Monsanto Crop Protection Sales Dip; Sees More ‘Pricing Headwinds’ in FY2017
5 October 2016 Monsanto reported a smaller net loss in the fourth quarter compared with a year ago, on net sales of $2.6 billion, up from $2.4 billion a year ago. The company said its Intacta RR2 PRO and Climate FieldView platform experienced rapid growth during the fiscal year while the U.S. delivered record corn volume, despite a challenging agriculture environment.
Agricultural Productivity, or crop protection, sales totaled $997 million for the quarter, down from $1.1 billion, primarily due to lower pricing for glyphosate-based herbicides and lower volumes. Seeds and Genomics segment net sales were $1.6 billion, up from $1.3 billion a year ago.
“Looking forward to fiscal year 2017, the company plans to maintain its emphasis on cost discipline and a focus on the construction of its new dicamba facility, as well as its strategy to price slightly above generics. This is expected to create another year of pricing headwinds. In addition, the company expects a $140 million benefit from strategic licensing agreements in gross profit for this segment, pending final transaction structures,” Monsanto said in a statement.
Monsanto reported a net loss of $191 million in the fourth quarter of fiscal year 2016, or a 44 cent-per-share loss, including environmental and litigation matters, restructuring expenses and Argentine-related tax matters. That compared with a net loss of $495 million, or a loss of $1.06 per share in the same period last year. On an ongoing basis, it reported earnings of 7 cents per share, driven by the $157 million gain from the formation of the sorghum joint venture with Remington, a strong start in South America and lower seed returns in the U.S.
The company’s fiscal year 2016 EPS on an as-reported basis was $2.99, reflecting costs associated with restructuring actions, Argentine-related tax matters, environmental and litigation matters and income from discontinued operations. On an ongoing basis, this translated to $4.48.
Outlook
The company noted that its continued focus on return on innovation and cost discipline in 2016 sets up a strong base for growth in 2017, where it expects strong cash flows and growth in EPS. Anticipated gross profit growth in the Seeds and Genomics segment is expected to be driven by increased penetration of soybean technologies and improved soybean costs of goods sold.
For fiscal year 2017, Monsanto expects to achieve EPS of $3.83 to $4.35 on an as-reported basis. This includes an estimated $0.20 to $0.24 in anticipated restructuring charges, $0.10 to $0.13 in Argentine-related tax matters and $0.27 to $0.34 in proposed Bayer transaction related costs. On an ongoing basis, this translates into an EPS estimate of $4.50 to $4.90. These estimates assume currencies are relatively stable year-over-year. (For a reconciliation of as-reported to ongoing EPS, see note 1.)
The company expects net cash provided by operating activities to be $2.4 billion to $2.8 billion, and net cash required by investing activities to be approximately $1.0 billion to $1.2 billion, assuming the successful sale of the Precision Planting equipment business and a meaningful first year investment in its dicamba production facility. All together, this translates into expected free cash flow of $1.4 to $1.6 billion. (For a reconciliation of free cash flow, see note 1.)
In fiscal year 2017, consistent with its priorities for the year, Monsanto remains focused on the following key areas:
- Growth from Core Seeds and Genomics Segment: The company expects Seeds and Genomics segment gross profit to increase in the mid-single digits as a percent year-over-year, with soybean gross profit alone expected to grow by more than 20 percent. This is expected to be primarily driven by increases in Intacta RR2 PRO and Roundup Ready 2 Xtend soybean penetration and related trait fees, and an anticipated significant reduction in the cost of goods sold related to the launch of Roundup Ready 2 Xtend soybeans. Growth in corn is expected to come from global genetic share gains and germplasm mix lift in local currency. Finally, strategic licensing opportunities are expected to provide an overall contribution of approximately $200 million in 2017, with roughly $60 million assumed in this segment’s gross profit and in the latter half of the fiscal year.
- Strategic Management of Agricultural Productivity Segment: The company expects the Agricultural Productivity segment to deliver $900 million to $1 billion of gross profit, as it remains consistent with its strategy to price slightly above generics. The company also plans to maintain its emphasis on cost discipline and a focus on the construction of the new dicamba facility.
- Business Transformation and Strategic Spend Discipline: The company’s restructuring and cost-savings plans are on-track, with an opportunity to deliver approximately $380 million in annual savings in operating expenses and cost of goods sold at the close of 2017. However, overall operating expenses in 2017 are expected to increase slightly with inflation and the costs associated with the return to growth. This is expected to more than offset the savings from restructuring and cost-savings plans.
- Combination with Bayer: The company reiterated confidence in the timelines to close the deal with Bayer by the end of calendar year 2017.
“We are entering a new era in agriculture, where growers are demanding new solutions and technologies to be more profitable and more sustainable,” CEO Hugh Grant said. “We believe that combining with Bayer secures our shared vision to provide a wide set of solutions to meet these demands and feed a growing world.”
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