Monsanto Announces Financial Results, Future Position as a Mid-Teens Growth Company

Net sales decreased $145 million, or 4 percent, in the three-month comparison primarily as a result of lower prices for the company's glyphosate-based herbicides.

8 Apr 2010 --- Looking at its second quarter results and competitive dynamics in the marketplace, Monsanto Company said it expects to emerge from 2010 in a position to generate annual earnings growth percentages in the mid-teens. As part of its earnings results for the quarter ending Feb. 28, 2010, the company discussed performance against projections in both the seeds and traits and agricultural productivity segments during a year of intense competitive pressure for both sides of the business. While recommitting to full-year financial guidance for free cash flow and earnings per share at the low end of its previously stated range, the company acknowledged its goal of doubling 2007 gross profit by 2012 is unlikely.

"Over the course of a five-year operational plan, the landscape can change," said Hugh Grant, chairman, president and chief executive officer for Monsanto.  "While there may be options to make an accelerated push for 2012, it's clear to me that achieving that objective would involve making short-term choices that are not in the long-range interests of the business. Still, nothing has changed in my fundamental view of the business. We have the best products, we have a commercial and technology lead and we have the experience to apply the lessons of 2010. Given that, I am confident that we're a growth company going forward."

Results of Operations

Net sales decreased $145 million, or 4 percent, in the three-month comparison primarily as a result of lower prices for the company's glyphosate-based herbicides.  These price decreases were central to the company's strategy of increasing global volume, which increased in several regions including Brazil, Argentina, Asia, and the United States.  Net income in the second quarter was $887 million.

Gross profit declined 17 percent in the quarter to $2.1 billion, also driven by the price decreases for Roundup and other glyphosate-based herbicides.  For the first six months, gross profit is down 30 percent or $1.2 billion.

Operating expenses decreased 13 percent, or $128 million, in the second quarter 2010 compared to the prior year. In the three-month comparison, selling, general and administrative (SG&A) expenses decreased 2 percent.  R&D expenses increased 5 percent as the company continues to manage more projects in advanced pipeline phases.  As a percent of net sales, SG&A expenses were 13 percent and R&D expenses were 7 percent. 

Restructuring expense for the quarter was $84 million.  This included $54 million charged to U.S. corn cost-of-goods sold, as the result of a decision to exit some product lines in the U.S. branded corn business to streamline product SKUs across multiple brands.

Earnings per share (EPS) for the second quarter was $1.60 on an as-reported basis, and $1.70 on an ongoing basis. EPS for the first six months of fiscal year 2010 was $1.57 on an as-reported basis, and $1.68 on an ongoing basis.

Cash Flow

The second quarter was a significant source of cash generation, which began to offset the use of cash from the first quarter.  For the first half of fiscal year 2010, cash flow from operations was a source of $256 million compared to $1.5 billion in the first half last year. Net cash required by investing activities for the first half of fiscal year 2010 was $345 million, a decrease from $359 million for the same period of fiscal year 2009.

Net cash required by financing activities for the first half of 2010 was $259 million, compared to net cash required of $601 million for the same period of fiscal year 2009.

Free cash flow was a use of $89 million for the first half of fiscal year 2010, compared to a source of $1.1 billion for the first half of fiscal year 2009.

The Seeds and Genomics segment consists of the company's global seeds and related traits business, and biotechnology platforms.

The company said it has made solid progress on this year's main objectives for the segment:  expanding trait penetration in Latin America and establishing Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybeans in their launch years.  With strong trait expansion achieved in Brazil and Argentina earlier this year, the company said this year's unprecedented product launches have it well-positioned in corn and soybeans.

While total returns are not final, the company said it expects total acreage to reach approximately 3 million acres for Genuity SmartStax corn and 6 million acres for Genuity Roundup Ready 2 Yield soybeans.  More promising, the company said, are the broad trials in both crops.  More than 40 percent of the company's branded customers are trying Genuity Roundup Ready 2 Yield and more than 20 percent of the company's branded customers are trying Genuity SmartStax.

Cotton and vegetables are tracking well with expectations and may potentially boost overall seeds and traits gross profit contributions for the year.

In total, sales for Monsanto's Seeds and Genomics segment in the second quarter of fiscal 2010 increased 7 percent.  Corn seed and traits net sales increased 8 percent or $169 million due in large part to higher branded sales in Brazil, the United States and Argentina in the quarter.  Soybean sales were up by 3 percent or $18 million, driven by an increase in planted acres in Brazil, in the three-month period. 

The vegetable business continued to perform well as a result of improved product availability, with sales growing $14 million or 7 percent for the quarter.

The Agricultural Productivity segment consists of the crop protection products and lawn-and-garden herbicide products.

Sales in the second quarter of fiscal 2010 for Monsanto's Agricultural Productivity segment declined 35 percent or $351 million compared with the same period last year.  Gross profit was break-even primarily because of the persistence of generic inventory in key markets paired with the use of sales incentives to address the competitive pricing environment.  Globally, most branded prices were in the targeted $10 to $12 range. 

Acknowledging some key trends that deviated from the core planning assumptions for Roundup and other glyphosate-based herbicides – including the continued presence of generic inventory and competitive pricing strategies – the company said it now sees gross profit for the segment at plus-or-minus $600 million for the year.