Monsanto Profit Falls on ‘Unforeseen Level of Challenges’ in 2016

Monsanto’s third-quarter profit fell sharply from a year ago, hurt by lower corn and soybean seed and crop protection sales. The company also continues to explore merger possibilities, but has no formal update on its talks with Bayer.

The company posted net income of $717 million, down from $1.14 billion a year ago, on net sales of $4.2 billion, compared with $4.6 billion a year ago.

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“Our long-term optimism within agriculture and our business remains,” said Hugh Grant, chairman and chief executive officer. “Our industry is running at a low point in the overall agriculture cycle and we’ve experienced an unforeseen level of challenges affecting our business in fiscal year 2016. Today, however, we anticipate positive resolution on the horizon for several of these challenges, coupled with early signs of recovery in agriculture. With the strategic changes we’ve made to our business, we’re well positioned to further strengthen our leadership role in the agricultural space through financial discipline and steadfast commitment to serving growers with new innovation.”

“While there is no formal update on the Bayer proposal, I have been personally in discussions with Bayer’s management over the last several weeks, along with others regarding alternative strategic options,” added Grant. “We continue to recognize the potential value these types of combinations can create as they accelerate innovation and increase choice for farmers across a broader set of crops, geographies and production practices, while improving the sustainability of agriculture around the world. That is why we remain open and will continue to actively engage in constructive dialogue to pursue value enhancing strategic options.”

The company’s fiscal year 2016 third quarter earnings per share on an as-reported basis was $1.63. EPS on an ongoing basis was $2.17, which excludes 54 cents for restructuring charges, environmental and litigation matters and a net charge of $219 million for tax matters related to the Argentina business. EPS performance for the quarter versus the prior year period was negatively affected by the absence of the Scott’s licensing agreement, glyphosate pricing declines, Roundup Ready 2 Xtend launch delay costs and lower soybean volume due to the delay, and India cotton pricing regulations. These factors were partly offset by the positive impact of share repurchases and increased row crop licensing gross profit.

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Fiscal Year 2016 Outlook

The company has resolved, or is seeing signs of positive resolution, for several of the headwinds it has been tracking. This includes the expected 18-month extension of the existing authorization for glyphosate use by the E.U. Commission and the anticipated near-term receipt of the E.U. approval for the Roundup Ready 2 Xtend stacked trait, as well as Argentina’s recently announced interim policy that supports mandatory testing as well as its intention to seek a long-term solution that will support investment.

Despite this, the fiscal year 2016 full-year as-reported EPS guidance range has been adjusted to reflect the Argentina-related tax matters and a favorable change in the expected amount and timing of restructuring expense, and is now expected to be at the low end of the $3.36 to $4.14 adjusted range.

The company also expects to be at the low end of its ongoing EPS full-year guidance range of $4.40 to $5.10. Monsanto’s as-reported and ongoing guidance incorporates the anticipated continuation of several global and industry headwinds, including approximately $0.85 expected related to currency.

Looking ahead to fiscal year 2017, assuming relatively stable currencies, the company expects a return to growth in EPS. Monsanto’s core business is expected to continue to drive the near-term growth opportunity, including the expected continued rapid adoption of the company’s latest soybean technologies, the durability of its global corn platform, continued financial discipline and an improved cost of goods outlook for corn and soybeans. From a year-over-year perspective, growth in fiscal year 2017 is expected to be partially offset by declines in glyphosate pricing, particularly in the first half of fiscal year 2017, by a lower level of non-core licensing deals, as well as by a slight increase in spend with inflation and expected increases in commissions and incentives. The company also expects a more normalized effective tax rate for the coming fiscal year.

Beyond fiscal year 2017, the opportunity is expected to accelerate with streamlined operations and portfolio advantages anticipated to drive Monsanto’s multilayered growth into 2021. This includes an expected target of mid-teens compounded annual EPS growth rate from the end of fiscal year 2017 to fiscal year 2021.

Source: Monsanto

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