Monsanto First-Quarter Profit Up on South America Strength

Monsanto Co. reported higher earnings in the first quarter than the prior year on strong demand from its South American business.

Net income was $29 million in the first quarter, reversing a $253 million loss in the year-ago period. Total crop protection, or Agricultural Productivity, sales dropped to $802 million from $820 million in the prior-year quarter. Seeds and Genomics sales were stronger, climbing to $1.8 billion from $1.4 billion.

“We’ve been very pleased with the strong support — especially from shareowners and growers — for the agreement to combine with Bayer,” said Hugh Grant, chairman and chief executive officer. “We expect the combination with Bayer to amplify the rate of innovation faster than either company could achieve alone, which will be critical in helping to increase grower productivity to meet projected demand in the decades ahead.”

With the expected strong start in the first quarter and continued focus on return on innovation and financial discipline, the company remains confident in its fiscal year 2017 outlook. Despite the fact that the year-over-year change in currency rates was modestly favorable in the first quarter of fiscal year 2017, the company continues to assume that the change in rates will have a relatively neutral effect on a full year basis given the recent strengthening of the U.S. dollar against several currencies.

The fiscal year 2017 full-year as-reported EPS guidance is expected to be in the range of $3.97 to $4.45. These earnings are expected to translate into $2.4-to-$2.8 billion of operating cash flows and $1.4-to-$1.6 billion of free cash flows, after deducting an estimated $1.0-to-$1.2 billion of investing cash flows. These investing cash flows reflect the planned investment in the company’s dicamba manufacturing facility and assume the successful sale of the precision agriculture equipment business.

The company expects roughly $100 million of gross profit from strategic licensing deals towards the end of the fiscal year which is anticipated to be roughly split between Seeds and Genomics and Ag Productivity. Seeds and Genomics segment gross profit is expected to increase to mid-single digits as a percent year-over-year, with soybean gross profit alone expected to grow by more than 20 percent, driven by new trait penetration and an anticipated reduction in cost of goods sold. In corn, growth is expected to come from global genetic share gains and global germplasm price mix lift in local currency that is flat to up low-single-digits, in terms of percentages. The company expects global corn acres to be roughly flat, with declines in U.S. corn acreage offset by the early increases in South America.

The company adjusted Ag Productivity gross profit to the expected range of $850-to-$950 million, reflecting year-over-year price declines in glyphosate-based herbicides in the first half of the year, offset partially by the benefit of licensing opportunities and expected higher volumes. The adjustment in gross profit outlook is a result of the approximately $85 million benefit from the sale of the Latitude wheat fungicide business that was ultimately recorded in other expense, net for the segment, as opposed to gross profit as anticipated.

The company’s restructuring and cost savings initiatives remain on track, with the opportunity to deliver approximately $380 million in annual savings at the close of fiscal 2017 in operating expenses and cost of good sold, as compared to fiscal year 2015. However, setting aside pending Bayer transaction related costs and restructuring expenses, overall operating expenses in fiscal 2017 are expected to increase slightly with inflation and the costs associated with the return to growth of the business more than offsetting the savings. The expected tax rate for the year remains in the range of 25-to-28 percent.

For the second quarter of fiscal year 2017, the company expects as-reported and ongoing earnings per share that is approximately $0.20 to $0.50 better than the prior year. The company sees this first half earnings improvement as a reflection of the benefit from the sale of the Latitude business and the absence of a significant portion of the Argentine peso devaluation from the prior year. In the second half of the fiscal year, the company expects roughly 40 cents less in earnings per share benefit from strategic deals versus the prior year in addition to a more challenging currency environment than in the first quarter.

The company’s higher Seeds and Genomics sales in the first quarter included a 25-plus percent increase in planted corn acres in Argentina and more than a 10 percent increase in corn acres planted in Brazil accompanied by double-digit price increases in corn germplasm in local currency in both countries. In the U.S., demand for year-one hybrids remains strong and the early read on the order book supports the company’s intention to grow genetic share.

The company continues to build on the momentum of Intacta RR2 PRO soybeans in South America as it remains on track to reach a target of 45 to 55 million acres in fiscal year 2017. In the U.S., demand for Roundup Ready 2 Xtendsoybeans remains strong and the company is well-supplied for more than 15 million acres of the product. With the EPA approval for in-crop use of dicamba in-hand, the company has received nearly two-thirds of the necessary state approvals for both soybeans and cotton, and expects to have the rest before planting. The company said it has provided extensive, ongoing customer training and expects customers will have an outstanding experience with the Roundup Ready® Xtend crop system.

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