the obvious turmoil in the Ukraine, one of the most significant opportunities this year comes from the broader Eastern European market. • Today, this is more than a 30 million acre market and one where we've effectively doubled our footprint in the last several years. • Relative to the Ukraine, we see the same factors as others in the industry. There's been some disruptions tied to the political unrest but we've been working through that and feel good about the full-year contribution to growth. • There's real power in this significant steady engine across our business that translates to an expected greater than $1 billion of net sales growth over the next five years just from this Corn germplasm upgrade. Pierre Courduroux, Chief Financial Officer: • Relative to our initial planning I'd estimate the full year headwind is largely driven by currency and would be in the order of $0.15 to $0.20 in total. • Second, the strength of those business drivers actually creates a very clear line of sight to a strong second half of the year. • And finally, if I move beyond the P&L, we continue to make progress on our initiative to be more aggressive in our cash deployment. • A key part in that evolution is that after a couple years of effectively returning our total free cash flow shareowners, we are on track for fiscal year 2014 to use our balance sheet and return more that are generated free cash for the first time in our recent history. • The biggest driver of that is clearly the Soybean business where Q2 margins were up by more than 7 points as we see the pronounced benefits from our Intacta launch in Latin America. • Taking all of those in consideration, we have already delivered a double-digit increase in ongoing EBITDA for this quarter and we expect to reach our mid to high teens EBITDA by the end of Q4. Guidance: • For the full-year we've reconfirmed our guidance for fiscal year 2014 ongoing EPS in the range of $5 to $5.20 an ongoing EBITDA growth in the mid to high teens. • That outlook incorporates the reality that there are more headwinds across the Ag industry this year, largely driven by currency effects which create an estimated $0.15 to $0.20 full year EPS headwind relative to our projections and that are built into our guidance. • With our strong Seeds & Traits performance in Q2 we also anticipate a strong conclusion to the year with a significantly smaller loss in Q4 to punctuate the year and a Q3 that we expect to be somewhat lower than last year. • Hugh Grant: We're not immune to these trends and Pierre will quantify some of those macro headwinds in our outlook, but it's important that even in a year with such prominent headwinds, Monsanto has the right portfolio to deliver expected strong growth for yet another year. • Brett D. Begemann: With shipments underway we're on track for the 5% to 10% mix lift in our global Corn Seed portfolio. This year we'd expect to be towards the lower end of that range as we factor in the global headwinds like currency.