Brazil, Argentina Drive Monsanto Results in FY4Q11
[Quarterly results were much better than analysts’ expectations, fueling a +5% share-price move today. (Note that the fiscal 4th quarter ending Aug31 is MON’s weakest seasonal quarter and always shows an operating loss.) In FY4Q11, sales were up sharply year-over-year due to increased penetration of MON’s latest-generation biotech traits in Brazil and Argentina. For FY2012 (ending 8/31/12), MON issued GAAP and non-GAAP EPS guidance of $3.34-3.44; this represents 13-16% growth relative to the FY2011 non-GAAP EPS of $2.96, which is in-line with MON’s long-term guidance of “mid teens” annual EPS growth.
I consider MON a core biotech holding and one of the premiere beneficiaries of The Global Demographic Tailwind of any company in any industry (#msg-65201601).]
• Cash flow, earnings per share and gross profit above estimates as new corn, soybean platforms lead U.S. improvement; Latin America helps drive 2012 guidance for EPS of $3.34 to $3.44
• Company to restate financial results for 2009, 2010, and prior 2011 quarters to reflect timing of accruals for customer incentives in glyphosate business
• Total revenues and costs over the three fiscal years as a whole remain unchanged
• Full-year 2011 EPS benefits by $0.05
Monsanto Company (NYSE:MON) generated fiscal fourth quarter and full-year results above guidance, executives said today, noting the company is well-positioned to realize its mid-teens earnings growth opportunity off its higher base next year. Executives said the company gained improvement in its core U.S. business on the strength of new corn and soybean products and captured global growth opportunities, most notably in Latin America, that have reignited momentum for future growth.
Comment from Monsanto Chairman, President and Chief Executive Officer Hugh Grant:
"As we bring this year to a very successful close and look at what's to come, it's clear that we have turned a corner and returned to growth mode. We made a conscious effort to reconnect with our customers, and from that earned significant sales growth for seeds and traits and created positive momentum we carry into 2012. Through the combination of advanced product platforms, a more balanced business and increasingly global opportunities, I believe we have the essential elements in place to achieve mid-teens growth in fiscal year 2012."
Results of Operations
Monsanto reported net sales of $2.2 billion for the fourth quarter of fiscal year 2011. Net sales for the fiscal year were $11.8 billion.
Seeds and Genomics net sales were $1.4 billion for the quarter, a 39 percent increase over the prior year. For the year, sales for the Seeds and Genomics segment reached $8.6 billion, a 13 percent increase over the prior year driven by strong global growth in corn and cotton. Latin America continues to be a significant driver for the Seeds and Genomics segment, demonstrating momentum and continued growth potential.
Agricultural Productivity net sales were $896 million for the quarter, in line with the company's expectations. Net sales for the Agricultural Productivity segment for the year grew to $3.2 billion.
Monsanto reported a net loss of $112 million in the fourth quarter of fiscal year 2011. Net income for fiscal year 2011 was $1.6 billion.
The company's fiscal year 2011 earnings per share (EPS) were $2.96 on an ongoing basis and an as-reported basis. For the fourth quarter, the company reported a loss per share of $(0.22) on an ongoing basis and $(0.21) on an as-reported basis. As-reported EPS results for the fourth quarter and fiscal year 2011 reflect the effects of restructuring and discontinued operations.
Financial Reporting Update
The company provided an update on the previously announced SEC investigation into the financial reporting of its customer incentive programs related to glyphosate products in fiscal years 2009 and 2010. The Company continues to cooperate with the SEC.
Following the SEC notification, Monsanto began its own review and the Audit and Finance Committee of its Board of Directors retained independent advisors to conduct an internal investigation. Based on the results of that work, Monsanto will adjust portions of its financial statements related to the timing of the accounting for customer incentive programs for glyphosate products from the fourth quarter of fiscal year 2009 through the third quarter of fiscal year 2011, and correct its previously issued financial statements for this period to reflect these adjustments. Total company revenues and costs for these fiscal years, taken as a whole, are unchanged, but the timing of those amounts will change. The potential impact of these changes would affect fiscal year 2009 earnings per share by approximately ($0.10) to ($0.05) and affect earnings per share for fiscal year 2010 by approximately ($0.02) to $0.03. The fiscal year 2011 earnings per share of $2.96 includes $0.05 of incremental benefit from the accounting adjustment.
The adjustments do not affect any financial information for the Seeds and Genomics segment, and the fiscal year 2011 financial information reported today includes all adjustments Monsanto is making to that full fiscal year. As a result of the adjustments to prior financial statements, the company is not providing comparisons with prior financial periods in this earnings release, except for the Seeds and Genomics segment. All adjustments will be reflected in Monsanto's Form 10-K filing later this month.
Cash Flow
For fiscal year 2011, net cash provided by operating activities was $2.8 billion. Net cash required by investing activities was $975 million in fiscal year 2011. Net cash required by financing activities was $864 million for fiscal year 2011. As a result, free cash flow was a source of $1.8 billion for fiscal year 2011. (For a reconciliation of free cash flow, see note 1.)
Outlook
In fiscal year 2012, Monsanto expects to achieve mid teens earnings growth off the 2011 EPS base for a range of $3.34 to $3.44 EPS. (For a reconciliation of 2012 EPS guidance, see note 1.) The company noted that as the business in Latin America continues to ascend, it views 2012 as the first year of some structural changes to its historical earnings pattern. The first quarter, still a small quarter, is expected to see more contribution from the growth in Brazil and Argentina that would yield first-quarter ongoing and as-reported earnings per share in the range of $0.10 to $0.15 per share.
The Seeds and Genomics segment, which saw significant gross profit increase in 2011 and represents the growth area for Monsanto's business in fiscal year 2012 and beyond, is expected to deliver both single digit percentage unit volume growth and continued mix improvement. The company expects Seeds and Genomics gross profit in the range of $5.7 billion to $5.85 billion for the year, with unit volume growth complemented by mix from both germplasm and trait upgrades globally.
Gross profit for the Agricultural Productivity segment is expected at roughly $800 million.
The company projects free cash flow in the range of $1.3 billion to $1.5 billion for fiscal year 2012. The company expects net cash provided by operating activities to be $2.2 billion to $2.5 billion, and net cash required by investing activities to be approximately $900 million to $1 billion for fiscal year 2012. (For a reconciliation of free cash flow, see note 1.)
In fiscal 2012, the company expects selling, general and administrative expenses to be in the range of $2.25 billion to $2.35 billion, reflecting inflationary level increases. On a percent of sales basis, the company has reduced its SG&A spend rate over the past several years, and the 2012 range maintains that trend. The company's research and development spend is projected at $1.4 billion to $1.45 billion.
The Seeds and Genomics segment consists of the company's global seeds and related traits business.
It was a significant quarter for the segment, with sales of $1.4 billion representing an increase of 39 percent over the same period last year. This growth was led by a strong contribution from Latin America and gross profit increases in each of the company's core crops -- corn, cotton and soybeans as well as vegetables -- at a global level. For the year, segment sales reached $8.6 billion, reflecting a 13 percent increase over the prior year.
Corn led the segment for the year, driven by growth in South America, with additional improvements in the United States and Europe. In the United States, branded corn volume grew by the largest increment in three years and outpaced the market expansion. The company earned a 10-million acre increase to reach 13 million planted U.S. acres for its Genuity® Reduced Refuge Family, which includes Genuity® SmartStax®, Genuity® VT Triple PRO® and Genuity® VT Double PRO®. In 2012, the company has a goal to earn 22 million to 24 million acres for the Reduced Refuge Family. For Genuity® SmartStax®, the company will offer more than 100 hybrids across all channels in 2012, when all of Monsanto's branded SmartStax® will be sold as RIB Complete. SmartStax is the industry's only 5 percent single-bag refuge-in-the-bag product offering above ground and below ground protection. The company also sees expansion opportunities for Genuity® VT Triple PRO® and Genuity® VT Double PRO®, which will shift from trial levels to broad availability in major geographies for 2012. Following regulatory approval, the company also expects Genuity® VT Double PRO® volume to move to RIB Complete™ as well.
In 2012, the company views Latin America as the largest source of new growth complementing the U.S. business, driven by the ramp up of the corn opportunity in Brazil and Argentina. In Argentina, the company expects total corn acres to expand to the high end of the historical acre base and looks to accelerate the conversion of double-stacks to Genuity® Triple PRO®, which brings new insect protection and value to farmers. In Brazil, Monsanto is already the industry leader and looks forward to ramping up overall trait penetration and upgrade from first-generation products to higher-value second-generation traits.
Cotton revenue also increased as a function of increased acres in Australia and the United States. The company saw a resurgence in its Deltapine brand in the United States as breeding improvements help earn the farmer's business, resulting in volume and share improvements.
In soybeans, the company earned a total of 17 million U.S. acres for its Genuity® Roundup Ready 2 Yield® product in 2011, a 10-million-acre step up over the prior year. The company expects Roundup Ready 2 Yield® to reach more than 27 million to 30 million acres in 2012 and serve as the leading product in Monsanto's brands.
The Agricultural Productivity segment consists of the crop protection products and lawn-and-garden herbicide products. Segment sales for the quarter reached $896 million, with gross profit of $181 million. For the year, the segment delivered net sales of $3.2 billion with gross profit of $773 million.
Webcast Information
In conjunction with this announcement, Monsanto will hold a conference call at 8:30 a.m. central time (9:30 a.m. eastern time) today. The call will focus on these results and future expectations and may include a discussion of Monsanto's strategic initiatives, product performance and other matters related to the company's business. Presentation slides and a simultaneous audio webcast of the conference call may be accessed by visiting the company's web site at www.monsanto.com and clicking on "Investor Information." Visitors may need to download Windows Media Player™ prior to listening to the webcast. Following the live broadcast, a replay of the webcast will be available on the Monsanto Web site for three weeks.‹
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